UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549



FORM 10-K

ý

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the year ended September 30, 2009ORo

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


Commission File No. 1-06620

GRIFFON CORPORATION(Exact name of registrant as specified in its charter)

Delaware(State or other jurisdiction of
incorporation or organization)

11-1893410(I.R.S. Employer
Identification No.)712 Fifth Avenue, 18th Floor, New York, New York(Address of Principal Executive Offices)

10019(Zip Code)(212) 957-5000Registrant's telephone number, including area code:


Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Name of each exchange on
which registeredCommon Stock, $0.25 par value

New York Stock Exchange


Securities registered pursuant to Section 12(g) of the Act: None

Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act.    Yes o No ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act.    Yes o No ý

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.    Yes ý No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such period that the
registrant was required to submit and post such files).    Yes o No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.    o

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 definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o

Accelerated filer ý

Non-accelerated filer o (Do not check if a smaller
reporting company)

Smaller reporting company o


Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act). Yes o    No ý

The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant as of the close of business
March 31, 2009, the registrant's most recently completed second quarter, was approximately $254,000,000. The registrant's closing price as reported by the New York Stock Exchange-Composite
Transactions for March 31, 2009 was $7.50

The
number of the registrant's outstanding shares was 59,573,983 as of October 30, 2009.

DOCUMENTS INCORPORATED BY REFERENCE:

Part III(Items 10, 11, 12, 13 and 14). Registrant's definitive proxy statement to be filed
pursuant to Regulation 14A of the Securities Exchange Act of 1934.



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Special Notes Regarding Forward-Looking Statements

This Annual Report on Form 10-K, especially "Management's Discussion and Analysis", contains certain
"forward-looking statements" within the meaning of the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995.
Such statements relate to, among other things, income, earnings, cash flows, revenue, changes in operations, operating improvements, industries in which Griffon Corporation (the "Company" or
"Griffon") operates and the United States and global economies. Statements in this Form 10-K that are not historical are hereby identified as "forward-looking statements" and may be
indicated by words or phrases such as "anticipates," "supports," "plans," "projects," "expects," "believes," "should," "would," "could," "hope," "forecast," "management is of the opinion," "may,"
"will," "estimates," "intends," "explores," "opportunities," the negative of these expressions, use of the future tense and similar words or phrases. Such forward-looking statements are subject to
inherent risks and uncertainties that could cause actual results to differ materially from those expressed in any forward-looking statements. These risks and uncertainties include, among others:
current economic conditions and uncertainties in the housing, credit and capital markets; the Company's ability to achieve expected savings from cost control, integration and disposal initiatives; the
ability to identify and successfully consummate and integrate value-adding acquisition opportunities; increasing competition and pricing pressures in the markets served by Griffon's operating
companies; the ability of Griffon's operating companies to expand into new geographic and product markets and to anticipate and meet customer demands for new products and product enhancements and
innovations; the government reduces military spending on projects supplied by Griffon's Telephonics Corporation; increases in cost of raw materials such as resin and steel; changes in customer demand;
political events that could impact the worldwide economy; a downgrade in the Company's credit ratings; international economic conditions including interest rate and currency exchange fluctuations; the
relative mix of products and services which impacts margins and operating efficiencies; short-term capacity constraints or prolonged excess capacity; unforeseen developments in
contingencies such as litigation; unfavorable results of government agency contract audits of Griffon's subsidiary, Telephonics Corporation; protection and validity of patent and other intellectual
property rights; the cyclical nature of the business of certain Griffon operating companies; and possible terrorist threats and actions, and their impact on the global economy. Readers are cautioned
not to place undue reliance on these forward-looking statements. These forward-looking
statements speak only as of the date made. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or
otherwise, except as required by law.

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PART I

Item 1.    Business

The Company

Griffon Corporation (the "Company" or "Griffon"), is a diversified management and holding company that conducts business through
wholly-owned subsidiaries. The Company oversees the operations of its subsidiaries, allocates resources among them and manages their capital structures. The Company provides direction and assistance
to its subsidiaries in connectioin with acquisition and growth opportunities as well as in connection with divestitures. Griffon also seeks out, evaluates and, when appropriate, will acquire
additional businesses that offer potentially attractive returns on capital to further diversify itself.

Headquartered
in New York, N.Y., the Company was incorporated in New York in 1959, and was reincorporated in Delaware in 1970. It changed its name to Griffon Corporation in 1995.

Griffon
currently conducts its operations through Telephonics Corporation, Clopay Building Products Company and Clopay Plastic Products Company.



(Unless otherwise indicated, all references to years or year-end refer to the Company's fiscal period ending September 30)

In 2008, the Company substantially strengthened its balance sheet by refinancing its senior debt and raising $248.6 million in
gross proceeds through a common stock rights offering, along with an investment by GS Direct, L.L.C. ("GS Direct"), an affiliate of Goldman Sachs. The Company intends to use such proceeds for general
corporate purposes and to fund growth both through investment in current segments and acquisitions of other businesses outside the current portfolio.

At
September 30, 2009, the Company had $79.4 million outstanding of its 4% convertible subordinated notes due 2023 (the "Notes"). If the common stock price remains below
the conversion price of $22.41 per share, as adjusted for the September 2008 rights offering, the Company anticipates that the noteholders will require the Company to repurchase their outstanding
notes in July 2010. As such, these notes are included in Notes payable and current portion of long-term debt in the
September 30, 2009 Consolidated Balance Sheet. The Company believes its available cash and liquidity available under credit agreements will be adequate to effect the repurchase of the Notes in
July 2010.

As
a result of the downturn in the residential housing market, in 2008, the Company exited substantially all of the operating activities of its Installation Services segment; this
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 consolidated statements of operations for all periods presented
herein, and the Installation

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Services
segment is excluded from segment reporting (see the Discontinued Operations footnote in the Notes to Consolidated Financial Statements).

The
Company makes available, free of charge through its website atwww.griffoncorp.com, its annual report on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) of the Securities
Exchange Act of 1934 as soon as reasonably practicable after such material is filed with or furnished to the Securities and Exchange Commission.

For
information regarding revenue, profit and total assets of each segment, see the Business Segments footnote in the Notes to Consolidated Financial Statements.

Reportable Segments:

Telephonics

Telephonics specializes in advanced electronic information and communication systems for defense, aerospace, civil, industrial, and
commercial applications for the United States and international markets. Telephonics designs, manufactures, sells, and provides logistical support for aircraft communication systems, radar, air
traffic management, information and command and control systems, identification friend or foe ("IFF") equipment, Integrated Homeland Security Systems and custom, mixed-signal, application specific
integrated circuits. Telephonics is a leading supplier of airborne maritime surveillance radar and aircraft intercommunication management
systems, the segment's two largest product lines. In addition to its traditional defense products used predominantly by the United States Government and its agencies, Telephonics has adapted its core
technologies to products used in international markets in an effort to further increase it presence in both non-defense government and commercial markets. In 2009, approximately 71% of the
segment's sales were to the United States ("U.S.") Government and agencies thereof, as either a prime or subcontractor, 21% to international customers and 8% to U.S. commercial customers.

Telephonics
employs approximately 1,300 employees.

The
Company believes that Telephonics' advanced systems and sub-systems are well positioned to address the needs of an electronic battlefield with emphasis on the retrieval
and dissemination of timely data for use by highly mobile ground, air and naval forces. Telephonics anticipates that the need for such systems will increase in connection with the increasingly active
role that the military is playing in the war on terrorism, both at home and abroad. In recent years, Telephonics has increasingly focused its technologies and core competencies in the Homeland
Security and Air Traffic Management markets.

Programs and Products

Telephonics is generally a first-tier supplier to prime contractors in the defense industry such as Lockheed Martin,
Boeing, Northrop Grumman, General Dynamics, BAE Systems, MacDonald Dettwiler, Sikorsky Aircraft, the U.S. Department of Defense and the U.S. Department of Homeland Security. The significant
contraction and consolidation in the U.S. and international defense industry provides opportunities for established, first-tier suppliers to capitalize on existing relationships with major
prime contractors and play a larger role in defense systems development and procurement, for the foreseeable future.

Telephonics,
under a primary contract with Syracuse Research Corporation ("SRC"), had been manufacturing counter-IED devices to support the Warlock Duke program. The program
entailed the achievement of high production rates, on an accelerated timetable, of equipment designed to defeat roadside bomb threats to U.S. armed forces. The SRC program resulted in revenue of
$18 million in 2008 and $191 million in 2007 with no revenue in 2009. As a result of its performance on the SRC contract, in 2009, Telephonics received a subcontract award from Sierra
Nevada Corporation for both production and support of counter-IED devices which resulted in $11 million of revenue in 2009.

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Telephonics
has directed resources towards Homeland Security Systems and was selected by Boeing Company in 2007 to participate in the Secure Border Initiative net (SBInet) program.
Additionally, Telephonics has been fulfilling a contract from the U.S. Customs and Border Protection for mobile surveillance systems as part of the Homeland Security department's initiative to protect
the U.S. borders. These two programs represent strategic advances for the Company by allowing it to expand its core technical expertise into the Homeland Security market. Significant future growth is
expected in this Market.

Backlog

The funded backlog for Telephonics was approximately $393 million at September 30, 2009, compared to $335 million
at September 30, 2008. The increase in backlog is primarily attributable to additional funding received for the MH-60R program, a unique, fully integrated multi-mode
radar and identification friend or foe interrogator system. Approximately 75% of the current backlog is expected to be filled during 2010.

Sales and Marketing

Telephonics has technical business development personnel who act as the focal point for its marketing activities and sales
representatives who introduce its products and systems to customers worldwide.

The
U.S. Government through its agencies, Lockheed Martin Corporation and the Boeing Company are significant customers of Telephonics. The loss of these customers would have a material
adverse effect on the business; notwithstanding the significance of Lockheed Martin Corporation and Boeing Company, Telephonics sells to a diverse group of other defense industry contractors, and
others who use Telephonics products for commercial use.

Telephonics
participates in a range of long-term defense and non-military government programs, both in the U.S. and internationally. Telephonics has developed a
base of installed products that generate significant recurring revenue from retrofitting, spare parts and customer support. Due to the inherent complexity of defense electronics, Telephonics believes
that its incumbent status on major platforms provides a competitive advantage in the selection process for upgrades and enhancements. Furthermore, Telephonics believes that its ability to leverage and
apply its advanced technology into new platforms provides a competitive advantage when bidding for new business.

In
recent years, the segment has significantly expanded its customer base in international markets. Telephonics' international projects include a contract with MacDonald Dettwiler as
part of Canada's CP-140 Aurora Aircraft Modernization program with General Dynamics for the Canadian Maritime Helicopter Program, and a number of contracts with the Civil Aviation
Authority of China for air traffic management systems for Mainland China.

Manufacturing Facilities

Telephonics' facilities are principally located in the United States, primarily in New York, with one facility in Sweden.

Research and Development

In an effort to ensure customer satisfaction and loyalty, Telephonics seeks to anticipate the needs of core markets by investing in
research and development to provide solutions well in advance of its competitors. As a result, Telephonics continually updates its core technologies through internally funded research and development
while coordinating with its customers at the earliest stages of new program development. The selection of these R&D projects is based on available opportunities in the marketplace, as well as input
from Telephonics' customers. Telephonics is a technological leader in its

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core
markets and intends to pursue new growth opportunities by leveraging its systems design and engineering capabilities and incumbent position on key platforms.

In
addition to products for defense programs, Telephonics has also applied its technology to commercial applications such as airborne weather, search and rescue radar, and air traffic
management systems. Telephonics' reputation for innovative product design and engineering capabilities, especially in the areas of voice and data communications, radio frequency design, digital signal
processing, networking systems, inverse synthetic aperture radar and analog, digital and mixed-signal integrated circuits, will continue to enhance its ability to secure, retain and expand its
participation in defense programs and commercial opportunities.

Telephonics
often designs its products to exceed customers' minimum specifications, providing its customers with greater performance and flexibility. Telephonics believes that early
participation and communication with its customers in the requirements definition stages of new program development,
increases the likelihood that its products will be selected and integrated as part of a total system solution.

Competition

As one of the top companies in the industry, Telephonics competes with major manufacturers of electronic information and communication
systems, as well as several smaller manufacturers of similar products. Telephonics endeavors to design products with greater performance and flexibility than its competitors while competing on the
basis of technology, design, quality and price.

Building Products

Building Products is the largest manufacturer and marketer of residential garage doors and among the largest manufacturers of
commercial sectional doors in the United States. Products are sold under Clopay®, Ideal Door® and Holmes® brand names through an extensive distribution network
throughout the United States and in Canada. The majority of Building Products' sales are from its garage doors sold for home remodeling, with the balance from new residential housing and commercial
building markets. Sales into the home remodeling market are being driven by the continued aging of the housing stock and the trend of improving home appearance, as well as improved energy efficiency,
leading to increased demand for insulated doors.

Building
Products employs approximately 1,400 employees.

According
to industry sources, the residential and commercial sectional garage door market for 2008 was estimated to be $1.5 billion, declining approximately $300 million
from the prior year.

The
garage door industry has been negatively impacted by the recessionary affect on the residential housing market. Key statistics regarding housing sales, construction permits and
starts in 2009 and 2008 were substantially lower than the prior decade; however, the housing market appears to be stabilizing. According to the National Association of Home Builders, current data
compared to the prior year shows new home starts down 28% with new home sales down 8% and the inventory of new homes stands at a 7.5 month supply. Current year existing home sales are up 9%
over the prior year and the inventory of existing homes now stands at a 7.8-month supply.

Products and Service

Building Products manufactures a broad line of residential sectional garage doors with a variety of options at varying prices. Building
Products offers garage doors made primarily from several materials, including steel, plastic composite and wood, and also sells related products, such as garage door openers manufactured by third
parties.

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Building
Products also markets commercial sectional doors; which are similar to residential garage doors, but are designed to meet the more demanding performance specifications of a
commercial application.

Sales and Marketing

Building Products distributes its products through a wide range of distribution channels, including installing dealers, retailers and
wholesalers. Building Products owns and operates a national network of 49 distribution centers. Additionally, products are sold to approximately 2,000 independent professional installing dealers and
to major home center retail chains, including The Home Depot, Inc. ("Home Depot") and Menards, Inc. ("Menards"). Building Products maintains strong relationships with its installing
dealers and believes it is the largest supplier of residential garage doors to the retail and professional installing channels.

Over
the past decade, a significant number of garage doors have been sold through home center retail chains such as Home Depot and Menards. These home centers sell garage doors to the
do-it-yourself consumer, the small residential and commercial contractor, as well as installed residential doors and operators for the
do-it-for-me consumer segment. Distribution through the retail channel requires different capabilities and skills than those traditionally utilized by garage door
manufacturers. Factors such as immediately available inventory, national distribution, national installation services, point-of-sale merchandising and special packaging are all
important to the retailer.

Building
Products is the principal supplier of residential garage doors throughout North America to Home Depot and Menards. The loss of either of these customers would have a material
adverse effect
on the Company's business. Building Products distributes its garage doors directly to customers from its manufacturing facilities and through its distribution centers located throughout the United
States and Canada. These distribution centers allow Building Products to maintain an inventory of garage doors near installing dealers and provide quick-ship service to retail and
professional dealer customers.

