<SUBMISSION>
<ACCESSION-NUMBER>0000886206-02-000025
<TYPE>10-Q
<PUBLIC-DOCUMENT-COUNT>2
<PERIOD>20020525
<FILING-DATE>20020709
<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>02698673
</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>fy02_q310q.htm
<DESCRIPTION>QUARTERLY REPORT ON FORM 10-Q
<TEXT>
<HTML>
<HEAD>
<TITLE>FY 2002 3nd Quarter Form 10Q</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 May 25, 2002</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=65>
<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 July 1, 2002 was 19,966,919</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>
                                                             May 25,           August 31,
                                                              2002                2001
                                                         ----------------     --------------
                                                                      (unaudited)
ASSETS
------
Current assets:
   Cash and cash equivalents                               $    46,777           $   14,864
   Accounts receivable, less allowance for doubtful
      accounts of $1,824 and $1,799, respectively               22,779               26,639
   Inventories                                                  40,210               42,035
   Income taxes receivable                                                            1,411
   Other current assets                                         26,115               25,167
   Assets of discontinued operations                                                109,063
                                                            ----------           ----------
      Total current assets                                     135,881              219,179

Property and equipment, net                                     86,027              103,840
Intangible assets, net                                         101,515              118,626
Goodwill, net                                                                        61,954
Investment in unconsolidated subsidiary                            849               16,910
Other long-term assets                                          13,689               15,971
                                                            ----------           ----------
                                                            $  337,961           $  536,480
                                                            ==========           ==========

LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
   Accounts payable                                         $    9,828           $   19,493
   Current portion of long-term debt and
      capital lease obligations                                    347               11,954
   Income taxes payable                                         13,833
   Other current liabilities                                    43,377               40,166
   Liabilities of discontinued operations                                            34,806
                                                            ----------           ----------
      Total current liabilities                                 67,385              106,419

Line of credit                                                                       35,576
Long-term debt, less current portion                             1,459               49,527
Other liabilities                                                2,233                7,755
Deferred income taxes                                                                27,321
                                                            ----------           ----------
      Total liabilities                                         71,077              226,598
                                                            ----------           ----------
Shareholders' equity:
   Preferred stock - Series A, no par value; convertible
      into common stock at $14 per share; liquidation
      preference totaling $89,520 at May 25, 2002;
      4,000,000 shares authorized, 873,454 shares
      and 831,365 shares issued, respectively                   87,203               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                                  223,012              223,898
   Retained earnings                                            97,280              167,475
   Notes and interest receivable from sales of common
      stock to related parties, net                            (18,435)             (35,977)
   Accumulated other comprehensive loss                           (355)              (4,681)
   Treasury stock at cost, 7,126,944 and 7,215,363
      shares, respectively                                    (123,174)            (124,395)
   Accumulated other comprehensive loss from
      discontinued operations                                                          (786)
                                                            ----------           ----------
      Total shareholders' equity                               266,884              309,882
                                                            ----------           ----------
                                                            $  337,961           $  536,480
                                                            ==========           ==========
</PRE>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
         (See Notes to Consolidated Condensed Financial Statements.)</font></p>
<br><br>

<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                          Nine Months Ended
                                              --------------------------------          -------------------------------
                                                May 25,            May 26,                May 25,           May 26,
                                                  2002               2001                   2002              2001
                                              -------------      -------------          -------------     -------------
                                                         (unaudited)                               (unaudited)
Net sales:
   Products                                      $  42,707          $  54,680              $ 176,050         $ 242,474
   Training and services                            28,384             33,355                 82,707           102,676
                                                 ---------          ---------              ---------         ---------
                                                    71,091             88,035                258,757           345,150
                                                 ---------          ---------              ---------         ---------
Cost of sales:
   Products                                         22,492             28,694                 86,303           114,727
   Training and services                             9,294             11,347                 28,898            33,718
                                                 ---------          ---------              ---------         ---------
                                                    31,786             40,041                115,201           148,445
                                                 ---------          ---------              ---------         ---------
Gross margin                                        39,305             47,994                143,556           196,705

Selling, general, and administrative                49,770             55,740                164,951           169,502
Provision for losses on management stock loans         247                                    18,703
Impairment of investment in unconsolidated
   subsidiary                                                                                 16,323
Impairment of assets                                                                           4,518
Depreciation                                         8,283              7,536                 25,620            19,556
Amortization                                         1,193              3,143                  3,701             9,563
                                                 ---------          ---------              ---------         ---------
Loss from operations                               (20,188)           (18,425)               (90,260)           (1,916)

Equity in earnings of unconsolidated
   subsidiary                                        1,274                607                  3,165             2,042
Interest income                                        210                152                  2,088               491
Interest expense                                       (57)            (1,767)                (2,811)           (4,904)
Other income                                                                                     637
Loss on interest rate swap agreement                                                          (4,894)
                                                 ---------          ---------              ---------         ---------
Loss from continuing operations before
   income tax benefit                              (18,761)           (19,433)               (92,075)           (4,287)
Benefit for income taxes                             6,998              8,745                 34,271               702
                                                 ---------          ---------              ---------         ---------
Loss from continuing operations                    (11,763)           (10,688)               (57,804)           (3,585)
Loss from discontinued operations, net of
   tax benefit totaling  $3,190,
   $3,595, and $10,632, respectively                                   (3,899)                (5,282)          (10,476)
Gain on sale of discontinued operations,
   net of tax provision totaling $35,695
   (Note 3)                                                                                   60,774
                                                 ---------          ---------              ---------         ---------
Loss before cumulative effect of
   accounting change                               (11,763)           (14,587)                (2,312)          (14,061)
Cumulative effect of accounting change, net
   of tax benefit totaling $13,948 (Note 4)                                                  (61,386)
                                                 ---------          ---------              ---------         ---------
Net loss                                           (11,763)           (14,587)               (63,698)          (14,061)
Preferred stock dividends                           (2,184)            (2,028)                (6,497)           (6,083)
                                                 ---------          ---------              ---------         ---------
Net loss attributable to common shareholders     $ (13,947)         $ (16,615)             $ (70,195)        $ (20,144)
                                                 =========          =========              =========         =========
Loss from continuing operations and
   preferred stock dividends per share:
      Basic and diluted                           $   (.70)          $   (.64)              $  (3.24)         $   (.48)
                                                 =========          =========              =========         =========
Net loss attributable to common
   shareholders per share:
      Basic and diluted                           $   (.70)          $   (.84)              $  (3.53)         $   (.99)
                                                 =========          =========              =========         =========
Weighted average number of common and
   common equivalent shares:
      Basic and diluted                             19,929             19,872                 19,869            20,323
                                                 =========          =========              =========         =========


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

<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>
                                                                                               Nine Months Ended
                                                                                         --------------------------------
                                                                                            May 25,           May 26,
                                                                                             2002              2001
                                                                                         ---------------- ---------------
                                                                                                    (unaudited)
Cash flows from operating activities:
   Net loss                                                                               $ (63,698)       $ (14,061)
   Adjustments to reconcile net loss to net cash provided by operating activities:
      Depreciation and amortization                                                          29,950           34,643
      Cumulative effect of accounting change, net of tax                                     61,386
      Gain on sale of discontinued operations, net of tax                                   (60,774)
      Deferred taxes                                                                        (27,928)
      Provision for losses on management stock loans                                         18,703
      Impairment of investment in unconsolidated subsidiary                                  16,323
      Equity in earnings of unconsolidated subsidiary                                        (3,165)          (2,042)
      Loss on interest rate swap agreement                                                    4,894
      Impairment of other assets                                                              4,518
      Other                                                                                    (558)            (613)
      Changes in assets and liabilities, net of the sale of discontinued operations:
         Decrease in accounts receivable                                                     49,462           52,578
         Decrease in inventories                                                              2,294              371
         Decrease (increase) in other assets and other long-term liabilities, net            (4,247)              97
         Decrease in accounts payable and accrued liabilities                               (21,443)         (14,919)
         Decrease in income taxes payable                                                   (10,721)         (11,903)
                                                                                          ---------        ---------
            Net cash (used for) provided by operating activities                             (5,004)          44,151
                                                                                          ---------        ---------
Cash flows from investing activities:
   Proceeds from sale of discontinued operations                                            152,500
   Proceeds from sale of property and equipment                                               2,299
   Cash distributions of earnings from unconsolidated subsidiary                              2,904            1,874
   Formation of joint venture, acquisition of businesses, and earnout payments                                (4,432)
   Purchases of property and equipment                                                       (9,701)         (23,563)
                                                                                          ---------        ---------
            Net cash provided by (used for) investing activities                            148,002          (26,121)
                                                                                          ---------        ---------
Cash flows from financing activities:
   Net decrease in short-term borrowings                                                     (9,750)         (10,922)
   Proceeds from long-term debt and line of credit                                            4,564           23,040
   Principal payments on long-term debt and capital lease obligations                       (99,654)         (23,731)
   Purchases of common stock for treasury                                                      (184)          (7,332)
   Proceeds from sale of common stock from treasury                                             519              889
   Payment of interest rate swap liability                                                   (4,894)
   Payment of preferred stock dividends                                                      (2,184)          (6,083)
                                                                                          ---------        ---------
            Net cash used for financing activities                                         (111,583)         (24,139)
                                                                                          ---------        ---------
Effect of foreign currency exchange rates                                                       498             (830)
                                                                                          ---------        ---------
   Net increase (decrease) in cash and cash equivalents                                      31,913           (6,939)
Cash and cash equivalents at beginning of period                                             14,864           21,242
                                                                                          ---------        ---------
Cash and cash equivalents at end of period                                                $  46,777        $  14,303
                                                                                          =========        =========
Supplemental disclosure of cash flow information:
   Interest paid                                                                          $   3,869        $   4,263
                                                                                          =========        =========
   Income taxes paid                                                                      $     857        $     643
                                                                                          =========        =========
   Fair value of assets acquired                                                                           $   4,432
   Cash paid for net assets                                                                                   (4,432)
                                                                                                           ---------
   Liabilities assumed from acquisitions                                                                   $      -
                                                                                                           =========
Non-cash investing and financing activities:
   Accrued preferred stock dividends                                                      $   2,184        $   2,028
   Preferred stock dividends paid with additional shares of preferred stock                   4,208
   Note receivable from sale of discontinued operations                                       4,812
   Net assets contributed to form joint venture, net of cash contributed                                      18,176

