GENERAL

This discussion and analysis of financial condition and results of operations reviews and compares the results of operations of the Company, on a consolidated basis, for the fiscal years ended December 31, 2008, 2007 and 2006. This discussion and analysis of financial condition and results of operations has been derived from, and should be read in conjunction with, the Consolidated Financial Statements and Notes to Consolidated Financial Statements contained in Item 8 of this Form 10-K.

The Company is a leading manufacturer and global distributor of educational, health, medical technology and agricultural products, primarily offered through 50 catalogs.

The following is a summary of key events for 2008:

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net sales increased .6% to $212.8 million in 2008, as compared to 2007;

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gross profit increased 1.3% to $83.0 million in 2008, as compared to 2007, while the gross profit margin increased to 39.0% compared to 38.7% in 2007;

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earnings from operations decreased 1.3% to $34.6 million in 2008 from $35.0 million in 2007;

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aggregate pre-tax losses on marketable securities and externally managed investments were $20.2 million;

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earnings before income taxes decreased 61.0% to $13.7 million in 2008, as compared to 2007;

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diluted earnings per common share were $.00 in 2008 compared to earnings of $.84 in 2007. Earnings per share in 2008 includes the impact of realized losses on marketable securities ($.03 per diluted common share), other than temporary losses on marketable securities ($.02 per diluted common share), and losses from externally managed investments ($.69 per diluted common share);

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capital expenditures amounted to $3.3 million in 2008, equaling the capital expenditure total in 2007;

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increase in outstanding balance of the Company's revolving line of credit by $2.0 million, to $5.0 million at December 31, 2008; and,

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semi-annual dividend payments (March 31 and September 30) totaling $8.6 million on the Series I Preferred Stock and Series J Preferred Stock in 2008.

A key strength of the Company's business is its ability to generate cash consistently. The Board of Directors and management use cash generated as a measure of the Company's performance. The Company uses the cash generated from operations to strengthen the balance sheet, including making investments and reducing liabilities such as pension and debt obligations, paying dividends on its preferred stocks and completing prudent acquisition opportunities. The Company's management believes that examining the ability to generate cash provides investors with additional insight into the Company's performance.

The following table sets forth selected financial data (i) as a percentage of net sales for the fiscal years ended December 31 and (ii) the percentage change in dollars in those reported items from the prior fiscal year:

                                       % of                   % of                    % of
                                        Net                    Net                     Net
                                       Sales     Balance      Sales     Balance %     Sales
                                       2008      % Change     2007       Change       2006

Net sales                               100.0 %        .6 %    100.0          4.2 %    100.0 %
Cost of sales                            61.0          .2       61.3          2.9       62.0
         Gross profit                    39.0         1.3       38.7          6.3       38.0

Selling and administrative expense       22.8         3.2       22.2          1.2       22.9
         Earnings from operations        16.2       (1.3)       16.5         14.2       15.1

Other expense (income):
   Interest expense                        .5      (23.2)         .7       (14.9)         .8
   Interest income                          -           *          -            *          -
   Other, net                             9.4           *       (.7)            *       (.9)
                                          9.9           *          -            *       (.1)

         Earnings before income taxes     6.3      (61.0)       16.5         14.0       15.2

Income taxes:
   Current                                3.2       (7.5)        3.5         68.3        2.2
   Deferred                              (.9)           *        2.0         60.4        1.3
                                          2.3      (56.4)        5.5      65.4           3.5

         Net earnings                     4.0 %    (63.3)       11.0 %      (1.1)       11.7 %

* Not meaningful.

Deferred income taxes for 2006 include a tax benefit of $5.5 million ($.31 per basic and diluted common share) due to reductions in the net deferred tax asset valuation allowance related primarily to increased estimates of projected Federal taxable income. In 2008 and 2007, there was no deferred tax asset valuation allowance or change in the amount of such allowance, and therefore no effect on net earnings.