Manufacturing and Raw Materials

As part of its cost structure review, in June 2009, the Company announced plans to consolidate facilities in its Building Products
segment. These actions are scheduled to be completed in early calendar 2011, consistent with the plan. 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. These charges include
$2 million for one-time termination benefits and other personnel costs, $1 million for excess facilities and related costs, and $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 2010 and 2011; Building Products spent $1.2 million and $2.0 million in 2009 in connection with the restructuring plan and related
capital expenditures, respectively.

The
facility consolidation is part of Building Products' continuing efforts to improve and streamline its manufacturing processes. Building Products' engineering and technological
expertise, combined with its capital investment programs, generally has enabled it to efficiently manufacture products in large volume and meet changing customer needs in a timely manner. Building
Products uses proprietary manufacturing processes to produce the majority of its products. Certain machinery and equipment are internally modified to achieve manufacturing objectives. These
manufacturing facilities produce a broad line of high quality garage doors for distribution to professional installer, retail and wholesale channels.

The
principal raw material used in Building Products' manufacturing is galvanized steel. Building Products also utilizes certain hardware components, as well as wood and insulated foam.
All of these raw materials are generally available from a number of sources.

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Research and Development

Building Products operates a technical development center where its research engineers work to design, develop and implement new
products and technologies and perform durability and performance testing of new and existing products, materials and finishes. Also at this facility, the process engineering team works to develop new
manufacturing processes and production techniques aimed at improving manufacturing efficiencies.

Competition and market conditions

The garage door industry is characterized by several large national manufacturers and many smaller regional and local manufacturers.
Building Products competes on the basis of service, quality, price, brand awareness and product design.

Building
Products' brand names are widely recognized in the building products industry. Building Products believes that it has earned a reputation among installing dealers, retailers and
wholesalers for producing a broad range of innovative, high-quality doors. Building Products' market position and brand recognition are key marketing tools for expanding its customer base,
leveraging its distribution network and increasing its market share.

Plastics

Plastics develops and produces specialty plastic films and laminates for a variety of hygienic, health care and industrial uses in the
United States and certain international markets. Products include thin gauge embossed and printed films, elastomeric films and laminates of film and non-woven fabrics. These products are
used primarily as moisture barriers in disposable infant diapers, adult incontinence products and feminine hygiene products, as protective barriers in single-use surgical and industrial
gowns, drapes and equipment covers, as packaging for hygienic products, house wrap and other products. Plastics' products are sold through a direct sales force primarily to multinational consumer and
medical products companies.

Plastics
employs approximately 1,200 employees.

Plastics
has a long and successful relationship with its major customer, Procter & Gamble, Co. ("P&G"). Plastics supplies P&G with a variety of products used primarily for
infant diapers, both in the U.S. and internationally.

The
markets in which Plastics participates have been affected by several key trends over the past five years. These trends include the increased use of disposable products in developing
countries and favorable demographics, including increasing immigration in major global economies. Other trends representing significant opportunities for manufacturers include the continued demand for
new advanced products such as cloth-like, breathable, laminated and printed products, and large consumer products companies' need for global supply partners. Notwithstanding the positive
trends affecting the industry, design changes by the customer can change the products manufactured by Plastics and the associated demand.

Plastics
believes that its business development activities targeting major multinational and regional producers of hygiene, healthcare and related products and its investments in its
technology development capability and capacity increases will lead to additional sales of new and related products, minimizing the impact of this reduction.

Products

Plastics' specialty plastic film is a thin-gauge film (typically 0.0005" to 0.003") engineered to provide certain
performance characteristics and manufactured from polymer resins. A laminate is the combination of a plastic film and a woven or non-woven fabric. These products are produced using both
cast and blown extrusion and laminating processes. High speed, multi-color custom printing of

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films
and customized embossing patterns further differentiate the products. Plastics' specialty plastic film products typically provide a unique combination of performance characteristics, such as
breathability, barrier properties, elastic properties, processability and aesthetic appeal, that meet specific, proprietary customer needs.

Sales and Marketing

Plastics sells its products primarily in North America, Europe, and South and Central America with additional sales in Asia Pacific.
Plastics utilizes an internal direct sales force, organized by customer accounts, with Plastics' senior management actively participating in developing and maintaining close contacts with customers.

Plastics'
largest customer is P&G, which has accounted for more than 50% of its revenue over the last five years. The loss of this customer would have a material adverse effect on the
business; notwithstanding the significance of P&G, Plastics sells to a diverse group of other leading consumer, health care and industrial companies.

Plastics
seeks to expand its market presence by capitalizing on technological and manufacturing expertise and on its relationships with major international consumer products companies.
Specifically, Plastics believes that it can continue to increase its North American sales and expand internationally through ongoing product development and enhancement, and by marketing its
technologically-advanced films, laminates and printed films for use in all of its markets; operations in Germany and Brazil provide a strong platform for additional sales growth in international
markets, particularly in Europe and the Middle East.

Research and Development

Plastics is an industry leader in the research, design and development of specialty plastic film and laminate products. Plastics
operates a technical center where polymer chemists, scientists and engineers work independently and in strategic partnerships with customers to develop new technologies, products, processes and
product applications.

Plastics'
research and development efforts have resulted in many inventions covering embossing patterns, improved processing methods, product formulations, product applications and other
proprietary technology. Products developed include microporous breathable films and cost-effective printed films and laminates. Microporous breathability provides for moisture vapor
transmission and airflow while maintaining barrier properties resulting in improved comfort and skin care. Elastic laminates provide the user with improved comfort and fit. Printed films and laminates
provide consumers preferred aesthetics, such as softness and visual appeal. Plastics holds a number of patents for its current specialty film and laminate products and related manufacturing processes;
while patents play a significant role, Plastics believes that its proprietary know-how and the knowledge, ability and experience of its employees are more significant to it
long-term success.

International Operations

Plastics has two operations in Germany from which it sells plastic films throughout Europe. Additionally, Plastics has operations in
Sao Paulo, Brazil which manufacturers plastic hygienic and specialty films. Plastics' international operations provide a platform to broaden participation in Europe, the Middle East and South America
and strengthen Plastics' position as a global supplier.

Manufacturing and Raw Materials

Specialty plastic film and laminate products are manufactured using high-speed equipment designed to meet stringent
tolerances. The manufacturing process consists of melting a mixture of polymer resins (primarily polyethylene) and additives, and forcing this mixture through a computer-controlled die and rollers to
produce embossed films. In addition, the lamination process involves

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extruding
the melted plastic films directly onto a non-woven fabric and bonding these materials to form a laminate. Plastics also manufactures multi-color printed films and
laminates.

Plastic
resins, such as polyethylene and polypropylene, and non-woven fabrics are the basic raw materials used in the manufacture of substantially all Plastics' products, the
price of which has fluctuated dramatically over the past five years. Resins are purchased in pellet form from several suppliers, under supply agreements that do not specify fixed pricing terms.
Sources for raw materials are believed to be adequate for current and anticipated needs.

Competition

Plastics has a number of competitors, some of which are larger, in the specialty plastic films and laminates market. Plastics competes
on quality, service and price using its technical expertise, product development capabilities and broad international footprint to enhance its market position, build and maintain long-term
customer relationships and meet changing customer needs.

Employees

Griffon and its subsidiaries employ approximately 3,900 people located throughout the United States, Canada, Europe and Brazil.
Approximately 140 of these employees are covered by a collective bargaining agreement, primarily with an affiliate of the AFL-CIO. The Company believes its relationships with its employees
are satisfactory.

Executive Officers of the Registrant

Name

Age

Positions Held and Prior Business ExperienceRonald J. Kramer


51

Chief Executive Officer since April 2008, and director since 1993 and Vice Chairman of the Board since November 2003. From 2002 through March 2008, President and a director of Wynn Resorts, Ltd., a developer, owner
and operator of hotel and casino resorts. From 1999 to 2001, Managing Director at Dresdner Kleinwort Wasserstein, an investment banking firm, and its predecessor Wasserstein Perella & Co. Member of the Board of Directors of Leap
Wireless International, Inc., a wireless communications company; Sapphire Industrials Corp., a blank check company; and Monster Worldwide, Inc., a global provider of career solutions. Mr. Kramer is the son-in-law of Harvey R. Blau, Griffon's
Chairman of the Board.Douglas J. Wetmore


52

Executive Vice President and Chief Financial Officer since September 2009. From April 1998 to July 2008, Senior Vice President and Chief Financial Officer of International Flavors & Fragrances Inc.
("IFF"), a creator of flavors and fragrances used in a variety of consumer products. From October 2007 to July 2008, Treasurer of IFF. From 1991 to 1998, Corporate Controller of IFF. Prior to IFF, Price Waterhouse for 12 years. Member of the
Board of Directors and the Chair of the Audit Committee of Arch Chemicals, Inc., a global biocides company.Patrick L. Alesia


61

Chief Administrative Officer, since September 2009, Vice President since 1990, Treasurer since 1979, Secretary and Ethics Officer since 2005. Served as Chief Financial Officer from November 2007 to September
2009.


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Regulation

The Company's operations are subject to various environmental, health, and employee safety laws. The Company continues to invest to
ensure compliance with applicable environmental, health and worker safety laws and government regulations, and believes that it generally complies. Historically, compliance with environmental laws has
not materially affected, and is not expected in the future to materially affect, the Company's capital expenditures, earnings or competitive position. Nevertheless, the Company cannot guarantee that,
in the future, it will not incur additional costs for compliance or that such costs will not be material.

Telephonics,
which sells directly and indirectly to the U.S. government, is subject to certain regulations, laws and standards set by the U.S. government. Additionally, Telephonics is
subject to routine audits and investigations by U.S. Government Agencies such as the Defense Contract Audit Agency and other Inspectors General. These agencies review a contractor's performance under
its contracts, cost structure and compliance with applicable laws, regulations and standards. These agencies also review the adequacy of, and a contractor's compliance with, its internal control
systems and policies, including the contractor's management, purchasing, property, estimating, compensation, and accounting and information systems.

Seasonality

Historically, the Company's revenue and earnings are lowest in its second quarter and highest in its fourth quarter.

Financial Information About Geographic Areas

For geographic financial information, see the Business Segment footnote in the Notes to Consolidated Financial Statements.

Griffon's
non-U.S. businesses are primarily in Germany, Canada, Brazil and Sweden.

Research and Development

Griffon's companies are encouraged to improve existing products as well as develop new products to satisfy customer needs; expand
revenue opportunities; maintain or extend competitive advantages; increase market share and reduce production costs. Research and development costs, not recoverable under contractual arrangements, are
charged to expense as incurred. Research and development costs for Griffon were $17.8 million in 2009, $17.5 million in 2008 and $16.4 million in 2007.

Item 1A.    Risk Factors

Griffon's business, financial condition, operating results and cash flows can be impacted by a number of factors which could cause the
Company's actual results to vary materially from recent or anticipated future results. The risk factors discussed in this section should be carefully considered with all of the information in this
Annual Report on Form 10-K. These risk factors should not be considered the only risk factors facing the Company. Additional risks and uncertainties not presently known or that are
currently deemed immaterial may also materially impact Griffon's business, financial condition, operating results and cash flows.

In
general, Griffon is subject to the same general risks and uncertainties that impact other diverse manufacturing companies including, but not limited to, general economic, industry
and/or market conditions and growth rates; impact of natural disasters and their effect on global markets; continued events in the Middle East and possible future terrorist threats and their effect on
the worldwide economy; and changes in laws or accounting rules. The Company has identified the following specific risks and uncertainties that it considers to have the potential to materially effect
its business and financial condition.

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Current worldwide economic uncertainty and market volatility could adversely affect Griffon's businesses.

The current worldwide economic uncertainty, market volatility and credit crisis will continue to have an adverse effect on Griffon
during 2010, particularly in Building Products, which is substantially linked to the U.S. housing market. Additionally, the current condition of the credit markets could impact the Company's ability
to refinance expiring debt, obtain additional credit for investments in current businesses or for acquisitions, with favorable terms, or there may be no financing available. The Company is also
exposed to basic economic risks including a decrease in the demand for the products and services offered or a higher risk of default on its receivables.

Adverse trends in the housing sector and in general economic conditions will directly impact Griffon's business.

Building Products' business is influenced by market conditions for new home construction and renovation of existing homes. For the year
ended September 30, 2009, approximately 33% of Griffon's consolidated revenue was derived from the Building Products segment which is heavily dependent on new home construction and renovation
of existing homes. The strength of the U.S. economy, the age of existing home stock, job growth, interest rates, consumer confidence and the availability of consumer credit, as well as demographic
factors such as the migration into the United States and migration of the population within the United States also have an effect on Building Products. In that respect, the significant downturn in the
housing market has had an adverse effect on the operating results of Building Products and this effect is likely to continue in 2010.

Griffon operates in highly competitive industries and may be unable to compete effectively.

Griffon's operating companies face intense competition in each of the markets served. There are a number of competitors, some of which
are larger and have greater resources than Griffon's operating companies. Griffon competes primarily on the basis of competitive prices, technical expertise, product differentiation, and quality of
products and services. There can be
no assurance that Griffon will not encounter increased competition in the future, which could have a material adverse effect on the Company's financial results.

The loss of large customers can harm financial results.

A small number of customers account for, and are expected to continue to account for, a substantial portion of consolidated revenue.
Approximately 19% of consolidated revenue and 54% of the Plastics segment revenue for the year ended September 30, 2009 was generated from P&G, the largest customer in the Plastics segment.
Home Depot and Menards are significant customers of Building Products, and the U.S. Government and its agencies, Lockheed Martin Corporation and the Boeing Company are significant customers of
Telephonics. Future operating results will continue to substantially depend on the success of Griffon's largest customers, as well as Griffon's relationship with them. Orders from these customers are
subject to fluctuation and may be reduced materially due to changes in these customers' needs. Any reduction or delay in sales of products to one or more of these customers could significantly reduce
Griffon's revenue. The Company's operating results will also depend on successfully developing relationships with additional key customers. Griffon cannot assure that the Company's largest customers
will be retained or that additional key customers will be recruited.

Increases in raw material costs could adversely impact Griffon's financial condition and operating results.

The Company purchases raw materials from various suppliers. While most key raw materials are generally available from numerous sources,
raw materials are subject to fluctuations in price. Because raw materials in the aggregate constitute a significant component of the cost of goods sold, price fluctuations could have a material
adverse effect on Griffon's results of operations. In recent years, there have been price increases in steel and plastic resins, which are the basic raw materials used in the

11

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manufacture
of Building Products and Plastics' products, respectively. The Company's ability to pass raw material price increases to customers is limited due to supply arrangements and competitive
pricing pressure, and there is generally a time lag between increased costs and implementation of related price increases. In particular, sharp increases in raw material prices are more difficult to
pass through to customers and may negatively affect short-term financial performance.

Trends in the baby diaper market will directly impact Griffon's business.

Recent trends have been for baby diaper manufacturers to specify thinner plastic films for use in their products which reduces the
amount of product sold and Plastics' revenue; this trend has generally resulted in Plastics incurring costs to redesign and reengineer products to accommodate the specification change. Such decreases,
or the inability to meet changing customer specifications, could result in a decline in revenue and profit.