</PRE>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
                                      (See Notes to Consolidated Condensed Financial Statements.)</font></p>
<br><br>
<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 &#150; 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, retail stores, catalogs, and the Internet
at <U>www.franklincovey.com</U>&nbsp;and&nbsp;<U>www.franklinplanner.com</U>. The
Company&#146;s best-known offerings include the Franklin Planner&#153;, the
Company&#146;s productivity workshop entitled &#147;What Matters Most&#148;, and
courses based on 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, except for impaired asset adjustments and provisions for management
stock loan losses) 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 on Form 10-K 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 ended
on November 24, 2001, February 23, 2002, and May 25, 2002 during fiscal 2002.
Utilizing the modified 52/53 week fiscal year, the quarter ended May 25, 2002
had the same number of business days as the quarter ended May 26, 2001, however,
the nine months ended May 25, 2002 had one less business day than the
corresponding period of the prior year. </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 and nine months ended May 25, 2002 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;Effective
September 1, 2001, the Company adopted the provisions of Statement of Financial
Accounting Standards (&#147;SFAS&#148;) 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 require such assets to be tested for impairment and to be
written down to fair value, if necessary. The Company recorded the impact of
adopting SFAS No. 142 as a cumulative effect of an accounting change in the
accompanying consolidated condensed statement of operations for the nine months
ended May 25, 2002. Refer to Note 4 in the accompanying notes to the
consolidated condensed financial statements for pro forma and other information
regarding the impact of adopting SFAS No. 142. Additionally, the Company early
adopted the provisions of SFAS No. 144, &#147;Accounting for the Impairment or
Disposal of Long-Lived Assets&#148; 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;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. Also, in order to conform with the current
period presentation, certain reclassifications have been made to the prior
period financial statements. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>NOTE 2 &#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>
                                      May 25,               August 31,
                                       2002                    2001
                                ----------------      -----------------
        Finished goods           $    31,406            $    30,659
        Work in process                1,816                  1,507
        Raw materials                  6,988                  9,869
                                 -----------            -----------

                                 $    40,210            $    42,035
                                 ===========            ===========
</PRE>
<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;Effective
December 21, 2001, the Company sold 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 that
specializes in providing products and services to students and schools. Premier
provided productivity and leadership solutions to the educational industry,
including student and teacher planners. The sale price was $152.5 million in
cash plus the retention of Premier&#146;s working capital, which was received in
the form of a $4.0 million promissory note from the purchaser, which carried
interest at LIBOR plus two percent. The Company received full payment on the
promissory note plus accrued interest during June 2002. Additionally, the
Company will receive $0.8 million of cash from Premier related to estimated
income tax payments and tax benefits from net operating losses. The Company has
agreed not to sell student planners containing the Company&#146;s &#147;7
Habits&#148; and &#147;What Matters Most&#148; content directly to schools and
school districts in the K through 12 market subsequent to the closing. The
Company recognized a pretax gain of $96.5 million ($60.8 million after tax) on
the sale of Premier, which was recorded as a gain on the sale of discontinued
operations in the accompanying consolidated condensed statement of operations
for the nine months ended May 25, 2002. The actual pretax gain was greater than
previously anticipated due to a reduction in the net assets of Premier,
resulting primarily from larger than expected cash transfers to the Company. As
part of the sale of Premier, the Company retained responsibility for certain
outstanding legal claims against Premier, which are reserved for in the
accompanying consolidated condensed balance sheet. </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
sheet as of August 31, 2001, were as follows (in thousands): </FONT></P>


<PAGE>


<PRE>
                                                             Balance at
                       Description                        August 31, 2001
        -------------------------------------------     ---------------------
        Accounts receivable, net                             $    52,188
        Inventories                                                3,138
        Other current assets                                       1,646
        Property and equipment, net                                6,866
        Intangible assets, net                                     6,266
        Goodwill, net                                             38,959
                                                             -----------
             Total assets of discontinued
                operations                                   $   109,063
                                                             ===========

        Line of credit                                       $     9,750
        Accounts payable                                           7,178
        Current portion of long-term debt and
           capital lease obligations                               1,720
        Income taxes payable                                       4,219
        Other current liabilities                                  8,005
        Long-term debt, less current portion                         413
        Deferred income taxes                                      3,521
                                                             -----------
             Total liabilities of discontinued
                operations                                   $    34,806
                                                             ===========
 </pre><P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         The operating results of Premier were 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 10).  The Company recorded the following operating results for Premier for the periods
indicated (in thousands):</FONT></P>
<PRE>
                                 Quarter Ended                        Nine Months Ended
                       ----------------------------------     ----------------------------------
                          May 25,             May 26,            May 25,            May 26,
                            2002               2001                2002               2001
                       ---------------     --------------     ---------------    ---------------

        Net sales         $    -            $    2,575         $    5,329         $    7,947
        Pretax loss            -                (7,089)            (8,877)           (21,108)
</PRE>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under
terms of its then existing credit facilities, the Company used $92.3 million of
the proceeds from the sale of Premier to pay off and terminate its term loan and
revolving credit line (Note 6). In connection with this prepayment, the Company
was also required to settle an outstanding interest rate swap agreement it had
entered into as part of the overall debt facility (Note 7). </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 the Company&#146;s selected consolidated financial
data for the prior two fiscal years to present Premier as discontinued
operations consistent with quarterly presentations (in thousands): </FONT></P>


<PAGE>


<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 and preferred
           stock dividends                                   $      (1.22)             $       (.83)
        Basic and diluted earnings per share
           from discontinued operations                               .27                       .22
                                                             ------------              ------------
        Basic and diluted net loss per share
           attributable to common shareholders               $       (.95)             $       (.61)
                                                             ============              ============
        Basic and diluted weighted average
           number of common shares outstanding                     20,199                    20,437
                                                             ============              ============
</PRE>
<br>
<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>NOTE 4 &#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
prohibit the amortization of goodwill and certain intangible assets that are
deemed to have indefinite lives and require such assets to be tested for
impairment and to be written down to fair value, if necessary. In order to
assess the value of its goodwill and indefinite-lived intangible assets as of
September 1, 2001, the Company engaged an independent valuation firm. The
valuation process assigned the Company&#146;s assets and liabilities to its
operating business units and then determined the fair market value of those
assets using a discounted cash flow model that also considered factors such as
market capitalization and appraised values of certain assets. Based upon the
results of the valuation, the Company was required to write off all of the
goodwill assigned to the organizations and consumer business units, plus a
portion of the Covey trade name intangible asset, which has an indefinite life.
The impairment totaled $75.3 million ($61.4 million after applicable tax
benefits) and was retroactively recorded in the Company&#146;s first fiscal
quarter as required by the guidelines of SFAS No. 142. Goodwill and intangible
assets assigned to the education business unit, which consisted primarily of
Premier, were not required to be written down since the fair values of that
business unit&#146;s assets exceeded their book values at the measurement date.
Intangible assets of continuing operations consisted of the following at May 25,
2002 (in thousands): </FONT></P>


<PAGE>


<PRE>
                                                     May 25, 2002
                                                 ------------------------
        Customer lists                               $     18,874
        License rights                                     27,000
        Trade names                                        34,007
        Curriculum                                         62,730
                                                     ------------
                                                          142,611
        Less:  accumulated amortization                   (41,096)
                                                     ------------
        Net intangible assets                        $    101,515
                                                     ============
</PRE>
<br>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Amortization
expense for the quarter and nine months ended May 25, 2002 was $1.2 million and
$3.7 million, respectively. </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, and the
adjustment was the same as in fiscal 2002, the following pro forma financial
results for the quarter and nine months ended May 26, 2001 would have resulted.
Amounts presented below were adjusted to reflect Premier as a discontinued
operation for comparability to amounts reported in the accompanying consolidated
condensed statements of operations for the comparable periods in fiscal 2002 (in
thousands). </FONT></P>


<PAGE>


<PRE>
                                                             Quarter Ended            Nine Months Ended
                                                             May 26, 2001                May 26, 2001
                                                         -----------------------    ------------------------
        Amortization                                          $      1,250               $      3,699
        Income (loss) from continuing operations                    (9,574)                       803
        Loss from discontinued operations, net of
           tax benefit                                              (3,370)                    (9,039)
        Net loss attributable to common
           shareholders                                            (14,972)                   (14,319)

        Basic and diluted net loss attributable to
           common shareholders per share                      $       (.75)              $       (.70)

</PRE>
<br>
<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>NOTE 5 &#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 (&#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 the earnings of an unconsolidated
subsidiary. The Company&#146;s share of Franklin Covey Coaching LLC&#146;s
earnings totaled $1.3 million for the quarter ended May 25 2002, compared to
$0.6 million for the quarter ended May 26, 2001. Summarized financial
information for Franklin Covey Coaching, LLC was as follows for the periods
indicated (in thousands): </FONT></P>

