BUSINESS OVERVIEW

Griffon Corporation, headquartered in Jericho, New York, is a diversified holding company consisting of three distinct business segments: Telephonics Corporation ("Telephonics"), Clopay Building Products Company ("Clopay Building Products") and Clopay Plastic Products Company ("Clopay Plastic Products").

† Telephonics' high-technology engineering and manufacturing capabilities provide integrated information, communication and sensor system solutions to military and commercial markets worldwide.

† Clopay Building Products is a leading manufacturer and marketer of residential, commercial and industrial garage doors to professional installing dealers and major home center retail chains.

† Clopay Plastic Products is an international leader in the development and production of embossed, laminated and printed specialty plastic films used in a variety of hygienic, health-care and industrial markets.

QUARTERLY OVERVIEW

Net sales from continuing operations for the three months ended June 30, 2009 were $287.4 million, compared to $322.3 million last year due to lower sales at Clopay Building Products and Clopay Plastic Products, partially offset by Telephonics. Income from continuing operations was $6.9 million, or $0.12 per diluted share, for the third quarter of fiscal 2009 compared to $9.4 million, or $0.29 per diluted share, last year. Income from discontinued operations for the third quarter of fiscal 2009 was essentially nil, compared to a loss of $19.2 million, or $0.59 per diluted share, last year. Net income for the third quarter of fiscal 2009 was $6.9 million, or $0.12 per diluted share, compared to a loss of $9.8 million, or $0.30 per diluted share, last year.

The Telephonics (Electronic Information and Communications Systems) segment continues to perform well as sales grew by approximately $5.9 million, or 7%. The Telephonics 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 revenue at a run rate of approximately $100 million per year for the next several years.

The Clopay Building Products(Garage Doors) segment results continued to be impacted by the sustained downturn in the residential housing and credit markets, with sales and operating profits decreasing from the prior-year period. The segment remains committed to retaining its customer base and, where possible, growing market share to offset shrinking sales. Additionally, Clopay Building Products' ongoing review of, and changes to, its cost structure resulted in a Segment quarter profit for the first time this year.

As part of it cost structure review, in June 2009, the Company announced plans to consolidate facilities in its Clopay Building Products segment, which are scheduled to be completed in early 2011. The consolidation is expected to produce annual cost savings of approximately $10 million. The Company estimates that it will incur pre-tax exit and restructuring costs of approximately $12 million, substantially all of which will be cash charges, including approximately $2 million for one-time termination benefits and other personnel costs, approximately $1 million for excess facilities and related costs, and approximately $9 million in other exit costs primarily in connection with production realignment. In addition, the Company expects to invest approximately $11 million in capital expenditures in order to effectuate the restructuring plan. These charges and expenditures will occur primarily in fiscal 2010 and 2011.

The Clopay Plastic Products (Specialty Plastic Films) segment sales decreased $26.4 million, or 22%, from the prior year fiscal third quarter; however, its Segment operating profit margin increased primarily due to managing expenses which offset some of the impact from lower volume. 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 improved performance.

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.

RESULTS OF OPERATIONS

Three and Nine months ended June 30, 2009 and 2008

The Company reviews its Segments excluding depreciation, amortization and restructuring charges to gain a better understanding of the operations and believes this information is useful to investors. The results of each Segment are accompanied by a reconciliation from Segment operating profit to Segment profit (loss) before depreciation, amortization and restructuring charges, when applicable.

Telephonics (Electronic Information and Communication Systems)



                            Three Months Ended June 30,               Nine Months Ended June 30,
(in thousands)                2009                2008                2009                 2008

Net Sales               $   94,126           $ 88,251           $ 271,520           $ 262,508

Segment operating
profit                       9,908   10.5 %     9,173   10.4 %     23,538     8.7 %    21,795      8.3 %
Depreciation and
amortization                 1,620              1,712               4,650               4,630
Segment profit before
depreciation and
amortization            $   11,528   12.2 %  $ 10,885   12.3 %  $  28,188    10.4 % $  26,425     10.1 %

For the three months ended June 30, 2009, net sales of the Telephonics segment increased $5.9 million, or 7%, compared to the prior year period. The sales increase was primarily the result of higher sales in the Electronic Systems division driven by homeland defense and border patrol projects.

For the three months ended June 30, 2009, Segment operating profit of $9.9 million increased $0.7 million and Segment operating profit margin was essentially flat, principally due to higher SG&A expenses offset by a favorable program mix. The increase in SG&A expenses was primarily due to higher research expenditures and additional administrative expenses to support sales growth.

