and other existing clients. The Company anticipates that the new venture will broaden the curriculum and services currently offered in order to grow the personal coaching business over the long-term while maintaining a substantial portion of the Company’s earnings from coaching activities in current periods. 

International sales decreased $0.6 million, or one percent, compared to the prior year. Increased sales in Canada, Mexico, and Brazil were offset by decreased sales in Australia, Japan, the Middle East, and New Zealand. Sales in Canada increased primarily due to improved training sales resulting from additional sales personnel hired during fiscal 2000 to expand Company operations in Canada. Increased sales in Mexico were primarily due to two new retail stores, increased catalog sales, and the Company purchasing the Mexico licensee and combining its operations with the Company’s direct office already established in Mexico. In May 2000, the Company opened a direct office in Brazil and has since recognized increased sales in that country. Prior to May 2000, all sales (primarily product sales) were serviced through the corporate office. Decreased sales perform- ance in Australia was due to decreased training sales at one of Australia’s largest customers, reorganization of the sales force, and the timing of speaking engagements by Stephen R. Covey, which increased training sales in the prior year. Sales in Japan decreased due to sales force restructuring and declining book sales. In fiscal 1999, The 7 Habits of Highly Effective Families book was released, while no new major publications were released during fiscal 2000. Decreased sales in the Middle East were due to the Company changing its business strategy in the region from a direct office to licensee operations. As a result, the Company receives a royalty based upon a percentage of the licensee’s sales rather than recognizing 100 percent of sales generated in the Middle East. Sales decreased in New Zealand due to closure of the New Zealand office during fiscal 2000. Future sales and business activities in New Zealand will be serviced through the Australian office. 

Other sales, which consist primarily of the Company’s commercial printing and tabbing operations, decreased $11.8 million, or 40 percent, compared to fiscal 1999. The decrease was due to the sale of the commercial printing division of Publishers Press, which was effective February 28, 2000. 

## Gross Margin 

Gross margin consists of sales less cost of sales. The Company’s cost of sales includes materials used in the production of planners and related products, assembly and manufacturing labor costs, commissions of training consultants, direct costs of conducting seminars, freight, and certain other overhead costs. Gross margin may be affected by, among other things, prices of materials, labor rates, product mix, changes in product discount levels, production efficiency, training consultant commis- sions, and freight costs. Gross margin was 56.6 percent of sales compared to 56.2 percent in fiscal 1999. The Company’s gross margin improved primarily due to product write-offs related to the restructuring plan which were expensed in fiscal 1999, and to new inventory procurement and management procedures, which reduced the amount of product write-offs during fiscal 2000. Partially offsetting these improvements were the adverse effects of product mix changes, decreased sales of certain training programs and increased wholesale channel sales. During fiscal 1999, the Company began a restructuring plan that examined all aspects of the busi- ness. In connection with this review, certain products and curricula were discontinued. Additionally, the Company actively sought to optimize inventory levels through improved policies and procedures. These improved procedures had a favorable effect on the Company’s gross margin during fiscal 2000. As previ- ously described, the Company experienced significantly increased sales of handheld electronic devices during fiscal 2000. Although handheld electronic devices have favorably affected sales performance, these electronic devices have gross margins that are lower than the majority of the Company’s other products and services. As sales of handheld electronic devices continue to grow, and increase as a percentage of total Company sales, further gross margin erosion may occur. In addition, decreased sales of higher margin training program revenues, primarily productivity programs and personal coaching, also adversely affected the Company’s gross margin. Increased sales through wholesale channels continues to unfavorably affect the Company’s gross margin through contracted pricing terms that have produced increased sales volume, but at lower margins. 