<PRE>
                                              Quarter Ended                          Nine Months Ended
                                    ----------------------------------       ----------------------------------
                                         May 25,             May 26,              May 25,            May 26,
                                          2002                2001                 2002                2001
                                    ---------------     --------------       --------------     ---------------
        Net sales                       $   6,786           $   6,154            $  18,922          $  16,542
        Gross profit                        4,437               4,191               12,464             10,871
        Net income                          2,329               1,484                6,548              4,633

        Current assets                  $   2,275           $   2,574
        Noncurrent assets                  17,421              17,497
                                        ---------           ---------
            Total assets                $  19,696           $  20,071
                                        =========           =========

        Current liabilities             $   1,306           $     864
        Noncurrent liabilities              2,883                 645
                                        ---------           ---------
            Total liabilities           $   4,189           $   1,509
                                        =========           =========
 </pre>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         The joint venture agreement requires the Company's coaching programs to achieve specified earnings thresholds beginning in
fiscal 2002 (the joint venture agreement did not contain an earnings threshold requirement in fiscal 2001) or the joint venture
agreement may be terminated at the option of AMS.  Based upon available information, the Company's management believed that the
required earnings threshold in fiscal 2002 could be reached through increased business from existing coaching programs and the
creation of new programs.  However, due to unfavorable economic conditions, which were significantly worsened by the events of
September 11, 2001, and other factors, the Company's coaching programs have only produced $1.0 million of earnings during the nine
months ended May 25, 2002 toward the $3.2 million fiscal 2002 earnings threshold requirement.  As a result of lower than expected
performance during the first nine months of fiscal 2002, combined with unfavorable performance expectations through the remainder of
fiscal 2002, AMS informed the Company that the existing joint venture agreement will be terminated at August 31, 2002.  As a result,
the Company has recognized impairment charges to its investment in Franklin Covey Coaching, LLC totaling $16.3 million during fiscal
2002.  The remaining investment balance in the accompanying consolidated condensed balance sheet at May 25, 2002 represents the net
realizable value of expected remaining cash disbursements and tangible assets expected to be returned upon termination of the joint
venture agreement.  As further information becomes available, including coaching program financial results and partnership
dissolution valuations, additional adjustments, potentially including recovery of previously expensed amounts, to the Company's
investment in Franklin Covey Coaching, LLC may be required.  As of May 25, 2002, the Company's remaining net investment in Franklin
Covey Coaching, LLC totaled $0.8 million.</FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
NOTE 6 &#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 was comprised of a $69.0 million term loan and a $45.6 million revolving credit facility, both of which were to expire in
May 2004.  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 term loan and line of credit agreements.  As a result of this prepayment, the existing line of credit
agreement was terminated and the Company has not sought to obtain a new credit agreement.  Following the payment and termination of
these debt instruments, the Company's remaining debt, which totaled $1.8 million at May 25, 2002, consists primarily of long-term
mortgages on the Company's buildings and property.
</FONT></P>
<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
NOTE 7 &#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 may make 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'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 speculative trading 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's exposure is generally limited to gains and losses resulting
from fluctuations in the rates of the underlying contract, such as interest and foreign currency exchange rates.  The Company does
not engage in other "off-balance sheet" transaction arrangements that would subject the Company to additional undisclosed risks, nor
does the Company participate in trading activities involving non-exchange traded contracts that could increase Company liabilities
and adversely affect the Company's liquidity position.  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 the other parties.</FONT></P>



<PAGE>

<h4><FONT FACE="Times New Roman, Times, Serif" SIZE=2><i>
Interest Rate Risk Management</i></font></h4>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         As of May 25, 2002, the Company's minimal debt balances consisted of both fixed and variable rate instruments.  In order to
reduce the effects of interest rate fluctuations on the Company's operations, the Company has made limited use of 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.  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 outstanding 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 common stock loan program (Note 11), the Company entered into an interest rate swap
agreement.  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 in the Company's consolidated balance sheet.  The interest
rate swap agreement allowed the Company to pay a fixed rate and receive a floating rate from the counterparty through the term of
agreement, which expired in March 2005.  However, due to terms of the Company's existing credit agreement, the Company was obligated
to use a portion of the proceeds from the sale of Premier (Note 3) to retire all outstanding debt, including the amount related to
the management stock loans.  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 a payment of $4.9 million.  The interest rate differential totaled $0.6 million
of expense prior to its settlement.  The Company had no interest rate swap agreements or similar derivative contracts in place at
May 25, 2002.</FONT></P>

<h4><FONT FACE="Times New Roman, Times, Serif" SIZE=2><i>
Foreign Currency Exposure</i></font></h4>

<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.  During the quarter ended
May 25, 2002, the Company utilized foreign currency forward contracts to manage the volatility of certain intercompany financing
transactions that are denominated in Japanese Yen, Mexican Pesos, and Australian Dollars.  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 transactions, in the accompanying consolidated condensed statements of operations for
fiscal 2002 and 2001.  The notional amounts of the Company's foreign currency forward contracts were as follows at May 25, 2002 (in
thousands):</FONT></P>
<PRE>
                                          Notional Amount in        Notional Amount in
           Contract Description            Foreign Currency            U.S. Dollars
        -----------------------------    ----------------------    -----------------------
        Japanese Yen                               560,000              $      4,129
        Mexican Pesos                               13,600                     1,475
        Australian Dollars                           2,650                     1,433
                                                                        ------------
                                                                        $      7,037
                                                                        ============
</PRE>
<br>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company recorded a net loss from its use of foreign currency forward contracts
totaling $0.1 million and gains totaling $0.4 million for the quarter and nine
months ended May 25, 2002, respectively. Foreign currency forward contract gains
were $0.2 million and $0.6 million for the quarter and nine months ended May 26,
2001, respectively. </FONT></P>


<PAGE>


<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>NOTE 8 &#150;
COMPREHENSIVE INCOME/LOSS</FONT></H2>

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

<PRE>
                                                      Quarter Ended                         Nine Months Ended
                                             ----------------------------------      ----------------------------------
                                                May 25,            May 26,              May 25,            May 26,
                                                 2002                2001                 2002               2001
                                             --------------     ---------------      ---------------    ---------------
Net loss attributable to common shareholders     $ (13,947)         $ (16,615)           $ (70,195)         $ (20,144)
Other comprehensive income (loss):
    Loss on valuation of interest rate
        agreement, net of tax                                                                2,786
    Foreign currency translation adjustments           103               (148)                 497               (829)
                                                 ---------          ---------            ---------          ---------
Comprehensive loss                               $ (13,844)         $ (16,763)           $ (66,912)         $ (20,973)
                                                 =========          =========            =========          =========
 </pre>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         The loss on valuation of the interest rate swap agreement was included as comprehensive income due to its settlement.  The
loss on settlement was included in the statement of operations for the nine months ended May 25, 2002, but had been recorded as a
component of comprehensive loss in prior periods.</FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
NOTE 9 &#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 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 from continuing operations, 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.  Due to their antidilutive effect, the following common stock equivalents have been excluded from the
net loss per share calculations.</FONT></P>


<PRE>
                                                          Quarter Ended                       Nine Months Ended
                                                 --------------------------------      ---------------------------------
                                                    May 25,           May 26,             May 25,            May 26,
                                                     2002               2001               2002               2001
                                                 --------------     -------------      --------------     --------------
        Antidilutive shares excluded from
        the diluted EPS calculation:
            Incremental shares from assumed
               exercises of stock options                                 65                   2                 74
            Preferred stock on an "as converted"
               basis                                  6,238            5,794               6,188              5,794
</PRE>

<PAGE>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         The expanded calculations of loss per share amounts are as follows:</font></p>

<PRE>
                                                      Quarter Ended                         Nine Months Ended
                                             ----------------------------------      -----------------------------------
                                                May 25,            May 26,              May 25,             May 26,
                                                  2002               2001                 2002                2001
                                             ---------------    ---------------      ---------------     ---------------
        Loss from continuing operations:       $   (11,763)       $   (10,688)         $   (57,804)         $   (3,585)
        Preferred stock dividends                   (2,184)            (2,028)              (6,497)             (6,083)
                                               -----------        -----------          -----------          ----------
        Loss from continuing operations
           and preferred stock dividends           (13,947)           (12,716)             (64,301)             (9,668)
        Loss from discontinued operations,
           net of tax                                                  (3,899)              (5,282)            (10,476)
        Gain on sale of discontinued
           operations, net of tax                                                           60,774
                                               -----------        -----------          -----------          ----------
        Loss before cumulative effect
           of accounting change                    (13,947)           (16,615)              (8,809)            (20,144)
        Cumulative effect of accounting
           change, net of tax                                                              (61,386)
                                               -----------        -----------          -----------          ----------
        Net loss attributable
           to common shareholders              $   (13,947)       $   (16,615)         $   (70,195)         $  (20,144)
                                               ===========        ===========          ===========          ==========
        Loss from continuing operations,
           and preferred stock dividends
           per share:
               Basic and Diluted               $      (.70)       $      (.64)         $     (3.24)        $      (.48)
        Loss from discontinued operations,
           net of tax, per share:
               Basic and Diluted                                         (.20)                (.26)               (.51)
        Gain on sale of discontinued
           operations per share:
               Basic and Diluted                                                              3.06
                                               ------------       -----------          -----------          ----------
        Loss before cumulative effect
        of accounting change per share:
               Basic and Diluted                      (.70)              (.84)                (.44)               (.99)
        Cumulative effect of accounting
           change per share:
               Basic and Diluted                                                             (3.09)
                                               ------------       -----------          -----------          ----------
        Net loss per share attributable
           to common shareholders:
               Basic and Diluted               $      (.70)       $      (.84)         $     (3.53)        $      (.99)
                                               ===========        ===========          ===========         ===========
        Basic and diluted weighted average
           number of common and common
           equivalent shares                        19,929             19,872               19,869              20,323
                                               ===========        ===========          ===========         ===========
</PRE>
<br>
<PAGE>