Telephonics' business depends heavily upon government contracts.

Telephonics sells products to the U.S. government and its agencies both directly, and indirectly, as a first-tier supplier
to prime contractors in the defense industry, such as Boeing, Lockheed Martin and Northrop Grumman. In the year ended September 30, 2009, U.S. government contracts and subcontracts accounted
for approximately 23% of Griffon's consolidated revenue. Contracts involving the U.S. government may include various risks, including:



The
programs in which Telephonics participates may extend for several years, but are normally funded on an incremental basis. The U.S. government may not continue to fund programs to
which development projects apply. Even if funding is continued, Telephonics may fail to compete successfully to obtain funding pursuant to such programs.

Telephonics' business could be adversely affected by a negative audit by the U.S. Government

As a government contractor, and a subcontractor to government contractors, Telephonics is subject to audits and investigations by U.S.
Government Agencies such as the Defense Contract Audit Agency, other Inspectors General and the Department of Justice. These agencies review a contractor's performance under its contracts, cost
structure and compliance with applicable laws, regulations and standards. These agencies also review the adequacy of, and a contractor's compliance with, its internal control systems and policies,
including the contractor's management, purchasing, property, estimating, compensation, and accounting and information systems. Any costs found to be misclassified or improperly allocated to a specific
contract will not be reimbursed or must be refunded if already billed

12

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and
collected. The Company could incur significant expenses in complying with audits and subpoenas issued by the government in aid of inquiries and investigations. If an audit or an investigation
uncovers improper or illegal activities, Telephonics may be subject to civil and criminal penalties and/or administrative sanctions, which could include contract termination, forfeiture of profit,
suspension of payments, fines and suspension or prohibition from doing business with the U.S. Government. In addition, if allegations of impropriety are made, Telephonics and Griffon could suffer
serious reputational harm.

Griffon's companies must continually improve existing products, design and sell new products and invest in research and development in order to compete effectively.

The markets for Plastics and Telephonics are characterized by rapid technological change, evolving industry standards and continuous
improvements in products. Due to constant changes in these markets, future success depends on their ability to develop new technologies, products, processes and product applications.

Product
and technological developments are accomplished both through internally-funded research and development projects, as well as through strategic partnerships with customers.
Because it is not generally possible to predict the amount of time required and costs involved in achieving certain research and development objectives, actual development costs may exceed budgeted
amounts and estimated product development schedules may be extended. Griffon's financial condition and results of operations may be materially and adversely affected if:



Griffon may be unable to implement its acquisition growth strategy, which may result in added expenses without a commensurate increase in revenue and income and divert
management's attention.

Making strategic acquisitions is a significant part of Griffon's growth plans; such growth will depend on identifying and acquiring, on
acceptable terms, companies that either complement or enhance currently held businesses or expand Griffon into new profitable businesses. Additionally, Griffon must properly integrate acquired
businesses in order to maximize profitability. The competition for acquisition candidates is intense and Griffon cannot assure that it will successfully identify acquisition candidates and complete
acquisitions at reasonable purchase prices, in a timely manner or at all. Further, there is a risk that acquisitions will not be properly integrated into Griffon's existing structure. In implementing
an acquisition growth strategy, the following may be encountered:



An
unsuccessful implementation of Griffon's acquisition growth strategy could have an adverse impact on the results of operations, cash flows and financial condition.

13

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There may be unforeseen expenses in connection with the exit from substantially all operating activities of the Installation Services segment.

As a result of the downturn in the residential housing market and the impact on the Installation Services segment, the Board of
Directors of Griffon approved a plan to exit substantially all operating activities of the Installation Services segment in May 2008. The Company has substantially completed its disposal activities in
the first half of 2009 and does not expect to incur significant expenses in the future. However, there are remaining obligations, primarily related to the guarantee of assigned leases that could
affect future results of operations and net cash outflows.

The loss of certain key officers or employees could adversely affect Griffon's business.

The success of Griffon is materially dependent upon the continued services of certain key officers and employees. The loss of such key
personnel could have a material adverse effect on Griffon's operating results or financial condition.

Griffon's businesses are subject to seasonal variations.

Griffon's revenue and income are typically lowest in the second quarter ending March 31 and highest in the fourth quarter ending
September 30 primarily due to the seasonality of Building Products' business. Building Products' revenue is driven by residential renovation and construction which is generally at reduced
levels during the winter months. Because a high percentage of manufacturing overhead and operating expenses are relatively fixed throughout the year, operating margins have historically been lower in
quarters with lower revenue.

The Company is exposed to a variety of risks relating to non-U.S. sales and operations, including non-U.S. economic and political conditions and
fluctuations in exchange rates.

Griffon and its companies own properties and conduct operations in Europe, Canada and South America. Sales of products through
non-U.S. subsidiaries accounted for approximately 31% of consolidated revenue for the year ended September 30, 2009.
These sales could be adversely affected by changes in political and economic conditions, trade protection measures, differing intellectual property rights laws and changes in regulatory requirements
that restrict the sales of products or increase costs. Currency fluctuations between the U.S. dollar and the currencies in the non-U.S. regions in which the Company does business may also
have an impact on future reported financial results.

The Company may not be able to protect its proprietary rights.

The Company relies on a combination of patent, copyright and trademark laws, trade secrets, confidentiality and
non-disclosure agreements and other contractual provisions to protect proprietary rights. Such measures do not provide absolute protection and Griffon cannot give assurance that measures
for protecting these proprietary rights are and will be adequate, or that competitors will not independently develop similar technologies.

The Company may inadvertently infringe on, or may be accused of infringing on, proprietary rights held by another party.

The Company is regularly improving its technology and employing existing technologies in new ways. Though the Company takes reasonable
precautions to ensure it does not infringe on the rights of others, it is possible that the Company may inadvertently infringe on, or may be accused of infringing on, proprietary rights held by
others. If the Company is found to have infringed on the propriety rights held by others, any related settlement for such infringement may have a material effect on the Company's financial statements
and financial condition.

14

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The Company is exposed to product liability claims.

The Company may be the subject of product liability claims relating to the performance of its products or the performance of a product
in which its products were a component part. There can be no assurance that future product liability claims will not be brought against the Company, either by an injured customer of an end product
manufacturer who used one of the products as a component or by a direct purchaser. Moreover, no assurance can be given that indemnification
from customers or coverage under insurance policies will be adequate to cover future product liability claims against the Company. In addition, product liability insurance can be expensive, difficult
to maintain and may be unobtainable in the future on acceptable terms. The amount and scope of any insurance coverage may be inadequate if a product liability claim is successfully asserted.
Furthermore, if any significant claims are made, the business and the related financial condition of the Company may be adversely affected by negative publicity.

The Company has been, and may in the future be, subject to claims and liabilities under environmental laws and regulations.

The Company's operations and assets are subject to environmental laws and regulations pertaining to the discharge of materials into the
environment, the handling and disposal of wastes, including solid and hazardous wastes, or otherwise relating to health, safety and protection of the environment in various jurisdictions in which it
operates. The Company does not expect to make any expenditure with respect to ongoing compliance with or remediation under these environmental laws and regulations that would have a material adverse
effect on its business, operating results or financial condition. However, the applicable requirements under the law may change at any time.

The
Company can incur environmental costs related to sites that are no longer owned or operated, as well as third-party sites to which hazardous materials are sent. It cannot be assured
that material expenditures or liabilities will not be incurred in connection with such claims. See the Commitment and Contingencies footnote in the Notes to Consolidated Financial Statements for
further information on environmental contingencies. Based on facts presently known, the outcome of current environmental matters are not expected to have a material adverse effect on the Company's
results of operations and financial condition. However, presently unknown environmental conditions, changes in environmental laws and regulations or other unanticipated events may give rise to claims
that may involve material expenditures or liabilities.

Changes in income tax laws and regulations or exposure to additional income tax liabilities could adversely affect profitability.

The Company is subject to federal, state and local income taxes in the United States and in various taxing jurisdictions outside the
United States. Tax provisions and liabilities are subject to the allocation of income among various U.S. and international tax jurisdictions. The Company's effective tax rate could be adversely
affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in any valuation allowance for deferred tax assets or the amendment or enactment of tax laws. The
amount of income taxes paid is subject to audits by U.S. Federal, state and local tax authorities, as well as tax authorities in the taxing jurisdictions outside the United States. If such audits
result in assessments different from recorded income tax liabilities, the Company's future financial results may include unfavorable adjustments to its income tax provision.

Compliance with restrictions and covenants in the Company's debt agreements may limit its ability to take corporate actions and harm its business.

The credit agreements entered into by certain of Griffon's subsidiaries contain covenants that restrict their ability to incur
additional debt and to pay dividends. Under the respective credit agreements, these subsidiaries are also required to comply with specific financial ratios and tests. These subsidiaries may not be
able to comply in the future with these covenants or restrictions as a result of

15

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events
beyond their control, such as prevailing economic, financial and industry conditions or a change in control of the Company. If a subsidiary defaults in maintaining compliance with the covenants
and restrictions in its credit agreement, its lenders could declare all of the principal and interest amounts outstanding due and payable and terminate their commitments to extend credit to the
subsidiary in the future. If the subsidiary or the Company is unable to secure credit in the future, business could be harmed.

The Company's inability to repurchase outstanding convertible notes as required under the indenture may cause an event of default under other agreements.

On July 18, 2010, 2013, 2018, as well as upon a change in control, as defined in the indenture, noteholders will have the right
to require repurchase of their notes. If the Company's common stock price is below the debenture's conversion price ($22.41 per share) on the earliest of these dates, it is anticipated that
noteholders will require the repurchase of their notes. If sufficient funds are not available to pay the repurchase price for all of the notes tendered, an event of default under the indenture
governing the notes would occur as a result of such failure, which could have a material adverse effect on the Company. At September 30, 2009, $79.4 million of convertible notes were
outstanding.

Reported earnings per share may be more volatile because of the conversion contingency provision of the notes.

The outstanding convertible notes are convertible when a "market price" condition is satisfied and also upon the occurrence of other
circumstances as more fully described in the Notes Payable, Capitalized Leases and Long-Term Debt footnote in the Notes to Consolidated Financial Statements. Upon conversion, noteholders
will receive $1,000 in cash for each
$1,000 principal amount of notes presented for conversion. The excess of the value of Griffon's common stock that would have been issuable upon conversion over the cash delivered will be settled in
shares of common stock. These shares are considered in the calculation of diluted earnings per share and volatility in Griffon's stock price could cause these notes to be dilutive in one quarter and
not in a subsequent quarter, increasing the volatility of fully diluted earnings per share.

Griffon may be unable to raise additional financing if needed

Griffon may need to raise additional financing in the future in order to implement its business plan, refinance debt, or to acquire new
businesses or products. Any required additional financing may be unavailable at favorable terms, or at all, due to uncertainties in the credit market. If Griffon raises additional funds by issuing
equity securities, current holders of its common stock may experience significant ownership interest dilution and these securities may have rights senior to the rights associated with current
outstanding common stock.

The Company's indebtedness and interest expense could limit cash flow and adversely affect operations and the Company's ability to make full payment on outstanding debt.

The Company's indebtedness poses potential risks such as:



16

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The Company has the ability to issue additional equity securities, which would lead to dilution of issued and outstanding common stock.

The issuance of additional equity securities or securities convertible into equity securities would result in dilution to existing
stockholders' equity interests. The Company is authorized to issue, without stockholder vote or approval, 3,000,000 shares of preferred stock in one or more series, and has the ability to fix the
rights, preferences, privileges and restrictions of any such series. Any such series of preferred stock could contain dividend rights, conversion rights, voting rights, terms of redemption, redemption
prices, liquidation preferences or other rights superior to the rights of holders of Griffon's common stock. There is no present intention of issuing any such preferred stock, but the Company reserves
the right to do so in the future. In addition, the Company is authorized to issue, without stockholder approval, up to 85,000,000 shares of common stock, of which approximately 59,573,983 shares, net
of treasury shares, were outstanding as of September 30, 2009. Additionally, the Company is authorized to issue, without stockholder approval, securities convertible into either shares of
common stock or preferred stock.

Item 1B.    Unresolved Staff Comments

None.

17

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Item 2.    Properties

The Company occupies approximately 4,800,000 square feet of general office, factory and warehouse space throughout the United States,
Germany, Sweden and Brazil. For a description of the encumbrances on certain of these properties, see the Notes Payable, Capitalized Leases and Long-Term Debt footnote in the Notes to
Consolidated Financial Statements. The following table sets forth certain information related to the Company's major facilities:

Location

Business Segment

Primary Use

Approx.
Square
Footage

Owned/
Leased

Lease
End YearNew York, NY

Corporate

Headquarters


6,600

Leased


2016Jericho, NY

Corporate

Office


6,900

Leased


2014Farmingdale, NY

Telephonics

Manufacturing/R&D


193,000

OwnedHuntington, NY

Telephonics

Manufacturing


94,000

OwnedHuntington, NY

Telephonics

Manufacturing


55,000

Leased


2015Huntington, NY

Telephonics

Manufacturing


98,000

Leased


2016Melville, NY

Telephonics

Manufacturing


23,000

Leased


2014Columbia, MD

Telephonics

Manufacturing


25,000

Leased


2013Gardena, CA

Telephonics

Repairs


10,000

Leased


2014Stockholm, Sweden

Telephonics

Manufacturing/Engineering


22,000

Leased


2012Elizabeth City, NC

Telephonics

Repair and Service


22,000

Leased


2049Mason, OH

Clopay Building Products/Clopay Plastic Products

Office/R&D


131,000

OwnedAschersleben, Germany

Clopay Plastic Products

Manufacturing


289,000

OwnedDombuhl, Germany

Clopay Plastic Products

Manufacturing


124,000

OwnedAugusta, KY

Clopay Plastic Products

Manufacturing


275,000

OwnedNashville, TN

Clopay Plastic Products

Manufacturing


210,000

OwnedNashville, TN

Clopay Plastic Products

Manufacturing


150,000

Leased


2014Jundiai, Brazil

Clopay Plastic Products

Manufacturing


88,000

OwnedTroy, OH

Clopay Building Products

Manufacturing


867,000

Leased


2021Russia, OH

Clopay Building Products

Manufacturing


339,000

OwnedBaldwin, WI

Clopay Building Products

Manufacturing


155,000

Leased


2014Auburn, WA

Clopay Building Products

Manufacturing


123,000

Leased


2011


The Company also leases approximately 1,500,000 square feet of space for the Building Products distribution centers in numerous facilities
throughout the United States and in Canada.

In
June 2009, the Company announced plans to consolidate facilities in its Building Products segment, which are expected to be completed in early 2011 and will result in the closure of
the Baldwin, WI facilities.

All
facilities are generally well maintained and suitable for the operations conducted.

Item 3.    Legal Proceedings

See the Commitments and Contingencies footnote in the Notes to Consolidated Financial Statements for discussion on Legal Proceedings.

Item 4.    Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of security holders during the fourth quarter.

