FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>

                                                                          For 31,years ended December 31,
(In thousands, except per share data)                                    2000           1999        Change
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------


OPERATING RESULTS:

<S>                                                                  <C>              <C>            <C>
Customer level revenue (1)........................................   $   7,677,000    $7,335,000     +  5%
Operating revenue ................................................       5,970,615     5,703,535     +  5%
Operating income .................................................         416,899       383,174     +  9%
OPERATING INCOME BEFORE NET NON-RECURRING ITEMS(3)................         416,899       468,674     - 11%
Net income .......................................................         173,827       173,563        --
PROFORMA NET INCOME BEFORE NET NON-RECURRING
 items and assuming the change in accounting
 principle is applied retroactively(2),(3)........................         184,988       219,637     - 16%
   Per share: (4)
       Diluted as reported........................................   $        0.57     $    0.55     +  4%
       PRO FORMA DILUTED BEFORE NET NON-RECURRING ITEMS AND
         assuming the change in accounting principle is applied
         retroactively(2),(3).....................................   $        0.61     $    0.70     - 13%
         Cash dividends per share ................................   $        0.38     $    0.36     +  6%

</TABLE>
<TABLE>
<CAPTION>

FINANCIAL POSITION:

<S>                                                                  <C>              <C>
Total assets .....................................................   $   3,967,668    $3,870,215
Long-term debt ...................................................       1,756,757     1,697,582
Shareholders' equity..............................................       1,161,588     1,205,716
</TABLE>
<TABLE>
<CAPTION>


SHARE PRICE RANGE :

(Traded on the New York Stock Exchange under the symbol SVM)
<S>                                                                  <C>                 <C>
High price........................................................   $       14.94       $ 22.00
Low price.........................................................   $        8.25       $ 10.13
Closing price.....................................................   $       11.50       $ 12.31
</TABLE>


(1)  Customer level revenue  represents  the combined  revenues of the Company's
     direct operations and the estimated  revenues of its various  independently
     licensed franchisees.

(2)  In 2000, the Company  changed its method of accounting for revenue from its
     termite baiting contracts.  The cumulative effect of this accounting change
     as of January 1, 2000, was $11.1 million ($18.9 million pretax). The impact
     of adopting the new accounting method compared to the previous  methodology
     was not  material in 2000.  The pro forma impact in 1999 was a reduction of
     $0.02 per diluted share.

(3)  In 1999,  the Company  realized  an  after-tax  gain of $30 million  ($50.1
     million pretax)  relating to the sales of its Premier  automotive  business
     and its remaining 15 percent interest in ServiceMaster  Energy  Management,
     and recorded a one-time  after-tax  charge of $81 million  ($135.6  million
     pretax) relating to its Diversified Health Services business.

(4)  Diluted  earnings per share are  calculated  based on 305,518 shares in
     2000 and 314,406 shares in 1999.




                                       1
<PAGE>




                      MANAGEMENT DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS
            (ALL SHARE AND PER SHARE DATA REFLECT THE THREE-FOR-TWO
                          SHARE SPLIT IN AUGUST 1998)


<PAGE>



2000 COMPARED WITH 1999

  Revenues  in 2000  exceeded  $6  billion,  an  increase  of 6%.  Revenue  from
continuing   operations,   excluding  the  impact  from  sold  or   discontinued
operations,  increased 10%. This growth reflects tuck-in acquisitions,  the full
year impact of the LandCare and American Residential Services acquisitions,  and
to a lesser extent internal growth.  Operating  income before the  non-recurring
unusual  items  recorded  in the prior  year  remained  relatively  flat at $467
million.  Operating income margins decreased to 7.7 percent of revenues from 8.2
percent in 1999. The costs related to the  WeServeHomes.com  internet initiative
reduced the growth in operating  income by three percent and accounted for about
20 basis  points of the  decrease in  operating  margins.  These costs have been
allocated to the Company's  partner,  Kleiner  Perkins,  and are included in net
minority interest income below the operating income line. The remaining 20 basis
point  decrease  in  operating   margins   primarily   reflects  the  impact  of
significantly  lower  operating  margins at TruGreen  LandCare,  the  commercial
landscape  operations.  Diluted  earnings per share before  non-recurring  items
decreased 6 percent to $.68, compared to $.72 last year. Net income on this same
basis decreased 8% to $207 million from $225 million in 1999.

 In the second  quarter of 1999,  the Company  realized an after-tax gain of $30
million  relating  to the sale of certain  non-core  businesses  and the Company
recorded a one-time  after-tax charge of $81 million relating to its Diversified
Health Services business. These items reduced net income from ongoing operations
by $51 million  ($85.5 million pre tax), as a result,  the Company  reported net
income of $174 million, with diluted earnings per share of $.55 for 1999.

  The Consumer and Commercial  Services  business unit reported  revenue of $3.7
billion,  an increase of 18 percent.  Net income  decreased  one percent to $187
million reflecting double-digit profit increases at most of the companies offset
by lower  profits  at  TruGreen  LandCare.  TruGreen  LandCare  reported  strong
double-digit  growth in revenue reflecting solid internal growth, one additional
quarter of revenue  from the LandCare  USA  acquisition  completed in March last
year, and smaller regional acquisitions. Profits, however declined significantly
due to the  slower  than  anticipated  integration  of  the  landscape  platform
initiative and higher labor and other costs.  Although  significant progress has
been made  installing  new  financial  and  management  system,  the  process of
bringing over 100 separate business units into one company has taken longer than
anticipated. This unit has experienced operational issues in five of the fifteen
regions it serves and has addressed these issues by strengthening the management
infrastructure  in these  regions.  TruGreen  ChemLawn,  the Company's lawn care
operations,  reported good revenue and profit growth, reflecting the benefits of
price increases and acquisitions,  partially offset by other volume  challenges.
Terminix  achieved solid revenue  growth and a double-digit  increase in profit,
reflecting solid increases in new termite  contracts,  strong growth in contract
renewals,  productivity improvements and strong overhead controls. American Home
Shield  reported  solid revenue and profit growth,  reflecting  strong growth in
higher  margin  customer  renewals and  direct-to-consumer  sales.  The combined
American   Residential   Services   (ARS)/Rescue   Rooter  operations   reported
significant  increases in revenues and profits,  reflecting  internal  growth in
Rescue  Rooter  and an  additional  four  months  of  operations  from  the  ARS
acquisition  (which closed in late April last year).  The integration of ARS has
continued in line with expectations and management has made significant progress
in improving the financial  condition,  controls and employee  morale at many of
the  ARS  branch  locations  that  were  performing  poorly  at the  time of the
acquisition.  Progress  continues to be made in fulfilling  the service needs of
American  Home  Shield  customers  through  ARS,  with a  threefold  increase in
completed   service   transactions   during  2000.  The  franchise   operations,
ServiceMaster Clean and Merry Maids, achieved solid revenue increases and strong
profit  growth,   reflecting  strong  growth  in  company-owned  operations  and
productivity improvements.

  The Management  Services  business unit reported revenue growth of one percent
to over $1.9  billion  and two percent  decrease  in net income to $49  million.
Included in this segment's results is a $3.5 million  (after-tax)  non-recurring
benefit from the  resolution  of a foreign  license  agreement.  The decrease in
profits reflects the loss of contracts,  costs to unwind these contracts as well
as start-up  costs from a large new  contract  with a for-profit  hospital.  The
Company also continues to invest in the Site Services outsourcing initiative and
is encouraged by its progress.

  Other  Operations  include  primarily  Employer  Services,   the  professional
employee organization;  WeServeHomes.com, the Company's internet initiative; the
Company's  headquarters  operations;  and certain non-core  businesses that have
been sold or discontinued. Net profits before non-recurring items decreased from
1999, reflecting increased interest costs and higher parent level expenses.

  On a  consolidated  basis,  costs  of  services  rendered  and  products  sold
increased 5 percent,  primarily due to general business growth and acquisitions.
Cost of services  decreased as a percentage of revenue to 77.8 percent from 78.2
percent in 1999.  This  decrease  primarily  reflects  the  changing  mix of the
businesses  as TruGreen  ChemLawn and  Terminix  continue to increase in size in
relationship to the overall business of the Company.  The TruGreen  ChemLawn and
Terminix  businesses  generally  operate at higher gross margin  levels than the
rest of the business,  but also incur somewhat higher selling and administrative
expenses as a percentage of revenues.

  Selling  and  administrative  expenses  increased  13  percent  due to general
business  growth and  acquisitions,  and increased as a percentage of revenue to
14.5 percent from 13.6 percent in 1999. This increase as a percentage of revenue
is attributable to the changing mix of the Company noted above.

  Interest  expense  increased  from the prior year,  primarily due to increased
debt  levels  associated  with  acquisitions  and  share  repurchases.  Minority
interest  income  includes  $15  million  of  costs  related  to  the  Company's
WeServeHomes.com  internet initiative which have been allocated to the Company's
partner,


                                       2
<PAGE>


Kleiner Perkins Caufield & Byers. The tax provision, before non-recurring items,
reflects a higher  effective  tax rate  compared to 1999,  primarily  due to the
non-deductibility of goodwill from acquisitions completed in 1999.

  In January 2000,  the Company  announced the formation and initial  funding of
WeServeHomes.com,  a separate Internet company that offers comprehensive on-line
solutions for the consumer  market by providing  home  services,  products,  and
information.  ServiceMaster  owns 84 percent  of  WeServeHomes.com  through  the
contribution  of its  1-800-WE-SERVE  call center and the assets of its Internet
business. In addition,  ServiceMaster supports the new company through intensive
co-branding  efforts,  access to its customer  base and  third-party  contractor
relationships, fulfillment support, and licensing the use of certain trademarks.
Kleiner  Perkins  Caufield & Byers (Kleiner  Perkins),  one of the nation's most
respected and  successful  venture  capital firms,  contributed  $15 million and
holds a 16 percent  ownership  interest  with warrants to purchase an additional
$11.5  million in stock at the same  price.  The initial  investment  by Kleiner
Perkins is helping fund site design and development,  infrastructure support and
promotional  expenditures.   In  addition,  expenses  in  2000  associated  with
WeServeHomes.com  were  allocated  to Kleiner  Perkins up to the amount of their
investment.

 As more fully described in the notes to the consolidated  financial statements,
a lawsuit is currently  pending in Atlanta,  Georgia  wherein the  plaintiff,  a
former  salesman,  claimed  that the Company had not paid him the full amount of
commission due to him on a sale in which he was involved. In September 1999, the
jury awarded the plaintiff  compensatory  damages and fees of  approximately  $1
million and punitive damages of $135 million. In October 1999, the Company filed
a motion for judgement notwithstanding the verdict or in the alternative,  for a
new trial. On June 1, 2000 the trial court entered a new judgement in the amount
of $461,440 in compensatory damages and $45 million in punitive damages, as well
as amounts for attorney  fees an interest.  The Company filed a notice of appeal
that same day. On June 13,  2000,  Mr.  Martin  filed a notice of  cross-appeal.
Because the trial court clerk is still in the process of  preparing  the record,
the appeal has not yet been docketed in the court of appeals, and the clerk does
not expect to finish  preparation  of the record  before  January or February of
2001.  Accordingly,  it is unlikely  that the appeal  will be fully  briefed and
argued in the court of appeals before the summer of 2001. ServiceMaster believes
that the award of $45 million in punitive  damages is not supported by the facts
of the case or by applicable  state law and that the judgement  will be reversed
by an appellate  court.  Under Georgia law, a judgement  accrues interest at the
rate  of 12% per  annum.  The  Company  continues  to not be able to  reasonably
estimate the ultimate outcome of this case, and accordingly, minimal expense has
been  recorded.  In the event that the existing  judgment is  sustained,  or the
original  judgment is reinstated  (which is not anticipated by the Company),  it
would be likely that the Company's  results of operations for a particular  year
may be materially adversely affected.  However,  the Company believes,  based on
advice from legal counsel,  that the ultimate  outcome of this litigation is not
expected to have a material adverse effect on the Company's  financial condition
or results of operations.

1999 COMPARED WITH 1998

 Revenues  increased 21 percent to $5.7 billion,  reflecting  strong growth from
acquisitions and increases in base operations.  Approximately six percent of the
revenue increase resulted from internal growth and small tuck-in acquisitions in
established  businesses,  while the newer  initiatives,  including  landscaping,
plumbing,  and  heating/air  conditioning  services,  provided 21 percent of the
growth.   This  growth  was  partially   offset  by  the  sale  of  Premier  and
ServiceMaster  Energy  Management  and the  wind-down  of the Home  Health  Care
business.  Operating income before non-recurring items increased 18 percent over
the prior year.  Margins decreased to 8.2 percent of revenue from 8.4 percent in
1998,  resulting  from  a  shift  in  business  mix as the  new  initiatives  in
landscaping, heating/air conditioning, and plumbing represented a higher portion
of revenue.  The Company expects to realize  significant margin  improvements in
these businesses as they become  integrated.  Operating  margins excluding these
operations  increased  10 basis  points  even  though a  severe  drought  in the
Mid-Atlantic  and  Northeast  regions of the country in 1999 reduced  margins in
TruGreen  ChemLawn,  the Company's largest operating unit.  Diluted earnings per
share before  non-recurring  items  increased 13 percent to $.72,  compared with
$.64 last year. Net income on this same basis grew 18% to $225 million from $190
million in 1998. Net income grew at a faster rate than earnings per share due to
an increase in shares outstanding, resulting from shares issued for acquisitions
and the Company's equity offering in May 1998.

