Management’s Discussion and Analysis 27 Franklin Covey 2000 Annual Report Income Taxes Preferred Stock Dividends FISCAL 1999 COMPARED WITH  FISCAL 1998 Sales The Company’s effective income tax rate continues to be adversely affected by non-deductible goodwill amortiza- tion, the effect of foreign losses, and the magnified effects of other non-deductible items resulting from decreased taxable income. Amortization of goodwill primarily generated from the merger with Covey Leadership Center and certain other acquisitions is not deductible for income tax purposes and had an adverse effect on the Company’s effective tax rate. During fiscal 2000, the effect of foreign losses was primarily comprised of losses sustained in Japan, Australia, and New Zealand for which no offsetting tax benefit could be recognized due to uncertain future taxable income to offset such losses. In connection with the issuance of 750,000 shares of preferred stock in the fourth quarter of fiscal 1999, the Company completed a subscription offering for up to an additional 750,000 shares of preferred stock during fiscal 2000. The subscription offering closed during the Company’s second quarter of fiscal 2000 with 42,338 shares purchased under terms of the offering. As a result, the increase in preferred stock dividends was due to the full-year impact of previously issued shares and the subscription offering that closed during fiscal 2000. Consumer products sales increased $10.3 million, or four percent, compared to the prior year. Sales increases from the Company’s retail stores, contract stationer channels, and the Internet were offset by decreased sales from catalog operations and government products. Retail store sales increased due to five additional stores and a two percent increase in comparable store sales. At August 31, 1999, the Company was operating 125 retail stores compared to 120 stores at August 31, 1998. Comparable store sales growth was primarily attributable to increased sales of technology-related products, as well as the introduction of limited edition planners such as the Hallmark® and Shoebox® planners. The Company also had increased sales from contract stationer channels due to increased demand from new marketing and distribution agreements. Sales from the Internet channel have increased due to general changes in consumer buying habits and ongoing enhancements to the Company’s electronic commerce infrastructure. Increased sales from these channels were partially offset by decreased sales from the government products group and the Company’s catalog operations. Product sales to the U.S. government continued to be adversely affected by changes in the government procurement process. Sales growth in other distribution channels, including retail stores, contract stationers, and the Internet, continue to have an adverse affect on catalog sales.  Price increases did not have a material effect on sales growth between the periods. Training and education sales decreased by $1.3 million, or one percent, compared to the prior year. Sales increases from Premier, personal coaching, and direct product channels were offset by sales decreases in core training programs and a decline in book royalties. Premier continues to expand its share of the school agenda market and recognized a 22 percent increase in sales, primarily from new customers. New business from both personal coaching and the direct-products channel resulted in increased sales during fiscal 1999. These increases in training and education sales were offset by decreased core training sales, primarily from corporate/ on-site and facilitated programs for leadership training. In addition, book royalties decreased due to the decline in royalties received from  The 7 Habits of Highly Effective Families book that was released in fiscal 1998. International sales increased by $5.4 million, or 12 percent, compared to the prior year. The increase was primarily due to the acquisition of a former licensee in Japan, which occurred during the fourth quarter of fiscal 1998. Partially offsetting this increase were decreased sales in Canada and the Middle East. The Company’s Canadian operations were adversely affected as a result of labor disputes at one of its largest clients. Also during fiscal 1999, the Company converted its Middle Eastern direct office into a licensee operation. Although this conversion reduced expenses and certain other business risks, the Company only receives licensee royalties on qualifying sales. Other geographic regions recorded nominal sales fluctuations compared to the prior year. Other sales, which consist of the Company’s commercial printing services and fitness training sales, decreased $6.1 million, or 17 percent, compared to the prior year. The decrease was due to the sale of the Company’s Institute of Fitness, which recognized sales of $6.8 million during fiscal 1998, but was sold during the fourth quarter of fiscal 1998. The decrease resulting from the Institute of Fitness sale was partially offset by increased commercial printing sales at Publishers Press.