18

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PART II

Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

The Company's Common Stock is listed for trading on the New York Stock Exchange under the symbol "GFF". The following table shows for
the periods indicated the quarterly range in the high and low sales prices for the Company's Common Stock:

Fiscal 2009

Fiscal 2008Market Prices

Market PricesHigh

Low

High

LowFiscal First Quarter ended December 31,

$
9.35

$
5.34

$
15.82

$
11.97Fiscal Second Quarter ended March 31,


10.55


5.85


12.70


7.39Fiscal Third Quarter ended June 30,


10.33


7.30


11.40


8.38Fiscal Fourth Quarter ended September 30,


11.93


7.27


12.70


8.36


Dividends

No cash dividends on Common Stock were declared or paid during the five years ended September 30, 2009.

Holders

As of October 30, 2009, there were approximately 13,600 record holders of the Company's Common Stock.

Securities Authorized for Issuance Under Equity Compensation Plans

Information regarding securities authorized for issuance under the Company's equity compensation plans is contained in Part III,
Item 12 of this Form 10-K.

Recent Sales of Unregistered Securities

None.

Issuer Purchase of Equity Securities

The table below presents shares of the Company Stock which were acquired by the Company during the fourth quarter of 2009:

Period

Total Number of
Shares
Purchased(1)

Average Price
Paid Per Share

Total Number of
Shares Purchased
as Part Publicly
Announced Plans
or Programs(2)

Maximum Number
of Shares That May
yet be Purchased
Under the Plans or
ProgramsJuly 1 - 31, 2009


26,483

$
9.43





1,366,295August 1 - 31, 2009











1,366,295September 1 - 30, 2008











1,366,295Total


26,483

$
9.43





(1)26,483,
zero and zero shares were acquired by the Company in July, August and September, respectively, from the holders of options using the net proceeds
from the exercise of options.(2)The
Company's stock buyback program has been in effect since 1993, under which a total of approximately 17.2 million shares have been purchased for
approximately $234 million. There is no


19

---



time
limit on the repurchases to be made under the plan. Shares purchased apart from publicly announced programs were in connection with the cashless exercise of stock options.


Performance Graph

The performance graph does not constitute soliciting material, is not deemed filed with the SEC and is not incorporated by reference in
any of the Company's filings under the Securities Act of 1933 or the Exchange Act of 1934, whether made before or after the date of this Annual Report on Form 10-K and irrespective
of any general incorporation language in any such filings, except to the extent the Company specifically incorporates this performance graph by reference therein.

The
following graph sets forth the cumulative total return to Griffon's stockholders during the five years ended September 30, 2009, as well as an overall stock market (S&P
SmallCap 600 Index) and Griffon's peer group index (Dow Jones U.S. Diversified Industrials Index). Assumes $100 was invested on September 30, 2004, including the reinvestment of dividends, in
each category.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*Among Griffon Corporation, The S&P Smallcap 600 Index  And The Dow Jones US Diversified Industrials Index

GRAPHIC

*
$100 invested on 9/30/04 in stock or index, including reinvestment of dividends.

20

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Item 6.    Selected Financial Data

For the Years Ended September 30,(in thousands, except per share figures)

2009

2008

2007

2006

2005Revenue

$
1,194,050

$
1,269,305

$
1,365,729

$
1,327,735

$
1,132,382Income before taxes, minority interest and discontinued operations


26,006


4,382


41,436


69,145


70,924Provision for income taxes


4,005


4,294


13,271


23,289


23,529Income from continuing operations before minority interest


22,001


88


28,165


45,856


47,395Minority interest














(4,415
)Income from continuing operations


22,001


88


28,165


45,856


42,980Income (loss) from discontinued operations


790


(40,591
)

(6,086
)

5,930


5,833Net Income (loss)

$
22,791

$
(40,503
)
$
22,079

$
51,786

$
48,813Basic earnings (loss) per share:Continuing operations

$
0.37

$
0.00

$
0.87

$
1.42

$
1.33Discontinued operations


0.01


(1.24
)

(0.19
)

0.18


0.18Net Income (loss)


0.39


(1.24
)

0.68


1.60


1.51Weighted average shares outstanding


58,699


32,667


32,405


32,388


32,263Diluted earnings (loss) per share:Continuing operations

$
0.37

$
0.00

$
0.84

$
1.36

$
1.27Discontinued operations


0.01


(1.24
)

(0.19
)

0.17


0.17Net Income (loss)


0.39


(1.24
)

0.65


1.53


1.44Weighted average shares outstanding


59,002


32,836


33,357


33,746


33,827Capital expenditures

$
32,697

$
53,116

$
29,737

$
41,653

$
39,448Depreciation and amortization


42,346


42,923


39,458


33,974


31,397Total assets


1,145,407


1,166,857


959,858


928,214


851,427Total debt


179,804


233,188


232,830


217,320


213,165


---

Notes:

2008 includes a $12,913 goodwill impairment charge that is not deductible for income taxes.Due to rounding, the sum of earnings per share of Continuing operations and Discontinued operations may not equal earnings per share of Net Income.


21

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Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations

(Unless otherwise indicated, all references to years or year-end refer to the Company's fiscal period ending September 30)

OVERVIEW

The Company

Griffon Corporation (the "Company" or "Griffon"), is a diversified management and holding company that conducts business through
wholly-owned subsidiaries. The Company oversees the operations of its subsidiaries, allocates resources among them and manages their capital structures. The Company provides direction and assistance
to its subsidiaries in connectioin with acquisition and growth opportunities as well as in connection with divestitures. Griffon also seeks out,
evaluates and, when appropriate, will acquire additional businesses that offer potentially attractive returns on capital to further diversify itself.

Headquartered
in New York, N.Y., the Company was incorporated in New York in 1959, and was reincorporated in Delaware in 1970. It changed its name to Griffon Corporation in 1995.

Griffon
currently conducts its operations through Telephonics Corporation, Clopay Building Products Company and Clopay Plastic Products Company.



Telephonicsrevenue increased $21.6 million, or 6%, compared to the prior year. In 2008, Telephonics was awarded contracts of more
than $400 million for the MH-60R program, a multi-mode radar and identification friend or foe interrogator system; $109 million was recognized in 2009 with the
balance expected to be incrementally funded over the next several years, generating annual revenue approximating $100 million. Telephonics backlog at September 30, 2009 was
$393 million, approximately 75% of which is expected to be fulfilled in 2010.

Building Productsresults continued to be impacted by the sustained downturn in the residential housing and credit markets, with revenue
and operating profits decreasing from the prior year. The segment remains committed to retaining its customer base and, where possible, growing market share.
Additionally, Building Products' ongoing review of, and changes to, its cost structure resulted in a Segment profit for 2009.

As
part of it cost structure review, in June 2009, the Company announced plans to consolidate itsBuilding Productsfacilities. On
completion, the consolidation is expected to produce annual cost savings of $10 million; the plan is scheduled to be completed in early calendar 2011. The Company estimates that it will incur
pre-tax exit and restructuring costs of $12 million, substantially all of which will be cash charges, including $2 million for one-time termination benefits and
other personnel costs, $1 million for excess facilities and related costs, and $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. Building Products

22

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recorded
$1.2 million in charges in 2009 and $2.0 million in related capital expenditures, and expects to record the balance of the charges and expenditures in 2010 and 2011.

Plastics'revenue decreased $54.9 million, or 12%, from the prior year due to lower volume in Europe, translation of European
results into a stronger U.S dollar and the effect of the pass through of lower resin costs on customer selling prices; however, Segment operating profit increased 17% and profit margin increased 140
basis points to 5.8% primarily as a result of cost-savings initiatives, which more than offset the impact of lower volume. Over the past several years, the segment has successfully
diversified its customer portfolio. The segment remains optimistic that progress on cost reduction programs and product mix should result in continued financial performance improvement.

CONSOLIDATED RESULTS OF OPERATIONS

2009 Compared to 2008

Revenue for the year ended September 30, 2009 was $1.19 billion, compared to $1.27 billion in the prior year; the
decline was due to lower revenue at both Building Products and Plastics, partially offset by increased revenue at Telephonics. 2009 gross profit was $257.1 million compared to
$273.0 million in the prior year with gross margin of 21.5% remaining flat with 2008.

Selling,
General and Administrative ("SG&A") expenses decreased $14.7 million to $230.7 million in 2009 from $245.4 million in 2008 as a result of cost saving
measures undertaken across all of the segments, particularly in Building Products and Plastics, to offset the impact of lower revenue. SG&A expenses as a percent of revenue for 2009 remained flat to
2008 at 19.3%.

Interest
expense in 2009 decreased by $2.8 million compared to the prior year, principally due to lower levels of outstanding borrowings and lower average borrowing rates.

During
2009, the Company recorded a non-cash pre-tax gain from extinguishment of debt of $7.4 million, net of a proportionate write-off of
deferred financing costs, which resulted from the purchase of $50.6 million of its outstanding convertible notes at a discount.

Other
income of $1.5 million in 2009 and $2.7 million in 2008 consists primarily of currency exchange transaction gains and losses from receivables and payables held in non
functional currencies.

The
Company's effective tax rate for continuing operations for 2009 was a provision of 15.4% compared to 98.0% in the prior year. The 2009 tax rate benefitted from tax planning with
respect to U.S. foreign tax credits and discrete tax benefits related to the reversal of previously recorded tax liabilities principally due to the closing of certain statutes for prior year returns.
The 2008 rate was impacted by a non-deductible goodwill impairment charge, an increase in the valuation allowance regarding deferred tax assets and taxes on a non-U.S. dividend
partially offset by discrete tax benefits related to the reversal of previously recorded tax liabilities principally due to the closing of certain statutes for prior year returns.

Income
from continuing operations was $22.0 million, or $0.37 per diluted share, for 2009 compared to $0.1 million or zero cents per diluted share in the prior year. The
2008 results were impacted by a $12.9 million impairment charge related to the write-off of all of Building Products' goodwill. Excluding the impairment charge, income from
continuing operations would have been $13.0 million, or $0.40 per diluted share, in 2008. Income from discontinued operations for 2009 was $0.8 million, or $0.01 per diluted share,
compared to a loss of $40.6 million, or $1.24 per diluted share in the prior year. Net income for 2009 was $22.8 million, or $0.39 per diluted share, compared to a loss of
$40.5 million, or $1.24 per diluted share, in 2008. The 2009 diluted shares used for the earnings per share calculations were 59,002,000 shares in 2009 compared to 32,836,000 shares in 2008
primarily due to the 2008 rights offering.

2008 Compared to 2007

Total revenue in 2008 was $1.27 billion, compared to $1.37 billion in the prior year; the decline was due to lower
revenue at both Telephonics and Building Products, partially offset by revenue growth

23

---



in
Plastics. Gross profit in 2008 was $273.0 million compared to $294.6 million in the prior year, with gross margin decreasing 10 basis points from the prior year; the decline in gross
profit was mainly attributable to the decline in revenue.

Selling,
General and Administrative ("SG&A") expenses in 2008 increased to $245.4 million from $242.5 million in 2007 primarily due to increased research and development
expenditures at Telephonics, and an increase in unallocated corporate expenses, partially offset by a $5.0 million decrease from cost savings initiatives at Building Products. SG&A expenses as
a percent of revenue increased 150 basis point to 19.3% in 2008 compared to 17.8% in 2007; this increase was mainly due to the sales decline as reductions in SG&A expenses were not sufficient to
offset the decline in revenue.

Other
income (expense) of $2.7 million in 2008, compared to $2.9 million in 2008, consists primarily of currency exchange transaction gains and losses from receivables and
payables held in non functional currencies.

The
Company's effective tax rate for continuing operations for 2008 was a provision of 98.0% compared to 32.0% in the prior year. The 2008 rate was impacted by a
non-deductible goodwill impairment charge, an increase in the valuation allowance relating to deferred tax assets and taxes on a non-U.S. dividend partially offset by discrete
tax benefits related to the reversal of previously recorded tax liabilities principally due to the closing of certain statutes for prior year returns. The 2007 rate benefitted from discrete tax
benefits related to the reversal of previously recorded tax liabilities principally due to the closing of certain statutes for prior year returns.

Income
from continuing operations was $0.1 million, or zero per diluted share, for 2008 compared to $28.2 million, or $0.84 per diluted share in the prior year. The 2008
results were impacted by a $12.9 million impairment charge related to the write-off of all of Building Product's goodwill. Excluding the impairment charge, income would have been
$13.0 million or $0.40 per diluted share in 2008. The loss from discontinued operations for 2008 was $40.6 million, or $1.24 per diluted share, compared to a loss of $6.1 million,
or $0.19 per diluted share in the prior year. The 2008 net loss was $40.5 million, or $1.24 per diluted share, compared to net income of $22.1 million, or $0.68 per diluted share in
2007.

BUSINESS SEGMENTS

Telephonics

Years Ended September 30,(in thousands)

2009

2008

2007Revenue

$
387,881




$
366,288




$
472,549Segment operating profit


34,883


9.0
%

32,862


9.0
%

45,888


9.7
%Depreciation and amortization


6,657





6,753





5,800Segment profit before depreciation and amortization

$
41,540


10.7
%
$
39,615


10.8
%
$
51,688


10.9
%


2009 Compared to 2008

In 2009, Telephonics' revenue increased $21.6 million, or 6%, compared to the prior year, mainly due to higher sales in the
Radar Systems division.

Segment
operating profit increased $2 million to $34.9 million in 2008; segment operating profit margin remained at 9.0%, due to the strong sales performance and favorable
program mix being offset by higher SG&A expenses. The increase in SG&A expenses was resulted from higher research and development expenditures and additional administrative expenses to support revenue
growth.

2008 Compared to 2007

Telephonics 2008 revenue decreased $106.3 million, or 22%, compared to the prior year. The decrease was due to the scheduled
completion of the SRC contract, for which related revenue

24

---



decreased
$173 million; the SRC contract effect was partially offset by core business revenue growth of $66.4 million, or 24%, related to new and expanded programs.

Segment
operating profit of $32.9 million decreased $13.0 million, or 28%, due to the completion of the SRC contract, partially offset by increased core business growth.
The Segment operating profit margin decreased 70 basis points due to higher SG&A expenses from research and development, and increased sales and marketing efforts, partially offset by improved gross
margin due to product mix, principally from the decline in lower margin SRC sales.

Building Products

Years Ended September 30,(in thousands)

2009

2008

2007Net Sales

$
393,414




$
435,321




$
486,606Segment operating profit (loss)


(11,326
)




(17,444
)(a)




7,117


1.5
%Depreciation and amortization


13,223





12,071





11,041Goodwill impairment








12,913





Restructuring charges


1,240





2,610





Segment profit before depreciation, amortization, restructuring and impairment

$
3,137


0.8
%
$
10,150


2.3
%
$
18,158


3.7
%


(a)2008
includes a $12.9 million goodwill impairment charge.


2009 Compared to 2008

In 2009, Building Products revenue decreased $41.9 million, or 10%, compared to the prior year, primarily due to the continuing
effects of the weak housing market. The revenue decline was principally due to reduced unit volume, partially offset by a favorable shift in mix to higher priced products.