  The Consumer  and  Commercial  Services  business  unit  achieved a 53 percent
increase in revenues to $3.1  billion,  reflecting  solid growth in  established
businesses, as well as contributions from the Company's landscaping, heating/air
conditioning,  and plumbing  initiatives.  Net income  increased nine percent to
$188  million,  reflecting  profit  increases  at all of  the  companies  except
TruGreen.  TruGreen  reported a  substantial  increase in  revenues  and profits
comparable to last year,  reflecting the impact of severe weather  conditions on
the lawn care  operations  partially  offset  by  increases  from the  landscape
initiative.  TruGreen  ChemLawn,  the Company's lawn care  operations,  reported
modest  revenue  growth but lower  profits  due to the  effects  of the  extreme
drought in the  Northeast  and the  Mid-Atlantic  regions of the country.  Solid
revenue  growth in  commercial  accounts  helped  support  the weaker  growth in
residential  lawn care services  resulting from the  unfavorable  summer weather
conditions over the last two years. Through the acquisitions of LandCare USA and
other  smaller  businesses,  the  Company  has become the  largest  provider  of
commercial  landscape  services in the country.  Over 20 percent of the Consumer
and Commercial  Services segment's revenue growth came from this new initiative.
TruGreen LandCare,  the Company's  landscape  operations,  achieved  significant
increases through  acquisitions but also realized strong  double-digit  internal
growth. Terminix achieved strong growth in revenues and profits,  resulting from
increases in termite completions and renewals, improved branch efficiencies, and
the successful  integration  of  acquisitions.  Growth in new termite  customers
reflects a continued  strong demand for termite baiting  systems.  American Home
Shield  achieved  double-digit  growth  in  revenues  and  profits,   reflecting
increases in warranty  contracts  sold  through all  distribution  channels.  In
addition,  a greater  percentage  of its  revenues  was  derived  from  customer
renewals,  which carry higher margins


                                       3
<PAGE>

and  retention  rates.  The  combined  Rescue  Rooter and  American  Residential
Services  operations  reported  strong growth in revenues and profits.  American
Residential Services,  which was acquired in April 1999, provides  comprehensive
maintenance,  repair and replacement  services for heating,  ventilation and air
conditioning  (HVAC),   plumbing,   electrical  and  other  systems,  and  major
appliances in homes and commercial buildings.  This acquisition  establishes the
Company as one of the  country's  leading  providers of these  services and also
complements  the  Company's  established  plumbing  business.  In  addition,  it
significantly  expands the Company's service offerings on a nationwide basis and
provides  added  support for American  Home  Shield.  Both the HVAC and plumbing
operations  achieved good internal growth and productivity  gains. The franchise
operations,  ServiceMaster  Clean and Merry Maids,  achieved solid  increases in
revenues and profits  despite an extremely  tight labor market,  with  continued
growth of Company-owned  operations,  increased  license sales, and productivity
improvements.

  The traditional Management Services business reported revenues of $1.9 billion
and net income of $50  million.  Revenues  and net income both  increased  three
percent, reflecting the benefit of overhead efficiency gains realized throughout
the business units. The traditional Healthcare market reported a modest decrease
in revenues and profits  consistent  with last year. The Company  achieved solid
revenue  and profit  increases  in both the  Business & Industry  and  Education
markets,  reflecting  increased volume and lower overhead spending.  The base of
annualized  revenue from  continuing  operations  grew two percent for the year,
which reflected a strong sales year and an increased number of contracts served.

  Net income before  non-recurring items in Other Operations improved from 1998,
reflecting  favorable  interest  allocations and gains on financial  investments
partially  offset by reduced  profitability  in the Diversified  Health Services
operations.

  On a consolidated basis, cost of services rendered and products sold increased
21 percent,  primarily due to acquisitions and general business growth.  Cost of
services  rendered and products  sold  increased as a percentage  of revenues to
78.2 percent in 1999 from 77.9  percent in 1998.  The  landscaping,  heating/air
conditioning  and  plumbing   acquisitions  have  significantly   affected  this
comparison  because their cost of services as a percentage of revenues is higher
than the average for the enterprise. Excluding these platforms, cost of services
rendered and products sold decreased as a percentage of revenues to 76.0 percent
from 77.7 percent in 1998. This decrease  primarily reflects the changing mix of
the business as TruGreen  ChemLawn and Terminix increase in size in relationship
to the overall  business of the  Company.  The  TruGreen  ChemLawn  and Terminix
businesses  generally operate at higher gross margin levels than the rest of the
business, but also incur somewhat higher selling and administrative  expenses as
a percentage of revenues.

 Consolidated selling and administrative expenses increased 20 percent over 1998
and, as a percentage  of  revenues,  decreased to 13.6 percent in 1999 from 13.7
percent in 1998.  The platform  initiatives  noted above have lower  selling and
administrative expenses, as a percentage of revenues, than the Company average.

  Interest expense  increased over 1998,  primarily due to increased debt levels
associated  with  acquisitions.  The increase in interest and investment  income
primarily resulted from additional gains realized on financial investments.  The
tax provision reflects a higher effective tax rate compared with 1998, primarily
due to the  non-deductibility  of goodwill related to several large acquisitions
completed in 1999.

2000 FINANCIAL POSITION

  Net cash provided from  operations  of $413 million was  significantly  higher
than  last  year.  There  are two  unusual  tax  timing  items in the cash  flow
statements:  (i) a $39 million tax refund  realized in 2000 and (ii) the payment
of 1998 taxes in the first  quarter of 1999.  Excluding  these unusual tax items
cash from  operations  increased  12 percent to $374 million  reflecting  higher
levels of cash  income  and  lower  working  capital  needs,  especially  in the
platform initiatives.

  Cash and marketable  securities totaled approximately $120 million at December
31,  2000.  Debt levels  increased,  reflecting  a  significant  amount of share
repurchases  combined with the effects of acquisitions,  capital  spending,  and
dividends. The Company is a party to a number of long-term debt agreements which
require it to comply with certain financial covenants,  including limitations on
indebtedness,  restricted payments,  fixed charge coverage ratios and net worth.
The  Company  is  in  compliance  with  the  covenants  related  to  these  debt
agreements.  Management  believes that funds generated from operations and other
existing financial resources will continue to be adequate to satisfy the ongoing
operating  needs of the Company.  In  addition,  the Company had $XXX million of
unused commitment on its revolving bank facility at December 31, 2000.

  In April 2000, the Company  completed a senior unsecured debt offering of $250
million,  8.45  percent  notes  priced to yield 8.505  percent and due April 15,
2005. The net proceeds were used to repay a portion of the Company's  borrowings
under its  revolving  bank  credit  facility,  thereby  reducing  the  Company's
exposure to short term interest rate fluctuations.

 Accounts   receivable   increased   reflecting   general  business  growth  and
acquisitions. Property and equipment remained at approximately the same level as
last year reflecting  general  business growth and a reduced level of technology
projects.  The Company does not have any material  capital  commitments  at this
time.

  The  Company  completed  a number  of  acquisitions  in 2000,  which  included
primarily  lawn  care,   HVAC/plumbing   and  pest  control   companies.   Total
acquisitions were approximately $235 million and were primarily financed through
cash payments and seller financial debt.

  Accounts payable and other accrued liabilities  decreased due to the timing of
various  payments  and  amounts  relating  to  wind-down  transaction  accruals.
Deferred revenues  increased  primarily as a result of strong growth in warranty
contracts written at American Home Shield and increases in customer  prepayments
for pest control services.

  Total  shareholders'  equity  decreased  slightly to $1.2 billion,  reflecting
shareholders  dividends and share repurchases,  partially offset by current year
net income.  In July 2000,  the Company  announced  that its Board of  Directors
authorized the repurchase of $350 million in shares over time in the open market
or  in  privately  negotiated  transactions.  This  authorization  replaces  the
Company's  previous  authorization  of $150 million  announced in October  1999.
Approximately $173 million in shares were repurchased in 2000.



                                       4
<PAGE>

  Cash dividends paid directly to shareholders totaled $116 million, or $.38 per
share, a six percent per share increase over the prior year. The total amount of
cash distributions  increased three percent from the prior year, reflecting this
per share  increase  offset by a reduced level of shares  outstanding  resulting
from shares repurchased.

  While the Company has historically  increased its dividend payment, the timing
and amount of future  dividend  increases will be at the discretion of the Board
of Directors  and will depend on, among other things,  the  Company's  corporate
finance objectives and cash requirements. The Company has announced its intended
cash dividends for 2001 of $.XX per share.

Earnings before interest,  taxes,  depreciation  and amortization  (EBITDA) is a
commonly-used  supplemental  measurement of a company's ability to generate cash
flow and is used by many of the  Company's  investors  and  lenders.  Management
believes  that  EBITDA is another  measure  that  demonstrates  the  exceptional
cash-generating  abilities of the Company's  businesses.  EBITDA in 2000 of $661
million,  grew 5 percent and  exceeded  net income by over $450 million or 180%.
EBITDA should not be considered  an  alternative  to net income in measuring the
Company's  performance or be used as an exclusive measure of cash flow,  because
it does not consider the impact of working capital growth, capital expenditures,
debt principal  reductions or other sources and uses of cash which are disclosed
in the Consolidated Statements of Cash Flows.


THE COMPANY  NOTES THAT  STATEMENTS  THAT LOOK  FORWARD IN TIME,  WHICH  INCLUDE
EVERYTHING OTHER THAN HISTORICAL  INFORMATION,  INVOLVE RISKS AND  UNCERTAINTIES
THAT  AFFECT THE  COMPANY'S  RESULTS OF  OPERATIONS.  FACTORS  WHICH COULD CAUSE
ACTUAL  RESULTS  TO DIFFER  MATERIALLY  FROM  THOSE  EXPRESSED  OR  IMPLIED IN A
FORWARD-LOOKING   STATEMENT  INCLUDE  THE  FOLLOWING  (AMONG  OTHERS):   WEATHER
CONDITIONS ADVERSE TO CERTAIN OF THE COMPANY'S CONSUMER AND COMMERCIAL  SERVICES
BUSINESSES;  THE ENTRY OF ADDITIONAL COMPETITORS IN ANY OF THE MARKETS SERVED BY
THE COMPANY;  LABOR  SHORTAGES;  CONSOLIDATION  OF  HOSPITALS IN THE  HEALTHCARE
MARKET; THE COST AND LENGTH OF TIME TO INTEGRATE ACQUIRED BUSINESSES; UNEXPECTED
CHANGES IN OPERATING COSTS; THE CONDITION OF THE U.S. ECONOMY; AND OTHER FACTORS
LISTED  FROM  TIME TO TIME IN THE  COMPANY'S  FILINGS  WITH THE  SECURITIES  AND
EXCHANGE COMMISSION.



                                       5
<PAGE>

<TABLE>
<CAPTION>

ELEVEN YEAR FINANCIAL SUMMARY

All share and per share data  reflect the  three-for-two  share  splits in 1998,
1997, 1996, 1993 and 1992.