For the nine months ended June 30, 2009, the increase in net sales from the prior year period of $9.0 million, or 3%, was primarily due to increases at the Radar Systems division (maritime patrol, multi-mode radar and periscope detect & discriminate systems) and Electronic Systems divisions (homeland defense and border patrol systems). The increase was partially offset by a program with Syracuse Research Corporation ("SRC"), which ended in the second fiscal quarter of 2008. Excluding the prior-period sales related to the SRC contracts, net sales grew by approximately $27.1 million, or 11%.

For the nine months ended June 30, 2009, Segment profit increased $1.7 million compared to the prior year period and Segment operating profit margin increased 40 basis points primarily due to program mix, with SG&A expenses as a percent of sales down 30 basis points due to leveraging of the cost structure.

Clopay Building Products (Garage Doors)



                        Three Months Ended June 30,                 Nine Months Ended June 30,
(in thousands)           2009                  2008                  2009                 2008

Net Sales         $   98,497             $ 112,869            $   286,566           $ 310,912

Segment
operating
profit (loss)            639      0.6 %      2,252     2.0 %      (15,595 )            (8,069 )
Depreciation
and
amortization           3,546                 3,331                 10,032               9,811
Restructuring
charges                   38                   180                     38               2,572
Segment profit
(loss) before
depreciation,
amortization
and
restructuring     $    4,223      4.3 %  $   5,763     5.1 %  $    (5,525 )         $   4,314    1.4 %

For the three months ended June 30, 2009, net sales of the Clopay Building Products Doors segment decreased by $14.4 million, or 13%, compared to the prior year period primarily due to the continuing effects of the weak housing and credit markets. The sales decline was principally due to reduced unit volume and, to a lesser extent, the impact of foreign exchange translation, offset partially by a shift in mix to higher priced products.

For the three months ended June 30, 2009, Segment operating profit decreased $1.6 million compared to the prior year period primarily due to reduced sales volume, and the associated plant absorption impact, partially offset by ongoing cost reduction activities.

For the nine months ended June 30, 2009, the decrease in net sales from the prior year period was primarily due to the same factors noted in the quarter discussion.

For the nine months ended June 30, 2009, Segment operating loss increased $7.5 million from the prior year period. The factors effecting Segment profit were primarily due to the same factors noted in the quarter discussion except for a current year favorable impact on SG&A expense due to non-recurring restructuring costs recorded in the prior year period for the closure of the Tempe, AZ manufacturing facility.

Clopay Plastic Products (Specialty Plastic Films)



                       Three Months Ended June 30,                Nine Months Ended June 30,
(in thousands)          2009                 2008                 2009                 2008

Net Sales        $   94,762            $ 121,147            $ 307,720           $ 342,220

Segment
operating
profit                4,780     5.0 %      5,506     4.5 %     16,894     5.5 %    15,856      4.6 %
Depreciation
and
amortization          5,239                5,770               16,248              16,940
Segment profit
before
depreciation
and
amortization     $   10,019    10.6 %  $  11,276     9.3 %  $  33,142    10.8 % $  32,796      9.6 %

For the three months ended June 30, 2009, net sales of the Clopay Plastic Products segment decreased $26.4 million, or 22%, compared to the prior year period. The decrease was principally due to lower volume in our European business, foreign exchange translation and the pass through of lower resin costs.

For the three months ended June 30, 2009, Segment operating profit decreased by $0.7 million or 13%, primarily due to lower unit volume, partially offset by cost containment efforts. Segment operating profit margin increased 50 basis points.

For the nine months ended June 30, 2009, the decrease in net sales of $34.5 million was primarily due to the same factors noted in the quarter discussion.

For the nine months ended June 30, 2009, Segment operating profit increased $1.0 million, or 7%, from the prior year period primarily due to the same factors noted in the quarter discussion.

Other income (expense)

In the first quarter of the current fiscal year, the Company recorded a non-cash, pre-tax gain from debt extinguishment of $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 convertible notes at a discount.

In the third quarter of the current fiscal year, the Company recorded a non-cash, pre-tax gain from debt extinguishment of $0.6 million, net of a proportionate write-off of deferred financing costs, that resulted from its April 2009 purchase of $15.1 million of its outstanding convertible notes at a discount.

In three- and nine-month periods ended June 30, 2009, interest expense decreased $0.4 million and $1.4 million from the respective prior year periods primarily as a result of decreased average borrowings outstanding due to the repurchase of convertible notes in the fiscal first and third quarters.

In three-month period ended June 30, 2009, interest income increased $0.1 million from the respective prior year period primarily as a result of higher average invested cash and cash equivalents partially offset by lower interest rates. In the nine-month period ended June 30, 2009, interest income decreased $0.7 million primarily due to reduced interest rates, partially offset by an increase in average invested cash and equivalents during the period.

Other income included approximately $0.4 million and zero for the three-month periods and $(0.5) million and $0.8 million for the nine-month periods ended June 30, 2009 and 2008, 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 and its subsidiaries.

