<SUBMISSION>
<ACCESSION-NUMBER>0000886206-02-000009
<TYPE>10-Q
<PUBLIC-DOCUMENT-COUNT>2
<PERIOD>20011124
<FILING-DATE>20020110
<FILER>
<COMPANY-DATA>
<CONFORMED-NAME>FRANKLIN COVEY CO
<CIK>0000886206
<ASSIGNED-SIC>2780
<IRS-NUMBER>870401551
<STATE-OF-INCORPORATION>UT
<FISCAL-YEAR-END>0831
</COMPANY-DATA>
<FILING-VALUES>
<FORM-TYPE>10-Q
<ACT>34
<FILE-NUMBER>001-11107
<FILM-NUMBER>2506647
</FILING-VALUES>
<BUSINESS-ADDRESS>
<STREET1>2200 W PKWY BLVD
<CITY>SALT LAKE CITY
<STATE>UT
<ZIP>84119-2331
<PHONE>8018177171
</BUSINESS-ADDRESS>
<MAIL-ADDRESS>
<STREET1>2200 W PARKWAY BLVD
<CITY>SALT LAKE CITY
<STATE>UT
<ZIP>84119
</MAIL-ADDRESS>
<FORMER-COMPANY>
<FORMER-CONFORMED-NAME>FRANKLIN QUEST CO
<DATE-CHANGED>19940218
</FORMER-COMPANY>
</FILER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>fy2002_q1q.htm
<DESCRIPTION>QUARTERLY REPORT FOR Q1 OF FY02
<TEXT>
<html>
<HEAD>
<TITLE></title>
</head>
<body>
<hr noshade>
<p ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>SECURITIES AND EXCHANGE COMMISSION </b></font><br>
<FONT FACE="Times New Roman, Times, Serif" SIZE=2><b> Washington, D.C. 20549 </b></font></p>

<p ALIGN=CENTER> &#151;&#151;&#151;&#151;&#151;&#151;</p>
<p ALIGN=CENTER><font size=+1><b>FORM 10-Q</b></font></p>
<p ALIGN=CENTER> &#151;&#151;&#151;&#151;&#151;&#151;</p>

<p ALIGN=CENTER><b>[X]&nbsp;&nbsp;
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
<br>SECURITIES EXCHANGE ACT OF 1934</B></p>

<p ALIGN=CENTER>For the quarterly period ended November 24, 2001</p>
<p ALIGN=CENTER><B>OR</b></p>
<p ALIGN=CENTER><B>[&nbsp;&nbsp;&nbsp;]&nbsp;&nbsp;&nbsp;TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE <br>
SECURITIES EXCHANGE ACT OF 1934</b></p>
 <P ALIGN=CENTER>For the transition period from __________ to ___________</p>

<p align=center> Commission file no. 1-11107 </p>
<p align=center><IMG SRC="logo10q.jpg" ALT="franklincovey logo" width=260 height=70>
<p align=center><font size=2><b>FRANKLIN COVEY CO.</b></font><br>
Incorporated pursuant to the Laws of the State of Utah</p>
<p ALIGN=CENTER> &#151;&#151;&#151;&#151;&#151;&#151;</p>
<p ALIGN=CENTER>Internal Revenue Service - Employer Identification No. &nbsp;87-0401551 </p>
<p ALIGN=CENTER>2200 West Parkway Boulevard, Salt Lake City, Utah &nbsp;84119-2099<br>
(801) 817-1776 </p>
<p ALIGN=CENTER> &#151;&#151;&#151;&#151;&#151;&#151;</p>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Indicate by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.</font></p>
<p ALIGN=CENTER>Yes&nbsp;[X]&nbsp;&nbsp;No&nbsp;[&nbsp;&nbsp;]</p>
<P align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The total number of shares of the registrant&#146;s Common
Stock outstanding on January 3, 2002 was 19,881,533</font></p>
<P>&nbsp;</p>
<hr noshade>
<P align=center>&nbsp;</p>

<PAGE>

<h4><FONT FACE="Times New Roman, Times, Serif">
PART I.&nbsp;&nbsp;FINANCIAL INFORMATION<br>
ITEM 1.&nbsp;&nbsp;FINANCIAL STATEMENTS</font></h4>
<br><br>

 <h4 align=center><FONT FACE="Times New Roman, Times, Serif">
<u>FRANKLIN COVEY CO.<br><br>
CONSOLIDATED CONDENSED BALANCE SHEETS</u><br>
(in thousands, except share and per share amounts)</font></h4>
<PRE>
                                                            November 24,        August 31,
                                                               2001                2001
                                                           ---------------    --------------
                                                                     (unaudited)
ASSETS
------
Current assets:
      Cash and cash equivalents                              $   17,208         $   14,864
      Accounts receivable, less allowance for doubtful
         accounts of $1,708 and $1,799, respectively             25,974             26,639
      Inventories                                                50,224             42,035
      Income taxes receivable                                    15,523              1,411
      Other current assets                                       24,980             25,167
      Assets of discontinued operations                          67,365            109,063
                                                             ----------         ----------
      Total current assets                                      201,274            219,179

Property and equipment, net                                      98,916            103,840
Intangible assets, net                                          117,238            118,626
Goodwill, net                                                    61,784             61,954
Investment in unconsolidated subsidiary                          15,620             16,910
Other long-term assets                                           15,117             15,971
                                                             ----------         ----------
                                                             $  509,949         $  536,480
                                                             ==========         ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
      Lines of credit                                        $   38,980         $
      Accounts payable                                           18,826             19,493
      Current portion of long-term debt and capital
         lease obligations                                       59,752             11,954
      Other current liabilities                                  45,568             40,166
      Liabilities of discontinued operations                     12,019             34,806
                                                             ----------         ----------
      Total current liabilities                                 175,145            106,419

Line of credit                                                                      35,576
Long-term debt, less current portion                              1,461             49,527
Other liabilities                                                 8,477              7,755
Deferred income taxes                                            27,321             27,321
                                                             ----------         ----------
      Total liabilities                                         212,404            226,598
                                                             ----------         ----------

Shareholders' equity:
      Preferred stock - Series A, no par value;
         convertible into common stock at $14 per share;
         liquidation preference totaling $87,345 at
         November 24, 2001; 4,000,000 shares authorized,
         852,150 shares and 831,365 shares issued,
         respectively, at $100 per share                         85,073             82,995
      Common stock, $0.05 par value; 40,000,000 shares
         authorized, 27,055,894 shares issued                     1,353              1,353
      Additional paid-in capital                                223,507            223,898
      Retained earnings                                         139,693            167,475
      Notes and interest receivable from sales of common
         stock to related parties                               (26,802)           (35,977)
      Accumulated other comprehensive loss                         (216)            (4,681)
      Treasury stock at cost, 7,174,376 and 7,215,363
         shares, respectively                                  (123,848)          (124,395)
      Accumulated other comprehensive loss from
         discontinued operations                                 (1,215)              (786)
                                                             ----------         ----------
      Total shareholders' equity                                297,545            309,882
                                                             ----------         ----------
                                                             $  509,949         $  536,480
                                                             ==========         ==========
</PRE>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
                 (See Notes to Consolidated Condensed Financial Statements.)</font></p>

<PAGE>
 <h4 align=center><FONT FACE="Times New Roman, Times, Serif">
<u>FRANKLIN COVEY CO.<br><br>
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS</u><br>
(in thousands, except per share data)</font></h4>

<PRE>
                                                              Quarter Ended
                                                 ----------------------------------------
                                                 November 24, 2001    November 25, 2000
                                                 ------------------   ------------------
                                                               (unaudited)

Net sales:
      Products                                      $     58,184         $     87,273
      Training and services                               26,156               38,343
                                                    ------------         ------------
                                                          84,340              125,616
                                                    ------------         ------------
Cost of sales:
      Products                                            27,192               38,021
      Training and services                                9,661               12,123
                                                    ------------         ------------
                                                          36,853               50,144
                                                    ------------         ------------
Gross margin                                              47,487               75,472

Selling, general, and administrative                      56,504               56,002
Provision for losses on management stock loans             9,971
Impairment of investment in unconsolidated
   subsidiary                                              1,861
Depreciation                                               8,277                6,066
Amortization                                               1,396                3,249
                                                    ------------         ------------
Income (loss) from operations                            (30,522)              10,155

Equity in earnings of unconsolidated subsidiary              863                  885
Interest income                                              851                  164
Interest expense                                          (2,166)              (1,778)
Loss on interest rate swap agreement                      (5,126)
                                                    ------------         ------------
Income (loss) from continuing operations before
   benefit (provision) for income taxes                  (36,100)               9,426

Benefit (provision) for income taxes                      14,440               (5,005)
                                                    ------------         ------------

