UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended ~~June 30,~~December 31, 2008

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

For the transition period from to

Commission File Number: 1-06620

GRIFFON CORPORATION

(Exact name of registrant as specified in its charter)

DELAWARE		11-1893410
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

100 JERICHO QUADRANGLE, JERICHO, NEW YORK		11753
(Address of principal executive offices)		(Zip Code)

(516) 938-5544

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

x Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See ~~the~~ definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filerx	o		Accelerated filero	x
Non-accelerated filero	~~(Do not check if a smaller reporting company)~~o
	Smaller reporting ~~company)~~ company	o

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o Yes x No

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. ~~30,186,433~~59,275,870 shares of Common Stock as of ~~July 31, 2008.~~February 3, 2009.

Table of Contents

~~FORM 10-Q~~Griffon Corporation and Subsidiaries

~~CONTENTS~~Contents

		~~PAGE~~Page

PART I –- FINANCIAL INFORMATION (Unaudited)

Item 1 – Financial Statements

Condensed Consolidated Balance Sheets at ~~June 30,~~December 31, 2008 and September 30, ~~2007~~2008		1

Condensed Consolidated Statements of Operations for the Three ~~and Nine~~ Months Ended ~~June 30,~~December 31, 2008 and 2007		32

Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~June 30,~~December 31, 2008 and 2007		53

Condensed Consolidated Statement of Shareholders’ Equity for the ~~Nine~~Three Months Ended ~~June 30,~~December 31, 2008		64

Notes to Condensed Consolidated Financial Statements		75

Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations		1716

Item 3 – Quantitative and Qualitative Disclosures about Market Risk		2420

Item 4 – Controls & Procedures		2420

PART II –— OTHER INFORMATION

Item 1 – Legal Proceedings		2521

Item 1A – Risk Factors		2521

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds		2521

Item 3 – Defaults upon Senior Securities		2521

Item 4 – Submission of Matters to a Vote of Security Holders		2521

Item 5 – Other Information		2521

Item 6 – Exhibits		2521

Signature		2722

Table of Contents

Part I – Financial Information

Item 1 – Financial Statements

GRIFFON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

~~(Unaudited)~~(in thousands, except share data)

	June 30, 2008		September 30, 2007		December 31, 2008			September 30, 2008
ASSETS

CURRENT ASSETS:

Cash and cash equivalents	$	47,039,000	$	44,747,000	$	276,024		$	311,921

Accounts receivable, less allowance for doubtful accounts of $5,871,000 at June 30, 2008 and $4,392,000 at September 30, 2007	166,141,000		172,333,000

Accounts receivable, less allowance for doubtful accounts of $5,293 at December 31, 2008 and $5,609 at September 30, 2008					146,595			163,586
Contract costs and recognized income not yet billed	68,050,000		77,184,000		64,194			69,001

Inventories, net	165,280,000		143,962,000

Inventories					169,379			167,158
Prepaid expenses and other current assets	66,427,000		47,670,000		54,943			52,430

Assets of discontinued operations	16,139,000		62,897,000		4,793			9,495

Total current assets	529,076,000		548,793,000		715,928			773,591

PROPERTY, PLANT AND EQUIPMENT, at cost, net of accumulated depreciation and amortization of $286,979,000 at June 30, 2008 and $249,602,000 at September 30, 2007	258,953,000		230,232,000

OTHER ASSETS:
Costs in excess of fair value of net assets of businesses acquired, net	117,517,000		108,417,000
Intangible assets and other	64,779,000		58,818,000
	182,296,000		167,235,000

PROPERTY, PLANT AND EQUIPMENT, at cost, net of depreciation and amortization					228,400			239,003
COSTS IN EXCESS OF FAIR VALUE OF NET ASSETS OF BUSINESSES ACQUIRED					88,300			93,782
INTANGIBLE ASSETS, net					33,484			34,777
OTHER ASSETS					23,007			22,067
ASSETS OF DISCONTINUED OPERATIONS	5,435,000		13,598,000		8,816			8,346
	$	975,760,000	$	959,858,000	$	1,097,935		$	1,171,566
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Notes payable and current portion of long-term debt					$	4,594		$	2,258
Accounts payable					107,088			129,823
Accrued liabilities					59,816			64,450
Liabilities of discontinued operations					11,849			14,917
Total current liabilities					183,347			211,448
LONG-TERM DEBT					194,902			230,930
OTHER LIABILITIES					61,960			59,460
LIABILITIES OF DISCONTINUED OPERATIONS					9,689			10,048
Total Liabilities					449,898			511,886
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY:
Preferred stock, par value $.25 per share, authorized 3,000,000 shares, no shares issued					—			—
Common stock, par value $.25 per share, authorized 85,000,000 shares, issued 71,715,885 shares at December 31, 2008 and 71,095,399 shares at September 30, 2008					17,929			17,774
Capital in excess of par value					416,061			415,505
Retained earnings					420,265			415,991
Treasury shares, at cost, 12,440,015 common shares at December 31, 2008 and September 30, 2008					(213,310		)	(213,310		)
Accumulated other comprehensive income					12,975			25,469
Deferred compensation					(5,883		)	(1,749		)
Total shareholders’ equity					648,037			659,680
					$	1,097,935		$	1,171,566

~~See~~The accompanying notes to condensed consolidated financial statements are an integral part of these statements.

Table of Contents

June 30,
2008

September 30,
2007

LIABILITIES AND SHAREHOLDERS’ EQUITY

CURRENT LIABILITIES:

Notes payable and current portion of long-term debt

$
2,944,000

$
3,392,000

Accounts payable

118,292,000

99,007,000

Accrued liabilities

63,650,000

60,764,000

Income taxes

1,720,000

14,153,000

Liabilities of discontinued operations

15,560,000

17,287,000

Total current liabilities

202,166,000

194,603,000

LONG-TERM DEBT

231,740,000

229,438,000

OTHER LIABILITIES AND DEFERRED CREDITS

71,727,000

62,429,000

LIABILITIES OF DISCONTINUED OPERATIONS

10,135,000

6,449,000

Total liabilities and deferred credits

515,768,000

492,919,000

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS’ EQUITY:

Preferred stock, par value $.25 per share, authorized 3,000,000 shares, no shares issued

—

—

Common stock, par value $.25 per share, authorized 85,000,000 shares, issued 42,626,448 shares and 42,328,821 shares at June 30, 2008 and September 30, 2007, respectively

10,657,000

10,582,000

Capital in excess of par

182,749,000

180,022,000

Retained earnings

423,970,000

461,163,000

Treasury shares, at cost, 12,440,015 common shares and 12,399,115 common shares at June 30, 2008 and September 30, 2007, respectively

(213,310,000
)
(212,731,000
)
Accumulated other comprehensive income

57,164,000

29,522,000

Deferred compensation

(1,238,000
)
(1,619,000
)
Total shareholders’ equity

459,992,000

466,939,000

$
975,760,000

$
959,858,000

GRIFFON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(Unaudited)

	Three Months Ended December 31,
	2008			2007

Net sales	$	302,334		$	294,802
Cost of sales	243,377			230,044

Gross profit	58,957			64,758

Selling, general and administrative expenses	56,528			58,987
Restructuring and other related charges	—			1,691
Total operating expenses	56,528			60,678

Income from operations	2,429			4,080

Other income (expense):
Interest expense	(2,796		)	(3,136		)
Interest income	518			881
Gain from debt extinguishment, net	6,714			—
Other, net	(357		)	797
	4,079			(1,458		)
Income from continuing operations before income taxes	6,508			2,622
Provision for income taxes	2,237			1,083
Income from continuing operations before discontinued operations	4,271			1,539
Discontinued operations:
Income (loss) from operations of the discontinued Installation Services business	5			(5,015		)
Provision (benefit) for income taxes	2			(2,121		)
Income (loss) from discontinued operations	3			(2,894		)
Net income (loss)	$	4,274		$	(1,355	)

Basic earnings (loss) per share:
Continuing operations	$	.07		$	.05
Discontinued operations	—			(.09		)
	$	.07		$	(.04	)
Diluted earnings (loss) per share:
Continuing operations	$	.07		$	.05
Discontinued operations	—			(.09		)
	$	.07		$	(.04	)

Weighted-average shares outstanding – basic	58,853			32,478
Weighted-average shares outstanding – diluted	58,918			32,741

~~See~~The accompanying notes to condensed consolidated financial statements are an integral part of these statements.

Table of Contents

GRIFFON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF ~~OPERATIONS~~CASH FLOWS

(in thousands)

(Unaudited)

THREE MONTHS ENDED JUNE 30,

2008

2007

Net sales

$
322,267,000

$
337,194,000

Cost of sales

248,887,000

264,236,000

Gross profit

73,380,000

72,958,000

Selling, general and administrative expenses

62,739,000

61,045,000

Restructuring and other related charges

180,000

79,000

Total operating expenses

62,919,000

61,124,000

Income from operations

10,461,000

11,834,000

Other income (expense):

Interest expense

(2,399,000
)
(3,223,000
)
Interest income

276,000

534,000

Other, net

946,000

1,118,000

(1,177,000
)
(1,571,000
)
Income from continuing operations before income taxes

9,284,000

10,263,000

Provision (benefit) for income taxes

(72,000
)
4,118,000

Income from continuing operations before discontinued operations

9,356,000

6,145,000

Discontinued operations:

Loss from operations of the discontinued Installation Services business (including a loss on disposal of $23,324,000 for the three-month period ended June 30, 2008)

(28,113,000
)
(2,863,000
)
Income tax benefit

(8,957,000
)
(1,115,000
)
Loss from discontinued operations

(19,156,000
)
(1,748,000
)
Net income (loss)

$
(9,800,000
)
$
4,397,000

Basic earnings (loss) per share:

Continuing operations

$
.31

$
.21

Discontinued operations

(.64
)
(.06
)

$
(.33
)
$
.15

Diluted earnings (loss) per share:

Continuing operations

$
.31

$
.20

Discontinued operations

(.64
)
(.06
)

$
(.33
)
$
.14

Weighted-average shares outstanding – basic

30,062,000

29,977,000

Weighted-average shares outstanding – diluted

30,261,000

31,032,000

	Three Months Ended December 31,
	2008			2007
CASH FLOWS FROM OPERATING ACTIVITIES — CONTINUING OPERATIONS:
Net income (loss)	$	4,274		$	(1,355	)
Loss (income) from discontinued operations	(3		)	2,894
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities of continuing operations:
Depreciation and amortization	10,553			10,370
Stock-based compensation	814			624
Recovery of losses on accounts receivable	(346		)	(17		)
Amortization of deferred financing costs	726			222
Gain from debt extinguishment, net	(6,714		)	—
Deferred income taxes	(376		)	412
Change in assets and liabilities:
Decrease in accounts receivable and contract costs and recognized income not yet billed	20,190			36,799
Increase in inventories	(2,934		)	(4,208		)
Increase in prepaid expenses and other assets	(1,341		)	(5,047		)
Increase (decrease) in accounts payable, accrued liabilities and income taxes payable	(27,402		)	1,492
Other changes, net	(2,267		)	(1,211		)
	(9,100		)	42,330
Net cash (used in) provided by operating activities — continuing operations	(4,826		)	40,975
CASH FLOWS FROM INVESTING ACTIVITIES — CONTINUING OPERATIONS:
Acquisition of property, plant and equipment	(4,831		)	(6,445		)
Acquired businesses	—			(1,750		)
Proceeds from sale of investment	—			1,000
Decrease (increase) in equipment lease deposits	(231		)	4,332
Net cash used in investing activities — continuing operations	(5,062		)	(2,863		)
CASH FLOWS FROM FINANCING ACTIVITIES — CONTINUING OPERATIONS:
Proceeds from issuance of shares from rights offering	5,274			—
Purchase of shares for treasury	—			(579		)
Proceeds from issuance of long-term debt	4,908			—
Payments of long-term debt	(33,761		)	(13,818		)
Increase in short-term borrowings	2,021			787
Financing costs	(93		)	—
Purchase of ESOP shares	(4,370		)	—
Other, net	419			177
Net cash used in financing activities — continuing operations	(25,602		)	(13,433		)
CASH FLOWS FROM DISCONTINUED OPERATIONS:
Net cash provided by (used in) operating activities	(323		)	181
Net cash used in investing activities	—			(95		)
Net cash provided by (used in) discontinued operations	(323		)	86
Effect of exchange rate changes on cash and cash equivalents	(84		)	240
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS	(35,897		)	25,005
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	311,921			44,747
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	276,024		$	69,752

~~See~~The accompanying notes to condensed consolidated financial statements are an integral part of these statements.

