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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10–K

    Franklin Covey Co.   
(Exact name of registrant as specified in its charter)

2200 West Parkway Boulevard
Salt Lake City, Utah 84119–2331
(Address of principal executive offices, including zip code)

Registrant's telephone number, including area code: (801) 817-1776

           Securities registered pursuant to Section 12(b) of the Act:

        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. YES   X   NO      

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

        The aggregate market value of the Common Stock held by non–affiliates of the Registrant on November 22, 2002, based upon the closing sale price of the Common Stock of $1.95 per share on that date, was approximately $30,958,428. Shares of the Common Stock held by each officer and director and by each person who may be deemed to be an affiliate of the Registrant have been excluded.

        As of November 22, 2002, the Registrant had 20,008,625 shares of Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Parts of the Registrant’s Proxy Statement for the Registrant’s Annual Meeting of Shareholders, which is scheduled to be held on January 24, 2003, are incorporated by reference in Part III of this Form 10-K.

INDEX TO FORM 10–K

Part I

Item 1. Business

General

Franklin Covey Co. (the “Company”, “we”, “us”, “our” or “FranklinCovey”) is an international learning and performance solutions company dedicated to helping organizations and individuals to become measurably more effective. To achieve that goal, we provide training and education programs, educational materials, publications, assessment and measurement instruments, implementation processes and application tools. We have organized our business to serve two main customer segments: organizations and individual consumers. We offer solutions for organizations through a combination of assessment instruments, including the xQ (Execution Quotient™) Profile and the 7 Habits Profile, training courses including FOCUS: Achieving Your Highest Potential; Aligning Goals for Results; 7 Habits of Highly Effective People and other offerings, and implementation tools based on the FranklinCovey Planning System including the FranklinCovey Planner, PDA’s (Personal Digital Assistants) devices like PALM®, PlanPlus for Microsoft Outlook®, wireless communication organizers, the Tablet PC and other tools. We measure the impact of training investments through pre- and post- assessment profiles and Return on Investment analysis.

As noted above, one of our mainstay tools that assist our clients in implementing effectiveness training is the FranklinCovey Planning System. The FranklinCovey Planning System typically implements our principle-based training and learning by using tools such as the FranklinCovey Planner. The original FranklinCovey Planner consists of a paper-based, two-page per day planning system combined with a seven-ring binder, a variety of planning aids, weekly, monthly and annual calendars and personal management sections. The FranklinCovey Planner can also be purchased in one-page per day or two-page per week versions. We also offer various forms and accessories that allow our clients to expand and customize their FranklinCovey Planner. A significant percentage of FranklinCovey Planner users continue to purchase a renewal planner each year, creating substantial recurring sales. We have also developed the FranklinCovey Planning System in electronic formats such as desktop software, as an add-on to PDA's, such as the popular PALM®  Computing organizer, Compaq's® iPAQ™ Pocket PC®, Handspring's™ Trio® and wireless communication and planning devices. To enhance capabilities within organizations, we have produced an extension for the most widely installed corporate email and scheduling software, Microsoft Outlook®, called PlanPlus™, that incorporates FranklinCovey Planning productivity principles into the Outlook calendar system. FranklinCovey markets the FranklinCovey Planner and accessory products directly to organizations and individuals, through its catalog, its retail stores, its e-commerce Internet site at www.franklincovey.com and through third-party channels. The FranklinCovey Planning System is now also available for the recently introduced Tablet PC through FranklinCovey TabletPlanner software. The software was developed in partnership with Agilix Labs and includes the following features: screen views similar to the paper-based FranklinCovey Planner, natural handwriting interface, the full FranklinCovey Planning System with appointment scheduling, prioritized daily and master tasks and daily notes, digital note-taking and synchronization with Outlook Exchange and an eBinder concept allowing the collection of all important documents into one place.

The principles we teach in our curriculum have also been published in book and audiotape form. Books sold by the Company include The 7 Habits of Highly Effective People®, Principle–Centered Leadership, First Things First, The 7 Habits of Highly Effective Families, Nature of Leadership and Living the 7 Habits, all by Stephen R. Covey, The 10 Natural Laws of Time and Life Management, What Matters Most and The Modern Gladiator by Hyrum W. Smith, The Power Principle by Blaine Lee, The 7 Habits of Highly Effective Teens by Sean Covey and Business Think by Dave Marcum and Steve Smith. These books, as well as audiotape and CD audio versions of many of these products, are sold through general retail channels, as well as through our own catalog, our e-commerce web site at www.franklincovey.com and our more than 180 domestic and international retail stores.

As noted above, we provide effectiveness solutions to organizations in business, industry, government entities, communities, to schools and educational institutions, and to individuals. We sell services to organizations and schools through our own direct sales forces. We then deliver training services to organizations, schools and individuals in one of five ways:

In fiscal 2002, we provided products and services to 90 of the Fortune 100 and more than 75 percent of the Fortune 500 companies. We also provide products and services to a number of U.S. and foreign governmental agencies, including the U.S. Department of Defense, as well as numerous educational institutions. Approximately 350,000 individuals were trained during the year ended August 31, 2002.

We also provide products, consulting and training services internationally, either through directly operated offices, or through licensed providers. At August 31, 2002, we had direct operations in Canada, Japan, Australia, Mexico, Brazil and the United Kingdom. We also had licensed operations in 52 countries.

Recent Acquisitions and Divestitures

In September 2000, we entered into a joint venture agreement with American Marketing Systems to form Franklin Covey Coaching, LLC. The joint venture agreement required our coaching programs to achieve specified earnings thresholds beginning in fiscal 2002 or the joint venture agreement could be terminated at the option of AMS. However, due to unfavorable economic conditions and other factors, the Company’s coaching programs did not achieve the fiscal 2002 earnings threshold requirement. As a result of unfavorable financial performance during fiscal 2002 and performance expectations in future periods, AMS exercised its option to terminate the existing joint venture agreement effective August 31, 2002. Under the provisions of a new partnership agreement, we may receive additional payments totaling up to $3.2 million from AMS and FCC.