Income (loss) from continuing operations                 (21,660)               4,421
Loss from discontinued operations, net of tax
   benefits totaling $2,661 and $3,499,
   respectively (Note 3)                                  (3,992)              (3,091)
                                                    ------------         ------------
Net income (loss)                                        (25,652)               1,330
Preferred stock dividends                                 (2,130)              (2,028)
                                                    ------------         ------------
Net loss attributable to common shareholders        $    (27,782)        $       (698)
                                                    ============         ============
Basic and diluted earnings (loss) per share
   from continuing operations                       $      (1.09)        $        .21
Basic and diluted loss per share from
   discontinued operations, net of tax                      (.20)                (.15)
                                                    ------------         ------------
Basic and diluted earnings (loss) per share                (1.29)                 .06
Basic and diluted preferred stock dividends per
   share                                                    (.11)                (.09)
                                                     ------------         ------------
Basic and diluted net loss attributable to common
   shareholders per share                            $      (1.40)        $       (.03)
                                                     ============         ============
Weighted average number of common and common
equivalent shares:
        Basic                                              19,856               20,647
        Diluted                                            19,856               20,717
</PRE>

<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
                 (See Notes to Consolidated Condensed Financial Statements.)</font></p>


<PAGE>
 <h4 align=center><FONT FACE="Times New Roman, Times, Serif">
<u>FRANKLIN COVEY CO.<br><br>
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS</u><br>
(in thousands)</font></h4>

<PRE>
                                                                           Quarter Ended
                                                                 ---------------------------------
                                                                   November 24,      November 25,
                                                                      2001              2000
                                                                 ----------------  ---------------
                                                                            (unaudited)
Cash flows from operating activities:
     Net income (loss)                                              $ (25,652)      $   1,330
     Adjustments to reconcile net income (loss) to net cash
       provided by operating activities:
         Depreciation and amortization                                  9,443          11,271
         Provision for losses on management stock loans                 9,971
         Loss on interest rate swap agreement                           5,126
         Impairment of investment in unconsolidated subsidiary          1,861
         Equity in earnings of unconsolidated subsidiary                 (863)           (885)
         Loss on disposal of assets                                     1,481
         Other                                                           (241)             93
         Changes in assets and liabilities:
           Decrease in accounts receivable                             41,155          32,803
           Increase in inventories                                     (7,923)         (9,987)
           Decrease (increase) in other assets and other
             long-term liabilities                                      1,844          (1,414)
           Decrease in accounts payable and accrued liabilities        (5,392)         (8,465)
           Increase (decrease) in income taxes payable                (17,302)            615
                                                                    ---------       ---------
     Net cash provided by operating activities                         13,508          25,361
                                                                    ---------       ---------
Cash flows from investing activities:
     Formation of joint venture                                                          (289)
     Purchases of property and equipment                               (4,095)         (9,437)
                                                                    ---------       ---------
     Net cash used for investing activities                            (4,095)         (9,726)
                                                                    ---------       ---------
Cash flows from financing activities:
     Net decrease in short-term borrowings                             (9,750)        (11,522)
     Proceeds from long-term debt and line of credit                    4,238           3,000
     Principal payments on long-term debt and capital lease
       obligations                                                     (1,135)         (4,064)
     Purchases of common stock for treasury                                               (85)
     Proceeds from treasury stock issuance                                156             328
     Payment of preferred stock dividends                                              (2,028)
                                                                    ---------       ----------
     Net cash used for financing activities                            (6,491)        (14,371)
                                                                    ---------       ---------
Effect of foreign currency exchange rates                                (578)           (331)
                                                                    ---------       ---------
     Net increase in cash and cash equivalents                          2,344             933

Cash and cash equivalents at beginning of period                       14,864          21,242
                                                                    ---------       ---------
Cash and cash equivalents at end of period                          $  17,208       $  22,175
                                                                    =========       =========
Supplemental disclosure of cash flow information:
     Interest paid                                                  $   2,233       $   1,661
                                                                    =========       =========
     Income taxes paid                                              $     315       $     828
                                                                    =========       =========
Non-cash investing and financing activities:
     Accrued preferred stock dividends                              $   2,130       $   2,028
     Preferred stock dividends paid with additional shares
       of preferred stock                                               2,078
     Net assets contributed to form joint venture, net of
       cash contributed                                                                18,234
</PRE>

<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
(See Notes to Consolidated Condensed Financial Statements.)</font></p>
<PAGE>

<h4 align=center><FONT FACE="Times New Roman, Times, Serif">
FRANKLIN COVEY CO.</font></h4>
<h4 align=center><FONT FACE="Times New Roman, Times, Serif">
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS<br>
(unaudited)</font></h4>
<br>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>NOTE 1 - BASIS
OF PRESENTATION</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Franklin
Covey Co. (the &#147;Company&#148;) provides integrated training and performance
solutions to organizations and individuals in productivity, leadership, sales
performance, communication and other areas. Each solution set may include
components for training and consulting, assessment and other application tools
that are generally available in electronic or paper-based formats. The
Company&#146;s products and services are available through professional
consulting services, public workshops, catalogs, retail stores and the Internet
at <U>www.franklincovey.com</U> and <U>www.franklincoveyplanner.com</U>. The
Company&#146;s best known products include the Franklin Planner&#153; and the
best-selling book, <I>The 7 Habits of Highly Effective People</I>. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
accompanying unaudited consolidated condensed financial statements reflect, in
the opinion of management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position and results of
operations of the Company as of the dates and for the periods indicated. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States have been condensed or omitted pursuant to Securities and Exchange
Commission (&#147;SEC&#148;) rules and regulations. The Company suggests the
information included in this Report on Form 10-Q be read in conjunction with the
financial statements and related notes included in the Company&#146;s Annual
Report to Shareholders for the fiscal year ended August 31, 2001. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company utilizes a modified 52/53 week fiscal year that ends on August 31.
Corresponding quarterly periods generally consist of 13-week periods that end on
November 24, 2001, February 23, 2002, and May 25, 2002 during fiscal 2002. Due
to the modified 52/53 week fiscal year, the quarter ended November 24, 2001 had
one less business day than the quarter ended November 25, 2000. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The results of operations for the quarter ended November 24, 2001 are not necessarily indicative of results for the entire
fiscal year ending August 31, 2002.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
During the quarter ended November 24, 2001, the Company early adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" to account for the sale of Premier
Agendas (Note 3).  SFAS No. 144 supersedes SFAS No. 121 and various provisions of Accounting Principles Board Opinion No. 30.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
order to conform with the current period presentation, certain reclassifications
have been made in the prior period financial statements. Due to the presentation
of discontinued operations for the sale of Premier Agendas, all periods in the
accompanying consolidated condensed financial statements have been presented on
a comparable basis. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>NOTE 2 &#150;
EFFECTS OF SEPTEMBER 11, 2001 TERRORIST ATTACKS</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
September 11, 2001, major terrorist attacks occurred in New York City,
Washington, D.C., and Pennsylvania. Although the United States economy was
already slowing prior to September 11, 2001, the magnitude of these attacks was
unprecedented in their effects upon the United States and its economy.
Immediately following the attacks, a series of events occurred, including the
closure of airports and shopping malls, which had a material impact upon the
Company&#146;s operations. The Company did not realize any significant
destruction or impairment of its physical assets as a result of the attacks, but
the inability of sales and training personnel to travel, the restrictions on
store operations in some malls, and the financial and personnel losses at some
of the Company&#146;s clients, resulted in adverse financial consequences to the
Company during the first quarter of fiscal 2002. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>NOTE 3 &#150;
SALE OF PREMIER AGENDAS</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
November 13, 2001, the Company signed a definitive agreement to sell Premier
Agendas, Inc., a wholly owned subsidiary located in Bellingham, Washington, and
Premier School Agendas Ltd., a wholly owned subsidiary organized in Ontario,
Canada, (collectively, &#147;Premier&#148;) to School Specialty, Inc., a
Wisconsin-based company which specializes in providing products and services to
students and schools. Premier provided productivity and leadership solutions to
the educational industry. The necessary regulatory approvals were obtained and
the transaction closed on December 21, 2001. The sales price was $152.5
million in cash plus the retention of approximately $13.0 million of
Premier&#146;s working capital as of December 21, 2001, which will be received
in the form of cash dividends from Premier and a promissory note from the
purchaser, which is due and payable in June 2002. The Company also agreed to not
compete with School Specialty in marketing and selling student planners directly
to schools and school districts subsequent to the closing. Under the terms of
its existing credit facilities, the Company used $92.3 million of the proceeds
from the sale to pay off and terminate its term loan and revolving credit line.
In connection with this prepayment, the Company was also required to settle an
outstanding interest rate swap agreement it had entered into with respect to a
portion of these debt facilities (Note 8). The Company will recognize a gain of
approximately $80.0 million on the sale of Premier during the Company&#146;s second quarter of fiscal 2002. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
carrying amounts of Premier&#146;s assets and liabilities, which are disclosed as
discontinued operations in the accompanying consolidated condensed balance
sheets, were as follows (in thousands): </FONT></P>

<PRE>
                                                        Balance at             Balance at
               Description                          November 24, 2001        August 31, 2001
        --------------------------------------    ---------------------   ---------------------

