SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.         

        The aggregate market value of the voting stock held by nonaffiliates (affiliates being, for this purpose only, directors, executive officers and holders of more than 5 percent of the Company's Class A common stock) of the Registrant as of January 16, 2001, was approximately $213,000,000.

The number of shares of the Registrant's Class A common stock, no par value per share, and Class B common stock, no par value per share, outstanding as of January 16, 2001, was 103,618,686 and 3,555,020, respectively.

 DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement in connection with the 2001 annual meeting of shareholders, incorporated in Part III of this Report.

Cautionary Note

        This Annual Report of Stewart Enterprises, Inc. (the "Company") on Form 10-K contains forward-looking statements in which the Company's management discusses factors it believes may affect the Company's performance in the future. Such statements typically are identified by terms expressing future expectations or projections of revenues, earnings, earnings per share, cash flow, capital expenditures, acquisition expenditures, internal growth initiatives, gross profit margin, the Company's ability to refinance debt and other financial items. All forward-looking statements, although made in good faith, are based on assumptions about future events and are therefore inherently uncertain, and actual results may differ materially from those expected or projected. Important factors that may cause the Company's actual results in the future to differ materially from expectations or projections in forward-looking statements include those described under the heading "Cautionary Statements" in Item 7. Forward-looking statements speak only as of the date of this report, and the Company undertakes no obligation to update or revise such statements to reflect new circumstances or unanticipated events as they occur.

PART I

 General

        Stewart Enterprises, Inc. is the third largest provider of funeral and cemetery products and services in the death care industry in North America. Through its subsidiaries, the Company owns and operates 616 funeral homes and 163 cemeteries in 30 states within the United States, and in Puerto Rico, Mexico, Australia, New Zealand, Canada, Spain, Portugal, the Netherlands, France, Belgium and Argentina. The Company has been a leader in the industry's trend toward consolidation. Historically, the Company focused on growth principally through acquisitions; however, beginning in late fiscal year 1999, the Company began modifying its strategy to focus on cash flow, debt reduction and internal growth rather than acquisitions. In addition, the Company is evaluating the possible sale of some or all of its foreign operations.

        The Company provides a complete range of death care products and services both at and prior to the time of need. The Company's funeral homes and cemeteries are located primarily in metropolitan areas and frequently are organized in "clusters," which are integrated groups of funeral homes and cemeteries that share certain assets, personnel and services. The Company also creates combined operations by building funeral homes on cemetery properties and operating the facilities together. The Company believes that it owns and operates one or more of the premier death care facilities in each of its principal markets. The Company also believes that it is an industry leader in the marketing and sale of prearranged funeral and cemetery services and products.

        The Company has an experienced management team and a decentralized organizational structure that allows its local funeral home directors and cemetery managers to best serve their locations' particular needs. The Company's ultimate goal is to enhance shareholder value. To achieve this goal, it has three principal objectives:

•     Provide the highest level of quality, service and value to each family it serves
  
•     Attract, retain and reward highly qualified individuals to operate its businesses
  
•     Provide a reasonable and sustainable return to its shareholders

        The Company's business was founded by the Stewart family in 1910, and the Company was incorporated as a Louisiana corporation in 1970. The Company's principal executive offices are located at 110 Veterans Memorial Boulevard, Metairie, Louisiana 70005, and its telephone number is 504-837-5880.

The Death Care Industry

        The Company's management believes that the death care industry has several attractive fundamental characteristics. According to the United States Bureau of the Census, the number of deaths in the United States is expected to increase by approximately 1 percent per year from 2.4 million in 2000 to 2.6 million in 2010. In addition, industry studies indicate that the average age of the population in the United States is increasing. The aging of the population, particularly the "baby boomers" who have recently begun to turn 50, represents a significant opportunity for the Company to expand its customer base and secure a portion of its future market share by actively marketing prearranged cemetery property and funeral services. According to the Bureau of the Census, the United States population over 50 years of age will increase from 76.1 million in 2000 to 97.1 million in 2010. The Company's principal target market for prearranged cemetery sales is customers who are age 50 and above.

        Traditionally, death care businesses in the United States have been relatively small, family-owned enterprises that have passed through successive generations within the family. During the last decade, however, the industry in the United States and in certain foreign countries has undergone a transition in which family-owned firms were consolidating with larger organizations such as the Company. This trend began to change in late fiscal year 1999. As industry conditions reduced the number of major consolidators participating in the acquisition market, those that remained generally applied significantly tighter pricing criteria, and many potential sellers withdrew their businesses from the market rather than pursuing transactions at lower prices.

        During the first quarter of 1999, Service Corporation International, one of the Company's primary competitors for acquisitions, announced plans to significantly reduce the level of its acquisition activity. The Loewen Group Inc., previously a primary competitor for acquisitions, entered into bankruptcy proceedings on June 1, 1999, after announcing that it had terminated its acquisition activity and was offering a number of its own properties for sale. In addition, Equity Corporation International, previously the fourth largest public death care company and another of the Company's competitors for acquisitions merged with Service Corporation International.

        Throughout fiscal year 1999, the Company continually reduced its target acquisition multiples. In the third quarter of fiscal year 1999, the Company's acquisition activity began to decrease substantially from prior quarters, as many potential sellers were not willing to sell their businesses at the lower prices.

         As the business model shifted, death care consolidators experienced diminishing access to capital. In response to these changes, the Company began to develop strategies for improving cash flow and reducing and restructuring debt. Throughout fiscal year 2000, the Company focused on liquidity, leverage and cash flow. Additional information can be found below under the heading "Initiatives - Cash Flow Initiatives."

        Currently, acquisition activity remains dormant, and the Company continues to focus on improving its capital structure. The Company's current strategies are described below in the section entitled "Initiatives."

        Management believes it can be difficult for new competitors to enter existing markets and achieve success over the long-term by opening new funeral homes and cemeteries. Several factors make it difficult for new facilities to compete successfully, including the importance to families of reputation and goodwill developed over time, regulatory complexities, zoning restrictions and the existence of an adequate number of facilities serving mature markets. However, low-cost funeral service and merchandise providers have emerged from time to time in some markets and, in some instances, have caused funeral pricing pressure.

        Premier Facilities.     The Company believes that it operates one or more of the premier death care facilities in each of its principal markets. In the Company's view, a "premier" facility is one that is among the most highly regarded facilities in its market area in terms of tradition, heritage, reputation, physical size, volume of business, available inventory, name recognition, aesthetics and potential for development or expansion.

        Clustering.     The Company operates most of its funeral homes and cemeteries in "clusters." Clusters are groups of funeral homes and cemeteries located close enough to one another that their operations can be integrated to achieve economies of scale. For example, clustered facilities can share vehicles, embalming services, inventories of caskets and other merchandise and, most significantly, personnel, including the Company's prearrangement sales force; thus, the Company is able to decrease its costs and expand its marketing and sales efforts at each location. By virtue of their proximity to one another, clustered facilities also create opportunities for more integrated and sophisticated management of their operations.

        Funeral Operations.     Funeral operations accounted for approximately 61 percent of the Company's revenues for the fiscal year ended October 31, 2000. The Company's funeral homes offer a complete range of funeral services and products both at the time of need and on a prearranged basis. The Company's services and products include family consultation, removal and preparation of remains, the use of funeral home facilities for visitation, worship and funeral services, transportation services, flowers and caskets. In addition to traditional funeral services, all of the Company's funeral homes offer cremation products and services. Most of the Company's funeral homes have a non-denominational chapel on the premises, which allows family visitation and religious services to take place at the same location. As of October 31, 2000, the Company operated 627 funeral homes.

        Cemetery Operations.     Cemetery operations accounted for approximately 39 percent of the Company's revenues for the fiscal year ended October 31, 2000. The Company's cemetery operations involve the sale of cemetery property and related merchandise, including lots, lawn crypts, family and community mausoleums, monuments, memorials and burial vaults, along with the sale of burial site openings and closings. Cemetery property and merchandise sales are made both at the time of need and on a prearranged basis. Prearranged sales represented approximately 59 percent of cemetery revenue during the fiscal year ended October 31, 2000. The Company also maintains cemetery grounds under perpetual care contracts and local laws. As of October 31, 2000, the Company owned and operated 163 cemeteries.