In December 2001, we sold the stock of Premier School Agendas, a Bellingham, Washington based wholly owned subsidiary and Premier School Agendas Ltd., based in Canada (collectively "Premier") to School Specialty (NASDAQ: SCHS) of Greenville, Wisconsin, for approximately $152.5 million plus the retention of Premier’s working capital, which was received in the form of a $4.0 million promissory note from the purchaser. Prior to the sale closing, we also received cash distributions from Premier's working capital that totaled approximately $7 million. We still maintain the rights to sell our Student Achievement Workshop into schools and school districts.

Unless the context requires otherwise, all references to the “Company”, “we”, “us”, “our” or to “FranklinCovey” herein refer to Franklin Covey Co. and each of its operating divisions and subsidiaries. The Company’s principal executive offices are located at 2200 West Parkway Boulevard, Salt Lake City, Utah 84119-2331 and its telephone number is (801) 817-1776.

FranklinCovey Products

An important principle taught in our productivity training is to have only one personal productivity system and to have ones’ information in that one system. Based upon that principle, we developed the FranklinCovey Planner as one of the basic tools for implementing the principles of our time management system. The original FranklinCovey Planner consists of a paper-based FranklinCovey planning system, a binder in which to carry it, various planning aids, weekly, monthly and annual calendars as well as personal management sections. We offer a broad line of renewal planners, forms and binders for the FranklinCovey Planner in various sizes and styles. For those clients who use digital or electronic productivity systems, we also offer a wide variety of electronic solutions incorporating the same principles as the original FranklinCovey Planner.

Paper Planners. Paper planner renewals are available for the FranklinCovey Planner in various sizes and styles and consist of daily or weekly formats, appointment schedules, task lists, monthly calendars, daily expense records, daily record of events, and personal management pages for an entire year. The paper planner renewal are offered in a number of new offerings to appeal to various customer segments. The Master Pack, which includes personal management tabs and pages, a guide to using the planner, a pagefinder and weekly compass cards completes a FranklinCovey Planner.

Electronic Solutions. We also offer time and life management methodology within a complete Personal Information Management (“PIM”) system through the FranklinCovey Planner Software program. This system can be used in conjunction with the paper-based FranklinCovey Planner, electronic handheld organizers or used as a stand-alone planning and information management system. The FranklinCovey Planner Software permits users to generate and print data on FranklinCovey paper that can be inserted directly into the FranklinCovey Planner. The program operates in the Windows® 95, 98, 2000 and NT operating systems. The FranklinCovey Planner Software includes all necessary software, related tutorials and reference manuals.

We also offer PlanPlus™ for Microsoft® Outlook®, software designed to operate as an extension to Microsoft’s Outlook® software. This is intended especially for our corporate clients that have already standardized on Microsoft® for group scheduling, but wish to make the FranklinCovey Planning System available to their employees without creating the need to support two separate systems. As this kind of extension proves its value in the market, the FranklinCovey Planner Software extension model will be expanded to other platforms.

We are an OEM provider of the PALM® Computing organizer that includes the FranklinCovey Planner Software when sold through our FranklinCovey channels. The PALM® has become another successful planning tool offered through all of our channels. In an effort to combine the functionality of paper and the capabilities of the PALM®, we introduced products that can add paper-based planning to these electronic planners as well as binders and carrying cases specific to the PALM®. We have also expanded the handheld line to include other electronic organizers with the FranklinCovey Planner software such as the iPAQ™ Pocket PC from Compaq® and the Trio™ by Handspring®.

We also provide The 7 Habits of Highly Effective People® training course in online and CD-ROM versions. This new edition delivers the rich, compelling content from the 3-day classroom workshop in a flexible self-paced version via the Internet or CD-ROM that is available when and where employees need it. The Online Edition is presented in a multi-media format with video segments, mouseovers, a learning journal, interactive exercises, and other techniques. Included with the course is a 360° profile and e-Coaching.

The FranklinCovey Planning System is now also available for the recently introduced Tablet PC through FranklinCovey TabletPlanner software. The software was developed in partnership with Agilix Labs and includes the following features: screen views similar to the paper-based FranklinCovey Planner, natural handwriting interface, the full FranklinCovey Planning System with appointment scheduling, prioritized daily and master tasks and daily notes, digital note-taking and synchronization with Outlook Exchange, and eBinder concept allowing the collection of all important documents into one place.

Binders. To further customize the FranklinCovey Planning System, we offer binders and electronic organizer accessories (briefcases, portfolios, wallets/purses, etc.) in a variety of materials, styles and FranklinCovey Planner sizes. These materials include high quality leathers, fabrics, synthetics and vinyls in a variety of color and design options. Binder styles include zipper closures, snap closures, and open formats with pocket configurations to accommodate credit cards, business cards, checkbooks, electronic devices and writing instruments.

Personal Development and Accessory Products. To supplement our principal products, we offer a number of accessories and related products, including books, videotapes and audio cassettes focused on time management, leadership, personal improvement and other topics. We also market a variety of content–based personal development products. These products include books, audio learning systems such as multi-tape, CD’s and workbook sets, CD-ROM software products, calendars, posters and other specialty name brand items. We offer numerous accessory forms through our Forms Wizard software, which allows customization of forms, including check registers, spreadsheets, stationery, mileage logs, maps, menu planners, shopping lists and other information management and project planning forms. Our accessory products and forms are generally available in all the FranklinCovey Planner sizes.

Training and Productivity Solutions for Organizations

FranklinCovey is a leading provider of effectiveness training, productivity tools and assessment services for organizations including corporations, Government, education and non-profit firms. These services are marketed and delivered world-wide through our Organizational Strategic Business Unit (OSBU), which consists of talented consultants, selected through a competitive and demanding process, and sales professionals.