        Accounts receivable, net                     $    11,698              $    52,188
        Inventories                                        2,872                    3,138
        Other current assets                               1,515                    1,646
        Property and equipment, net                        6,515                    6,866
        Intangible assets, net                             6,140                    6,266
        Goodwill, net                                     38,625                   38,959
                                                     -----------              -----------
             Total assets of discontinued
               operations                            $    67,365              $   109,063
                                                     ===========              ===========

        Line of credit                               $                        $     9,750
        Accounts payable                                   1,039                    7,178
        Current portion of long-term debt and
           capital lease obligations                       1,740                    1,720
        Income taxes payable                               1,028                    4,219
        Other current liabilities                          4,332                    8,005
        Long-term debt, less current portion                 359                      413
        Deferred income taxes                              3,521                    3,521
                                                     -----------              -----------
             Total liabilities of discontinued
                operations                           $    12,019              $    34,806
                                                     ===========              ===========
</pre>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Premier recorded $4.6 million of net sales and recognized a pretax loss of $6.3 million for the quarter ended November 24,
2001 compared to $3.5 million of net sales and a pretax loss totaling $6.6 million for the quarter ended November 25, 2000.  The
operating results of Premier are recorded as loss from discontinued operations, net of tax, in the accompanying consolidated
condensed statements of operations.  The operating results of Premier were historically included in the education segment for segment
reporting purposes (Note 11).</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table sets forth selected consolidated financial data for the prior two fiscal years to present Premier as
discontinued operations consistent with quarterly presentations (in thousands):</FONT></P>
<PRE>
                                                  Fiscal Year Ended     Fiscal Year Ended
                                                   August 31, 2001       August 31, 2000
                                                 -------------------   --------------------

        Net sales                                    $    439,781          $    522,630
        Gross margin                                      249,799               279,866

        Loss from continuing operations                   (16,457)               (9,014)
        Income from discontinued operations,
           net of tax                                       5,374                 4,605
                                                     ------------          ------------
        Net loss                                          (11,083)               (4,409)
        Preferred stock dividends                          (8,153)               (8,005)
                                                     ------------          ------------
        Net loss attributable to
           common shareholders                       $    (19,236)         $    (12,414)
                                                     ============          ============

        Basic and diluted loss per share
           from continuing operations                $       (.82)         $       (.44)
        Basic and diluted earnings per
           share from discontinued operations                 .27                   .22
                                                     ------------          ------------
        Basic and diluted loss per share                     (.55)                 (.22)
        Basic and diluted preferred stock
           dividends per share                               (.40)                 (.39)
                                                     ------------          ------------
        Basic and diluted net loss attributable
           to common shareholders per share          $       (.95)         $       (.61)
                                                     ============          ============

        Basic and diluted weighted average
           number of common shares outstanding             20,199                20,437
                                                     ============          ============
</pre>
<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>NOTE 4 &#150;
INVENTORIES</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Inventories of continuing operations were comprised of the following (in thousands):</FONT></P>
<pre>
                             November 24,            August 31,
                                 2001                   2001
                            -------------           ------------

        Finished goods       $    37,812            $    30,659
        Work in process            1,458                  1,507
        Raw materials             10,954                  9,869
                             -----------            -----------

                             $    50,224            $    42,035
                             ===========            ===========
</PRE>

<PAGE>


<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>NOTE 5 &#150;
GOODWILL AND OTHER INTANGIBLE ASSETS</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effective
September 1, 2001, the Company adopted the provisions of SFAS No. 142,
&#147;Goodwill and Other Intangible Assets.&#148; The provisions of SFAS No. 142
eliminate the amortization of goodwill and certain intangible assets that are
deemed to have indefinite lives and requires such assets to be tested for
impairment and to be written down to fair value, if necessary. At September 1,
2001 (the testing date), the Company had net goodwill and other intangible
assets totaling $225.8 million, including Premier. The Company is currently in
the process of valuing its goodwill and other intangible assets based upon the
new rules and may be required to record a material charge in fiscal 2002 as a
result of adopting the provisions of SFAS No. 142. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
the provisions of SFAS No. 142 were in effect at September 1, 2000, the Company
would have recognized the following financial results for the quarter ended
November 25, 2000. Amounts presented below were adjusted to reflect Premier as a
discontinued operation for enhanced comparability to amounts reported in the
accompanying consolidated condensed statement of operations for the first fiscal
quarter of 2002 (in thousands). </FONT></P>

<PRE>
                                                       Quarter Ended
                                                     November 25, 2000
                                                   ------------------------

        Amortization                                    $       1,494
        Income from continuing operations                       5,244
        Loss from discontinued operations,
          net of tax benefit                                   (2,638)

        Net income available to common
          shareholders                                            578

        Basic and diluted net income available to
          common shareholders per share                 $         .03
</pre>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
At September 1, 2001 the Company had $42.3 million of net book value assigned to the Covey and Premier trade names, which
were defined as intangible assets with indefinite lives.  In addition, $10.9 million of net intangibles attributable to sales forces
from various acquisitions were reclassified to goodwill in accordance with guidance in SFAS No. 142.</FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>NOTE 6 &#150;
INVESTMENT IN UNCONSOLIDATED SUBSIDIARY</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Effective September 1, 2000, the Company entered into a joint venture agreement with American Marketing Systems ("AMS") to
form Franklin Covey Coaching, LLC.  Each partner owns 50 percent of the joint venture and participates equally in its management.
The Company accounts for its investment in Franklin Covey Coaching, LLC using the equity method of accounting and reports its share
of the joint venture's net income as equity in earnings of an unconsolidated subsidiary.  The Company's share of the joint venture's
earnings totaled $0.9 million during the first quarter of fiscal 2002, compared to $0.9 million for the comparable quarter of the
prior year.  Summarized financial information for Franklin Covey Coaching, LLC was as follows for the periods indicated (in
thousands):</FONT></P>
<PRE>
                                            Quarter Ended
                                    ----------------------------------

                                     November 24,       November 25,
                                        2001                 2000
                                    ---------------     --------------

        Net sales                   $   5,854           $   5,016
        Gross profit                    3,800               3,334
        Net income                      1,945               1,770
</PRE>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under
terms of the joint venture agreement, the coaching programs contributed by the
Company are required to achieve minimum earnings thresholds over the next four
years, or the joint venture agreement is subject to termination at the option of
AMS. For fiscal 2002, the Company&#146;s coaching programs are required to
achieve $3.2 million in earnings before interest, taxes, depreciation, and
amortization. As of November 24, 2001, the Company&#146;s coaching program
earnings applicable to the threshold were $0.3 million. The Company has
evaluated its investment in Franklin Covey Coaching, LLC by considering probable
future cash flows based upon earnings trends and the likelihood of a contract
revision or termination by AMS. As a result of this evaluation, the Company
recorded an impairment charge of $1.9 million during the first quarter of fiscal 2002. As future information regarding
the Company&#146;s investment in Franklin Covey Coaching, LLC becomes available,
further impairment charges may be recorded by the Company. As of November 24,
2001, the Company&#146;s net investment in Franklin Covey Coaching, LLC totaled
$15.6 million. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>NOTE 7 &#150;
LONG-TERM DEBT AND LINE OF CREDIT AGREEMENTS</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
the fourth quarter of fiscal 2001, the Company entered into a new credit
agreement with its lenders. The new credit agreement is comprised of a $69.0
million term loan and a $45.6 million revolving credit facility, both of which
expire in May 2004. Combined with an existing $17.0 million line of credit that
expired in December 2001, the Company had lines of credit available for working
capital needs totaling $62.6 million, of which $23.6 million was available at
November 24, 2001. The line of credit agreements required the Company to
maintain certain financial ratios and working capital levels. Based upon the
operating results during the first quarter of fiscal 2002, the Company was not
in compliance with the terms of its line of credit agreements at November 24,
2001. The Company did not obtain waivers of non-compliance from its lenders and
has classified all amounts outstanding on its existing credit agreement as
current liabilities in the accompanying consolidated condensed balance sheet as
of November 24, 2001. On December 21, 2001, the Company used $92.3 million of
the proceeds from the sale of Premier (Note 3) to pay all amounts outstanding on
its existing line of credit agreements. As a result of this prepayment, the
existing line of credit agreement was terminated and the Company has not
obtained a new credit agreement. Following the payment and termination of its
lines of credit, the Company&#146;s remaining debt consists primarily of
long-term mortgages on the Company&#146;s buildings and property. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>NOTE 8 &#150;
ACCOUNTING FOR DERIVATIVE INSTRUMENTS</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
the normal course of business, the Company is exposed to interest rate and
foreign currency exchange risks. To manage risks associated with interest and
foreign currency exchange rates, the Company makes limited use of derivative
financial instruments. Derivatives are financial instruments that derive their
value from one or more underlying financial instruments. As a matter of policy,
the Company&#146;s derivative instruments are entered into for periods
consistent with related underlying exposures and do not constitute positions
that are independent of those exposures. In addition, the Company does not enter
into derivative contracts for trading or speculative purposes, nor is the
Company party to any leveraged derivative instrument. The notional amounts of
derivatives do not represent actual amounts exchanged by the parties to the
instrument and, thus, are not a measure of the exposure to the Company through
its use of derivatives. The Company enters into derivative agreements with
highly rated counterparties and the Company does not expect to incur any losses
resulting from non-performance by other parties. </FONT></P>