         Combined Funeral Home and Cemetery Operations.     A combined operation is a funeral home located on a cemetery site where both are operated together. Combined operations help to increase market share by allowing the Company to offer families the convenience of complete funeral home and cemetery planning and services from a single location at a competitive price at the time of need or on a prearranged basis. In addition, combined operations enhance the Company's purchasing power, enable it to employ more sophisticated management systems and allow it to share facilities, equipment, personnel and a prearrangement sales force, resulting in lower average operating costs and expanded marketing and sales opportunities.

        Approximately 46 percent of the Company's cemeteries have a funeral home on-site that is operated in conjunction with the cemetery. Many of these facilities are in the Company's key markets, including New Orleans, Louisiana; Dallas, Fort Worth and Houston, Texas; Miami, Orlando, Tampa and St. Petersburg, Florida; and San Diego, California.

        The Company has developed several internal growth strategies that employ the use of combined operations. One such strategy is to create combined operations by constructing funeral homes on the grounds of the Company's cemeteries. Another internal growth strategy is to enter into operating partnerships in which the Company constructs funeral homes on the grounds of unaffiliated cemeteries, which allows the Company to enjoy many of the benefits of a combined operation without the capital investment of purchasing the cemetery.

        Although it generally takes several years before a newly constructed funeral home becomes profitable, the Company's experience with combined operations has demonstrated that the combination of a funeral home with a cemetery can significantly increase the market share and profitability of both.

        Cremation.     In fiscal year 2000, 36 percent of the funeral services the Company performed in the United States and Puerto Rico were cremations. Cremation rates at the Company's foreign funeral homes are higher on average than those at its domestic funeral homes, although they vary substantially from country to country. For fiscal year 2000, the cremation rates at the Company's foreign funeral homes varied from 7 percent in Spain to 65 percent in New Zealand. While cremations in the United States often result in lower average revenue than traditional funeral services, they generally produce higher gross profit margins. In the foreign markets in which the Company operates, cremations generally produce revenues and gross profit margins comparable to those of traditional funeral services in those countries.

        The cremation rate in the United States has been increasing, and by the year 2010 cremations are expected to represent 36 percent of the United States burial market, according to industry estimates. The Company has been addressing this trend by providing enhanced cremation products and services at all of its funeral homes, including funeral services and memorialization for families choosing cremation. Additionally, as part of its internal growth initiatives, the Company may expand on the model developed by Sentinel Cremation Societies, Inc., which it acquired in fiscal year 1997. See below under the heading "Initiatives - - Internal Growth - New Initiatives" for further discussion.

        Prearrangements.     The Company markets death care products and services on a prearranged basis through a staff of approximately 2,000 commissioned sales counselors. Prearranged plans enable families to specify in advance and prepay for funeral and cemetery arrangements. The cost of products and services is set at prices prevailing at the time the agreement is signed, rather than when the products and services are delivered. Prearranged plans also spare families the emotional strain of making death care decisions at the time of need.

        The Company believes that extensive marketing of prearranged products and services produces a backlog of future business and builds current and future market share. On average, over the past five years, the Company has sold over two prearranged funeral services for every one it has delivered from its backlog. During the fiscal year ended October 31, 2000, the Company sold approximately 48,800 prearranged funeral services and as of October 31, 2000, had a backlog of approximately 446,200 prearranged funeral services to be delivered in the future, representing approximately $1.5 billion of expected future revenue.

        Changes in the Company's preneed sales strategies during fiscal year 2000 had the effect of considerably reducing all preneed sales. The Company modified its preneed sales strategies early in fiscal year 2000 by increasing finance charges, requiring larger down payments and shortening installment payment terms. The Company also substantially reduced the commissions paid on sales of preneed cemetery services and preneed funeral and cemetery merchandise, effective the first day of the fourth quarter of fiscal year 2000. A new and simplified, standardized compensation structure was adopted in order to promote increased growth in the Company's customer base. One component of this structure links compensation to the generation of property sales revenue and enhanced profitability. The new structure adds some financial security for the sales counselors through minimum compensation guarantees.

         These changes were implemented in an effort to significantly improve cash flow. With these changes in place, the Company's preneed sales strategies place more emphasis on preneed cemetery property sales and prearranged funeral services. The Company believes that these are the sales that create heritage and grow market share. The change will also better align the operations of the Company with anticipated changes in accounting that the Company believes will be necessitated by the adoption of the Securities and Exchange Commission's ("SEC") Staff Accounting Bulletin No. 101- "Revenue Recognition in Financial Statements" ("SAB 101"), the status of which is discussed in Item 7 under the heading "Recent Accounting Standards." The Company believes that sales of preneed cemetery services and preneed funeral and cemetery merchandise will not be recognized as revenue under SAB 101 until delivery. While SAB 101 has not yet been implemented, the changes to the Company's preneed sales strategies reflect the likely effects of SAB 101. These changes, particularly the changes made in anticipation of SAB 101, had the effect of considerably reducing preneed cemetery services and preneed merchandise sales.

         Trust Funds and Escrow Accounts. Generally, prearranged funeral plans are funded either through trust funds or escrow accounts established by the Company, or through insurance, depending on the regulatory requirements in each jurisdiction. When trust or escrow funding is used, the Company places into a trust fund or escrow account a percentage (which varies by jurisdiction) of the sale price as installment payments are made. It retains the remainder of the sale price to defray costs related to the sale. The Company withdraws cash from the trust fund or escrow account when the service is performed to cover the cost of providing the funeral service. When insurance funding is used, the Company applies the customers' payments to pay premiums on insurance policies designed to cover the cost of providing the funeral service in the future.

         Generally, principal and earnings (including interest, dividends and net realized capital gains) on the trust funds and escrow accounts, and insurance proceeds, are paid to the Company only when the funeral service is performed. In limited circumstances, the Company receives principal amounts from prearranged funeral trust funds or escrow accounts upon cancellation of the contract by the customer. In certain jurisdictions, the Company is permitted to withdraw earnings on a current basis from prearranged funeral trust funds and escrow accounts. As of October 31, 2000, the Company's prearranged funeral trust funds and escrow accounts totaled approximately $614.5 million.

        The Company also establishes trust funds to fund the cost of delivering preneed cemetery merchandise. Generally, the Company withdraws the principal and earnings from these funds only when the merchandise is delivered or contracts are cancelled. As of October 31, 2000, the Company's cemetery merchandise trust funds and escrow accounts totaled approximately $232.3 million.

         The Company funds its obligations to maintain cemetery grounds by placing a portion, generally 10 percent, of the proceeds from cemetery property sales into perpetual care trust funds. Income from these funds is withdrawn and used for maintenance of the cemeteries, but principal, including net realized capital gains in some jurisdictions, generally must be held in perpetuity. As of October 31, 2000, the Company's perpetual care trust funds totaled approximately $213.6 million.

         The accounting methods used to reflect the Company's prearranged funeral, merchandise and perpetual care trust funds and escrow accounts are complex and are described in the notes to the Company's consolidated financial statements included in Item 8.

         Management believes that balances in the Company's trust funds and escrow accounts, along with insurance proceeds and installment payments due under contracts, will be sufficient to cover its estimated cost of providing the related prearranged services and products in the future.

        Investment Management. Generally, the Company's wholly-owned subsidiary, Investors Trust, Inc. ("ITI"), a Texas corporation with trust powers, serves as investment adviser on the Company's investment portfolio and its prearranged funeral, merchandise and perpetual care trust funds and escrow accounts. ITI provides investment advisory services exclusively to the Company. ITI is registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940.

         As of October 31, 2000, ITI had approximately $1.1 billion in assets under management. Lawrence B. Hawkins, an executive officer of the Company and a professional investment manager, serves as President of ITI. ITI operates with the assistance of  professional financial consultants pursuant to a formal investment policy established by the Investment Committee of the Company's Board of Directors. The policy emphasizes conservation, diversification and preservation of principal while seeking appropriate levels of current income and capital appreciation. For additional information, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in Item 7.