FranklinCovey currently employs 105 training consultants in major metropolitan areas of the United States, with an additional 16 training consultants outside of the United States. Our training consultants are selected from a large number of experienced applicants. These consultants generally have several years of training and/or consulting experience and are known for their excellent presentation skills. Once selected, the training consultant goes through a rigorous training program including multiple live presentations. The training program ultimately results in the Company’s certification of the consultant. FranklinCovey believes that the caliber of its training consultants has helped build its reputation for providing high quality seminars. The OSBU can also help organizational clients diagnose inefficiencies in their organization and design the core components of a client’s organizational solutions. The new xQ Survey is an exclusive FranklinCovey assessment tool that gathers, from an employee perspective, how well organizational goals are understood and are being carried out. The survey questions, administered through a Web-based system, probe for details to uncover underlying focus and teamwork barriers or issues.

FranklinCovey’s OSBU is organized in geographic regional sales teams in order to assure that both the consultant and the client sales professional participate in the development of new business and the assessment of client needs. Consultants are then entrusted with the actual delivery of content, seminars, processes and other solutions. Consultants follow up with client service teams, working with them to develop lasting client impact and ongoing business opportunities.

Training and Education Programs. We offer a range of training programs designed to measurably improve the effectiveness of individuals and organizations. Our programs are oriented to address personal, interpersonal, managerial and organizational needs. In addition, we believe that our learning process provides an engaging and behavior-changing experience, which frequently generates additional business. During fiscal year 2002, more than 350,000 individuals were trained using the Company’s curricula in its single and multiple–day workshops and seminars.

Our single–day FOCUS: Achieving Your Highest Priorities workshop teaches productivity skills integrated with a powerful planning system to help individuals clarify, focus on, and execute their highest priorities, both personally and professionally. This seminar is conducted by our training consultants for employees of clients and in public seminars throughout the United States and in many foreign countries. The single-day Aligning Goals for Results workshop helps managers identify the highest priorities for their teams and then lead those teams to execute tasks day-after-day.

We also deliver multiple-day workshops, primarily in the Leadership area. Included in these offerings is the three–day 7 Habits workshop based upon the material presented in The 7 Habits of Highly Effective People®. The 7 Habits workshop provides the foundation for continued client relationships and generates more business as the content and application tools are delivered deeper into the client’s organization. Additionally, a three–day 4 Roles of Leadership course is offered, which focuses on the managerial aspects of client needs. FranklinCovey Leadership Week consists of a five–day session focused on materials from FranklinCovey’s The 7 Habits of Highly Effective People® and The 4 Roles of Leadership courses. FranklinCovey Leadership Week is reserved for supervisory level management of our corporate clients. As a part of the week’s agenda, executive participants plan and design strategies to successfully implement key organizational goals or initiatives.

In addition to providing consultants and presenters, we also train and certify client facilitators to teach selected FranklinCovey workshops within their organizations. We believe client–facilitated training is important to our fundamental strategy of creating pervasive on-going client impact and revenue streams. After having been certified, clients can purchase manuals, profiles, planners and other products to conduct training workshops within their organization, generally without us repeating the sales process. This creates programs which have an on-going impact on our customers and which generate annuity–type revenues. This is aided by the fact that curriculum content in one course leads the client to additional participation in other Company courses. Since 1988, we have trained more than 19,000 client facilitators. Client facilitators are certified only after graduating from one of our certification workshops and completing post–course certification requirements.

We regularly sponsor public seminars in cities throughout the United States and in several foreign countries. The frequency of seminars in each city or country depends on the concentration of our clients, the level of promotion and resulting demand, and generally ranges from semi–monthly to quarterly. Our smaller institutional clients often utilize the public seminars to train their employees.

In April 2002, we introduced The 7 Habits of Highly Effective People® training course in online and CD-ROM versions. The needs for reaching more employees faster and more inexpensively are the key drivers behind the growth of e-learning in the marketplace. The new 7 Habits Online Edition addresses that need, offering a flexible alternative to classroom training.

Personal Coaching. We offer post-seminar training in the form of personal coaching through an entity called Franklin Covey Coaching, LLC. The entity employs 41 coaches that interact with clients on the telephone to help them implement the training principles learned from the seminar they have taken. The entity offers personal coaching for some of our curriculum as well as seminars offered by other training companies.

Sales and Marketing

The following table sets forth, for the periods indicated, the Company’s revenue for each of its principal distribution channels:

We market products and services to organizations, schools and individuals both domestically and internationally through FranklinCovey retail stores, catalogs, www.franklincovey.com, our organizational and educational sales forces and other distribution channels.

Retail Stores. Beginning in late 1985, we began a retail strategy by opening retail stores in areas of high client density. The initial stores were generally located in lower traffic destination locations. We have since revised our strategy by locating retail stores in high-traffic retail centers, primarily large shopping centers and malls, to serve existing clients and to attract increased numbers of walk-in clients. Our retail stores average approximately 2,000 square feet. Our retail strategy focuses on providing high quality client service at the point of sale. We believe this approach increases client satisfaction as well as the frequency and volume of purchases. At August 31, 2002, FranklinCovey had 173 domestic retail stores located in 37 states and the District of Columbia and 10 international stores.

We believe that our retail stores serve as attractive distribution centers for existing clients and also encourage walk–in traffic and impulse buying and that store clients are a source of participants for FranklinCovey’s public seminars. The stores also provide the opportunity to assess client reaction to new product offerings and to test-market new products.

We believe that our retail stores have an upscale image consistent with our marketing strategy. Products are attractively presented and displayed with an emphasis on integration of related products and accessories. Stores are staffed with a manager, an assistant manager and additional sales personnel as needed. These sales associates have been trained to use the original FranklinCovey Planner, as well as its various electronic versions, enabling them to assist and advise clients in selection and use of our products. During peak periods, additional personnel are added to promote prompt and courteous client service.