<PAGE>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=2><b><i>
Interest Rate Risk Management</i></b></font></p>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of November 24, 2001, the Company&#146;s debt balances consisted of both fixed
and variable rate instruments. In order to reduce the effects of interest rate
fluctuations on the Company&#146;s operations, the Company has utilized an
interest rate swap agreement. Generally, under interest rate swaps, the Company
agrees with a counterparty to exchange the difference between fixed-rate and
floating-rate interest amounts calculated by reference to a contracted notional
amount. The Company designates interest rate swap agreements as hedges of risks
associated with specific assets, liabilities, or future commitments, and these
contracts are monitored to determine whether the underlying agreements remain
effective hedges. The interest rate differential on interest rate swaps is
recognized as a component of interest expense or income over the term of the
agreement. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
connection with the management loan program completed in fiscal 2001, the
Company entered into an interest rate swap agreement to lock an interest rate
for loan participants. As a result of the new credit agreement obtained in
fiscal 2001, the notes receivable from loan participants and the interest rate
swap agreement were acquired by the Company and recorded on the Company&#146;s
consolidated balance sheet. The interest rate swap agreement allows the Company
to pay a fixed rate and receive a floating rate from the counterparty through
the term of agreement, which expires in March 2005. However, due to terms of the
Company&#146;s existing credit agreement, the Company was obligated to use a
portion of the proceeds from the sale of Premier to retire all outstanding debt,
including the amount related to the management stock loan. As a result of this
transaction, the underlying obligation of the interest rate swap agreement was
retired and the existing interest rate swap was transformed from a hedge
instrument into a speculative instrument, which the Company settled during the
second quarter of fiscal 2002 for $4.9 million. At November 24, 2001, the fair
value of the interest rate swap agreement was a $5.1 million liability, which
was recorded as a component of other long-term liabilities. Due to the change in
classification from a hedge instrument, the corresponding amount was
reclassified from accumulated other comprehensive loss and recorded as a loss in
the accompanying consolidated condensed statement of operations for the quarter
ended November 24, 2001. The interest rate differential totaled $0.5 million of
expense for the quarter ended November 24, 2001. </FONT></P>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=2><b><i>
Foreign Currency Exposure</i></b></font></p>


<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company has international operations and during the normal course of business is
exposed to foreign currency exchange risks as a result of transactions that are
denominated in currencies other than the United States dollar. At November 24,
2001, the Company utilized foreign currency forward contracts to manage the
volatility of certain intercompany financing transactions that are denominated
in Japanese Yen, Canadian Dollars, and Mexican Pesos. These contracts did not
meet specific hedge accounting requirements and corresponding gains and losses
have been recorded as a component of current operations, which offset the gains
and losses on the underlying transaction, in the accompanying consolidated
condensed statements of operations for fiscal 2001 and 2000. The notional amount
of the Company&#146;s foreign currency forward contracts were as follows at
November 24, 2001 (in thousands): </FONT></P>


<PAGE>


<PRE>
                                  Notional Amount in       Notional Amount in
        Contract Description       Foreign Currency           U.S. Dollars
        --------------------     --------------------      ------------------

        Japanese Yen                   635,000              $      5,430
        Canadian Dollars                 7,915                     5,010
        Mexican Pesos                   14,620                     1,535
                                                            ------------
                                                            $     11,975
                                                            ============
</PRE>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
net loss to the Company resulting from its use of foreign exchange contracts was
$0.1 million during the quarter ended November 24, 2001 and was insignificant
for the corresponding quarter of the prior year. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>NOTE 9 &#150;
COMPREHENSIVE LOSS</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Comprehensive
loss includes charges and credits to equity accounts that are not the result of
transactions with shareholders. Comprehensive loss is comprised of net loss and
other comprehensive income and loss items. Comprehensive loss for the Company
was as follows (in thousands): </FONT></P>

<PRE>
                                                       Quarter Ended
                                             ----------------------------------
                                             November 24,        November 25,
                                                 2001                2000
                                             --------------     ---------------
Net loss attributable to
   common shareholders                        $ (27,782)         $    (698)

Other comprehensive (loss) income:
   Loss on valuation of interest
      rate swap agreement, net of tax             2,786
   Foreign currency translation
      adjustments                                  (578)              (616)
                                               ---------          ---------
Comprehensive loss                            $ (25,574)         $  (1,314)
                                               =========          =========
</pre>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The loss on valuation of interest rate swap agreement was included as comprehensive income due to its change in
classification and corresponding adjustment from other accumulated comprehensive loss to a component of loss from operations.</FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>NOTE 10 &#150;
NET LOSS PER COMMON SHARE</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Basic earnings (loss) per share ("EPS") is calculated by dividing net loss attributable to common shareholders by the
weighted-average number of common shares outstanding for the period.  Diluted EPS is calculated by dividing net income (loss) by the
weighted-average number of common shares outstanding plus the assumed exercise of all dilutive securities using the treasury stock
method or the "as converted" method, as appropriate.  During periods of net loss, all common stock equivalents, including the effect
of common shares from the issuance of preferred stock on an "as converted" basis, are excluded from the diluted EPS calculation.
Shares excluded from the diluted EPS calculation on an "as converted" basis from outstanding common stock because of their
antidilutive effect totaled 6.1 million shares and 5.8 million shares for the quarters ended November 24, 2001 and November 25, 2000,
respectively.</FONT></P>



<PAGE>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>NOTE 11 &#150;
SEGMENT INFORMATION</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Effective September 1, 2001, the Company realigned its operations into the following three business units:</FONT></P>
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
   <tr valign=top>
     <td width=10%>&nbsp;</td>
<td width=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><i>
         Consumer Business Unit</i> - The consumer business unit ("CBU") is focused on sales to individual customers.  This business unit
         includes the results of the Company's 172 domestic retail stores, international retail stores, its catalog/e-Commerce
         operations, and other related channels and services including certain wholesale sales and manufacturing operations.
         Although consumer business unit sales primarily consist of products such as planners and handheld electronic planning
         devices, virtually any component of the Company's leadership and productivity solutions can be purchased through the
         consumer business unit channels.</font></td>
</tr>
</table>
<br>
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
   <tr valign=top>
     <td width=10%>&nbsp;</td>
<td width=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><i>
         Organizations Business Unit</i> - The organizations business unit ("OBU") is primarily responsible for selling products and
         services directly to organizational clients, including other companies, the government, and educational institutions.  The
         organizations business unit primarily consists of the financial results of the organizational sales group ("OSG") and the
         Company's international operations.  OSG is primarily responsible for the sale and delivery of leadership, productivity,
         sales performance, and communication training seminars to corporations and includes leadership training sales to educational
         entities that were formerly reported with Premier.</font></td>
</tr>
</table>
<br>
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
   <tr valign=top>
     <td width=10%>&nbsp;</td>
<td width=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><i>
Education Business Unit</i> - The education business unit includes the sales and operations of Premier and consists primarily of
         product sales to educational institutions from elementary schools to colleges and universities.  However, the operations of
         Premier were sold effective December 21, 2001 and the operating results of Premier were reported as discontinued operations
         in the accompanying condensed consolidated financial statements.</font></td>
</tr>
</table>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company's chief operating decision maker is the Chief Executive Officer ("CEO") and each of the business units have a
general manager that reports directly to the CEO.  The primary measurement tool in business unit performance analysis is earnings
before interest, taxes, depreciation, and amortization ("EBITDA"), which also approximates cash flows from the operating segments and
may not be calculated as similarly titled amounts presented by other companies.  The calculation of EBITDA includes the equity in
earnings of Franklin Covey Personal Coaching, LLC, which is reported through the OSG business segment.  In order to enhance
comparability between reported periods, the loss on impaired assets has been included in the EBITDA calculation, but was not charged
to a business unit.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company accounts for its segment information on the same basis as the accompanying consolidated condensed financial
statements.  Prior year information has been restated to conform with current year classifications.</FONT></P>


<PAGE>


<h4><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
SEGMENT INFORMATION<br>
(in thousands)</font></h4>
<PRE>
                                                                 Organizations Business
                               Consumer Business Unit                     Unit
                         ------------------------------------    ------------------------
                                                                                                          Corporate,
                                                                                                          Adjustments
<i>Quarter Ended</i>                          Catalog/       Other                                                   and
<i>November 24, 2001</i>          Retail     e-Commerce       CBU           OSG      International   Education  Eliminations  Consolidated
--------------------      ---------  -----------   ----------     ---------   -------------   ---------   -----------  ------------
Sales to external
  customers               $  28,639   $   19,444   $   1,392      $  21,987     $ 12,878       $                       $   84,340
Gross margin                 15,224       11,363        (284)         8,182       12,858                         144       47,487
EBITDA                          538        3,171      (3,470)        (1,846)       2,056                     (20,435)     (19,986)
Depreciation                  2,832          624         593            314          446                       3,468        8,277
Amortization                                                          1,339           16                          41        1,396
Discontinued
  operations, net
  of tax                                                                                         (3,992)                   (3,992)