Table of Contents

NINE MONTHS ENDED JUNE 30,

2008

2007

Net sales

$
915,640,000

$
1,032,319,000

Cost of sales

720,052,000

816,574,000

Gross profit

195,588,000

215,745,000

Selling, general and administrative expenses

182,273,000

179,900,000

Restructuring and other related charges

2,572,000

79,000

Total operating expenses

184,845,000

179,979,000

Income from operations

10,743,000

35,766,000

Other income (expense):

Interest expense

(8,600,000
)
(9,219,000
)
Interest income

1,756,000

1,906,000

Other, net

2,525,000

2,294,000

(4,319,000
)
(5,019,000
)
Income from continuing operations before income taxes

6,424,000

30,747,000

Provision (benefit) for income taxes

(325,000
)
12,625,000

Income from continuing operations before discontinued operations

6,749,000

18,122,000

Discontinued operations:

Loss from operations of the discontinued Installation Services business (including a loss on disposal of $36,213,000 for the nine-month period ended June 30, 2008)

(52,336,000
)
(8,292,000
)
Income tax benefit

(13,063,000
)
(3,287,000
)
Loss from discontinued operations

(39,273,000
)
(5,005,000
)
Net income (loss)

$
(32,524,000
)
$
13,117,000

Basic earnings (loss) per share:

Continuing operations

$
.23

$
.61

Discontinued operations

(1.31
)
(.17
)

$
(1.08
)
$
.44

Diluted earnings (loss) per share:

Continuing operations

$
.22

$
.58

Discontinued operations

(1.30
)
(.16
)

$
(1.08
)
$
.42

Weighted-average shares outstanding – basic

30,057,000

29,959,000

Weighted-average shares outstanding – diluted

30,229,000

31,089,000

GRIFFON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED DECEMBER 31, 2008

(in thousands, except share data)

(Unaudited)

	COMMON STOCK			CAPITAL IN EXCESS OF			RETAINED		TREASURY SHARES				ACCUMULATED OTHER COMPREHENSIVE			DEFERRED						COMPREHENSIVE
	SHARES	PAR VALUE		PAR VALUE			EARNINGS		SHARES	COST			INCOME			COMPENSATION			Total			INCOME (LOSS)
Balances, October 1, 2008	71,095,399	$	17,774	$	415,505		$	415,991	12,440,015	$	(213,310	)	$	25,469		$	(1,749	)	$	659,680
Foreign currency translation adjustment	—	—		—			—		—	—			(12,494		)	—			(12,494		)	$	(12,494	)
Net income	—	—		—			4,274		—	—			—			—			4,274			4,274
Comprehensive income																						$	(8,220	)
Amortization of deferred compensation	—	—		—			—		—	—			—			216			216
ESOP purchase of common stock																(4,370		)	(4,370		)
Stock-based compensation	—	—		794			—		—	—			—			20			814
Issuance of common stock pursuant to rights offering, net of financing costs	620,486	155		(192		)	—		—	—			—			—			(37		)
Other	—	—		(46		)	—		—	—			—			—			(46		)
Balances, December 31, 2008	71,715,885	$	17,929	$	416,061		$	420,265	12,440,015	$	(213,310	)	$	12,975		$	(5,883	)	$	648,037

~~See~~The accompanying notes to condensed consolidated financial ~~statements.~~statements are an integral part of this statement.

Table of Contents

GRIFFON CORPORATION AND SUBSIDIARIES

~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(Unaudited)~~

NINE MONTHS ENDED JUNE 30,

2008

2007

CASH FLOWS FROM OPERATING ACTIVITIES – CONTINUING OPERATIONS:

Net income (loss)

$
(32,524,000
)
$
13,117,000

Loss from discontinued operations – net of taxes

39,273,000

5,005,000

Adjustments to reconcile net income (loss) to net cash provided by operating activities of continuing operations:

Depreciation and amortization

32,225,000

29,474,000

Stock-based compensation

2,012,000

1,884,000

Provision for losses on accounts receivable

447,000

121,000

Write-off of unamortized deferred financing costs

495,000

—

Deferred income taxes

874,000

1,003,000

Change in assets and liabilities:

Decrease in accounts receivable and contract costs and recognized income not yet billed

17,650,000

7,165,000

Increase in inventories

(18,746,000
)
(3,446,000
)
Increase in prepaid expenses and other assets

(18,231,000
)
(735,000
)
Increase (decrease) in accounts payable, accrued liabilities and income taxes payable

29,327,000

(40,504,000
)
Other changes, net

(3,260,000
)
(311,000
)

82,066,000

(344,000
)
Net cash provided by operating activities – continuing operations

49,542,000

12,773,000

CASH FLOWS FROM INVESTING ACTIVITIES – CONTINUING OPERATIONS:

Acquisition of property, plant and equipment

(49,101,000
)
(23,027,000
)
Acquisition of business

(1,829,000
)
(817,000
)
Proceeds from sale of investment

1,000,000

—

Decrease (increase) in equipment lease deposits

3,235,000

(4,597,000
)
Funds restricted for capital projects

—

(4,471,000
)
Net cash used in investing activities – continuing operations

(46,695,000
)
(32,912,000
)
CASH FLOWS FROM FINANCING ACTIVITIES – CONTINUING OPERATIONS:

Purchase of shares for treasury

(579,000
)
(3,287,000
)
Proceeds from issuance of long-term debt

84,600,000

47,891,000

Payments of long-term debt

(82,130,000
)
(7,449,000
)
Decrease in short-term borrowings

(896,000
)
(6,132,000
)
Financing costs

(2,779,000
)
—

Exercise of stock options

—

2,563,000

Tax benefit from restricted stock vesting and exercise of stock options

909,000

685,000

Other, net

(879,000
)
(1,315,000
)
Net cash provided by (used in) financing activities – continuing operations

(1,754,000
)
32,956,000

CASH FLOWS FROM DISCONTINUED OPERATIONS:

Net cash provided by (used in) operating activities

(3,842,000
)
17,046,000

Net cash provided by (used in) investing activities

3,928,000

(16,923,000
)
Net cash provided by discontinued operations

86,000

123,000

Effect of exchange rate changes on cash and cash equivalents

1,113,000

695,000

NET INCREASE IN CASH AND CASH EQUIVALENTS

2,292,000

13,635,000

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

44,747,000

22,389,000

CASH AND CASH EQUIVALENTS AT END OF PERIOD

$
47,039,000

$
36,024,000

~~See notes to condensed consolidated financial statements.~~
5

~~Table of Contents~~
~~GRIFFON CORPORATION~~
~~CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY~~
~~FOR THE NINE MONTHS ENDED JUNE 30, 2008~~
~~(Unaudited)~~

COMMON STOCK

CAPITAL IN
EXCESS OF

RETAINED

TREASURY SHARES

ACCUMULATED
OTHER
COMPREHENSIVE

DEFERRED

COMPREHENSIVE

SHARES

PAR VALUE

PAR VALUE

EARNINGS

SHARES

COST

INCOME

COMPENSATION

Total

INCOME

Balances, October 1, 2007

42,328,821

$
10,582,000

$
180,022,000

$
461,163,000

12,399,115

$
(212,731,000
)
$
29,522,000

$
(1,619,000
)
$
466,939,000

Foreign currency translation adjustment

—

—

—

—

—

—

27,642,000

—

27,642,000

$
27,642,000

Net loss

—

—

—

(32,524,000
)
—

—

—

—

(32,524,000
)
(32,524,000
)
Comprehensive income (loss)

$
(4,882,000
)
Amortization of deferred compensation

—

—

—

—

—

—

—

309,000

309,000

Purchase of treasury shares

—

—

—

—

40,900

(579,000
)
—

—

(579,000
)

Stock-based compensation

—

—

1,940,000

—

—

—

—

72,000

2,012,000

Issuance of deferred shares

275,000

69,000

—

—

—

—

—

—

69,000

Tax benefit from vesting of restricted stock

—

—

909,000

—

—

—

—

—

909,000

Impact of the adoption of FIN 48

—

—

—

(4,669,000
)
—

—

—

—

(4,669,000
)

Other

22,627

6,000

(122,000
)

—

—

—

—

(116,000
)

Balances, June 30, 2008

42,626,448

$
10,657,000

$
182,749,000

$
423,970,000

12,440,015

$
(213,310,000
)
$
57,164,000

$
(1,238,000
)
$
459,992,000

~~See notes to condensed consolidated financial statements.~~
6

~~Table of Contents~~
~~GRIFFON CORPORATION AND SUBSIDIARIES~~

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

(Unaudited)

~~(1)~~ ~~Basis of presentation~~NOTE 1 – BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of Griffon Corporation and Subsidiaries (the ~~“company”~~“Company”) have been prepared in accordance with accounting principles generally accepted ~~accounting principles~~in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted ~~accounting principles~~in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair ~~presentation of the financial statements~~statement have been included. Operating results for the three-month ~~and nine-month periods~~period ended ~~June 30,~~December 31, 2008 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, ~~2008.~~2009. The unaudited condensed consolidated balance sheet atinformation as of September 30, ~~2007 has been~~2008 was derived from the audited financial statements ~~at that date. For further information, refer to the consolidated financial statements and notes thereto~~ included in the ~~company’s~~Company’s Annual Report on Form 10-K for the year ended September 30, ~~2007.~~2008. The interim condensed consolidated financial statements contained herein should be read in conjunction with that Report.

In preparing its unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, the Company is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, the Company evaluates estimates, including those related to bad debts, inventory reserves, goodwill and intangible assets. The Company bases its estimates on historical data and experience, when available, and on various other assumptions that are believed to be reasonable under the circumstances, the combined results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.

Certain amounts in the condensed consolidated financial statements at ~~September 30,~~December 31, 2007 have been reclassified to conform to the current period’s presentation.

~~(2)~~ ~~Inventories~~NOTE 2 – FAIR VALUE MEASUREMENTS

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value Measurements (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosures about fair value measurements. The statement clarifies that the exchange price is the price in an orderly transaction between market participants to sell an asset or transfer a liability at the measurement date. The statement emphasizes that fair value is a market-based measurement and not an entity-specific measurement. It also establishes a fair value hierarchy used in fair value measurements and expands the required disclosures of assets and liabilities measured at fair value. For financial assets and liabilities, this statement is effective for fiscal periods beginning after November 15, 2007 and does not require any new fair value measurements. In February 2008, the FASB Staff Position No. 157-2 (“FSP 157-2”) was issued which delayed the effective date of SFAS 157 to fiscal years beginning after November 15, 2008 for non-financial assets and liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually).

The Company adopted the provisions of SFAS 157, as amended by FSP 157-2, on October 1, 2008. Pursuant to the provisions of FSP 157-2, the Company will not apply the provisions of SFAS 157 until October 1, 2009 for non-financial assets and liabilities (principally goodwill and intangible assets).

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”), to provide companies the option to report selected financial assets and liabilities at fair value. Upon adoption of the provisions of SFAS 159 on October 1, 2008, the Company did not elect the fair value

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option to report its financial assets and liabilities at fair value. Accordingly, the adoption of SFAS 159 did not have an impact on the Company’s financial position or results of operations.

Fair Value Hierarchy

SFAS 157 specifies a hierarchy of valuation techniques based upon whether the inputs to those valuation techniques reflect assumptions other market participants would use based upon market data obtained from independent sources (observable inputs), or reflect the Company’s own assumptions of market participant valuation (unobservable inputs). In accordance with SFAS 157, these two types of inputs have created the following fair value hierarchy:

·		Level 1 – Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities.

·		Level 2 – Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active markets or financial instruments for which significant inputs are observable, either directly or indirectly.

·		Level 3 – Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

SFAS 157 requires the use of observable market data if such data is available without undue cost and effort.

Measurement of Fair Value

The Company measures fair value as an exit price using the procedures described below for all assets and liabilities measured at fair value. When available, the Company uses unadjusted quoted market prices to measure fair value and classifies such items within Level 1. If quoted market prices are not available, fair value is based upon internally developed models that use, where possible, current market-based or independently-sourced market parameters such as interest rates and currency rates. Items valued using internally generated models are classified according to the lowest level input or value driver that is significant to the valuation. Thus, an item may be classified in Level 3 even though there may be inputs that are readily observable. If quoted market prices are not available, the valuation model used generally depends on the specific asset or liability being valued. The determination of fair value considers various factors including interest rate yield curves and time value underlying the financial instruments.

Items Measured at Fair Value on a Recurring Basis

The following table presents the Company’s assets and liabilities that are measured and recorded at fair value on a recurring basis at December 31, 2008 consistent with the fair value hierarchy provisions of SFAS 157:

			Fair Value Measurements at Reporting Date Using
	Carrying Value		Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents:
Cash and US Government money market funds	$	276,024	$	276,024	$	—	$	—
Other assets:
Deferred non-qualified retirement plan assets	3,253		3,253		—		—
Total assets measured at fair value	$	279,277	$	279,277	$	—	$	—

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NOTE 3 – INVENTORIES

Inventories, stated at the lower of cost (first-in, first-out or average) or market, are comprised of the following:

	June 30,		September 30,
	2008		2007		December 31, 2008		September 30, 2008
Finished goods	$	46,086,000	$	48,352,000	$	46,727	$	50,859
Work in process	76,022,000		52,404,000		81,448		70,716
Raw materials and supplies	43,172,000		43,206,000		41,204		45,583
	$	165,280,000	$	143,962,000	$	169,379	$	167,158

~~(3)~~ ~~Long-term debt~~NOTE 4 – LONG-TERM DEBT

OnIn June ~~24,~~ 2008, Clopay Building Products Company, Inc. (“BPC”) and Clopay Plastic Products Company, Inc. (“PPC”), each a wholly-owned subsidiary of the ~~company,~~Company, entered into a credit agreement for their domestic operations with JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto, pursuant to which the lenders agreed to provide a five-year, senior secured revolving credit facility of ~~$100 million. Availability~~$100,000 (the “Clopay Credit Agreement”). At December 31, 2008 and September 30, 2008, $33,402 and $33,900, respectively, were outstanding under the ~~credit facility is based upon certain eligible accounts receivable, inventory, cash~~Clopay Credit Agreement and ~~cash equivalents and property, plant and equipment. Borrowings under the credit agreement bear interest~~approximately $32,691 was available for borrowing at ~~rates based upon LIBOR or the prime rate and are collateralized by the stock and assets of~~December 31, 2008. BPC and PPC ~~and the stock~~were in compliance with all of their ~~subsidiaries. The credit agreement contains certain restrictive and~~ financial covenants ~~certain of which are only subject to compliance if borrowing availability falls below a certain level. Upon the occurrence of certain events of default specified in the credit agreement, amounts due~~ under the ~~credit agreement may be declared immediately due and payable.~~Clopay Credit Agreement at December 31, 2008.