FLUCTUATIONS IN QUARTERLY RESULTS OF OPERATIONS

The Company is subject to seasonal influences with peak levels occurring in the second and third quarters of the fiscal year primarily due to increased educational shipments coinciding with the start of new school years in the Fall.
As a result, the Company typically recognizes approximately 70% of its annual net earnings in the second and third quarters of its fiscal year. Inventory levels increase in March through June in anticipation of the peak shipping season. The majority of shipments are made between June and August and the majority of cash receipts are collected from August through October.

Quarterly results may also be materially affected by the timing of acquisitions, the timing and magnitude of costs related to such acquisitions, variations in costs of products sold, the mix of products sold and general economic conditions. Results for any quarter are not indicative of the results for any subsequent fiscal quarter or for a full fiscal year.

See Note 16 of the Notes to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for certain unaudited consolidated quarterly financial data for 2008 and 2007.

RESULTS OF OPERATIONS - FISCAL YEAR 2008 AS COMPARED TO FISCAL YEAR 2007

Net Sales

Net sales increased .6% to $212.8 million from $211.6 million in 2007. The nominal increase in net sales in 2008 reflects balanced sales growth in each of the first three quarters of 2008, offset by a 6.8% decline in net sales in the fourth quarter of 2008, compared to 2007. The decline in fourth quarter 2008 net sales is directly attributed to the dramatic change in national and global financial conditions. As general economic conditions worsened and state budget deficits increased, orders slowed across virtually all sales channels and product lines.

Shipments to destinations beyond North America were more than 13% of net sales in 2008, growing 5.8% compared to 2007. The growth in international shipments slowed from 16.7% in 2007 as the U.S. dollar strengthened in the last half of 2008, compared to exchange rates in 2007 which were more favorable to our international customers.

No material acquisitions or divestitures occurred in the respective periods.

Net sales in the educational segment, totaling $178.9 million, increased .4% in 2008 from $178.2 million in 2007. The commercial segment recorded net sales of $33.9 million in 2008, increasing 1.4% compared to $33.4 million in 2007.

Gross Profit

Gross profit for 2008 increased 1.3% to $83.0 million from $82.0 million in 2007. The increase in gross profit for 2008 is primarily attributable to (i) the .6% increase in net sales, (ii) effective initiatives to control net transportation cost components, and (iii) a stable mix of higher-margin proprietary items. Gross profit in 2007 included a $.4 million recovery related to an historical insurance claim in the educational segment. The gross profit margin increased to 39.0% in 2008 from 38.7% in 2007.

The educational segment gross profit for 2008 decreased 1.0% to $71.8 million from $72.5 million in 2007. The educational segment gross profit margin decreased to 40.1% in 2008 from 40.7% in 2007, which included the impact of the 2007 insurance recovery. The commercial segment gross profit for 2008 increased 3.1% to $13.9 million from $13.5 million in 2007. The commercial segment gross profit margin increased to 41.1% in 2008 from 40.4% in 2007. The segment gross profits and margins discussed herein exclude freight costs incurred in the procurement of inventories and shipment of customer orders.

Selling and Administrative Expense

Selling and administrative expense for 2008 increased 3.2% to $48.4 million from $46.9 million in 2007. As a percent of net sales, selling and administrative expense was 22.8% in 2008, increasing from 22.2% in 2007. Expenses included in this total are advertising and catalog costs, warehouse and shipping activities, customer service and general administrative functions. Selling and administrative expenses for 2008 were impacted by an: (i) increase in salaries and wages of $1.0 million, or 3.5%, as a result of increases in annual employee compensation, and short-term and long-term employee performance incentives; (ii) increase in group health costs of $.6 million, or 13.5%; and (iii) increase in catalog and advertising costs of $.3 million, or 3.4%; the foregoing were offset by an insurance recovery of $.7 million.