Segment
operating loss for 2009 was $11.3 million, an improvement of $6.1 million compared to the prior year. The 2008 result included the goodwill impairment charge of
$12.9 million; excluding this charge, the 2008 operating results would have been a $4.5 million loss. Excluding the goodwill impairment charge from the 2008 comparative, the increased
loss in 2009 was mainly due to the sharp
decline in volume, and the resultant unfavorable impact on absorption of fixed operating expenses. Notwithstanding the total loss for 2009, Building Products segment operating profit improved
sequentially during 2009, reaching $0.6 million and $4.3 million in the third and fourth quarters, respectively, a significant improvement over the segment operating losses incurred in
the first two quarters of 2009.

2008 Compared to 2007

Building Products revenue in 2008 decreased by $51.3 million, or 10.5%, compared to the prior year, primarily due to the effects
of the weak residential housing market. The decline in unit sales was partially offset by higher selling prices to pass through rising material and freight costs, and favorable product mix.

Segment
operating loss of $17.4 million decreased $24.6 million compared to the prior year operating income of $7.1 million due to lower sales volume and the
associated plant absorption impact of the weaker sales, and a goodwill impairment charge of $12.9 million, partially offset by a $5 million reduction in SG&A expenses due to operating
efficiencies derived from the closure of the Tempe, AZ facility, and other headcount and cost reductions.

25

---



Plastics

Years Ended September 30,(in thousands)

2009

2008

2007Net Sales

$
412,755




$
467,696




$
406,574Segment operating profit


24,072


5.8
%

20,620


4.4
%

17,263


4.2
%Depreciation and amortization


21,930





22,638





20,986Segment profit before depreciation and amortization

$
46,002


11.1
%
$
43,258


9.2
%
$
38,249


9.4
%


2009 Compared to 2008

In 2009, Plastics' revenue decreased $54.9 million, or 12%, compared to the prior year. The decrease was principally due to
lower volume in Plastics' European business, translation of the European results into a stronger U.S. dollar and the pass through of lower resin costs in customer selling prices.

Segment
operating profit increased $3.5 million, or 17%, primarily due to the Company's cost-cutting initiatives and favorable product mix, partially offset by lower
unit volume. Segment operating profit margin increased 140 basis points.

2008 Compared to 2007

Plastics' 2008 revenue increased $61.1 million, or 15%, compared to the prior year. The increase was principally due to
favorable product mix in North America, the benefit of increased selling prices due to the pass through of higher resin costs in customer selling prices and the favorable currency impact on
translation of European results into a weaker U.S. dollar, partially offset by lower selling prices to a major customer associated with a multi-year contract and lower overall volumes in
Europe.

Segment
operating profit increased $3.4 million, or 19%, compared to the prior year due to the factors affecting the revenue increase. Segment operating profit margin of 4.4%
increased 20 basis points over the prior year due to SG&A expenses remaining flat and favorable product mix, partially offset by the effect of higher resin costs, and lower unit volumes and the
related impact on plant absorption.

Discontinued operationsInstallation Services

As a result of the downturn in the residential housing market, in 2008, the Company exited substantially all of the operating
activities of its Installation Services segment; this 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 segment has been reported as discontinued operations in the Consolidated Statements of Operations for all periods presented herein; the Installation
Services segment is excluded from segment reporting.

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 2008,
the Company sold nine units to one buyer, closed one unit and merged two units into Building Products. In the fourth quarter of 2008, the Company sold its two remaining units in Phoenix and Las Vegas.
The Company recorded aggregate disposal costs of $43.7 million in 2008.

The
Company substantially concluded its remaining disposal activities in the second quarter of 2009. There was no reported revenue in 2009. Revenue in 2008 was $109.4 million
compared to $250.9 million in 2007; the sharp decline resulted from the overall weakness in the residential construction market and closure or sale of operating units during 2008. Installation
Services Operating loss was $62.4 million and $9.8 million for 2008 and 2007, respectively.

26

---



The Company 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
September 30, 2009 are estimated to be $4.9 million. Substantially all of such liabilities are expected to be paid during 2010. Certain of the Company's subsidiaries are also
contingently liable for approximately $3.3 million related to certain facilities leases with varying terms through 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.

LIQUIDITY AND CAPITAL RESOURCES

Management assesses the Company's liquidity in terms of its ability to generate cash to fund its operating, investing and financing
activities. Significant factors affecting liquidity are: cash flows from operating activities, capital expenditures, acquisitions, dispositions, bank lines of credit and the ability to attract
long-term capital with satisfactory terms. The Company remains in a strong financial position with sufficient liquidity available for reinvestment in existing businesses and strategic
acquisitions while managing its capital structure on both a short-term and long-term basis.

The
following table is derived from the Consolidated Statements of Cash Flows:

Cash Flows from Continuing Operations

Years Ended September 30,(in thousands)

2009

2008Net Cash Flows Provided by (Used In):Operating activities

$
84,100

$
86,049Investing activities


(32,833
)

(49,352
)Financing activities


(43,202
)

231,406


Cash
flows generated by operating activities for 2009 decreased $1.9 million to $84.1 million compared to $86.0 million in the prior year. Current assets net of
current liabilities excluding short-term debt and cash decreased $23.4 million to $229.1 million at September 30, 2009 compared to $252.5 million at the prior
year end, primarily due to lower inventory on hand at Building Products due to the restructuring and lower sales volumes.

During
2009, the Company used cash from investing activities of $32.8 million compared to $49.4 million in the prior year. The Company had capital expenditures of
$32.7 million; $20.4 million lower than the prior year.

During
2009, cash used in financing activities was $43.2 million. The principal financing usage was for the repurchase 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; these uses were partially offset by $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
those pursuant to a 10b5-1 plan, may be made, depending upon market conditions and other factors, at prices deemed appropriate by management.

Payments
from revenue 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 Plastics segment are generally substantial industrial companies whose payments have been steady, reliable and made in
accordance with the terms governing such sales; sales in this segment are made to satisfy orders that are received in advance of production, where payment terms are established in advance of such
production and sale. With respect to the 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 revenue, and the Company expects that a limited number of customers will continue to represent a
substantial portion of revenue for the foreseeable future. Approximately 19% and 21% of total revenue for 2009

27

---



and
2008, and 54% and 56% of Plastics' revenue for 2009 and 2008, is from Procter & Gamble, which is Plastics largest customer. Home Depot and Menards are significant customers of Building
Products and Lockheed Martin Corporation and the Boeing Company are significant customers of Telephonics. Future operating results will continue to substantially depend on the success of large
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 likely have an adverse affect on the Company's liquidity and operations.

At
September 30, 2009, the Company had cash and equivalents, net of debt, as follows:

Cash, Cash Equivalents and Debt

At September 30,(in thousands)

2009

2008Cash and equivalents

$
320,833

$
311,921Notes payables and current portion of long-term debt


81,410


2,258Long-term debt, net of current maturities


98,394


230,930Total debt


179,804


233,188Cash and equivalents, net of debt

$
141,029

$
78,733


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 offering, 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. The Company received $248.6 million in gross proceeds from the rights offering as follows:
(i) in September 2008, the Company received $241.3 million of gross proceeds from the first closing of its rights offering and related investments by GS Direct and by the Company's Chief
Executive Officer; (ii) in October 2008, an additional $5.3 million of proceeds were received in connection with the second closing of the rights offering; (iii) and in April
2009, $2.0 million of rights offering proceeds were received.

In
March 2008, Telephonics 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 September 30, 2009, $38.0 million was outstanding under the
Telephonics Credit Agreement and approximately $57.0 million was available for borrowing.

In
June 2008, Building Products and Plastics 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
September 30, 2009, $35.9 million was outstanding under the Clopay Credit Agreement and approximately $32.4 million was available for borrowing.

The
Telephonics Credit Agreement and the Clopay Credit Agreement include various sublimits for standby letters of credit. At September 30, 2009, there were approximately
$16.7 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. 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, 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

28

---



only
in the event that utilization of that facility were to reach a defined level significantly beyond the September 30, 2009 level. The Telephonics Credit Agreement is a "cash flow based"
facility and compliance with required ratios at September 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 September 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 Griffon's common stock price is below the conversion price of the Notes on
the earliest of these dates, management anticipates that noteholders will require Griffon to repurchase their outstanding Notes. As such, these notes are classified under Notes payable and current
portion of long-term debt in the fourth quarter of 2009. The fair value is approximately $79 million, which is based on quoted market price (level 1 inputs).

During
2009, the Company purchased $50.6 million face value of the Notes from certain noteholders for $42.7 million. The Company recorded a pre-tax gain from
debt extinguishment of approximately $7.8 million, offset by a $0.5 million proportionate reduction in the related deferred financing costs for a net gain of $7.3 million.

At
September 30, 2008, the Company had $130 million outstanding of Notes.

The
Company's 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 loan balance was $5.6 million as of
September 30, 2009, and the outstanding balance approximates fair value.

During
the year ended September 30, 2009, the Company used cash for discontinued operations of $1.3 million related to settling remaining Installation Services liabilities.

Contractual Obligations

At September 30, 2009, payments to be made pursuant to significant contractual obligations are as follows:

Payments Due by Period(in thousands)

Total

Less Than
1 Year

1-3 Years

4-5 Years

More than
5 Years

OtherLong-term debt(a)

$
179,803

$
81,409

$
7,074

$
77,686

$
13,634

$
Interest expense


17,246


6,485


7,757


2,807


197


Rental commitments


56,000


20,000


23,000


10,000


3,000


Purchase obligations(b)


122,758


118,939


3,819








Capital leases


17,526


1,588


2,874


2,868


10,196


Capital expenditures


5,681


5,681











Supplemental & post-retirement benefits(c)


40,339


7,698


7,796


7,796


17,049


Uncertain tax positions(d)


7,951














7,951Total obligations

$
447,304

$
241,800

$
52,320

$
101,157

$
44,076

$
7,951


(a)At
September 30, 2009, the Company had outstanding $79.4 million of the Notes due 2023. Holders of the Notes may require the Company to
repurchase all or a portion of their Notes on


29

---



July 18,
2010, 2013 and 2018, and upon a change in control. The Company is presenting the $79.4 million outstanding on the Notes in the "Less than 1 Year" category above because the
Noteholders can require the Company to repurchase the Notes in July 2010. (b)The
purchase obligations are generally for the purchase of goods and services in the ordinary course of business. The Company uses blanket purchase orders
to communicate expected requirements to certain of its vendors. Purchase obligations reflect those purchase orders where the commitment is considered to be firm. Purchase obligations that extend
beyond 2009 are principally related to long-term contracts received from customers of Telephonics.(c)The
Company expects to contribute $3.8 million to the qualified defined benefit plan in 2010, which is included in the "Less Than 1 Year" column
above. There are no amounts related to the qualified defined benefit plan for subsequent periods. The Company funds required payouts under the non-qualified supplemental defined benefit
plan from its general assets and the expected payments are included in each period, as applicable.(d)Due
to the uncertainty of the potential settlement of future uncertain tax positions, management is unable to estimate the timing of related payments, if
any, that will be made subsequent to 2009. These amounts do not include any potential indirect benefits resulting from deductions or credits for payments made to other jurisdictions.


Off-Balance Sheet Arrangements

Except for operating leases and purchase obligations as disclosed herein, the Company is not a party to any off-balance
sheet arrangements.

ACCOUNTING POLICIES AND PRONOUNCEMENTS

Critical Accounting Policies

The preparation of Griffon's consolidated financial statements in conformity with accounting principles generally accepted in the
United States of America ("GAAP") requires the use of estimates, assumptions, judgments and subjective interpretations of accounting principles that have an impact on assets, liabilities, revenue and
expenses. These estimates can also affect supplemental information contained in public disclosures of the Company, including information regarding contingencies, risk and its financial condition.
These estimates, assumptions and judgments are evaluated on an ongoing basis and based on historical experience, current conditions and various other assumptions, and form the basis for estimating the
carrying values of assets and liabilities, as well as identifying and assessing the accounting treatment for commitments and contingencies. Actual results may materially differ from these estimates.

An
estimate is considered to be critical if it is subjective and if changes in the estimate using different assumptions would result in a material impact on the Company's financial
position or results of operations. The following have been identified as the most critical accounting policies and estimates:

Revenue Recognition

Revenue is recognized when the following circumstances are satisfied: a) persuasive evidence of an arrangement exists,
b) delivery has occurred or services are rendered, c) price is fixed and determinable and d) collectability is reasonably assured. Goods are sold on terms which transfer title and
risk of loss at a specified location, typically shipping point. Revenue recognition from product sales occurs when all factors are met, including transfer of title and risk of loss, which occurs
either upon shipment or upon receipt by customers at the location specified in the terms of sale. Other than standard product warranty provisions, sales arrangements provide for no other significant
post-shipment obligations. From time to time and for certain customers rebates and other sales incentives, promotional allowances or discounts are offered, typically related to customer
purchase volumes, all of which are fixed or

30

---



determinable
and are classified as a reduction of revenue and recorded at the time of sale. Griffon provides for sales returns allowances based upon historical returns experience.

Telephonics
earns a substantial portion of its revenue as either a prime or subcontractor from contract awards with the U.S. Government, as well as non-U.S. governments and
other commercial customers. These formal contracts are typically long-term in nature, usually greater than one year. Revenue and profits from these long-term fixed price
contracts are recognized under the percentage-of-completion method of accounting. Revenue and profits on fixed-price contracts that contain engineering as well as production
requirements are recorded based on the ratio of total actual incurred costs to date to the total estimated costs for each contract (cost-to-cost method). Using the
cost-to-cost method, revenue is recorded at amounts equal to the ratio of actual cumulative costs incurred divided by total estimated costs at completion, multiplied by the
total estimated contract revenue, less the cumulative revenue recognized in prior periods. The profit recorded on a contract using this method is equal to the current estimated total profit margin
multiplied by the cumulative revenue recognized, less the amount of cumulative profit previously recorded for the contract in prior periods. As this method relies on the substantial use of estimates,
these projections may be revised throughout the life of a contract. Components of this formula and ratio that may be estimated include gross profit margin and total costs at completion. The cost
performance and estimates to complete on long-term contracts are reviewed, at a minimum, on a quarterly basis, as well as when information becomes available that would necessitate a review
of the current estimate. Adjustments to estimates for a contract's estimated costs at completion and estimated profit or loss often are required as experience is gained, and as more information is
obtained, even though the scope of work required under the contract may or may not change, or if contract modifications occur. The impact of such adjustments or changes to estimates is made on a
cumulative basis in the period when such information has become known. Gross profit is affected by a variety of factors, including the mix of products, systems and services, production efficiencies,
price competition and general economic conditions.

Revenue
and profits on cost-reimbursable type contracts are recognized as allowable costs are incurred on the contract, at an amount equal to the allowable costs plus the
estimated profit
on those costs. The estimated profit on a cost-reimbursable contract may be fixed or variable based on the contractual fee arrangement. Incentive and award fees on these contracts are
recorded as revenue when the criteria under which they are earned are reasonably assured of being met and can be estimated.

For
contracts whose anticipated total costs exceed the total expected revenue, an estimated loss is recognized in the period when identifiable. A provision for the entire amount of the
estimated loss is recorded on a cumulative basis.

