SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

~~(Mark~~ (Mark One)

[X]

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

[ ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file no. 1-11107

(Exact name of registrant as specified in its charter)

~~19,511,314~~19,615,444 shares of Common Stock as of ~~January 2,~~July 1, 2008

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

FRANKLIN COVEY CO.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

	December 1, 2007			August 31, 2007			May 31, 2008			August 31, 2007
	(unaudited)						(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	8,756		$	6,126		$	4,815		$	6,126
Accounts receivable, less allowance for doubtful accounts of $960 and $821		30,137			27,239
Accounts receivable, less allowance for doubtful accounts of $777 and $821								24,597			27,239
Inventories		24,176			24,033			7,034			24,033
Deferred income taxes		3,662			3,635			3,697			3,635
Prepaid expenses and other assets		8,834			9,070			4,837			9,070
Assets of operations held for sale (Note 2)								30,754			-
Total current assets		75,565			70,103			75,734			70,103

Property and equipment, net		35,587			36,063			25,807			36,063
Intangible assets, net		75,024			75,923			73,223			75,923
Deferred income taxes		106			101			105			101
Other assets		14,963			14,441			16,934			14,441
	$	201,245		$	196,631		$	191,803		$	196,631

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt and financing obligation	$	645		$	629		$	667		$	629
Line of credit		14,656			15,999			8,223			15,999
Accounts payable		15,199			12,190			8,341			12,190
Income taxes payable		599			2,244			57			2,244
Accrued liabilities		30,135			30,101			21,145			30,101
Liabilities of operations held for sale (Note 2)								10,415			-
Total current liabilities		61,234			61,163			48,848			61,163

Long-term debt and financing obligation, less current portion		32,838			32,965			32,504			32,965
Deferred income tax liabilities		2,822			565			4,455			565
Other liabilities		1,761			1,019			1,652			1,019
Total liabilities		98,655			95,712			87,459			95,712

Shareholders’ equity:
Common stock – $0.05 par value; 40,000 shares authorized, 27,056 shares issued and outstanding		1,353			1,353			1,353			1,353
Additional paid-in capital		184,982			185,890			183,836			185,890
Common stock warrants		7,602			7,602			7,602			7,602
Retained earnings		21,548			19,489			23,119			19,489
Accumulated other comprehensive income		1,220			970			2,039			970
Treasury stock at cost, 7,271 and 7,296 shares		(114,115	)		(114,385	)
Treasury stock at cost, 7,249 and 7,296 shares								(112,956	)		(114,385	)
Other comprehensive loss held for sale								(649	)		-
Total shareholders’ equity		102,590			100,919			104,344			100,919
	$	201,245		$	196,631		$	191,803		$	196,631

See notes to condensed consolidated financial statements.

CONDENSED CONSOLIDATED INCOME STATEMENTS

(in thousands, except per share amounts)

Training and consulting services

Income from operations

Income before provision for income taxes

Net income available to common shareholders

shareholders per share:

See notes to condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Adjustments to reconcile net income to net cash provided by

Adjustments to reconcile net income to net cash provided by operating activities:

Cash paid for interest

Cash paid for income taxes

Accrued preferred stock dividends

Acquisition of property and equipment through accounts payable

See notes to condensed consolidated financial statements.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1– BASIS OF PRESENTATION

Franklin Covey Co. (hereafter referred to as us, we, our, or the Company) provides integrated consulting, training, and performance enhancement solutions to organizations and individuals in strategy execution, productivity, leadership, sales force effectiveness, effective communications, and other areas. Each integrated solution may include components of training and consulting, assessment, and other application tools that are generally available in electronic or paper-based formats. Our products and services are available through professional consulting services, public seminars, retail stores, catalogs, and the internet at www.franklincovey.com. Historically, the Company’s best-known offerings include the FranklinCovey Planner™ and a suite of individual-effectiveness and leadership-development training products based on the best-selling book, The 7 Habits of Highly Effective People. We also offer a range of training and assessment products to help organizations achieve superior results by focusing and executing on top priorities, building the capability of knowledge workers, and aligning business processes. These offerings include the following popular workshops and curricula: FOCUS: Achieving Your Highest Priorities™; ~~The 4 Disciplines of Execution~~Leadership: Great Leaders, Great Teams, Great Results™; The 4 Roles of Leadership™; Building Business Acumen: What the CEO Wants You to Know™; the Advantage Series communication workshops; and the Execution Quotient (xQ™) organizational assessment tool. During fiscal 2007 we also introduced a new leadership program based upon principles found in The 7 Habits of Highly Effective People.

NOTE 2 – SALE OF CONSUMER SOLUTIONS BUSINESS UNIT ASSETS

Based upon the guidance found in Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, we determined that the assets and liabilities of the CSBU, which constitutes an entire operating segment of the Company, should be classified as held for sale at May 31, 2008. The sale transaction was completed during our fourth fiscal quarter ended August 31, 2008 and we expect to recognize a gain on the sale of the CSBU assets. The carrying amounts of the assets and liabilities of our CSBU, which were classified as held for sale in our May 31, 2008 condensed consolidated balance sheet were as follows (in thousands):

Description
Cash and cash equivalents	$	38
Accounts receivable, net		5,266
Inventories		14,340
Other current assets		2,852
Property and equipment, net		8,100
Other assets		158
Total assets held for sale	$	30,754

Accounts payable	$	4,284
Accrued liabilities		6,131
Total liabilities held for sale	$	10,415

As a result of Franklin Covey Products’ structure as a limited liability company with separate owner capital accounts and the guidance found in Emerging Issues Task Force (EITF) Issue No. 03-16, Accounting for Investments in Limited Liability Companies, we determined that the Company’s investment in Franklin Covey Products is more than minor and the Company will therefore be able to exercise significant influence over the operations of Franklin Covey Products. Combined with the possibility of receiving future cash distributions from Franklin Covey Products for returns of capital and dividends, plus possible participation in Franklin Covey Products’ cash flows through the license agreement, we determined that the financial results of the CSBU should not be reported as discontinued operations in the accompanying condensed consolidated income statements or in future periods.

NOTE 3 – INVENTORIES

NOTE 34 – SHARE-BASED COMPENSATION

Unvested Stock Awards

(1)	Shares granted during the three quarters ended May 31, 2008 consisted of shares awarded to our Board of Directors under the provisions of the Directors’ Plan.

(2)

Share awards that vested during the three quarters ended May 31, 2008 consisted of 76,090 shares that were awarded to members of our Board of Directors in fiscal 2005 under the Directors’ Plan and 11,500 shares that were granted to certain employees and were vested on an accelerated basis because the employees’ area of responsibility met specified financial performance criteria. The compensation expense from the accelerated vesting of these shares totaled approximately $37,000.

Employee Stock Purchase Plan

Number of Stock Options

Weighted Avg. Exercise Price Per Share

Number of Stock Options

Outstanding at August 31, 2007

NOTE 45 – INCOME TAXES

Income Tax Provision

In July 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109 (FIN 48). This interpretation addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under FIN 48, we may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement. Interpretation No. 48 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting for income taxes in interim periods, and requires increased disclosure of various income tax items.

2000-2007	Canada
2002-2007	Japan, Mexico, United Kingdom
2003-2007	United States – state and local income ~~tax~~taxes
2004-2007	United States – federal income tax

NOTE 56 – COMPREHENSIVE INCOME

Quarter Ended

December 1,
2007

December 2,
2006

Net income $ 2,059 $ 1,416
Other comprehensive income items net of tax:
Foreign currency translation adjustments 250 96
Comprehensive income $ 2,309 $ 1,512

	Quarter Ended						Three Quarters Ended
	May 31, 2008			June 2, 2007			May 31, 2008		June 2, 2007
Net income (loss)	$	(1,511	)	$	887		$	3,630	$	7,016
Other comprehensive income (loss) items, net of tax:
Foreign currency translation adjustments		(121	)		(30	)		420		(14	)
Comprehensive income (loss)	$	(1,632	)	$	857		$	4,050	$	7,002

NOTE 67 – EARNINGS PER SHARE

Basic earnings per common share (EPS) is calculated by dividing net income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS is calculated by dividing net income available to common shareholders 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. Due to modifications to our management stock loan program, we determined that the shares of management stock loan participants that were placed in the escrow account are participating securities as defined by ~~Emerging Issues Task Force (EITF)~~EITF Issue No. 03-6, Participating Securities and the Two-Class Method

under FASB Statement No. 128, because they continue to have equivalent common stock dividend rights. Accordingly, these management stock loan shares are included in our basic EPS calculation during periods of net income and excluded from the basic EPS calculation in periods of net loss.

Basic weighted average shares outstanding(1)

Common stock warrants~~(2)~~(3)

(1)

Since the Company recognized a net ~~income~~loss for the ~~quarters~~quarter ended ~~December 1, 2007 and December 2, 2006,~~May 31, 2008, basic ~~weighted average~~weighted-average shares for ~~those periods include~~that period excludes 3.5 million shares of common stock held by management stock loan participants that were placed in escrow. Basic weighted-average shares include the 3.5 million management stock loan shares for all other periods presented.

(3)

The conversion of 6.2 million common stock warrants is not assumed because the average share price of our common stock was less than the exercise price of the warrants and such conversion would be ~~anti-dilutive.~~anti-dilutive for the periods presented.