The Company recorded $12 thousand and $.1 million in compensation expense in 2008 and 2007, respectively, related to grants of stock options to certain employees and directors.

The Company incurred and paid expenses of $1.1 million and $1.0 million to Geneve for certain administrative services in 2008 and 2007, respectively.

Interest Expense

Interest expense decreased 23.2% to $1.1 million in 2008, compared to $1.4 million in 2007. The decrease in interest expense is primarily due to the 9.3% lower average principal balance outstanding during 2008 compared to 2007, and a decrease in the weighted average interest rates on the Company's debt to 4.8% in 2008, compared to 7.0% in 2007. The decline in the average principal balance outstanding is related to the Company's use of cash flows to

lower the outstanding balance on its primary line of credit in the last quarter of 2007 and continuing in the first half of 2008.

The weighted average interest rates under the Company's credit facilities were 3.0% and 6.8% at December 31, 2008 and 2007, respectively.

Other, Net

Other, Net was an expense of $19.9 million in 2008, compared to income of $1.4 million in 2007. Equity loss from investment limited partnerships was $18.8 million in 2008, compared to equity income of $1.6 million in 2007. In December 2008, the Company became aware of certain activities by the non-affiliate broker-dealer with whom assets of the partnerships had been invested. As a result, the value of the investment was reduced to estimated recoverable amounts (see Note 2(h) of the Notes to the Consolidated Financial Statements included in Item 8 to this Annual Report on Form 10-K).

Losses realized on the sale of marketable securities were $.7 million and $.2 million in 2008 and 2007, respectively. Other than temporary losses on marketable securities held by the Company were $.7 million and $0 in 2008 and 2007, respectively.

Income Tax Provision

Aristotle and its qualifying domestic subsidiaries are included in the Federal income tax return and certain state income tax returns of Geneve. The provision for income taxes for the Company is determined on a separate return basis in accordance with the terms of a tax sharing agreement with Geneve, and payments for current Federal and certain state income taxes are made to Geneve.

The income tax provision for 2008 was $5.1 million compared to $11.6 million in 2007. These tax provisions reflect effective tax rates of 36.9% and 33.0% for 2008 and 2007, respectively. The increase in the effective tax rate from 2007 to 2008 is primarily due to a 2007 benefit of $1.2 million in alternative minimum tax credits related to such tax payments made in years 2000 and earlier, for which no deferred tax asset had previously been recorded. Other items causing differences between the statutory tax rate and the effective tax rate relate to foreign and state income taxes. At December 31, 2008, the Consolidated Balance Sheet contains a net deferred tax asset of $11.3 million.

RESULTS OF OPERATIONS - FISCAL YEAR 2007 AS COMPARED TO FISCAL YEAR 2006

Net Sales

Net sales increased 4.2% to $211.6 million from $203.0 million in 2006. The increase in net sales in 2007 is attributed to balanced organic growth within the educational and commercial segments, as no material acquisitions or divestitures occurred in the respective periods. Shipments to destinations beyond North America were more than 12% of net sales in 2007, growing 17% compared to 2006, aided by the declining value of the U.S. dollar versus other international currencies.

Net sales in the educational segment, totaling $178.2 million, increased 4.3% in 2007 from $170.9 million in 2006. The commercial segment recorded net sales of $33.4 million in 2007, increasing 3.9% compared to $32.1 million in 2006.

Gross Profit

Gross profit for 2007 increased 6.3% to $82.0 million from $77.1 million in 2006. The increase in gross profit for 2007 is primarily attributable to (i) the 4.2% increase in net sales, (ii) proportionate increases in higher-margin proprietary items within the sales mix, and (iii) a $.4 million recovery related to an historical insurance claim in the educational segment. The gross profit margin increased to 38.7% in 2007 from 38.0% in 2006.