Amounts
representing contract change orders or claims are included in revenue only when they can be reliably estimated and their realization is probable, and are determined on a
percentage-of-completion basis measured by the cost-to-cost method.

Warranty Accruals

Direct customer and end-user warranties are provided on certain products. These warranties cover manufacturing defects that
would prevent the product from performing in line with its intended and marketed use. The terms of these warranties vary by product line and generally provide for the repair or replacement of the
defective product. Warranty claims data is collected and analyzed with a focus on the historical amount of claims, the products involved, the amount of time between the warranty claims and the
products' respective sales and the amount of current sales. Based on these analyses, warranty accruals are recorded as an increase to cost of sales and regularly reviewed for adequacy.

31

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Stock-based Compensation

Griffon has issued stock-based compensation to certain employees, officers and directors in the form of stock options and
non-vested restricted stock. For stock option grants made on or after October 1, 2005, expense is recognized over the awards' expected vesting period based on their fair value as
calculated using the Black-Scholes pricing model. The Black-Scholes pricing model uses estimated assumptions for a forfeiture rate, the expected life of the options and a volatility rate using
historical data.

Compensation
expense for non-vested restricted stock is recognized ratably over the service period based on the fair value of the grant calculated as the number of shares
granted multiplied by the stock price on the date of grant.

Allowances for Discount, Doubtful Account and Returns

Trade receivables are recorded at the stated amount, less allowances for discounts, doubtful accounts and returns. The allowances
represent estimated uncollectible receivables associated with potential customer defaults on contractual obligations (usually due to customers' potential insolvency), discounts related to early
payment of accounts receivables by customers and estimates for returns. The allowance for doubtful accounts includes amounts for certain customers where a risk of default has been specifically
identified, as well as an amount for customer defaults based on a general formula when it is determined the risk of some default is probable and estimable, but cannot yet be associated with specific
customers. Allowance for discounts and returns are recorded
as a reduction of revenue and the provision related to the allowance for doubtful accounts is recorded in Selling, general and administrative expenses.

Goodwill, Long-Lived Intangible and Tangible Assets, and Impairment

Griffon has significant intangible and tangible long lived assets on its balance sheet which includes goodwill and other intangible
assets related to acquisitions. Goodwill represents the excess of the cost of net assets acquired in business combinations over the fair value of the identifiable tangible and intangible assets
acquired and liabilities assumed in a business combination. As required under GAAP, goodwill and indefinite lived intangibles are reviewed for impairment annually, for Griffon in September, or more
frequently whenever events or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The testing of goodwill and indefinite lived
intangibles for impairment involves the significant use of judgment and assumptions in the determination of a reporting unit's fair market value.

Long-lived
amortizable intangible assets, such as customer relationships and software, and tangible assets, which is primarily made up of Property, Plant and Equipment, are
amortized over their expected useful lives, which involves significant assumptions and estimates. Long-lived intangible and tangible assets are tested for impairment by comparing estimated
future undiscounted cash flows to the carrying value of the asset when an impairment indicator, such as change in business, customer loss or obsolete technology, exists.

Fair
value estimates are based on assumptions believed to be reasonable at the time, but such assumptions are subject to inherent uncertainty. Actual results may differ materially from
those estimates. Any changes in key assumptions or management judgment with respect to a reporting unit or its prospects, which may result from a decline in Griffon's stock price, a change in market
conditions, market trends, interest rates or other factors outside of Griffon's control, or significant underperformance relative to historical or projected future operating results, could result in a
significantly different estimate of the fair value of Griffon's reporting units, which could result in an impairment charge in the future.

32

---



Restructuring reserves

From time to time, the Company will establish restructuring reserves at an operation. These reserves for both termination and other
exit costs require the use of estimates. Though Griffon believes the estimates made are reasonable, they could differ materially from the actual costs.

Income Taxes

Griffon's effective tax rate is based on income, statutory tax rates and tax planning opportunities available in the various
jurisdictions in which the Company operates. For interim financial reporting, the annual tax rate is estimated based on projected taxable income for the full year and a quarterly income tax provision
is recorded in accordance with the anticipated annual rate. As the year progresses, the estimates are refined based on the year's taxable income as new information becomes available, including
year-to-date financial results. This continual estimation process often results in a change to the effective tax rate throughout the year. Significant judgment is required in
determining the effective tax rate and in evaluating tax positions.

Deferred
tax assets and liabilities are recognized based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities. Deferred tax
assets represent items to be used as a tax deduction or credit in future tax returns for which a tax benefit has been recorded in the income statement. The likelihood that the deferred tax asset
balance will be recovered from future taxable income is assessed at least quarterly, and the valuation allowance, if any, is adjusted accordingly.

Tax
benefits are recognized for an uncertain tax position when, in management's judgment, it is more likely than not that the position will be sustained upon examination by a taxing
authority. For a tax position that meets the more-likely-than-not recognition threshold, the tax benefit is measured as the largest amount that is judged to have a
greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority. The liability associated with unrecognized tax benefits is adjusted periodically due to changing
circumstances, such as the progress of tax audits, case law developments and new or emerging legislation. Such adjustments are recognized entirely in the period in which they are identified. The
effective tax rate includes the net impact of changes in the liability for unrecognized tax benefits and subsequent adjustments as considered appropriate by management. A number of years may elapse
before a particular matter for which Griffon has recorded a liability related to an unrecognized tax benefit is audited and finally resolved. The number of years with open tax audits varies by
jurisdiction. While it is often difficult to predict the final outcome or the timing of resolution of any particular tax matter, Griffon believes its liability for unrecognized tax benefits is
adequate. Favorable resolution of an unrecognized tax benefit could be recognized as a reduction in Griffon's tax provision and effective tax rate in the period of resolution. Unfavorable settlement
of an unrecognized tax benefit could increase the tax provision and effective tax rate and may require the use of cash in the period of resolution. The liability for
unrecognized tax benefits is generally presented as noncurrent. However, if it is anticipated that a cash settlement will occur within one year, that portion of the liability is presented as current.
Interest and penalties recognized on the liability for unrecognized tax benefits is recorded as income tax expense.

Pension Benefits

Griffon sponsors two defined benefit pension plans for certain employees and retired employees. Annual amounts relating to these plans
are recorded based on actuarial projections, which include various actuarial assumptions, including discount rates, assumed rates of return, compensation increases and turnover rates. The actuarial
assumptions used to determine pension liabilities and assets, as well as pension expense, are reviewed on an annual basis when modifications to assumptions are made based on current economic
conditions and trends. The expected return on plan assets is determined based on the nature of the plans' investments and expectations for long-term rates of return. The discount rate used
to measure obligations is based on a corporate bond spot-rate yield curve that

33

---



matches
projected future benefit payments with the appropriate spot rate applicable to the timing of the projected future benefit payments. The assumptions utilized in recording the Company's
obligations under the defined benefit pension plans are believed to be reasonable based on experience and advice from independent actuaries; however, differences in actual experience or changes in the
assumptions may materially affect Griffon's financial position or results of operations.

The
qualified defined benefit plan has been frozen to new entrants since December 2000. Certain employees who were part of the plan prior to December 2000 continue to accrue a service
benefit for an additional 10 years, at which time all plan participants will stop accruing service benefits.

Newly issued but not yet effective accounting pronouncements

In December 2007, the Financial Accounting Standards Board ("FASB") issued new accounting guidance related to the accounting for
business combinations. The purpose of the new guidance is to better represent the economic value of a business combination transaction. The new guidance retains the fundamental requirement of the old
guidance where the acquisition method of accounting is to be used for all business combinations and for an acquirer to be identified for each business combination. In general the new guidance
1) broadens the existing guidance by extending its applicability to all events where one entity obtains control over one or more businesses, 2) broadens the use of the fair value
measurements used to recognize the assets acquired and liabilities assumed, 3) changes the accounting for acquisition related fees and restructuring costs incurred in connection with an
acquisition and 4) increases required disclosure. The Company anticipates that the adoption of
the new guidance, effective for Griffon for any business combinations that occur after October 1, 2009, will have an impact on the way in which business combinations are accounted for; however,
the impact can only be assessed as each acquisition is consummated.

In
December 2007, the FASB issued new accounting guidance related to the accounting for noncontrolling interests in consolidated financial statements. The new guidance 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, the new guidance eliminates the diversity that currently exists in accounting for transactions between an entity and
noncontrolling interests by requiring they be treated as equity transactions. This new guidance is effective for the Company as of October 1, 2009. The Company is evaluating the potential
impact, if any, of the adoption of the new guidance on its consolidated financial statements.

In
March 2008, the FASB issued new guidance which enhances required disclosures regarding derivatives and hedging activities, including enhanced disclosures regarding how: 1) an
entity uses derivative instruments, 2) derivative instruments and related hedged items are accounted and 3) derivative instruments and related hedged items affect an entity's financial
position, financial performance and cash flows. Although early adoption is encouraged, the new guidance is effective for the Company as of October 1, 2009. The Company is evaluating the
potential impact, if any, of the new guidance on its consolidated financial statements.

In
April 2008, the FASB issued new guidance which 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 and requires enhanced related disclosures. The new guidance must be applied prospectively to all intangible assets acquired as of and subsequent to years beginning
after December 15, 2008, which is the Company's 2010. The Company is evaluating the potential impact, if any, of the adoption of the new guidance on its consolidated financial statements.

In
May 2008, the FASB issued new guidance to clarify that the liability and equity components of convertible debt instruments that may be settled in cash upon conversion (including
partial cash settlement) must be separately accounted for in a manner that will reflect the entity's nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. The new
guidance is effective for the Company as of October 1, 2009. The Company has convertible debt instruments that

34

---



will
be affected by this guidance and is evaluating the impact of the adoption of the guidance on its consolidated financial statements.

In
October 2009, the FASB issued new guidance on accounting for multiple-deliverable arrangements to enable vendors to account for products and services separately rather than as a
combined unit. The guidance addresses how to separate deliverables and how to measure and allocate arrangement consideration to one or more units of accounting. The new guidance will be effective as
of the
beginning of the annual reporting period commencing after June 15, 2010, and will be adopted by the Company as of October 1, 2010. Early adoption is permitted. The Company is evaluating
the potential impact, if any, of the adoption of the new guidance on its consolidated financial statements.

Recently issued effective accounting pronouncements

In April 2009, the FASB issued new guidance which requires disclosure about fair value of financial instruments for interim periods of
publicly traded companies as well as in annual financial statements. This statement was effective for the Company starting with the interim period ending June 30, 2009, and was applied
prospectively as required. The Company has included the required disclosure in this Form 10-K. The adoption of this guidance did not have a material effect on Griffon's consolidated
financial statements.

In
June 2009, the FASB issued new guidance which establishes principles and requirements for subsequent events regarding: 1) the period after the balance sheet date during which
management shall evaluate events and transactions that may occur for potential recognition or disclosure in the financial statements; 2) the circumstances under which an entity shall recognize
events or transactions occurring after the balance sheet date in its financial statements; and 3) the disclosure that an entity shall make about events or transactions that occurred after the
balance sheet date. This statement was effective for the Company starting with the interim period ending June 30, 2009, and was applied prospectively as required. The Company has included the
required disclosure in this Form 10-K. The adoption of this guidance did not have a material effect on Griffon's consolidated financial statements.

In
June 2009, the FASB issued new guidance which established the FASB Accounting Codification as the source of authoritative accounting principles recognized by the FASB to be applied by
nongovernmental entities in the preparation of financial statements in conformity with GAAP. The new guidance became effective for financial statements issued for interim periods ended after
September 15, 2009, and were adopted by the Company for this Form 10-K. The adoption of this guidance did not have a material effect on Griffon's consolidated financial
statements.

Item 8.    Financial Statements and Supplementary Data

The financial statements of the Company and its subsidiaries and the report thereon of Grant Thornton LLP are included
herein:



35

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board
of Directors and Shareholders Griffon Corporation

We
have audited the accompanying consolidated balance sheets of Griffon Corporation (a Delaware corporation) and subsidiaries (the "Company") as of September 30, 2009 and 2008,
and the related consolidated statements of operations, shareholders' equity and comprehensive income (loss), and cash flows for each of the three years in the period ended September 30, 2009.
Our audits of the basic financial statements included the financial statement schedules listed in the index appearing under Item 15(a)(2). These financial statements and financial statement
schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Griffon Corporation and subsidiaries as of
September 30, 2009 and 2008, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 2009 in conformity with accounting
principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a
whole, present fairly, in all material respects, the information set forth therein.

As
discussed in Note 1 of the notes to the consolidated financial statements, effective October 1, 2007, the Company adopted new accounting guidance related to the
accounting for uncertainty in income tax reporting.

As
discussed in Note 11 of the notes to the consolidated financial statements, the Company adopted accounting amendments on September 30, 2007 related to the recognition of
the funded status of defined benefit postretirement plans in the consolidated balance sheets.

We
also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Griffon Corporation and subsidiaries' internal control over
financial reporting as of September 30, 2009 based on criteria established inInternal ControlIntegrated Frameworkissued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated November 24, 2009 expressed an unqualified opinion thereon.