NOTE 78 – SEGMENT INFORMATION

In the normal course of business, the Company may make structural and cost allocation revisions to its segment information to reflect new reporting responsibilities within the organization. During ~~the first quarter of~~ fiscal 2008, we transferred our public programs operations from CSBU to OSBU and made other less significant organizational changes. All prior period segment information has been revised to conform to the most recent classifications and organizational changes. The Company accounts for its segment information on the same basis as the accompanying condensed consolidated financial statements.

SEGMENT INFORMATION (in thousands)
Quarter Ended May 31, 2008	Sales to External Customers		Gross Profit		EBITDA			Depreciation		Amortization
Consumer Solutions Business Unit:
Retail	$	7,896	$	4,626	$	(1,737	)	$	218	$	-
Consumer direct		6,949		4,127		2,107			85		-
Wholesale		5,046		2,698		2,569			-		-
CSBU International		1,119		471		(62	)		6		-
Other CSBU		1,280		3		(5,314	)		99		-
Total CSBU		22,290		11,925		(2,437	)		408		-

Organizational Solutions Business Unit:
Domestic		23,111		14,058		482			257		899

~~SEGMENT INFORMATION~~

~~(in~~ ~~thousands~~)

Organizational Solutions

Three Quarters Ended

Organizational Solutions

Three Quarters Ended

Organizational Solutions

Income from operations

NOTE 9 – LICENSE AGREEMENT SETTLEMENT

RESULTS OF OPERATIONS

During the quarter ended May 31, 2008, we announced that we had entered into a definitive agreement with Peterson Partners to create a new company, Franklin Covey Products, LLC (Franklin Covey Products). This new company purchased substantially all of the assets of our Consumer Solutions Business Unit (CSBU) and will focus on expanding sales of Franklin Covey products pursuant to a comprehensive license agreement. The CSBU is primarily responsible for sales of our products to both domestic and international consumers through a variety of channels. Subsequent to May 31, 2008, we completed the sale of the CSBU assets to Franklin Covey Products, which becomes effective during our fiscal quarter ended August 31, 2008. Franklin Covey Products, which is controlled by Peterson Partners, purchased the CSBU assets for $32.0 million in cash, subject to adjustments for working capital on the closing date of the sale. On the closing date of the sale, we invested $1.8 million to purchase a 19.5 percent voting interest in Franklin Covey Products, made a $1.0 million preferred capital contribution with a 10 percent priority return, and have the opportunity to earn contingent license fees if Franklin Covey Products achieves specified performance objectives. As a result of the sale of the CSBU assets, certain forward-looking statements made in this management’s discussion and analysis will be materially affected by the completion of the sale, the elimination of CSBU operating results in future periods, and the accounting for our investment in Franklin Covey Products.

Sales– Our consolidated sales declined ~~$2.0~~$5.4 million, which was the result of ~~decreased~~a $5.7 million decrease in product sales ~~totaling $2.7 million~~ that ~~were~~was partially offset by ~~increased~~a slight increase in training and consulting services sales. Product sales declined primarily due to reduced retail sales, consumer direct ~~sales, retail~~ sales, and wholesale sales compared to the prior year. ~~Training and consulting services sales increased $0.8 million due to increased sales from our international and domestic operations.~~We

believe that declining product sales were also impacted by weakening economic conditions, especially in the United States. Training and consulting services sales increased despite the unfavorable impact of the sales and conversions of our Brazil and Mexico offices to licensee operations.

Gross Profit– ~~When~~Our consolidated gross profit totaled $35.8 million for the quarter ended May 31, 2008 compared to $39.6 million for the same quarter in fiscal 2007. The decrease was primarily due to decreased product sales during fiscal 2008 compared to the prior ~~year, our gross profit declined primarily due to decreased consolidated sales.~~year. Our consolidated gross margin, which is gross profit stated in terms of a percentage of sales, ~~improved~~decreased to ~~62.4~~60.5 percent of sales compared to 61.4 percent in ~~the prior year.~~fiscal 2007. The ~~improvement~~decrease in gross margin percentage was primarily ~~due~~attributable to ~~increasing~~lower gross margins on our training and consulting sales. However, the impact of decreased training and consulting gross margins was partially offset by the continued shift toward increased training and consulting sales as a percent of total sales ~~which~~since training and consulting sales generally have higher gross margins than our product sales. Training and consulting service sales ~~and improved margins on our product sales.~~increased to 57 percent of total sales in the quarter ended May 31, 2008 compared to 52 percent in the same quarter of the prior year.

Operating ~~Expenses~~Costs– Our operating ~~expenses~~costs decreased by ~~$1.9~~$0.6 million compared to the prior year, which was the result of ~~decreased~~a $1.1 million decrease in selling, general, and administrative expenses ~~totaling~~ ~~$2.1~~ ~~million that were offset by~~and a ~~$0.2~~$0.4 million increase in depreciation expense. Amortization expense from our definite-lived intangible assets did not differ appreciably from the prior year.

Quarter Ended ~~December 1, 2007~~May 31, 2008 Compared to the Quarter Ended ~~December~~June 2, ~~2006~~2007

Product Sales– ~~Overall~~Consolidated product sales, which primarily consist of planners, binders, totes, software and ~~handheld electronic planning devices~~related accessories that are primarily sold through our ~~Consumer Solutions Business Unit (CSBU)~~CSBU channels, declined ~~$2.7~~$5.7 million or 6 ~~percent,~~ compared to the prior year. ~~Our product sales, primarily in retail stores and through our consumer direct channels, have declined in recent periods and this trend may continue in future periods.~~ The decline in overall product sales during the quarter ended ~~December 1, 2007~~May 31, 2008 was primarily due to the following performance in our CSBU delivery channels:

Retail Stores – The decline in retail sales was primarily due to reduced traffic in our retail locations, which was partially due to a significant increase in the number of wholesale outlets that sell our products and compete directly against Company-owned retail stores, reduced demand for technology and related products, and fewer store locations, which had a $0.9 million impact on retail sales. Our retail store traffic, or the number of consumers entering our retail locations, declined by approximately 19 percent on a comparable basis (for stores which were open during the comparable periods) compared to the third quarter of fiscal 2007 and resulted in decreased sales of “core” products (e.g. planners, binders, totes, and accessories). Due to declining demand for electronic handheld planning products, during late fiscal 2007 we decided to exit the low-margin handheld device and related electronics accessories business, which reduced retail sales by $0.3 million compared to the prior year. These factors combined to produce a 10 percent decline in year-over-year comparable store sales versus the prior year. We closed 4 retail locations during the quarter ended May 31, 2008 and were operating 73 domestic retail locations at May 31, 2008 compared to 87 locations at June 2, 2007.

Consumer Direct – Sales through our consumer direct channels (primarily eCommerce and call center) decreased $0.9 million, primarily due to a decline in the number of customers visiting our website and a decline in the number of orders that are being processed through the call center. Visits to our website decreased from the prior year by approximately 15 percent. Declining consumer orders through the call center continues a long-term trend and decreased by approximately 18 percent compared to the prior year, which we believe is partially the result of a transition of customers to our other product channels.

·	Wholesale – Sales through our wholesale channel, which includes sales to office superstores and other retail chains, decreased $1.9 million primarily due to the transition of a portion of our wholesale business to a new distributor and the timing of sales as the new distributor builds inventories.

·	CSBU International – This channel includes the product sales of our directly owned international offices in Canada, the United Kingdom, Mexico, and Australia. Product sales remained flat through these channels compared to the prior year.

Other CSBU – Other CSBU sales consist primarily of domestic printing and publishing sales and building sublease revenues. The decrease in other CSBU sales was primarily due to a $0.2 million decrease in external printing sales compared to the prior year. The decrease in printing sales was primarily due to reduced demand for these products.

Training and Consulting Services – We offer a variety of training courses, training related products, and consulting services focused on leadership, productivity, strategy execution, sales force performance, and effective communications that are provided both domestically and internationally through the Organizational Solutions Business Unit (OSBU). Our consolidated training and consulting service sales increased by $0.2 million compared to the prior year, and were significantly impacted by the sales and transitions of our offices in Brazil and Mexico to licensees, which decreased sales by $1.3 million compared to the prior year. On a comparable basis, which excludes the impact of Brazil and Mexico direct office sales in fiscal 2007, our training and consulting sales increased by 5 percent when compared to fiscal 2007. Training and consulting service sales performance during the quarter ended May 31, 2008 was primarily influenced by the following factors in our OSBU divisions:

Domestic – Our domestic division includes sales from our five geographic and two vertical direct sales offices, public programs, the sales performance group, book and audio channels, and various other sources. Our domestic division sales were flat compared to the prior year. Increased sales from 5 of our 7 direct sales offices and certain specialized events were offset by decreased sales in 2 of our direct offices, lower sales from our sales performance group, and our public program and media channels. The relatively flat domestic sales performance during the quarter was reflective of the successful launch of the Company’s new leadership offering during the second quarter of fiscal 2007, which also had a favorable impact on domestic training and consulting sales during the third quarter of fiscal 2007.