        Management. The Company has an experienced management team, many of whom joined the Company through acquisitions. The Company's management structure is designed to allow local funeral home directors and cemetery managers substantial flexibility in deciding how their firms will be managed and how their products and services will be priced and merchandised. At the same time, financial and strategic goals are established by management at the corporate level. The Company provides business support services primarily through its Shared Services Center, which provides centralized and standardized accounting, payroll, contract processing, collection and other services for all of its domestic facilities, including those in Puerto Rico.

        Currently, the Company is divided into four operating divisions in North America, each of which is managed by a division executive and chief financial officer. These divisions are further divided into regions, each of which is managed by a regional operating officer. The Company's operations in Europe, Latin America and Australasia are not considered separate operating divisions but are managed by local or regional executives who report to certain of the Company's executive officers. In fiscal year 1998, in order to meet the needs of the Company's growing European operations, the Company established its European headquarters in Amsterdam, the Netherlands. The Company also has a Corporate Division, which manages the Company's corporate services, accounting and financial operations and strategic planning. Early in fiscal year 2000, the Company formed a Sales and Marketing Division to centralize responsibility for sales teams and to allow for more comprehensive training and sharing of information. From time to time, the Company may increase, reduce or realign its divisions and regions.

        Foreign Operations. The Company first entered foreign markets in fiscal year 1994 and as of January 16, 2001, owned and operated a total of 297 businesses outside the United States and Puerto Rico. For the fiscal year ended October 31, 2000, the Company's properties in foreign countries generated approximately 20 percent of consolidated total revenues and represented 19 percent of consolidated total assets. The Company is currently evaluating the possible sale of some or all of its foreign operations. Additional information can be found in Item 7 under the heading "Liquidity and Capital Resources."

        Financial Information about Industry and Geographic Segments. For financial information about the Company's industry and geographic segments, see Note 17 to the Company's consolidated financial statements included in Item 8.

General

        Historically, the Company's growth has been primarily from acquisitions. Due to changes in the acquisition market discussed above under the heading "The Death Care Industry," the Company's growth expectations for fiscal year 2001 and beyond include no acquisition activity. Instead, the Company is developing and implementing strategies to (1) enhance its revenues, profits, cash flow, and cost controls at its currently existing operations, and (2) grow its business through means other than acquisitions. The Company will also continue to focus on improving the margins of previously acquired firms.

 Internal Growth - Existing Operations

        Prearranged Services.     The Company believes that it can be distinguished from its competitors through its strong emphasis on, and its more than 50-year history of success with, prearranged sales. The Company also believes that it is an industry leader in marketing prearranged funeral and cemetery services and products through highly qualified commissioned sales counselors. Although prearranged funeral and cemetery sales during fiscal year 2000 were reduced by the factors discussed above under the heading "Operations - - Prearrangements," the Company's revised preneed sales strategies place emphasis on increasing preneed cemetery property sales and prearranged funeral services. The Company believes that these are the sales that create heritage and grow market share. The Company's backlog of prearranged funeral services represents approximately $1.5 billion in expected future revenues at October 31, 2000.

         Improved Merchandising.     The Company frequently expands its product and service offerings, adjusts the mix of products and services offered in individual markets, takes advantage of enhanced pricing opportunities and implements selective marketing programs to increase revenue and improve profit margins. During fiscal year 2000, the Company began to implement strategies based on an extensive study of consumer preferences conducted in 1999. As a result, the Company's current merchandising strategies focus on more personalized services and product offerings.

         Other Operating Initiatives.     The Company plans to continue to implement the following operating initiatives:

• Leverage goodwill in local markets by expanding market-wide regional branding
  
• Expand training with its new and centralized, formal training policy
  
• Capitalize on the automation of its businesses completed in fiscal year 2000, which has resulted in real-time and standardized information
  
• Implement pricing and merchandising programs based on the results of the Company's comprehensive study of consumer preferences related to the death care industry

Cost Control. In addition to its strategies for increasing revenues, the Company plans to improve its operating margins by achieving economies of scale, improving efficiencies and controlling costs through a variety of measures including the following:

• Obtaining volume discounts from suppliers
  
• Leveraging operating costs through clustering and the development of combined operations
  
• Improving the utilization of its sales force
  
• Controlling capital expenditures at the corporate level
  
• Evaluating and analyzing certain of its businesses for consolidation in order to leverage the Company's overhead and potentially sell excess property

Internal Growth - New Initiatives

        Management has limited the amount it will spend on internal growth initiatives to $10.0 million in fiscal year 2001, approximately $7.0 million of which is earmarked for the construction of the Archdiocese of Los Angeles funeral homes. Internal growth initiatives are also anticipated to include construction of funeral homes on some of the Company's cemeteries and the development of  relationships and alternative service firms.

        New Funeral Home and Cemetery Construction.     The Company creates combined operations by building funeral homes on cemetery properties and operating both facilities together. Combined operations help to increase market share by allowing the Company to offer families the convenience of complete funeral home and cemetery planning and services from a single location at a competitive price at the time of need or on a prearranged basis. In addition, combined operations enhance the Company's purchasing power, enable it to employ more sophisticated management systems and allow it to share facilities, equipment, personnel and a prearrangement sales force, resulting in lower average operating costs and expanded marketing and sales opportunities. Although it generally takes several years before a newly constructed funeral home becomes profitable, the Company's experience with combined operations has demonstrated that the combination of a funeral home with a cemetery can significantly increase the market share and profitability of both. The Company created four additional combination operations during fiscal year 2000. The Company also constructed one additional stand-alone funeral home and one stand-alone cemetery during fiscal year 2000.

        Operating Partnerships. The Company expects to continue to gain market share and improve profitability through operating partnerships with unaffiliated parties as it has done throughout its history. Through an operating partnership with the Catholic Archdiocese of New Orleans, the Company constructed a mausoleum for the Catholic Church on the grounds of its combined operation in New Orleans in fiscal year 1987. The Company owns the mausoleum and manages the sales relating to the mausoleum for the Church. Additionally, through an operating partnership with the Firemen's Charitable and Benevolent Association, a non-profit organization, in fiscal year 1994 the Company constructed a funeral home and mausoleum on the grounds of a cemetery owned by a third party in New Orleans. The Company owns and operates the funeral home in combination with the cemetery and manages sales for the mausoleum.

        In fiscal year 1997, the Company entered into an agreement with the Archdiocese of Los Angeles to construct and operate funeral homes on land leased by the Company from the Archdiocese at the site of nine cemeteries owned and operated by the Archdiocese. As of January 16, 2001, four of these funeral homes have been completed, and the fifth is under construction. Over the last 50 years, through its mausoleum construction business, the Company has developed relationships with the Catholic Church in approximately 70 dioceses in 39 states. The Company anticipates building on those relationships as it expands its use of operating partnerships.

        The Company also plans to develop operating partnerships with non-profit secular entities as it did in fiscal year 1998 when it entered into an agreement with the Wyuka Cemetery Board of Trustees. Under this agreement, the Company manages the cemetery sales and operates a funeral home it constructed on the grounds of a state-owned cemetery in Lincoln, Nebraska in fiscal year 2000.

        Management believes that these partnerships allow the Company to enjoy the benefits of operating a funeral home on the grounds of a cemetery without the capital investment of purchasing the cemetery. The Company also believes that partnerships such as these benefit the third parties by allowing them to compete with other cemeteries in their market that have funeral homes on their properties. The Company is pursuing similar partnership opportunities with other cemetery operators.

        During fiscal year 1998, the Company acquired Desert Memorial Cremation and Burial Society in Las Vegas, Nevada, a state with one of the highest cremation rates in the United States. This acquisition complements the Company's Alternative Service Firm strategy and provides an additional vehicle for expansion, particularly in the high cremation markets of the western United States. During fiscal year 2000, the Company opened two additional alternative service firms in the western United States.