<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>NOTE 10 &#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=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
<I>Consumer
Business Unit</I> &#150; The consumer business unit (&#147;CBU&#148;) is focused
on sales to individual customers. This business unit includes the results of the
Company&#146;s 174 domestic retail stores, 10 international retail stores,
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, binders, and handheld
electronic planning devices, virtually any component of the Company&#146;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=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
<I>Organizations
Business Unit</I> &#150; The organizations business unit (&#147;OBU&#148;) is
primarily responsible for selling products and services directly to
organizational clients, including other companies, the government, and
educational institutions. The organizations business unit includes the financial
results of the organizational sales group (&#147;OSG&#148;) and the
Company&#146;s international operations, except for international retail stores.
OSG is primarily responsible for the domestic 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=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
<I>Education
Business Unit</I> &#150; The education business unit primarily consisted of the
sales and operations of Premier and included product and training sales to
educational institutions from elementary schools to colleges and universities.
The operations of Premier were sold effective December 21, 2001 and the
operating results of Premier have been reported as discontinued operations in
the accompanying consolidated condensed financial statements. Remaining
education business unit operations are now included in the operating results of
the organizations business unit.</FONT></TD>
</TR>
</TABLE>
<BR>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company&#146;s chief operating decision maker is the Chief Executive Officer
(&#147;CEO&#148;) and each of the business units has a general manager that
reports directly to the CEO. The primary measurement tools in business unit
performance analysis are earnings before interest, taxes, depreciation, and
amortization (&#147;EBITDA&#148;) and free cash flows, which 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 OBU. In order to enhance
comparability between reported periods, the losses on impaired assets have been
included in the EBITDA calculation, but are disclosed as non-cash items in the
appropriate business units in the accompanying table. </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 period
information has been reclassified to conform with the current period
presentation. </FONT></P>


<PAGE>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
SEGMENT INFORMATION<br>
(in thousands)</font></h2>

<PRE>
                                                                 Organizations Business
                               Consumer Business Unit                     Unit
                         ------------------------------------    ------------------------
                                                                                                          Corporate,
                                                                                                          Adjustments
Quarter Ended                         Catalog/      Other                                                    and
May 25, 2002               Retail    e-Commerce      CBU             OSG      International  Education   Eliminations Consolidated
------------------------ ----------- ------------ -----------    ------------ ------------- ------------ -----------  -------------
Sales to external
   customers              $  22,336   $   11,016   $     822      $  26,865     $ 10,052                    $          $   71,091
Gross margin                 10,627        5,883        (324)        16,387        6,732                                   39,305
EBITDA                       (3,617)         167      (4,240)         2,980        1,101                      (5,829)      (9,438)
Significant non-cash
   items:
   Provision for losses
     on management loan
     program                                                                                                     247          247
Depreciation                  2,424        1,095         564            537          310                       3,353        8,283
Amortization                                                          1,186                                        7        1,193
Segment assets               36,470        3,481      23,739        114,651       22,026                     137,594      337,961


Quarter Ended
May 26, 2001
------------------------ ----------- ------------ -----------    ------------ -----------    ------------ ----------- -------------
Sales to external
   customers              $  27,745   $   15,183   $     106      $  34,512     $ 10,489       $            $          $   88,035
Gross margin                 12,882        8,634      (1,277)        20,816        6,939                                   47,994
EBITDA                       (1,623)       2,225      (5,126)         3,437        1,320                      (7,372)      (7,139)
Depreciation                  2,594          365         607            582          212                       3,176        7,536
Amortization                                             204          2,352          106                         481        3,143
Discontinued operations,
   net of tax                                                                                    (3,899)                   (3,899)
Segment assets               33,148        1,296      37,505        196,830       21,354         76,524      164,349      531,006


Nine Months Ended
May 25, 2002
------------------------ ----------- ------------ -----------    ------------ -----------    ------------ ----------- -------------
Sales to external
   customers              $  96,769   $   50,830   $   3,047      $  73,627     $ 34,484       $            $          $  258,757
Gross margin                 50,224       28,622      (1,737)        44,421       22,026                                  143,556
EBITDA                        5,387        4,903     (17,516)       (14,950)       4,401                     (39,999)     (57,774)
Significant non-cash
   items:
   Provision for losses
      on management loan
      program                                                                                                 18,703       18,703
   Impairment of investment
      in unconsolidated
      subsidiary                                                     16,323                                                16,323
   Impairment of other
      assets                               1,425       3,093                                                                4,518
Depreciation                  7,964        2,487       1,744          1,426        1,042                      10,957       25,620
Amortization                                                          3,619           16                          66        3,701
Discontinued operations,
   net of tax                                                                                    (5,282)                   (5,282)


Nine Months Ended
May 26, 2001
------------------------ ----------- ------------ -----------    ------------ -----------    ------------ ----------- -------------
Sales to external
   customers              $ 124,908   $   75,116   $   7,198      $  97,767     $ 40,161       $            $          $  345,150
Gross margin                 64,873       42,192       2,652         62,574       25,002                        (588)     196,705
EBITDA                       22,903       22,532      (8,675)        10,448        6,249                     (24,212)      29,245
Depreciation                  5,815          595       1,893          1,320          642                       9,291       19,556
Amortization                    114                      612          6,737          622                       1,478        9,563
Discontinued operations,
   net of tax                                                                                   (10,476)                  (10,476)

</PRE>

<PAGE>

<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 loss from continuing operations before income tax benefit is
presented below (in thousands):</font></p>
<PRE>
                                                Quarter Ended                         Nine Months Ended
                                       --------------------------------         ------------------------------
                                       May 25, 2002      May 26, 2001           May 25, 2002     May 26, 2001
                                       --------------    --------------         -------------    -------------
     Reportable segment
        EBITDA                            $  (3,609)        $     233              $   3,066        $  53,457
     Provision for losses on
        management stock loans                 (247)                                 (18,703)
     Impairment of investment
        in unconsolidated
        subsidiary                                                                   (16,323)
     Other impaired assets                                                            (4,518)
     Corporate expenses                      (5,582)           (7,372)               (21,296)         (24,212)
                                          ---------         ---------              ---------        ---------
     Consolidated EBITDA                     (9,438)           (7,139)               (57,774)          29,245
     Depreciation                            (8,283)           (7,536)               (25,620)         (19,556)
     Amortization                            (1,193)           (3,143)                (3,701)          (9,563)
     Interest income                            210               152                  2,088              491
     Interest expense                           (57)           (1,767)                (2,811)          (4,904)
     Other, net                                                                       (4,257)
                                          ---------         ---------              ---------        ---------
     Loss from continuing
       operations before
       income tax benefit                 $ (18,761)        $ (19,433)             $ (92,075)       $  (4,287)
                                          =========         =========              =========        =========
 </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 11 &#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;
         The Company has an incentive-based compensation program that includes a loan program to certain management personnel for the
purpose of purchasing shares of the Company's common stock.  The program provided management of the Company with the opportunity to
purchase shares of the Company's common stock by borrowing on a full-recourse basis from external lenders.  The loan program closed
during fiscal 2001 with 3,825,000 shares purchased for a total cost of $33.6 million, which was guaranteed by the Company.  Although
interest accrues against the participants 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 6), the Company acquired from the external
lenders the notes receivable from the loan participants and recorded them as a reduction to shareholders' equity.  As a result, the
Company is the creditor 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 utilizes a systematic methodology for determining the level of reserves that are appropriate for the management
common stock loan program.  The primary factor considered by the Company's methodology is the current market value of common stock
held by the participants.  Other factors considered by the methodology include: the liquid net worth and earnings capacity of the
participants; the risks of pursuing collection actions against key employees; the probability of sufficient collateral value based
upon the proximity to the due date of the loans; and other business, economic, and participant factors which may have an impact on
the Company's ability to collect the loans.  Based upon the Company's methodology, the Company recorded a $0.2 million increase to
the loan loss reserve during the quarter ended May 25, 2002.  As of May 25, 2002, the Company had an aggregate loan loss reserve
totaling $19.8 million, which reduces notes and interest receivable from related parties in the accompanying consolidated condensed
balance sheet.  In addition, the Company discontinued recording interest receivable and corresponding interest income on all
participant loans during the quarter ended May 25, 2002.  However, the loan participants remain liable for interest accrued over the
full term of their loans, which is due when the loans mature in March 2005.  At May 25, 2002, the participants' loans plus accrued
interest exceeded the value of the common stock held by the participants by $26.3 million.  Should the value of the common stock
alone continue to be insufficient to cover the loans outstanding during the loan term, the Company's loan loss reserve methodology
provides a basis to be fully reserved prior to the March 2005 loan maturity date.  The establishment of reserves for potential loan
losses requires significant estimates and judgment by the Company's management and these estimates and projections are subject to
change as a result of various economic factors, most of which are not within the control of the Company.  As a result, the reserve
for management stock loan losses could fluctuate significantly in future periods.  The inability of some or all participants to repay
their loans would have a significant adverse impact upon the financial position and future cash flows of the Company.</font></p>
<br><br><br><br><br>