Sales in our 5 geographical regions and 2 vertical market direct offices are comprised of sales from our core product offerings, which includes The Seven Habits of Highly Effective People, Leadership: Great Leaders, Great Teams, Great Results, and The 4 Disciplines of Execution programs. Our client-led facilitator training sales increased 7 percent compared to the prior year even though the prior year facilitator sales were favorably impacted by the release of our new leadership offerings. However, increased facilitator sales were offset by decreased consultant-led programs. During mid-April, the Company experienced a softening in our booking pace that has lasted through the remainder of the quarter ended May 31, 2008. As a result, the number of domestic onsite program days delivered in the quarter decreased by 11 percent compared to fiscal 2007.

·International – International sales decreased $0.3 million compared to the same quarter of fiscal 2007 primarily as a result of the elimination of sales from our wholly owned offices in Brazil and Mexico. We sold these operations to external licensees during fiscal 2007 and we now receive royalty revenue from their operations based upon gross sales. The conversion of these operations to licensees had a $1.3 million unfavorable impact on our international sales, but the conversion of these entities improved our income from their operations during the quarter. Sales increased 11 percent over the prior year at our directly owned offices and from foreign licensee royalty revenues. The translation of foreign sales to United States dollars resulted in a $1.1 million favorable impact to our consolidated sales as foreign currencies strengthened against the United States dollar during the quarter ended May 31, 2008.

Selling, General and Administrative – Our selling, general, and administrative (SG&A) expenses decreased by $1.1 million, or 3 percent, compared to the prior year. The decrease in our consolidated SG&A expenses was primarily due to 1) the sales and conversions of our Brazil and Mexico offices to licensee operations, which reduced SG&A expenses by $1.0 million; 2) a $0.7 million decrease in share-based compensation expense that was primarily due to the determination that no shares will be awarded under our fiscal 2007 long-term incentive plan and the corresponding reversal of accumulated share-based compensation expense related to that plan; and 3) decreased rent and utility expenses totaling $0.7 million that were primarily attributable to a $0.4 million lease buyout received from one of our tenants, the receipt of a $0.2 million contingent refund of telephone expenses from one of our vendors based on usage through a contracted period, and an overall reduction in rent, utilities, and related expenses resulting from the closure of retail stores. These decreases in our SG&A spending were partially offset by a $0.6 million increase in retail store closure costs, a $0.3 million increase in public programs promotional spending, and smaller increases in various other areas of the Company’s operations.

Depreciation – Depreciation expense for the quarter ended May 31, 2008 increased to $1.5 million compared to $1.1 million in the prior year. Our depreciation expense increased primarily due to the acceleration of $0.3 million of depreciation on a payroll software module due to a revision in the estimated useful life of the software.

Three Quarters Ended May 31, 2008 Compared to the Three Quarters Ended June 2, 2007

Product Sales – Our consolidated product sales, which are primarily generated by our CSBU channels, declined by $12.4 million compared to the prior year. We believe that the product sales declines experienced during the first three quarters of fiscal 2008 were impacted by deteriorating economic conditions in the United States, which generally reduced consumer spending during the 2007 holiday shopping season. The following is a description of sales performance in our CSBU channels for the three quarters ended May 31, 2008:

Retail Stores– The decline in retail sales was primarily due to reduced traffic in our retail locations, reduced demand for technology and related products, and fewer store locations, which had a ~~$0.2~~$1.9 million impact on retail sales. Our retail store traffic ~~or the number of consumers entering our retail locations,~~ declined by approximately 208 percent compared to the first ~~quarter~~three quarters of fiscal 2007 and resulted in decreased sales of “core” products ~~(e.g. planners, binders, totes, and accessories)~~ compared to the prior year. Due to declining demand for electronic handheld planning products, during late fiscal 2007 we decided to exit the low-margin handheld device and related electronics accessories business, which reduced retail sales by ~~$0.3~~$0.8 million compared to the prior year. These factors combined to produce a ~~six~~5 percent decline in year-over-year comparable store ~~(stores which were open during the comparable periods)~~ sales versus the first quarter of fiscal 2007. At December 1, 2007, we were operating 87 domestic retail locations compared to 89 locations at December 2, 2006, and based upon our continuing analyses of retail store performance we may close additional retail stores in fiscal 2008 and continue to recognize decreased sales in future periods as a result of closing store locations.prior year.

Consumer Direct– Sales through our consumer direct channels ~~(primarily eCommerce and our call center)~~ decreased ~~$1.4~~by $3.3 million, primarily due to a decline in the number of customers visiting our website and a decline in the number of orders ~~which~~that are being processed through ~~the~~our call center. ~~Visits to our website~~Website visits decreased ~~from the prior year~~ by ~~approximately~~ 713 percent ~~which we believe was a result of the change in timing of catalog mailings, which decreased in the first quarter and will increase in the second quarter of fiscal 2008~~ compared to the prior ~~year. Declining consumer~~year and declining customer orders through the call center continues a long-term trend and decreased by ~~approximately~~ 1317 percent, ~~compared to the prior year,~~ which we believe is ~~primarily a result of the transition of customers~~partially due to consumers transitioning to our ~~eCommerce site.~~other product channels.

·	Wholesale – Sales through our wholesale channel, which includes sales to office superstores and other retail chains, decreased ~~$0.3~~$2.8 million primarily due to the transition of a portion of our wholesale ~~products~~business to a new wholesale distribution partner.

CSBU International – This channel includes the product sales of our directly owned international offices in Canada, the United Kingdom, Mexico, and Australia. ~~The~~ ~~$0.3~~Sales performance through these channels increased $0.5 million ~~increase was~~compared with the prior year primarily due to ~~improved~~increased demand for ~~product~~products in certain countries.

Other CSBU– ~~Other CSBU sales consist primarily of domestic printing and publishing sales and building sublease revenues.~~ The ~~slight~~$0.6 million decrease in other CSBU sales was primarily due to a ~~$0.2~~ ~~million decrease in external~~decreased printing services sales ~~which was the result of increased demand~~that occurred during the ~~quarter for internally produced paper products during the quarter. Our ability to print paper products for external clients is dependent upon demand for Company products~~second and ~~may fluctuate from period to period.~~third quarters of fiscal 2008.

Domestic– Our domestic training ~~consulting,~~sales were flat compared to the three quarters ended June 2, 2007, primarily due to lower sales from our public programs, sales performance group, and ~~related~~book and audio divisions. Decreased sales ~~reported~~from these groups were partially offset by increased sales from our combined geographical and vertical market sales offices and by increased sales from specialized seminar events. During the first 2 fiscal quarters of 2008, sales through ~~the OSBU continued to show improvement~~our direct sales offices improved over the prior year ~~and increased by~~ ~~$0.2~~ ~~million, or~~ ~~one~~ ~~percent. The improvement was primarily due to continued~~as acceptance of our core product offerings, which includes The Seven Habits of Highly Effective People, Leadership: Great Leaders, Great Teams, Great Results, and The 4 Disciplines of Execution ~~curriculum.~~

~~Generally, our training programs and consulting services continue~~continued to ~~perform well in the marketplace as our five geographic regions, government services, educational solutions, and vertical market regions generated a combined~~ 19strengthen. ~~percent increase in year-over-year sales. During the quarter ended December 1, 2007, the number of training and consulting days delivered increased~~ ~~eight~~ ~~percent and the average revenue per day received increased~~ 14 percent. Sales of training materials to our client facilitators also improved compared to the prior year. Partially offsetting these gains were decreases in our public program sales and our sales performance consulting group which primarily teaches our ~~Helping Clients Succeed~~ curriculum. Our current outlook for fiscal 2008 remains strong and we believe that the introduction of new programs and refreshed existing programs will continue to have a favorable impact on training and consulting service sales in future periods.

International – International sales increased ~~$0.4~~$1.9 million or ~~two~~ ~~percent,~~ compared to ~~fiscal 2007. Sales~~the prior year. Combined sales from our ~~wholly~~remaining directly owned foreign offices ~~and~~as well as from licensee royalty revenues ~~from third-party licensees~~ increased $6.0 million, or 17 percent, compared to the prior year. Partially offsetting these increases was the elimination of sales from our wholly owned subsidiary in Brazil and our training operations located in Mexico. We sold these operations to external licensees during fiscal 2007 and we now receive royalty revenue from their operations based upon gross sales. The conversion of these operations to licensees had a ~~$1.3~~$3.6 million unfavorable impact on our international ~~sales. Excluding the impact of reduced~~ sales but improved our income from ~~Brazil and Mexico, comparable sales from our licensees and remaining four direct offices increased~~ 12 ~~percent~~these operations compared to the prior year. Our direct offices in the United Kingdom, Canada and Australia all recorded significant increases in sales, which were partially offset by declines in Japan. We expect our sales performance in Japan to improve compared to the prior year during the remainder of fiscal 2008. Our licensees also reported strong growth, primarily from offices located in Asia and Europe. The translation of foreign sales to ~~the~~ United States ~~dollar helped to improve reported sales and~~dollars had a ~~$0.8~~$3.0 million favorable impact on our consolidated sales as foreign currencies strengthened against the United States dollar during the ~~quarter~~three quarters ended ~~December 1, 2007.~~May 31, 2008.