 Cash Flow Initiatives

• Continue to structure preneed sales activities for increased cash retention
  
• Analyze the benefits associated with the possible sale of some or all of its foreign operations
  
• Continue the suspension of acquisition activity
  
• Limit spending on internal growth initiatives in fiscal year 2001 to $10.0 million
  
• Control capital expenditures at the corporate level
  
• Analyze and re-deploy or sell excess cemetery property, under-performing assets and real estate
  
• Continue the suspension of cash dividends
  
• Use bonding in lieu of trusting on selected contracts
  
• Utilize third party at-need financing

External Growth

        Acquisitions.     From November 1, 1991 through January 16, 2001, the Company has grown from 43 funeral homes and 29 cemeteries in six states to 616 funeral homes and 163 cemeteries in 30 states, Puerto Rico and 10 foreign countries. The Company's growth in terms of number of properties has been principally through acquisitions.

        At the time of the Company's initial public offering in October 1991, the Company owned funeral homes and cemeteries in Louisiana, Texas, Florida, Virginia, West Virginia and Maryland. Since that time, the Company has expanded domestically, primarily in the Southern, Mid-Atlantic, Midwest and Pacific states and in Puerto Rico. In addition, the Company expanded internationally by entering Mexico in fiscal year 1994, Australia, New Zealand and Canada in fiscal years 1995 and 1996, Spain and Portugal in fiscal year 1997 and the Netherlands, Argentina, France and Belgium in fiscal year 1998. As of January 16, 2001, the Company owned and operated a total of 297 funeral and cemetery businesses outside the United States and Puerto Rico.

        The following table sets forth certain information with respect to the Company's acquisition activity:

                                                  Number of       Aggregate
                                                Funeral Homes   Purchase Price
                                                and Cemeteries   (in millions)
                                                --------------    -----------
Properties owned as of October 31, 1991 .......       72          $     -
Acquisitions(1):
  Fiscal year 1992 ............................       11              30.0
  Fiscal year 1993 ............................       49              94.6
  Fiscal year 1994 ............................       60             177.6
  Fiscal year 1995 ............................       70             154.4
  Fiscal year 1996 ............................      149             179.0
  Fiscal year 1997 ............................      114             184.5
  Fiscal year 1998 ............................      162             266.3
  Fiscal year 1999 ............................      100             156.4
  Fiscal year 2000 ............................        4               5.3

        Acquisition Strategy.     Historically, the Company has actively pursued acquisition opportunities both domestically and internationally. The Company sought and acquired premier firms that could be integrated with existing clusters or serve as a base for the formation of new clusters and firms with strong managers willing to remain with the Company. In evaluating potential acquisitions, the Company has always considered factors such as the size of the communities served by the properties and the potential for increasing profitability through expanded prearranged marketing efforts and other means.

        In response to the market changes described earlier under the heading "The Death Care Industry," the Company suspended its acquisition activity in fiscal year 2000 to focus primarily on improving operations and cash flow, debt reduction and internal growth initiatives. More than 85 percent of the approximately 22,000 funeral homes and 10,500 cemeteries in the United States are privately or family-owned. Management believes that a substantial number of these businesses would be suitable candidates for acquisition should the Company's acquisition activities resume in the future.

        The Company's funeral home and cemetery operations generally face intense competition in local markets that typically are served by numerous funeral home and cemetery firms. The Company also competes with monument dealers, casket retailers, low-cost funeral providers and other non-traditional providers of limited services or products. Market share is largely a function of goodwill and tradition, although competitive pricing, professional service and attractive, well-maintained and conveniently located facilities are also important. Because of the significant role of goodwill and tradition, market share increases are usually gained over a long period of time. Extensive marketing through media advertising, direct mailings and personal sales calls has increased in recent years, especially with respect to the sales of prearranged funeral services.

        Traditional burial and funeral service operators face competition from the increasing number of cremations in the United States. Industry studies indicate that the percentage of cremations has steadily increased and that cremation will represent approximately 36 percent of the United States burial market by the year 2010, compared with 17 percent in 1990. As the total number of deaths in the United States increases, the Company expects slight growth in the actual number of traditional burials and significant growth in the actual number of cremations. The Company has designed merchandising strategies to provide enhanced memorialization services and products to meet the growing consumer demand for cremation. All of the Company's funeral homes offer cremation, and 36 percent of the funeral services the Company performed in the United States and Puerto Rico in fiscal year 2000 were cremations. The Company believes that it will be able to maintain its competitive position by marketing full service cremations in combination with traditional funeral services and memorialization. Additionally, development of the Alternative Service Firm strategy by the Company represents another opportunity for the Company to serve cremation customers. Additional information on the development of the Alternative Service Firm strategy can be found under the heading "Initiatives - - Internal Growth - New Initiatives" discussed earlier.

        The Company's funeral home operations are regulated by the Federal Trade Commission (the "FTC") under the FTC's Trade Regulation Rule on Funeral Industry Practices, 16 CFR Part 453 (the "Funeral Rule"), which went into effect on April 30, 1984, and was revised effective July 19, 1994. The FTC is reviewing the Funeral Rule and has conducted hearings to receive input from industry and consumer groups. At this time, the FTC has not issued any proposed changes to the regulation.

        The Funeral Rule defines certain acts or practices as unfair or deceptive and contains certain requirements to prevent these acts or practices. The preventive measures require a funeral provider to give consumers accurate, itemized price information and various other disclosures about funeral goods and services and prohibit a funeral provider from: (i) misrepresenting legal, crematory and cemetery requirements; (ii) embalming for a fee without permission; (iii) requiring the purchase of a casket for direct cremation; and (iv) requiring consumers to buy certain funeral goods or services as a condition for furnishing other funeral goods or services.

        The Company's operations are also subject to extensive regulation, supervision and licensing under numerous federal, state and local laws and regulations. The Company believes that it is in substantial compliance with the Funeral Rule and all such laws and regulations. Federal, state and local legislative bodies and regulatory agencies frequently propose new laws and regulations, some of which, if enacted as proposed, could have a material effect on the Company's operations and on the death care industry in general. The Company cannot predict the outcome of any proposed legislation or regulation or the effect that any such legislation or regulation might have on the Company.

 Employees

        As of October 31, 2000, approximately 64 percent of the Company's 627 funeral home locations were owned by subsidiaries of the Company, and approximately 36 percent of funeral home premises were held under operating leases. The leased properties have terms ranging from 1 to 23 years, except for nine leases that expire between 2032 and 2072. Generally, the Company has a right of first refusal and an option to purchase the leased premises. An aggregate of $14.0 million of the Company's term notes are secured by mortgages on some of the Company's funeral homes; these notes were either assumed by the Company upon its acquisition of the property or represent seller financing for the acquired property.

        As of October 31, 2000, the Company owned 163 cemeteries covering a total of approximately 11,000 acres. Approximately 4,700 acres, or 43 percent of the total acreage, are available for future development.

        The Company is currently evaluating and analyzing certain of its businesses for consolidation and may potentially sell excess property. The Company is also evaluating the possible sale of some or all of its foreign operations. Additional information is contained in Item 1 under the headings "Initiatives - - Cost Controls" and "Initiatives - - Cash Flow Initiatives" and in Part II, Item 7 under the heading "Liquidity and Capital Resources."

Item 3.     Legal Proceedings

        In Re Stewart Enterprises, Inc. Securities Litigation, No. 01-30035 on the docket of the United States Court of Appeal for the Fifth Circuit. During the fall of 1999, 16 putative securities class action lawsuits were filed in the United States District Court for the Eastern District of Louisiana against the Company, certain of its directors and officers and the lead underwriters of the Company's January 1999 common stock offering. The suits were consolidated, and the court appointed lead plaintiffs as well as lead and liaison counsel for the plaintiffs, who filed a consolidated amended complaint.

        The consolidated amended complaint alleges violations of Section 11, 12(a)(2) and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder on behalf of purchasers of the Company's common stock during the period October 1, 1998 through August 12, 1999. Plaintiffs generally allege that the defendants made false and misleading statements and failed to disclose allegedly material information in the prospectus relating to the January 1999 common stock offering and in certain of the Company's other public filings and announcements. The plaintiffs also allege that these allegedly false and misleading statements and omissions permitted the Chairman of the Company to sell Company common stock during the class period at inflated market prices. The plaintiffs seek remedies including certification of the putative class, unspecified damages, attorneys' fees and costs, rescission to the extent any members of the class still hold the Company's common stock, and such other relief as the court may deem proper.