(IN THOUSANDS, EXCEPT PER SHARE AND PERCENTAGE DATA)                 2000          1999          1998
---------------------------------------------------------------------------------------------------------


OPERATING RESULTS

<S>                                                               <C>           <C>           <C>
Operating revenue ............................................    $ 5,970,615   $ 5,703,535   $.4,724,119
Cost of services rendered and products sold...................      4,696,467     4,459,035     3,679,612
Selling and administrative expenses ..........................        857,249       775,826       648,085
Other, net  (2) ..............................................              -        85,500             -
                                                                  -----------   -----------   -----------
Operating income  ............................................        416,899       383,174       396,422
                                                                  -----------   -----------   -----------
OPERATING INCOME BEFORE NET NON-RECURRING ITEMS(2)............        416,899       468,674       396,422
    Percentage of operating revenue ..........................           7.0%          8.2%          8.4%
Non-operating expense  (income)...............................         98,592        86,981        77,644
Provision for income taxes (3) ...............................        133,319       122,630       128,786
Cumulative effect of change in accounting principle, net(1)...         11,161             -             -
                                                                  -----------   -----------   -----------
Net income (pro forma corporate form prior to 1998)(3) .......    $   173,827   $   173,563   $   189,992
                                                                  ===========   ===========   ===========
PRO FORMA NET INCOME BEFORE NET NON-RECURRING ITEMS
  and assuming the change in accounting principle is
  applied retroactively(1),(2)................................    $   184,988   $   219,637   $   186,021
                                                                  ===========   ===========   ===========
     Percentage of operating revenue .........................           3.1%          3.9%          3.9%
Earnings per share (pro forma corporate form prior to 1998):(3)
    Basic......................................................   $      0.57   $      0.56   $      0.66
    Diluted as REPORTED........................................   $      0.57   $      0.55   $      0.64
    PRO FORMA DILUTED BEFORE NET NON-RECURRING ITEMS AND
      assuming the change in accounting principle is
      applied retroactively (1),(2)............................   $      0.61   $      0.70   $      0.63

Shares used to compute basic net income per share..............       302,487       307,637       289,315
Shares used to compute diluted net income per share............       305,518       314,406       298,887
Shares outstanding, net of treasury shares.....................       298,474       307,530       298,030

Cash distributions per share...................................   $      0.38   $      0.36   $      0.33
Share price range:
    High price.................................................   $     14.94   $     22.00   $     25.50
    Low price..................................................   $      8.25   $     10.13   $     16.00

FINANCIAL POSITION (at year end):

Current assets.................................................   $   984,759   $   959,238   $   670,202
Current liabilities............................................       833,414       845,804       753,697
Working capital................................................       151,345       113,434       (83,495)

</TABLE>

(1) In the above  presentation,  the operating  results in 1999 and 1990 through
1993 have been stated to exclude the impact of non-recurring items. In 1999, the
Company  realized  an  after-tax  gain of $30  million  ($50.1  million  pretax)
relating to the sale of its Premier  automotive  business  and its  remaining 15
percent interest in  ServiceMaster  Energy  Management,  and recorded a one-time
after-tax  charge  of  $81  million  ($135.6  million  pretax)  relating  to its
Diversified  Health  Services  business.  In the years 1990  through  1993,  the
Company recorded gains on issuance of subsidiary shares,  restructuring charges,
and a change in accounting for post-retirement benefits.



                                       6
<PAGE>

<TABLE>
<CAPTION>


ELEVEN YEAR FINANCIAL SUMMARY

                                                                    1997           1996           1995           1994
                                                                ----------------------------------------------------------

OPERATING RESULTS

<S>                                                               <C>            <C>            <C>            <C>
Operating revenue                                                 $ 3,961,502    $ 3,458,328    $ 3,202,504    $ 2,985,207
Cost of services rendered and products sold                         3,058,160      2,681,008      2,499,700      2,356,435
Selling and administrative expenses                                   559,409        482,102        450,937        414,746
Other, net (2)                                                             --             --             --             --
                                                                  -----------    -----------    -----------    -----------
Operating income                                                      343,933        295,218        251,867        214,026
                                                                  -----------    -----------    -----------    -----------
OPERATING INCOME BEFORE NET NON-RECURRING ITEMS(2)                    343,933        295,218        251,867        214,026
Percentage of operating revenue                                           8.7%           8.5%           7.9%           7.2%
Non-operating expense (income)                                         69,654         42,821         74,260         71,388
Provision for income taxes (3)                                        110,809        101,968         71,753         57,626
Cumulative effect of change in accounting principle net(1)                 --             --             --             --
                                                                  -----------    -----------    -----------    -----------
Net income (pro forma corporate form prior to 1998)(3) .          $   163,470    $   150,429    $   105,854    $    85,012
                                                                  ===========    ===========    ===========    ===========
PRO FORMA NET INCOME BEFORE NET NON-RECURRING ITEMS
AND ASSUMING THE CHANGE IN ACCOUNTING PRINCIPLE IS

APPLIED RETROACTIVELY(1),(2)                                      $   161,506    $   150,429    $   105,854    $    85,012
                                                                  ===========    ===========    ===========    ===========
Percentage of operating revenue                                           4.1%           4.3%           3.3%           2.8%
Earnings per share (pro forma corporate form prior to 1998):(3)
Basic                                                             $      0.57    $      0.47    $      0.41    $      0.33
Diluted as REPORTED                                               $      0.55    $      0.46    $      0.39    $      0.32
PRO FORMA DILUTED BEFORE NET NON-RECURRING ITEMS
and assuming the change in accounting principle is
applied retroactively (1),(2)                                     $      0.54    $      0.46    $      0.39    $      0.32

Shares used to compute basic net income per share                     285,944        317,381        260,382        255,650
Shares used to compute diluted net income per share                   299,640        330,429        273,203        266,892
Shares outstanding, net of treasury shares                            279,944        320,396        321,341        256,419

Cash distributions per share                                      $      0.31    $      0.29    $      0.28    $      0.27
Share price range:
High price                                                        $     19.67    $     11.83    $      9.00    $      8.41
Low price                                                         $     10.92    $      8.61    $      6.37    $      6.37

FINANCIAL POSITION (at year end):

Current assets                                                    $   594,084    $   499,334    $   393,239    $   331,045
Current liabilities                                                   558,177        425,552        372,930        304,395
Working capital                                                        35,907         73,782         20,309         26,650

</TABLE>
<TABLE>
<CAPTION>

                                                                      1993           1992            1991           1990
                                                                -----------------------------------------------------------

OPERATING RESULTS


<S>                                                               <C>            <C>             <C>            <C>
Operating revenue                                                 $ 2,758,859    $ 2,488,854     $ 2,109,941    $ 1,825,750
Cost of services rendered and products sold                         2,192,684      2,021,010       1,762,700      1,545,527
Selling and administrative expenses                                   393,131        326,477         225,814        177,941
Other, net (2)                                                             --         78,935              --          6,500
                                                                  -----------    -----------     -----------    -----------
Operating income                                                      173,044         62,432         121,427         95,782
                                                                  -----------    -----------     -----------    -----------
OPERATING INCOME BEFORE NET NON-RECURRING ITEMS(2)                    173,044        141,367         121,427        102,282
Percentage of operating revenue                                           6.3%           5.7%            5.8%           5.6%
Non-operating expense (income)                                         24,952        (68,367)         34,020         10,398
Provision for income taxes (3)                                         58,829         52,843          35,312         34,495
Cumulative effect of change in accounting principle net(1)              4,470             --              --             --
                                                                  -----------    -----------     -----------    -----------
Net income (pro forma corporate form prior to 1998)(3) .          $    88,263    $    73,486     $    52,095    $    50,889
                                                                  ===========    ===========     ===========    ===========
PRO FORMA NET INCOME BEFORE NET NON-RECURRING ITEMS
AND ASSUMING THE CHANGE IN ACCOUNTING PRINCIPLE IS


APPLIED RETROACTIVELY(1),(2)                                      $    70,264    $    56,994     $    48,614    $    42,843
                                                                  ===========    ===========     ===========    ===========
Percentage of operating revenue                                           2.5%           2.3%            2.3%           2.3%
Earnings per share (pro forma corporate form prior to 1998):(3)
Basic                                                             $      0.35    $      0.29     $      0.22    $      0.21
Diluted as REPORTED                                               $      0.34    $      0.28     $      0.21    $      0.21
PRO FORMA DILUTED BEFORE NET NON-RECURRING ITEMS
and assuming the change in accounting principle is
applied retroactively (1),(2)                                     $      0.27    $      0.22     $      0.20    $      0.18


Shares used to compute basic net income per share                     253,919        249,828         240,276        239,730
Shares used to compute diluted net income per share                   266,231        262,941         252,579        243,038
Shares outstanding, net of treasury shares                            257,901        255,386         243,527        242,939


Cash distributions per share                                      $      0.26    $      0.26     $      0.25    $      0.24
Share price range:
High price                                                        $      9.19    $      5.90     $      5.13    $      3.13
Low price                                                         $      5.22    $      4.35     $      2.89    $      2.60


FINANCIAL POSITION (at year end):


Current assets                                                    $   291,325    $   257,542     $   217,517    $   237,262
Current liabilities                                                   244,552        206,755         157,458        158,046
Working capital                                                        46,773         50,787          60,059         79,216


</TABLE>





(2) The Company  converted  from  partnership  to  corporate  form in a tax-free
exchange for  shareholders on December 26, 1997.  Prior to the  conversion,  the
Partnership  was not subject to federal  income taxes as its taxable  income was
allocated to the  Partnership's  partners.  As a result of the  conversion,  the
Company is a taxable  entity and is responsible  for such payments.  The results
shown above for the years ended  December 31, 1997 and before have been restated
to adjust the actual  historical  partnership  information  to a pro forma basis
that assumes that reincorporation had occurred as of the beginning of that year.
The pro forma provision for income taxes has been  calculated  assuming that the
Company's  effective  tax rate had  been  approximately  40  percent  of  pretax
earnings.  Actual historical net income per share as a partnership for the three
prior periods was as follows:

                  1997 (a)      1996       1995
                  --------    --------    --------
    Net Income    $264,076    $245,140    $172,019
    EPS:  Basic     $.92        $.77        $.66
          Diluted   $.89        $.75        $.64


(a) Including the one-time tax gain related to  reincorporation,  net income was
$329,076  and  basic  and  diluted  earnings  per share  were  $1.15 and  $1.10,
respectively.



                                       7
<PAGE>



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF  CONSOLIDATION:  The  consolidated  financial  statements  include  the
accounts of ServiceMaster  and its  majority-owned  subsidiary  partnerships and
corporations, collectively referred to as the Company. Intercompany transactions
and balances have been eliminated in consolidation.  Certain immaterial 1999 and
1998 amounts have been reclassified to conform with the 2000 presentation.

  The preparation of the consolidated  financial  statements requires management
to make certain  estimates and  assumptions  required under  generally  accepted
accounting  principles  which  may  differ  from the  actual  results.  The more
significant  areas  requiring  the use of  management  estimates  relate  to the
allowance for receivables, accruals for self-insured retention limits related to
medical,  workers  compensation,  auto  and  general  liability  insurance,  the
possible  outcomes  of  outstanding   litigation,   and  the  useful  lives  for
depreciation and amortization expense.

REVENUES:  Revenues from lawn care, pest control,  heating/air  conditioning and
plumbing  services are  recognized as the services are  provided.  Revenues from
landscaping  services are recognized based upon agreed monthly contract payments
or when services are performed for non-contractual  arrangements.  Revenues from
the Company's commercial installation contracts,  primarily relating to HVAC and
landscape,  are recognized on the  percentage of completion  method in the ratio
that total incurred costs bear to total estimated costs.

  Fees from home  warranty  and termite  baiting  contracts  are  recognized  as
revenues  over the life of the contract  while the service costs are expensed as
incurred.  Franchised  services revenues (which in aggregate represent less than
two percent of consolidated  totals) consist of initial  franchise fees received
from the sales of licenses,  sales of products to  franchisees,  and  continuing
monthly fees based upon franchise revenue.

  Revenues from management  services are recognized as services are rendered and
consist of contract fees, which reflect the total price of such services.  Where
the  Company  act as  principal  and  manages  people who are  employees  of the
facility,  the contract fee is  recognized as revenue by the Company and payroll
costs for such employees are included in "Cost of services rendered and products
sold" in the Consolidated Statements of Income.  Receivables from the facilities
are reflected in the  Consolidated  Statements of Financial  Position at the net
amount due, after  deducting  from the contract price all amounts  chargeable to
the Company.

  Revenues from the  professional  employer  organization  are recognized as the
services are rendered.  Consistent with industry practice,  revenues include the
gross amount billed to clients, which includes payroll and other direct costs.

INVENTORY  VALUATION:  Inventories  are  valued at the lower of cost  (first-in,
first-out basis) or market.  Inventory costs include  material,  labor,  factory
overhead and related  handling  costs.  Raw materials  represent less than three
percent of the inventory value at December 31, 2000. The remaining  inventory is
finished goods to be used on the customers' premises or sold to franchisees.

DEPRECIATION AND AMORTIZATION:  Buildings and equipment used in the business are
stated at cost and  depreciated  over their  estimated  useful  lives  using the
straight-line  method for financial  reporting  purposes.  The estimated  useful
lives  for  building  and  improvements  range  from 10 to 40  years,  while the
estimated  useful lives for equipment  range from three to 10 years.  Intangible
assets  consist  primarily  of trade names ($250  million)  and  goodwill  ($2.3
billion).  These  assets  are  amortized  on a  straight-line  basis  over their
estimated useful lives,  which are  predominately 40 years.  Long-lived  assets,
including  fixed assets and  intangible  assets,  are  periodically  reviewed to
determine  recoverability by comparing their carrying values to the undiscounted
future cash flows  expected to be realized from their use. No recovery  problems
have  been  indicated  by  these  comparisons.  Based on the  reviews,  when the
undiscounted  future cash flows are less than the carrying  amount of the asset,
an  impairment  loss is  recognized  based on the asset's  fair  value,  and the
carrying amount of the asset is reduced accordingly.

INCOME  TAXES:  The Company  accounts  for income  taxes under the  Statement of
Financial  Accounting  Standards No. 109,  "Accounting  for Income  Taxes." This
Statement uses an asset and liability  approach that requires the recognition of
deferred tax assets and liabilities for the expected future tax  consequences of
events that have been  recognized in the Company's  financial  statements or tax
returns.  Deferred income taxes are provided to reflect the differences  between
the tax bases of  assets  and  liabilities  and their  reported  amounts  in the
financial statements.