~~Proceeds of a $33 million initial draw under this facility were primarily used to refinance existing maturing lease obligations for certain property, plant and equipment.~~

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OnIn March ~~31,~~ 2008, Telephonics Corporation (“Telephonics”), a wholly-owned subsidiary of the ~~company,~~Company, entered into a credit agreement with JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto, pursuant to which the lenders agreed to provide ~~Telephonics with~~ a five-year, revolving credit facility of ~~$100 million. Commitments~~$100,000 (the “Telephonics Credit Agreement”). At December 31, 2008 and September 30, 2008, $41,000 and $44,500, respectively, were outstanding under the ~~credit agreement may be increased by up to an additional $50 million under certain circumstances. Borrowings~~Telephonics Credit Agreement and approximately $54,203 was available for borrowing at December 31, 2008. Telephonics was in compliance with all of its financial covenants under the ~~credit agreement bear interest~~Telephonics Credit Agreement at ~~rates based upon LIBOR or~~December 31, 2008.

The Company had outstanding $130,000 of 4% convertible subordinated notes due 2023 (the “Notes”) at September 30, 2008. Holders may convert the ~~prime rate and are collateralized by the stock and assets~~Notes at a conversion price of ~~Telephonics and the stock of Telephonics’ subsidiaries~~$22.41 per share, as adjusted pursuant to ~~a Guarantee and Collateral Agreement made by Gritel Holding Co., Inc., a newly-formed subsidiary~~the recent rights offering of the ~~company,~~Company and ~~Telephonics in favor~~subject to possible further adjustment, as defined, which is equal to a conversion rate of approximately 44.6229 shares per $1 principal amount of Notes.

In October 2008, the Company purchased $35,500 face value of the ~~lenders.~~Notes from certain Noteholders for $28,400. The ~~credit agreement contains certain restrictive and financial covenants. Upon the occurrence~~Company recorded a pre-tax gain from debt extinguishment of ~~certain events of default specified~~approximately $7,100, offset by a $386 proportionate reduction in the ~~credit agreement, amounts due under~~related deferred financing costs for a net gain of $6,714 in the ~~credit agreement may be declared immediately due and payable.~~first quarter of fiscal 2009. The amount of Notes outstanding at December 31, 2008 was $94,500.

~~Proceeds of a $50 million initial draw under this facility, together with internal cash of~~NOTE 5 – SHAREHOLDERS’ EQUITY

In August 2008, the company, were used to repay $62.5 million of outstanding debt under the company’s Amended and Restated Credit Agreement, dated as of December 20, 2006, as amended, among the company, Telephonics, JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto, at which time such Amended and Restated Credit Agreement was terminated.

~~(4)~~ ~~Commitments and Contingencies~~

On March 16, 2008, Harvey R. Blau notified the company of his intention to retire from his position as Chief Executive Officer of the company effective as of April 1, 2008. Mr. Blau remains as non-executive Chairman of theCompany’s Board of Directors authorized a 20,000,000 share Common Stock rights offering to its shareholders in order to raise equity capital for general corporate purposes and ~~pursuant~~ to ~~the terms~~fund future growth. The rights had an exercise price of ~~his employment agreement, a consultant to the company.~~

On March 16, 2008, the Company entered into an Employment Agreement (the “Employment Agreement”) with Ronald J. Kramer, pursuant to which he became the Chief Executive Officer of the company effective April 1, 2008 (the “Commencement Date”). Mr. Kramer has been a director of the company since 1993 and Vice Chairman of the Board since November 2003, which positions he has retained. Mr. Kramer is the son-in-law of Mr. Blau.

~~Pursuant to the terms of the Employment Agreement, Mr. Kramer’s term of employment~~$8.50 per share. In conjunction with the ~~company will continue for three years from~~rights offering, GS Direct, L.L.C., an affiliate of Goldman, Sachs & Co. (“GS Direct”), agreed to back stop the ~~date~~rights offering by purchasing, on ~~which either party gives notice that~~ the ~~term~~same terms, any and all shares not subscribed through the exercise of employment will not be further renewed (the “Term”). During the Term, Mr. Kramer will receive an annual base salary of $775,000 per annum, subject to cost of living and discretionary increases. Mr. Kramer shallrights. GS Direct also be entitled to a guaranteed bonus of $581,250 in respect of the company’s 2008 fiscal year, and an annual bonus of between 0% and 250% of his base salary, with a target bonus of 150% of base salary, for fiscal years thereafter based upon achievement of performance objectives. Mr. Kramer shall also be entitled to receive severance payments upon termination of his employment under certain circumstances, as more fully set forth in the Employment Agreement.

On the Commencement Date, Mr. Kramer received a restricted stock grant of 250,000 shares of common stock, and on or shortly after October 1, 2008 and October 1, 2009, Mr. Kramer shall receive restricted stock grants of 75,000 shares of common stock and 25,000 shares of common stock, respectively, each vesting three years after the Commencement Date. On or shortly after October 1, 2008, Mr. Kramer shall also receive a ten-year optionagreed to purchase ~~350,000~~additional shares of common stock at ~~an exercise~~the rights offering price ~~equal to~~if it did not acquire a minimum of 10,000,000 shares of Common Stock as a result of its back stop commitment. In September 2008, the ~~greater~~Company received $241,344 of ~~$20 per share or~~gross proceeds from the ~~fair market value~~first closing of its rights offering and the closing of the ~~common stock on~~related investments by GS Direct and by the ~~date~~Company’s Chief Executive Officer, and issued 28,393,323 shares of ~~grant, vesting~~its Common Stock. An additional $5,274 of rights offering proceeds, which were reflected as a component of prepaid expenses and other current assets in ~~three equal installments on each anniversary~~the condensed consolidated balance sheet at September 30, 2008, were received in October 2008 and the Company issued 620,486 shares of Common Stock in connection with the second closing of the ~~Commencement Date. All equity awards shall immediately vest in~~rights offering, after which the event of termination of Mr. Kramer’s employment without Cause, if he leaves for Good Reason, or upon his death, Disability or a Change in Control (as such terms are defined in the Employment Agreement).rights offering was terminated.

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~~(5)~~ ~~Earnings (loss)~~During the first quarter of fiscal 2009, the Company’s Employee Stock Ownership Plan (“ESOP”) purchased an aggregate of 547,605 shares of the Company’s Common Stock for approximately $4,370 utilizing proceeds from the ESOP line of credit.

In accordance with the terms of an employment agreement, in October 2008, the Company’s Chief Executive Officer received a restricted stock grant of 75,000 shares of Common Stock, such grant vesting in April 2011. Aggregate compensation expense related to the restricted stock grant of $675 will be amortized over the vesting period. In addition, the Company’s Chief Executive Officer received a ten-year option to purchase 350,000 shares of Common Stock at an exercise price of $20 per share, ~~(EPS)~~vesting in three equal annual installments beginning April 2009. Aggregate compensation expense related to the option of $721 will be amortized over the respective vesting periods.

NOTE 6 – EARNINGS PER SHARE (EPS)

Basic EPS is calculated by dividing income ~~(loss)~~available to common shareholders by the ~~weighted-average~~weighted average number of shares of ~~common stock~~Common Stock outstanding during the period. Diluted EPS is calculated by dividing income ~~(loss)~~available to common shareholders by the ~~weighted-average~~weighted average number of shares of ~~common stock~~Common Stock outstanding plus additional common shares that could be issued in connection with potentially dilutive securities. ~~Holders of~~Management determined that the ~~company’s 4% convertible subordinated notes are entitled~~rights offering contained a bonus element to ~~convert their notes into~~existing shareholders that required the ~~company’s common stock upon~~Company to adjust the ~~occurrence of certain events described in Note 2 of Notes to Consolidated Financial Statements~~shares used in the ~~company’s Annual Report on Form 10-K~~computation of basic and fully-diluted weighted-average shares outstanding for the ~~year~~three months ended ~~September 30,~~December 31, 2007. Basic and diluted EPS from continuing operations for the ~~three and nine-month~~three-month periods ended ~~June 30,~~December 31, 2008 and 2007 were determined using the following information:

	Three Months Ended June 30,				Nine Months Ended June 30,				Three Months Ended December 31,
	2008		2007		2008		2007		2008		2007
Income from continuing operations available to common stockholders	$	9,356,000	$	6,145,000	$	6,749,000	$	18,122,000	$	4,271	$	1,539

Weighted-average shares outstanding - basic	30,062,000		29,977,000		30,057,000		29,959,000		58,853		32,478
Incremental shares from
stock-based compensation	199,000		1,055,000		172,000		1,101,000
Incremental shares from 4% convertible notes	—		—		—		29,000
Incremental shares from stock-based compensation									65		263
Weighted-average shares outstanding – diluted	30,261,000		31,032,000		30,229,000		31,089,000		58,918		32,741

At ~~June 30,~~December 31, 2008 and 2007 and during the three-month ~~and nine-month~~ periods ended ~~June 30,~~December 31, 2008 and 2007, there were outstanding stock options whose exercise prices were higher than the average market values of the underlying common stock for the period. These options are antidilutive and are excluded from the computation of ~~income per share.~~EPS. The weighted average antidilutive ~~stock~~ options outstanding for the three-month periods ended December 31, 2008 and 2007 were ~~as follows:~~

Three Months Ended June 30,

Nine Months Ended June 30,

2008

2007

2008

2007

Antidilutive stock options

1,766,000

115,000

1,766,000

115,000

~~(6)~~ ~~Business segments~~1,660 and 930, respectively.

NOTE 7 – BUSINESS SEGMENTS

The ~~company’s~~Company’s reportable business segments are as ~~follows:~~follows – Electronic Information and Communication Systems (communication and information systems for government and commercial markets); Garage Doors (manufacture and sale of residential and commercial/industrial garage doors, and related products); and Specialty Plastic Films (manufacture and sale of plastic films and film laminates for baby diapers, adult incontinence care products, disposable surgical and patient care products and plastic packaging). The ~~company’s~~Company’s reportable segments are distinguished from each other by types of products and services offered, classes of customers, production and distribution methods, and separate management. The Company’s Installation Services segment (sale and installation of building products primarily for new construction, such as garage doors, garage door openers, manufactured fireplaces and surrounds, appliances, flooring and cabinets) has been reflected as discontinued operations in the condensed consolidated financial statements for all periods presented and, accordingly, is excluded from segment ~~disclosures.~~disclosures (see Note 10).

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Information on the ~~company’s~~Company’s business segments is as follows:

Electronic

Information

and

Specialty

Communication

Garage

Plastic

Totals

Systems

Doors

Films

Revenues from external customers -

Three months ended

June 30, 2008

$
322,267,000

$
88,251,000

$
112,869,000

$
121,147,000

June 30, 2007

337,194,000

120,553,000

119,793,000

96,848,000

Nine months ended

June 30, 2008

$
915,640,000

$
262,508,000

$
310,912,000

$
342,220,000

June 30, 2007

1,032,319,000

374,567,000

357,519,000

300,233,000

Revenues on sales to discontinued operations -

Three months ended

June 30, 2008

$
1,788,000

$
—

$
1,788,000

$
—

June 30, 2007

4,280,000

—

4,280,000

—

Nine months ended

June 30, 2008

$
8,484,000

$
—

$
8,484,000

$
—

June 30, 2007

13,099,000

—

13,099,000

—

Segment profit (loss) -

Three months ended

June 30, 2008

$
16,931,000

$
9,173,000

$
2,252,000

$
5,506,000

June 30, 2007

17,314,000

9,951,000

4,506,000

2,857,000

Nine months ended

June 30, 2008

$
29,582,000

$
21,795,000

$
(8,069,000
)
$
15,856,000

June 30, 2007

51,465,000

35,302,000

4,027,000

12,136,000

	Electronic Information and Communication Systems		Garage Doors			Specialty Plastic Films		Totals
Revenues from external customers -
Three months ended
December 31, 2008	$	80,827	$	108,818		$	112,689	$	302,334
December 31, 2007	75,860		112,544			106,398		294,802

Sales to discontinued segments -
Three months ended
December 31, 2008	$	—	$	—		$	—	$	—
December 31, 2007	—		4,127			—		4,127

Segment profit (loss) -
Three months ended
December 31, 2008	$	5,378	$	(4,393	)	$	5,536	$	6,521
December 31, 2007	5,483		(1,375		)	5,998		10,106

Segment assets -
Three months ended
December 31, 2008	$	254,682	$	174,423		$	349,093	$	778,198
December 31, 2007	245,764		206,532			340,836		793,132

Segment capital expenditures -
Three months ended
December 31, 2008	$	711	$	2,451		$	1,662	$	4,824
December 31, 2007	1,326		3,776			1,337		6,439

Depreciation and amortization expense -
Three months ended
December 31, 2008	$	1,487	$	3,232		$	5,763	$	10,482
December 31, 2007	1,453		3,259			5,584		10,296

Following is a reconciliation of segment profit to amounts reported in the condensed consolidated financial statements:

	Three Months Ended June 30,						Nine Months Ended June 30,						Three Months Ended December 31,
	2008			2007			2008			2007			2008			2007
Profit for all segments	$	16,931,000		$	17,314,000		$	29,582,000		$	51,465,000		$	6,521		$	10,106
Unallocated amounts	(5,524,000		)	(4,362,000		)	(16,314,000		)	(13,405,000		)	2,265			(5,229		)
Interest income and expense	(2,123,000		)	(2,689,000		)	(6,844,000		)	(7,313,000		)
Interest expense, net													(2,278		)	(2,255		)
Income from continuing operations before income taxes	$	9,284,000		$	10,263,000		$	6,424,000		$	30,747,000		$	6,508		$	2,622

Unallocated amounts typically include general corporate expenses not attributable to any reportable segment. For the three months ended December 31, 2008, unallocated amounts included a net gain from the extinguishment of debt of $6,714. Goodwill at ~~June 30,~~December 31, 2008 includes $18.6 million attributable to the Electronic Information and Communication Systems segment ~~$12.9 million attributable to the Garage Doors segment~~ and ~~$86.0~~$69.7 million attributable to the Specialty Plastic Films segment. The change in goodwill from September 30, ~~2007~~2008 was primarily due to Specialty Plastic Films’ foreign currency translation adjustments. In December 2007, the Electronic Information and Communication Systems segment acquired certain assets and assumed certain liabilities of a video surveillance systems integration business. The purchase price was approximately $1.75 million in cash plus performance-based cash payments over a three-year period of up to $1.75 million. The purchase price has been preliminarily allocated to intangible assets.