The educational segment gross profit for 2007 increased 6.3% to $72.5 million from $68.2 million in 2006. The educational segment gross profit margin increased to 40.7% in 2007 from 39.9% in 2006, including the impact of the insurance recovery. The commercial segment gross profit for 2007 increased 4.8% to $13.5 million from $12.9 million in 2006. The commercial segment gross profit margin increased to 40.4% in 2007 from 40.1% in 2006. The

segment gross profits and margins discussed herein exclude freight costs incurred in the procurement of inventories and shipment of customer orders.

Selling and Administrative Expense

Selling and administrative expense for 2007 increased 1.2% to $46.9 million from $46.4 million in 2006. As a percent of net sales, selling and administrative expense decreased to 22.2% in 2007 from 22.9% in 2006. Expenses included in this total are advertising and catalog costs, warehouse and shipping activities, customer service and general administrative functions. Selling and administrative expenses for 2007 were impacted by an: (i) increase in salaries and wages of $1.5 million, or 5.6%, as a result of increases in annual employee compensation, employee performance incentives and the number of employees; (ii) increase in group health costs of $.3 million; and (iii) increase in occupancy cost of a facility in Fort Atkinson of $.3 million due to enhanced facility utilization. Factors that affected the 2006 selling and administrative expenses that did not recur in 2007 include: (i) professional fees related to consideration of a 2006 merger proposal from Geneve totaling $.5 million; and,
(ii) recognition of deferred expenses related to the curtailment of certain retirement benefits and the partial settlement of certain retirement obligations of the Company's defined benefit plan of $1.3 million.

The Company recorded $.1 million in compensation expense for each of 2007 and 2006 related to grants of stock options to certain employees and directors.

The Company incurred and paid expenses of $1.0 million and $.9 million to Geneve for certain administrative services in 2007 and 2006, respectively.

Interest Expense

Interest expense decreased 14.9% to $1.4 million in 2007, compared to $1.6 million in 2006. The decrease in interest expense is primarily due to the 55% lower average principal balance outstanding during 2007 compared to 2006, partially offset by an increase in the weighted average interest rates on the Company's debt to 7.0% in 2007, compared to 6.6% in 2006. The decline in the average principal balance outstanding is related to the Company's use of cash flows to lower the outstanding balance on its primary line of credit throughout 2007.

The weighted average interest rates under the Company's credit facilities were 6.8% and 6.9% at December 31, 2007 and 2006, respectively.

Other, Net

Other, Net for 2007 decreased to $1.4 million from $1.7 million in 2006, primarily due to changes in investment income. In 2007, an average monthly balance in investments, including marketable securities and partnerships, of $19.1 million yielded a 7.1% average rate of return. In 2006, an average monthly balance in investments of $13.8 million yielded a 13.5% average rate of return.

Income Tax Provision

Aristotle and its qualifying domestic subsidiaries are included in the Federal income tax return and certain state income tax returns of Geneve. The provision for income taxes for the Company is determined on a separate return basis in accordance with the terms of a tax sharing agreement with Geneve, and payments for current Federal and certain state income taxes are made to Geneve.

The income tax provision for 2007 was $11.6 million compared to $7.0 million in 2006. These tax provisions reflect effective tax rates of 33.0% and 22.8% for 2007 and 2006, respectively. The increase in the effective tax rate from 2006 to 2007 is primarily due to a $5.5 million decrease in 2006 in the valuation allowance for deferred tax assets related to NOLs utilized. The reduction in the valuation allowance in 2006 was significantly related to increased Federal taxable income from certain transactions consummated in December 2006 (see Note 12 to the Notes of the Consolidated Financial Statements included in Item 8 of this Form 10-K). Although the reported earnings for 2007 and 2006 are shown after-tax, approximately $1.3 million and $14.2 million, respectively, of cash from operations was retained in the Company primarily as a result of the current utilization of these NOLs All remaining NOLs that did not otherwise expire on December 31, 2006 were fully utilized in the first quarter of 2007. In 2007, the tax provision reflects the benefit of $1.2 million in alternative minimum tax credits related to such tax payments made