Provision for income taxes

The Company's effective tax rate for continuing operations for the three months ending June 30, 2009 was a provision of 12.5% compared to a benefit of 0.8% in the prior year period. The rates in both periods benefited from tax planning with respect to foreign tax credits and discrete tax benefits related to the resolution of previously recorded tax liabilities principally due to the resolution of audits and the closing of statutes for certain prior year returns. The prior year rate was lower than the current year primarily due to a larger benefit from the resolution and closing of prior year returns and the release of the related recorded tax liabilities.

The Company's effective tax rate for continuing operations for the nine months ending June 30, 2009 was a provision of 2.7% compared to a benefit of 5.1% in the prior year period. The rates in both periods benefit from tax planning with respect to foreign tax credits and discrete tax benefits related to the resolution of previously recorded tax liabilities principally due to the resolution of audits and the closing of certain statutes for prior year returns. The current year rate is higher than the prior year rate due to a larger benefit from the resolution and closing of prior year returns and the release of the related recorded tax liabilities, partially offset by a combination of foreign income and domestic losses in the prior year period.

Stock Based Compensation

For the three and nine months ending June 30, 2009, after-tax stock based compensation expense totaled $0.8 million and $2.0 million, respectively. For the three and nine months ending June 30, 2008, after-tax stock based compensation expense totaled $0.5 million and $1.3 million, respectively.

Discontinued operations - Installation Services

The Company substantially concluded its remaining disposal activities in the second quarter of fiscal 2009. There were no net sales in the nine-month period ended June 30, 2009, and net sales were $22.6 million and $99.4 million for the three and nine months ended June 30, 2008, respectively, as a result of the Company's exit from the segment in fiscal 2008.

Net income (loss) from discontinued operations of the Installation Services' business was essentially nil and $(19.2) million for the three months ended June 30, 2009 and 2008, respectively. Net income (loss) from discontinued operations of the Installation Services' business was $0.7 million and $(39.3) million for the nine months ended June 30, 2009 and 2008, respectively.

LIQUIDITY AND CAPITAL RESOURCES

Cash flows provided by continuing operations during the nine-month period ended June 30, 2009 were $42.3 million compared to cash provided by continuing operations of $49.5 million in the comparable prior year period. Working capital decreased to $527.1 million at June 30, 2009 compared to $562.1 million at September 30, 2008, primarily as a result of the purchase of $50.6 million face value of long-term Notes for $42.7 million. Operating cash flows from continuing operations were favorably impacted by decreased receivables, inventories and prepaid and other assets, primarily due to a tax refund; and unfavorably impacted by decreased accounts payable. The current period decrease in receivables is primarily attributable to lower sales volume in the Clopay Building Products and Clopay Plastic Products segments. The current period decrease in inventories is primarily attributable to lower sales volume at Clopay Building Products and decreased costs of materials. The current period decrease in accounts payable affected all segments as there were less purchases overall due to sales volume decreases compared to the prior year, and, with respect to the Telephonics segment, there was a reduction in liabilities associated with the nature and timing of contract obligations.

Payments from revenues derived from the Telephonics segment are received in accordance with the terms of development and production subcontracts to which the Company is a party. Certain of the payments received in this segment are progress payments. Customers in the Clopay Plastic Products segment are generally substantial industrial companies whose payments have been steady, reliable and made in accordance with the terms governing such sales. The sales in this segment are made to satisfy orders that are received in advance of production, where payment terms are established in advance of production and sale. With respect to the Clopay Building Products segment, there have been no material adverse impacts on payment for sales.

A small number of customers have accounted for a substantial portion of historical net sales, and the Company expects that a limited number of customers will continue to represent a substantial portion of sales for the foreseeable future. Approximately 17% and 20% of total net sales from continuing operations for the three and nine months ended June 30, 2009, respectively, and 53% and 56% of Clopay Plastic Products' sales for the three and nine months ended June 30, 2009, respectively, were made to Procter & Gamble, which is the largest customer in the Clopay Plastic Products segment. The Home Depot, Inc. and Menards, Inc. are significant customers of the Clopay Building Products segment and Lockheed Martin Corporation and the Boeing Company are significant customers of the Telephonics segment. Future operating results will continue to substantially depend on the success of the largest customers and the Company's relationships with them. Orders from these customers are subject to fluctuation and may be reduced materially. The loss of all or a portion of the sales volume from any one of these customers would have an adverse affect on the Company's liquidity and operations.

During the nine-month period ended June 30, 2009, the Company used cash from investing activities of continuing operations of $20.9 million compared to $46.7 million last year, primarily for capital expenditures.