EARNINGS PER SHARE:  Basic  earnings per share is based on the  weighted-average
number of common shares outstanding during the year. Shares potentially issuable
under  options  have been  considered  outstanding  for  purposes of the diluted
earnings per share calculation.

CHANGE IN ACCOUNTING  PRINCIPLE:  In December  1999, the Staff of the Securities
and Exchange  Commission issued Staff Accounting Bulletin (SAB) No. 101 "Revenue
Recognition,"  which provides additional guidance in applying generally accepted
accounting  principles  for revenue  recognition  in financial  statements.  The
Company's  interpretation of the requirements of SAB No. 101 resulted in changes
to the Company's  accounting  policies for revenue  recognition  on sales of its
termite  baiting  contracts.  Prior to the  adoption of SAB No. 101, the Company
recognized  approximately  80% of the termite baiting revenue at the time of the
sale and  installation  of the baiting  station,  while the remaining 20% of the
revenue was recognized over the life of the contract as follow-up inspections of
the stations were performed. As a result of SAB No. 101, the Company's policy is
to  recognize  revenue  over  the  life  of the  contract.  In  addition,  sales
commissions  and  other  direct  contract  acquisition  costs are  deferred  and
amortized on a straight-line basis over the life of the contract.


                                       8
<PAGE>


The change in method of accounting  for termite  baiting  contracts is effective
January 1, 2000. The cumulative  effect of the accounting  change, as of January
1, 2000,  resulted  in a non-cash  charge  that  reduced net income for the year
ended December 31, 2000 by $11.1 million, ($18.9 million pretax). The cumulative
after-tax effect on both basic and diluted earnings per share was a reduction of
$.04. The impact of adopting the new accounting  method compared to the previous
methodology  was not material in 2000.  The pro forma impact in 1999 and 1998 of
this  change  was to reduce  diluted  earnings  per  share by $0.02  and  $0.01,
respectively.

NEWLY  ISSUED  ACCOUNTING  STATEMENTS  AND  POSITIONS:  In 1998,  the  Financial
Accounting  Standards Board issued Statement of Financial  Accounting  Standards
No. 133,  "Accounting for Derivative  Instruments and Hedging  Activities." This
Statement  was  subsequently  amended to defer its effective  date.  The Company
adopted this  Statement  in January  2001 as required by the amended  Statement.
Adoption  of this  Statement  did not have a  material  impact on the  Company's
financial statements.



                                       9
<PAGE>




REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE SHAREHOLDERS OF
THE SERVICEMASTER COMPANY

  We have audited the accompanying consolidated statements of financial position
of THE SERVICEMASTER COMPANY (organized under the laws of the State of Delaware,
formerly ServiceMaster Limited Partnership) AND SUBSIDIARIES, as of December 31,
2000 and 1999, and the related consolidated statements of income,  shareholders'
equity,  and cash flows for each of the three years in the period ended December
31, 2000.  These financial  statements are the  responsibility  of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

  We  conducted  our audits in  accordance  with  auditing  standards  generally
accepted in the United States.  Those standards require that we plan and perform
the audit to obtain reasonable  assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.  An
audit also includes  assessing the accounting  principles  used and  significant
estimates  made by  management,  as well as  evaluating  the  overall  financial
statement  presentation.  We believe that our audits provide a reasonable  basis
for our opinion.

  In our  opinion,  the  consolidated  financial  statements  referred  to above
present  fairly,  in  all  material  respects,  the  financial  position  of The
ServiceMaster Company and Subsidiaries as of December 31, 2000 and 1999, and the
consolidated results of operations and cash flows for each of the three years in
the period ended  December 31, 2000, in conformity  with  accounting  principles
generally accepted in the United States.

  As explained in the Summary of Significant  Accounting Policies section of the
Notes to the Consolidated  Financial Statements,  effective January 1, 2000, the
Company changed certain of its accounting  principles for revenue recognition as
a  result  of the  adoption  of  Staff  Accounting  Bulletin  No.  101  "Revenue
Recognition."

ARTHUR ANDERSEN LLP
Chicago, Illinois
January 23, 2001



                                       10
<PAGE>


<TABLE>
<CAPTION>





STATEMENTS OF INCOME
(In thousands, except per share data)
                                                                                Years Ended December 31,

                                                                           2000            1999            1998
-----------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------


<S>                                                                   <C>             <C>             <C>
OPERATING Revenue.............................................        $  5,970,615    $  5,703,535    $  4,724,119

OPERATING COSTS AND EXPENSES:

Cost of services rendered and products sold...................           4,696,467       4,459,035       3,679,612
Selling and administrative expenses...........................             857,249         775,826         648,085
Other, net (1)................................................                   -          85,500              --
                                                                      ------------    ------------    ------------

Total operating costs and expenses............................           5,553,716       5,320,361       4,327,697
                                                                      -----------    ------------     ------------
OPERATING Income..............................................             416,899         383,174         396,422

NON-OPERATING EXPENSE (INCOME):

Interest expense..............................................             136,831         108,955          92,945
Interest and investment income................................             (25,002)        (21,974)        (15,301)
Minority interest income......................................             (13,237)              -               -
                                                                       -----------     -----------    ------------
INCOME BEFORE INCOME Taxes....................................             318,307         296,193         318,778

Provision for income taxes ...................................             133,319         122,630         128,786



INCOME BEFORE CUMULATIVE EFFECT OF
   CHANGE IN ACCOUNTING Principle.............................             184,988         173,563         189,992

Cumulative effect of change in accounting
    for revenue recognition on termite baiting contracts (1)..              11,161               -               -

                                                                      ------------    -------------   ------------

NET INCOME (1)................................................        $    173,827    $    173,563    $    189,992
                                                                      ============    =============   ============


PER SHARE (1), (2)
      Basic earnings per share, before cumulative effect of
          change in accounting principle......................        $       0.61    $       0.56    $       0.66
      Cumulative effect  of changing revenue recognition on
        termite baiting contracts                                            (0.04)              -               -
                                                                      ------------    ------------    ------------

   BASIC EARNINGS PER share...................................        $       0.57    $       0.56    $       0.66
                                                                      ============    ============    ============

   Diluted earnings per share, before cumulative effect of
       change in accounting principle.........................        $       0.61    $       0.55    $       0.64
    Cumulative effect of changing revenue recognition on
    termite baiting contracts                                                (0.04)              -               -
                                                                      ------------    ------------    ------------

   DILUTED EARNINGS PER share.................................        $       0.57    $       0.55    $       0.64
                                                                      ============    ============    ============

</TABLE>


     (1) In 2000, the Company  changed its method of accounting for revenue from
     its termite  baiting  contracts.  The cumulative  effect of this accounting
     change as of January 1, 2000,  was $11.1 million,  ($18.9 million  pretax).
     The impact of adopting the new accounting  method  compared to the previous
     methodology was not material in 2000. The pro forma impact in 1999 and 1998
     of this change was to reduce diluted earnings per share by $0.02 and $0.01,
     respectively.
     In 1999,  the Company  realized  an  after-tax  gain of $30 million  ($50.1
     million pretax)  relating to the sales of its Premier  automotive  business
     and its remaining 15 percent interest in ServiceMaster  Energy  Management,
     and recorded a one-time  after-tax  charge of $81 million  ($135.6  million
     pretax) relating to its Diversified Health Services business. Excluding the
     impact of the above  items,  net  income  and  earnings  per share  were as
     follows:
<TABLE>
<CAPTION>

                                                                                  2000              1999              1998
                                                                             ---------------    --------------     -----------
      <S>                                                                      <C>                <C>               <C>
      Pro forma net income before net  non-recurring  items and
      assuming  the change in  accounting  principle is applied
      retroactively...............................................             $ 184,988          $ 219,637         $ 186,021

      Pro forma diluted  earnings per share before net non-recurring items and
      assuming the change in accounting principle is applied

      retroactively...............................................             $    0.61          $    0.70         $   0 .63
                                                                               =========          =========         =========
</TABLE>

(2)  Basic  earnings per share is  calculated  based on 302,487  shares in 2000,
     307,637 shares in 1999, and 289,315 shares in 1998,  while diluted earnings
     per share is calculated based on 305,518 shares in 2000, and 314,406 shares
     in 1999 and 298,887  shares in 1998.  All share and per share data  reflect
     the three-for-two share split in August 1998.

See  accompanying  Summary of Significant  Accounting  Policies and Notes to the
Consolidated Financial Statements.


                                       11
<PAGE>

<TABLE>
<CAPTION>

STATEMENTS OF FINANCIAL POSITION
(IN THOUSANDS)

                                                                     As of December 31,

                                                                                   2000            1999
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
ASSETS:
CURRENT ASSETS:

<S>                                                                          <C>              <C>
Cash and cash equivalents.................................................   $    44,386      $    59,834
Marketable securities .....................................................       56,531           54,376
Receivables, less allowances of $37,970 in 2000 and $39,011 in 1999              556,941          558,842
Inventories................................................................       88,152           82,861
Prepaid expenses and other assets.........................................       168,403          140,690
Deferred taxes and tax receivables.........................................       70,346           62,635
                                                                                ---------        ---------
   Total current assets...................................................       984,759          959,238
                                                                                ---------        ---------

PROPERTY, PLANT, AND EQUIPMENT, AT COST:
Land and buildings.........................................................       73,248           71,972
Equipment.................................................................       608,321          587,838
                                                                                ---------        ---------
                                                                                 681,569          659,810
Less:  accumulated depreciation...........................................       375,585          341,712
                                                                                ---------        ---------
Net property, plant, and equipment.......................................        305,984          318,098
                                                                                ---------        ---------

OTHER ASSETS:

Intangible assets, primarily trade names and goodwill,
   less accumulated amortization of $422,899 in 2000 and $343,316 in 1999      2,521,633        2,461,389
Notes receivable, long-term securities, and other assets..................       155,292          131,490
                                                                               ----------       ----------
   Total Assets........................................................      $ 3,967,668      $ 3,870,215
                                                                             ===========      ============


LIABILITIES AND SHAREHOLDERS' EQUITY:
CURRENT LIABILITIES:

Accounts payable.........................................................    $   147,788      $   160,237
Accrued liabilities:
   Payroll and related expenses............................................      100,651           99,910
   Insurance and related expenses..........................................       54,990           53,412
   Income taxes payable....................................................        1,235            6,479
   Other...................................................................      142,144          196,529
Deferred revenues..........................................................      325,246          257,521
Current portion of long-term debt..........................................       61,360           71,716
                                                                             ----------        -----------
   Total current liabilities..............................................       833,414          845,804
                                                                             ----------        -----------

LONG-TERM Debt...........................................................      1,756,757        1,697,582
DEFERRED TAX Liability.....................................................      115,150           19,800
OTHER LONG-TERM Obligations................................................      100,759          101,313

COMMITMENTS AND CONTINGENCIES (see Notes)


SHAREHOLDERS' EQUITY:

Common stock $0.01 par value, authorized 1 billion shares; issued and
   outstanding of 298,474 shares in 2000 and 307,530 shares in 1999.......         2,985            3,075
Additional paid-in capital...............................................      1,030,399        1,033,568
Retained earnings..........................................................      301,207          241,701
Accumulated other comprehensive income ....................................       (2,832)          (1,821)
Restricted stock...........................................................       (1,829)          (2,577)
Treasury stock, at cost...................................................      (168,342)         (68,230)
                                                                             ----------         ----------
   Total shareholders' equity...........................................       1,161,588        1,205,716
                                                                             -----------        ----------
Total Liabilities and Shareholders' Equity.............................      $ 3,967,668      $ 3,870,215
                                                                             ===========      ============
</TABLE>



                                       12
<PAGE>

<TABLE>
<CAPTION>


STATEMENTS OF CASH FLOWS
(In thousands)
                                                                                  Years Ended December 31,

                                                                               2000          1999         1998
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------

<S>                                                                         <C>          <C>         <C>
CASH AND CASH EQUIVALENTS AT JANUARY 1...................................   $  59,834    $  66,400   $  64,876

CASH FLOWS FROM OPERATIONS:

NET Income...............................................................     173,827      173,563     189,992
    Adjustments to reconcile net income to
    net cash provided from operations:
      Cumulative effect of accounting change.............................      11,161            -           -
      Depreciation ......................................................      78,108       67,382      50,644
      Amortization.......................................................      79,583       71,062      53,961
      Non-recurring items, net...........................................           -       85,500           -
      Deferred 1998 tax payment..........................................           -      (78,500)     78,500
      Tax refund from 1999 payments......................................      39,000            -           -
      Deferred income tax expense........................................      54,218       20,300      36,400
    Change in working capital, net of acquisitions:
      Receivables........................................................     (14,210)     (49,130)    (46,205)
      Inventories and other current assets...............................      (4,754)     (32,368)     (2,360)
      Accounts payable...................................................     (13,241)      (2,703)     18,475
      Deferred revenues..................................................      19,140       28,026      22,033
      Accrued liabilities................................................     (20,564)     (25,022)      2,472
    Other, net...........................................................      (1,244)      (1,535)      1,627
                                                                            ----------   ----------  ----------