        On December 7, 2000, the District Court granted motions to dismiss, filed by the Company and the other defendants, dismissing the complaint against all defendants for failure to state a claim. On January 4, 2001, the plaintiffs filed a notice of appeal.

        The outcome and the costs of defending this litigation cannot be predicted at this time. The Company believes that the claims are without merit and intends to defend itself vigorously.

        The Company carries insurance with coverages and coverage limits that it believes to be adequate. Although there can be no assurance that such insurance is sufficient to protect the Company against all contingencies, management believes that its insurance protection is reasonable in view of the nature and scope of the Company's operations.

None.

        The following table sets forth certain information with respect to the executive officers of the Company. Each of the following has served the Company in the capacity indicated for more than five years, except as indicated below.

             Name              Age               Position

Frank B. Stewart, Jr. ........ 65  Chairman of the Board

William E. Rowe .............. 54  President, Chief Executive Officer and Director(1)

Brian J. Marlowe ............. 54  Executive Vice President and Chief Operating Officer(2)

Kenneth C. Budde ............. 53  Executive Vice President, President-Corporate Division,
                                       Chief Financial Officer and Director(3)

Brent F. Heffron ............. 51  Executive Vice President and President-Southern Division(4)

Ronald H. Patron ............. 56  Executive Vice President and Chief Administrative Officer(5)

Lawrence B. Hawkins .......... 52  Executive Vice President and President-Investors Trust, Inc.

G. Kenneth Stephens, Jr. ..... 43  Senior Vice President and President-Eastern Division(6)

Randall L. Stricklin ......... 56  Senior Vice President and President-Western Division(7)

Michael K. Crane, Sr. ........ 57  Interim President-Central Division(8)

Everett N. Kendrick .......... 59  Senior Vice President and President-Sales and Marketing Division(9)

PART II

Item 5.     Market for Registrant's Common Equity and Related Shareholder Matters

        The Company's Class A common stock trades in the Nasdaq National Market under the symbol STEI. On January 16, 2001, the closing sale price as reported by the Nasdaq National Market was $2.44. The following table sets forth, for the periods indicated, the range of high and low sale prices, as reported by the Nasdaq National Market. As of January 8, 2001, there were 1,501 record holders of the Company's Class A common stock. Record holders included persons holding Class A common stock on behalf of one or more beneficial owners who are not holders of record.

                                            High        Low
                                           ------      -----
Fiscal Year 2000
   Fourth Quarter ......................  $  3.63     $  1.88
   Third Quarter .......................     5.31        2.06
   Second Quarter ......................     5.94        3.88
   First Quarter  ......................     6.22        4.03

Fiscal Year 1999
   Fourth Quarter ......................  $ 12.63    $   3.81
   Third Quarter .......................    20.38       12.00
   Second Quarter ......................    20.75       12.69
   First Quarter .......................    24.75       16.25

Dividends

        The Company declared quarterly dividends of $.02 per share on its Class A and Class B common stock during each quarter of fiscal year 1999 and the first three quarters of fiscal year 2000. On October 5, 2000, the Company's Board of Directors suspended the payment of quarterly dividends on its Class A and Class B common stock. The declaration and payment of dividends in the future is at the discretion of the Company's Board of Directors and will depend upon the Company's results of operations, financial condition, cash requirements, future prospects and other factors deemed relevant by the Board. The most restrictive of the Company's debt agreements limits the declaration and payment of dividends within any period of four consecutive quarters to 50 percent of the Company's consolidated net earnings for those four fiscal quarters. The same agreement limits purchase, redemption or retirement of any shares of the Company's capital stock to 5 percent of its consolidated net worth on the payment date.

        During fiscal year 2000, the Company did not sell any unregistered equity securities.

Item 6.     Selected Financial Data

        The following selected consolidated financial data for the fiscal years ended October 31, 1996 through 2000 are derived from the Company's audited consolidated financial statements. The data set forth below should be read in conjunction with the consolidated financial statements of the Company and the notes thereto included in Item 8 and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in Item 7.

                                                                            Year Ended October 31,(1)
                                                     ------------------------------------------------------------------
                                                        2000        1999           1998          1997           1996
                                                     ---------    ---------      ---------     ---------      ---------
Statement of Earnings Data:

Revenues:
     Funeral ....................................... $ 451,852    $ 445,877      $ 379,095     $ 291,649      $ 225,461
     Cemetery ......................................   282,949      310,231        269,270       240,937        207,926
                                                     ---------    ---------      ---------     ---------      ---------
     Total revenues ................................   734,801      756,108        648,365       532,586        433,387
Gross profit:
     Funeral .......................................   116,689      126,875        118,426        89,235         72,239
     Cemetery ......................................    62,351       83,526         77,558        67,937         45,879
                                                     ---------    ---------      ---------     ---------      ---------
     Total gross profit ............................   179,040      210,401        195,984       157,172        118,118
Corporate general and administrative
  expenses .........................................   (19,763)     (19,161)       (16,621)      (15,402)       (14,096)
                                                     ---------    ---------      ---------     ---------      ---------
Operating earnings before performance-
  based stock options ..............................   159,277      191,240        179,363       141,770        104,022
Performance-based stock options ....................       -           -           (76,762)          -              -
                                                     ---------    ---------      ---------     ---------      ---------
Operating earnings .................................   159,277      191,240        102,601(2)    141,770        104,022
Interest expense, net ..............................   (56,284)     (52,174)       (41,792)      (36,425)       (24,435)
Other income, net ..................................     2,194        3,485          4,155         1,132          2,488
                                                     ---------    ---------      ---------     ---------      ---------
Earnings before income taxes and
  cumulative effect of change in
  accounting principles ............................ $ 105,187    $ 142,551      $  64,964(2)  $ 106,477      $  82,075
                                                     =========    =========      =========     =========      =========
Earnings before cumulative effect of
   change in accounting principles ................. $  66,794    $  90,520      $  41,902(2)  $  69,742      $  51,297

Cumulative effect of change in accounting
  principles (net of $28,798 and $2,230 income
  tax benefit in 1999 and 1997, respectively) ......       -        (50,101)(1)        -         (2,324)(1)         -
                                                     ---------    ---------      ---------     ---------      ---------
Net earnings ....................................... $  66,794    $  40,419      $  41,902(2)  $  67,418      $  51,297
                                                     =========    =========      =========     =========      =========
Per Share Data:(3)
Basic earnings per common share:
 Earnings before cumulative effect of
   change in accounting principles ................. $     .63    $     .84      $     .43(2)  $     .79      $     .62
 Cumulative effect of change in
   accounting principles ...........................       -           (.47)(1)        -            (.03)(1)        -
                                                     ---------    ---------      ---------     ---------      ---------
 Net earnings ...................................... $     .63    $     .37      $     .43(2)  $     .76      $     .62
                                                     =========    =========      =========     =========      =========
Diluted earnings per common share:
 Earnings before cumulative effect of
   change in accounting principles ................. $     .63    $     .84      $     .43(2)  $     .78      $     .61
 Cumulative effect of change in
   accounting principles ...........................       -           (.47)(1)        -            (.03)(1)        -
                                                     ---------    ---------      ---------     ---------      ---------
 Net earnings ...................................... $     .63    $     .37      $     .43(2)  $     .75      $     .61
                                                     =========    =========      =========     =========      =========
Weighted average common shares
  outstanding (in thousands):
  Basic ............................................   106,600      107,452         97,691        88,778         82,821
                                                     =========    =========      =========     =========      =========
  Diluted ..........................................   106,603      107,834         98,444        89,675         83,959
                                                     =========    =========      =========     =========      =========
Dividends declared per common share ................ $     .06    $     .08      $     .06     $     .04      $     .03
                                                     =========    =========      =========     =========      =========