<PAGE>

<h4><FONT FACE="Times New Roman, Times, Serif">
ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS</font></h4>

<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's Discussion and Analysis of Financial Condition and Results of Operations included in the Company's Annual Report on Form
10-K for the year ended August 31, 2001.</font></p>

<br>
<h4><FONT FACE="Times New Roman, Times, Serif">
RESULTS OF OPERATIONS</font></h4>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><u>
Quarter Ended May 25, 2002 Compared with the Quarter Ended May 26, 2001</u></font></p>
<h4><FONT FACE="Times New Roman, Times, Serif" SIZE=2><i>
Sales</i></font></h4>
<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                               Nine Months Ended
                                --------------------------------              --------------------------------
                                May 25, 2002      May 26, 2001    Var. %       May 25, 2002      May 26, 2001   Var. %
                                --------------    --------------  ------       --------------    -------------  ------
 Consumer Business Unit:
    Retail Stores                 $   22,336        $   27,745     (19)         $   96,769        $  124,908     (23)
    Catalog/e-Commerce                11,016            15,183     (27)             50,830            75,116     (32)
    Other CBU                            822               106     675               3,047             7,198     (58)
                                  ----------        ----------                  ----------        ----------
                                      34,174            43,034     (21)            150,646           207,222     (27)
                                  ----------        ----------                  ----------        ----------
Organizations Business
Unit:
    Organizational Sales Group        26,865            34,512     (22)             73,627            97,767     (25)
    International                     10,052            10,489     (4)              34,484            40,161     (14)
                                  ----------        ----------                  ----------        ----------
                                      36,917            45,001     (18)            108,111           137,928     (22)
                                  ----------        ----------                  ----------        ----------
                                  $   71,091        $   88,035     (19)         $  258,757        $  345,150     (25)
                                  ==========        ==========                  ==========        ==========
</PRE>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company&#146;s overall operating performance continues to be adversely affected
by declining sales compared to the prior year. The Company believes that slow
economic growth in the United States led to reduced training and supply
expenditures, as corporate clients sought to reduce operating expenses. As a
result, the Company experienced significant declines in sales compared to the
prior year for both products and training services. Product sales, which
primarily consist of planners, binders, and handheld electronic planning
devices, decreased $12.0 million, or 22 percent, compared to the prior year. The
decrease in product sales is primarily due to decreased retail store sales and
catalog/e-Commerce sales. Retail store sales continue to be adversely affected
by declining average sales dollars per transaction combined with a decrease in
consumer traffic. Average sales dollars per transaction decreased primarily due
to a 59 percent decline in sales of higher-dollar handheld electronic planning
devices and related accessories. Planner and binder sales through the
Company&#146;s various channels also decreased slightly in total sales dollars,
but increased as a percent of total sales compared to the prior year. As a
result of these sales trends, comparable store retail sales decreased by 26
percent compared to the same quarter of the prior year. The sales performance
from 15 additional stores partially offset the decline in comparable store sales
resulting in a 19 percent overall decrease in retail store sales compared to the
prior year. As of May 25, 2002, the Company was operating 174 domestic retail
stores compared to 159 stores at May 26, 2001. Catalog/e-Commerce sales declined
due to reduced call volume in the Company&#146;s catalog call center operations
and reduced sales activity through the Company&#146;s Internet web site at
<U>www.franklincovey.com</U>. The Company attributes this decline to the
combination of significantly reduced response rates from its catalog mailings,
an overall decrease in handheld electronic product sales, and the reluctance of
companies to reimburse employees for planners and other productivity tools due
to budgetary and spending constraints. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Training
and service sales decreased $5.0 million, or 15 percent compared to the prior
year. The Company offers a variety of training seminars and consulting services
including productivity, leadership, and sales performance training. Domestic
training seminars and consulting services are delivered through the
Company&#146;s Organizational Sales Group (&#147;OSG&#148;). With the impact of
a weak domestic economy on corporate spending, training sales during the quarter
decreased due to reduced attendance for both on-site and public leadership and
productivity programs. Public program sales continued their downward trend from
late fiscal 2001 and also decreased compared to the prior year. These decreases
were partially offset by sales performance training seminars, which increased
significantly compared to the prior year. Due to continued economic factors that
adversely affect corporate budgeting and spending, future bookings of training
seminars continues to remain slower than expected, and the Company expects this
trend to impact the remainder of fiscal 2002. International product and training
sales decreased slightly compared to the prior year primarily due to unfavorable
sales performance in Mexico, Canada, continental Europe, and licensee
operations. These declines were partially offset by increased sales from Japan,
Brazil, the United Kingdom, and Australia. The Company attributes a portion of
the decrease in international sales to similar economic factors that have had an
adverse affect on domestic product and training sales. </FONT></P>
<h4><FONT FACE="Times New Roman, Times, Serif" SIZE=2><i>
Gross Margin</i></font></h4>

<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 increased to 55.3 percent of sales,
compared to 54.5 percent in the prior year. The improvement in overall gross
margin was primarily due to an increase in training and service sales as a
percentage of total sales, since training and service sales generally have
higher gross margins than the majority of the Company&#146;s product sales.
Gross margin on product sales declined slightly to 47.3 percent compared to 47.5
percent in the prior year. The Company&#146;s training and service gross margin
improved to 67.3 percent compared to 66.0 percent in the prior year. The
improvement in training and service gross margin was primarily due to focused
efforts to reduce seminar delivery costs and improve margins on training
seminars. The Company believes that its efforts to improve training margins will
continue to have a favorable impact upon operations during the remainder of
fiscal 2002 and in future periods. The training and services gross margin was
also favorably affected by increased sales revenue from sales performance
training, which has gross margins that are slightly higher than the majority of
the Company&#146;s other training programs. </FONT></P>

<h4><FONT FACE="Times New Roman, Times, Serif" SIZE=2><i>
Operating Expenses</i></font></h4>

<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 decreased $6.0
million, but due to decreased sales, increased as a percent of sales to 70.0
percent, compared to 63.3 percent of sales in the prior year. The decrease in
SG&amp;A expenses was primarily due to initiatives designed to reduce operating
expenses in light of recent sales trends. These cost reduction initiatives
resulted in significantly decreased associate, advertising, travel, and computer
and office supply expenses compared to the prior year. Partially offsetting
these cost reduction initiatives were severance costs and the costs necessary to
operate additional retail stores. As a result of headcount reduction efforts,
the Company incurred and expensed $0.7 million of severance and related costs
during the quarter. As previously mentioned, the Company is operating 15
additional stores compared to the prior year and has realized increased
operating costs associated with those new stores. The Company has implemented
and continues to pursue various cost reduction initiatives and believes that its
efforts will continue to reduce recurring operational 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;The
Company is the creditor for a loan program that provided certain management
personnel with the opportunity to purchase shares of the Company&#146;s common
stock. These loans are full recourse to the participants and are recorded as a
reduction to shareholders&#146; equity in the accompanying consolidated
condensed balance sheets. The Company utilizes a systematic methodology for
determining the level of reserves that are appropriate for the management common
stock loan program. The primary factor considered by the Company&#146;s
methodology is the current market value of common stock held by the
participants. Other factors considered by the methodology include: the liquid
net worth and earnings capacity of the participants; the inherent difficulties
and risks of pursuing collection actions against key employees; the probability
of sufficient collateral value based upon the proximity to the due date of the
loans; and other business, economic, and participant factors which may have an
impact on the Company&#146;s ability to collect the loans. Based upon this
methodology, the Company recorded a $0.2 million charge to operations during the
quarter ended May 25, 2002 to increase the loan loss reserve. As of May 25,
2002, the Company had an aggregate loan loss reserve totaling $19.8 million,
which reduces notes and interest receivable from related parties in the
accompanying consolidated condensed balance sheets. In addition, the Company
discontinued recording interest receivable and corresponding interest income on
the loans during the quarter ended May 25, 2002. However, the loan participants
remain liable for interest accrued over the full term of their loans, which is
due when the loans mature in March 2005. At May 25, 2002, the participants&#146;
loans plus accrued interest exceeded the value of the common stock held by the
participants by $26.3 million. Should the value of the common stock alone
continue to be insufficient to cover the loans outstanding during the loan term,
the Company&#146;s loan loss reserve methodology provides a basis to be fully
reserved prior to the March 2005 loan maturity date. The establishment of
reserves for potential loan losses requires significant estimates and judgment
by the Company&#146;s management and these estimates and projections are subject
to change as a result of various economic factors, most of which are not within
the control of the Company. Based on the methodology in place as well as other
factors, charges to the Company&#146;s operating results in order to increase
the reserve for management stock loan losses could fluctuate significantly in
future periods. Additionally, the inability of some or all participants to repay
their loans would have a significant adverse effect upon the financial position
and future cash flows 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 $0.8 million compared to the prior year, primarily due to
the acquisition of computer software and hardware, and the addition of leasehold
improvements in new and remodeled retail stores. Amortization expense decreased
by $2.0 million, primarily due to the adoption of SFAS No. 142, which prohibits
goodwill amortization and requires the Company to adopt a fair value approach,
with periodic assessments for impairment, to value goodwill and indefinite-lived
intangible assets. As a result of adopting the provisions of SFAS No. 142, the
Company wrote off all recorded goodwill associated with its consumer business
unit and organizations business unit plus a portion of the Covey trade name
intangible asset, which has an indefinite life, from its balance sheet as of
September 1, 2001. Refer to Note 4 to the accompanying consolidated condensed
financial statements for further information regarding the impact of adopting
SFAS No. 142. </FONT></P>