~~Gross~~For the three quarters ended May 31, 2008, our consolidated gross profit ~~consists~~decreased to $128.4 million compared to $133.2 million in the same period of ~~net~~fiscal 2007. The decrease was primarily attributable to decreased product sales ~~less~~during fiscal 2008 compared to the ~~cost of goods sold or the cost of services provided.~~prior year. Our consolidated gross margin, which is gross profit stated in terms of a percentage of sales, ~~increased one percent~~improved to ~~62.4~~61.8 percent of sales compared to 61.4 percent in the first three quarters of fiscal 2007. The slight increase in gross margin percentage was primarily attributable to the continuing shift toward increased training and consulting sales, which generally have higher margins than our product ~~sales, and improved gross margins on our product~~ sales. Training and consulting service sales increased to 4749 percent of total sales infor the ~~first quarter of fiscal~~three quarters ended May 31, 2008 compared to 4445 percent in the prior year.

Selling, General and Administrative– ~~Our selling, general, and administrative (SG&A)~~Consolidated SG&A expenses decreased ~~$2.1~~$2.2 million, or ~~five~~2 percent, compared to the prior ~~year.~~year (excluding the gain on the sale of a manufacturing facility in the second quarter of fiscal 2007). The decrease in SG&A expenses was primarily due to 1) the fiscal 2007 sale of our subsidiary in Brazil and the training and consulting operations of our subsidiary in ~~Mexico;~~Mexico, which reduced SG&A expenses by $2.9 million; 2) a $1.8 million decrease in share-based compensation primarily due to the determination that no shares will be awarded under our fiscal 2006 or fiscal 2007 long-term incentive plans and the corresponding reversal of share-based compensation ~~expense;~~expense from those plans; and 3) ~~decreased~~a $0.5 million decrease in audit and related consulting costs. During the fourth quarter of fiscal 2007, we completed the sales and conversions of our subsidiary in Brazil and our training operations in Mexico to licensee operations. The conversion of these operations to licensees reduced our SG&A expenses by ~~$1.2~~ ~~million. Our share-based compensation expense decreased by~~ ~~$0.8~~ ~~million due to changes in the estimated number of shares expected to vest~~costs primarily resulting from our long-term incentive plan (LTIP). As a result of these revisions, no shares of the fiscal 2006 LTIP grant are expected to vest and no further compensation expense from this compensation plan is expected to be recognized in fiscal 2008. Accordingly, we made a cumulative adjustment to our financial statements during the quarter, which included reversal of compensation expense recognized in prior periods. Our audit and associated consulting fees decreased by ~~$0.5~~ million compared to fiscal 2007. Our prior year accounting fees included charges and consulting costs related to the first year of compliance with Section 404 of the Sarbanes-Oxley Act of 2002. These fees declined during fiscal 2008 due to improved processes and procedures combined with revised internal control testing standards. ~~The~~These decreases ~~in SG&A from these sources~~ were partially offset by 1) a $1.3 million increase in promotional costs in our OSBU, which were primarily comprised of increased ~~associate~~spending for “Greatness Summit” programs for our clients and increased spending on public programs promotional materials; 2) a $0.6 million increase in retail store closure costs ~~resulting~~that were primarily incurred in connection with the buyout of two leases; and 3) smaller increases in SG&A spending in various other areas of our operations.

Gain on Sale of Manufacturing Facility – In August 2006, we initiated a project to reconfigure our printing operations to improve our printing services’ efficiency, reduce operating costs, and improve our printing services’ flexibility to potentially increase external printing service sales. Our reconfiguration plan included moving our printing operations a short distance from ~~commissions~~its existing location to our corporate headquarters campus and ~~incentives~~the sale of the manufacturing facility and certain printing presses. During the quarter ended March 3, 2007, we completed the sale of the manufacturing facility. The sale price was $2.5 million and, after deducting customary closing costs, the net proceeds to the Company from the sale totaled $2.3 million in cash. The carrying value of the manufacturing facility at the date of sale was approximately $1.1 million and we recognized a $1.2 million gain on ~~improving training and consulting sales.~~the sale of the manufacturing facility during the quarter ended March 3, 2007, which is included in operating results for the three quarters ended June 2, 2007.

Depreciation and Amortization– ~~Depreciation~~Consolidated depreciation expense increased ~~$0.2~~to $4.0 million compared to $3.5 million for the ~~same quarter~~first three quarters of fiscal ~~2007~~2007. The increase in our depreciation expense in fiscal 2008 was primarily due to ~~increased capital expenditures during~~ the ~~fiscal~~acceleration of $0.3 million of depreciation on a payroll software module that had a revision to its estimated useful life as we decided to outsource our payroll services and an impairment charge totaling $0.3 million for software that did not function as anticipated and was written off. Depreciation expense in the prior year ~~ended August 31, 2007. We currently expect~~also included an impairment charge totaling $0.3 million that we recorded to reduce the carrying value of one of our printing presses to be sold to its anticipated sale price. Based upon write-offs recorded in fiscal 2008, the sale of CSBU assets, anticipated capital spending in the remainder of fiscal 2008, and purchases in prior years, we expect that total depreciation expense ~~to increase slightly~~in fiscal 2008 will decrease compared to overall fiscal 2007 ~~amounts.~~depreciation expense.

Interest Income and Expense

Interest Income – Our interest income decreased by ~~$0.2~~ ~~million~~ compared to the ~~same quarter of the~~ prior ~~fiscal~~ year primarily due to reduced cash balances compared to the prior year and ~~cash equivalents held during the quarter ended December 1, 2007. During the third quarter~~a reduction of ~~fiscal 2007, we used substantially all of~~interest rates on our ~~available cash and cash equivalents combined with proceeds from a newly acquired line of credit to redeem the remaining outstanding shares of Series A preferred stock.~~depository accounts.

Interest Expense – Interest expense increased ~~$0.2~~ ~~million~~ primarily due to borrowings on our line of credit ~~borrowings that were used in conjunction with available cash to redeem~~facility during the remaining shares of preferred stock. Fluctuations in our interest expense during fiscal 2008 will be primarily impacted by our level of borrowing on our $25.0 million line of credit and will decrease if we are able to repay amounts outstanding on the facility.three quarters ended May 31, 2008.

Preferred Stock Dividends

LIQUIDITY AND CAPITAL RESOURCES

At ~~December 1, 2007~~May 31, 2008 we had ~~$8.8~~$4.9 million of cash and cash equivalents compared to ~~$6.1~~ ~~million at August 31, 2007 and our net working capital (current assets less current liabilities) increased to~~ ~~$14.3~~ ~~million at December 1, 2007 compared to~~ ~~$8.9~~ $6.1 million at August 31, 2007. During ~~fiscal 2007,~~the quarter ended May 31, 2008 we ~~used~~announced the sale of substantially all of ~~our cash on hand combined with proceeds from a newly obtained line of credit to redeem all~~the assets of our ~~remaining preferred stock at its liquidation preference of $25 per share plus accrued dividends. Although~~CSBU. Subsequent to the quarter ended May 31, 2008, we ~~will incur additional interest expense on line of credit borrowings, we believe that~~completed the ~~redemption of our remaining preferred stock~~sale transaction. The sale price was $32.0 million in cash and ~~elimination~~concurrent with the closing of the ~~corresponding 10.0~~sale agreement, the Company contributed approximately $1.8 million to the new entity for approximately 19.5 percent ~~dividend obligation will improve our cash flows~~of the voting interest and ~~reported results~~another $1.0 million in the form of ~~operations in future periods.~~a preferred contribution (refer to Note 2 to the condensed consolidated financial statements for further information regarding the sale of CSBU assets).

Cash Flows From Operating Activities

Cash Flows From Investing Activities and Capital Expenditures

Cash Flows From Financing Activities

Sources of Liquidity

Contractual Obligations

USE OF ESTIMATES AND CRITICAL ACCOUNTING POLICIES

·	Products– We sell planners, binders, planner accessories, handheld electronic devices, and other related products that are ~~primarily~~mainly sold through our CSBU channels.

Training and Consulting Services– We provide training and consulting services to both organizations and individuals in leadership, productivity, strategic execution, goal alignment, sales force performance, and communication effectiveness skills. These training programs and services are ~~primarily~~principally sold through our OSBU channels.

Some of our training and consulting contracts contain multiple deliverable elements that include training along with other products and services. In accordance with Emerging Issues Task Force (EITF) Issue ~~No.~~ 00-21, Accounting for Revenue Arrangements with Multiple Deliverables, sales arrangements with multiple deliverables are divided into separate units of accounting if the deliverables in the sales contract meet the following criteria: 1) the delivered training or product has value to the client on a standalone basis; 2) there is objective and reliable evidence of the fair value of undelivered items; and 3) delivery of any undelivered item is probable. The overall contract consideration is allocated among the separate units of accounting based upon their fair values, with the amount allocated to the delivered item being limited to the amount that is not contingent upon the delivery of additional items or meeting other specified performance conditions. If the fair value of all undelivered elements exits, but fair value does not exist for one or more delivered elements, the residual method is used. Under the residual method, the amount of consideration allocated to the delivered items equals the total contract consideration less the aggregate fair value of the undelivered items. Fair value of the undelivered items is based upon the normal pricing practices for the Company’s existing training programs, consulting services, and other products, which are generally the prices of the items when sold separately.