Catalog/e-Commerce. We periodically mail catalogs to our clients, including a fall catalog, holiday catalog, catalogs timed to coincide with planner renewals and catalogs related to special events, such as store openings or new product offerings. Catalogs may be targeted to specific geographic areas or user groups as appropriate. Catalogs are typically printed in full color with an attractive selling presentation highlighting product benefits and features. During fiscal 2001, we entered into a long-term contract with EDS of Dallas, Texas, to provide a large part of our customer relationship management (CRM) in servicing our Catalog and e-Commerce customers. We use EDS to maintain a client service department, which clients may call toll-free, 24 hours a day, Monday through Saturday, to inquire about a product or to place an order. Through a computerized order entry system, client representatives have access to client preferences, prior orders, billings, shipments and other information on a real-time basis. Each of the more than 227 customer service representatives has the authority to immediately solve client service problem. The integrated CRM system provided by EDS allows orders from our customers to be processed quickly through its warehousing and distribution systems. Client information stored within the order entry system is also used for additional purposes, including target marketing of specific products to existing clients and site selection for Company retail stores. We believe that the order entry system helps assure client satisfaction through both rapid delivery and accurate order shipment.

Other Channels. We have an alliance with the At-A-Glance group to sell our products through the contract stationer channel. At-A-Glance wholesales other products to contract stationer businesses such as Boise Cascade, Office Express and Staples, which then sell office products through catalog order entry systems to businesses and organizations.

Oganizational Solutions Group. Our sales professionals market training, consulting and measurement services to institutional clients and public seminar clients. We employ 92 sales professionals and business developers located in six major metropolitan areas throughout the United States who sell integrated offerings to institutional clients. We also employ an additional 53 sales professionals and business developers outside of the United States in six countries. Our sales professionals have selling experience prior to employment by the Company and are trained and evaluated in their respective sales territories. Sales professionals typically call upon persons responsible for corporate employee training, such as corporate training directors or human resource officers. Increasingly, sales professionals also call upon line leaders. Our sales professionals work closely with training consultants in their territories to schedule and tailor seminars and workshops to meet specific objectives of institutional clients. We also employ 105 training consultants throughout the United States who present institutional and public seminars in their respective territories and an additional 16 training consultants outside of the United States. Training consultants work with sales professionals and institutional clients to incorporate a client’s goals, policies and objectives in seminars and present ways that employee goals may be aligned with those of the institution. Public seminars are planned, implemented and coordinated with training consultants by a staff of marketing and administrative personnel at the Company’s corporate offices. These seminars provide training for organizations and the general public and are also used as a marketing tool for attracting corporate and other institutional clients. Corporate training directors are often invited to attend public seminars to preview the seminar content prior to engaging FranklinCovey to train in-house employees. Smaller institutional clients often enroll their employees in public seminars when a private seminar is not cost effective. In the public seminars, attendees are also invited to provide names of potential persons and companies who may be interested in our seminars and products. These referrals are generally used as prospects for our sales professionals. We also provide The 7 Habits of Highly Effective Teens as a workshop or as a year-long curriculum to schools and school districts and other organizations working with youth. Based on upon the 7 Habits of Highly Effective Teens book, it helps to teach students and teachers better studying skills, learning habits, and interpersonal development. In December 2001, we sold the stock of Premier Agendas to School Specialty for approximately $152.5 million plus the retention of Premier’s working capital, which was received in the form of a $4.0 million promissory note from the purchaser. Pursuant to a license from FranklinCovey, Premier is expected to continue to expose over 20 million K-12 students to FranklinCovey’s world-renowned 7 Habits content. We retained the educator leadership and effectiveness training portion of Premier’s business.

International Sales. We provide products, training and printing services internationally through Company-owned and licensed operations. We have Company-owned operations and offices in Australia, Brazil, Canada, Japan, Mexico and the United Kingdom. We also have licensed operations in Argentina, Bahamas, Belgium, Bermuda, Bulgaria, Chile, China, Colombia, Croatia, Czech Republic, Denmark, Ecuador, Egypt, Estonia, Finland, France, Germany, Greenland, Hong Kong, Hungary, India, Indonesia, Israel, Italy, Korea, Latvia, Lebanon, Lithuania, Luxembourg, Malaysia, Nigeria, Netherlands, Norway, Panama, Philippines, Poland, Portugal, Puerto Rico, Saudi Arabia, Singapore, Slovak Republic, Slovenia, South Africa, Spain, Sweden, Taiwan, Thailand, Trinidad/Tobago, Turkey, UAE, Uruguay, and Venezuela. We operate retail operations in Canada, Hong Kong, Japan, Mexico, Singapore and Taiwan. Our seven most popular books, The 7 Habits of Highly Effective People®, Principle–Centered Leadership, The 10 Natural Laws of Time and Life Management, First Things First, The Power Principle, The 7 Habits of Highly Effective Families and The 7 Habits of Highly Effective Teens are currently published in multiple languages.

The international operations generated $47.8 million in revenue for the year ended August 31, 2002. After grossing up royalties from licensed operations to their actual sales level, total sales generated in the international operations were $66.5 million.

Strategic Distribution Alliances

We have created strategic alliances with innovative and respected organizations in an effort to develop effective distribution of our products and services. The principal distribution alliances currently maintained by FranklinCovey are: Simon & Schuster and Saint Martin’s Press in publishing books for the Company; Lumicore to promote and facilitate Dr. Covey’s personal appearances and teleconferences; Nightingale–Conant to market and distribute audio and video tapes of the Company’s book titles; MeadWestvaco to market and distribute selected FranklinCovey Planners and accessories through the At-A-Glance catalog office supply channels; PALM® Computing to serve as the official training organization for its PALM® Computing products and distribution agreements with Hewlett Packard and Acer in connection with the Tablet PC.

Clients

We have a relatively broad base of institutional and individual clients. We have more than 2,000 institutional clients consisting of corporations, governmental agencies, educational institutions and other organizations. We believe our products, workshops and seminars encourage strong client loyalty. Employees in each of our distribution channels focus on providing timely and courteous responses to client requests and inquiries. Institutional clients may choose to receive assistance in designing and developing customized forms, tabs, pagefinders and binders necessary to satisfy specific needs.

Competition

Training. Competition in the performance skills organizational training and education industry is highly fragmented with few large competitors. We estimate that the industry represents more than $6 billion in annual revenues and that the largest traditional organizational training firms have sales in the $100 to 150 million range. Based upon FranklinCovey’s fiscal 2002 organizational sales of approximately $142 million, we believe we are a leading competitor in the organizational training and education market. Other significant competitors in the training market are Development Dimensions International, Achieve Global (formerly Zenger Miller), Organizational Dynamics Inc., Provant, Forum Corporation, EPS Solutions and the Center for Creative Leadership.