                                                                       Year Ended October 31,
                                               ------------------------------------------------------------------------
                                                                                   1998           1997          1996
                                                                                 --------      ---------      ---------
Pro forma amounts assuming 1999 and 1997
changes in accounting principles were applied
retroactively:
 Net earnings .....................................                              $ 33,199(2)   $  59,616      $  42,616
                                                                                 ========      =========      =========
 Basic earnings per common share(3) ...............                              $    .34(2)   $     .67      $     .51
                                                                                 ========      =========      =========
 Diluted earnings per common share(3) .............                              $    .34(2)   $     .66      $     .51
                                                                                 ========      =========      =========




                                                                                October 31,
                                               ------------------------------------------------------------------------
                                                   2000           1999           1998           1997            1996
                                               -----------    -----------    -----------    -----------     -----------
 Balance Sheet Data:

 Assets .....................................  $ 2,337,008    $ 2,283,880    $ 2,048,938    $ 1,637,238     $ 1,360,913
 Long-term debt, less current maturities ....      920,670        938,831        913,215        524,351         515,901
 Shareholders' equity .......................    1,074,657      1,056,612        839,290        819,570         547,447

Selected Consolidated Operating Data

                                                                          Year Ended October 31,
                                                     ------------------------------------------------------------------
                                                        2000        1999           1998           1997           1996
                                                     ---------    ---------      ---------     ---------      ---------
 Operating Data:

 Funeral homes in operation at end of period.              627          635            558           401            298

 At-need funerals performed..................          111,136      111,250         87,653        61,682         38,351
 Prearranged funerals performed..............           27,042       26,490         23,563        18,970         15,422
                                                     ---------    ---------      ---------     ---------      ---------

   Total funerals performed..................          138,178      137,740        111,216        80,652         53,773

 Prearranged funerals sold...................           48,844       58,430         59,112        48,676         37,545
 Backlog of prearranged funerals at
    end of period............................          446,158      436,499        391,226       350,031        294,829

 Cemeteries in operation at end of period ...              163          157            140           129            120
 Interments performed........................           61,196       57,759         50,201        46,782         43,129

Year Ended October 31, 2000 Compared to Year Ended October 31, 1999

Funeral Segment

                                                    Year Ended
                                                    October 31,
                                                -------------------       Increase
                                                 2000        1999        (Decrease)
                                                ------     --------      ----------
                                                        (In millions)

   FUNERAL REVENUE
   Existing Operations .......................  $ 409.8     $ 422.4       $ (12.6)
   Acquired/Opened Operations ................     42.1        23.5          18.6
                                                -------     -------       -------
                                                $ 451.9     $ 445.9       $   6.0
                                                =======     =======       =======
   FUNERAL COSTS
   Existing Operations .......................  $ 300.8     $ 300.7       $   0.1
   Acquired/Opened Operations ................     34.4        18.3          16.1
                                                -------     -------       -------
                                                $ 335.2     $ 319.0       $  16.2
                                                =======     =======       =======
   Funeral Segment Profit ....................  $ 116.7     $ 126.9       $ (10.2)
                                                =======     =======       =======

        Funeral revenue increased $6.0 million, or 1 percent, for the year ended October 31, 2000, compared to the corresponding period in 1999. The Company experienced a $12.6 million, or 3 percent, decrease in revenue from Existing Operations as a result of several factors. First, the Company experienced a 6.2 percent increase in the average revenue per domestic funeral service performed by Existing Operations (6.8 percent increase worldwide, excluding the effect of foreign currency translation). The increase in average revenue per funeral service was due in part to enhanced funeral arranger training, improved merchandising and personalization of services and product offerings based on findings of the Company's extensive consumer market study.

        Offsetting the increase in average revenue per funeral service was a $15.0 million reduction in prearranged funeral merchandise sales, a $6.6 million reduction in revenue from changes in foreign currency exchange rates (principally the Euro) and a 1.8 percent decrease (1,300 events) in the number of domestic funeral services performed by Existing Operations (3.5 percent decrease (4,548 events) worldwide). However, included in the 1,300 events were over 600 low-end direct cremation events that the Company elected not to sell at prices its competitors were charging. Additionally, discount services provided in the ordinary course of business in the industry on behalf of other funeral homes or institutions declined by approximately 400 events as a result of the Company's decision to decrease its level of discounted services. When these low-end and discounted events are taken out of the calculation, the number of domestic funeral services performed by Existing Operations decreased by approximately 250 events, which translates to less than one event per domestic core funeral home. These low-end and discounted events were price-sensitive and generally not profitable.

        Changes in the Company's preneed sales strategies during fiscal year 2000 had the effect of considerably reducing all preneed sales. The Company modified its preneed sales strategies early in fiscal year 2000 by increasing finance charges, requiring larger down payments and shortening installment payment terms. Effective the first day of the fourth quarter of fiscal year 2000, the Company also substantially reduced the commissions paid on sales of preneed cemetery services and preneed funeral and cemetery merchandise, which the Company believes had the largest impact on its preneed sales. These changes were implemented in an effort to improve cash flow. The Company believes sales of preneed cemetery services and preneed funeral and cemetery merchandise will not be recognized as revenue under SAB 101 until delivery. While SAB 101 has not yet been implemented, the changes to the Company's preneed sales strategies reflect the likely effects of SAB 101. Although the Company has experienced a reduction in all preneed sales, greater emphasis has been placed on increasing prearranged funeral service sales and preneed cemetery property sales. The Company believes that these are the sales that build and maintain market share. The change will also better align the operations of the Company with anticipated changes in accounting the Company believes will be necessitated by the adoption of SAB 101.

        Funeral profit margin from Existing Operations decreased from 28.8 percent in 1999 to 26.6 percent in 2000 due primarily to the reduction in sales of prearranged funeral merchandise as described above.

        The increase in revenue and costs from Acquired/Opened Operations resulted primarily from the Company's acquisition and construction of funeral homes from November 1998 through October 2000 which were not owned for the entirety of both periods being presented.

        Historically, one of the Company's goals has been to achieve 5 to 7 percent increases annually in the average revenue per funeral service performed by Existing Operations through a combination of price increases and improvements in merchandising. For the year ended October 31, 1999, the average revenue per funeral service performed by existing funeral homes increased 0.7 percent domestically and 3.1 percent worldwide, excluding the effect of foreign currency translation, which was below this objective. Because of intense and growing competition from low-cost funeral service and merchandise providers in certain key markets in fiscal year 1999, the Company lowered its goals for increases in the average revenue per funeral service performed to 2 to 3 percent annually. For the year ended October 31, 2000, the average revenue per funeral service performed by existing funeral homes increased 6.2 percent domestically and 6.8 percent worldwide, excluding the effect of foreign currency translation. Although these results exceeded the Company's goals, the Company is maintaining its goal of increases in average revenue per funeral service performed of 2 to 3 percent going forward, as it is too soon to determine if these results are indicative of a trend. See "Forward-Looking Statements" below.

Cemetery Segment

                                                    Year Ended
                                                    October 31,
                                              -----------------------    Increase
                                                2000         1999       (Decrease)
                                              --------     --------    ------------
                                                        (In millions)
   CEMETERY REVENUE
   Existing Operations .....................  $  252.5     $  292.4    $      (39.9)
   Acquired/Opened Operations ..............      30.4         17.8            12.6
                                              --------     --------    ------------
                                              $  282.9     $  310.2    $      (27.3)
                                              ========     ========    ============
   CEMTERY COSTS
   Existing Operations .....................  $  195.8     $  212.7    $      (16.9)
   Acquired/Opened Operations ..............      24.8         14.0            10.8
                                              --------     --------    ------------
                                              $  220.6     $  226.7    $       (6.1)
                                              ========     ========    ============
   Cemetery Segment Profit .................  $   62.3     $   83.5    $      (21.2)
                                              ========     ========    ============

         Cemetery revenue decreased $27.3 million, or 9 percent, for the year ended October 31, 2000, compared to the corresponding period in 1999. The Company experienced a $39.9 million, or 14 percent, decrease in revenue from Existing Operations resulting primarily from reduced preneed sales. Slightly offsetting this decrease was an approximate $4.0 million, or 13 percent, increase in revenue from cemetery trust funds and escrow accounts to $34.7 million. This increase was due to an increase in the average yield on the funds coupled with an increase in the average balance. The yield for the year was slightly higher than the Company's goal of 8.5 percent to 9.0 percent.