Revenue is recognized on software sales in accordance with Statement of Position (SOP) 97-2, Software Revenue Recognition as amended by SOP 98-09. Statement 97-2, as amended, generally requires revenue earned on software arrangements involving multiple elements such as software products and support to be allocated to each element based on the relative fair value of the elements based on vendor specific objective evidence (VSOE). The majority of the Company’s software sales have elements, including a license and ~~post contract~~post-contract customer support (PCS). Currently the Company does not have VSOE for either the license or support elements of its software sales. Accordingly, revenue is deferred until the only undelivered element is PCS and the total arrangement fee is recognized ratably over the support period.

Share-Based Compensation

Sales Growth	Percent of Target Shares Awarded
30.0%	115%	135%	150%	175%	200%
22.5%	90%	110%	125%	150%	175%
15.0%	65%	85%	100%	125%	150%
11.8 %	50%	70%	85%	110%	135%
7.5%	30%	50%	65%	90%	115%
	$36.20	$56.80	$72.30	$108.50	$144.60
	Cumulative Operating Income (millions)

During fiscal 2007, the Compensation Committee granted performance awards for 429,312 shares of common stock under the terms of the LTIP. ~~Consistent with the fiscal 2006 LTIP grant, the~~The Company must achieve minimum levels of sales growth and cumulative operating income in order for participants to receive any shares under the fiscal 2007 LTIP grant. As shown in the table below, the minimum sales growth for the fiscal 2007 LTIP is 10.0 percent (fiscal 2009 compared to fiscal 2007) and the minimum cumulative operating income total during the service period is $41.3 million. We ~~record~~recorded compensation

expense on the fiscal 2007 LTIP using a 5 percent estimated forfeiture rate during the vesting period. However, the total amount of compensation expense recorded for the fiscal 2007 LTIP will equal the number of shares awarded multiplied by $5.78 per share.

~~At December 1, 2007 we reevaluated~~Based upon our assessment of the fiscal 2007 LTIP at May 31, 2008, we determined that no shares of common stock would be awarded to participants under the terms of the fiscal 2007 LTIP grant. Consistent with the analysis of the fiscal 2006 LTIP grant, we expect sufficient levels of operating income to be recognized for the fiscal 2007 award, but expected sales growth is expected to be insufficient for any shares to be awarded under this plan. The revised sales projections included actual performance through May 31, 2008 and estimated sales performance through fiscal 2009 based upon revised ~~estimated~~assumptions, which were adversely affected by slowing economic conditions in the United States and other countries in which the Company has operations. Although training and consulting sales are expected to increase in fiscal 2009 compared to fiscal 2008, the growth rate was insufficient to offset expected declines in product sales and ~~cumulative operating income.~~the impact of transitioning our Mexico and Brazil offices to licensees. As a result of this ~~reevaluation,~~determination, we ~~reduced the expected number of shares to be awarded under the fiscal 2007 LTIP to~~ ~~227,535~~ ~~shares, or~~ 53 ~~percent of the original target award. We~~ recorded a cumulative ~~adjustment~~ adjustments totaling $1.0 million to reduce ~~operating~~selling, general, and administrative expenses by ~~$0.3~~ ~~million~~ during the ~~quarter~~three quarters ended ~~December 1, 2007 to reflect the new estimated shares to be awarded. At December 1, 2007, there was~~ ~~$0.8~~ ~~million of estimated unrecognized compensation remaining on the fiscal 2007 LTIP award.~~ May 31, 2008.

The number of shares finally awarded to LTIP participants under the fiscal 2007 LTIP grant is based upon the combination of factors as shown below:

Sales Growth	Percent of Target Shares Awarded
40.0%	115%	135%	150%	175%	200%
30.0%	90%	110%	125%	150%	175%
20.0%	65%	85%	100%	125%	150%
15.7%	50%	70%	85%	110%	135%
10.0%	30%	50%	65%	90%	115%
	$41.30	$64.90	$82.60	$123.90	$165.20
	Cumulative Operating Income (millions)

The analysis of our LTIP plans contains uncertainties because we are required to make assumptions and judgments about the eventual number of shares that will vest in each LTIP grant. The assumptions and judgments that are essential to the analysis include forecasted sales and operating income levels during the LTIP service periods. The evaluation of LTIP performance awards and corresponding use of estimated amounts may produce additional volatility in our consolidated financial statements as we record cumulative adjustments to the estimated number of common shares to be awarded under the LTIP grants. Actual results could differ, and differ materially, from estimates made during the service, or vesting, period.

We estimate the value of our stock option awards on the date of grant using the Black-Scholes option pricing model. However, the Company did not grant any stock options during the quarter or three quarters ended ~~December 1, 2007~~May 31, 2008 or the fiscal years ended August 31, 2007 and 2006, and we did not have any remaining ~~cost~~unrecognized compensation expense associated with unvested stock options at ~~December 1, 2007.~~May 31, 2008.

Accounts Receivable Valuation

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts represents our best estimate of the amount of probable credit losses in the existing accounts receivable balance. We determine the allowance for doubtful accounts based upon historical write-off experience and current economic conditions and we review the adequacy of our allowance for doubtful accounts on a regular basis. Receivable balances ~~past due~~ over 90 days past due, which exceed a specified dollar amount, are reviewed individually for collectibility. Account balances are charged off against the allowance after all means of collection have been exhausted and the probability for recovery is considered remote. We do not have any off-balance sheet credit exposure related to our customers.

Our allowance for doubtful accounts calculations contain uncertainties because the calculations require us to make assumptions and judgments regarding the collectibility of customer accounts, which may be influenced by a number of factors that are not within our control, such as the financial health of each customer. We regularly review the collectibility assumptions of our allowance for doubtful accounts calculation and compare them against historical collections. Adjustments to the assumptions are then based upon the comparison, which may either increase or decrease our total allowance for doubtful accounts. For example, a 10 percent increase to our allowance for doubtful accounts at ~~December 1, 2007~~May 31, 2008 would reduce our reported income from operations by approximately ~~$0.1~~$0.1 million.

Inventory Valuation

Our inventories are comprised primarily of dated calendar products and other non-dated products such as binders, stationery, training products, and other accessories. Inventories are stated at the lower of cost or market with cost determined using the first-in, first-out method. Inventories are reduced to their fair market value through the use of inventory loss reserves, which are recorded during the normal course of business.

Our inventory loss reserve calculations contain uncertainties because the calculations require us to make assumptions and judgments regarding a number of factors, including future inventory demand requirements and pricing strategies. During the evaluation process we consider historical sales patterns and current sales trends, but these may not be indicative of future inventory losses. While we have not made material changes to our inventory ~~reserve calculations~~reserves methodology during the past three years, our inventory requirements may change based on projected customer demand, technological and product life cycle changes, longer or shorter than expected usage periods, and other factors that could affect the valuation of our inventories. If our estimates regarding consumer demand and other factors are inaccurate, we may be exposed to losses that may have a materially adverse impact upon our financial position and results of operations. For instance, a 10 percent increase in our inventory loss reserves at ~~December 1, 2007~~May 31, 2008 would reduce our income from operations by approximately ~~$0.5~~$0.4 million.

Indefinite-Lived Intangible Assets

Intangible assets that are deemed to have an indefinite life are not amortized, but rather are tested for impairment on an annual basis, or more often if events or circumstances indicate that a potential impairment exists. The Covey trade name intangible asset has been deemed to have an indefinite life. This intangible asset is assigned to the OSBU and is tested for impairment using the present value of estimated royalties on trade name related revenues, which consist primarily of training seminars, international licensee royalties, and related products. If the carrying value of the Covey trade name exceeds the fair value of its discounted estimated royalties on trade name related revenues, an impairment loss is recognized for the difference. The adjusted basis becomes the carrying value until a future impairment assessment determines that additional impairment charges are necessary.

Our impairment evaluation calculation for the Covey trade name contains uncertainties because it requires us to make assumptions and apply judgment in order to estimate future cash flows, to estimate an appropriate royalty rate, and to select a discount rate that reflects the inherent risk of future cash flows. Our valuation methodology for the Covey trade name was developed by an independent valuation firm and has remained materially unchanged during the past three years. However, if forecasts and assumptions used to support the carrying value of our indefinite-lived intangible asset change in future periods, significant impairment charges could result that would have an adverse effect upon our results of operations and financial condition. Based upon the fiscal 2007 evaluation of the Covey trade name, our trade-name related revenues and licensee royalties would have to suffer significant reductions before we would be required to impair the Covey trade name.

Impairment of Long-Lived Assets

Long-lived tangible assets and definite-lived intangible assets are reviewed for possible impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. We use an estimate of undiscounted future net cash flows of the assets over their remaining useful lives in determining whether the carrying value of the assets is recoverable. If the carrying values of the assets exceed the anticipated future cash flows of the assets, we calculate an impairment loss. The impairment loss calculation compares the carrying value of the asset to the asset’s estimated fair value, which may be based upon discounted cash flows over the estimated remaining useful life of the asset. If we recognize an impairment loss, the adjusted carrying amount of the asset becomes its new cost basis, which is then depreciated or amortized over the remaining useful life of the asset. Impairment of long-lived assets is assessed at the lowest levels for which there are identifiable cash flows that are independent from other groups of assets.