Segment assets               40,762          690      33,757        181,284       22,960         67,365      163,131      509,949


<i>Quarter Ended
November 25, 2000</i>
--------------------      ---------  -----------   ----------     ---------   -------------   ---------   -----------  ------------
Sales to external
  customers               $  39,631   $   31,586   $   3,705      $  35,232     $ 15,462       $                       $  125,616
Gross margin                 22,060       18,686       1,987         24,093        9,234                        (588)      75,472
EBITDA                        9,576       12,468      (1,978)         6,206        2,131                      (8,048)      20,355
Depreciation                  1,512          117         641            334          215                       3,247        6,066
Amortization                    114                      204          2,303          136                         492        3,249
Discontinued
  operations, net
  of tax                                                                                         (3,091)                   (3,091)
Segment assets               35,694          648      38,046        193,529       24,114         78,595      199,318      569,944
</PRE>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
 A reconciliation of reportable segment EBITDA to consolidated EBITDA is presented below (in thousands):</FONT></P>
<pre>
                                       Quarter Ended       Quarter Ended
                                       November 24,        November 25,
                                           2001                2000
                                      --------------     ---------------
        Reportable segment
           EBITDA                       $      449         $   28,403
        Provision for losses on
           management stock loans           (9,971)
        Impairment of investment in
           unconsolidated subsidiary        (1,861)
        Corporate expenses                  (8,603)            (8,048)
                                       ------------        ------------
        Consolidated EBITDA             $  (19,986)        $   20,355
                                       ------------        ------------
</PRE>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Corporate
assets such as cash, accounts receivable, and other assets are not generally
allocated to reportable business segments for business analysis purposes.
However, inventories, certain identifiable goodwill and intangibles, and fixed
assets are classified by segment. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>NOTE 12 &#150;
MANAGEMENT COMMON STOCK LOAN PROGRAM</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
fiscal 2000, the Company implemented an incentive-based compensation program
that included a loan program from external lenders to certain management
personnel for the purpose of purchasing shares of the Company&#146;s common
stock. The program gave management of the Company the opportunity to purchase
shares of the Company&#146;s common stock on the open market, and from shares
purchased by and from the Company, by borrowing on a full-recourse basis from
the external lenders. The loan program closed during fiscal 2001 with 3,825,000
shares purchased for a total cost of $33.6 million. Although interest accrues
over the life of the loans, no interest payments are due from participants until
the loans mature in March 2005. As part of the credit agreement obtained in
fiscal 2001 (Note 7), the Company acquired the notes receivable from the
loan participants and recorded them as a component of shareholders&#146; equity.
As a result, the Company is now the direct lender on these full-recourse notes
from the participants of the loan program. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company regularly evaluates the creditworthiness of loan participants and their
ability to repay the loans. The Company&#146;s systematic methodology used in
this evaluation considers factors such as the current stock value, the
participant&#146;s available net worth, historical losses on loans, general
economic and business factors, and other factors. Based upon the Company&#146;s
methodology, which considered operating results of the Company&#146;s first
fiscal quarter, anticipated sales trends, and current general economic factors
expected to affect the Company&#146;s operations during the remainder of fiscal
2002, the Company recorded an additional $10.0 million loan loss reserve during
the quarter ended November 24, 2001. As of November 24, 2001, the Company had an
aggregate loan loss reserve totaling $11.0 million, which reduces notes and
interest receivable from related parties in the accompanying consolidated
condensed balance sheet. Although all participants have full-recourse loans from the
Company, the inability of some or all
participants to repay their loans would have a significant adverse effect upon
the operating results, financial position, and liquidity of the Company. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>NOTE 13 &#150;
SUBSEQUENT EVENT</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
<I><B>Tender Offer</b></i></font></p>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
November 26, 2001, the Company filed a tender offer statement with the
Securities and Exchange Commission, which was subsequently amended on December
24, 2001, to purchase up to 7,333,333 shares of its common stock at a purchase
price of $6.00 per share. The tender offer is subject to conditions set forth in
the tender offer statement and currently is expected to expire on January 31,
2002. However, due to decreased sales trends that continued through the
Christmas buying season, the Company is considering the possible reduction,
delay, or termination of this tender offer. While the Company has taken
significant steps to decrease costs in order to address continuing lower
revenues and currently has a very strong balance sheet after the benefit of the
Premier sale, with essentially no debt and more than $60 million of cash, the
Company is considering whether or not it should conserve this cash to provide it
with adequate resources to maintain flexibility in uncertain economic
conditions. </FONT></P>


<PAGE>

<h2><FONT FACE="Times New Roman, Times, Serif" size=2>
ITEM 2.&nbsp;&nbsp;MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS</font></h2>
<br>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements and Management&#146;s Discussion and Analysis
of Financial Condition and Results of Operations included in the Company&#146;s
Annual Report to Shareholders for the year ended August 31, 2001. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
RESULTS OF OPERATIONS</FONT></P>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><u>
Quarter Ended November 24, 2001 Compared with the Quarter Ended November 25, 2000</u></FONT></P>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><i><b>
Overview</b></i></font></p>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net
loss attributable to common shareholders was $27.5 million compared to $0.7
million in the prior year. The Company&#146;s increased losses were directly
attributable to a 33 percent decrease in sales from continuing operations and
$11.8 million in non-cash charges related to its management stock loan program
and impairment of its investment in Franklin Covey Coaching, LLC. Sales performance was adversely
affected during the first quarter of fiscal 2002 primarily due to prevalent
economic conditions in the United States, which were magnified by terrorist
attacks on New York City, Washington, D.C., and Pennsylvania on September 11,
2001, and one less business day due to the Company&#146;s fiscal calendar. The
terrorist attacks on September 11, 2001 did not result in any significant
destruction or impairment of the Company&#146;s physical assets, but the
inability of sales and training personnel to travel, the restrictions on store
operations in some malls, and the financial and personnel losses at some of the
Company&#146;s clients, produced adverse financial consequences to the Company
during the first quarter of fiscal 2002. The Company anticipates that these
trends in sales will continue to affect its second quarter sales and have some
impact on the remainder of the fiscal year. As a result, the Company has taken
steps to decrease its costs in light of its current expectation of reduced
sales. These steps include reductions in Company personnel, exiting non-core
activities, and other operational improvements. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
the first quarter of fiscal 2002, the Company signed a definitive agreement to
sell Premier Agendas, Inc., a wholly owned subsidiary located in Bellingham,
Washington, and Premier School Agendas Ltd., a wholly owned subsidiary organized
in Ontario, Canada, (collectively, &#147;Premier&#148;). Premier provided
learning and leadership solutions for the education industry. The sale of
Premier was completed December 21, 2001 and the operating results of Premier
were reported as discontinued operations in the Company&#146;s consolidated
condensed financial statements. </FONT></P>


<PAGE>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><i><b>
Sales</b></i></font></p>


<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table sets forth selected sales data of the Company's operating segments (in thousands):</FONT></P>
<pre>
                                             Quarter Ended
                                ---------------------------------------
                                   November 24,         November 25,
                                       2001                 2000           Variance %
                                 -----------------    -----------------    ----------
 Consumer Business Unit:
    Retail Stores                  $    28,639          $    39,631            (28)
    Catalog/e-Commerce                  19,444               31,586            (38)
    Other CBU                            1,392                3,705            (62)

Organizations Business Unit:
    Organizational Sales Group          21,987               35,232            (38)
    International                       12,878               15,462            (17)
                                   -----------          -----------
                                   $    84,340          $   125,616            (33)
                                   ===========          ===========
</PRE>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
general, the Company&#146;s sales were adversely affected by events described
above regarding the United States economy, which was worsened by the September
11 terrorist attacks. In addition, the Company believes that reduced training
budgets, as corporate clients strive to reduce operating expenses, and
reluctance of personnel to travel, were significant contributors to the overall
decrease in sales, for both on-site and public training programs. Product sales,
which primarily consist of planners, binders, and handheld electronic planning
devices, decreased $29.1 million, or 33 percent, compared to the prior year. The
decrease in product sales is primarily due to decreased retail store and
catalog/e-Commerce sales. Retail store sales declined primarily due to reduced
traffic in the stores, which resulted in fewer transactions coupled with lower
average sales per order due to a sharp decline in sales of handheld electronic
planning devices and related accessories. Total handheld electronic device
sales, the majority of which are made through the Company&#146;s retail stores,
decreased by more than $10.0 million, or 54 percent, compared to the prior year.
Planner and binder sales also decreased compared to the prior year. As a result
of these declines, comparable store sales decreased during the quarter by 35
percent compared to the prior year. The sales performance from 23 additional
stores partially offset the decline in comparable store sales resulting in a 28
percent overall decrease compared to the prior year. As of November 24, 2001,
the Company was operating 172 retail stores compared to 149 stores at November
25, 2000. Catalog/e-Commerce sales declined due to reduced call volume in the
Company&#146;s catalog operations and reduced sales activity through the
Company&#146;s Internet web site at <U>www.franklincovey.com</U>. Sales from the
Company&#146;s historically strong fall catalog mailing, which was mailed just
days prior to September 11 and the subsequent anthrax scares associated with the
mail, declined more than 40 percent compared to the same quarter last year.
Other CBU sales decreased due to reduced demand for the Company&#146;s products
through wholesale channels and from the sale/discontinuance of certain small
entities. The Company offers a variety of training seminars and consulting
services including time management, leadership, and sales performance training.
Domestic training seminars and consulting services are delivered through the
Company&#146;s Organizational Sales Group (&#147;OSG&#148;). Training sales
decreased primarily due to canceled and postponed programs and reduced
attendance, for both on-site and public leadership and time management programs.
Public program sales continued their downward trend from late fiscal 2001 and
decreased compared to the prior year. Due to economic factors, future bookings
of training seminars remain slow, and the Company expects this trend to impact
the second quarter and the remainder of fiscal 2002. International
product and training sales decreased compared to the prior year primarily due to
decreased sales in Japan, Canada, and Mexico. These decreases were partially
offset by slight sales increases from Europe and licensee operations. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><i><b>
Gross Margin</b></i></font></p>