in years 2000 and earlier, for which no deferred tax asset had previously been recorded. Other items causing differences between the statutory tax rate and the effective tax rate relate to foreign and state income taxes. At December 31, 2007, the Consolidated Balance Sheet contains a net deferred tax asset of $8.1 million.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2008, the Company had working capital of $76.2 million, decreasing from $77.4 million at December 31, 2007. Cash and cash equivalents increased $9.7 million in 2008 to $15.3 million. Cash and cash equivalents decreased $.2 million in 2007, ending the year at $5.6 million. The change in cash and cash equivalents during 2008 as compared to 2007 is primarily due to the following activities:

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The Company generated cash of $25.2 million, $20.5 million and $28.1 million from operations during 2008, 2007 and 2006, respectively. The increase in cash generated from operations in 2008 compared to 2007 was principally the result of
(i) a $1.8 million increase in cash from accounts receivable; (ii) a $2.5 reduction in cash invested in inventory; (iii) a $2.6 reduction in cash invested in prepaid expenses and other assets; the foregoing was offset by a $2.0 million increase in cash used for accounts payable.

The decrease in cash generated from operations in 2007 compared to 2006 was principally the result of: (i) a $4.8 million increase in inventory, related to strategic purchasing plans and planned increases in manufactured proprietary product finished goods; and (ii) increased investments in other components of working capital.

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The Company used $8.7 million of cash and cash equivalents for investing activities in 2008, compared to $13.1 million in 2007. In 2008, the Company used: (i) $1.5 million to complete a $2.5 million renovation of 60,000 square feet of warehouse space in Fort Atkinson; (ii) $1.8 million for other capital expenditures; (iii) $3.0 million of cash to increase its investments in an investment limited partnership; and (iv) net cash of $2.4 million for investments in marketable securities.

In 2007, the Company used: (i) $.7 million of cash to complete the construction of a new manufacturing facility in Fort Atkinson; (ii) $1.0 million of cash for initial construction costs of a $2.6 million building upgrade in Fort Atkinson;
(iii) net cash of $3.5 million for investments in marketable securities; (iv) $2.0 million of cash to increase its investment in an investment limited partnership; and (v) $4.3 million of cash for other long-term investments.

Capital expenditures to replace and upgrade existing capital equipment and install new equipment and fixtures to provide additional operating efficiencies totaled $1.8 million and $2.1 million in 2008 and 2007, respectively.

No material business acquisitions occurred in 2008 or 2007.

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Financing activities used $6.8 million and $7.6 million of cash and cash equivalents in 2008 and 2007, respectively. In 2008, a net increase in principal balances of long-term debt totaling $1.7 million, was comprised of:
(i) a $2.0 million increase in the outstanding balance on the Company's primary credit facility; and (ii) a $.3 million reduction in mortgage credit agreements. In 2007, the net principal payments on debt of $3.3 million were due to: (i) a decrease of $3.0 million in the amounts outstanding on the Company's primary credit facility; and (ii) a decrease of $.3 million in amounts outstanding under existing mortgage credit agreements.

In 2008, the Company received proceeds from the exercise of stock options of $.1 million, compared to $4.3 million in stock option exercise proceeds in 2007.

In 2006, the Company entered into an agreement to transfer ownership of certain intangible assets for cash of $2.0 million and an $8.0 million, 15-year note receivable bearing an interest rate of 5%, with principal amortizing over the term of the note The transaction does not meet sale recognition criteria for U.S. GAAP purposes, and as such the $2.0 million of proceeds received in 2006 are reflected in cash, and as a component of other long-term accruals, at December 31, 2006 (see Note 12 of the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K). The Other Long-Term Accrual related to this transaction was $2.1 million and $2.0 million at December 31, 2008 and 2007, respectively.