        Changes in the Company's preneed sales strategies during fiscal year 2000, which are detailed in the funeral segment discussion above, had the effect of considerably reducing preneed cemetery sales.

        Cemetery profit margin from Existing Operations decreased from 27.3 percent in 1999 to 22.5 percent in 2000. The decline was attributable principally to reduced preneed sales as described above, coupled with the high fixed-cost nature of the cemetery business.

        The increase in revenue and costs from Acquired/Opened Operations resulted primarily from the Company's acquisition and construction of cemeteries from November 1998 through October 2000 which were not owned for the entirety of both periods being presented.

        Corporate general and administrative expenses increased approximately $600,000 to 2.7 percent of revenue in fiscal year 2000, as compared to 2.5 percent in fiscal year 1999. The increase was primarily the result of a $2.3 million increase in consulting fees related to the Company's extensive consumer market research project, partially offset by a reduction in corporate development costs, travel costs and executive bonus accruals.

        Net interest expense, which is comprised of gross interest expense of $61.4 million, netted with investment income of $5.1 million, increased $4.1 million during fiscal year 2000 compared to fiscal year 1999. This is due principally to an increase in average interest rates from 6.0 percent in 1999 to 6.4 percent in 2000, coupled with an increase in the average outstanding debt resulting from acquisitions that closed late in 1999. The increase in gross interest expense was partially offset by an approximate $2.6 million increase in investment income generated from increased cash and cash equivalents earning an average rate of 6.9 percent, including funds in foreign jurisdictions earning 8.8 percent.

        In December 1998, the Company entered into an interest rate swap agreement on a notional amount of $200 million. Under the terms of the agreement, effective March 4, 1999, the Company pays a fixed rate of 4.915 percent and receives three-month LIBOR. The swap expires on March 4, 2002.

        As of October 31, 2000, the Company's outstanding borrowings totaled $950.5 million. Of the total amount outstanding, including the portion subject to the interest rate swap agreement, approximately 65 percent was fixed-rate debt, with the remaining 35 percent subject to short-term variable interest rates averaging approximately 7.2 percent.

Year Ended October 31, 1999 Compared to Year Ended October 31, 1998

Funeral Segment

                                                    Year Ended
                                                    October 31,
                                             --------------------------
                                                1999          1998          Increase
                                             -----------    ----------      --------
                                            (As Reported)  (Pro Forma)
                                                           (In millions)

   FUNERAL REVENUES
   Existing Operations ....................  $     342.9    $    331.1      $   11.8
   Acquired/Opened Operations .............        103.0          34.5          68.5
                                             -----------    ----------      --------
                                             $     445.9    $    365.6      $   80.3
                                             ===========    ==========      ========
   FUNERAL COSTS
   Existing Operations ....................  $     232.0    $    226.8      $    5.2
   Acquired/Opened Operations .............         87.0          33.9          53.1
                                             -----------    ----------      --------
                                             $     319.0    $    260.7      $   58.3
                                             ===========    ==========      ========
   Funeral Segment Profit .................  $     126.9    $    104.9      $   22.0
                                             ===========    ==========      ========

        Funeral revenue increased $80.3 million, or 22 percent, for the year ended October 31, 1999, compared to the corresponding period in 1998. The Company experienced an $11.8 million, or 4 percent, increase in revenue from Existing Operations as a result of an increase in sales of certain prearranged funeral merchandise, coupled with a 0.7 percent increase in the average revenue per domestic funeral service performed by Existing Operations (3.1 percent increase worldwide, excluding the effect of foreign currency translation), primarily due to price increases and improved merchandising. Partially offsetting this increase was a 2.2 percent (1,306 events) decrease in the number of domestic funeral services performed by Existing Operations (2.5 percent (2,358 events) decrease worldwide).

        Funeral profit margin from Existing Operations increased from 31.5 percent in 1998 to 32.3 percent in 1999. This improvement resulted primarily from the increase in funeral revenue from Existing Operations discussed above, coupled with increased cost control measures, including contract negotiations with certain vendors and the Company's centralization and standardization of certain financial and administrative functions through its Shared Services Center.

        The increase in revenue and costs from Acquired/Opened Operations resulted primarily from the Company's acquisition and construction of funeral homes from November 1997 through October 1999 which were not owned for the entirety of both periods being presented.

        The Company believes that at-need funeral revenues in some key markets were negatively affected in fiscal year 1999 by (1) intense and growing price competition from low-cost funeral providers and casket stores in some markets, (2) the continuing and accelerating trend toward cremation, and (3) a shift by customers to lower-priced services and merchandise.

Cemetery Segment

                                                 Year Ended
                                                 October 31,
                                            -------------------
                                              1999       1998      Increase
                                            --------  ---------   ----------
                                                    (As Reported)
                                                    (In millions) 

   CEMETERY REVENUE
   Existing Operations...................   $  272.6  $   259.5   $     13.1
   Acquired/Opened Operations............       37.6        9.8         27.8
                                            --------  ---------   ----------
                                            $  310.2  $   269.3   $     40.9
                                            ========  =========   ==========
   CEMETERY COSTS
   Existing Operations...................   $  194.9  $   184.8   $     10.1
   Acquired/Opened Operations............       31.8        6.9         24.9
                                            --------  ---------   ----------
                                            $  226.7  $   191.7   $     35.0
                                            ========  =========   ==========
   Cemetery Segment Profit...............   $   83.5  $    77.6   $      5.9
                                            ========  =========   ==========

        Cemetery revenue increased $40.9 million, or 15 percent, for the year ended October 31, 1999, compared to the corresponding period in 1998. The $13.1 million, or 5 percent, increase in revenue from Existing Operations resulted primarily from an increase in preneed cemetery sales, price increases and improved merchandising, coupled with an increase in the revenue realized from the Company's cemetery trust funds and escrow accounts. The revenue from the cemetery trust funds and escrow accounts increased $3.6 million, or 14 percent, to $29.4 million due to a 20 percent growth in the average balance in the funds, resulting from current year customer payments deposited into the funds and funds added through acquisitions, coupled with an increase in the average yield on the funds. The yield was in line with the Company's goal of 8.5 percent to 9.0 percent.

        Cemetery profit margin from Existing Operations decreased from 28.8 percent in 1998 to 28.5 percent in 1999. This decline was attributable principally to a savings rebate received by the Company from contract negotiations with a primary vendor in 1998 which was not obtained in 1999.

        The increase in revenue and costs from Acquired/Opened Operations resulted primarily from the Company's acquisition and construction of cemeteries from November 1997 through October 1999 which were not owned for the entirety of both periods being presented.

        In April 1998, the Company achieved the performance goal for the performance-based stock options granted under the Company's 1995 Incentive Compensation Plan. As a result, the Company was required to record a nonrecurring, noncash charge to earnings of approximately $76.8 million (approximately $50.3 million, or $.51 per share, after tax) in April 1998. The repurchase of options by the Company and the exercise of the remaining options resulted in a net cash outlay of approximately $69.4 million.

        Corporate general and administrative expenses declined to 2.5 percent of revenue in fiscal year 1999, as compared to 2.6 percent in fiscal year 1998, despite an aggregate increase of $2.5 million for fiscal year 1999. The increase in these expenses is primarily the result of increasing activities to support the Company's growth, including a $900,000 increase in professional and consulting fees.

        Net interest expense increased $10.4 million during fiscal year 1999 compared to fiscal year 1998, resulting from an increase in average borrowings due principally to acquisition expenditures. This increase was partially offset by a decrease in average interest rates from 6.4 percent in 1998 to 6.0 percent in 1999 and an increase in the investment earnings on excess cash for fiscal year 1999 as compared to 1998.

        In December 1998, the Company entered into an interest rate swap agreement on a notional amount of $200 million. Under the terms of the agreement, effective March 4, 1999, the Company pays a fixed rate of 4.915 percent and receives three-month LIBOR. The swap expires on March 4, 2002.