<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Gross
margin consists of net sales less the cost of goods sold or services provided.
The Company&#146;s overall gross margin decreased to 56.3 percent of sales for
the quarter, compared to 60.1 percent in the prior year. The decline in gross
margin was primarily due to increased manufacturing costs, which adversely
affected product cost of sales, and the impact of fixed delivery costs for
seminars, which reduced training and service gross margins. Gross margin on
product sales decreased to 53.3 percent compared to 56.4 percent in the prior
year. Due to decreased sales volume, especially in the latter half of fiscal
2001, production volume for planners and related forms was reduced, which
resulted in higher per-unit costs due to the loss of certain volume
efficiencies. Partially offsetting these factors was an overall decrease in the
sales volume of lower-margin handheld electronic devices. Training and service
gross margin decreased to 63.1 percent compared to 68.4 percent in the prior
year. Seminar costs, as a percentage of revenue, increased due to lower
attendance at seminar events during the quarter and the cancellation and
postponement of seminars due to travel restrictions resulting from the September
11 terrorist attacks. Certain components of training program costs are fixed,
such as site fees, equipment rentals, and presenter costs. With a decline in
average participants per training seminar, the fixed costs for the seminar
resulted in lower gross margins for the seminar event. In addition, some costs
incurred for canceled seminars were not entirely refundable. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><i><b>
Operating Expenses</b></i></font></p>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Selling,
general, and administrative (&#147;SG&amp;A&#148;) expenses increased $0.5
million, to 67.0 percent of sales, compared to 44.6 percent in the prior year.
The increase in SG&amp;A expenses was primarily due to increased retail store
operations, costs associated with the implementation of the Electronic Data
Systems (&#147;EDS&#148;) outsourcing contract, increased advertising and
promotion costs, increased consulting costs, and severance costs resulting from
headcount reduction efforts. These increases were slightly offset by decreased
associate costs and reduced travel and entertainment expenses. As previously
mentioned, the Company is operating 23 additional stores compared to the prior
year and has realized increased operating costs, including pre-opening costs for
new stores opened during the quarter. During fiscal 2001, the Company entered
into a long-term outsourcing agreement with EDS to provide warehousing,
distribution, information systems, and call center operations. In addition to
base charges for services provided, the Company has incurred transition costs
necessary to operate under the terms of the agreement. The Company believes that
over the life of the contract, significant cost savings will be realized in
these outsourced areas. In an effort to improve sales performance, the Company
increased spending for advertising and promotional materials, especially for
catalogs and related mailing materials. During the quarter, the Company
continued its spending to develop and market new products and training courses
and engaged consultants to assist in the development of these items.
Additionally, the Company has implemented numerous initiatives to reduce
operating expenses, including headcount reductions in various areas of the
Company. As a result of these efforts, the Company incurred and expensed
severance costs during the first quarter of fiscal 2002. The Company believes
that its cost reduction initiatives will significantly reduce SG&amp;A costs
throughout the remainder of fiscal 2002 and in future periods. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
fiscal 2000, the Company implemented an incentive-based compensation program
that included a loan program from external lenders to certain management
personnel for the purpose of purchasing shares of the Company&#146;s common
stock. As part of the credit agreement obtained in fiscal 2001, the Company
acquired the notes receivable from the loan participants and recorded them as a
component of shareholders&#146; equity. As a result, the Company is now the
direct lender on these full-recourse notes from the participants of the loan
program. The Company regularly evaluates the creditworthiness of loan
participants and their ability to repay the loans. The Company&#146;s systematic
methodology used in this evaluation considers factors such as the current stock
value, the participant&#146;s available net worth, historical losses on loans,
general economic and business factors, and other factors. Based upon the
Company&#146;s methodology, which considered operating results of the
Company&#146;s first fiscal quarter, anticipated sales trends, and current
general economic factors expected to affect the Company&#146;s operations during
the remainder of fiscal 2002, the Company recorded an additional $10.0 million
loan loss reserve during the quarter ended November 24, 2001. As of November 24,
2001, the Company had an aggregate loan loss reserve totaling $11.0 million,
which reduces notes and interest receivable from related parties in the
Company&#146;s consolidated condensed balance sheet. Although all participants
have full-recourse loans from the Company, the
inability of some or all participants to repay their loans would have a
significant adverse effect upon the operating results, financial position, and
liquidity of the Company. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Depreciation
expense increased by $2.2 million compared to the prior year, primarily due to
the addition of leasehold improvements in new and remodeled retail stores, the
purchase of computer hardware and software, and investments in additional
manufacturing equipment. Amortization expense decreased by $1.9 million,
primarily due to the adoption of SFAS No. 142, which requires goodwill
amortization to cease and a fair value approach to goodwill and other
intangibles. The Company is in the process of valuing its goodwill and other
intangibles and may be required to record a material charge in fiscal 2002 as a
result of adopting the provisions of SFAS No. 142. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><i><b>
Equity in Earnings of Unconsolidated Subsidiary</b></i></font></p>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effective
September 1, 2000, the Company entered into a joint venture agreement with
American Marketing Systems (&#147;AMS&#148;) to form Franklin Covey Coaching,
LLC. Each partner owns 50 percent of the joint venture and participates equally
in its management. The Company accounts for its investment in Franklin Covey
Coaching, LLC using the equity method of accounting and reports its share of the
joint venture&#146;s net income as equity in earnings of an unconsolidated
subsidiary. The Company&#146;s share of the joint venture&#146;s earnings
totaled $0.9 million during the first quarter of fiscal 2002, compared to $0.9
million for the comparable quarter of the prior year. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under
terms of the joint venture agreement, the coaching programs contributed by the
Company are required to achieve minimum earnings thresholds over the next four
years, or the joint venture agreement is subject to termination at the option of
AMS. For fiscal 2002, the Company&#146;s coaching programs are required to
achieve $3.2 million in earnings before interest, taxes, depreciation, and
amortization. As of November 24, 2001, the Company&#146;s coaching program
earnings applicable to the threshold were $0.3 million. The Company has
evaluated its investment in Franklin Covey Coaching, LLC by considering probable
future cash flows based upon earnings trends and the likelihood of a contract
revision or termination by AMS. As a result of this evaluation, the Company
recorded an impairment charge of $1.9 million during the first quarter of fiscal 2002.
 As future information regarding
the Company&#146;s investment in Franklin Covey Coaching, LLC becomes available,
further impairment charges may be recorded by the Company. As of November 24,
2001, the Company&#146;s net investment in Franklin Covey Coaching, LLC totaled
$15.6 million. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><i><b>
Interest Income and Expense</b></i></font></p>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
general, interest income and expense was affected by Company performance during
the first quarter of fiscal 2002, which resulted in higher debt balances and
lower cash balances than in the prior year. In addition, interest expense
increased due to larger debt balances resulting from the Company&#146;s new line
of credit agreement signed during the fourth quarter of fiscal 2001. The new
line of credit agreement included the management stock loan participant&#146;s
debt, which was previously guaranteed by the Company. As a result, the Company
paid interest to the bank on amounts borrowed to acquire the loans. The
participants will repay the interest paid by the Company when the loans mature
in March 2005. Accordingly, the Company recognized $0.8 million of additional
interest income, which was recorded as a receivable from the loan participants.
Also included in interest expense was the differential on the interest rate swap
agreement, which totaled $0.5 million for the quarter ended November 24, 2001.
Due to decreased debt balances, the Company expects interest expense to decrease
during the remainder of fiscal 2002. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><i><b>
Income Taxes</b></i></font></p>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Income tax benefit was recorded at an effective tax rate of 40.0 percent, which was based upon expected taxable income for
the remainder of fiscal 2002, the anticipated income tax impact from the sale of Premier, and the effects of non-deductible
intangible amortization.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><i><b>
Preferred Stock Dividends</b></i></font></p>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Preferred
stock dividends increased over the prior year due to the issuance of additional
shares of preferred stock as payment for accrued dividends. The Company may, at
its option, pay accrued dividends with cash or additional shares of preferred
stock until July 1, 2002. Subsequent to that date, preferred stock dividends
must be paid in cash. Accrued preferred stock dividends at November 24, 2001
were subsequently paid with additional shares of preferred stock. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
LIQUIDITY AND CAPITAL RESOURCES</font></p>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Historically,
the Company&#146;s primary sources of capital have been net cash provided by