In each of 2008 and 2007, the Company paid aggregate dividends of $8.6 million on the Series I Preferred Stock and Series J Preferred Stock.

On October 15, 2003, the Company entered into a five-year, non-amortizing, $45.0 million Revolving Credit Facility. The Revolving Credit Facility provides the Company with seasonal working capital, letters of credit and funds for appropriate acquisitions of businesses similar in nature to the Company's current business segments. This debt carries a variable rate of interest that is based on Prime or LIBOR rates plus applicable margins. In 2008, the Company and its primary lenders executed an amendment to the Revolving Credit Facility.
The primary provisions of the amendment: (i) extend the term of the Revolving Credit Facility from October 15, 2008 to January 31, 2013; (ii) provide the Company the option to expand the capacity of the facility from $45.0 million to $60.0 million during the term of the agreement; (iii) relieve the Company of certain monthly reporting obligations; (iv) modify the pricing structure to provide interest rates more favorable to the Company; and (v) update certain financial covenants to standards relevant to the Company's current financial condition.

At December 31, 2008, the Revolving Credit Facility has a committed weighted average rate of interest (including applicable margins) of approximately 1.47%.
At March 23, 2009, the interest rate on then-current outstanding balances was set at 1.47%.

The Company's Revolving Credit Facility is collateralized by certain accounts receivable, inventories and property, plant and equipment, and shares of a certain subsidiary's outstanding capital stock and ownership interests of certain of the Company's limited liability subsidiaries. The Revolving Credit Facility contains various financial and operating covenants, including, among other things, requirements to maintain certain financial ratios and restrictions on additional indebtedness, common stock dividend payments, capital disposals and intercompany management fees. The Company was in compliance with all financial covenants as of December 31, 2008.

Minimum contractual obligations at December 31, 2008 are as follows (in millions):

                                                  Less                              More
                                                 Than 1                            Than 5
                                       Total      Year     1-3 Years   4-5 Years    Years

Long-term debt                      $    10.7  $      .3 $        .9 $       5.3 $     4.2
Operating lease commitments               1.4         .3         1.0          .1         -
Other long term commitments              11.8        1.0         3.0         1.9       5.9
                                    $    23.9  $     1.6 $       4.9 $       7.3 $    10.1

In 2009, capital expenditures to replace and upgrade existing equipment and install new equipment and fixtures to provide additional operating efficiencies are expected to approximate $2.0 million.

In 2008, the Company completed renovation of 60,000 square feet of warehouse space in Fort Atkinson. The renovation project, totaling $2.5 million, was funded through the Company's existing cash flows and its primary debt facility.
The renovated space provides additional warehouse and shipping capacity to meet the Company's future logistical needs.

In the first quarter of 2007, the Company completed construction of a 60,000 square foot manufacturing facility on its existing land in Fort Atkinson for Nasco's plastics operations at a construction cost of $3.6 million. The Company funded the capital expenditures through cash and its primary debt facility. The new facility replaces 45,000 square feet of manufacturing space previously under a lease that expired at the end of 2006.

Capital resources in the future are expected to be used for the development of catalogs and product lines, to acquire additional businesses and for other investing activities. The Company anticipates that there will be sufficient financial resources to meet projected working capital and other cash requirements for at least the next twelve months. Management of the Company believes it has sufficient capacity to maintain current operations and support a sustained level of future growth.

INFLATION

Inflation has had and is expected to have only a minor effect on the Company's operating results and its sources of liquidity. Inflation, including as it related to the increased cost of fuel and plastic materials, did not significantly impact the Company's operating results and its sources of liquidity in 2008, 2007 and 2006. The Company will continue its policy of monitoring costs and adjusting prices, accordingly.

SIGNIFICANT ACCOUNTING POLICIES

The accounting and reporting policies of the Company conform to U.S. generally accepted accounting principles ("GAAP"). The preparation of the Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and notes thereto. Actual results could differ from those . . .