<h4><FONT FACE="Times New Roman, Times, Serif" SIZE=2><i>
Equity in Earnings of Unconsolidated Subsidiary</i></font></h4>

<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 $1.3 million during the quarter ended May 25, 2002, compared to $0.6
million for the comparable quarter of the prior year. The increase is primarily
due to improved sales performance and profitability at Franklin Covey Coaching,
LLC for AMS programs. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
joint venture agreement requires the Company&#146;s coaching programs to achieve
specified earnings thresholds beginning in fiscal 2002 (the joint venture
agreement did not contain an earnings threshold requirement in fiscal 2001) or
the joint venture agreement may be terminated at the option of AMS. As a result
of worse than expected performance during the first nine months of fiscal 2002,
combined with unfavorable performance expectations through the remainder of
fiscal 2002, AMS informed the Company that it is exercising its option to
terminate the joint venture agreement as of August 31, 2002. As a result of this
decision, the Company has recognized impairment charges to its investment in
Franklin Covey Coaching, LLC totaling $16.3 million during fiscal 2002. The
remaining investment balance in the accompanying condensed consolidated balance
sheet at May 25, 2002 represents the net realizable value of expected remaining
cash disbursements and tangible assets expected to be returned upon termination
of the joint venture agreement. As further information becomes available,
including coaching program financial results and partnership dissolution
valuations, additional impairment or recovery adjustments to the Company&#146;s
investment in Franklin Covey Coaching, LLC may be required. As of May 25, 2002,
the Company&#146;s remaining net investment in Franklin Covey Coaching, LLC
totaled $0.8 million. </FONT></P>

<h4><FONT FACE="Times New Roman, Times, Serif" SIZE=2><i>
Interest Income and Expense</i></font></h4>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest
income and expense was primarily influenced by cash received from the sale of
Premier, which occurred on December 21, 2001. The Company used a portion of the
proceeds from the sale of Premier to repay and terminate its existing term note
and line of credit agreement. As a result of this transaction, the
Company&#146;s interest income increased $0.1 million and interest expense
decreased by $1.7 million compared to the prior year. Interest income was also
adversely affected by reduced interest rates on excess cash balances compared to
the prior year. Due to decreased debt balances and increased cash balances
resulting from the sale of Premier, the Company expects interest income to be
higher and interest expense to be less than reported in prior comparable periods
during the remainder of fiscal 2002. </FONT></P>

<h4><FONT FACE="Times New Roman, Times, Serif" SIZE=2><i>
Income Taxes</i></font></h4>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income
tax benefit attributable to losses from continuing operations was recorded based
upon third quarter losses which partially offset the gain generated in the
second quarter from the sale of Premier and other related factors including the
effect of non-deductible items. </FONT></P>

<h4><FONT FACE="Times New Roman, Times, Serif" SIZE=2><i>
Preferred Stock Dividends</i></font></h4>

<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 during the first and second quarters of fiscal 2002 as
payment for accrued dividends. The Company paid preferred dividends totaling
$2.2 million with cash during the Company&#146;s third fiscal quarter and
accrued preferred dividends at May 25, 2002 were subsequently paid in cash
during the Company&#146;s fourth fiscal quarter. The Company was allowed, at its
option, to 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 quarterly in cash. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><u>
Nine Months Ended May 25, 2002 Compared to the Nine Months Ended May 26, 2001</u></font></p>

<h4><FONT FACE="Times New Roman, Times, Serif" SIZE=2><i>
Sales</i></font></h4>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
the nine months ended May 25, 2002, the Company&#146;s sales were adversely
affected by the unfavorable performance of the United States economy, which was
worsened by the events of September 11, 2001. Additionally, the Company believes
that reduced training and supply budgets at its corporate clients, in an effort
to reduce overall operating expenses, and reluctance of personnel to travel,
were significant contributors to the overall decrease in sales, for both
products and training programs. Product sales, which primarily consist of
planners, binders, and handheld electronic planning devices, decreased $66.4
million, or 27 percent, compared to the prior year. The decrease in product
sales is primarily due to decreased retail store, catalog/e-Commerce, and
wholesale sales. Retail store sales continue to be adversely affected by a
decline in average sales dollars per transaction coupled with reduced traffic in
the stores. Average sales dollars per transaction decreased primarily due to a
59 percent decline in sales of handheld electronic planning devices and related
accessories, which have sales prices greater than the majority of the
Company&#146;s other products. Planner and binder sales also decreased 14
percent and 13 percent, respectively, compared to the prior year. As a result of
these declines, comparable store sales decreased by 30 percent compared to the
prior year. The sales performance from 15 additional stores partially offset the
decline in comparable store sales resulting in a 23 percent overall decrease
compared to the prior year. Catalog/e-Commerce sales declined due to reduced
call volume in the Company&#146;s catalog call center 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 significantly
compared to the prior year. Subsequent holiday mailings also produced
disappointing results and overall catalog sales have declined sharply from the
prior year. The Company attributes this decline to the combination of
significantly reduced response rates from its catalog mailings, an overall
decrease in handheld electronic product sales, and the continued reluctance of
companies to reimburse employees for planners and other productivity tools due
to budgetary constraints. Other consumer business unit product sales decreased
due to reduced demand for the Company&#146;s products through wholesale channels
and from the sale or discontinuance of certain other small non-core entities. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company offers a variety of training seminars and consulting services including
productivity, leadership, and sales performance training. Training and services
sales related to these areas decreased by $20.0 million, or 19 percent compared
to the prior year. With the continuing effects of a weak economy in the United
States and the impact of September 11, 2001 events, training sales decreased due
to canceled programs that occurred primarily during the Company&#146;s first
fiscal quarter combined with reduced attendance, for both on-site and public
leadership and productivity programs. Public program sales also continued their
downward trend from late fiscal 2001 and decreased overall compared to the prior
year. These declines were partially offset by increased sales performance
training, which increased significantly compared to the prior year. Due to
economic factors that continue to adversely affect corporate budgeting and
spending, future bookings of training seminars remains slower than expected, and
the Company expects this trend to impact the remainder of fiscal 2002.
International product and training sales decreased compared to the prior year
primarily due to decreased sales in Canada, Mexico, continental Europe, Japan,
and Australia. These decreases were partially offset by a slight sales increase
in the United Kingdom and Brazil. International licensee royalties were flat
compared to the prior year. In addition, unfavorable exchange rates adversely
affected reported international sales by $1.1 million compared to the prior
year. The Company attributes a portion of the decrease in international sales to
similar economic factors that have had an adverse affect on domestic product and
training sales. </FONT></P>

<h4><FONT FACE="Times New Roman, Times, Serif" SIZE=2><i>
Gross Margin</i></font></h4>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company&#146;s overall gross margin for the nine months ended May 25, 2002,
decreased to 55.5 percent of sales, compared to 57.0 percent in the prior year.
The decline in gross margin during fiscal 2002 was due to a number of factors,
including increased deep discounting on handheld electronic products, changes in
the product mix, increased manufacturing costs, and backorders on certain
planner products, which adversely affected product cost of sales. The impact of
fixed delivery costs for public seminars, reduced sales of high-margin training
kits and accessories, the sale of new low-margin customized training products,
and participant cancellations at the Company&#146;s annual symposium event
reduced training and service gross margins during the nine months ended May 25,
2002. However, cost reduction initiatives designed to reduce product and
training costs had a favorable effect upon gross margin performance during the
third quarter, which has improved the Company&#146;s gross margin performance
for fiscal 2002. Gross margin for product sales decreased to 51.0 percent
compared to 52.7 percent in the prior year. Due to reduced demand for handheld
electronic products, additional discounting was required to slow the declining
sales trend of these products, especially during the seasonally heavy shopping
season in November and December of 2001. The Company has also experienced a
shift in its product mix toward lower-margin binders and planners. Additionally,
smaller production runs for planners and related forms resulted in higher
per-unit costs due to the loss of printing volume efficiencies. Finally, the
Company experienced a shortage of certain planner products during the second
quarter due to production problems at a third-party supplier. The shipping of
those backordered products required more expensive overnight carriers in order
to maintain high customer service standards. These increased shipping costs
could not entirely be passed on to consumers. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Training
and service gross margin decreased to 65.1 percent compared to 67.2 percent in
the prior year primarily as a result of reduced attendance at training seminars
and the introduction of new training products with lower margins. Seminar costs,
as a percentage of revenue, increased primarily due to reduced revenue resulting
from overall lower attendance at public seminar events held during the year and
the cancellation and postponement of numerous seminars due to travel
restrictions resulting from the September 11 terrorist attacks, which primarily
affected the first quarter. Certain components of public training program costs
are fixed, such as site fees, equipment rentals, and presenter costs. With a
decline in the average number of participants per public training seminar, the
fixed costs related to the presentation of seminars resulted in lower gross
margins for these events. In addition, some costs incurred for canceled seminars
were not entirely refundable. Reduced seminar attendance also resulted in
decreased sales of higher-margin training kits and related accessories.
Additionally, due to travel restrictions and safety concerns following the
events of September 11, many customers declined to attend the Company&#146;s
annual symposium conference, which resulted in a reduced gross margin for that
event. The Company also provided a new customized training product during fiscal
2002 that had significantly lower margins than the majority of other training
kits, products, and accessories. As part of its efforts to improve operational
results, the Company continues to actively seek to reduce product and seminar
costs in order to improve overall gross margins and believes that these
initiatives will result in improved margins during future periods. </FONT></P>