Products. The paper-based time management and personal organization products market is intensely competitive and subject to rapid change. FranklinCovey competes directly with other companies that manufacture and market calendars, planners, personal organizers, appointment books, diaries and related products through retail, mail order and other direct sales channels. In this market, several competitors have strong name recognition. We believe our principal competitors include DayTimer, At-A-Glance and Day Runner. We also compete with companies that market substitutes for paper-based products, such as electronic organizers, software PIMs and hand-held computers. Our FranklinCovey Planner Software competes directly with numerous other PIMs. Many of FranklinCovey's competitors have significant marketing, product development, financial and other resources. An emerging potential source of competition is the appearance of calendars and event-planning services available at no charge on the Web. There is no indication that the current level of features has proven to be attractive to the traditional planner customer as a stand-alone service, but as these products evolve and improve, they could pose a competitive threat.

Given the relative ease of entry in FranklinCovey’s product and training markets, the number of competitors could increase, many of whom may imitate our methods of distribution, products and seminars, or offer similar products and seminars at lower prices. Some of these companies may have greater financial and other resources than us. We believe that the FranklinCovey Planner and related products compete primarily on the basis of user appeal, client loyalty, design, product breadth, quality, price, functionality and client service. We also believe that the FranklinCovey Planner has obtained market acceptance primarily as a result of the concepts embodied in the FranklinCovey Planner, the high quality of materials, innovative design, our attention to client service, and the strong loyalty and referrals of our existing clients. We believe that our integration of training services with products has become a competitive advantage. Moreover, we believe that we are a market leader in the United States among a small number of integrated providers of productivity and time management products and services. Increased competition from existing and future competitors could, however, have a material adverse effect on our sales and profitability.

Manufacturing and Distribution

The manufacturing operations of FranklinCovey consist primarily of printing, collating, assembling and packaging components used in connection with our paper product lines. We operate our central manufacturing services out of Salt Lake City. We have also developed partner printers, both domestically and internationally, who can meet our quality standards, thereby facilitating efficient delivery of product in a global market. We believe this has positioned us for greater flexibility and growth capacity. Automated production, assembly and material handling equipment are used in the manufacturing process to ensure consistent quality of production materials and to control costs and maintain efficiencies. By operating in this fashion, we have gained greater control of production costs, schedules and quality control of printed materials.

During fiscal 2001, we entered into a long-term contract with EDS to provide warehousing and distribution services of our product line. EDS maintains a facility at the Company’s headquarters as well as at other locations throughout North America.

Binders used for our products are produced from either leather, simulated leather, tapestry or vinyl materials. These binders are produced by multiple and alternative product suppliers. We currently enjoy good relations with our suppliers and vendors and with the exception of strikes affecting dock workers do not anticipate any difficulty in obtaining the required binders and materials needed for our business. We have implemented special procedures to ensure a high standard of quality for binders, most of which are manufactured by suppliers in the United States, Europe, Canada, Korea, Mexico and China.

We also purchase numerous accessories, including pens, books, videotapes, calculators and other products, from various suppliers for resale to our clients. These items are manufactured by a variety of outside contractors located in the United States and abroad. We do not believe that we are entirely dependent on any one or more of such contractors and consider our relationships with such suppliers to be good.

Trademarks, Copyrights and Intellectual Property

We seek to protect our intellectual property through a combination of trademarks, copyrights and confidentiality agreements. We claim rights for more 120 trademarks in the United States and have obtained registration in the United States and many foreign countries for many of our trademarks, including FranklinCovey, The 7 Habits of Highly Effective People®, Principle–Centered Leadership, Aligning Goals for Results, FOCUS: Achieving Your Highest Priorities, FranklinCovey Planner, PlanPlus, and The Seven Habits. We consider our trademarks and other proprietary rights to be important and material to our business. Each of the marks set forth in italics above is a registered mark or a mark for which protection is claimed.

We own all copyrights on our planners, books, manuals, text and other printed information provided in our training seminars, the programs contained within FranklinCovey Planner Software and its instructional materials, and our software and electronic products, including audio tapes and video tapes. We license rather than sell all facilitator workbooks and other seminar and training materials in order to limit its distribution and use. FranklinCovey places trademark and copyright notices on its instructional, marketing and advertising materials. In order to maintain the proprietary nature of our product information, FranklinCovey enters into written confidentiality agreements with certain executives, product developers, sales professionals, training consultants, other employees and licensees. Although we believe the protective measures with respect to our proprietary rights are important, there can be no assurance that such measures will provide significant protection from competitors.

Employees

As of August 31, 2002, FranklinCovey had 2,081 full and part–time associates, including 472 in sales, marketing and training; 971 in customer service and retail; 158 in production operations and distribution; and 480 in administration and support staff. During fiscal 2002, the Company outsourced a significant part of its information technology services, customer service, distribution and warehousing operations to EDS. A number of the Company’s former employees involved in these operations are now employed by EDS to provide those services to FranklinCovey. None of FranklinCovey’s associates are represented by a union or other collective bargaining group. Management believes that its relations with its associates are good. FranklinCovey does not currently foresee a shortage in qualified personnel needed to operate the Company’s business.

Item 2. Properties

Franklin Covey’s principal business operations and executive offices are located in Salt Lake City, Utah. The following is a summary of our owned or leased properties. Our facility lease agreements are accounted for as operating leases, which expire at various dates through the year 2016.

The Company considers its existing facilities sufficient for its current and anticipated levels of operations in the upcoming fiscal year.

Item 3. Legal Proceedings

As part of the sale of Premier Agendas, we retained certain outstanding legal claims against Premier. Subsequent to August 31, 2002, we settled these outstanding claims for approximately $0.8 million, which increased the recorded gain from the sale of Premier as we had accrued $3.5 million for the potential liability related to these claims.