Our impairment evaluation calculations contain uncertainties because they require us to make assumptions and apply judgment in order to estimate future cash flows, forecast the useful lives of the assets, and select a discount rate that reflects the risk inherent in future cash flows. Although we have not made any material changes to our long-lived assets impairment assessment methodology during the past three years, if forecasts and assumptions used to support the carrying value of our long-lived tangible and definite-lived intangible assets change in the future, significant impairment charges could result that would adversely affect our results of operations and financial condition. ~~During~~We do not believe that the ~~quarter ended December 1, 2007, there were no events or circumstances that we believe indicated a possible~~sale of the CSBU assets will result in any material ~~impairment of our~~asset impairments to the Company’s long-lived assets.

Income Taxes

We regularly evaluate our United States federal and various state and foreign jurisdiction income tax exposures. On September 1, 2007, the Company adopted FIN 48, which addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under the provisions of FIN 48, we may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50 percent likelihood of being realized upon final settlement. The provisions of FIN 48 also provide guidance on de-recognition, classification, interest, and penalties on income taxes, accounting for income taxes in interim periods, and requires increased disclosure of various income tax items. Taxes and penalties are components of our overall income tax provision. Prior to the adoption of FIN 48, interest on income tax items was recorded as a component of consolidated interest expense. Beginning on September 1, 2007, in conjunction with the adoption of FIN 48, interest on income taxes is included as a component of overall income tax expense.

The Company records previously unrecognized tax benefits in the financial statements when it becomes more likely than not (greater than a 50 percent likelihood) that the tax position will be sustained. To assess the probability of sustaining a tax position, the Company considers all available evidence. In many instances, sufficient positive evidence ~~will~~may not be available until the expiration of the statute of limitations for audits by taxing jurisdictions, at which time the entire benefit will be recognized as a discrete item in the applicable period.

Our unrecognized tax benefits result from uncertain tax positions about which we are required to make assumptions and apply judgment to estimate the exposures associated with our various tax filing positions. The calculation of our income tax provision or benefit, as applicable, requires estimates of future taxable income or losses. During the course of the fiscal year, these estimates are compared to actual financial results and adjustments may be made to our tax provision or benefit to reflect these revised estimates. Our effective income tax rate is also affected by changes in tax law and the results of tax audits by various jurisdictions. Although we believe that our

judgments and estimates discussed herein are reasonable, actual results could differ, and we could be exposed to losses or gains that could be material.

NEW ACCOUNTING PRONOUNCEMENTS

Fair Value Measures– In September 2006, the ~~FASB~~Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measures. This statement establishes a single authoritative definition of fair value, sets out a framework for measuring fair value, and requires additional disclosures about fair-value measurements. Statement No. 157 only applies to fair-value measurements that are already required or permitted by other accounting standards except for measurements of share-based payments and measurements that are similar to, but not intended to be, fair value. This statement is effective for the specified fair value measures for financial statements issued for fiscal years beginning after November 15, 2007, and will thus be effective for the Company in fiscal 2009. Subsequent to the issuance of SFAS No. 157, the FASB provided for a one-year deferral of certain provisions related to non-financial assets and liabilities that are recognized or disclosed on a non-recurring basis. We have not yet completed our analysis of the impact of SFAS No. 157 on our financial statements.

Fair Value Option for Financial Assets and Financial Liabilities – In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities including an Amendment of FASB Statement No. 115. Statement No.159 permits entities to choose to measure many financial instruments and certain other items at fair value. The provisions of SFAS No. 159 are effective for our fiscal year beginning September 1, 2008 (fiscal 2009). We have not yet completed our analysis of the impact of SFAS No. 159 on our financial statements.

Business Combinations – In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS No. 141R) and SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements. These standards aim to improve, simplify, and converge internationally the accounting for business combinations and the reporting of noncontrolling interests in consolidated financial statements. The provisions of SFAS No. 141R and SFAS No. 160 are effective for our fiscal year beginning September 1, 2009. Although we have not yet completed our analysis of the impact of these provisions, we do not currently anticipate that they will have a material impact upon our financial condition or results of operations.

Derivatives Disclosures – In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities. Statement No. 161 is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity's financial position, financial performance, and cash flows. The provisions of SFAS No. 161 are effective for our third quarter of fiscal 2009. The Company is currently evaluating the impact of the provisions of SFAS No. 161, but due to our limited use of derivative instruments we do not currently anticipate that the provisions of SFAS No. 161 will have a material impact on our financial statements.

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

Certain written and oral statements made by the Company or our representatives in this report, other reports, filings with the Securities and Exchange Commission, press releases, conferences, internet web casts, or otherwise, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934 as amended (the Exchange Act). Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate, or imply future results, performance, or achievements, and may contain words such as “believe,” “anticipate,” “expect,” “estimate,” ~~“project,~~

“project,” or words or phrases of similar meaning. In our reports and filings we may make ~~forward looking~~forward-looking statements regardingthe impact to the Company and its financial performance of the sale of the CSBU, future product and training sales activity, anticipated expenses, projected cost reduction and strategic initiatives, expected levels of depreciation and amortization expense, expectations regarding tangible and intangible asset valuation expenses, expected improvements in cash flows from operating activities, the adequacy of our existing capital resources, future compliance with the terms and conditions of our line of credit, expected ~~fiscal 2008~~timing of the repayment of ~~the~~our line of credit, estimated capital expenditures, and cash flow estimates used to determine the fair value of long-lived assets. These, and other forward-looking statements, are subject to certain risks and uncertainties that may cause actual results to differ materially from the forward-looking statements. These risks and uncertainties are disclosed from time to time in reports filed by us with the SEC, including reports on Forms 8-K, 10-Q, and 10-K. Such risks and uncertainties include, but are not limited to, the matters discussed in Item 1A of our report on Form 10-K for the fiscal year ended August 31, 2007, entitled “Risk Factors.” In addition, such risks and uncertainties may include unanticipated developments in any one or more of the following areas: unanticipated costs or capital expenditures; difficulties encountered by EDS in operating and maintaining our information systems and controls, including without limitation, the systems related to demand and supply planning, inventory control, and order fulfillment; delays or unanticipated outcomes relating to our strategic plans; dependence on existing products or services; the rate and consumer acceptance of new product introductions; competition; the number and nature of customers and their product orders, including changes in the timing or mix of product or training orders; pricing of our products and services and those of competitors; adverse publicity; and other factors which may adversely affect our business.

The risks included here are not exhaustive. Other sections of this report may include additional factors that could adversely affect our business and financial performance, including the risk factors noted in Item 1A of our report on Form 10-K for the year ended August 31, 2007. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors may emerge and it is not possible for our management to predict all such risk factors, nor can we assess the impact of all such risk factors on our business or the extent to which any single factor, or combination of factors, may cause actual results to differ materially from those contained in forward-looking statements. Given these risks and uncertainties, investors should not rely on forward-looking statements as a prediction of actual results.

The market price of our common stock has been and may remain volatile. In addition, the stock markets in general have experienced increased volatility. Factors such as quarter-to-quarter variations in revenues and earnings or losses and our failure to meet expectations could have a significant impact on the market price of our common stock. In addition, the price of our common stock can change for reasons unrelated to our performance. Due to our low market capitalization, the price of our common stock may also be affected by conditions such as a lack of analyst coverage and fewer potential investors.

Forward-looking statements are based on management’s expectations as of the date made, and the Company does not undertake any responsibility to update any of these statements in the future except as required by law. Actual future performance and results will differ and may differ materially from that contained in or suggested by forward-looking statements as a result of the factors set forth in this Management’s Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in our filings with the SEC.

ITEM 3.3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk of Financial Instruments

The Company is exposed to financial instrument market risk primarily through fluctuations in foreign currency exchange rates and interest rates. To manage risks associated with foreign currency exchange and interest rates, we 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, our derivative instruments are entered into for periods consistent with the related underlying exposures and do not constitute positions that are independent of those exposures. In addition, we do not enter into derivative contracts for trading or speculative purposes, nor are we 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 exposure to us through our use of derivatives. Additionally, we enter into derivative agreements only with highly rated counterparties and we do not expect to incur any losses resulting from non-performance by other parties.

Foreign Currency Sensitivity

Due to the global nature of our operations, we are subject to risks associated with transactions that are denominated in currencies other than the United States dollar, as well as the effects of translating amounts denominated in foreign currencies to United States dollars as a normal part of the reporting process. The objective of our foreign currency risk management activities is to reduce foreign currency risk in the consolidated financial statements. In order to manage foreign currency risks, we make limited use of foreign currency forward contracts and other foreign currency related derivative instruments. Although we cannot eliminate all aspects of our foreign currency risk, we believe that our strategy, which includes the use of derivative instruments, can reduce the impacts of foreign currency related issues on our consolidated financial statements. The following is a description of our use of foreign currency derivative instruments.