During the nine-month period ended June 30, 2009, the Company used cash from financing activities of continuing operations of $43.3 million compared to $1.8 million last year, primarily as a result of the purchase of $50.6 million face value of convertible notes for $42.7 million and the purchase of common stock by the Company's Employee Stock Ownership Plan ("ESOP") of $4.4 million, partially offset by the receipt of $7.3 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 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 had an exercise price of $8.50 per share. In conjunction with the rights offering, Goldman, Sachs & Co, ("GS Direct") 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 also agreed to purchase additional shares of common stock at the rights offering price if it did not acquire a minimum of 10 million shares of common stock as a result of its back stop commitment. In September 2008, the Company received $241.3 million of gross proceeds from the first closing of its rights offering and the closing of the related investments by GS Direct and by the Company's Chief Executive Officer. An additional $5.3 million of rights offering proceeds were received in October 2008 in connection with the second closing of the rights offering. In April 2009, an additional $2.0 million of rights offering proceeds were received in connection with the rights offering.

In June 2008, Clopay Building Products Company, Inc. ("BPC") and Clopay Plastic Products Company, Inc. ("PPC"), each a wholly-owned subsidiary of the 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 (the "Clopay Credit Agreement"). At June 30, 2009, $35.4 million was outstanding under the Clopay Credit Agreement and approximately $32.5 million was available for borrowing.

In March 2008, Telephonics Corporation ("Telephonics"), a wholly-owned subsidiary of the 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 a five-year, revolving credit facility of $100 million (the "Telephonics Credit Agreement"). At June 30, 2009, $38.0 million was outstanding under the Telephonics Credit Agreement and approximately $55.3 million was available for borrowing.

The Telephonics Credit Agreement and the Clopay Credit Agreement include various sublimits for standby letters of credit. At June 30, 2009, there were approximately $19.8 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 June 30, 2009, the Company was not, nor was it reasonably likely to be, in breach of covenants under its respective credit facilities. The Clopay Credit Agreement provides for credit availability primarily based on working capital assets and imposes only one ratio compliance requirement, which becomes operative only in the event that utilization of that facility were to reach a defined level significantly beyond the June 30, 2009 level. The Telephonics Credit Agreement is a "cash flow based" facility and compliance with required ratios at June 30, 2009 was well within the parameters set forth in that agreement. Further, the covenants within such credit facilities do not materially affect the Company's ability to undertake additional debt or equity financing for Griffon, the parent company, as such credit facilities are at the subsidiary level and are not guaranteed by Griffon.

The Company had $79.4 million outstanding of 4% convertible subordinated notes due 2023 (the "Notes") as of June 30, 2009. Holders of the Notes may require the Company to repurchase all or a portion of their Notes on July 18, 2010, 2013 and 2018, as well as upon a change in control. If our common stock price is below the conversion price of the Notes on the earliest of these dates, we anticipate that noteholders will require us to repurchase their outstanding Notes. As such, these notes will be reclassed to Notes payable and current portion of long-term debt in the fourth quarter of fiscal 2009. The fair value is approximately $77 million, which is based on quoted market price (Level 1).

In April 2009, the Company purchased $15.1 million face value of the Notes from certain noteholders for $14.3 million. The Company recorded a pre-tax gain from debt extinguishment of approximately $0.7 million, offset by a $0.1 million proportionate reduction in the related deferred financing costs for a net gain of $0.6 million in the third quarter of fiscal 2009.

In October 2008, the Company purchased $35.5 million face value of the Notes from certain noteholders for $28.4 million. The Company recorded a pre-tax gain from debt extinguishment of approximately $7.1 million, offset by a $0.4 million proportionate reduction in the related deferred financing costs for a net gain of $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 from the resultant gain and recapture of interest expense.

At September 30, 2008, prior to the above described repurchases, the Company had $130 million outstanding of Notes.

The Company's Employee Stock Ownership Plan ("ESOP") has a loan agreement, guaranteed by the Company, which requires payments of principal and interest through the expiration date of September 2012 at which time the $3.9 million balance of the loan, and any outstanding interest, will be payable. The primary purpose of this loan, and it predecessor loans which were refinanced by this loan in October 2008, was to purchase 547,605 shares of the Company's stock in October 2008.The loan bears interest at rates based upon the prime rate or LIBOR. The balance of the loan was $5.8 million as of June 30, 2009, and the outstanding balance approximates fair value.

The Company substantially concluded its remaining disposal activities in the second quarter of fiscal 2009 and does not expect to incur significant expenses in the future. Future net cash outflows to satisfy liabilities related to disposal activities that were accrued as of June 30, 2009 are estimated to be $3 million. Substantially all of such liabilities are expected to be paid during fiscal 2009. Certain of the Company's subsidiaries are also contingently liable for approximately $3.1 million related to certain facilities leases with varying terms through fiscal 2011 that were assigned to the respective purchasers of certain of the Installation Services businesses. The Company does not believe it has a material exposure related to these contingencies.

During the nine-month period ended June 30, 2009, the Company used cash from . . .