NET CASH PROVIDED FROM Operations........................................     401,024      256,575     405,539
                                                                              -------      -------     -------
    MEMO: NET CASH PROVIDED FROM OPERATIONS EXCLUDING UNUSUAL TAX ITEMS       362,024      335,075     327,039

CASH FLOWS FROM INVESTING ACTIVITIES:
    Property additions...................................................     (76,603)     (88,754)    (75,297)
    Sale of equipment and other assets...................................      14,720        8,021       6,941
    Business acquisitions, net of cash acquired..........................    (152,306)    (510,512)   (222,452)
    Proceeds from sale of businesses.....................................      44,784       70,344      45,893
    Net purchases of investment securities...............................      (6,940)     (12,474)     11,011)
    Notes receivable and financial investments...........................      (5,401)     (19,357)    (10,645)
    Payments to sellers of acquired businesses...........................     (21,546)     (12,664)    (10,271)
                                                                              --------     --------    --------
NET CASH USED FOR INVESTING Activities...................................    (203,292)    (565,396)   (276,842)
                                                                              ---------    ---------   ---------

CASH FLOWS FROM FINANCING ACTIVITIES:

    Borrowings, net......................................................     571,339    1,263,427     310,190
    Payment of borrowings and other obligations..........................    (547,247)    (776,183)   (564,448)
    Proceeds from stock offering.........................................           -            -     208,561
    Shareholders' dividends..............................................    (114,321)    (111,702)    (75,152)
    Purchase of ServiceMaster stock......................................    (135,633)     (93,046)    (18,310)
    Proceeds from employee share plans...................................      12,730       19,259      12,638
    Other................................................................         (48)         500        (652)
                                                                            ----------   ----------  ----------

NET CASH PROVIDED FROM (USED FOR) FINANCING Activities...................    (213,180)     302,255    (127,173)
                                                                            ----------   ----------  ----------


CASH INCREASE (DECREASE) DURING THE Year.................................     (15,448)      (6,566)      1,524

CASH AND CASH EQUIVALENTS AT DECEMBER 31.................................    $ 44,386     $ 59,834    $ 66,400
                                                                            ==========   =========== ==========
</TABLE>

See  accompanying  Summary of Significant  Accounting  Policies and Notes to the
Consolidated Financial
Statements.


                                       13
<PAGE>

<TABLE>
<CAPTION>



STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)


                                                                         ADDITIONAL                    ACCUMULATED
                                                              COMMON      PAID-IN        RETAINED     COMPREHENSIVE
                                                              STOCK       CAPITAL        EARNINGS        INCOME
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------

<S>                                                     <C>            <C>            <C>            <C>
BALANCE, DECEMBER 31, 1997 ..........................   $     2,799    $   513,148    $    65,000    $     5,343
                                                        ============================================================


Net income 1998 .....................................                                     189,992
Other comprehensive income, net of tax:
   Unrealized gains on securities, net
      of reclassification adjustment ................                                                       (485)
   Foreign currency translation ($640 tax expense) ..                                                       (947)
                                                        ------------------------------------------------------------
Total comprehensive income ..........................                                     189,992         (1,432)
Shareholder dividends ...............................                                     (75,152)
Shares issued in public offering (11,400 shares) ....           114        208,447
Shares issued under option, debentures,
   grant plans and other (2,514 shares) .............            25          9,403         13,507            887
Treasury shares purchased and related costs
   (888 shares) .....................................            (9)
Shares  issued for acquisitions (5,059 shares) ......            51         57,126
                                                        ------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 ..........................   $     2,980    $   788,124    $   179,840    $     3,911
                                                        ============================================================



Net income 1999 .....................................                                     173,563
Other comprehensive income, net of tax:
   Unrealized gains on securities, net
      of reclassification adjustment ................                                                     (3,730)
   Foreign currency translation ($1,424 tax expense)                                                      (2,002)
                                                        -------------------------------------------------------------

Total comprehensive income ..........................       173,563         (5,732)       167,831
Shareholder dividends ...............................      (111,702)      (111,702)
Shares issued under option, debentures,
   grant plans and other (1,979 shares) .............            20          5,076         13,630            806
Treasury shares purchased and related costs
   (7,049 shares) ...................................           (70)       (92,976)       (93,046)
Shares  issued for acquisitions (14,570 shares) .....           145        240,368         26,102        266,615


BALANCE, DECEMBER 31, 1999 ..........................   $     3,075    $ 1,033,568    $   241,701    $    (1,821)



Net income 2000 .....................................       173,827        173,827
Other comprehensive income, net of tax:
   Unrealized gains on securities, net
      of reclassification adjustment ................         2,845          2,845
   Foreign currency translation ($2,741 tax expense)         (3,856)        (3,856)


Total comprehensive income ..........................       173,827         (1,011)       172,816
Shareholder dividends ...............................      (114,321)      (114,321)
Shares issued under option, debentures,
   grant plans and other (2,099 shares) .............            21         (1,655)        18,866            748
Treasury shares purchased and related costs
   (12,637 shares) ..................................          (126)      (135,507)      (135,633)
Shares  issued for acquisitions (1,482 shares) ......            15         (1,514)        16,529         15,030


BALANCE, DECEMBER 31, 2000 ..........................   $     2,985    $ 1,030,399    $   301,207    $    (2,832)

</TABLE>

<TABLE>
<CAPTION>


                                                            TREASURY     RESTRICTED       TOTAL
                                                             STOCK          STOCK        EQUITY
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
<S>                                                     <C>            <C>            <C>
BALANCE, DECEMBER 31, 1997 ..........................   ($   57,582)   ($    4,270)   $   524,438
                                                        ==========================================

Net income 1998 .....................................                                     189,992
Other comprehensive income, net of tax:
   Unrealized gains on securities, net
      of reclassification adjustment ................                                        (485)
   Foreign currency translation ($640 tax expense) ..                                        (947)
                                                        ------------------------------------------
Total comprehensive income ..........................                                     188,560
Shareholder dividends ...............................                                     (75,152)
Shares issued in public offering (11,400 shares) ....                                     208,561
Shares issued under option, debentures,
   grant plans and other (2,514 shares) .............                                      23,822
Treasury shares purchased and related costs
   (888 shares) .....................................      (18,301)                       (18,310)
Shares  issued for acquisitions (5,059 shares) ......       47,390                        104,567
                                                        ------------------------------------------
BALANCE, DECEMBER 31, 1998 ..........................   ($  14,986)   ($    3,383)    $   956,486
                                                        ==========================================


Net income 1999 .....................................                                     173,563
Other comprehensive income, net of tax:
   Unrealized gains on securities, net
      of reclassification adjustment ................                                      (3,730)
   Foreign currency translation ($1,424 tax expense)                                       (2,002)
                                                        ------------------------------------------
Total comprehensive income ..........................
Shareholder dividends ...............................
Shares issued under option, debentures,
   grant plans and other (1,979 shares) .............        19,532
Treasury shares purchased and related costs
   (7,049 shares) ...................................
Shares  issued for acquisitions (14,570 shares) .....

                                                                                     -----------


BALANCE, DECEMBER 31, 1999 ..........................   $   (68,230)   $    (2,577)   $ 1,205,716

                                                                                     ===========



Net income 2000 .....................................
Other comprehensive income, net of tax:
   Unrealized gains on securities, net
      of reclassification adjustment ................
   Foreign currency translation ($2,741 tax expense)

                                                                                     -----------


Total comprehensive income ..........................
Shareholder dividends ...............................
Shares issued under option, debentures,
   grant plans and other (2,099 shares) .............        17,980
Treasury shares purchased and related costs
   (12,637 shares) ..................................
Shares  issued for acquisitions (1,482 shares) ......

                                                                                     -----------

BALANCE, DECEMBER 31, 2000 ..........................   $  (168,342)   $    (1,829)   $ 1,161,588

                                                                                     ===========



</TABLE>


All share data reflect the three-for-two share split in August 1998.

Disclosure of  reclassification  amounts (net of tax) relating to  comprehensive
income (loss):

                                       2000     1999      1998
                                       ----     ----      ----
Unrealized holding gains arising in  $ 12,100 $         $   3,295
period                                          555
Less: gains realized                   (9,255)
                                       ------
                                 (4,285) (3,780)

Net unrealized gains (losses) on     $        $         $
                                     ====     ===       =
securities                           2,845    (3,730)   (485)
                                     =====    =======   =====

See  accompanying  Summary of Significant  Accounting  Policies and Notes to the
Consolidated Financial Statement



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


BUSINESS UNIT REPORTING

  The business of the Company is  primarily  conducted  through  four  operating
segments:  TruGreen,  Terminix, Home Maintenance and Improvement, and Management
Services. In accordance with Statement of Financial Accounting Standards No. 131
(SFAS 131), the Company's  reportable segments are strategic business units that
offer different services.  The TruGreen unit provides residential and commercial
lawn care and landscaping  services  through the TruGreen  ChemLawn and TruGreen
LandCare companies. The Terminix unit provides domestic termite and pest control
services to  residential  and commercial  customers.  The Home  Maintenance  and
Improvement unit includes American Residential  Services,  American Home Shield,
ServiceMaster Clean and Merry Maids. This unit provides heating, ventilation and
air conditioning,  plumbing, and cleaning services to residential and commercial
customers as well as home warranties to consumers.  The Management Services unit
provides a variety of supportive  management services to health care,  education
and commercial accounts.

  The Other Operations unit includes  entities that are managed  separately from
the four major units and aggregated  together in accordance with SFAS 131 due to
their size or developmental  nature.  This unit includes the Company's  European
pest  control  operations;   ServiceMaster  Employer  Services,  a  professional
employer  organization that provides clients with  administrative  processing of
payroll,  workers'  compensation  insurance,   health  insurance,   unemployment
insurance and other employee  benefit plans;  WeServeHomes.com,  a joint venture
offering  home  services  through  the  Internet;   the  Company's  headquarters
operations; and certain non-core businesses that have been sold or discontinued.

Information  regarding the accounting  policies used by the Company is described
in  the  Summary  of  Significant   Accounting  Policies.  The  Company  derives
substantially  all of its revenues from customers in the United States with less
than five  percent  generated  in foreign  markets.  Operating  expenses  of the
business units consist primarily of direct costs.

  Identifiable  assets  are those used in  carrying  out the  operations  of the
business unit and include  intangible assets directly related to its operations.
The Company's  headquarters  facility and other  investments are included in the
identifiable assets of Other Operations.





                                       15
<PAGE>



<TABLE>
<CAPTION>


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands)
                                                                               %                               %
                                                              2000           Change         1999            Change           1998
                                                      -----------------------------------------------------------------------------
<S>                                                       <C>                   <C>   <C>                     <C>        <C>
Operating Revenue:
    TruGreen                                              $ 1,563,704           12%    $ 1,393,917             56%       $ 892,639
    Terminix                                                  733,654            9%        675,813             11%         607,583
    Home Maintenance and Improvement                        1,211,674           34%        903,970            115%         419,658
    Management Services                                     1,906,138            0%      1,897,299              3%       1,838,268
    Other Operations                                          555,445           N/A        832,536             N/A         965,971
                                                      ---------------- -------------  -------------  --------------  --------------
TOTAL OPERATING REVENUE                                   $ 5,970,615            5%    $ 5,703,535             21%     $ 4,724,119
                                                      ================ =============  =============  ==============  ==============

OPERATING INCOME:
    TruGreen                                                $ 172,615          -25%      $ 228,665             19%       $ 192,548
    Terminix                                                   90,594           12%         80,933             16%          69,809
    Home Maintenance and Improvement                          105,588           19%         88,393             66%          53,131
    Management Services                                        66,806          -15%         78,178              3%          75,583
    Other Operations                                          (18,704)          N/A        (92,995)            N/A           5,351
OTHER OPERATIONS EXCLUDING NON-RECURRING ITEMS(1)             (18,704)          N/A         (7,495)            N/A           5,351
                                                      ---------------- -------------  -------------  --------------  --------------
TOTAL OPERATING INCOME                                      $ 416,899            9%      $ 383,174             -3%       $ 396,422
                                                      ================ =============  =============  ==============  ==============
TOTAL OPERATING INCOME, EXCLUDING

  NON-RECURRING ITEMS(1)                                    $ 416,899          -11%      $ 468,674             18%       $ 396,422

CAPITAL EMPLOYED:
    TruGreen                                              $ 1,475,655            3%    $ 1,430,255             67%       $ 857,311
    Terminix                                                  525,913           -1%        532,476             12%         477,389
    Home Maintenance and Improvement                          624,421            6%        590,303            123%         264,968
    Management Services                                        98,829          -19%        121,978             -2%         123,946
    Other Operations                                          254,887          -15%        300,002            -17%         360,654
                                                      ---------------- -------------  -------------  --------------  --------------
TOTAL CAPITAL EMPLOYED                                    $ 2,979,705            0%    $ 2,975,014             43%     $ 2,084,268
                                                      ================ =============  =============  ==============  ==============