<h4><FONT FACE="Times New Roman, Times, Serif" SIZE=2><i>
Operating Expenses</i></font></h4>

<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 decreased $4.6
million, but due to decreasing sales, increased to 63.7 percent of sales,
compared to 49.1 percent of sales in the first nine months of the prior fiscal
year. The decrease in SG&amp;A expenses was primarily due to third quarter cost
reductions resulting from initiatives designed to reduce operating expenses in
light of recent sales trends. These cost reduction initiatives resulted in
significantly decreased associate, advertising, travel, and computer and office
supply expenses compared to the prior year. The decrease in SG&amp;A expenses
was partially offset by severance costs resulting from headcount reduction
efforts, increased consulting and product development costs, increased retail
store operations, costs associated with the implementation of the Electronic
Data Systems (&#147;EDS&#148;) outsourcing contract, and expenses incurred to
upgrade the Company&#146;s Oracle based information systems. 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 $3.6 million of severance and related
costs during the nine months ended May 25, 2002. In addition, the Company
expensed approximately $3.3 million of development costs during fiscal 2002 that
were related to certain projects. As previously mentioned, the Company is
operating 15 additional stores compared to the prior year and has realized
increased operating costs associated with these new stores. 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. However,
the majority of these transition costs have been incurred and the Company
believes that over the life of the contract, significant cost savings will be
realized in these outsourced areas. The Company is currently in the process of
upgrading its Oracle information system applications and has expensed certain
external consulting costs related to the software installation that do not
qualify for capitalization. The Company believes that its continuing efforts to
reduce recurring operational SG&amp;A costs will produce favorable results
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
the quarter ended February 23, 2002, the Company recognized an impaired asset
charge totaling $4.5 million. The impaired asset charge was comprised of a note
receivable from the sale of a subsidiary, obsolete computer software costs, and
software development costs for a line of custom planner products. A $2.3 million
note receivable from the sale of a subsidiary became impaired during the quarter
ended February 23, 2002 due to the purchaser declaring bankruptcy during the
quarter. The note was guaranteed by the parent company of the purchaser;
however, the parent company became insolvent during the quarter and the chances
of recovering any substantial payment on the note appears to be remote. Certain
customer database management software, which was developed and installed by an
external company, became obsolete when the Company selected a new database
software provider, which rendered the existing application obsolete. The cost of
the obsolete software written off totaled $1.4 million. The Company also
expensed $0.8 million of external development costs for software designed to
sell new planner products. Although the software was functional and performed as
planned, sales of the corresponding product were significantly less than
expected. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Depreciation
expense increased by $6.1 million compared to the prior year, primarily due to
the purchases of additional computer software and hardware, the addition of
leasehold improvements in new and remodeled retail stores, and the acceleration
of depreciation on certain computer software that is scheduled to be replaced
during fiscal 2002. Amortization expense decreased by $5.9 million, primarily
due to the adoption of SFAS No. 142, which prohibits goodwill amortization and
requires the Company to adopt a fair value approach to goodwill and
indefinite-lived intangible assets. As a result of adopting the provisions of
SFAS No. 142, the Company wrote off all recorded goodwill associated with its
consumer business unit and organizations business unit plus a portion of the
Covey trade name intangible, which has an indefinite life, from its balance
sheet as of September 1, 2001 and recorded the charge as a cumulative effect of
an accounting change in the accompanying consolidated condensed statement of
operations for the nine months ended May 25, 2002. </FONT></P>

<h4><FONT FACE="Times New Roman, Times, Serif" SIZE=2><i>
Equity in Earnings of Unconsolidated Subsidiary</i></font></h4>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
the nine months ended May 25, 2002, the Company recognized $3.2 million of
equity in the earnings of Franklin Covey Coaching, LLC, an unconsolidated
subsidiary, compared to $2.0 million in the prior year. The increase is due to
improving sales performance and profitability at Franklin Covey Coaching, LLC on
AMS programs. However, due to the unfavorable performance of the Company&#146;s
coaching programs, AMS has informed the Company that the joint venture agreement
will be terminated at August 31, 2002. As a result of uncertainties surrounding
the joint venture agreement, the Company recognized an aggregate impairment
charge of $16.3 million during the nine months ended May 25, 2002, with respect
to its investment in Franklin Covey Coaching, LLC. Refer to the discussion
contained in &#147;Equity in Earnings of Unconsolidated Subsidiary&#148; for the
quarter ended May 25, 2002 compared to the quarter ended May 26, 2001 for
further information regarding the Company&#146;s investment in Franklin Covey
Coaching, LLC. </FONT></P>

<h4><FONT FACE="Times New Roman, Times, Serif" SIZE=2><i>
Interest Income and Expense
</i></font></h4>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest
income and expense were impacted primarily by cash received from the sale of
Premier that occurred on December 21, 2001. The Company used a portion of the
proceeds from the sale of Premier to repay and terminate the Company&#146;s
existing term loan and line of credit agreement. Interest income increased $1.6
million over the prior year primarily as a result of increased cash balances
from the sale of Premier, combined with interest income recognized from the
participants of the management stock loan program during the first and second
quarters of fiscal 2002. Beginning with the third quarter of fiscal 2002, the
Company no longer accrues interest on the management stock loan program notes
receivable. However, the loan participants are still obligated to repay the
interest to the Company when the loans mature in March 2005. Interest expense
decreased $2.1 million compared to the prior year primarily due to lower debt
balances during the second and third quarters of fiscal 2002. Due to these
decreased debt balances, the Company expects interest expense to continue to be
less than reported in prior comparable periods, throughout the remainder of
fiscal 2002, and in future periods. </FONT></P>

<h4><FONT FACE="Times New Roman, Times, Serif" SIZE=2><i>
Other Income
</i></font></h4>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
the quarter ended February 23, 2002, the Company sold a building located in
Chandler, Arizona, that previously housed the operations of the government
products group. The gain on the sale of the building was $0.6 million and was
recorded as other income in the accompanying condensed consolidated statement of
operations for fiscal 2002. </FONT></P>

<h4><FONT FACE="Times New Roman, Times, Serif" SIZE=2><i>
Income Taxes
</i></font></h4>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income
tax benefit attributable to losses from continuing operations was recorded based
upon expected operating results for the remainder of fiscal 2002 and other
related factors such as non-deductible intangible amortization. Income tax
expense resulting from the sale of Premier was calculated based upon the
expected combined tax liability from the sale in the United States and Canada.
The income tax benefit attributed to the cumulative effect of accounting change
was primarily affected by the deductibility of expensed goodwill and intangible
assets based upon applicable tax regulations. </FONT></P>

<h4><FONT FACE="Times New Roman, Times, Serif" SIZE=2><i>
Gain on Sale of Discontinued Operations
</i></font></h4>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effective
December 21, 2001, the Company sold 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 that
specializes in providing products and services to students and schools. Premier
provided productivity and leadership solutions to the educational industry,
including student and teacher planners. The sale price was $152.5 million in
cash plus the retention of Premier&#146;s working capital, which was received in
the form of a $4.0 million promissory note from the purchaser, which bears
interest at LIBOR plus two percent. The Company received full payment on the
promissory note plus accrued interest during June 2002. Additionally, the
Company will receive $0.8 million of cash from Premier related to estimated
income tax payments and tax benefits from net operating losses. The Company also
agreed not to sell student planners containing the Company&#146;s &#147;7
Habits&#148; and &#147;What Matters Most&#148; content directly to schools and
school districts in the K through 12 market subsequent to the closing. The
Company recognized a pretax gain of $96.5 million ($60.8 million after
applicable taxes) on the sale of Premier, which was recorded as a gain on the
sale of discontinued operations in the accompanying consolidated condensed
statements of operations for fiscal 2002. The actual pretax gain was greater
than previously anticipated due to changes in the net assets of Premier,
primarily from greater than anticipated cash transfers to the Company prior to
closing. </FONT></P>

<h4><FONT FACE="Times New Roman, Times, Serif" SIZE=2><i>
Cumulative Effect of Accounting Change
</i></font></h4>

<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
prohibit the amortization of goodwill and indefinite-lived intangible assets and
require such assets to be tested for impairment and to be written down to fair
value, if necessary. In order to assess the value of its goodwill and
indefinite-lived intangibles as of September 1, 2001, the Company engaged an
independent valuation firm. The valuation process assigned the Company&#146;s
assets and liabilities to its operating business units and then determined a
fair market value of those assets using a discounted cash flow model that also
considered factors such as market capitalization and appraised values of certain
assets. Based upon the results of the valuation, the Company wrote off all of
the goodwill assigned to the organizations and consumer business units, plus a
portion of the Covey trade name intangible asset, which has an indefinite life.
The impairment totaled $61.4 million after applicable income tax benefits and
was retroactively recorded in the Company&#146;s first fiscal quarter as
required by the guidelines of SFAS No. 142. Goodwill and intangible assets
assigned to the education business unit, which consisted primarily of Premier,
were not required to be written down since the fair value of that business
unit&#146;s assets exceeded their book value at the measurement date. Remaining
intangible assets, with a net book value of $101.5 million, were primarily
generated from the merger with Covey Leadership Center and are assigned to the
organizations business unit. </FONT></P>

<h4><FONT FACE="Times New Roman, Times, Serif" SIZE=2><i>
Preferred Stock Dividends
</i></font></h4>