During the quarter and three quarters ended ~~December 1, 2007~~May 31, 2008 we utilized foreign currency forward contracts to manage the volatility of certain intercompany financing transactions and other transactions that are denominated in foreign currencies. Because these contracts do not meet specific hedge accounting requirements, gains and losses on these contracts, which expire on a quarterly basis, are recognized currently and are used to offset a portion of the gains or losses of the related accounts. The gains and losses on these contracts were recorded as a component of SG&A expense in our consolidated income statements and had the following net impact on the periods indicated (in thousands):

	Quarter Ended						Quarter Ended						Three Quarters Ended
	December 1, 2007			December 2, 2006			May 31, 2008			June 2, 2007			May 31, 2008			June 2, 2007
Losses on foreign exchange contracts	$	(128	)	$	(9	)	$	(90	)	$	(137	)	$	(417	)	$	(210	)
Gains on foreign exchange contracts		-			18			11			49			11			82
Net gain (loss) on foreign exchange contracts	$	(128	)	$	9		$	(79	)	$	(88	)	$	(406	)	$	(128	)

At ~~December 1, 2007,~~May 31, 2008, the fair value of our foreign currency forward contracts, which was determined using the estimated amount at which contracts could be settled based upon forward market exchange rates, was insignificant. The notional ~~amounts~~amount of our foreign currency sell contracts that did not qualify for hedge accounting ~~were~~was as follows at ~~December 1, 2007~~May 31, 2008 (in thousands):

Contract Description
Notional Amount in Foreign Currency
Notional Amount in U.S. Dollars

Japanese Yen 211,000 $ 1,899
Mexican Pesos 11,689 1,061
Australian Dollars 733 643

Contract Description	Notional Amount in Foreign Currency		Notional Amount in U.S. Dollars

Great British Pounds		570	$	1,147

During the quarter and three quarters ended ~~December 1, 2007,~~May 31, 2008, we did not utilize any derivative contracts that qualified for hedge accounting. However, the Company may utilize net investment hedge contracts or other foreign currency derivatives ~~that qualify for hedge accounting~~ in future periods as a component of our overall foreign currency risk strategy.

Interest Rate Sensitivity

The Company is exposed to fluctuations in ~~U.S.~~United States interest rates primarily as a result of our line of credit borrowings. At ~~December 1, 2007,~~May 31, 2008, our debt balances consisted primarily of a fixed-rate financing obligation associated with the sale of our corporate headquarters facility, a variable-rate line of credit arrangement, and a variable rate long-term mortgage on certain of our buildings and property. The addition of the variable-rate line of credit in fiscal 2007 increased our interest rate sensitivity and in the future our overall interest rate sensitivity will be influenced by the amounts borrowed on the line of credit and the prevailing interest rates, which may create additional expense if interest rates increase in future periods. ~~Accordingly,~~

Our interest expense has benefitted from declining interest rates on our variable-rate debt and reduced borrowing during the three quarters ended May 31, 2008; however, at ~~December 1, 2007~~May 31, 2008 borrowing levels, a 1 percent increase on our variable rate debt would increase our interest expense over the next year by approximately ~~$0.2~~$0.1 million.

During the quarter and three quarters ended ~~December 1, 2007~~May 31, 2008 we were not party to any interest rate swap or other interest related derivative instruments that would increase our interest rate sensitivity.

ITEM 4.4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

We evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, as of the end of the period covered by this report. Based on this evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q.

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) or 15d-15(f)) during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II. OTHER INFORMATION

~~Item 1A.~~	~~RISK FACTIORS~~ ~~For information regarding Risk Factors, please refer to Item 1A in our Annual Report on Form 10-K for the fiscal year ended August 31, 2007.~~
~~Item 2.~~	~~UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS~~

Item 1. LEGAL PROCEEDINGS

In August 2005, EpicRealm Licensing (EpicRealm) filed an action in the United States District Court for the Eastern District of Texas against the Company for patent infringement. The action alleges that the Company infringed upon two of EpicRealm’s patents directed to managing dynamic web page requests from clients to a web server that in turn uses a page server to generate a dynamic web page from content retrieved from a data source. The Company has denied liability in the patent infringement and has filed certain counter-claims related to the case since the filing of the action in District Court. However, during the quarter ended May 31, 2008, the Company paid EpicRealm a one-time license fee of $1.0 million for a non-exclusive, irrevocable, perpetual, and royalty-free license to use any product, system, or invention covered by the disputed patents. In connection with the purchase of the license, EpicRealm and the Company agreed to dismiss their claims with prejudice and the Company is released from further action regarding these patents.

Item 1A. RISK FACTORS

For information regarding Risk Factors, please refer to Item 1A in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2007.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The Company acquired the following shares of its outstanding securities during the fiscal quarter ended ~~December 1, 2007:~~

May 31, 2008:

Period	Total Number of Shares Purchased			Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs			Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (in thousands)
Common Shares:							(in thousands)
September 1, 2007 to October 6, 2007		-		$	-	none	$	2,413
March 2, 2008 to April 5, 2008											-	$	-	none	$	2,413

October 7, 2007 to November 3, 2007		-			-	none		2,413
April 6, 2008 to May 3, 2008											-		-	none		2,413

November 4, 2007 to December 1, 2007		3,240	(2)		6.56	none		2,413	(1)
May 4, 2008 to May 31, 2008											-		-	none		2,413	(1)

Total Common Shares		3,240		$	6.56	none					-	$	-	none

	(1)	In January 2006, our Board of Directors approved the purchase of up to $10.0 million of our outstanding common stock. All ~~previous~~previously authorized common stock purchase plans were canceled. ~~Pursuant to~~Following the ~~terms~~approval of this common stock purchase plan, we have ~~acquired~~purchased a total of 1,009,300 shares of our common stock for $7.6 million through ~~December 1, 2007.~~
~~(2)~~	~~Amount represents shares received from an employee of the Company as consideration to exercise stock options and were valued using the closing price of our common stock on the date of exercise.~~May 31, 2008.

Item 5. OTHER INFORMATION

On July 3, 2008, the Company and the other selling companies identified therein, and Franklin Covey Products, LLC and the other purchasing companies identified therein, entered into a letter agreement (the Amendment) related to, and amending, the Master Asset Purchase Agreement (the Purchase Agreement), dated as of May 22, 2008, by and among the Company, the other selling companies identified in the Purchase Agreement, and Franklin Covey Products, LLC.

Pursuant to the Amendment, among other things, the Company has undertaken to form a wholly-owned subsidiary as a bankruptcy remote special purpose entity following the closing of the transaction and to contribute to the special purpose entity all of the intellectual property that the Company will license to Franklin Covey Products, LLC, pursuant to a license agreement to be entered into between the Company and Franklin Covey Products, LLC at the closing of the asset sale.

The foregoing description of the Amendment and related matters is qualified in its entirety by reference to the Amendment, which is filed as Exhibit 2.2 hereto and incorporated herein by reference.

Item 6. EXHIBITS

(A)

Exhibits:

2.1	~~Exhibits:~~Master Asset Purchase Agreement between Franklin Covey Products, LLC and Franklin Covey Co. dated May 22, 2008 (filed as exhibit 2.1 to Form 8-K/A as filed with the Commission on May 29, 2008 and incorporated herein by reference).
2.2	Amendment to Master Asset Purchase Agreement between Franklin Covey Products, LLC and Franklin Covey Co. dated May 22, 2008**
31.1	Rule 13a-14(a) Certifications of the Chief Executive ~~Officer~~Officer**
	31.2	Rule 13a-14(a) Certifications of the Chief Financial ~~Officer~~Officer**
	32	Section 1350 ~~Certifications~~Certifications**

** Filed herewith.

SIGNATURES

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.


		FRANKLIN COVEY CO.


Date:	~~January~~July 10, 2008	By:	~~/s/~~ /s/ Robert A. Whitman
			Robert A. Whitman
			Chief Executive Officer


Date:	~~January~~July 10, 2008	By:	~~/s/~~ /s/ Stephen D. Young
			Stephen D. Young
			Chief Financial Officer

Utah (State of incorporation)		87-0401551 (I.R.S. employer identification number)
2200 West Parkway Boulevard Salt Lake City, Utah (Address of principal executive offices)		84119-2099 (Zip Code)
Registrant’s telephone number, Including area code		(801) 817-1776

	Quarter Ended						Quarter Ended						Three Quarters Ended
	December 1, 2007			December 2, 2006
	(unaudited)						May 31, 2008			June 2, 2007			May 31, 2008			June 2, 2007
							(unaudited)						(unaudited)
Net sales:
Products	$	39,375		$	42,109		$	25,197		$	30,857		$	105,872		$	118,248
Training and consulting services		34,199			33,421			33,864			33,652			101,891			98,666
		73,574			75,530			59,061			64,509			207,763			216,914
Cost of sales:
Products		16,906			18,473			11,883			14,619			46,565			52,528
Training and consulting services		10,723			10,659			11,421			10,254			32,807			31,163
		27,629			29,132			23,304			24,873			79,372			83,691
Gross profit		45,945			46,398			35,757			39,636			128,391			133,223

Selling, general, and administrative		38,771			40,849			34,210			35,287			110,634			112,803
Gain on sale of manufacturing facility								-			-			-			(1,227	)
Depreciation		1,198			1,037			1,497			1,060			4,044			3,463
Amortization		899			902			902			906			2,702			2,708
Income from operations		5,077			3,610
Income (loss) from operations								(852	)		2,383			11,011			15,476

Interest income		9			201			55			124			78			682
Interest expense		(910	)		(661	)		(725	)		(867	)		(2,396	)		(2,203	)
Income before provision for income taxes		4,176			3,150
Provision for income taxes		2,117			1,734
Net income		2,059			1,416
Income (loss) before provision for income taxes								(1,522	)		1,640			8,693			13,955
Benefit (provision) for income taxes								11			(753	)		(5,063	)		(6,939	)
Net income (loss)								(1,511	)		887			3,630			7,016
Preferred stock dividends		-			(934	)		-			(348	)		-			(2,215	)
Net income (loss) available to common shareholders							$	(1,511	)	$	539		$	3,630		$	4,801