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~~(7)~~ ~~Comprehensive income (loss) and defined benefit pension expense~~NOTE 8 – COMPREHENSIVE INCOME (LOSS) AND DEFINED BENEFIT PENSION EXPENSE

Comprehensive income (loss), which consists of net income (loss) and foreign currency translation adjustments, was ~~$(4.5)~~$(8.2) million and ~~$9.4~~$4.9 million for the three-month periods ended ~~June 30, 2008 and 2007, respectively, and was $(4.9) million and $28.8 million for the nine-month periods ended June 30,~~December 31, 2008 and 2007, respectively.

Defined benefit pension expense was recognized as follows:

	Three Months Ended June 30,						Nine Months Ended June 30,						Three Months Ended December 31,
	2008			2007			2008			2007			2008			2007
Service cost	$	137,000		$	312,000		$	518,000		$	936,000		$	112		$	244
Interest cost	1,001,000			932,000			3,003,000			2,796,000			1,056			1,001
Expected return on plan assets	(520,000		)	(449,000		)	(1,560,000		)	(1,347,000		)	(431		)	(520		)
Amortization of net actuarial loss	239,000			628,000			717,000			1,884,000			230			239
Amortization of prior service cost	84,000			80,000			252,000			240,000			84			84
	$	941,000		$	1,503,000		$	2,930,000		$	4,509,000		$	1,051		$	1,048

~~(8)~~ ~~Recent accounting pronouncements~~NOTE 9 – RECENT ACCOUNTING PRONOUNCEMENTS

~~In September 2006, the Financial Accounting Standards Board (“FASB”)~~Effect of newly issued Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 provides a new single authoritative definition of fair value and provides enhanced guidance for measuring the fair value of assets and liabilities and requires additional disclosures related to the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value, and the effect of fair value measurements on earnings. SFAS 157 isbut not yet effective ~~for the company as of October 1, 2008. The company is currently evaluating the impact that the adoption of SFAS 157 will have on its results of operations and financial position.~~

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Liabilities, Including an amendment of FASB Statement No. 115” (“SFAS 159”). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. SFAS 159 is effective for the company as of October 1, 2008. The company is currently evaluating the impact that the adoption of SFAS 159 will have on its results of operations and financial position.accounting pronouncements

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS 141R”). The purpose of issuing the statement is to replace current guidance in SFAS 141 to better represent the economic value of a business combination transaction. The changes to be effected with SFAS 141R from the current guidance include, but are not limited to: (1) acquisition costs will be recognized separately from the acquisition; (2) known contractual contingencies at the time of the acquisition will be considered part of the liabilities acquired measured at their fair value; all other contingencies will be part of the liabilities acquired measured at their fair value only if it is more likely than not that they meet the definition of a liability; (3) contingent consideration based on the outcome of future events will be recognized and measured at the time of the acquisition; (4) business combinations achieved in stages (step acquisitions) will need to recognize the identifiable assets and liabilities, as well as noncontrolling interests, in the acquiree, at the full amounts of their fair values; and (5) a bargain purchase (defined as a business combination in which the total acquisition-date fair value of the identifiable net assets acquired exceeds the fair value of the consideration transferred plus any noncontrolling interest in the acquiree) will require that excess to be recognized as a gain attributable to the acquirer. The ~~company~~Company anticipates that the adoption of SFAS 141R will have an impact on the way in which business combinations will be accounted for compared to current practice. SFAS 141R will be effective for any business combinations that occur after October 1, 2009.

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In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements —- an amendment of ARB No. 51” (“SFAS 160”). SFAS 160 was issued to improve the relevance, comparability, and transparency of financial information provided to investors by requiring all entities to report noncontrolling (minority) interests in subsidiaries in the same way, that is, as equity in the consolidated financial statements. Moreover, SFAS 160 eliminates the diversity that currently exists in accounting for transactions between an entity and noncontrolling interests by requiring they be treated as equity transactions. SFAS 160 is effective for the ~~company~~Company as of October 1, 2009. The ~~company is currently evaluating~~Company does not believe that the ~~impact that~~adoption of SFAS 160 will have a material effect on its consolidated financial ~~statements and disclosures.~~position, results of operations or cash flows.

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In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities - an Amendment of FASB Statement 133” ~~(“SFAS 161”). SFAS 161~~which enhances required disclosures regarding derivatives and hedging activities, including enhanced disclosures regarding how: (a) an entity uses derivative instruments; (b)derivative instruments and related hedged items are accounted for under ~~SFAS~~FASB Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities”; ~~and(c)~~and (c) derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. Although early adoption is encouraged, SFAS 161 is effective for the ~~company~~Company as of ~~January~~October 1, 2009. The ~~company is currently evaluating the impact~~Company does not believe that the adoption of SFAS 161 will have a material effect on its consolidated financial ~~statements~~position, results of operations or cash flows.

In April 2008, the FASB issued FASB Staff Position No. 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP 142-3”). FSP 142-3 amends the factors that should be considered in developing renewal or extension assumptions that are used to determine the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets”, and requires enhanced related disclosures. FSP 142-3 must be applied prospectively to all intangible assets acquired as of and subsequent to fiscal years beginning after December 15, 2008, the Company’s fiscal year 2010. The Company is currently in the process of determining the effect, if any, that the adoption of FSP 142-3 may have on its consolidated financial position, results of operations or cash flows.

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles”. SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles in the United States. It is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles”. The adoption of this statement is not expected to have a material effect on the company’s financial statements.

~~In May 2008, the FASB issued FASB~~ Staff Position ~~No.~~ APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)” (“APB 14-1”) to clarify that convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) are not addressed by paragraph 12 of APB Opinion No. 14, “Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants”. Additionally, APB 14-1 specifies that issuers of ~~convertible debt~~such instruments ~~that permit or require the issuer to pay cash upon conversion~~ should separately account for the liability and equity components in a manner that will reflect the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. The company will need to apply the guidance retrospectively to all past periods presented, even to instruments that have matured, converted, or otherwise been extinguished as of the effective date. The FSPAPB 14-1 is effective for ~~financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years.~~the Company as of October 1, 2009. The ~~company~~Company is currently evaluating the impact that the adoption of APB 14-1 ~~will~~may have on its consolidated financial ~~statements and disclosures.~~position, results of operations or cash flows.

~~(9)~~ ~~Discontinued operations~~NOTE 10 – DISCONTINUED OPERATIONS

As a result of the downturn in the residential housing market and the impact on the Installation Services segment, the ~~company’s~~Company’s management initiated a plan during the second quarter of fiscal 2008 to exit certain markets within the Installation Services segment through the sale or disposition of business units. ~~In that quarter,~~As part of the ~~company~~decision to exit certain markets, the Company closed three ~~units. In May~~units of the Installation Services segment in the second quarter of fiscal 2008.

Subsequently, during the third quarter of fiscal 2008, the ~~company’s~~Company’s Board of Directors approved a plan to exit ~~substantially~~ all other operating activities of the Installation Services segment in ~~2008. In~~2008, with the exception of two units which were merged into the Garage Doors segment. As part of this plan, the Company closed one additional unit during the third quarter of fiscal 2008, ~~the company~~ sold nine units to one buyer ~~closed one unit~~in the third quarter of fiscal 2008 and ~~merged two units into its Garage Doors segment. In August 2008, the company entered into an agreement to sell~~sold its two remaining units in Phoenix and Las Vegas ~~that is expected to close~~ in the fourth quarter of fiscal ~~fourth quarter.~~

2008. The ~~company determined that there was an impairment~~plan met the criteria for discontinued operations classification in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of ~~the goodwill and intangible assets associated with~~Long-Lived Assets.” Operating results of substantially all of the Installation Services segment have been reported as discontinued operations in the condensed consolidated statements of operations for all periods presented and ~~recorded an~~the Installation Services segment is excluded from segment reporting.

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~~impairment charge of approximately $11.4 million during the quarter ended June 30, 2008 to completely write-off these assets.~~

Net sales of the Installation Services’ operating units were $22.6 million and $61.5 million for the three months ended June 30, 2008 and 2007, respectively, and $99.4 million and $188.1 million for the nine months ended June 30, 2008 and 2007, respectively.

The following amounts related to the Installation Services segment have been segregated from the ~~company’s~~Company’s continuing operations and are reported as assets and liabilities of discontinued operations in the condensed consolidated balance sheets:

	June 30, 2008				September 30, 2007				December 31, 2008				September 30, 2008
	Current		Long-term		Current		Long-term		Current		Long-term		Current		Long-term
Assets of discontinued operations:
Accounts receivable	$	10,566,000	$	—	$	38,007,000	$	—	$	—	$	—	$	3,414	$	—
Inventories	2,550,000		—		17,813,000		—
Prepaid expenses and other current assets	1,566,000		—		3,219,000		—		4,793		—		6,081		—
Property and equipment	1,294,000		—		3,217,000		—
Goodwill	—		—		—		6,339,000
Intangible and other assets	163,000		5,435,000		641,000		7,259,000		—		8,816		—		8,346

Total assets of discontinued operations	$	16,139,000	$	5,435,000	$	62,897,000	$	13,598,000	$	4,793	$	8,816	$	9,495	$	8,346
Liabilities of discontinued operations:
Accounts payable and accrued liabilities	$	15,560,000	$	—	$	17,287,000	$	—
Accounts payable									$	47	$	—	$	340	$	—
Accrued liabilities									11,802		—		14,577		—
Other liabilities	—		10,135,000		—		6,449,000		—		9,689		—		10,048

Total liabilities of discontinued operations	$	15,560,000	$	10,135,000	$	17,287,000	$	6,449,000	$	11,849	$	9,689	$	14,917	$	10,048

Net sales of the Installation Services’ operating units were $46.6 million for the three months ended December 31, 2007.

~~(10)~~ ~~Restructuring and other related charges~~NOTE 11 – RESTRUCTURING AND OTHER RELATED CHARGES

As a result of the downturn in the residential housing market and the impact on the Garage Doors segment, the ~~company~~Company initiated plans to restructure its operations. This restructuring program includes workforce reductions, closure or consolidation of excess facilities and other charges. The ~~company~~Company began its restructuring initiative in the latter part of fiscal 2007 with the closure of its Tempe, AZ manufacturing facility.

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The restructuring activities resulted in costs incurred primarily for (1) workforce reduction of approximately 370 employees across certain business functions and operating locations and (2) abandoned or excess facilities relating to lease terminations and non-cancelable lease costs. To determine the lease loss, which is the ~~company’s~~Company’s loss after its cost recovery efforts from subleasing such facilities, certain estimates were made related to the (1) time period over which the relevant building would remain vacant, (2) sublease terms, and (3) sublease rates, including common area charges.

A summary of the quarterly restructuring and other related charges recognized for the three ~~fiscal quarters~~months ended ~~June 30,~~December 31, 2007 and 2008 are as follows:

Workforce
Reduction

Excess
Facilities

Other Exit
Costs

Total

Amounts incurred in:

Quarter ended December 31, 2007

$
393,000

$
—

$
1,298,000

$
1,691,000

Quarter ended March 31, 2008

107,000

—

594,000

701,000

Quarter ended June 30, 2008

147,000

(11,000
)
44,000

180,000

Cumulative amount for the nine months ended June 30, 2008

$
647,000

$
(11,000
)
$
1,936,000

$
2,572,000

	Workforce Reduction		Excess Facilities		Other Exit Costs		Total
Amounts incurred in:
Quarter ended December 31, 2007	$	393	$	—	$	1,298	$	1,691
Quarter ended December 31, 2008	—		—		—		—

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At ~~June 30,~~December 31, 2008, the accrued liability associated with the restructuring and other related charges consisted of the following:

Workforce
Reduction

Excess
Facilities

Other Exit
Costs

Total

Fiscal 2007:

Accrued liability at September 30, 2007

$
639,000

$
727,000

$
177,000

$
1,543,000

Fiscal 2008:

Charges

647,000

(11,000
)
1,936,000

2,572,000

Payments

(1,286,000
)
(395,000
)
(2,095,000
)
(3,776,000
)
Accrued liability at June 30, 2008

$
—

$
321,000

$
18,000

$
339,000

	Workforce Reduction		Excess Facilities			Other Exit Costs		Total

Accrued liability at October 1, 2008	$	—	$	231		$	—	$	231
Charges	—		—			—		—
Payments	—		(191		)	—		(191		)
Accrued liability at December 31, 2008	$	—	$	40		$	—	$	40

The remaining accrual as of ~~June 30,~~December 31, 2008 is expected to be paid during ~~calendar 2008.~~

fiscal 2009. The restructuring and other related charges are included in the line item “Restructuring and other related charges” in the condensed consolidated statements of operations.