<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 during the first and second quarters of fiscal 2002 as
payment for accrued dividends. The Company paid preferred dividends totaling
$2.2 million with cash during the Company&#146;s third fiscal quarter and
accrued preferred dividends at May 25, 2002 were subsequently paid in cash
during the Company&#146;s fourth fiscal quarter. The Company was allowed, at its
option, to pay accrued dividends with cash or additional shares of preferred
stock until July 1, 2002. Subsequent to that date, quarterly preferred stock
dividends must be paid in cash. </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 and common 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 used for operating activities for the nine months ended May 25, 2002 was
$5.0 million compared to $44.2 million of cash provided by operating activities
for the nine months ended May 26, 2001. The decrease in operating cash flows was
primarily due to operating losses resulting from declining sales levels during
fiscal 2002. The Company anticipates that cash flows from operating activities
will continue to be adversely affected by declining sales during the remainder
of fiscal 2002. Non-cash adjustments to the Company&#146;s results of operations
during fiscal 2002 included increases to the provision for losses on the
management stock loan program totaling $18.7 million, a $16.3 million impairment
charge on the Company&#146;s investment in Franklin Covey Coaching LLC, $29.9
million of depreciation and amortization charges, and a $4.5 million impairment
of other assets. Consistent with comparable periods of the prior year, the
primary source of cash from operating activities was the collection of accounts
receivable, primarily from Premier, which recorded seasonally high sales during
the Company&#146;s fourth fiscal quarter. The primary use of cash was the
payment of accounts payable and accrued liabilities, also primarily attributable
to the seasonal nature of Premier&#146;s operations. Due to the sale of Premier,
effective December 21, 2001, the Company anticipates these operating cash flows
will be significantly altered in future periods. Additionally, due to losses
generated by continuing operations recorded during the first nine months of
fiscal 2002, the Company recognized income tax assets that were offset, in part,
by the income tax liabilities resulting from the sale of Premier. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net
cash provided by investing activities totaled $148.0 million during the first
nine months of fiscal 2002 compared to $26.1 million of net cash used for
investing activities in the prior year. During the quarter ended February 23,
2002, the Company sold Premier, a wholly owned subsidiary that provided
productivity and learning solutions to the educational industry. The sale price
was $152.5 million in cash plus a $4.0 million promissory note from the
purchaser, which bears interest at LIBOR plus two percent. The Company received
full payment on the promissory note plus accrued interest during June 2002.
Additionally, the Company will receive $0.8 million of cash from Premier related
to estimated income tax payments and tax benefits from net operating losses.
During the nine months ended May 25, 2002 the Company used $9.7 million of cash
to purchase computer software, leasehold improvements in new stores, computer
hardware, and other machinery and equipment. The Company reduced its purchases
of property and equipment from $23.6 million during the comparable period of the
prior year and plans to continue to reduce capital expenditures until sales
performance and related cash flows improve. The Company also received $2.3
million of cash proceeds from the sale of a building located in Chandler,
Arizona. </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 nine months ended May 25, 2002 was
$111.6 million compared to $24.1 million in the first nine months of the prior
year. The primary use of financing cash during fiscal 2002 was the payment of
outstanding term loan and line of credit debt balances. 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 term loan and line of credit agreements.
As a result of this prepayment, the term loan and line of credit agreement were
terminated. Currently, the Company&#146;s remaining debt balances total $1.8
million and primarily consist of long-term mortgages on certain buildings and
property. In addition to repaying its term note and line of credit, the Company
was required to settle an outstanding interest rate swap agreement it had
entered into as a part of the debt facility for $4.9 million in cash. The
Company paid preferred dividends totaling $2.2 million with cash during the
Company&#146;s third fiscal quarter. Accrued preferred dividends at May 25, 2002
were subsequently paid in cash during the Company&#146;s fourth fiscal quarter.
Preferred dividend payments during the first and second quarters of fiscal 2002
were paid with additional shares of preferred stock. However, under terms of the
preferred stock, all dividends subsequent to July 2002 must be paid in cash and
are expected to total approximately $2.2 million per quarter in future periods. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company has not engaged in off-balance sheet arrangements, structured any
special purpose entities, or participated in any commodity trading activities,
which would expose the Company to potential undisclosed liabilities or create
adverse consequences to its liquidity. Required contractual payments consist
primarily of payments to Electronic Data Systems (&#147;EDS&#148;) for
outsourcing services related to information systems, warehousing and
distribution, and call center operations; rent expense for retail store space;
and mortgage payments on certain buildings and property. These obligations are
described in further detail in the Company&#146;s Annual Report on Form 10-K 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;Going
forward, the Company will continue to incur costs necessary to develop products
and curriculum, to deploy sales initiatives, to enhance electronic commerce
channels, to pay preferred stock dividends, and other costs related to
implementing strategies necessary for the 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 may also
pursue additional financing alternatives, including new lines of credit if
required, in order to position itself for the future. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3><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 of 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, realizability
of long-lived assets, dependence on certain 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 currency 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 other risks, foreseen or
unforeseen. </FONT></P>
<br>
<h4><FONT FACE="Times New Roman, Times, Serif">
ITEM 3.&nbsp;&nbsp;QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK</font></h4>
<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 speculative trading 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&#146;s exposure is generally limited to gains and
losses resulting from fluctuations in the rates of the underlying contract, such
as interest and foreign currency exchange rates. Additionally, the Company does
not engage in other &#147;off-balance sheet&#148; transaction arrangements that
would subject the Company to additional undisclosed market risks, nor does the
Company participate in trading activities involving non-exchange traded
contracts that could increase Company liabilities and adversely affect the
Company&#146;s liquidity position. 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>

<H4><FONT FACE="Times New Roman, Times, Serif" SIZE=2><i>
Interest Rate Sensitivity</i></font></h4>

<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 cash position. At May 25, 2002, the Company&#146;s remaining debt
consisted of both fixed and variable rate instruments. However, during the
quarter ended February 23, 2002, the Company utilized $92.3 million of the
proceeds from the sale of Premier and retired nearly all of its variable rate
debt. Had market interest rates averaged one percent higher during the quarter
ended May 23, 2002, the Company&#146;s interest expense would not have been
significantly increased due to the reduced debt balances held by the Company
during the quarter. </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. 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 in the Company&#146;s consolidated balance sheet. The interest rate
swap agreement allowed the Company to pay a fixed rate and receive a floating
rate from the counterparty through the term of agreement, which expired in March
2005. However, due to terms of the Company&#146;s 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. The
interest rate differential on this interest rate swap agreement totaled $0.6
million of expense prior to its settlement. The Company did not have any
interest rate swaps or other similar derivative contracts outstanding at May 25,
2002. </FONT></P>

<H4><FONT FACE="Times New Roman, Times, Serif" SIZE=2><i>
Foreign Exchange Sensitivity</i></font></h4>

<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. During the
quarter ended May 25, 2002, the Company utilized foreign currency forward
contracts to manage the volatility of certain intercompany financing
transactions that are denominated in Japanese Yen, Mexican Pesos, and Australian
Dollars. 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
amounts of the Company&#146;s foreign currency forward contracts were as follows
at May 25, 2002 (in thousands): </FONT></P>

<PRE>
                                          Notional Amount in        Notional Amount in
           Contract Description            Foreign Currency            U.S. Dollars
        -----------------------------    ----------------------    -----------------------
        Japanese Yen                               560,000              $      4,129
        Mexican Pesos                               13,600                     1,475
        Australian Dollars                           2,650                     1,433
                                                                        ------------
                                                                        $      7,037
                                                                        ============
</PRE>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company recorded a net loss from its use of foreign currency forward contracts
totaling $0.1 million and gains totaling $0.4 million for the quarter and nine
months ended May 25, 2002, respectively. Foreign currency forward contract gains
were $0.2 million and $0.6 million for the quarter and nine months ended May 26,
2001, respectively. These gains and losses were largely offset by gains and
losses on the underlying transactions, which were also recorded in the
accompanying consolidated condensed statements of operations. </FONT></P>


<PAGE>

<h4><FONT FACE="Times New Roman, Times, Serif">
PART II.  OTHER INFORMATION</font></h4>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Item 1.</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Legal Proceedings:</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>
The Company has provided documents and information to the SEC, including the testimony
of its Chief Executive Officer, relating to its management stock loan program and previously announced
tender offer.  The Company will continue to cooperate fully in providing the requested
information.  The SEC has stated that the formal inquiry is not an indication that the SEC has concluded that there has
been a violation of any law or regulation.  The Company believes it complied with the
laws and regulations applicable to its management loan program and tender offer.</font></td>
</tr></table>
<br>
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Item 6.</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Exhibits and Reports on Form 8-K:</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>
(A)&nbsp;&nbsp; Exhibits:</font></td>
</tr></table>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=13%>&nbsp;</TD>
<TD WIDTH=87%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
 None.</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>
(B)&nbsp;&nbsp; Reports on Form 8-K:</font></td>
</tr></table>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=13%>&nbsp;</TD>
<TD WIDTH=87%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
 A
Current Report on Form 8-K was filed on June 6, 2002 with the Securities and
Exchange Commission regarding the change in the Company&#146;s independent
auditor from Arthur Andersen LLP to KPMG LLP. This Current Report on Form 8-K
was subsequently amended on June 10, 2002 due to language changes in the Arthur
Andersen letter filed as Exhibit 16.</font></td>
</tr></table>

<PAGE>

<h4><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
SIGNATURES</font></h4>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&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>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
   <tr valign=top>
     <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;July 9, 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>

<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>
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;July 9, 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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