        As of October 31, 1999, the Company's outstanding borrowings totaled $951.4 million. Of the total amount outstanding, including the portion subject to the interest rate swap agreement, approximately 65 percent was fixed-rate debt, with the remaining 35 percent subject to short-term variable interest rates averaging approximately 5.9 percent.

        The Company experienced an increase in its effective tax rate from 35.5 percent in fiscal year 1998 to 36.5 percent in fiscal year 1999 due to an increase in income from jurisdictions with higher effective tax rates.

Liquidity and Capital Resources

        Early in fiscal year 2000, the Company's management resolved to improve cash flow and build cash reserves in order to deleverage the Company's balance sheet. The Company's operations provided cash of $87.2 million for the year ended October 31, 2000, compared to $16.4 million for the corresponding period in 1999, due principally to a smaller increase in receivables, coupled with other working capital changes. The smaller increase in receivables resulted from increased cash collections combined with the impact of reduced preneed sales, both attributable to modifications made to the Company's preneed sales strategies for increased cash retention, as discussed in Item 1, under the heading "Operations - - Prearrangements." Operating cash flow exceeded the Company's goal of $70 to $75 million for the fiscal year. As a result, the Company had accumulated $98.9 million in cash, cash equivalent investments and marketable securities as of October 31, 2000, an increase of approximately $21.4 million from October 31, 1999.

        The Company's investing activities resulted in a cash outflow of $1.9 million for fiscal year 2000 compared to $208.6 million for fiscal year 1999. The reduction in cash used by investing activities was primarily due to the cessation of acquisition activity in early 2000, as discussed under the heading "The Death Care Industry" in Item 1, and due, to a smaller extent, to an increase in proceeds from the sale of marketable securities and reductions in capital expenditures.

        The Company's financing activities resulted in a cash outflow of $18.8 million for fiscal year 2000, due principally to debt repayments, compared to a cash inflow of $193.9 million for fiscal year 1999. The level of cash provided by financing activities in 1999 resulted from the Company's common stock offering completed in the second quarter of 1999, which was slightly offset by the repurchase of shares of the Company's common stock in the second half of 1999.

        In February 1999, the Company completed the sale of 13.6 million shares of Class A common stock. This resulted in approximately $219 million in net proceeds, which were used principally to repay balances outstanding under its revolving credit facilities.

        The Company paid $2.3 million to current and former employees as a result of a self audit of pay procedures the Company conducted in partnership with the Department of Labor ("DOL"). The payment was made in the fourth quarter of fiscal year 2000. Stewart has revised its pay procedures and is in compliance with DOL payroll regulations. During fiscal year 2000, the Company expensed $1.8 million with the remaining $500,000 to be expensed as preneed funeral services are delivered in future periods.

        The Company has implemented various initiatives to generate cash and reduce debt. For example, the Company has suspended its acquisition activity, restructured its preneed sales activities, limited spending on internal growth initiatives, and on October 5, 2000, the Company's Board of Directors suspended the payment of quarterly dividends on Class A and Class B common stock. Another initiative being considered is the possible sale of some or all of the Company's foreign operations. The Company has engaged an investment banking firm to assist in evaluating and executing this option if the Company should decide to proceed. Currently, the Company is in discussions with several interested parties. A sale of some or all foreign assets could result in a material charge to earnings but could generate significant cash for debt reduction. Also, in addition to the Company's regular communication with the lead bank in its revolving credit facility, during fiscal year 2000 the Company met with all the lenders party to that facility to discuss plans for deleveraging its balance sheet and to develop a workable plan well in advance of the April 2002 maturity date of the Company's revolving credit facility. Any amendments, renegotiations or extensions of the Company's existing revolving credit and senior note agreements are likely to result in higher interest costs to the Company, although the effect of the rate increases may be moderated if the Company is able to substantially reduce its total debt prior to or in connection with such refinancing. If the Company is not successful in extending or renegotiating its current revolving credit agreement prior to the end of the Company's second quarter of fiscal year 2001, the revolving credit facility would become a current liability.

        The following table reflects future scheduled principal payments or maturities of the Company's long-term debt (in millions):

                                                                                       Other,
                                                                                 Principally Seller
                                                       6.7%            6.4%         Financing of
Year Ending       Revolving                         Public Debt     Public Debt       Acquired
October 31,    Credit Facility      Senior Notes      Notes           Notes          Operations          Total
- -----------    ---------------      ------------   -----------     -----------   -------------------    -------
2001           $         -          $       23.8   $      -        $      -      $               5.7    $  29.5
2002                     529.0              23.8          -               -                      4.7      557.5
2003                      -                 23.8          -              200.0                   4.7      228.5
2004                      -                  7.1         100.0            -                      5.0      112.1
2005                      -                 -             -               -                      2.0        2.0
Thereafter                -                 10.0          -               -                      6.1       16.1
               ----------------      ------------   -----------     -----------   -------------------    -------
Subtotal       $          529.0      $       88.5   $     100.0     $     200.0   $              28.2      945.7
               ================      ============   ===========     ===========   ===================
Option premium on Remarketable Or Redeemable Securities ("ROARS")                                            4.8
                                                                                                         -------
  Total long-term debt                                                                                   $ 950.5
                                                                                                         =======

For additional information on the Company's debt, see Note 11 to the Company's consolidated financial statements included in Item 8.

        Long-term debt at October 31, 2000 decreased to $950.5 million compared to $951.4 million at October 31, 1999, as a result of a reduction of debt of $13.3 million in fiscal year 2000, offset by one seller-financed acquisition which closed in the first quarter of fiscal year 2000, although it had been completed in 1999. All of the Company's debt is uncollateralized, except for approximately $14.0 million of term notes incurred principally in connection with acquisitions.

        In September 2000, the Company received regulatory approval in Florida and in November 2000, withdrew approximately $40 million from its funeral trust funds and obtained a bond to guarantee performance under the related contracts in lieu of trusting requirements. The Company agreed to maintain unused credit facilities in the aggregate that will equal or exceed the bond amount related to these contracts. Management believes that cash flow from operations will be sufficient to cover its estimated cost of providing the related prearranged services and products in the future.

        Subsequent to fiscal year 2000, the Company made $24.9 million of regularly scheduled principal payments on its long-term debt and $55.0 million of additional principal payments to reduce the outstanding balance on its revolving credit facility. As a result, as of January 9, 2001, the Company had cash, cash equivalent investments and marketable securities of approximately $70 million and outstanding long-term debt of $870.6 million.

        The most restrictive of the Company's credit agreements require it to maintain a debt-to-equity ratio no higher than 1.25 to 1.0. The Company has managed its capitalization within that limit, with a ratio of total debt to equity of .9 to 1.0 as of October 31, 2000 and 1999. As of January 16, 2001, the Company had a debt-to-equity ratio of approximately .8 to 1.0 and $472.7 million of additional borrowing capacity within this parameter, of which $79.4 million was available under its revolving credit facility after providing for the amount that the Company agreed would remain unused related to the bonding transaction discussed above.  Additionally, the most restrictive of the Company's credit agreements require it to maintain a coverage ratio, as defined by the agreement, of 2.25 to 1.0.

        On December 8, 1999, Moody's Investors Service ("Moody's") announced that it had lowered the Company's credit rating to Ba2 and on August 3, 2000, announced that it had lowered the Company's credit rating to Ba3. On February 22, 2000, Standard & Poor's ("S&P") announced that it had lowered the Company's credit rating to BB+ and on July 12, 2000, announced that it had lowered the Company's credit rating to BB. Previously, the Company's credit ratings from Moody's and S&P were Baa3 and BBB, respectively. Interest paid by the Company on its revolving line of credit is based in part on its credit ratings from Moody's and S&P and is currently at its maximum pricing under the existing agreement. The downgrades are estimated to have had an effect of less than $1 million on the Company's annual net earnings.

        The Company's ratio of earnings to fixed charges was as follows:

                                      Years Ended October 31,
                        ---------------------------------------------
                        1996      1997      1998       1999      2000
                        ----      ----      ----       ----      ----
                        3.98      3.65(1)   2.38(2)    3.43(1)   2.57