~~(11)~~ ~~Other income~~NOTE 12 – OTHER INCOME

Other income included approximately ~~$15,000~~$(568) and ~~$478,000~~$179 for the three-month periods ~~and $814,000 and $1,047,000 for the nine-month periods~~ ended ~~June 30,~~December 31, 2008 and 2007, respectively, of foreign exchange gains (losses) in connection with the translation of receivables and payables denominated in currencies other than the functional currencies of the ~~company~~Company and its subsidiaries.

~~Table of Contents~~NOTE 13 – INCOME TAXES

~~(12)~~ ~~Income taxes~~

The ~~company’s~~Company’s overall effective tax rate ~~reported as a benefit,~~ when combining results from continuing and discontinued operations for the three months ~~and nine months~~ ended ~~June 30,~~December 31, 2008 was approximately ~~48.0% and 29.2%, respectively. These rates were~~34.4%. This rate was different from the 35% U.S. federal income tax rate primarily due to ~~the reversal of certain reserves of approximately $5.8 million (see below),~~ foreign income ~~foreign dividend distributions~~ and, to a lesser extent, foreign dividends and state taxes.

On October 1, 2007, the ~~company~~Company adopted FASB Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 prescribes a recognition criteria and a related measurement model for tax positions taken by companies. FIN 48 prescribes a recognition threshold that a tax position is required to meet before being recognized in the financial statements and provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition rules. The total amount of unrecognized tax benefits as of the date of adoption was ~~$21.6 million.~~$21,646. The adoption of FIN 48 resulted in an adjustment to beginning retained earnings of ~~$4.7 million~~$4,669 and did not have any impact on the ~~company’s~~Company’s results of operations.

Included in the balance of unrecognized tax benefits at ~~October 1, 2007~~September 30, 2008 are ~~$20.8 million~~$11,634 of tax benefits that, if recognized, would impact the effective tax rate. As a result of concluding a tax examination with a ~~state~~foreign tax jurisdiction ~~and various statute of limitations expiring~~ during in the ~~third~~first fiscal quarter of ~~2008,~~2009, the ~~company~~Company reversed previously-established FIN 48 reserves of ~~approximately $5.8 million~~$1,979 related to uncertain tax positions. With regard to the unrecognized tax benefits as of ~~June 30,~~December 31, 2008, the ~~company~~Company believes it is reasonably possible that approximately ~~$1.0 million~~$1,000 of such unrecognized tax benefits could be recognized in the next twelve months, which would impact the effective tax rate if recognized.

The ~~company~~Company recognizes potential accrued interest and penalties related to unrecognized tax benefits in income tax expense. At ~~October 1, 2007,~~September 30, 2008, the combined amount of accrued interest and penalties related to tax positions taken or to be taken on our tax returns and recorded as part of the reserves for uncertain tax positions was ~~$3.0 million. Approximately $.9 million related to accrued interest was included in~~$1,982. As a result of concluding a tax examination with a foreign tax jurisdiction during the ~~aforementioned reversal~~first fiscal quarter of 2009, the Company reversed previously-established FIN 48 reserves for accrued interest and penalties of $715 related to uncertain tax positions. There were no other significant changes to this amount during the ~~third~~first quarter of fiscal ~~2008.~~2009.

As a result of the ~~company’s~~Company’s global operations, Griffon or its subsidiaries file income tax returns in various jurisdictions including U.S. federal, U.S. state and foreign jurisdictions. The ~~company~~Company is routinely subject to examination by taxing authorities throughout the world, including such jurisdictions as Germany, Canada, Brazil, Sweden and the U.S. The ~~company’s~~Company’s U.S. federal income tax returns are no longer subject to income tax examination

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for years before fiscal 2005, the Company’s German income tax returns are no longer subject to income tax examination for years before ~~2005~~fiscal 2006 and the ~~company’s~~Company’s major U.S., state and other foreign jurisdictions are no longer subject to income tax examinations for years before fiscal 2000. Various U.S. state and foreign tax audits are currently underway.

~~(13)~~ ~~Warranty liability~~NOTE 14 – WARRANTY LIABILITY

The ~~company~~Company offers to its customers warranties against product defects for periods primarily ranging from six months to three years, with certain products having a limited lifetime warranty, depending on the specific product and terms of the customer purchase agreement. The ~~company’s~~Company’s typical warranties require it to repair or replace the defective products during the warranty period at no cost to the customer. At the time the product revenue is recognized, the ~~company~~Company records a liability for estimated costs under its warranties, which costs are estimated based on historical experience. The ~~company~~Company periodically assesses the adequacy of its recorded warranty liability and adjusts the amounts as necessary. While the ~~company~~Company believes that its estimated liability for product warranties is adequate, the estimated liability for the product warranties could differ materially from future actual warranty costs.

Changes in the Company’s warranty liability, included in accrued liabilities, were as follows:

	Three Months Ended December 31,
	2008			2007
Balance, beginning of period	$	5,328		$	7,868
Warranties issued and changes in estimated pre-existing warranties	1,338			(79		)
Actual warranty costs incurred	(1,585		)	(1,028		)
Balance, end of period	$	5,081		$	6,761

NOTE 15 – COMMITMENTS AND CONTINGENCIES

Department of Environmental Conservation of New York State (“DEC”), with ISC Properties, Inc.Lightron Corporation (“Lightron”), a wholly-owned subsidiary of the Company, once conducted operations at a location in Peekskill in the Town of Cortlandt, New York owned by ISC Properties, Inc., a wholly-owned subsidiary of the Company (the “Peekskill Site”). ISC Properties, Inc. sold the Peekskill Site in November 1982.

Subsequently, the Company was advised by the DEC that random sampling at the Peekskill Site and in a creek near the Peekskill Site indicated concentrations of solvents and other chemicals common to Lightron’s prior plating operations. ISC Properties, Inc. then entered into a consent order with the DEC in 1996 (the “Consent Order”) to perform a remedial investigation and prepare a feasibility study. After completing the initial remedial investigation pursuant to the Consent Order, ISC Properties, Inc. was required by the DEC to conduct a supplemental remedial investigation under the Consent Order. In or about August 2004, a report was submitted to the DEC of the findings under the supplemental remedial investigation. Subsequently, an addendum to the supplemental remediation investigation was negotiated and conducted and a further report submitted to the DEC. A soil vapor investigation report that contained the findings of a soil vapor investigation conducted at the Site under the Consent Order was submitted in July 2007 to, and accepted in September 2007 by, the DEC. Thereafter, ISC Properties, Inc. submitted to the DEC for its approval, a final draft of all of the Remedial Investigation work performed in connection with, and as required by, the Consent Order. In accordance with the soil vapor investigation work that ISC Properties, Inc. had performed at the Peekskill Site under the Consent Order, ISC Properties, Inc., per the request of the DEC, proposed to, and did undertake to perform one additional one day sampling event in March 2008 in accordance with an approved soil vapor work plan, and a soil vapor investigation report was submitted to DEC in May 2008.

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In March 2008, DEC requested additional, supplemental sampling at the Site, and a Supplemental Investigation Work Plan was submitted to the DEC in April 2008. Based on comments received from the DEC in July 2008, a revised Supplemental Investigation Work Plan was submitted on July 30, 2008 to, and was approved subsequently by, the DEC. The work that was required to be performed in accordance with the Supplemental Investigation Work Plan was performed in October 2008 and a report was prepared for submission to the DEC. No feasibility study has yet been performed pursuant to the Consent Order.

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~~Changes~~Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

QUARTERLY OVERVIEW

Net sales from continuing operations for the three months ended December 31, 2008 were $302.3 million, compared to $294.8 million last year. Income from continuing operations, which was significantly impacted by a non-cash, net pre-tax gain on the purchase of outstanding notes at a discount of approximately $6.7 million, was $4.3 million, or $.07 per diluted share, for the first quarter of fiscal 2009 compared to $1.5 million, or $.05 per diluted share, last year. Results from discontinued operations for the first quarter of fiscal 2009 were break-even, or nil per diluted share, compared to a loss of $2.9 million, or $.09 per diluted share, last year. Net income for the first quarter of fiscal 2009 was $4.3 million, or $.07 per diluted share, compared to a net loss of $1.4 million, or $.04 per diluted share, last year.

In September 2008, the Company substantially strengthened its balance sheet by raising $241.3 million in gross proceeds from the sale of its common stock. The transaction was effected through a common stock rights offering, along with an investment by GS Direct, L.L.C. (“GS Direct”), an affiliate of Goldman Sachs. An additional $5.3 million of rights offering proceeds were received in October 2008 in connection with the second closing of the rights offering, after which the rights offering was terminated. The Company intends to use the proceeds for general corporate purposes and to fund its growth.

The Electronic Information and Communications Systems segment continues to perform well as core business sales grew by approximately $9.4 million, or 13%. The Electronic Information and Communications Systems segment last year was awarded contracts in excess of $400 million for the MH-60 program that are expected to be incrementally funded over the next several years. Based on these contract awards, this program is anticipated to generate revenues at a run rate of approximately $100 million per year for the next several years.

The Company’s Garage Doors segment results continued to be impacted by the sustained downturn in the ~~company’s warranty liability, included~~residential housing and credit markets, with sales and operating profits decreasing from the prior-year period. The segment continues to be challenged by the trends in ~~accrued liabilities,~~market conditions and the outlook for the remainder of 2009. The segment remains committed to retaining its customer base and, where possible, growing market share to offset the shrinking market. Steel costs, a key component of garage doors, rose considerably in the prior fiscal year, which adversely impacted those results. Selling prices were increased starting in the latter part of the prior fiscal year, partially offsetting those rising costs. Through the first quarter of fiscal 2009, steel costs appear to have stabilized in comparison to the fourth quarter of fiscal 2008.

The Specialty Plastic Films segment had increases in sales of 5.9% in the first quarter of fiscal 2009. The segment’s operating results were favorably impacted by growth in its elastics program, resulting in an improved product mix, and the impact of increased selling prices to pass through increased resin costs. Over the past several years, the segment has been successful in diversifying its customer portfolio. The segment remains optimistic that their progress on cost reduction programs and product mix should result in further improved performance, but expects to be challenged with new product roll-outs.

Discontinued operations – Installation Services

As a result of the downturn in the residential housing market, in fiscal 2008, the Company exited substantially all of the operating activities of its Installation Services segment. The Installation Services segment sold, installed and serviced garage doors, garage door openers, fireplaces, floor coverings, cabinetry and a range of related building products primarily for the new residential housing market. Operating results of substantially all of the Installation Services segment have been reported as discontinued operations in the Condensed Consolidated Statements of Operations for all periods presented herein, and the Installation Services segment is excluded from segment reporting.

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RESULTS OF OPERATIONS

Three months ended December 31, 2008 and 2007

Operating results from continuing operations (in thousands) by business segment were as ~~follows:~~follows for the three-month periods ended December 31:

Three Months Ended
June 30,

Nine Months Ended
June 30,

2008

2007

2008

2007

Balance, beginning of period

$
6,642,000

$
9,380,000

$
7,868,000

$
5,908,000

Warranties issued and changes in estimated pre-existing warranties

(118,000
)
471,000

328,000

5,497,000

Actual warranty costs incurred

(824,000
)
(550,000
)
(2,496,000
)
(2,104,000
)
Balance, end of period

$
5,700,000

$
9,301,000

$
5,700,000

$
9,301,000

	Net sales				Segment operating profit
	2008		2007		2008			2007

Electronic Information and Communication Systems	$	80,827	$	75,860	$	5,378		$	5,483
Garage Doors	108,818		112,544		(4,393		)	(1,375		)
Specialty Plastic Films	112,689		106,398		5,536			5,998
	$	302,334	$	294,802	$	6,521		$	10,106

~~(14)~~ ~~Subsequent Event~~Electronic Information and Communication Systems

Net sales of the Electronic Information and Communication Systems segment increased $5.0 million, or 6.5%, compared to last year. The sales increase was primarily attributable to growth in the Radar Systems Division driven by increases in the Lamps MMR and ARPDD programs. Last year’s first quarter sales were favorably impacted by contracts with the Syracuse Research Corporation (SRC) that were winding down in the latter part of fiscal 2007. Excluding the prior-period sales related to the SRC contracts, core business sales grew by approximately $9.4 million, or 13%.

Gross profit of the Electronic Information and Communication Systems segment decreased by $.5 million compared to last year. Gross margin percentage decreased to 19.3% from 21.2% last year, principally due to program mix, as certain non-recurring cost savings benefited the margins on certain projects completed in the prior-year. Selling, general and administrative (“SG&A”) expenses decreased $.7 million compared to last year and decreased, as a percentage of sales, to 12.5% compared to 14.2% last year. The decrease in SG&A expenses is primarily due to lower expenditures relating to research and development. Operating profit of the Electronic Information and Communication Systems segment decreased $.1 million.

Garage Doors

Net sales of the Garage Doors segment decreased by $3.7 million, or 3.3%, compared to last year primarily due to the continuing effects of the weak housing and credit markets. The sales decline was principally due to reduced unit volume, offset partially by higher selling prices to pass through increased material costs and product mix.