IDENTIFIABLE ASSETS:
    TruGreen                                              $ 1,581,523            0%    $ 1,584,460             63%       $ 974,921
    Terminix                                                  694,968            6%        655,790             11%         588,523
    Home Maintenance and Improvement                          980,861           10%        891,971             84%         484,393
    Management Services                                       222,117           -1%        224,694             -6%         237,924
    Other Operations                                          488,199           -5%        513,300            -18%         629,090
                                                      ---------------- -------------  -------------  --------------  --------------
TOTAL IDENTIFIABLE ASSETS                                 $ 3,967,668            3%    $ 3,870,215             33%     $ 2,914,851
                                                      ================ =============  =============  ==============  ==============

DEPRECIATION AND AMORTIZATION EXPENSE:
    TruGreen                                                 $ 64,505           26%       $ 51,222             65%        $ 30,954
    Terminix                                                   28,392            5%         27,045             17%          23,037
    Home Maintenance and Improvement                           29,116           27%         22,867            108%          10,979
    Management Services                                        21,222            9%         19,424            -12%          22,023
    Other Operations                                           14,456          -19%         17,886              2%          17,612
                                                      ---------------- -------------  -------------  --------------  --------------
TOTAL DEPRECIATION AND AMORTIZATION EXPENSE                 $ 157,691           14%      $ 138,444             32%       $ 104,605
                                                      ================ =============  =============  ==============  ==============

CAPITAL EXPENDITURES:
    TruGreen                                                 $ 28,056           18%       $ 23,732             88%        $ 12,608
    Terminix                                                    7,084            9%          6,483             -2%           6,607
    Home Maintenance and Improvement                           14,522           -9%         15,993              3%          15,551
    Management Services                                        15,345          -49%         30,370              2%          29,757
    Other Operations                                           11,596           -5%         12,176             13%          10,774
                                                      ---------------- -------------  -------------  --------------  --------------
TOTAL CAPITAL EXPENDITURES                                   $ 76,603          -14%       $ 88,754             18%        $ 75,297
                                                      ================ =============  =============  ==============  ==============
</TABLE>

(1)  In 1999, the Other Operations  segment included the $50 million pretax gain
     related to the sales of the Premier  automotive  business and the Company's
     remaining 15 percent interest in ServiceMaster  Energy Management,  and the
     $136 million  pretax  charge  related to the  Diversified  Health  Services
     operation,  which included  write-downs  for the  impairment of assets.  In
     1998,  the Other  Operations  segment  included a $38  million  pretax gain
     related to the formation of a strategic  venture which  acquired 85% of the
     assets of ServiceMaster  Energy  Management and pretax charges totaling $38
     million  related  primarily  to the  home  health  care  operations,  which
     included a write-down  for the  impairment of assets and costs  relating to
     exiting customer arrangements.


                                       16
<PAGE>




NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

REINCORPORATION

  Most  operations  of  ServiceMaster  and  its  subsidiary   partnerships  were
conducted from 1986 through 1997 in partnership  form, free of federal corporate
income tax. Had ServiceMaster remained a partnership,  the Internal Revenue Code
would have imposed a federal corporate tax on ServiceMaster operations beginning
in 1998. In anticipation of this change,  the  shareholders  approved a tax-free
plan of reorganization  to return to corporate form. The  ServiceMaster  Company
was  created as part of this plan and it became  the  successor  entity  through
which the public invests in ServiceMaster. At the time of reincorporation,  each
outstanding   limited   partnership  share  was  converted  into  one  share  of
ServiceMaster  par value common stock.  No federal  income taxes were imposed on
the shareholders as a result of the reincorporation.

INCOME TAXES

The reconciliation of income tax computed at the U.S. federal statutory tax rate
to the Company's effective income tax rate is as follows:

                                       2000      1999      1998
                                       ----      ----      ----
Tax at U.S. federal statutory rate     35.0%     35.0%      35.0%

State and local income taxes,
   net of U.S. federal benefit          4.2%      4.2%       4.4%
Non-deductible amortization             1.9%      1.5%         -
Other                                   0.8%      0.7%       1.0%
                                       -----     -----       -----
Effective rate                         41.9%     41.4%      40.4%
                                       =====     =====      =====


  Income tax expense is as follows:

                                          2000
                          --------------------------------------
(In thousands)               CURRENT       DEFERRED      TOTAL
                            ---------     ----------   ---------
U.S. federal                 $ 42,300      $64,200     $106,500
State and local                 6,800       12,200       19,000
                             --------     --------     --------
                             $ 49,100      $76,400     $125,500
                             ========      =======     ========

                                          1999
                          --------------------------------------
(In thousands)              CURRENT     DEFERRED       TOTAL
                            -------     --------       -----
U.S. federal                 $ 76,830    $26,400     $103,230
State and local                14,000      5,400       19,400
                            ---------   ---------    --------
                             $ 90,830    $31,800     $122,630
                             ========    =======     ========

                                          1998
                          --------------------------------------
(In thousands)              CURRENT     DEFERRED       TOTAL
                            -------     --------       -----
U.S. federal                 $ 76,646    $30,200     $106,846
State and local                15,740      6,200       21,940
                             --------   ---------  -----------
                             $ 92,386    $36,400     $128,786
                             ========    =======     ========



 Deferred income tax expense results from timing  differences in the recognition
of income and expense for income tax and financial reporting purposes.  Deferred
income tax balances reflect the net tax effects of temporary differences between
the carrying  amounts of assets and  liabilities  for  financial  reporting  and
income tax purposes.  As a result of the reincorporation at the end of 1997, the
Company  recognized a step-up in the tax basis of its intangible  assets.  These
assets are amortized over 15 years with the associated book assets assuming a 40
year life.  Management  believes  that,  based upon its lengthy  and  consistent
history of  profitable  operations,  it is probable that its deferred tax assets
will be realized on future tax returns,  primarily from the generation of future
taxable  returns,  primarily  from  the  operation  of  future  taxable  income.
Significant components of the Company's deferred tax balances are as follows:

                                                  2000            1999
                                                  ----            ----
(In thousands)

Deferred tax assets (liabilities):

  Current:
  Prepaid expenses and other                   $ (21,500)       $ (26,700)
  Accounts receivable allowance                   15,100           12,900
  Accrued insurance and
    related expenses                              22,000           24,900
  Other accrued expenses                            (250)          33,600
                                               ----------       -----------
        Total current asset                       15,350           44,700

  Long-Term:
  Long-term assets                              (130,800)         (43,100)
  Insurance expenses                              32,600           32,300
  Other long-term obligations                    (16,950)          (9,000)
                                               ----------       -----------
   Total long term (liability)                  (115,150)         (19,800)
                                               ----------       -----------

Net deferred tax asset (liability)             $ (99,800)       $  24,900
                                               =========        =========

Total tax payments in 2000, net of refunds, were $38 million. In 1999 there were
$177 million of tax  payments,  which  included $79 million for the 1998 federal
taxes that were deferred into 1999. Total tax payments in 1998 were $8 million.



                                       17
<PAGE>

ACQUISITIONS

  Acquisitions   have  been  accounted  for  using  the  purchase   method  and,
accordingly,  the results of  operations  of the acquired  businesses  have been
included in the Company's consolidated financial statements since their dates of
acquisition. The assets and liabilities of these businesses were recorded in the
financial statements at their estimated fair market values as of the acquisition
dates.

CURRENT YEAR

  During 2000, the Company acquired many small companies,  primarily in the lawn
care,  heating/air  conditioning  and  plumbing,  pest  control and  landscaping
businesses.  The aggregate fair market value of the net assets acquired was $214
million, with approximately $162 million of goodwill.

  In January 2001, the Company acquired the Allied Bruce Terminix companies, the
Company's largest Terminix franchise and the fourth largest pest control company
in the United States. The total consideration consisted of an equity interest in
the Terminix subsidiary,  which is exchangeable into eight million ServiceMaster
common shares and  longer-term  cash  payments due over nine years  totaling $25
million.  This  transaction  is not  expected  to have a material  impact on the
Company's 2001 earnings per share. PRIOR YEARS

 During 1999, the Company completed two significant acquisitions. In March 1999,
the Company  acquired  LandCare USA  (LandCare)  which,  when  combined with the
existing  landscape  operations of the Company,  created the largest  commercial
landscaping  company in the United States.  In April 1999, the Company  acquired
American  Residential  Services  (ARS),  establishing  the Company as one of the
nation's  leading  providers  of  heating,  ventilation,  and  air  conditioning
services. The fair market values of the assets acquired less liabilities assumed
for  LandCare  and  ARS  acquisitions   were  $331  million  and  $292  million,
respectively.  The excess of the  consideration  paid over the fair value of the
tangible  assets  relating to LandCare and ARS  businesses  was $251 million and
$225 million, respectively,  which was recorded as goodwill and trade names that
are being amortized over 40 years.

  As of the acquisition dates, certain members of management  acquired,  at fair
market value, equity interests in the landscaping operations and the heating/air
conditioning and plumbing  operations.  As a result of the decision to integrate
the landscape and lawn care operations,  the equity interests in the landscaping
operations were repurchased in 2000 at fair market value. In early 2001,  equity
interests in the combined  TruGreen segment were offered for sale at fair market
value to management investors. The Company and the holders of minority interests
in the combined  TruGreen  business  unit and in  heating/air  conditioning  and
plumbing  operations  have  respective  options to acquire or sell the  minority
interests in the future at a price to be determined  based on fair market value.
The  future  acquisition  of  these  minority  interests  will  be  recorded  as
additional purchase cost at the time of payment.

  Also during 1999, the Company  acquired many smaller  companies,  primarily in
the  landscaping,  lawn care and pest control  businesses.  The  aggregate  fair
market value of the assets acquired less liabilities assumed for these purchases
was $315 million, including approximately $278 million of goodwill.

  In 1998,  the Company  completed a number of  acquisitions,  including  Rescue
Industries,  Inc.  (Rescue),  Ruppert  Landscape  Company  (Ruppert),   National
Britannia and other lawn care,  landscape and pest control  businesses.  Rescue,
which  operates  under the Rescue  Rooter  trade  name,  was one of the  largest
plumbing  and  drain  cleaning  companies  in  America.  Ruppert  was one of the
Mid-Atlantic's  largest commercial landscape  companies.  National Britannia was
the third largest pest control company in the United Kingdom. The aggregate fair
market  value  of  the  assets  acquired  less  liabilities  assumed  for  these
acquisitions  was $143 million,  which  consisted  almost  entirely of goodwill.
During 1998, the Company  acquired a number of smaller  companies,  primarily in
the lawn care,  landscaping  and pest control  businesses.  The  aggregate  fair
market  value  of  the  net  assets   acquired  was  $293   million,   including
approximately $249 million of goodwill.

  Supplemental cash flow information regarding the Company's  acquisitions is as
follows:


<PAGE>





 (In thousands)                          2000           1999            1998
                                         ----           ----            ----
 Fair value of assets acquired       $   253,669    $ 1,078,105    $   459,400
 Less liabilities assumed                (40,149)      (140,477)       (23,167)
                                     ------------    -----------    -----------
 Net assets acquired                 $   213,520    $   937,628    $   436,233


 Net cash paid for acquisitions      $   152,306    $   510,512    $   222,452
 Shares issued                            15,030    $   266,615    $   104,567
 Seller financed and assumed debt         46,184        160,501    $   109,214
                                     -----------    -----------    ------------
 Payment for acquisitions            $   213,520    $   937,628    $   436,233




                                       18
<PAGE>



DISPOSITIONS

CURRENT YEAR

  In September  2000,  the Company sold its interior plant care business for $44
million  in cash.  The  transaction  did not  materially  impact  the  Company's
operating  results for the year.  This sale  represents the Company's  continued
focus on the growth and investment in its core businesses.

  Also in September 2000, the Company  announced the sale of Diversified  Health
Services,  a company that manages long-term care facilities,  to a company which
is owned and operated by a group of former senior managers of Diversified Health
Services.  ServiceMaster  has retained its  ownership  interest in five assisted
living facilities;  however, these facilities will be operated by the new owners
of the Diversified  Health  Services  business.  The sale of Diversified  Health
Services is  consistent  with the  Company's  previously  announced  strategy to
reduce its  operational  involvement in the long-term care industry.  Last year,
the Company  completed a strategic  review and  assessment  of the services that
comprised the Diversified Health Services operation,  considering the changes in
reimbursement  and  compliance  policies  as  well  as the  resulting  financial
difficulties  of a number of its customers.  Based on the review of the business
and the credit risks involved,  the Company  substantially  reduced the scope of
the  services it offered.  As a result of this review,  the Company  recorded an
after-tax  charge of $81  million in the  second  quarter  of 1999  relating  to
Diversified  Health  Services.  The following  summarizes  the components of the
charge:

(AFTERTAX, IN MILLIONS)

Write-down of impaired assets,
  primarily goodwill                                  $ 51
Write-down of receivables,
  loans, and investments in nursing homes               19
Provisions for losses on contractual requirements
  and exit costs of certain ancillary services          11
                                                      ----
Total                                                 $ 81
                                                      ====

  Substantially all of the reserves that were in 1999 were appropriately used in
2000 and were deemed to have been  adequate.  No gain or loss was realized  from
the final sale transaction in 2000. The results of operations of the Diversified
Health Services business were not material to the Company's financial statements
for the periods presented.