operating activities, long-term borrowings, line of credit financing, and the
issuance of preferred stock. Working capital requirements have also been
financed through short-term borrowing and line-of-credit financing. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net
cash provided by operating activities during the quarter ended November 24, 2001
was $13.5 million compared to $25.4 million for the quarter ended November 25,
2000. The decrease in operating cash flow was primarily due to reduced net
income from unfavorable operating results recorded during the quarter ended
November 24, 2001. Non-cash adjustments to the Company&#146;s results of
operations during the first quarter of fiscal 2002 included an increase to the
provision for losses on the management stock loan program of $10.0 million, $9.4
million of depreciation and amortization charges, $5.1 million related to the
loss resulting from a change in hedge status of an interest rate swap agreement,
and a $1.8 million impairment charge on the Company&#146;s investment in
Franklin Covey Coaching, LLC. Consistent with prior years, the primary source of
cash from operations was the collection of accounts receivable, primarily from
Premier, which records seasonally high sales during the Company&#146;s fourth
fiscal quarter. The major uses of cash were the acquisition of inventories for
new retail stores and expected sales during the Company&#146;s second quarter,
and the payment of accounts payable and accrued liabilities also primarily
attributable to the seasonal nature of Premier&#146;s operations. Additionally,
due to operating losses recorded during the first quarter of fiscal 2002, the
Company recognized income tax benefits that reduced income taxes payable and
resulted in income taxes receivable at November 24, 2001. The Company
anticipates that income taxes receivable will be offset by the tax liability
resulting from the sale of Premier during the second quarter of fiscal 2002. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net
cash used for investing activities totaled $4.1 million during the first quarter
of fiscal 2002 compared to $9.7 million in the prior year. Cash was used to
purchase computer hardware and software, leasehold improvements in new stores,
and other property and equipment. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net
cash used for financing activities during the quarter ended November 24, 2001
was $6.5 million compared to $14.4 million in the prior year. During the first
quarter of fiscal 2002, the Company utilized $10.9 million of cash to reduce
both current and long-term debt balances. Also during the quarter, the Company
did not purchase any of its common stock for treasury and paid accrued preferred
stock dividends with additional shares of preferred stock. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
the fourth quarter of fiscal 2001, the Company entered into a new credit
agreement with its lenders. The new credit agreement was comprised of a $69.0
million term loan and a $45.6 million revolving credit facility, both of which
expire in May 2004. Combined with an existing $17.0 million line of credit that
in expired in December 2001, the Company had lines of credit available for
working capital needs totaling $62.6 million, of which $23.6 million was
available at November 24, 2001. The line of credit agreements required the
Company to maintain certain financial ratios and working capital levels. Due to
unfavorable operating results during the first quarter of fiscal 2002, at
November 24, 2001, the Company was not in compliance with the terms of its line
of credit agreements. The Company did not obtain waivers of non-compliance from
its lenders and has classified all amounts outstanding on its credit agreement
as current liabilities in the Company&#146;s condensed consolidated balance
sheet for November 24, 2001. On December 21, 2001, the Company used $92.3
million of the proceeds from the sale of Premier to pay all amounts outstanding
on its existing line of credit agreements. As a result of this prepayment, the
existing line of credit agreement was terminated. Following payment and
termination of the lines of credit, the Company&#146;s remaining debt balances
primarily consist of long-term mortgages on certain of the Company&#146;s
buildings and property. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
November 13, 2001, the Company signed a definitive agreement to sell Premier, a
wholly owned subsidiary that provides productivity and learning solutions to the
educational industry. The necessary regulatory approvals were obtained and the
transaction closed on December 21, 2001. The sales price was $152.5 million in
cash plus the retention of approximately $13.0 million of Premier&#146;s working
capital as of December 21, 2001, which will be received in the form of cash
dividends from Premier and a promissory note from the purchaser, which is due
and payable in June 2002. The Company will recognize a gain of approximately
$80.0 million from the sale of Premier during its second quarter of fiscal 2002.
Under the terms of its existing credit facilities, the Company used
approximately $92.3 million of the proceeds to pay off and terminate its term
loan and revolving credit line. In connection with this prepayment, the Company
was also required to settle an outstanding interest rate swap agreement it had
entered into with respect to a portion of these debt facilities. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
November 26, 2001, the Company filed a tender offer statement with the
Securities and Exchange Commission, which was subsequently amended on December
24, 2001, to purchase up to 7,333,333 shares of its common stock at a purchase
price of $6.00 per share. The tender offer is subject to conditions set forth in
the tender offer statement, and related amendments, and is currently due to
expire on January 31, 2002. However, due to decreased sales trends that
continued through the Christmas buying season, the Company is considering the
possible reduction, delay, or termination of this tender offer. While the
Company has taken significant steps to decrease costs in order to address
continuing lower revenues and currently has a very strong balance sheet after
the benefit of the Premier sale, with essentially no debt and more than $60
million of cash, the Company is considering whether or not it should conserve
this cash to provide it with adequate resources to maintain flexibility in
uncertain economic conditions. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Going
forward, the Company will continue to incur costs necessary for the development
of products and curriculum, initiatives to strengthen sales, electronic commerce
channels, strategic acquisitions and joint ventures, retail store growth and
renovations, pay preferred stock dividends, and other costs related to growth
and operation of the business. Cash provided by the sale of Premier, operations,
and other financing alternatives will be used for these expenditures. Management
anticipates that its existing capital resources will be sufficient to enable the
Company to maintain its current level of operations for the foreseeable future.
The Company also continues to pursue additional financing alternatives as it
positions itself for future growth opportunities. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><b>
"Safe Harbor" Statement Under the Private Securities Litigation Reform Act of 1995</b></font></p>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;With
the exception of historical information (information relating to the
Company&#146;s financial condition and results of operations at historical dates
or for historical periods), the matters discussed in this Management&#146;s
Discussion and Analysis of Financial Condition and Results of Operations and
elsewhere are forward-looking statements that necessarily are based on certain
assumptions and are subject to risks and uncertainties. Such uncertainties
include, but are not limited to, unanticipated developments in any one or more
of the following areas: decreased sales and profitability due to the sale of
Premier, decreased sales as a result adverse economic conditions, management of
costs in connection with reduced sales, unanticipated costs, delays or outcomes
relating to the Company&#146;s restructuring plans, availability of financing
sources, failure to collect employee notes receivable, dependence on products or
services, the rate and consumer acceptance of new product introductions,
competition, the number and nature of customers and their product orders,
pricing, pending and threatened litigation, and other risk factors which may be
detailed from time to time in the Company&#146;s press releases, reports to
shareholders and in filings with the SEC. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;While
the Company has a broad customer base, it is subject to variables over which it
has no direct control such as innovations in competing products, the general
transition from paper-based products to electronic or Internet based products,
changing corporate policies on the part of the Company&#146;s customers,
competition from others in the industry, and the effects of terrorist activities
on the United States economy. In addition, the Company is subject to changes in
costs of supplies necessary to produce its products and distribution of those
products. The Company&#146;s business is subject to seasonal variations and is
also subject to risks associated with sales occurring in countries other than
the United States. Sales outside the United States potentially present
additional risks such as the potential for political, social, and economic
instability. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
market price of the Company&#146;s common stock has been and may remain
volatile. In addition, the stock markets in general have recently experienced
increased volatility. Factors such as quarter-to-quarter variations in revenues
and earnings or the failure of the Company to meet analysts&#146; expectations
could have a significant impact on the market price of the Company&#146;s common
stock. In addition, the price of the common stock can change for reasons
unrelated to the performance of the Company. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;These
forward-looking statements are based on management&#146;s expectations as of the
date hereof, and the Company does not undertake any responsibility to update any
of these statements in the future. Actual future performance and results will
differ and may differ materially from that contained in or suggested by these
forward-looking statements as a result of the factors set forth in this
Management&#146;s Discussion and Analysis of Financial Condition and Results of
Operations, the business risks described in the Company&#146;s Annual Report on
Form 10-K for the year ended August 31, 2001, and elsewhere in the
Company&#146;s filings with the SEC. </FONT></P>