During fiscal 2002, the Company received a subpoena from the Securities and Exchange Commission (“SEC”) seeking documents and information relating to our management stock loan program and previously announced, and later withdrawn, tender offer. We have provided the documents and information requested by the SEC, including the testimony of our Chief Executive Officer and other key employees. The Company has cooperated, and will continue to cooperate, fully in providing requested information to the SEC. 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 that we have complied with the laws and regulations applicable to our management loan program and withdrawn tender offer.

Item 4. Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of security holders during the fourth quarter of our fiscal year ended August 31, 2002.

Part II

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

The Company’s common stock is listed and traded on the New York Stock Exchange (“NYSE”) under the symbol “FC.” The following table sets forth, for the periods indicated, the high and low sale prices for the Company’s common stock, as reported on the NYSE Composite Tape, for the fiscal years ended August 31, 2002 and 2001.

The Company did not pay or declare dividends on its common stock during the fiscal years ended August 31, 2002 and 2001. The Company currently anticipates that we will retain all available funds to finance our future growth and business expansion. The Company does not intend to pay cash dividends on our common stock in the foreseeable future.

As of November 22, 2002 the Company had 20,008,625 shares of its common stock outstanding, held by approximately 350 shareholders of record.

Item 6. Selected Financial Data

Financial Highlights

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

OVERVIEW

The following management’s discussion and analysis is intended to provide a summary of the principal factors affecting the results of operations, liquidity and capital resources, and the critical accounting policies of Franklin Covey Co. (also referred to as the “Company”, “we”, “us”, and “our”, unless otherwise indicated) and subsidiaries. This discussion and analysis should be read together with our consolidated financial statements and related notes, which contain additional information regarding the accounting policies and estimates underlying the Company’s financial statements. Our consolidated financial statements and related notes begin in Item 8 of this report on Form 10-K.

Franklin Covey Co. is a worldwide leader in providing integrated learning and performance solutions to organizations and individuals designed to enhance productivity, leadership, sales performance, communication, and other areas. Each solution set may include products and services that encompass training and consulting, assessment, and various application tools that are generally available in electronic or paper-based formats. Our products and services are available through professional consulting services, public workshops, retail stores, catalogs, and the Internet at www.franklincovey.com. The Company’s best-known offerings include the Franklin Planner^TM, our productivity workshop entitled “What Matters Most”, and courses based upon the best-selling book, The 7 Habits of Highly Effective People.

Our fiscal year ends on August 31, and unless otherwise indicated, fiscal 2003, fiscal 2002, fiscal 2001, and fiscal 2000, refer to the twelve-month periods ended or ending on August 31, 2003, 2002, 2001, and 2000, respectively.

Key factors that influence our operating results include the number of organizations that are active customers; the number of people trained within those organizations; the sale of personal productivity tools (including Franklin Planners, Personal Digital Assistants or "PDAs", binders, and other related products); and our ability to manage operating costs necessary to provide products and services to our clients.

The following is a summary of recent business acquisitions and divestitures:

Subsequent to August 31, 2002, we purchased 20 percent of the common stock of Agilix Labs, Inc., a Delaware corporation, for payments totaling $1.0 million in cash. Agilix develops software applications for personal computers, including the new "Tablet PC." The Company may, upon the achievement of specific objectives by Agilix, purchase another 10 percent of the common stock of Agilix Labs, Inc. for $0.5 million.

During fiscal 2001, we entered into a joint venture with American Marketing Systems (“AMS”) to form Franklin Covey Coaching, LLC (“FCC”). The operating results of this joint venture were reported as equity in the earnings of an unconsolidated subsidiary in fiscal 2002 and fiscal 2001. Under terms of the joint venture agreement, the Company’s coaching programs were required to achieve specified earnings thresholds beginning in fiscal 2002, or the joint venture could be terminated at the option of AMS. Due to unfavorable sales performance by our coaching programs during fiscal 2002, AMS terminated the existing joint venture agreement as of August 31, 2002. Under terms of a new partnership agreement that eventually terminates our interest in FCC, we received a $0.3 million payment and may receive an additional $3.2 million in payments from AMS and FCC. For further information on Franklin Covey Coaching, LLC, refer to Note 5 in our consolidated financial statements.

Effective December 21, 2001, we sold Premier Agendas, Inc. and Premier Agendas, Ltd. (collectively, “Premier”), both wholly owned subsidiaries to School Specialty, Inc., a company that specializes in providing products and services to students and schools. Premier provided productivity solutions to the educational industry, including student and teacher planners. The sale price was $152.5 million in cash plus the retention of Premier’s working capital, which was received in the form of a $4.0 million promissory note that was paid in full during fiscal 2002. Prior to the sale closing, we received cash distributions from Premier’s working capital that totaled approximately $7 million. Refer to Note 7 in our consolidated financial statements for further information regarding the sale of Premier.

During April 2001, we purchased the Project Consulting Group for $1.5 million in cash. The Project Consulting Group provides project consulting, project management, and project management training services.

As of February 28, 2000, we sold the assets and substantially all of the business of our commercial printing division of Publishers Press. We retained the printing operations necessary for the production of our planners and other related products. For further information regarding the sale of the commercial division of Publishers Press, refer to Note 22 in our consolidated financial statements.

In December 1999, the Company purchased a majority interest in DayTracker.com (renamed franklinplanner.com), an on-line provider of scheduling and calendaring services. During the fourth quarter of fiscal 2002, we discontinued the on-line planning services offered at franklinplanner.com and the results of operations for franklinplanner.com were included as discontinued operations in our consolidated financial statements. For further information regarding the termination of franklinplanner.com operations, refer to Note 7 in our consolidated financial statements.

During September 1999, the Company acquired the assets of the Professional Resources Organization (the Jack Phillips Group) for $1.5 million in cash. The Professional Resources Organization was a leading measurement assessment firm specializing in measuring the impact and return on investment of training and consulting programs.