PRIOR YEARS

  On April 21, 1999,  the Company sold its Premier  business  unit to Durr AG of
Germany for $76 million. Premier provides cleaning services for paint booths and
other  related  maintenance  services in the  automotive  industry.  The Company
believes that alliances or significant  incremental  investments would have been
required to remain  competitive  in this industry.  The sale of Premier  allowed
ServiceMaster  to realize the significant  appreciation in its investment and to
reinvest  the  proceeds  in  initiatives  more  central  to the  Company's  core
strategies.  The sale resulted in an after-tax gain of approximately $25 million
($42 million pretax).

In 1998, the Company formed a strategic venture with Texas Utilities Company for
the ownership and operation of the ServiceMaster Energy Management business. The
venture  acquired all of the assets of ServiceMaster  Energy  Management and was
owned 85  percent by Texas  Utilities  and 15  percent  by  ServiceMaster.  This
transaction  resulted in a pretax gain of $38 million.  During 1999, the Company
sold its remaining 15% interest in the venture,  which resulted in and after-tax
gain of $5 million ($8 million pretax).

  In late 1998, the Company completed a strategic review of its
Home Health Care operations and concluded that, without significant  investment,
it could not profitably  provide high quality service in the future and continue
to  satisfy  all  the  changes  and  the   requirements   of  new   governmental
reimbursement  programs.  Consequently,  in late 1998, the Company determined to
discontinue  its  activities  in the Home Health Care  business  and  recognized
certain  impairment  losses and wrote off certain  accounts  receivable.  At the
time, the Company also established  after-tax  reserves of $5 million related to
the costs  associated with exiting certain  customer  arrangements.  The Company
substantially  completed  the exit of direct Home Health Care  operations in the
first  quarter  of 1999,  and  determined  that the  reserve  was  adequate  and
appropriate. The results of operations of the Home Health Care business were not
material to the Company's financial results for the periods presented.

COMMITMENTS AND CONTINGENCIES

  The Company carries insurance policies on insurable risks which it believes to
be appropriate.  The Company generally has self-insured retention limits and has
obtained  fully insured  layers of coverage  above such  self-insured  retention
limits.  Accruals  for self  insurance  losses are made  based on the  Company's
claims experience and actuarial assumptions. 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.



                                       19
<PAGE>

  In June 1996,  Ray D.  Martin,  a former  salesman  employed by  ServiceMaster
Management  Services,  filed a  lawsuit  in the State  Court of  Fulton  County,
Georgia.  The complaint as originally filed,  contended that the Company had not
paid him the  full  amount  of  commissions  due to him.  In the  course  of the
pre-trial  proceedings,  the trial court entered a default  judgment against the
Company,  leaving the  question  of damages to be  considered  at the trial.  In
September 1999, the jury awarded the plaintiff  compensatory damages and fees of
approximately $1 million and punitive damages of $135 million.  In October 1999,
the Company filed a motion for judgment  notwithstanding  the verdict or, in the
alternative,  for a new trial.  On June 1, 2000,  the trial court  entered a new
judgment in the amount of $461,440  in  compensatory  damages and $45 million in
punitive damages, as well as amounts for attorney fees and interest. The Company
filed a notice of appeal that same day. On June 13,  2000,  Mr.  Martin  filed a
notice of  cross-appeal.  The  Company  expects  that the  appeal  will be fully
briefed and argued in the court of appeals in May of 2001. The Company  believes
that the award of $45 million in punitive  damages is not supported by the facts
of the case or by applicable state law and that the judgment will be reversed by
the court of appeals. Under Georgia law, a judgment accrues interest at the rate
of 12 percent  per  annum.  The  Company  continues  to be unable to  reasonably
estimate the ultimate outcome of this case, and accordingly, minimal expense has
been  recorded.  In the event that the existing  judgment is  sustained,  or the
original  judgment is reinstated  after all appeals (which is not anticipated by
the Company),  it would be likely that the Company's results of operations for a
particular  year may be  materially  adversely  affected.  However,  the Company
believes,  based on advice from legal counsel, that the ultimate outcome of this
litigation  is not expected to have a material  adverse  effect on the Company's
financial condition or results of operations.

EMPLOYEE BENEFIT PLANS

  Contributions  to qualified  profit  sharing  plans were made in the amount of
$11.7 million in 2000, $11.6 million in 1999 and $9.9 million in 1998. Under the
Employee Share Purchase Plan, the Company contributed $1.2 million in 2000, $1.3
million in 1999 and $1.2 million in 1998.  These funds defrayed part of the cost
of the shares purchased by employees.



                                       20
<PAGE>




LONG-TERM DEBT

<TABLE>
<CAPTION>


          Long-term debt includes the following:

          (In thousands)                                                     2000                    1999
         --------------------------------------------------------------------------------------------------
          <S>                                                         <C>                   <C>
          Notes Payable:
            10.57%, maturing in 2000..................................$          --         $        9,000
             8.38%, maturing in 2001..................................       10,000                 20,000
            10.81%, maturing in 2001 - 2002...........................       36,700                 55,000
             6.65%, maturing in 2002 - 2004...........................       70,000                 70,000
              8.45%, maturing in 2005.................................      250,000                    -
             7.40%, maturing in 2006..................................      125,000                125,000
             6.95%, maturing in 2007..................................      100,000                100,000
             7.88%, maturing in 2009..................................      250,000                250,000
             7.10%, maturing in 2018..................................      149,000                150,000
             7.45%, maturing in 2027..................................      200,000                200,000
             7.25%, maturing in 2038..................................      150,000                150,000
          Revolving credit facilities ................................      248,615                382,500
          International borrowings....................................       90,979                 93,048
          Other.......................................................      137,823                164,750
          Less current portion.........................................     (61,360)               (71,716)
                                                                       -------------         --------------

          Total long-term debt........................................$   1,756,757         $    1,697,582
                                                                       ============          =============
</TABLE>



  The Company is party to a number of long-term debt  agreements that require it
to  comply  with  certain   financial   covenants,   including   limitations  on
indebtedness,  restricted payments,  fixed charge coverage ratios and net worth.
The Company has been and currently is in compliance  with the covenants  related
to these debt agreements.

  Since August 1997,  ServiceMaster  has issued $1.1 billion of senior unsecured
debt securities  pursuant to registration  statements  filed with the Securities
and Exchange Commission.

  As of  year-end,  ServiceMaster  had $550  million  of senior  unsecured  debt
securities and equity interests  available for issuance under an effective shelf
registration statement.

  The Company has a committed  revolving  credit facility for up to $750 million
maturing in April 2002. The facility can be used for general  Company  purposes.
The  revolving  credit  facility  had $520  million of unused  commitment  as of
December 31, 2000.

  The Company is exposed to interest  rate  fluctuations  on its  floating  rate
debt.  As of year-end,  the Company had  approximately  $215 million in floating
rate borrowings after considering swap agreements. The Company has, from time to
time,  entered into interest rate swap or similar  arrangements  to mitigate its
exposure to  interest  rate  fluctuations,  and does not, as a matter of policy,
enter into hedging contracts for trading or speculative  purposes.  In May 1999,
the Company  entered into a three-year  interest rate swap  agreement to fix the
interest  rate on $175 million of floating  rate bank  borrowings  at an average
rate of 5.88 percent. As of December 2000, $50 million of this swap was unwound,
leaving the remaining $125 million at an average rate of 5.97 percent.

  Cash interest payments were $131 million in 2000, $97 million in 1999, and $88
million in 1998.  Average rates paid on the revolving  credit  facility were 6.6
percent in 2000, 5.5 percent in 1999, and 5.9 percent in 1998.  Future scheduled
long-term debt payments are $61.4 million in 2001 (average rate of 5.4 percent),
$62.6  million in 2002  (average  rate of 6.1  percent),  $51.9  million in 2003
(average  rate of 4.8  percent),  $47.0  million  in 2004  (average  rate of 5.3
percent) and $259.5  million in 2005 (average  rate of 8.3 percent).  The $248.6
million  revolving  credit facility balance as of year-end has not been included
in the scheduled  payments above as the Company  expects to extend the revolving
credit facility beyond 2005.

  Based  upon  the  borrowing  rates  currently  available  to the  Company  for
long-term  borrowings  with  similar  terms and  maturities,  the fair  value of
long-term debt is approximately $1.5 billion.

  Future long-term  noncancelable  operating lease payments are $59.8 million in
2001, $49.6 million in 2002, $41.0 million in 2003, $32.3 million in 2004, $22.8
million in 2005 and $60.8 million thereafter. Rental expense for 2000, 1999, and
1998 was $160.3 million, $137.9 million, and $103.8 million, respectively.

  The Company  maintains  operating  lease  facilities  with banks  totaling $95
million which provide for the  acquisition  and  development of properties to be
leased by the Company.  The Company has  guaranteed  the  residual  value of the
properties  under the lease up to 82  percent  of the fair  market  value at the
commencement  of the lease.  The Company  does not expect to be required to make
residual  value  payments and,  therefore,  no amounts have been included in the
future  payments  above.  At December  31, 2000,  approximately  $79 million was
funded under these facilities.

CASH AND MARKETABLE SECURITIES

  Marketable  securities  held at December 31, 2000 and 1999, with maturities of
three months or less,  are  included in the  Statements  of  Financial  Position
caption "Cash and Cash  Equivalents."  Marketable  securities  are designated as
available for sale and recorded at current market value,  with unrealized  gains
and losses  reported  in a  separate  component  of  shareholders'  equity.  The
Company's  investments  consist  primarily  of  publicly-traded  debt and common
equity  securities.


                                       21
<PAGE>

As of December 31, 2000, the aggregate  market value of the Company's short- and
long-term  investments in debt and equity  securities was $126.4 million and the
aggregate cost basis was $114.8 million.

  Interest and dividend  income  received on cash and marketable  securities was
$10.0  million,  $9.0  million  and $8.9  million,  in  2000,  1999,  and  1998,
respectively.  Gains and  losses on sales of  investments,  as  determined  on a
specific  identification  basis, are included in investment income in the period
they are realized.

COMPREHENSIVE INCOME

  The  Company  reports  all  changes in equity  during a period,  except  those
resulting from investment by owners and  distribution  to owners.  Comprehensive
Income, which encompasses net income,  unrealized gains on marketable securities
and the effect of foreign currency translation, is disclosed in the Statement of
Shareholders' Equity.

(in thousands)                  2000        1999         1998
                                ----        ----         ----
Unrealized holding gains

  arising in period           $20,578       $1,026      $5,529
Tax expense                     8,478          471       2,234
                                -----       ------      ------
Net of tax amount             $12,100       $ 555       $3,295
                              =======       ======      ======

Gains realized                $15,713       $7,239      $6,342
Tax expense                     6,458        2,954       2,562
                              -------       ------      ------
Net of tax amount              $9,255       $4,285      $3,780
                              =======       ======      ======

Accumulated  comprehensive income (loss) included the following components as of
December 31:

(in thousands)                  2000         1999         1998
                                ----         ----         ----
Unrealized gain on
  securities                  $ 6,868       $ 4,023      $7,753
Foreign currency
  translation                  (9,700)       (5,844)     (3,842)
                              ------------  --------     --------
Total                         $   (2,832)   $   (1,821)   $3,911
                              ===========   ===========  ========



SHAREHOLDERS' EQUITY

 The Company has  authorized one billion shares of common stock with a par value
of $.01 and 11  million  shares  of  preferred  stock.  There  are no  shares of
preferred stock issued or outstanding. In December 1997, ServiceMaster converted
from a  publicly-traded  limited  partnership to a  corporation.  At the time of
reincorporation,  each outstanding  limited partnership share was converted into
one share of common stock on a tax-free  basis to the  shareholders.  The shares
underlying the obligations and rights relating to the employee option plans also
were  converted  from  partnership  shares to corporate  stock on a  one-for-one
basis.

  The Company has an effective shelf  registration  statement to issue shares of
common stock in connection with future,  unidentified acquisitions.  This filing
allows  the  Company  to issue  registered  shares  much more  efficiently  when
acquiring  privately-held  companies.  The Company  plans to use the shares over
time in connection  with purchases of small strategic  acquisitions.  There were
approximately 4.7 million shares available at year end.

  As of December 31, 2000,  there were 39.9 million Company shares available for
issuance upon the exercise of employee  options  outstanding  and future grants.
Share  options are issued at a price not less than the fair market  value on the
grant date.  Certain  options  may permit the holder to pay the option  exercise
price by  tendering  Company  shares that have been owned by the holder  without
restriction for an extended period.  Share grants carry a vesting period and are
restricted as to the sale or transfer of the shares.