<PAGE>

<h2><FONT FACE="Times New Roman, Times, Serif" size=2>
ITEM 3.&nbsp;&nbsp;QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK</font></h2>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
MARKET RISK OF FINANCIAL INSTRUMENTS</font></p>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
the normal course of business, the Company is exposed to interest rate and
foreign currency exchange risks. To manage risks associated with interest rates
and foreign currencies, the Company makes limited use of derivative financial
instruments. Derivatives are financial instruments that derive their value from
one or more underlying financial instruments. As a matter of policy, the
Company&#146;s derivative instruments are entered into for periods consistent
with related underlying exposures and do not constitute positions that are
independent of those exposures. In addition, the Company does not enter into
derivative contracts for trading or speculative purposes, nor is the Company
party to any leveraged derivative instrument. The notional amounts of
derivatives do not represent actual amounts exchanged by the parties to the
instrument and, thus, are not a measure of the exposure to the Company through
its use of derivatives. The Company enters into derivative agreements with
highly rated counterparties and the Company does not expect to incur any losses
resulting from non-performance by other parties. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
<b><i>Interest Rate Sensitivity</i></b></font></p>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company is exposed primarily to fluctuations in U.S. interest rates as a result
of its borrowing activities. At November 24, 2001, the Company&#146;s debt
consisted of both fixed and variable rate instruments. Had market interest rates
averaged one percent higher during the quarter ended November 24, 2001, the
Company&#146;s interest expense would have increased by approximately $0.2
million. Subsequent to November 24, 2001, the Company utilized $92.3 million of
the proceeds from the sale of Premier and retired nearly all of its variable
rate debt. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
order to reduce the risk of interest rate fluctuation, the Company may utilize
interest rate swap agreements. Generally, under interest rate swaps, the Company
agrees with a counterparty to exchange the difference between fixed-rate and
floating-rate interest amounts calculated by reference to a contracted notional
amount. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
connection with the management loan program completed in fiscal 2001, the
Company entered into an interest rate swap agreement to lock an interest rate
for loan participants. As a result of the new credit agreement obtained in
fiscal 2001, the notes receivable from loan participants and the interest rate
swap agreement were acquired by the Company and recorded on the Company&#146;s
consolidated balance sheet. The interest rate swap agreement allows the Company
to pay a fixed rate and receive a floating rate from the counterparty through
the term of agreement, which expires in March 2005. However, due to terms of the
Company&#146;s existing credit agreement, the Company was obligated to use a
portion of the proceeds from the sale of Premier to retire all outstanding debt,
including the amount related to the management stock loan. As a result of this
transaction, the underlying obligation of the interest rate swap agreement was
retired and the existing interest rate swap was transformed from a hedge
instrument into a speculative instrument, which the Company settled during the
second quarter of fiscal 2002 for $4.9 million. At November 24, 2001, the fair
value of the interest rate swap agreement was a $5.1 million liability, which
was recorded as a component of other long-term liabilities. Due to the change in
classification from a hedge instrument, the corresponding amount was
reclassified from accumulated other comprehensive loss and recorded as other
expense in the accompanying consolidated condensed statement of operations for
the quarter ended November 24, 2001. The interest rate differential totaled $0.5
million of expense for the quarter ended November 24, 2001. </FONT></P>


<PAGE>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
<B><i>Foreign Exchange Sensitivity</i></b></font></p>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company has international operations and during the normal course of business is
exposed to foreign currency exchange risks as a result of transactions that are
denominated in currencies other than the United States dollar. At November 24,
2001, the Company utilized foreign currency forward contracts to manage the
volatility of certain intercompany financing transactions that are denominated
in Japanese Yen, Canadian Dollars, and Mexican Pesos. These contracts did not
meet specific hedge accounting requirements and corresponding gains and losses
have been recorded as a component of current operations, which offset the gains
and losses on the underlying transaction, in the accompanying consolidated
condensed statements of operations. The notional amount of the Company&#146;s
foreign currency forward contracts were as follows at November 24, 2001 (in
thousands): </FONT></P>

<PRE>
                                 Notional Amount in    Notional Amount in
        Contract Description     Foreign Currency         U.S. Dollars
        --------------------   ----------------------  -------------------
        Japanese Yen                 635,000            $      5,430
        Canadian Dollars               7,915                   5,010
        Mexican Pesos                 14,620                   1,535
                                                        ------------
                                                        $     11,975
                                                        ============
</PRE>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The net loss to the Company resulting from its use of foreign exchange contracts was $0.1 million during the quarter ended
November 24, 2001.  The effect of foreign exchange contracts was insignificant to the Company during the same quarter of the prior
year.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
EURO CONVERSION</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
January 1, 1999, the European Monetary Union (&#147;EMU&#148;), which is
comprised of 11 out of the 15 member countries of the European Union, introduced
a new common currency, the &#147;Euro&#148;. During the transition period
between January 1, 1999 and January 1, 2002, both the Euro and national
currencies will coexist. The national currencies will remain legal tender until
at least January 1, 2002, but not later than July 1, 2002. The Company currently
transacts business in EMU countries using the national currencies and translates
the financial results of those countries in accordance with current accounting
pronouncements. Further, the Company has not experienced, nor does it expect to
experience, a material adverse impact on its financial condition, results of
operations or liquidity as a result of the Euro conversion. </FONT></P>


<PAGE>


<h4>
PART II.  OTHER INFORMATION
</h4>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>
Item 1&#151; Legal Proceedings:</b></font></p>
<p><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Not applicable.</font></p>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>
Item 2&#151;Changes in Securities:</b></font></p>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Not applicable.</font> </p>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>
Item 3&#151; Defaults upon Senior Securities:</b></font></p>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Refer to disclosure in Management's Discussion and Analysis of Financial Condition and Results of Operations contained herein.</font> </p>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>
Item 4&#151;Submission of Matters to a Vote of Security Holders:</b></font></p>
<p><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Not applicable.</font> </p>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>
Item 5&#151;Other information:</b></font></p>
<p><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Not applicable.</font> </p>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>
Item 6&#151; Exhibits and Reports on Form 8-K:</b></font></p>
<p><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(A)&nbsp;&nbsp;<i>Exhibits:</i></font></P>

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  <tr valign=top>
     <td width=5%> </td>
     <td width=5%>
<FONT FACE="Times New Roman, Times, Serif" SIZE=2>10.1</font></td>
     <td width=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Purchase Agreement By and Among Franklin Covey Co., Franklin Covey Canada Ltd., School Specialty, Inc., and 3956831 Canada
Inc., dated November 13, 2001 (filed as exhibit 10.15 to the Company's report on Form 10-K for the
fiscal year ended August 31, 2001 and incorporated herein by reference).</FONT></td>
</tr>
</table>
<br>
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
  <tr valign=top>
     <td width=5%> </td>
     <td width=5%>
<FONT FACE="Times New Roman, Times, Serif" SIZE=2>10.2</font></td>
     <td width=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Amendment to Purchase Agreement By and Among Franklin Covey Co., Franklin Covey Canada Ltd., School Specialty, Inc., and
3956831 Canada Inc., dated December 2001 (filed as exhibit 10.2 to the Company's Current Report on
Form 8-K filed with the Securities and Exchange Commission on January 7, 2002 and incorporated herein
by reference).</FONT></td>
</tr>
</table>
<br>
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<tr valign=top>
<td width=5%></td>
<td width=5%>
<FONT FACE="Times New Roman, Times, Serif" SIZE=2>10.3</font></td>
<td width=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Schedule TO Tender Offer Statement Under Section 14(D)(1) or 13(E)(1) of the
Securities Exchange Act of 1934 for 7,333,333 shares of Franklin Covey Co.
Common Stock at $6.00 per share, and related amendments (filed initially as
Schedule TO-I with the Securities and Exchange Commission on November 26, 2001,
with related amendments on Schedule TO-I/A on November 28, 2001 and December 24,
2001 and incorporated herein by reference).</FONT></td>
</tr>
</table>
<br>
<br>
<p><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(B)&nbsp;&nbsp;
<i>Reports on Form 8-K:</i></font></p>
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  <tr valign=top>
     <td width=5%> </td>
     <td width=95%>
<FONT FACE="Times New Roman, Times, Serif" SIZE=2>
A Current Report on Form 8-K was filed on January 7, 2002 with the Securities and Exchange Commission regarding
the sale of Premier Agendas.</font></td>
</tr>
</table>
<br><br><br><br>
<H4 align=center>
SIGNATURES
</h4>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the
requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized. </FONT></P>
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     <td width=50%></td>
     <td width=50%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>FRANKLIN COVEY CO.</font></td>
</tr>
</table>
<br>
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
   <tr valign=top>
     <td width=30%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Date:&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;January 10, 2002</font><hr></td>
     <td width=20%>&nbsp;</td>
     <td width=50%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
By:&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;/s/ Robert A. Whitman</font><hr></td>
</tr></table>

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   <tr valign=top>
     <td width=55%></td>
     <td width=45%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Robert A. Whitman</font></td>
</tr></table>
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
   <tr valign=top>
     <td width=55%></td>
     <td width=45%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Chief Executive Officer</font></td>
</tr></table>
<br><br><br>
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
   <tr valign=top>
     <td width=30%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Date:&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;January 10, 2002</font><hr></td>
     <td width=20%>&nbsp;</td>
     <td width=50%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
By:&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;/s/ Stephen D. Young</font><hr></td>
</tr></table>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
   <tr valign=top>
     <td width=55%></td>
     <td width=45%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Stephen D. Young</font></td>
</tr></table>
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
   <tr valign=top>
     <td width=55%></td>
     <td width=45%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Senior Vice-President, Controller</font></td>
</tr></table>
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