/s/
GRANT THORNTON LLP
New York, New York
November 24, 2009

36

---





GRIFFON CORPORATION AND SUBSIDIARIES        CONSOLIDATED BALANCE SHEETS        (in thousands, except per share data)

At September 30,
2009

At September 30,
2008CURRENT ASSETSCash and equivalents

$
320,833

$
311,921Accounts receivable, net of allowances of $4,457 and $5,609


164,619


163,586Contract costs and recognized income not yet billed, net of progress payments of $14,592 and $8,863


75,536


69,001Inventories, net


139,170


167,158Prepaid and other current assets


39,261


52,430Assets of discontinued operations


1,576


9,495Total Current Assets


740,995


773,591PROPERTY, PLANT AND EQUIPMENT, net


236,019


239,003GOODWILL


97,657


93,782INTANGIBLE ASSETS, net


34,211


34,777OTHER ASSETS


30,648


22,067ASSETS OF DISCONTINUED OPERATIONS


5,877


8,346Total Assets

$
1,145,407

$
1,171,566CURRENT LIABILITIESNotes payable and current portion of long-term debt

$
81,410

$
2,258Accounts payable


125,027


129,823Accrued liabilities


61,120


64,450Liabilities of discontinued operations


4,932


14,917Total Current Liabilities


272,489


211,448LONG-TERM DEBT


98,394


230,930OTHER LIABILITIES


78,837


59,460LIABILITIES OF DISCONTINUED OPERATIONS


8,784


10,048Total Liabilities


458,504


511,886COMMITMENTS AND CONTINGENCIESSHAREHOLDERS' EQUITYPreferred stock, par value $0.25 per share, authorized 3,000 shares, no shares issued





Common stock, par value $0.25 per share, authorized 85,000 shares, issued 72,040 shares and 71,095 shares


18,010


17,774Capital in excess of par value


420,749


415,505Retained earnings


438,782


415,991Treasury shares, at cost, 12,466 common shares and 12,440 common shares


(213,560
)

(213,310
)Accumulated other comprehensive income


28,170


25,469Deferred compensation


(5,248
)

(1,749
)Total Shareholders' Equity


686,903


659,680Total Liabilities and Shareholders' Equity

$
1,145,407

$
1,171,566


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

37

---





GRIFFON CORPORATION AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF OPERATIONS        (in thousands, except per share data)

Years Ended September 30,2009

2008

2007Revenue

$
1,194,050

$
1,269,305

$
1,365,729Cost of goods and services


936,927


996,308


1,071,173Gross profit


257,123


272,997


294,556Selling and administrative expenses


230,736


245,430


242,502Impairment of goodwill





12,913


Restructuring and other related charges


1,240


2,610


2,501Total operating expenses


231,976


260,953


245,003Income from operations


25,147


12,044


49,553Other income (expense)Interest expense


(9,562
)

(12,345
)

(13,406
)Interest income


1,539


1,970


2,397Gain from debt extinguishment, net


7,360





Other, net


1,522


2,713


2,892Total other income (expense)


859


(7,662
)

(8,117
)Income before taxes and discontinued operations


26,006


4,382


41,436Provision for income taxes


4,005


4,294


13,271Income from continuing operations


22,001


88


28,165Discontinued operations:Income (loss) from operations of the discontinued Installation Services business


1,230


(62,447
)

(9,804
)Provision (benefit) for income taxes


440


(21,856
)

(3,718
)Income (loss) from discontinued operations


790


(40,591
)

(6,086
)Net income (loss)

$
22,791

$
(40,503
)
$
22,079Basic earnings (loss) per common share:Income (loss) from continuing operations

$
0.37

$
0.00

$
0.87Income (loss) from discontinued operations


0.01


(1.24
)

(0.19
)Net income (loss)


0.39


(1.24
)

0.68Weighted-average shares outstanding


58,699


32,667


32,405Diluted earnings (loss) per common share:Income (loss) from continuing operations

$
0.37

$
0.00

$
0.84Income (loss) from discontinued operations


0.01


(1.24
)

(0.19
)Net income (loss)


0.39


(1.24
)

0.65Weighted-average shares outstanding


59,002


32,836


33,357


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

38

---





GRIFFON CORPORATION AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF CASH FLOWS        (in thousands)

Years Ended September 30,2009

2008

2007CASH FLOWS FROM OPERATING ACTIVITIESNet income (loss)

$
22,791

$
(40,503
)
$
22,079Adjustments to reconcile net income (loss) to net cash provided by operating activities:Loss (income) from discontinued operations


(790
)

40,591


6,086Depreciation and amortization


42,346


42,923


39,458Impairment of goodwill





12,913


Stock-based compensation


4,145


3,327


2,412Provision for losses on account receivable


628


1,089


649Amortization/write-off of deferred financing costs


1,680


1,402


Gain from debt extinguishment, net


(7,360
)




Deferred income taxes


(826
)

212


(10,004
)Change in assets and liabilities:(Increase) decrease in accounts receivable and contract costs and recognized income not yet billed


(6,690
)

13,585


20,174(Increase) decrease in inventories


28,498


(23,500
)

3,651(Increase) decrease in prepaid and other assets


11,130


(12,524
)

(141
)Increase (decrease) in accounts payable, accrued liabilities and income taxes payable


(8,627
)

53,095


(27,560
)Other changes, net


(2,825
)

(6,561
)

2,894Net cash provided by operating activities


84,100


86,049


59,698CASH FLOWS FROM INVESTING ACTIVITIES:Acquisition of property, plant and equipment


(32,697
)

(53,116
)

(29,737
)Acquired businesses





(1,829
)

(818
)Proceeds from sale of assets


200


1,000


(Increase) decrease in equipment lease deposits


(336
)

4,593


(6,092
)Funds restricted for capital projects








(4,521
)Net cash used in investing activities


(32,833
)

(49,352
)

(41,168
)CASH FLOWS FROM FINANCING ACTIVITIESProceeds from issuance of shares from rights offering


7,257


241,344


Purchase of shares for treasury





(579
)

(4,355
)Proceeds from issuance of long-term debt


11,431


89,235


47,891Payments of long-term debt


(56,676
)

(87,785
)

(27,650
)Decrease in short-term borrowings


(866
)

(924
)

(5,834
)Financing costs


(597
)

(10,027
)

Purchase of ESOP shares


(4,370
)




Exercise of stock options








2,588Tax benefit from vesting of restricted stock


217


3


1,346Other, net


402


139


271Net cash provided by (used in) financing activities


(43,202
)

231,406


14,257CASH FLOWS FROM DISCONTINUED OPERATIONS:Net cash provided by (used in) discontinued operations


(1,305
)

(5,410
)

5,963Net cash provided by (used in) investing activities





5,496


(17,184
)Net cash provided by (used in) discontinued operations


(1,305
)

86


(11,221
)Effect of exchange rate changes on cash and equivalents


2,152


(1,015
)

792NET INCREASE IN CASH AND EQUIVALENTS


8,912


267,174


22,358CASH AND EQUIVALENTS AT BEGINNING OF YEAR


311,921


44,747


22,389CASH AND EQUIVALENTS AT END OF YEAR

$
320,833

$
311,921

$
44,747Supplemental Disclosure of Cash Flow Information:Cash paid for interest

$
7,065

$
8,303

$
9,230Cash paid for taxes


7,602


6,207


22,943Stock subscriptions receivable pursuant to rights offering





5,274





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

39

---





GRIFFON CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS)
(in thousands)

COMMON STOCK





TREASURY SHARES

ACCUMULATED
OTHER
COMPREHENSIVE
INCOME (LOSS)CAPITAL IN
EXCESS OF
PAR VALUE

RETAINED
EARNINGS

DEFERRED
ESOP
COMPENSATION



COMPREHENSIVE
INCOME (LOSS)SHARES

PAR VALUE

SHARES

COST

TotalBalance at 9/30/2006


41,628

$
10,407

$
167,246

$
439,084


11,780

$
(201,844
)
$
(406
)
$
(2,042
)
$
412,445Net income











22,079














22,079

$
22,079Common stock issued for options exercised


628


157


8,731





411


(6,532
)







2,356Tax benefit from the exercise of stock options








1,346

















1,346Amortization of deferred compensation























543


543Common stock acquired














208


(4,355
)







(4,355
)Restricted stock vesting


73


18


(18
)
















ESOP distribution of common stock








307

















307Stock-based compensation








2,410














(120
)

2,290Translation of foreign financial statements




















28,477





28,477


28,477Adoption of pension guidance




















(1,521
)




(1,521
)Pension OCI amortization, net of tax




















2,972





2,972


2,972Balance at 9/30/2007


42,329


10,582


180,022


461,163


12,399


(212,731
)

29,522


(1,619
)

466,939

$
53,528Net loss











(40,503
)













(40,503
)

(40,503
)Tax benefit from the exercise of stock options








3

















3Amortization of deferred compensation























(221
)

(221
)Common stock acquired














41


(579
)







(579
)Restricted stock vesting


373


94


(94
)
















ESOP distribution of common stock








(71
)
















(71
)Stock-based compensation








3,236














91


3,327Issuance of common stock pursuant to rights offering, net of financing costs


28,393


7,098


232,409

















239,507Translation of foreign financial statements




















(6,061
)




(6,061
)

(6,061
)Adoption of uncertain tax position guidance











(4,669
)













(4,669
)Pension OCI amortization, net of tax




















2,008





2,008


2,008Balance at 9/30/2008


71,095


17,774


415,505


415,991


12,440


(213,310
)

25,469


(1,749
)

659,680

$
(44,556
)Net income











22,791














22,791

$
22,791Common stock issued for options exercised


33


7


(7
)
















Tax benefit from the exercise of stock options








217

















217Amortization of deferred compensation























818


818Common stock acquired














26


(250
)







(250
)Restricted stock vesting


58


15


(747
)
















(732
)ESOP purchase of common stock























(4,370
)

(4,370
)ESOP distribution of common stock








(22
)
















(22
)Stock-based compensation








4,092














53


4,145Issuance of common stock pursuant to rights offering, net of financing costs


854


214


1,711

















1,925Translation of foreign financial statements




















11,836





11,836


11,836Pension OCI amortization, net of tax




















(9,135
)




(9,135
)

(9,135
)Balance at 9/30/2009


72,040

$
18,010

$
420,749

$
438,782


12,466

$
(213,560
)
$
28,170

$
(5,248
)
$
686,903

$
25,492


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

40

---





GRIFFON CORPORATION        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        (dollars in thousands, except per share data)

(Unless otherwise indicated, all references to years or year-end refer to the Company's fiscal period ending
September 30)

NOTE 1DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

Griffon Corporation (the "Company" or "Griffon"), is a diversified management and holding company that conducts business through
wholly-owned subsidiaries. The Company oversees the operations of its subsidiaries, allocates resources among them and manages their capital structures. The Company provides direction and assistance
to its subsidiaries in connectioin with acquisition and growth opportunities as well as in connection with divestitures. Griffon also seeks out, evaluates and, when appropriate, will acquire
additional businesses that offer potentially attractive returns on capital to further diversify itself.

Headquartered
in New York, N.Y., the Company was incorporated in New York in 1959, and was reincorporated in Delaware in 1970. It changed its name to Griffon Corporation in 1995.

Griffon
currently conducts its operations through Telephonics Corporation, Clopay Building Products Company and Clopay Plastic Products Company.



Consolidation

The consolidated financial statements include the accounts of Griffon Corporation and all subsidiaries (the "Company" or "Griffon").
Intercompany accounts and transactions have been eliminated in consolidation.

Earnings Per Share

Due to rounding, the sum of earnings per share of Continuing operations and Discontinued operations may not equal earnings per share of
Net income.

Discontinued OperationsInstallation Services

As a result of the downturn in the residential housing market, in 2008, the Company exited substantially all of the operating
activities of its Installation Services segment; this 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 the entire Installation Services segment have been reported as discontinued operations

41

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GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

NOTE 1DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

in
the Consolidated Statements of Operations for all periods presented herein, and the segment is excluded from segment reporting.

Reclassifications

Certain amounts in prior years have been reclassified to conform to the current year presentation.

Use of estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenue and expenses during the reporting periods. These estimates may be adjusted due to changes in economic, industry or customer financial conditions, as well as, changes in
technology or demand. Significant estimates include allowances for doubtful accounts receivable and returns, net realizable value of inventories, restructuring reserves, valuation of goodwill and
intangible assets, pension assumptions, useful lives associated with depreciation and amortization of intangible and fixed assets, warranty reserves, sales incentive accruals, stock based compensation
assumptions, income taxes and tax valuation reserves, environmental reserves, legal reserves, insurance reserves and the valuation of discontinued assets and liabilities, and the accompanying
disclosures. These estimates are based on management's best knowledge of current events and actions Griffon may undertake in the future. Actual results may ultimately differ from these estimates.

Cash and equivalents

The Company considers all highly liquid investments purchased with an initial maturity of three months or less to be cash equivalents.
Cash equivalents primarily consist of overnight commercial paper, highly-rated liquid money market funds backed by U.S. Treasury securities and U.S. Agency securities, as well as insured bank
deposits. The Company had cash in non-U.S. bank accounts of approximately $39,007 and $22,850 at September 30, 2009 and 2008, respectively. The majority of these amounts are covered
by government insurance or backed by government securities. The Company evaluates all institutions and funds that hold its cash and equivalents.

Fair value of financial instruments

In September 2006, the Financial Accounting Standards Board ("FASB") issued new guidance, which defines fair value, establishes a
framework for measuring fair value in accordance with GAAP, and expands disclosures about fair value measurements. For financial assets and liabilities, this statement, which was effective for the
Company on October 1, 2008, did not require any new fair value measurements. The adoption of this new guidance did not have a material impact on Griffon's consolidated financial statements. In
February 2008, the FASB delayed the effective date of the new guidance for the Company to October 1, 2009, 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).

42

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GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

NOTE 1DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

In
February 2007, the FASB issued new guidance to provide companies the option to report selected financial assets and liabilities at fair value. Upon adoption of this new guidance on
October 1, 2008, the Company did not elect the fair value option to report its financial assets and liabilities at fair value. Accordingly, the adoption of this new guidance did not have an
impact on the Company's financial position or results of operations.

The
carrying values of cash and equivalents, accounts receivable, accounts and notes payable and revolving credit debt approximate fair value due to either the short-term
nature of such instruments or the fact that the interest rate of the revolving credit debt is based upon current market rates.

The
Company's 4% convertible notes' fair value was approximately $79 million on September 30, 2009, which was based upon quoted market price (level 1 inputs).

Items Measured at Fair Value on a Recurring Basis

Insurance contracts with a value of $4,803 at September 30, 2009, are measured and recorded at fair value based upon quoted
prices in active markets for identical assets (level 1 inputs).

Non-U.S. currency translation

Assets and liabilities of non-U.S. subsidiaries, where the functional currency is not the U.S. dollar, have been translated
at year-end exchange rates and profit and loss accounts have been translated using weighted average exchange rates. Adjustments resulting from currency translation have been recorded in
the equity section of the balance sheet as cumulative translation adjustments. Assets and liabilities of an entity that are denominated in currencies other than an entity's functional currency are
remeasured into the functional currency using end of period exchange rates, or historical rates where applicable to certain balances. Gains and losses related to these remeasurements are recorded
within the Statement of Operations as a component of Other income (expense).

Revenue recognition

Revenue is recognized when the following circumstances are satisfied: a) persuasive evidence of an arrangement exists,
b) delivery has occurred or services are rendered, c) price is fixed and determinable and d) collectability is reasonably assured. Goods are sold on terms which transfer title and
risk of loss at a specified location, typically shipping point. Revenue recognition from product sales occurs when all factors are met, including transfer of title and risk of loss, which occurs
either upon shipment or upon receipt by customers at the location specified in the terms of sale. Other than standard product warranty provisions, sales arrangements provide for no other significant
post-shipment obligations. From time to time and for certain customers rebates and other sales incentives, promotional allowances or discounts are offered, typically related to customer
purchase volume, all of which are fixed or determinable and are classified as a reduction of revenue and recorded at the time of sale. Griffon provides for sales returns allowances based upon
historical returns experience.

Telephonics
earns a substantial portion of its revenue as either a prime or subcontractor from contract awards with the U.S. Government, as well as non-U.S. governments and
other commercial customers. These formal contracts are typically long-term in nature, usually greater than one year. Revenue and profits from these long-term fixed price
contracts are recognized under the percentage-of-completion method of accounting. Revenue and profits on fixed-price contracts that

43

---



GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

NOTE 1DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

contain
engineering as well as production requirements are recorded based on the ratio of total actual incurred costs to date to the total estimated costs for each contract
(cost-to-cost method). Using the cost-to-cost method, revenue is recorded at amounts equal to the ratio of actual cumulative costs incurred divided by
total estimated costs at completion, multiplied by the total estimated contract revenue, less the cumulative revenue recognized in prior periods. The profit recorded on a contract using this method is
equal to the current estimated total profit margin multiplied by the cumulative revenue recognized, less the amount of cumulative profit previously recorded for the contract in prior periods. As this
method relies on the substantial use of estimates, these projections may be revised throughout the life of a contract. Components of this formula and ratio that may be estimated include gross profit
margin and total costs at completion. The cost performance and estimates to complete on long-term contracts are reviewed, at a minimum, on a quarterly basis, as well as when information
becomes available that would necessitate a review of the current estimate. Adjustments to estimates for a contract's estimated costs at completion and estimated profit or loss often are required as
experience is gained, and as more information is obtained, even though the scope of work required under the contract may or may not change, or if contract modifications occur. The impact of such
adjustments or changes to estimates is made on a cumulative basis in the period when such information has become known. Gross profit is affected by a variety of factors, including the mix of products,
systems and services, production efficiencies, price competition and general economic conditions.