Gross profit of the Garage Doors segment decreased by $5.5 million compared to last year. Gross margin percentage decreased to 24.4% from 28.4% last year, primarily due to reduced sales volume and associated plant efficiency loss, as well as an increased mix of certain higher-priced, but lower-margin, commercial products. SG&A expenses were approximately $1.5 million lower than last year and, as a percentage of sales, decreased to 27.9% from 28.3% last year. The operating loss of the Garage Doors segment increased by $3.0 million compared to last year. The operating loss in the prior-year period was impacted by restructuring and other related charges associated with the closure of the Tempe, AZ manufacturing facility.

Specialty Plastic Films

Net sales of the Specialty Plastic Films segment increased $6.3 million, or 5.9%, compared to last year. The increase was principally due to a favorable product mix in North America and the impact of increased selling prices to pass through increased resin costs, partially offset by the unfavorable impact of exchange rates on translated foreign sales.

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Gross profit of the Specialty Plastic Films segment increased by $.1 million compared to last year. Gross margin percentage decreased to 14.7% from 15.5% last year. The favorable contribution to gross margin from the pass through of resin costs was more than offset by an unfavorable product mix and foreign exchange translation. SG&A expenses increased $.4 million from last year but, as a percentage of sales, decreased to 10.2% from 10.4% last year due to the sales increase. Operating profit of the Specialty Plastic Films segment decreased $.5 million compared to last year.

Gain from debt extinguishment

In first quarter of fiscal 2009, the Company reported a non-cash, pre-tax gain from debt extinguishment of approximately $6.7 million, net of a proportionate write-off of deferred financing costs, that resulted from its October 2008 purchase of $35.5 million of its outstanding notes at a discount.

Provision for income taxes

The Company’s overall effective tax rate when combining results from continuing and discontinued operations for the first quarter of fiscal 2009 was approximately 34.4% compared to 43.4% last year. The rate change was principally due to differences in the mix of foreign income and state taxes.

Discontinued operations – Installation Services

Net sales of the Installation Services’ operating units were nil and $46.6 million for the three months ended December 31, 2008 and 2007, respectively, as a result of the Company’s exit from the segment in fiscal 2008. Operating income (loss) of the Installation Services’ operating units was $3 thousand and $(2.9) million for the three months ended December 31, 2008 and 2007, respectively.

LIQUIDITY AND CAPITAL RESOURCES

Cash flows used in continuing operations during the three-month period ended December 31, 2008 were $4.8 million compared to cash provided by continuing operations of $41.0 million last year. Working capital decreased to $532.6 million at December 31, 2008 compared to $562.1 million at September 30, 2008, primarily as a result of the purchase of $35.5 million face value of Notes for $28.4 million. Operating cash flows from continuing operations were unfavorably impacted by increased prepaid expenses and other current assets and decreased accounts payable, partially offset by decreased accounts receivable. Prior-period cash generated from continuing operations benefitted from an unusually large decrease in accounts receivable that resulted from the conclusion of a major contract.

During the three-month period ended December 31, 2008, the Company used cash from investing activities of continuing operations of $5.1 million compared to $2.9 million last year, primarily for capital expenditures.

During the three-month period ended December 31, 2008, the Company used cash from financing activities of continuing operations of $25.6 million compared to $13.4 million last year, primarily as a result of the purchase of $35.5 million face value of Notes for $28.4 million, partially offset by the receipt of $5.3 million of rights offering proceeds (see below). Approximately 1.4 million shares of common stock are available for purchase pursuant to the Company’s stock buyback program and additional purchases, including pursuant to a 10b5-1 plan, may be made, depending upon market conditions and other factors, at prices deemed appropriate by management.

In August 2008, the ~~company’s~~Company’s Board of Directors authorized a 20 million share common stock rights offering to its shareholders in order to raise equity capital for general corporate purposes and to fund future growth. The rights ~~will have~~had an exercise price of $8.50 per share. In conjunction with the rights offering, GS Direct ~~L.L.C., an affiliate of Goldman, Sachs & Co., has~~ agreed to back stop the rights offering by purchasing, on the same terms, any and all shares not subscribed through the exercise of rights. GS Direct ~~will~~also agreed to purchase additional shares of common stock at the rights offering price if it ~~does~~did not acquire a minimum of 10 million shares of common stock as a result of its back stop commitment. ~~The transactions are expected to raise~~In September 2008, the Company received $241.3 million of gross proceeds ~~of between approximately $170 and $255 million.~~

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~~ITEM 2 -~~ ~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION~~

~~AND RESULTS OF OPERATIONS~~

~~QUARTERLY OVERVIEW~~

Net sales from continuing operations for the third quarter of fiscal 2008 were $322.3 million, compared to $337.2 million in the third quarter of fiscal 2007. Income from continuing operations was $9.4 million, or $.31 per diluted share, for the quarter compared to $6.1 million, or $.20 per diluted share, last year. The income from continuing operations for the third quarter of fiscal 2008 was favorably impacted by a tax benefit of $.1 million, principally resulting from the ~~reversal~~first closing of ~~certain previously-established FIN 48 reserves related to uncertain tax positions, versus a tax expense of $4.1 million in~~its rights offering and the prior year’s comparable quarter. Loss from discontinued operations was $19.2 million, or $.64 per diluted share, compared to $1.7 million, or $.06 per diluted share, last year. Net loss for the quarter was $9.8 million, or $.33 per diluted share, compared to net income of $4.4 million, or $.14 per diluted share, last year.

~~The decline in the Electronic Information and Communication Systems segment’s operating results was anticipated due to the completion in late fiscal 2007~~closing of the ~~primary contracts with Syracuse Research Corporation (“SRC”). Excluding~~related investments by GS Direct and by the ~~impact of the SRC contracts in the respective third quarter periods, core business sales grew by approximately $24.6 million, or 39%. The segment had received approximately $340~~Company’s Chief Executive Officer. An additional $5.3 million of ~~funding from SRC for turnkey production of a Counter Improvised Explosive Device over the prior two fiscal years.~~

The company’s Garage Doors segment results were consistent with the sustained downturn in the housing market. Although we anticipated that weaker residential construction markets would have a continuing effect on Garage Doors’ operating results, it has been difficult to gauge the duration and severity of the impact that weaker housing markets, particularly with respect to resale of existing houses, would have on this segment’s repair and renovate business. We believe that our business was further adversely impacted by weakness in the consumer credit markets. The segment’s management has focused on cost reduction programs including, but not limited to, reductions in force, reducing or eliminating certain sales and marketing programs and consolidating facilities where possible. Restructuring and other related charges approximated $.2 million and $2.6 million for the three and nine-months ended June 30, 2008, respectively. (See Note 10 to Notes to Condensed Consolidated Financial Statements.)

Specialty Plastic Films achieved higher sales in the third quarter resulting primarily from a favorable product mix, primarily in North America, the partial pass-through of higher selling prices from rising resin costs, and the impact of foreign exchange, partially offset by lower selling prices to a major customer and lower unit volumes. Third quarter operating income increased by $2.6 million as a result of a favorable product mix and the impact of foreign exchange.

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~~Discontinued operations~~

~~As a result of the downturn in the residential housing market and the impact on the Installation Services segment,~~ the company’s management initiated a plan during the second quarter of fiscal 2008 to exit certain markets within the Installation Services segment through the sale or disposition of business units. In that quarter, the company closed three units. In May 2008, the company’s Board of Directors approved a plan to exit substantially all operating activities of the Installation Services segment in 2008. In the third quarter of fiscal 2008, the company sold nine units to one buyer, closed one unit and merged two units into its Garage Doors segment. In August 2008, the company entered into an agreement to sell its two remaining units in Phoenix and Las Vegas that is expected to close in the fiscal fourth quarter.

The company determined that there was an impairment of the goodwill and intangible assets associated with the Installation Services segment and recorded an impairment charge of approximately $11.4 million during the quarter ended June 30, 2008 to completely write-off these assets.

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~~RESULTS OF OPERATIONS~~

~~THREE MONTHS ENDED JUNE 30,~~rights offering proceeds were received in October 2008 ~~AND 2007~~in connection with the second closing of the rights offering, after which the rights offering was terminated.

~~Operating results by business segment from continuing operations were as follows for the three-month periods ended~~In June ~~30:~~

Segment operating

Net sales

profit

2008

2007

2008

2007

Electronic Information and Communication Systems

$
88,251,000

$
120,553,000

$
9,173,000

$
9,951,000

Garage Doors

114,657,000

124,073,000

2,252,000

4,506,000

Specialty Plastic Films

121,147,000

96,848,000

5,506,000

2,857,000

Sales to discontinued operations

(1,788,000
)
(4,280,000
)
—

—

$
322,267,000

$
337,194,000

$
16,931,000

$
17,314,000

~~Electronic Information and Communication Systems~~

Net sales of the Electronic Information and Communication Systems segment decreased $32.3 million, or 26.8%, compared to last year. The sales decrease was attributable to the completion of the primary SRC contracts in fiscal 2007. Partially offsetting this decrease was revenue growth of $24.6 million, or 39%, related to new and expanded programs.

Gross profit of the Electronic Information and Communication Systems segment decreased by $.6 million compared to last year. However, gross margin percentage increased to 23.7% from 17.8% last year, principally due to a favorable program mix, as the margin on the SRC contracts was lower than the average margin on other contracts. Selling, general and administrative (“SG&A”) expenses increased $.2 million compared to last year and increased, as a percentage of sales, to 13.5% compared to 9.7% last year. The increase in SG&A expenses is primarily due to expenditures associated with product engineering and enhancement, as well as increases in expenses related to certain sales and marketing related efforts. These were partially offset by a decrease in certain operating expenses. Operating profit of the Electronic Information and Communication Systems segment decreased $.8 million, or 7.8%, principally due to the substantial revenue decline attributable to the primary SRC contracts noted above.

~~Garage Doors~~

Net sales of the Garage Doors segment decreased by $9.4 million, or 7.6%, compared to last year primarily due to the effects of the weak housing market. The sales decline was principally due to reduced unit volume ($13.5 million), offset partially by higher selling prices to pass through rising material and freight costs ($2.8 million), a favorable product mix ($1.8 million), and a decrease in customer returns and deductions ($.5 million).

Gross profit of the Garage Doors segment decreased by $2.7 million compared to last year. Gross margin percentage, however, increased to 29.9% from 29.8% last year, primarily due to the operating efficiencies derived from the closure of the Tempe, AZ facility and other headcount and cost reductions (.7%), lower customer returns and deductions (.3%), partially offset by reduced sales volume and associated plant efficiency loss (.5%) and lower margins from the contracting services business transferred from the Installation Services segment(.4%). SG&A expenses were approximately $1.2 million higher than last year and, as a percentage of sales, increased to 27.4% from 26.3% last year due to the sales decrease. The operating loss of Garage Doors was further impacted by restructuring and other related charges related to cost reduction programs. Operating profit of the Garage Doors segment decreased by $2.3 million, or 50.0%, compared to last year.

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~~Specialty Plastic Films~~

Net sales of the Specialty Plastic Films segment increased $24.3 million, or 25.1%, compared to last year. The increase was principally due to a favorable product mix, primarily in North America ($5.5 million), the impact of increased selling prices due to the rising cost of resin ($6.2 million) and the favorable impact of exchange rates on translated foreign sales ($10.4 million), partially offset by lower selling prices to a major customer associated with a multi-year contract and lower volumes in Europe ($2.9 million).

Gross profit of the Specialty Plastic Films segment increased by $3.3 million, or 23.2%, compared to last year. Gross margin percentage decreased to 14.5% from 14.7% last year. The effect of higher resin costs not fully recovered in increased selling prices and lower unit volumes negatively affected margins by 1.2%. These gross margin percentage decreases were partially offset by a favorable product mix in North America and Brazil, including foreign exchange, favorably affecting margins by 1.0%. SG&A expenses increased $.6 million from last year and, as a percentage of sales, decreased to 10.6% from 12.6% last year due to the sales increase. Operating profit of the Specialty Plastic Films segment increased $2.6 million, or 92.7%, compared to last year.

~~Provision (benefit) for income taxes~~

The company’s overall effective tax rate when combining results from continuing and discontinued operations for the third quarter of fiscal 2008 was approximately 48.0%, reported as a benefit, compared to 40.6%, reported as a provision, last year. The rate change was principally due to differences in the mix of foreign earnings and related taxes, as well as the reversal of certain reserves of approximately $5.8 million, included in the calculation of the estimated annual effective tax rate for fiscal 2008 compared to the prior year.

~~NINE MONTHS ENDED JUNE 30, 2008 AND 2007~~

~~Operating results by business segment from continuing operations were as follows for the nine-month periods ended June 30:~~

Segment operating

Net sales

profit (loss)

2008

2007

2008

2007

Electronic Information and Communication Systems

$
262,508,000

$
374,567,000

$
21,795,000

$
35,302,000

Garage Doors

319,396,000

370,618,000

(8,069,000
)
4,027,000

Specialty Plastic Films

342,220,000

300,233,000

15,856,000

12,136,000

Intersegment revenues

(8,484,000
)
(13,099,000
)
—

—

$
915,640,000

$
1,032,319,000

$
29,582,000

$
51,465,000

~~Electronic Information and Communication Systems~~

Net sales of the Electronic Information and Communication Systems segment decreased $112.1 million, or 29.9%, compared to last year. The sales decrease was attributable to the completion of the primary SRC contracts in fiscal 2007. Partially offsetting this decrease was revenue growth of $41.9 million, or 21%, related to new and expanded programs.