Net income available to common shareholders	$	2,059		$	482

Net income available to common shareholders per share:
Net income (loss) available to common shareholders per share:
Basic	$	.11		$	.02		$	(.09	)	$	.03		$	.19		$	.24
Diluted	$	.10		$	.02		$	(.09	)	$	.03		$	.18		$	.24

Weighted average number of common shares:
Basic		19,481			19,910			16,132			19,412			19,542			19,637
Diluted		19,760			20,192			16,132			19,738			19,815			19,933

	Quarter Ended						Three Quarters Ended
	December 1, 2007			December 2, 2006			May 31, 2008			June 2, 2007
	(unaudited)						(unaudited)
Cash flows from operating activities:
Net income	$	2,059		$	1,416		$	3,630		$	7,016
Adjustments to reconcile net income to net cash provided by (used for) operating activities:
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		2,489			2,340			7,699			7,503
Deferred income taxes		1,497			914			3,130			4,824
Share-based compensation expense		(739	)		119
Loss (gain) on disposals of property and equipment								274			(1,283	)
Share-based compensation expense (benefit)								(936	)		894
Changes in assets and liabilities:
Increase in accounts receivable, net		(2,663	)		(4,070	)		(2,031	)		(4,408	)
Decrease (increase) in inventories		58			(1,169	)		3,033			(2,951	)
Increase in other assets		(143	)		(613	)
Increase (decrease) in accounts payable and accrued liabilities		3,185			(2,861	)
Increase in other long-term liabilities		18			59
Decrease in other assets								747			1,236
Decrease in accounts payable and accrued liabilities								(2,884	)		(4,357	)
Decrease in other long-term liabilities								(81	)		(188	)
Increase (decrease) in income taxes payable		(171	)		73			(775	)		411
Net cash provided by (used for) operating activities		5,590			(3,792	)
Net cash provided by operating activities								11,806			8,697

Cash flows from investing activities:
Proceeds on notes receivable from disposals of subsidiaries		586			-			1,110			-
Purchases of property and equipment		(1,268	)		(2,289	)		(2,784	)		(7,855	)
Curriculum development costs		(573	)		(587	)		(2,860	)		(4,234	)
Proceeds from sales of property and equipment								60			2,596
Net cash used for investing activities		(1,255	)		(2,876	)		(4,474	)		(9,493	)

Cash flows from financing activities:
Proceeds from line of credit borrowing		17,654			-
Payments on line of credit borrowing		(18,998	)		-
Proceeds from line-of-credit borrowing								61,689			30,429
Payments on line-of-credit borrowing								(69,465	)		(12,585	)
Redemption of preferred stock								-			(37,345	)
Principal payments on long-term debt and financing obligation		(148	)		(147	)		(478	)		(402	)
Proceeds from sales of common stock from treasury		102			70			311			206
Purchase of treasury shares		-			(16	)
Proceeds from management stock loan payments								-			27
Purchases of treasury shares								-			(2,561	)
Payment of preferred stock dividends		-			(934	)		-			(2,215	)
Net cash used for financing activities		(1,390	)		(1,027	)		(7,943	)		(24,446	)

Effect of foreign exchange rates on cash and cash equivalents		(315	)		(13	)		(662	)		(175	)
Net increase (decrease) in cash and cash equivalents		2,630			(7,708	)
Net decrease in cash and cash equivalents								(1,273	)		(25,417	)
Cash and cash equivalents at beginning of the period		6,126			30,587			6,126			30,587
Cash and cash equivalents at end of the period	$	8,756		$	22,879		$	4,853		$	5,170

Supplemental disclosure of cash flow information:
Cash paid for interest	$	923		$	668		$	2,475		$	2,048
Cash paid for income taxes	$	1,098		$	818		$	3,117		$	1,804

Non-cash investing and financing activities:
Accrued preferred stock dividends	$	-		$	934
Acquisition of property and equipment through accounts payable		563			-		$	1,060			-

	December 1, 2007		August 31, 2007		May 31, 2008		August 31, 2007

Finished goods	$	20,388	$	20,268	$	6,670	$	20,268
Work in process		901		743		-		743
Raw materials		2,887		3,022		364		3,022
	$	24,176	$	24,033	$	7,034	$	24,033

	Number of Shares		Weighted-Average Grant-Date Fair Value Per Share		Number of Shares			Weighted-Average Grant-Date Fair Value Per Share
Unvested stock awards at August 31, 2007		410,670	$	3.80		410,670		$	3.80
Granted(1)		-		-		36,000			7.50
Vested(2)						(87,590	)		3.01
Forfeited		-		-		-			-
Vested		-		-
Unvested stock awards at December 1, 2007		410,670	$	3.80
Unvested stock awards at May 31, 2008						359,080		$	4.62


(2)	~~For~~Due to the ~~quarters~~net loss reported for the quarter ended ~~December 1, 2007~~May 31, 2008, the dilutive effects of in-the-money stock options and ~~December 2, 2006,~~unvested stock awards were excluded from the Company’s EPS calculation for the quarter because these items were anti-dilutive.

International														13,660		9,774		4,014			187		3
Total OSBU														36,771		23,832		4,496			444		902
Total operating segments														59,061		35,757		2,059			852		902
Corporate and eliminations														-		-		(512	)		645		-
Consolidated													$	59,061	$	35,757	$	1,547		$	1,497	$	902

Quarter Ended December 1, 2007	Sales to External Customers		Gross Profit			EBITDA			Depreciation		Amortization
Quarter Ended June 2, 2007
Consumer Solutions Business Unit:
Retail	$	13,135	$	7,718		$	852		$	214	$	-	$	10,010	$	5,706	$	(715	)	$	169	$	-
Consumer direct		14,812		9,009			6,939			55		-		7,890		4,561		2,522			66		-
Wholesale		4,261		2,455			2,294			-		-		6,901		3,851		3,704			-		-
CSBU International		2,671		1,557			660			25		-		1,125		628		(176	)		-		-
Other CSBU		1,164		191			(6,959	)		288		-		1,523		281		(4,765	)		190		-
Total CSBU		36,043		20,930			3,786			582		-		27,449		15,027		570			425		-

Organizational Solutions Business Unit:
Domestic		21,664		13,710			255			234		899		23,143		15,078		2,706			185		899
International		15,867		11,305			4,725			187		-		13,917		9,531		3,375			215		7
Total OSBU		37,531		25,015			4,980			421		899		37,060		24,609		6,081			400		906
Total operating segments		73,574		45,945			8,766			1,003		899		64,509		39,636		6,651			825		906
Corporate and eliminations		-		-			(1,592	)		195		-		-		-		(2,302	)		235		-
Consolidated	$	73,574	$	45,945		$	7,174		$	1,198	$	899	$	64,509	$	39,636	$	4,349		$	1,060	$	906

Quarter Ended December 2, 2006
Three Quarters Ended May 31, 2008													Sales to External Customers		Gross Profit		EBITDA			Depreciation		Amortization
Consumer Solutions Business Unit:
Retail	$	14,127	$	8,399		$	1,236		$	191	$	-	$	38,659	$	23,416	$	2,930		$	697	$	-
Consumer direct		16,211		9,850			7,728			20		-		35,335		20,836		13,588			233		-
Wholesale		4,577		2,778			2,663			-		-		12,227		6,707		6,282			-		-
CSBU International		2,386		1,485			486			-		-		6,692		3,543		1,223			39		-
Other CSBU		1,272		(281	)		(8,112	)		259		-		3,721		432		(17,626	)		464		-
Total CSBU		38,573		22,231			4,001			470		-		96,634		54,934		6,397			1,433		-

Organizational Solutions Business Unit:
Domestic		21,470		13,875			1,236			114		902		66,436		41,511		1,844			1,076		2,697
International		15,487		10,292			3,187			205		-		44,693		31,946		13,385			414		5
Total OSBU		36,957		24,167			4,423			319		902		111,129		73,457		15,229			1,490		2,702
Total operating segments		75,530		46,398			8,424			789		902		207,763		128,391		21,626			2,923		2,702
Corporate and eliminations		-		-			(2,875	)		248		-		-		-		(3,869	)		1,121		-
Consolidated	$	75,530	$	46,398		$	5,549		$	1,037	$	902	$	207,763	$	128,391	$	17,757		$	4,044	$	2,702

Three Quarters Ended June 2, 2007																			��
Consumer Solutions Business Unit:
Retail													$	43,402	$	25,966	$	5,195		$	546	$	-
Consumer direct														38,674		22,792		15,630			154		-
Wholesale														15,059		8,561		8,114			-		-
CSBU International														6,153		3,721		1,020			-		-
Other CSBU														4,360		394		(17,425	)		963		-
Total CSBU														107,648		61,434		12,534			1,663		-

Organizational Solutions Business Unit:
Domestic														66,432		42,848		5,999			453		2,701
International														42,834		28,941		9,592			625		7
Total OSBU														109,266		71,789		15,591			1,078		2,708
Total operating segments														216,914		133,223		28,125			2,741		2,708
Corporate and eliminations														-		-		(7,705	)		722		-
Consolidated													$	216,914	$	133,223	$	20,420		$	3,463	$	2,708