RESULTS OF OPERATIONS

Segment Review

Following the sale of Premier during fiscal 2002, we now have two reporting segments: the Consumer Strategic Business Unit (“CSBU”) and the Organizational Strategic Business Unit (“OSBU”). The operating results of Premier and our other products and services designed for teachers and students were previously reported in the Education Business Unit, which was dissolved during fiscal 2002. Our remaining student and teacher programs and products are now classified with the Organizational Strategic Business Unit results of operations.

Consumer Strategic Business Unit – This business unit is focused on sales to individual customers and includes the operating results of our 173 domestic retail stores, 10 international stores, catalog and e-Commerce operations, and other related channels including wholesale sales and manufacturing operations. Although CSBU sales primarily consist of products such as planners, binders, and handheld electronic planning devices, virtually any component of our leadership and productivity solutions can be purchased through CSBU channels.

Organizational Strategic Business Unit – The OSBU is primarily responsible for the development, marketing, sale, and delivery of productivity, leadership, sales performance, and communication training solutions directly to organizational clients, including other companies, the government and educational institutions. The OSBU includes the financial results of the Organizational Solutions Group (“OSG”) and our international operations, except for retail stores. The organizational solutions group is responsible for the domestic sale and delivery of productivity, leadership, sales performance, and communication training solutions to corporations and includes sales of training seminars to teachers and students, which were previously reported with the operating results of Premier. The OSG is also responsible for the sale of productivity solutions to wholesale customers and for consulting services that compliment our productivity and leadership training solutions. The international sales group includes our direct offices and licensee sale and delivery operations, including catalog sales.

The following table sets forth selected segment sales and consolidated operational data from continuing operations for the periods indicated. For further reporting segment information, refer to Note 21 in our consolidated financial statements.

YEAR ENDED AUGUST 31,
______________________________________________________________
                                2002         2001        2000
______________________________________________________________
Consumer Strategic
   Business Unit:
     Retail stores         $ 122,496   $ 156,299    $ 163,304
     Catalog and
        eCommerce             63,291      90,450      110,543
     Other CSBU                4,921       7,881       27,919
                          ____________________________________
                             190,708     254,630      301,766
                          ____________________________________
Organizational
   Strategic Business
   Unit:
     OSG                      97,519     134,450      169,986
     International            44,771      50,701       50,878
                          ____________________________________
                             142,290     185,151      220,864
                          ____________________________________
Total sales                  332,998     439,781      522,630
Cost of sales                149,369     189,982      242,764
                          ____________________________________

Gross margin                 183,629     249,799      279,866

Selling, general, and
   administrative            216,910     224,458      230,353
Stock option purchase
   and relocation costs                                11,227
Provision for losses on
   management stock  loan
   program                    24,775       1,052
Impairment of
   investment in
   unconsolidated
   subsidiary                 16,323
Loss on impaired assets       10,185         801        1,940
Restructuring cost
   reversals                                           (4,946)
Depreciation                  33,342      27,441       25,517
Amortization                   4,667      10,840       13,069
                          ____________________________________
Income (loss) from
   operations              $(122,573)  $ (14,793)   $   2,706
                          ____________________________________

FISCAL 2002 COMPARED WITH FISCAL 2001

Sales

Our overall operating performance was adversely affected by significant sales declines during fiscal 2002. The Company believes that difficult economic conditions in the United States, which were worsened by the terrorist attacks that occurred on September 11, 2001, led to significantly reduced travel schedules for training in addition to tightened budgets for productivity tool and supply expenditures, as our corporate clients sought to decrease operating expenses. In addition, sales of handheld electronic planning devices, which were especially popular during fiscal 2001 and fiscal 2000, declined sharply in fiscal 2002 due to significant reduction in demand for these devices. As a result of these and other factors, we experienced significant sales declines compared to the prior year for both training and productivity tools in our various channels. In an effort to improve both product and training solution sales in future periods, the Company has developed and is developing new training solutions specifically focused around our productivity seminars, and has developed and is developing new personal and organizational software products for our various channels. Additionally, the Company recently introduced “Tablet PCs” and related planning software, which can be purchased through many of our channels. Although the initial response to these products and seminars has been favorable, there can be no assurance that these new products will be widely accepted by our clients.

Product sales, which consist primarily of planners, binders, and handheld electronic planning devices declined by $76.7 million, or 26 percent, from the prior year. The overall decrease in product sales was significant to our retail store, catalog/e-Commerce, and other consumer business unit channels. Retail store sales were adversely affected by declining average sales dollars per transaction combined with a decrease in consumer traffic and overall smaller number of transactions. Of the $33.8 million decline in retail store sales, approximately $25.0 million related to declines in the sales of handheld electronic planning devices and related accessories. Of this decline, approximately $18.0 million occurred during our first two quarters of fiscal 2002. Planner and binder sales through our retail stores also decreased by a total of 12 percent compared to the prior year. These product sales declines included a 14 percent decline during the first two fiscal quarters compared to a eight percent decline during the last two quarters of fiscal 2002. As a result of these sales trends, comparable store (stores that have been open for over a year) retail sales decreased by 28 percent compared to fiscal 2001. Comparable store sales experienced a 31 percent decrease during the first two quarters versus a 24 percent decrease during our last two quarters of fiscal 2002. The sales performance from new stores partially offset the decline in comparable store sales, resulting in a 22 percent overall decrease in retail store sales during fiscal 2002. As of August 31, 2002, we were operating 173 domestic retail stores compared to 164 stores at August 31, 2001. Catalog/e-Commerce sales declined primarily due to reduced call volume in the Company’s catalog call center operations, particularly during the first two quarters of fiscal 2002, and to average order size, due primarily to declines in handheld electronic planning device sales.

Training solution and training product related sales decreased by $30.1 million, or 21 percent, compared to the prior year, which was reflected in both domestic and foreign training sales during fiscal 2002. The Company offers a variety of training solutions, training related product, and consulting services focused on productivity, leadership, sales performance, and communications. With the impact of a weak domestic economy, which generally influences corporate, governmental, and educational spending, training sales during fiscal 2002 decreased due to reduced spending for both company facilitator led and on-site training programs. Public program sales and training solution sales to teachers and students in the education industry also decreased compared to fiscal 2001 sales levels. These decreases were partially offset by sales performance seminars, which increased compared to the prior year.