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Gross profit of the Electronic Information and Communication Systems segment decreased by $9.6 million compared to last year. However, gross margin percentage increased to 21.5% from 17.7% last year, principally due to a favorable program mix, as the margin on the SRC contracts was lower than the average margin on other contracts. SG&A expenses increased $3.7 million compared to last year and increased, as a percentage of sales, to 13.4% compared to 8.4% last year. The increase in SG&A is primarily due to expenditures associated with product engineering and enhancement, as well as increases in expenses related to certain sales and marketing related efforts. Operating profit of the Electronic Information and Communication Systems segment decreased $13.5 million, or 38.3%, principally due to the substantial revenue decline attributable to the primary SRC contracts noted above.

~~Garage Doors~~

Net sales of the Garage Doors segment decreased by $51.2 million, or 13.8%, compared to last year primarily due to the effects of the weak housing market. The sales decline was principally due to reduced unit volume ($56.8 million), offset partially by higher selling prices to pass through rising material and freight costs ($2.8 million), a favorable product mix ($1.8 million), and a decrease in customer returns and deductions ($1.0 million).

Gross profit of the Garage Doors segment decreased by $13.5 million compared to last year. Gross margin percentage, however, increased to 27.7% from 27.5% last year, primarily due to the operating efficiencies derived from the closure of the Tempe, AZ facility and other headcount and cost reductions (.7%), lower customer returns and deductions (.3%), partially offset by reduced sales volume and associated plant efficiency loss (.5%) and lower margins from the businesses transferred from the Installation Services segment (.3%). SG&A expenses were approximately $1.7 million higher than last year and, as a percentage of sales, increased to 30.2% from 26.5% last year due to the sales decrease. The operating loss of Garage Doors was further impacted by restructuring and other related charges related to cost reduction programs including, but not limited to, reductions in force, reducing or eliminating certain sales and marketing programs and consolidating facilities where possible. Restructuring and other related charges approximated $2.6 million, including $.6 million in one-time termination benefits. Operating profit of the Garage Doors segment decreased by $12.1 million compared to last year, resulting in an operating loss.

~~Specialty Plastic Films~~

Net sales of the Specialty Plastic Films segment increased $42.0 million, or 14.0%, compared to last year. The increase was principally due to a favorable product mix, primarily in North America ($18.8 million), the impact of increased selling prices due to the rising cost of resin ($9.1 million) and the favorable impact of exchange rates on translated foreign sales ($26.5 million), partially offset by lower selling prices to a major customer associated with a multi-year contract and lower volumes in Europe ($13.7 million).

Gross profit of the Specialty Plastic Films segment increased by $2.6 million, or 5.5%, compared to last year. Gross margin percentage decreased to 14.5% from 15.6% last year. The effect of higher resin costs not fully recovered in increased selling prices and lower unit volumes negatively affected margins by 3.5%. These gross margin percentage decreases were partially offset by a favorable product mix in North America and Brazil, favorably affecting margins by 2.2%, and manufacturing efficiencies in Europe and Brazil, favorably affecting margins by .9%. SG&A expenses decreased $1.5 million from last year and, as a percentage of sales, decreased to 10.5% from 12.2% last year due to the sales increase. Operating profit of the Specialty Plastic Films segment increased $3.7 million, or 30.6%, compared to last year.

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~~Provision (benefit) for income taxes~~

The company’s overall effective tax rate when combining results from continuing and discontinued operations was approximately 29.2%, reported as a benefit, compared to 41.6%, reported as a provision, last year. The rate change was principally due to differences in the mix of foreign earnings and related taxes, as well as the reversal of certain reserves of approximately $5.8 million, included in the calculation of the estimated annual effective tax rate for fiscal 2008 compared to the prior year.

~~LIQUIDITY AND CAPITAL RESOURCES~~

Cash flows generated by continuing operations for the nine-month period ended June 30, 2008 were $49.5 million compared to $12.8 million last year and working capital was $326.9 million at June 30, 2008. Operating cash flows from continuing operations were principally the result of decreased accounts receivable and increased accounts payable, partially offset by increased inventories and increased prepaid expenses and other current assets.

During the nine months ended June 30, 2008, the company had capital expenditures of approximately $49.1 million, primarily related to the refinancing of existing maturing lease obligations for certain property, plant and equipment (see below).

During the nine months ended June 30, 2008, the company used cash from financing activities of continuing operations of $1.8 million. Financing cash flows also included treasury stock purchases of $579,000 to acquire approximately 41,000 shares of the company’s common stock. Approximately 1.4 million shares of common stock are available for purchase pursuant to the company’s stock buyback program, and additional purchases under the plan or a 10b5-1 plan may be made, depending upon market conditions and other factors, at prices deemed appropriate by management.

In May 2008, the company’s Board of Directors approved a plan to exit substantially all operating activities of the Installation Services segment in 2008. In the third quarter of fiscal 2008, the company sold nine units to one buyer, closed one unit and merged two units into its Garage Doors segment. In August 2008, the company entered into an agreement to sell its two remaining units in Phoenix and Las Vegas that is expected to close in the fiscal fourth quarter. The company recorded aggregate disposal costs of $23.3 million and $36.2 million for the three and nine months ended June 30, 2008. The company presently estimates that it may incur additional total disposal costs of up to $17 million for the remainder of fiscal 2008, of which $5 million to $10 million is estimated to be cash-related.

During the nine months ended June 30, 2008, the company used cash from operating activities of discontinued operations of $3.8 million. During the nine months ended June 30, 2008, cash from provided from investing activities of discontinued operations was $3.9 million, primarily from the proceeds from the sale of certain assets.

~~On June 24,~~ 2008, Clopay Building Products Company, Inc. (“BPC”) and Clopay Plastic Products Company, Inc. (“PPC”), each a wholly-owned subsidiary of the ~~company,~~Company, entered into a credit agreement for their domestic operations with JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto, pursuant to which the lenders agreed to provide a five-year, senior secured revolving credit facility of $100 ~~million. Availability~~million (the “Clopay Credit Agreement”). At December 31, 2008, $33.4 million was outstanding under the ~~credit facility is based upon certain eligible accounts receivable, inventory, cash~~Clopay Credit Agreement and ~~cash equivalents and property, plant and equipment. Borrowings under the credit agreement bear interest at rates based upon LIBOR or the prime rate and are collateralized by the stock and assets of~~approximately $32.7 million was available for borrowing. BPC and PPC ~~and the stock~~were in compliance with all of their ~~subsidiaries. The credit agreement contains certain restrictive and~~ financial covenants ~~certain of which are only subject to compliance if borrowing availability falls below a certain level. Upon the occurrence of certain events of default specified in the credit agreement, amounts due~~ under the ~~credit agreement may be declared immediately due and payable.~~Clopay Credit Agreement at December 31, 2008.

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~~Proceeds of a $33 million initial draw under this facility were primarily used to refinance existing maturing lease obligations.~~

OnIn March ~~31,~~ 2008, Telephonics Corporation (“Telephonics”), a wholly-owned subsidiary of the ~~company,~~Company, entered into a ~~Credit Agreement~~credit agreement with JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto, pursuant to which the lenders agreed to provide ~~the Borrower with~~ a five-year, revolving credit facility of $100 ~~million. Commitments~~million (the “Telephonics Credit Agreement”). At December 31, 2008, $41.0 million was outstanding under the Telephonics Credit Agreement ~~may be increased by up to an additional $50~~and approximately $54.2 million ~~under certain circumstances. Borrowings~~was available for borrowing. Telephonics was in compliance with all of its financial covenants under the Telephonics Credit Agreement ~~bear interest~~ at rates based upon LIBOR or the prime rate and are collateralized by the stock and assets of the Borrower and the stock of Telephonics’ subsidiaries pursuant to a Guarantee and Collateral Agreement made by Gritel Holding Co., Inc., a newly-formed subsidiary of the company, and Telephonics in favor of the lenders. The Credit Agreement contains certain restrictive and financial covenants. Upon the occurrence of certain events of default specified in the Credit Agreement, amounts due under the Credit Agreement may be declared immediately due and payable.

Proceeds of a $50 million initial draw under this facility, together with internal cash of the company, were used to repay $62.5 million of outstanding debt under the company’s Amended and Restated Credit Agreement, dated as of December 20, 2006, as amended, among the company, Telephonics, JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto, at which time such Amended and Restated Credit Agreement was terminated.31, 2008.

The ~~company has~~Telephonics Credit Agreement and the Clopay Credit Agreement include various sublimits for standby letters of credit. At December 31, 2008, there were approximately $18.4 million of aggregate standby letters of credit outstanding under these credit facilities. These credit agreements limit dividends and advances that these subsidiaries may pay to the parent company. The agreements permit the payment of income taxes, overhead and expenses, with dividends or advances in excess of these amounts being limited based on (a) with respect to the Clopay Credit Agreement, maintaining certain minimum availability under the loan agreement or (b) with respect to the Telephonics Credit Agreement, compliance with certain conditions and limited to an annual maximum.

At September 30, 2008, the Company had $130 million outstanding of 4% convertible subordinated notes due 2023 (the “Notes”). Holders of the Notes may require the ~~company~~Company to repurchase all or a portion of their Notes on July 18, 2010, 2013 and 2018, ~~and~~as well as upon a change in control. If our common stock price is below the conversion price of the debenture on the earliest of these dates, we anticipate that Noteholders will require us to repurchase their outstanding Notes. In October 2008, the Company purchased $35.5 million face value of the Notes from certain Noteholders for $28.4 million. This resulted in a non-cash net pre-tax gain from debt extinguishment of approximately $6.7 million in the first quarter of fiscal 2009. Due to the nature of these Notes for income tax purposes, the Company reclassified a deferred income tax liability to a current income tax liability of approximately $7 million at December 31, 2008 from the resultant gain and recapture of interest expense.

The Company’s Employee Stock Ownership Plan (“ESOP”) has a loan agreement guaranteed by the Company, the proceeds of which were used to purchase equity securities of the Company. The loan bears interest at rates based upon the prime rate or LIBOR. In ~~August~~addition, the ESOP had a $5 million line of credit that expired on October 31, 2008. In September 2008, $630,000 was drawn under the ~~company’s Board~~ESOP line of ~~Directors authorized a 20 million share common stock rights offering~~credit to ~~its shareholders in order to raise~~purchase equity ~~capital for general corporate purposes and to fund future growth. The rights will have an exercise price of $8.50 per share. In conjunction~~securities associated with the rights offering ~~GS Direct, L.L.C., an affiliate~~and was outstanding at September 30, 2008. In October 2008, the remaining balance of ~~Goldman, Sachs & Co., has agreed~~the available ESOP line of credit was drawn for the purpose of purchasing additional equity securities in the Company. In accordance with the terms of the ESOP line of credit agreement, the $5 million outstanding at October 31, 2008 was refinanced along with the balance of the then outstanding ESOP loan amount of $1.25 million. The new ESOP loan provides for quarterly payments of principal and interest through September 2012, at which time the balance of the loan of approximately $3.9 million will be payable.

The Company is winding down remaining disposal activities related to ~~back stop~~its Installation Services segment in the ~~rights offering by purchasing on the same terms any~~first half of fiscal 2009 and ~~all shares not subscribed through the exercise of rights. GS Direct will purchase additional shares of common stock at the rights offering price if it~~ does not ~~acquire a minimum~~expect to incur significant expenses in the future. Future net cash outflows to satisfy liabilities related to disposal activities that were accrued as of 10December 31, 2008 are estimated to range between $7 million ~~shares~~and $8 million. Substantially all of ~~common stock as a result of its back stop commitment. The transactions~~such liabilities are expected to ~~raise gross proceeds~~be paid during fiscal 2009.

During the three-month period ended December 31, 2008, the Company used cash from operating activities of ~~between approximately $170 and $255~~discontinued operations of $.3 million.

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Anticipated cash flows from operations, together with existing cash and cash equivalents, bank lines of credit and lease line availability, ~~should~~is expected to be adequate to finance presently anticipated working capital and capital expenditure requirements and to repay long-term debt as it matures.

CRITICAL ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS

The ~~company’s~~Company’s significant accounting policies are set forth in Note 1 of Notes to Consolidated Financial Statements in the ~~company’s~~Company’s Annual Report on Form 10-K for the year ended September 30, ~~2007.~~2008. A discussion of those policies that require management judgment and estimates and are most important in determining the ~~company’s~~Company’s operating results and financial condition are discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in the ~~2007~~2008 Annual Report. The Financial Accounting Standards Board issues, from time to time, new financial accounting standards, staff positions and emerging issues task force consensus. See Note 89 of Notes to ~~condensed consolidated financial statements~~Condensed Consolidated Financial Statements for a discussion of these matters.