                                       22
<PAGE>

The Company  accounts for employee  share  options under  Accounting  Principles
Board Opinion 25, as permitted under generally accepted  accounting  principles.
Accordingly,  no  compensation  cost has  been  recognized  in the  accompanying
financial  statements related to these options.  Had compensation cost for these
plans  been  determined   consistent  with  Statement  of  Financial  Accounting
Standards  No.  123  (SFAS  123),  which is an  accounting  alternative  that is
permitted but not required,  pro forma net income and net income per share would
reflect the following:

(In  thousands,  except per share     2000       1999       1998
                                      ----       ----       ----
data)
Net Income:
   As reported                      $173,827   $173,563   $189,992
   SFAS 123 pro forma               $165,657   $166,601   $185,555

Net Income Per Share:
   Basic:     As reported             $.57       $.56       $.66
              SFAS 123 pro forma      $.55       $.54       $.64


   Diluted:  As reported              $.57       $.55       $.64
             SFAS 123 pro forma       $.54       $.53       $.62


  The SFAS 123 pro forma net income  reflects  options granted in 2000, 1999 and
1998.  Had awards been  granted in earlier  years that carried  similar  vesting
requirements as the current  options,  then the pro forma  compensation  expense
presented would have been higher. Consequently,  the pro forma disclosure is not
indicative of pro forma results which may be expected in future years.

  The fair value of each option is  estimated  on the date of grant based on the
Black-Scholes   option   pricing  model  with  the  following   weighted-average
assumptions in 2000,  1999, and 1998:  risk-free  interest rates of 6.1 percent,
5.4 percent and 5.6 percent,  respectively;  volatility rates of 29 percent,  25
percent and 22 percent,  respectively;  distribution yields of 4.1 percent,  2.5
percent and 1.9  percent,  respectively;  and average  expected  lives of six to
seven  years.  The  options  granted to  employees  in 2000,  1999 and 1998 have
weighted-average  fair values of $2.19, $4.15, and $5.17,  respectively and vest
ratably over five years.  The Company has  estimated  the value of these options
assuming a single weighted-average expected life for the entire award.


                                       23
<PAGE>




Option and grant transactions during the last three years are summarized below:


<PAGE>

<TABLE>
<CAPTION>


                                           Share             Price            Weighted Average          Share             Price
                                          Options            Range             Exercise Price           Grants            Range
===================================================================================================================================
===================================================================================================================================

<S>                                        <C>          <C>                    <C>                    <C>           <C>
Total exercisable, December 31, 1997        6,919,718   $    0.73 - 10.78      $     6.05               --                    --
Total outstanding, December 31, 1997       15,320,157   $    0.73 - 18.42      $     8.65             1,256,106     $  2.86 - 7.96

TRANSACTIONS DURING 1998

     Granted to employees                   3,574,376   $   15.74 - 22.77      $     18.29              --                    --
     Exercised, paid, or vested            (1,604,784)  $    2.25 - 11.22      $     6.29              (293,376)    $  2.86 - 7.96
     Terminated or resigned                  (377,023)  $    0.73 - 18.26      $     8.57               --                    --

Total exercisable, December 31, 1998        7,269,279   $    0.73 - 22.33      $     7.51               --                    --
Total outstanding, December 31, 1998       16,912,726   $    0.73 - 22.77      $     10.89              962,730     $  2.86 - 7.96

TRANSACTIONS DURING 1999

     Granted to employees                   6,599,732   $   11.50 - 21.16      $     15.55              --                    --
     Assumed in acquisitions                1,779,395   $    6.48 - 45.79      $     19.02              --                    --
     Exercised, paid, or vested            (1,355,345)  $    0.73 - 18.26      $     7.61              (248,900)    $  2.86 - 7.96
     Terminated or resigned                  (435,069)  $    0.73 - 45.79      $     19.32              --                    --

Total exercisable, December 31, 1999       10,006,644   $    2.24 - 45.79      $     10.37              --                    --
Total outstanding, December 31, 1999       23,501,439   $    2.24 - 45.79      $     12.85               713,830     $  2.86 - 7.96

TRANSACTIONS DURING 2000

     Granted to employees                   4,326,164   $    8.48 - 12.55      $     9.71               --                    --
     Exercised, paid, or vested              (591,517)  $    2.24 - 14.55      $     9.31              (231,474)    $  2.86 - 7.96
     Terminated or resigned                  (966,857)  $    2.25 - 37.61      $     12.86              --                    --

Total exercisable, December 31, 2000       11,985,121   $    2.24 - 45.79      $     11.57              --                    --
Total outstanding, December 31, 2000       26,269,229   $    2.24 - 45.79      $     12.43              482,356     $  2.86 - 7.96

===================================================================================================================================
===================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>

Options outstanding at December 31, 2000:

                               Number
         Range of            Outstanding        Remaining       Weighted Average       Number Exercisable        Weighted Average
        Exercise Prices     at 12/31/00           Life           Exercise Price           at 12/31/00             Exercise Price
===================================================================================================================================
===================================================================================================================================

    <S>                         <C>             <C>                  <C>                   <C>                      <C>
    $  2.24 -    6.44           2,052,204       3.0 years            $     5.59            2,052,204                $         5.59
        6.48 -  10.78           7,584,324       5.0 years                  8.93            3,565,686                          8.83
       11.22 -  15.94           9,200,850       8.0 years                 11.68            3,823,012                         12.00
       16.12 -  22.77           7,121,916       8.0 years                 18.19            2,298,520                         18.27
        27.20 - 45.79             309,935       6.0 years                 32.99              245,699                        31.58
-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
    $    2.24 - 45.79          26,269,229       7.0 years            $    12.43            11,985,121               $        11.57
===================================================================================================================================
===================================================================================================================================

</TABLE>

                                       24
<PAGE>



EARNINGS PER SHARE

  Basic earnings per share is computed by dividing income
available to common stockholders by the weighted-average
number of shares outstanding for the period. Diluted earnings per share reflects
the potential dilution of convertible  securities and options to purchase common
stock.

  The following  chart  reconciles both the numerator and the denominator of the
basic earnings per share computation to the numerator and the denominator of the
diluted earnings per share computation:


<PAGE>
<TABLE>
<CAPTION>


                                                   For year ended 2000          For year ended 1999       For year ended 1998
                                             ---------------------------------------------------------- -------------------------
(In thousands, except per share data)         Income     Shares       EPS      Income   Shares   EPS     Income   Shares    EPS
                                             ---------- ---------- ---------- ------------------------- ------------------ ------

<S>                                          <C>          <C>         <C>     <C>       <C>     <C>     <C>       <C>      <C>
BASIC EPS                                    $ 173,827    302,487     $ 0.57  $ 173,563 307,637 $ 0.56  $ 189,992 289,315  $ 0.66
EFFECT OF DILUTIVE SECURITIES, NET OF TAX:

    Options                                                 3,031                         6,769                     9,391
    Convertible debentures                           -          -                     -       -                32     181
                                             ---------- ----------            ---------- --------        ---------- --------

DILUTED EPS                                  $ 173,827    305,518     $ 0.57  $ 173,563 314,406 $ 0.55  $ 190,024 298,887  $ 0.64
                                             ========== ==========    ======= ========== ======= ====== ========= =======  ======


</TABLE>





                                       25
<PAGE>




QUARTERLY OPERATING RESULTS

Quarterly  operating  results  and  related  growth for the last three  years in
revenues,  gross profit,  net income, and basic and diluted net income per share
are shown in the table below.  For interim  accounting  purposes,  certain costs
directly  associated  with the  generation  of lawn care  revenues are initially
deferred and recognized as expense as the related revenues are recognized.  Full
year results are not affected.

Certain  amounts from prior periods have been  reclassified  to conform with the
  current  presentation.  As discussed in the "Change in  Accounting  Principle"
  note,

the  Company  adopted  SAB 101  effective  January 1,  2000.  The impact of this
accounting change on 2000 is below.
<TABLE>
<CAPTION>

                                                   AS PREVIOUSLY REPORTED                   ADJUSTED TO RETROACTIVELY APPLY SAB 101
                                              --------------------------------------------------------------------------------------
                                              --------------------------------------------------------------------------------------
(Unaudited, in thousands, except per share data)   2000             1999          1998          2000           1999         1998
-------------------------------------------------------------- ---------------------------------------------------------------------
-------------------------------------------------------------- ---------------------------------------------------------------------

OPERATING REVENUE:

<S>                                               <C>             <C>            <C>           <C>          <C>            <C>
First Quarter                                     $ 1,346,505     $ 1,115,062    $ 981,788     $ 1,340,884  $ 1,109,491    $ 976,620
Second Quarter                                      1,626,359       1,537,074    1,244,627       1,614,695    1,520,352    1,231,953
Third Quarter                                       1,586,260       1,584,225    1,273,093       1,591,484    1,588,798    1,275,026
Fourth Quarter                                          N/A        1,467,174    1,224,611       1,423,552    1,475,157    1,230,559
                                                                   ----------   ----------      ----------   ----------   ---------
                                                                  $ 5,703,535   $4,724,119     $ 5,970,615  $ 5,693,798  $ 4,714,158
GROSS PROFIT:

First Quarter                                       $ 261,089       $ 215,247    $ 186,991       $ 256,068    $ 209,140    $ 182,086
Second Quarter                                        394,841         368,237      293,261         389,652      355,423      284,031
Third Quarter                                         348,407         359,885      316,718         354,013      364,818      319,371
Fourth Quarter                                            N/A         301,131      247,537         274,415      307,742      252,355
                                                                     --------     --------        --------     --------     -------
                                                                  $ 1,244,500   $1,044,507     $ 1,274,148  $ 1,237,123  $ 1,037,843
NET INCOME:

First Quarter                                        $ 39,011        $ 35,609     $ 29,270        $ 36,054     $ 31,994     $ 26,347
Second Quarter                                         69,371          18,035       56,404          66,315       10,449       50,904
   BEFORE NON-RECURRING ITEMS                          69,371          69,335       56,404          66,315       61,749       50,904
Third Quarter                                          47,484          66,637       56,352          50,786       69,557       57,933
Fourth Quarter                                            N/A          53,282       47,966          31,833       56,337       50,837
                                                                      -------      -------         -------      -------      ------
Net income                                                          $ 173,563    $ 189,992       $ 184,988    $ 168,337    $ 186,021

   BEFORE NET NON-RECURRING ITEMS                                   $ 224,863     $189,992       $ 184,988    $ 219,637    $ 186,021

BASIC NET INCOME PER SHARE:

First Quarter                                          $ 0.13          $ 0.12       $ 0.11          $ 0.12       $ 0.11       $ 0.10
Second Quarter                                           0.23            0.06         0.20            0.22         0.03         0.18
   BEFORE NON-RECURRING ITEMS                            0.23            0.22         0.20            0.22         0.19         0.18
Third Quarter                                            0.16            0.21         0.19            0.17         0.22         0.20
Fourth Quarter                                            N/A            0.17         0.16            0.11         0.18         0.17
                                                                        -----        -----           -----        -----        ----
Basic net income per share                                             $ 0.56       $ 0.66          $ 0.62       $ 0.54       $ 0.65

   BEFORE NET NON-RECURRING ITEMS                                      $ 0.73       $ 0.66          $ 0.62       $ 0.71       $ 0.65

DILUTED NET INCOME PER SHARE:

First Quarter                                          $ 0.13          $ 0.12       $ 0.10          $ 0.12       $ 0.11       $ 0.09
Second Quarter                                           0.22            0.06         0.19            0.21         0.03         0.17
   BEFORE NON-RECURRING ITEMS                            0.22            0.22         0.19            0.21         0.19         0.17
Third Quarter                                            0.16            0.21         0.19            0.17         0.22         0.20
Fourth Quarter                                            N/A            0.17         0.16            0.11         0.18         0.17
                                                                        -----        -----           -----        -----        ----
Diluted net income per share                                           $ 0.55       $ 0.64          $ 0.61       $ 0.53       $ 0.63

   BEFORE NET NON-RECURRING ITEMS                                      $ 0.72       $ 0.64          $ 0.61       $ 0.70       $ 0.63


CASH DIVIDENDS PER SHARE:

First Quarter                                          $ 0.09          $ 0.09       $ 0.08
Second Quarter                                           0.09            0.09         0.08
Third Quarter                                            0.10            0.09         0.08
Fourth Quarter                                          0.10            0.09         0.09
                                                        -----           -----        ----
                                                       $ 0.38          $ 0.36       $ 0.33
PRICE PER SHARE:

First Quarter                                        $14.94 - 10.69        $  22.00 - 17.50   $ 19.63 - 16.50
Second Quarter                                        13.75 - 10.63           20.94 - 17.31     25.50 - 17.92
Third Quarter                                         11.50 -  8.38           11.50 - 8.38      24.75.- 19.75
Fourth Quarter                                        11.50 -  8.25           11.50 - 8.25      23.816- 16.00


</TABLE>


All share and per share data  reflect  the  three-for-two  share split in August
1998.



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