International product and training sales decreased slightly compared to the prior year primarily due to decreased sales in Mexico, Canada, continental Europe, and Australia. These declines were partially offset by increased sales from Brazil and the United Kingdom. Sales in Japan and royalty revenues from licensee operations were essentially flat compared to the prior year. During fiscal 2002, the continental European direct office was converted to a licensee operation, which resulted in reduced sales, but increased margins. The Company also attributes a portion of the decrease in international sales to similar economic factors that had an adverse affect on domestic product and training sales during fiscal 2002.

Gross Margin

Gross margin consists of sales less cost of sales. Our cost of sales includes materials used in the production of planners and related products, assembly and manufacturing labor costs, direct costs of conducting seminars, freight, and certain other overhead costs. Gross margin may be affected by, among other things, prices of materials, labor rates, product sales mix, changes in product discount levels, production efficiency, and freight costs.

The Company’s overall gross margin during fiscal 2002 decreased to 55.1 percent of sales, compared to 56.8 percent in the prior year. The decline in overall gross margin was primarily due to factors that adversely affected our gross margin during the first and second quarters of fiscal 2002. During our seasonally strong sales months in early fiscal 2002, manufacturers of handheld electronic planning devices discounted many devices and accessories to promote sales. These discounts affected the sale price of many of our handheld electronic devices, resulting in narrower margins. We also experienced a shortage of certain popular planner products due to the bankruptcy of one of our key printing suppliers. This resulted in lost sales and backorders of high margin products. When these backordered products were eventually shipped to customers, we used more expensive overnight delivery methods, which costs could not be passed on to our customers. The Company has also experienced a shift in our product mix toward lower-margin binders and planners during fiscal 2002. As a result of these and other related factors, our gross margin on product sales declined to 50.0 percent compared to 51.6 percent during fiscal 2001.

Training solution costs, as a percentage of sales, increased due to a shift in the product mix of training solutions sold in addition to lower attendance at corporate on-site and public seminar events held during the year. The cancellation and postponement of numerous seminars due to travel restrictions and declining travel subsequent to the terrorist attacks of September 11, 2001, significantly affected the gross margin of seminar sales during the first and second quarters of fiscal 2002. Certain components of public seminar events are fixed, such as direct marketing expenses, site fees, equipment rentals, and presenter costs. With a decline in the average number of participants per public training seminar, the fixed costs for the training seminar resulted in lower gross margins for the events. In addition, some costs incurred for canceled seminars were not refundable. We also developed a custom line of training products for a specific customer that had significantly lower margins than the majority of our other training kits, products, and accessories, thus negatively impacting our training gross margin. These factors combined to reduce the training and service gross margin to 65.4 percent, compared to 67.8 percent in fiscal 2001. As part of our efforts to improve operating results, we are actively seeking to reduce product and seminar costs in order to improve overall gross margins.

Operating Expenses

Selling, general, and administrative (“SG&A”) expenses of continuing operations decreased $7.5 million, but due to decreased sales, increased as a percent of sales to 65.1 percent, compared to 51.0 percent of sales in the prior year. The decrease in SG&A expenses was primarily due to specific initiatives implemented to reduce operating expenses and exit non-core activities in order to focus and align corporate strategy and improve overall profitability. These cost reduction initiatives resulted in significantly decreased associate, advertising, travel, and computer and office supply expenses, especially during our third and fourth fiscal quarters, compared to the prior year. Partially offsetting these cost reduction initiatives were severance costs, additional retail store operation costs relating to new stores opened during the year, and outsourcing implementation costs. In connection with our decision to exit non-core and unprofitable activities, we have reduced our employee base during fiscal 2002. As a result of these headcount reduction efforts, the Company incurred and expensed $5.2 million of severance and related costs during fiscal 2002. During fiscal 2001, we entered into long-term outsourcing agreements with Electronic Data Systems (“EDS”) to provide warehousing, distribution, information systems, and call center operations. In addition to base charges for services provided, we have incurred and expensed transition costs necessary to operate under terms of the agreements. These charges are not expected to recur and we expect to realize overall savings in these outsourced activities. During fiscal 2002, the Company has implemented and continues to pursue various cost reduction initiatives and believes that our efforts will continue to reduce recurring SG&A costs in fiscal 2003 and in future periods.

Depreciation expense in continuing operations increased by $5.9 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. As the Company continues to reduce capital expenditures, and recently purchased computer hardware and software becomes fully depreciated in the next few years, we expect depreciation charges to decline in future periods. Amortization expense attributable to continuing operations decreased by $6.2 million, primarily due to the adoption of SFAS No. 142, which prohibits goodwill amortization and requires 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, we wrote off all recorded goodwill associated with our consumer business unit, organizations business unit, and corporate services group, plus a portion of the Covey trade name intangible asset, which has an indefinite life, from our balance sheet as of September 1, 2001. Refer to Note 4 of our consolidated financial statements for further information regarding the impact of adopting SFAS No. 142.

Provision for Losses on Management Stock Loans

The Company is now the creditor for a loan program that provided certain management personnel with the opportunity to purchase shares of our common stock. As a result of changes to our line of credit agreement obtained in fiscal 2001, the Company is the creditor on these loans, which are full recourse to the participants and are recorded as a reduction to shareholders’ equity in our consolidated balance sheets. In connection with these loans, we utilize a systematic methodology to determine the level of reserves that are appropriate for potential losses resulting from the management common stock loan program. A key factor considered by our methodology is the current market value of the common stock held by the participants, although the Company is precluded by certain rules and regulations from holding the participants’ stock as collateral for the loans. Other factors considered by our 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 participant repayment capability 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 our methodology, we recorded charges to operations totaling $24.8 million during fiscal 2002 to increase the loan loss reserve. At August 31, 2002 and 2001, we had aggregate loan loss reserves totaling $25.9 million and $1.1 million, respectively, which reduce notes and interest receivable from related parties in our consolidated balance sheets. Additionally, we 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. The inability of some or all participants to repay their loans would have a significant adverse effect upon the financial position