~~Table of Contents~~FORWARD-LOOKING STATEMENTS

~~FORWARD-LOOKING STATEMENTS~~

This Quarterly Report on Form 10-Q contains forward-looking statements. All statements other than statements of historical fact, ~~included in this report,~~ including, without limitation, statements regarding the ~~company’s~~Company’s financial position, business strategy and the plans and objectives of the ~~company’s~~Company’s management for future operations, are forward-looking statements. ~~When used~~Without limiting the generality of the foregoing, in ~~this report, words~~some cases you can identity forward-looking statements by terminology such as ~~“anticipate”, “believe”, “estimate”, “expect”,~~“may,” “will,” “should,” “would,” “could,” “anticipate,” “believe,” “estimate,” “expect,” “plan,” “intend” ~~and similar~~or the negative of these expressions ~~as they relate to the company~~ or ~~its management, identify forward-looking statements.~~comparable terminology. Such forward-looking statements ~~are based on~~involve important risks and uncertainties that could significantly affect anticipated results in the ~~beliefs of the company’s management, as well as assumptions made by~~future and, ~~information currently available to the company’s management. Actual~~accordingly, such results ~~could~~may differ materially from those ~~contemplated by the~~expressed in any forward-looking ~~statements as a result of certain factors, including, but not limited to,~~statements. These risks and uncertainties include, among others: general domestic and international business, financial market and economic ~~conditions, including, but not limited to,~~conditions; the credit ~~market,~~market; the housing ~~market,~~market; results of integrating acquired businesses into existing ~~operations,~~operations; the results of the Company’s restructuring and disposal efforts; competitive ~~factors and~~factors; pricing pressures for resin and ~~steel,~~steel; and capacity and supply constraints and the ability to consummate the rights offering. Such statements reflect the views of the company with respect to future events and are subject to these and other risks, uncertainties and assumptions relating to the operations, results of operations, growth strategy and liquidity of the company as previously disclosed in the company’s SEC filings.constraints. Readers are cautioned not to place undue reliance on these forward-looking statements. The ~~company~~Company does not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect future events or circumstances or to reflect the occurrence of unanticipated events.

~~ITEM~~Item 3 - ~~QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK~~Quantitative and Qualitative Disclosure About Market Risk

Management does not believe that there is any material market risk exposure with respect to derivative or other financial instruments that is required to be disclosed.

~~ITEM~~Item 4 - ~~CONTROLS AND PROCEDURES~~Controls and Procedures

Under the supervision and with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), the ~~company’s~~Company’s disclosure controls and procedures were evaluated as of the end of the period covered by this report. Based on that evaluation, the ~~company’s~~Company’s CEO and CFO concluded that the ~~company’s~~Company’s disclosure controls and procedures were effective.

During the period covered by this report, there were no changes in the ~~company’s~~Company’s internal control over financial reporting which materially affected, or are reasonably likely to materially affect, the ~~company’s~~Company’s internal control over financial reporting.

Limitations on the Effectiveness of Controls

The ~~company~~Company believes that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all controls issues and instances of fraud, if any, within a ~~company~~Company have been detected. The ~~company’s~~Company’s disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives and the ~~company’s~~Company’s CEO and CFO have concluded that such controls and procedures are effective at the “reasonable assurance” level.

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PART II - OTHER INFORMATION

Item 1		Legal Proceedings

		None

Item 1A		Risk Factors

		~~In May 2008, the company’s Board of Directors approved a plan to exit substantially all operating activities of the Installation Services segment in 2008. In the third quarter of fiscal 2008,~~ the company sold nine operating units to one buyer and merged two units into our Garage Doors segment. In August 2008, the company entered into an agreement to sell its two remaining units in Phoenix and Las Vegas that is expected to close in the fiscal fourth quarter. The company recorded aggregate disposal costs of $23.3 million and $36.2 million for the three and nine months ended June 30, 2008. The company presently estimates that it may incur additional total disposal costs of up to $17 million for the remainder of fiscal 2008, of which $5 million to $10 million is estimated to be cash-related. There can be no assurance that the company will be able to exit these operating activities in accordance with the time frame established in its plan or not exceed the estimates for aggregate exit and disposal costs. Other than the foregoing, there have been no material changes from the risk factors disclosed in Item 1A to Part I in the ~~company’s~~Company’s Annual Report on Form 10-K for the year ended September 30, ~~2007.~~2008.

Item 2		Unregistered Sales of Equity Securities and Use of Proceeds
		(a) None
		(b) None
		(c) Purchases of Equity Securities by the Issuer and Affiliated Purchasers
		The following table represents the purchasing activity of the Company’s Employee Stock Ownership Plan (ESOP) during the first quarter of fiscal 2009:

Period	Total Number of Shares Purchased (1)	Average Price Paid per Share		Total Number of Shares Purchased as part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs at Month End
October 1 – 31	—	$	—	—	—
November 1 – 30	174,200	$	7.32	—	—
December 1 – 31	449,442	$	8.36	—	—
Total	623,642			—

(1) These shares were purchased in open-market transactions. The Company’s Employee Stock Ownership Plan is authorized to purchase shares of the Company’s common stock as determined from time to time utilizing funds made available at the discretion of the Company. In December 2008, the ESOP purchased 76,037 shares of the Company’s common stock with approximately $686,000 in proceeds received from the sale of rights in connection with the Company’s rights offering in September 2008.

Item 3		Defaults upon Senior Securities
		None

Item 34		~~Defaults upon Senior Securities~~Submission of Matters to a Vote of Security Holders

		None

Item 45		Other Information
		~~Submission~~The Board of ~~Matters~~Directors of the Company previously approved, subject to ~~a Vote~~stockholder approval, amendments to the Company’s 2006 Equity Incentive Plan (the “Incentive Plan”) (i) to increase the shares available for issuance under the Incentive Plan by 2,875,000 shares (if issued solely as restricted stock or awards other than stock options) or 5,750,000 shares (if awarded solely as stock options), and (ii) to increase the maximum number of ~~Security Holders~~ shares that may be granted to any one participant in any one fiscal year to 750,000 shares (if issued solely as restricted stock or awards other than stock options) or 1,500,000 shares (if awarded solely as stock options). The amendments were approved by the stockholders at the Company’s 2009 Annual Meeting of Stockholders held on February 4, 2009.

Item 6		~~None~~

~~Item 5~~		~~Other Information~~

		~~None~~

~~Item 6~~		Exhibits

		Exhibit 3.1 – Certificate of Amendment of the Certificate of Incorporation of Griffon Corporation (Incorporated by reference to Exhibit 3.1 to Quarterly Report on Form 10-Q for the period ended March 31, 2008).

		~~Exhibit 3.2 - By-laws of Griffon Corporation, as amended (Incorporated by reference to Exhibit 3 to Current Report on Form 8-K dated May 8, 2008).~~

		Exhibit 10.1 -– 2006 Equity Incentive Plan, as amended ~~(Incorporated by reference to Exhibit 10.1 to Quarterly Report on Form 10-Q for the period ended December 31, 2007).~~

		Exhibit 10.2 - Employment Agreement, dated March 16, 2008, between the Registrant and Ronald J. Kramer (Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K dated March 16, 2008).

		~~Exhibit 10.3 -~~ ~~Credit Agreement, dated as of March 31, 2008, among Telephonics Corporation, Gritel Holding Co., Inc., the Lenders party~~

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		~~thereto and JPMorgan Chase Bank, N.A., as administrative agent.~~ ~~(Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K dated March 31, 2008).~~

		~~Exhibit 10.4 – Guarantee and Collateral~~ ~~Agreement, dated as of March 31, 2008, made by Gritel Holding Co., Inc. and Telephonics Corporation in favor of JPMorgan Chase Bank, N.A.~~ ~~(Incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K dated March 31, 2008).~~

		~~Exhibit 10.5 -~~ Credit Agreement, dated as of June 24, 2008, among Clopay Building Products Company, Inc., Clopay Plastic Products Company, Inc., Clopay Holding Co., the Lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent. ~~(Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K dated June 24, 2008)~~(attached hereto).

		Exhibit 31.1 -– Certification pursuant to Rules 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (attached hereto).

		Exhibit 31.2 – Certification pursuant to Rules 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act 2002 (attached hereto).

		Exhibit 32 – Certifications pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (attached hereto).

2621

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SIGNATURE

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.

	GRIFFON CORPORATION

	By: /s/ Patrick L. Alesia
	Patrick L. Alesia
	Chief Financial Officer
	(Principal Financial Officer)


Date: February 9, 2009

~~Date: August 11, 2008~~

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EXHIBIT INDEX

Exhibit ~~3.1~~	10.1	-		~~Certificate of Amendment of the Certificate of Incorporation of Griffon Corporation (Incorporated by reference to Exhibit 3.1 to Quarterly Report on Form 10-Q for the period ended March 31, 2008).~~

~~Exhibit 3.2~~		-		~~By-laws of Griffon Corporation, as amended~~ ~~(Incorporated by reference to Exhibit 3 to Current Report on Form 8-K dated May 8, 2008)~~.

~~Exhibit 10.1~~		-		2006 Equity Incentive Plan, as ~~amended (Incorporated by reference to Exhibit 10.1 to Quarterly Report on Form 10-Q for the period ended December 31, 2007).~~amended.

~~Exhibit 10.2~~		-		~~Employment Agreement, dated March 16, 2008, between the Registrant and Ronald J. Kramer (Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K dated March 16, 2008).~~

~~Exhibit 10.3~~		-		~~Credit Agreement, dated as of March 31, 2008, among Telephonics Corporation, Gritel Holding Co., Inc., the Lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent.~~ ~~(Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K dated March 31, 2008).~~

~~Exhibit 10.4~~		-		~~Guarantee and Collateral~~ ~~Agreement, dated as of March 31, 2008, made by Gritel Holding Co., Inc. and Telephonics Corporation in favor of JPMorgan Chase~~ ~~Bank, N.A.~~ ~~(Incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K dated March 31, 2008).~~

~~Exhibit 10.5~~		-		~~Credit~~ Agreement, dated as of June 24, 2008, among Clopay Building Products Company, Inc., Clopay Plastic Products Company, Inc., Clopay Holding Co., the Lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent. ~~(Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K dated June 24, 2008).~~

Exhibit 31.1		-		Certification pursuant to Rules 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 31.2		-	–	Certification pursuant to Rules 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act 2002.

Exhibit 32		-	–	Certifications pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

2823

	June 30, 2008			September 30, 2007

LIABILITIES AND SHAREHOLDERS’ EQUITY

CURRENT LIABILITIES:

Notes payable and current portion of long-term debt	$	2,944,000		$	3,392,000
Accounts payable	118,292,000			99,007,000
Accrued liabilities	63,650,000			60,764,000
Income taxes	1,720,000			14,153,000
Liabilities of discontinued operations	15,560,000			17,287,000
Total current liabilities	202,166,000			194,603,000

LONG-TERM DEBT	231,740,000			229,438,000

OTHER LIABILITIES AND DEFERRED CREDITS	71,727,000			62,429,000

LIABILITIES OF DISCONTINUED OPERATIONS	10,135,000			6,449,000
Total liabilities and deferred credits	515,768,000			492,919,000

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS’ EQUITY:
Preferred stock, par value $.25 per share, authorized 3,000,000 shares, no shares issued	—			—
Common stock, par value $.25 per share, authorized 85,000,000 shares, issued 42,626,448 shares and 42,328,821 shares at June 30, 2008 and September 30, 2007, respectively	10,657,000			10,582,000
Capital in excess of par	182,749,000			180,022,000
Retained earnings	423,970,000			461,163,000
Treasury shares, at cost, 12,440,015 common shares and 12,399,115 common shares at June 30, 2008 and September 30, 2007, respectively	(213,310,000		)	(212,731,000		)
Accumulated other comprehensive income	57,164,000			29,522,000
Deferred compensation	(1,238,000		)	(1,619,000		)
Total shareholders’ equity	459,992,000			466,939,000
	$	975,760,000		$	959,858,000

			Electronic
			Information
			and					Specialty
			Communication		Garage			Plastic
	Totals		Systems		Doors			Films
Revenues from external customers -

Three months ended
June 30, 2008	$	322,267,000	$	88,251,000	$	112,869,000		$	121,147,000
June 30, 2007	337,194,000		120,553,000		119,793,000			96,848,000
Nine months ended
June 30, 2008	$	915,640,000	$	262,508,000	$	310,912,000		$	342,220,000
June 30, 2007	1,032,319,000		374,567,000		357,519,000			300,233,000

Revenues on sales to discontinued operations -

Three months ended
June 30, 2008	$	1,788,000	$	—	$	1,788,000		$	—
June 30, 2007	4,280,000		—		4,280,000			—
Nine months ended
June 30, 2008	$	8,484,000	$	—	$	8,484,000		$	—
June 30, 2007	13,099,000		—		13,099,000			—

Segment profit (loss) -

Three months ended
June 30, 2008	$	16,931,000	$	9,173,000	$	2,252,000		$	5,506,000
June 30, 2007	17,314,000		9,951,000		4,506,000			2,857,000
Nine months ended
June 30, 2008	$	29,582,000	$	21,795,000	$	(8,069,000	)	$	15,856,000
June 30, 2007	51,465,000		35,302,000		4,027,000			12,136,000

							Segment operating
	Net sales						profit
	2008			2007			2008		2007

Electronic Information and Communication Systems	$	88,251,000		$	120,553,000		$	9,173,000	$	9,951,000
Garage Doors	114,657,000			124,073,000			2,252,000		4,506,000
Specialty Plastic Films	121,147,000			96,848,000			5,506,000		2,857,000
Sales to discontinued operations	(1,788,000		)	(4,280,000		)	—		—
	$	322,267,000		$	337,194,000		$	16,931,000	$	17,314,000

							Segment operating
	Net sales						profit (loss)
	2008			2007			2008			2007

Electronic Information and Communication Systems	$	262,508,000		$	374,567,000		$	21,795,000		$	35,302,000
Garage Doors	319,396,000			370,618,000			(8,069,000		)	4,027,000
Specialty Plastic Films	342,220,000			300,233,000			15,856,000			12,136,000
Intersegment revenues	(8,484,000		)	(13,099,000		)	—			—
	$	915,640,000		$	1,032,319,000		$	29,582,000		$	51,465,000