• Revenues totaled $667 million, including funeral revenues of $410 million and cemetery revenues of $257 million.
• Net earnings excluding nonrecurring items amounted to $52 million, or $0.48 per share.*
• EBITDA (earnings before gross interest expense, taxes, depreciation and amortization) excluding nonrecurring items was $225 million.*
• Cash flow from operations totaled $117 million, and free cash flow (cash flow from operations less maintenance capital expenditures) totaled $100 million.

A Year of Progress
Our domestic businesses performed well as measured by the total number of families served and the average revenue per funeral. When we look at the businesses we will own and operate after all the asset sales are completed, we served more families this year than last, including those families served through our successful alliance with the Archdiocese of Los Angeles. For those businesses that we have owned for at least two years and that are not held for sale, which we refer to as our core funeral businesses, the number of families served declined slightly in fiscal 2001. However, this decline was smaller than the decrease in domestic deaths reported by the Centers for Disease Control throughout the U.S. for the same period; and, therefore, we believe our core businesses were able to maintain market share.

We also continued to increase the average revenue per funeral. In our core businesses, the average revenue per funeral increased 1.7 percent in fiscal 2001, after having risen 6.2 percent in fiscal 2000. For the two years combined, the average annual increase in per-call revenue was 4 percent, exceeding our goal of an annual 2-3 percent average revenue increase.

We are pleased with the results of our preneed sales organization, particularly in light of the economic and emotional turmoil following September 11 and the changes we made in our preneed sales organization. Although our preneed sales were affected in September, the trend improved in October and domestic preneed sales came in at about 97 percent of our expectations for the year. We are very pleased with these results. The changes in the preneed program — which included adjusting the terms and conditions of preneed contracts, modifying the sales compensation structure and rearranging the mix of preneed services and products — were designed to improve cash flow and earnings over the long term. We continue to regard preneed sales as an extremely important part of our business and are committed to growing and strengthening all aspects of this function.

We made excellent progress last year in restructuring and reducing our debt and improving our cash flow. We refinanced substantially all of the outstanding debt in June, reducing the amount maturing in fiscal 2002 to about $7 million and extending the maturities of the remaining debt out four to seven years. In addition, we cut our debt outstanding by more than $250 million, to about $690 million at the end of fiscal 2001 from about $950 million a year earlier and currently have nothing drawn on our $175 million revolving credit facility.

The funds used to pay debt came from the sale of foreign operations and from our improved cash flow from operations. In fiscal 2001, we completed the sale of our operations in Mexico, Australia, New Zealand and northern Europe. Subsequent to the fiscal year-end, we entered into an agreement for the sale of our operations in southern Europe. Together, these transactions have generated or will generate proceeds — including tax benefits that have not been realized to date — of $150-$160 million. The total sum we expect to receive from the sale of all of our foreign operations is $200-$250 million. We continue to have active discussions for the sale of our remaining foreign operations in Canada and Argentina and expect to complete these sales during 2002. All tax benefits are expected to be realized in 2002 and 2003.

Our cash flow performance improved significantly in fiscal 2001. Cash flow from operations was $117 million, about $48 million more than in the preceding year. This was principally due to reduced preneed spending, proceeds from the sale of excess cemetery property, nonrecurring tax refunds and a reduction in required tax payments. Free cash flow (cash flow from operations less maintenance capital expenditures) was $100 million for fiscal 2001, compared with $53 million in fiscal 2000 and negative $14 million in fiscal 1999.

Our Vision
We are pleased to report that our debt reduction program is ahead of schedule. Our goal is to move from our current debt balance of about $690 million to one of about $500 million or approximately 2.5 times domestic EBITDA by the second quarter of fiscal 2003. We plan to do this by using the proceeds from the sale of our remaining foreign operations, future tax benefits associated with all foreign asset sales and about $50-$55 million a year in free cash flow.

As always, we continue to focus on growing revenues and earnings through business expansion initiatives that we will fund with internally generated free cash flow. Such initiatives may include adding combination funeral operations, freestanding funeral home businesses and alternative-service firms, as well as forming additional operating partnerships. Once we achieve our debt goal, we will be in a position to consider purchasing high-quality firms with free cash flow. In the months ahead, our management team and employees will be positioning our company for that growth. Our financial targets for fiscal 2002 are earnings of $0.38 to $0.42 per share and cash flow from operations of $60 million to $70 million.

Board Changes
In December 2001, three new members were elected to the board of directors: Leslie Rosenthal Jacobs, Brian J. Marlowe and Alden McDonald, Jr. Leslie Jacobs is president of Hibernia Rosenthal; she joined her family’s insurance business 20 years ago and built it into one of the nation’s top insurance brokerage firms before it was acquired by Hibernia Corporation in 2000. Brian Marlowe is chief operating officer and executive vice president of Stewart Enterprises; he has been with our company since 1992, has more than 30 years of experience in our industry and has served as president of the International Cemetery and Funeral Association. Alden McDonald, Jr. has been president and chief executive officer of Liberty Bank and Trust Co. since the founding of this New Orleans bank in 1972. The knowledge and experience these members bring to our board will serve us well as we position our company for future growth.

The Sum of the Parts
Our people are the primary reason we have been able to improve operations, lower debt, increase cash flow and make progress on business initiatives. It takes skill and dedication to get the job done — and done right. In a subsequent section of this report, we highlight the many ways that Stewart people got the job done right in fiscal 2001.

Our success will continue to come from “the sum of the parts” — from the high-quality people found at all levels of our organization. We are both fortunate and proud to have dedicated employees who work diligently to deliver exceptional services and products to our customers. Our senior management team is second to none in the industry in experience and leadership ability. And, our board of directors provides valuable counsel to guide us as we work on strengthening the Company and increasing shareholder value.

It is the sum of these strong parts that resulted in our stock price improvement last year and that will continue to make Stewart Enterprises — now in its 92nd year — a financially strong and successful company. We thank you for being an important part of our company through your investment with us. We are working hard to continue our record of progress.