Revenue
and profits on cost-reimbursable type contracts are recognized as allowable costs are incurred on the contract, at an amount equal to the allowable costs plus the
estimated profit on those costs. The estimated profit on a cost-reimbursable contract may be fixed or variable based on the contractual fee arrangement. Incentive and award fees on these
contracts are recorded as revenue when the criteria under which they are earned are reasonably assured of being met and can be estimated.

For
contracts whose anticipated total costs exceed the total expected revenue, an estimated loss is recognized in the period when identifiable. A provision for the entire amount of the
estimated loss is recorded on a cumulative basis.

Amounts
representing contract change orders or claims are included in revenue only when they can be reliably estimated and their realization is probable, and are determined on a
percentage-of-completion basis measured by the cost-to-cost method.

Accounts receivable, allowance for doubtful accounts and concentrations of credit risk

Accounts receivable is composed principally of trade accounts receivable that arise primarily from the sale of goods or services on
account and is stated at historical cost. A substantial portion of the Company's trade receivables are from customers of Building Products whose financial condition is dependent on the construction
and related retail sectors of the economy. In addition, a significant portion of the Company's trade receivables are from one Plastics customer, P&G, whose financial condition is dependent on the
consumer products and related sectors of the economy. Telephonics sells its products to domestic and international government agencies, as well as commercial customers. The Company performs continuing
evaluations of the financial condition of its customers, and although the Company generally does not require collateral, letters of credit may be required from customers in certain circumstances.

44

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GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

NOTE 1DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Trade
receivables are recorded at the stated amount, less allowance for doubtful accounts. The allowance represents estimated uncollectible receivables associated with potential customer
defaults on contractual obligations (usually due to customers' potential insolvency). The allowance for doubtful accounts includes amounts for certain customers where a risk of default has been
specifically identified, as well as an amount for customer defaults based on a formula when it is determined the risk of some default is probable and estimable, but cannot yet be associated with
specific customers. The provision related to the allowance for doubtful accounts was recorded in selling, general and administrative expenses.

Contract costs and recognized income not yet billed

Contract costs and recognized income not yet billed consists of amounts accounted for under the percentage of completion method of
accounting, recoverable costs and accrued profit that cannot yet be invoiced under the terms of certain long-term contracts. Amounts will be invoiced when applicable contract terms such as
the achievement of specified milestones or product delivery, are met.

Inventories

Inventories, stated at the lower of cost (first-in, first-out or average) or market, include material, labor
and manufacturing overhead costs.

Griffon's
businesses typically do not require inventory that is susceptible to becoming obsolete or dated. In general, Telephonics sells products in connection with programs authorized
and approved under contracts awarded by the U.S. Government or agencies thereof, either as prime or subcontractor, and in accordance with customer specifications. Plastics primarily produces
fabricated materials used by customers in the production of their products and these materials are produced against orders by those customers. Building Products produces garage doors in response to
orders from customers of retailers and dealers.

Property, plant and equipment

Property, plant and equipment includes the historic cost of land, buildings, equipment and significant improvements to existing plant
and equipment. Expenditures for maintenance, repairs and minor renewals are expensed as incurred. When property or equipment is sold or otherwise disposed of, the related cost and accumulated
depreciation is removed from the respective accounts and the gain or loss is realized in income.

Depreciation
expense, which includes amortization of assets under capital leases, was $40,919, $42,061 and $39,333 for the years ended September 30, 2009, 2008 and 2007,
respectively, and was calculated on a straight-line basis over the estimated useful lives of the assets. Estimated useful lives for property, plant and equipment are as follows: buildings
and building improvements, 25 to 40 years; machinery and equipment, 2 to 15 years and leasehold improvements, over the term of the lease or life of the improvement, whichever is shorter.

Capitalized
interest costs included in property, plant and equipment were $331, $511 and $454 for the years ended September 30, 2009, 2008 and 2007, respectively. The original
cost of fully-depreciated property, plant and equipment remaining in use at September 30, 2009 was approximately $182,000.

45

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GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

NOTE 1DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Goodwill and indefinite-lived intangibles

Goodwill is the excess of the acquisition cost of business over the fair value of the identifiable net assets acquired. Goodwill is not
amortized, but is subject to an annual impairment test unless during an interim period, impairment indicators, such as a significant change in the business climate, exist.

The
Company performs its annual impairment testing of goodwill in September. The performance of the test involves a two-step process. The first step involves comparing the
fair value of the Company's reporting units with the reporting unit's carrying amount, including goodwill. The Company generally determines the fair value of its reporting units using the income
approach methodology of valuation that includes the present value of expected future cash flows. This method uses the Company's own market assumptions. If the carrying amount of a reporting unit
exceeds the reporting unit's fair value, the Company performs the second step of the goodwill impairment test to determine the amount of impairment loss. The second step compares the implied fair
value of the reporting unit's goodwill with the carrying amount of that goodwill. In 2009, all reporting units passed step one, and therefore step two was not performed.

The
Company defines its reporting units as its three segments.

The
Company used five year projections and a 3% terminal value to which discount rates between 11.75% and 12.50% were applied to calculate each unit's fair value. To substantiate the
fair values derived from the income approach methodology of valuation, the implied fair value was reconciled to the Company's market capitalization, the results of which supported the implied fair
values. Any changes in key assumptions or management judgment with respect to a reporting unit or its prospects, which may result from a decline in Griffon's stock price, a change in market
conditions, market trends, interest rates or other factors outside Griffon's control, or significant underperformance relative to historical or project future operating results, could result in a
significantly different estimate of the fair value of the reporting units, which could result in a future impairment charge.

In
2008, based on the results of the annual goodwill impairment testing, all of the goodwill of Building Products was written down due to impairment resulting in a charge of
$12.9 million.

Similar
to Goodwill, the Company tests indefinite-lived intangible assets at least annually unless indicators of impairment exist. The Company uses a discounted cash flow method to
calculate and compare the fair value of the intangible to its book value. This method uses the Company's own market assumptions which are reasonable and supportable. If the fair value is less than the
book value of the indefinite-lived intangibles, an impairment charge would be recognized. There was no impairment related to any indefinite-lived intangible assets in 2009 or 2008.

Definite-lived long-lived assets

Amortizable intangible assets are carried at cost less accumulated amortization. For financial reporting purposes, definite lived
intangible assets are amortized on a straight-line basis over their useful lives, generally eight to twenty-five years. Long-lived assets and certain identifiable
intangible assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of

46

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GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

NOTE 1DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

recoverability
is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition.

The
goodwill impairment in 2008 was deemed an indicator of potential impairment of the definite-lived long-lived assets of Building Products. As a result, these assets were
tested as a group for impairment in 2008, and again in 2009. For both periods, the future undiscounted cash flows expected to be generated from the use of these assets were substantially greater than
the carrying value of the assets, and as such, there was no impairment.

Income taxes

Income taxes are accounted for under the liability method. Deferred taxes reflect the tax consequences on future years of differences
between the tax bases of assets and liabilities and their financial reporting amounts. The carrying value of the company's deferred tax assets is dependent upon the Company's ability to generate
sufficient future taxable income in certain tax jurisdictions. Should the Company determine that it is more likely than not that some portion of the deferred tax assets will not be realized, a
valuation allowance against the deferred tax assets would be established in the period such determination was made.

Effective
October 1, 2007, the Company adopted FASB guidance which prescribes the way companies are to account for uncertainty in income tax reporting, and prescribes methodology
for recognizing, reversing and measuring the tax benefits of a tax position expected to be taken, in a tax return. The Company provides for uncertain tax positions and any related interest and
penalties based upon Management's assessment of whether a tax benefit is more likely than not of being sustained upon examination by tax authorities. At September 30, 2009 the Company believes
that it has appropriately accounted for all unrecognized tax benefits. As a result of adopting this new guidance effective October 1, 2007, the Company recorded a $4,669 increase to reserves as
a "cumulative effect" decrease to opening retained earnings. As of September 30, 2009, 2008 and 2007, the Company has recorded
unrecognized tax benefits in the amount of $8,138, $11,634 and $21,646, respectively. Accrued interest and penalties related to income tax matters are recorded in the provision for income taxes.

Research and development costs, shipping and handling costs and advertising costs

Research and development costs not recoverable under contractual arrangements are charged to selling, general and administrative
expense as incurred and amounted to $17,800, $17,500 and $16,400 in 2009, 2008 and 2007, respectively.

Selling,
general and administrative expenses include shipping and handling costs of $30,500 in 2009, $37,700 in 2008 and $38,900 in 2007 and advertising costs, which are expensed as
incurred, of $15,200 in 2009, $17,800 in 2008 and $17,500 in 2007.

Risk, Retention and Insurance

The Company's property and casualty insurance programs contain various deductibles that, based on the Company's experience, are typical
and customary for a company of its size and risk profile. The Company generally maintains deductibles for claims and liabilities related primarily to workers' compensation, health and welfare claims,
general commercial, product and automobile liability and property damage, and business interruption resulting from certain events. The Company does not

47

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GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

NOTE 1DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

consider
any of the deductibles to represent a material risk to the Company. The Company accrues for claim exposures that are probable of occurrence and can be reasonably estimated. Insurance is
maintained to transfer risk beyond the level of self-retention and provides protection on both an individual claim and annual aggregate basis.

In
the U.S., the Company currently self-assumes its product and commercial general liability claims up to $500 per occurrence, its workers' compensation claims up to $350 per
occurrence, and automobile liability claims up to $250 per occurrence. Third-party insurance provides primary level coverage in excess of these deductible amounts up to certain specified limits. In
addition, the Company has excess liability insurance from third-party insurers on both an aggregate and an individual occurrence basis substantially in excess of the limits of the primary coverage.

The
Company has local insurance coverage in Germany and Brazil which is subject to reasonable deductibles. The Company has worldwide excess coverage above these local programs.

Pension Benefits

Griffon sponsors two defined benefit pension plans for certain employees and retired employees. Annual amounts relating to these plans
are recorded based on actuarial projections, which include various actuarial assumptions, including discount rates, assumed rates of return, compensation increases and turnover rates. The actuarial
assumptions used to determine pension liabilities and assets, as well as pension expense, are reviewed on an annual basis when modifications to assumptions are made based on current economic
conditions and trends. The expected return on plan assets is determined based on the nature of the plans' investments and expectations for long-term rates of return. The discount rate used
to measure obligations is based on a corporate bond spot-rate yield curve that matches projected future benefit payments with the appropriate spot rate applicable to the timing of the
projected future benefit payments. The assumptions utilized in recording Griffon's obligations under the defined benefit pension plans are believed to be reasonable based on experience and advice from
independent actuaries; however, differences in actual experience or changes in the assumptions may materially affect Griffon's financial position or results of operations.

The
qualified defined benefit plan has been frozen to new entrants since December 2000. Certain employees who were part of the plan prior to December 2000 continue to accrue a service
benefit for an additional 10 years, at which time all plan participants will stop accruing service benefits.

Newly issued but not yet effective accounting pronouncements

In December 2007, the FASB issued new accounting guidance related to the accounting for business combinations. The purpose of the new
guidance is to better represent the economic value of a business combination transaction. The new guidance retains the fundamental requirement of the old guidance where the acquisition method of
accounting is to be used for all business combinations and for an acquirer to be identified for each business combination. In general the new guidance 1) broadens the old guidance by extending
its applicability to all events where one entity obtains control over one or more businesses, 2) broadens the use of the fair value measurements used to recognize the assets acquired and
liabilities assumed, 3) changes the accounting for acquisition related fees and restructuring costs incurred in connection with an acquisition and 4) increases required disclosure. The
Company anticipates that the adoption of the new guidance, effective for Griffon for

48

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GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

NOTE 1DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

any
business combinations that occur after October 1, 2009, will have an impact on the way in which business combinations are accounted for, however, the impact can only be assessed as each
acquisition is consummated.

In
December 2007, the FASB issued new accounting guidance related to the accounting for noncontrolling interests in consolidated financial statements. The new guidance 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, the new guidance eliminates the diversity that currently exists in accounting for transactions between an entity and
noncontrolling interests by requiring they be treated as equity transactions. This new guidance is effective for the Company as of October 1, 2009. The Company is evaluating the potential
impact, if any, of the adoption of the new guidance on its consolidated financial statements.

In
March 2008, the FASB issued new guidance which enhances required disclosures regarding derivatives and hedging activities, including enhanced disclosures regarding how: 1) an
entity uses derivative instruments, 2) derivative instruments and related hedged items are accounted and 3) derivative instruments and related hedged items affect an entity's financial
position, financial performance and cash flows. Although early adoption is encouraged, the new guidance is effective for the Company as of October 1, 2009. The Company is evaluating the
potential impact, if any, of the new guidance on its consolidated financial statements.

In
April 2008, the FASB issued new guidance which 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 and requires enhanced related disclosures. The new guidance must be applied prospectively to all intangible assets acquired as of and subsequent to years beginning
after December 15, 2008, which is the Company's year 2010. The Company is evaluating the potential impact, if any, of the adoption of the new guidance on its consolidated financial statements.

In
May 2008, the FASB issued new guidance to clarify that the liability and equity components of convertible debt instruments that may be settled in cash upon conversion (including
partial cash settlement) must be separately accounted for in a manner that will reflect the entity's nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. The new
guidance is effective for the Company as of October 1, 2009. The Company has convertible debt instruments that will be affected by this guidance and is evaluating the impact of the adoption of
the guidance on its consolidated financial statements.

In
October 2009, the FASB issued new guidance on accounting for multiple-deliverable arrangements to enable vendors to accounts for products and services separately rather than as a
combined unit. The guidance addresses how to separate deliverables and how to measure and allocate arrangement consideration to one or more units of accounting. The new guidance will be effective as
of the beginning of the annual reporting period commencing after June 15, 2010, and will be adopted by the Company as of October 1, 2010. Early adoption is permitted. The Company is
evaluating the potential impact, if any, of the adoption of the new guidance on its consolidated financial statements.

49

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GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

NOTE 2ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS

In April 2009, the FASB issued new guidance which requires disclosure about fair value of financial instruments for interim periods of publicly traded companies as well as in annual
financial statements. This statement was effective for the Company starting with the interim period ending June 30, 2009, and was applied prospectively as required. The Company has included the
required disclosure in this
Form 10-K. The adoption of this guidance did not have a material effect on Griffon's consolidated financial statements.

In
June 2009, the FASB issued new guidance which establishes principles and requirements for subsequent events regarding: 1) the period after the balance sheet date during which
management shall evaluate events and transactions that may occur for potential recognition or disclosure in the financial statements; 2) the circumstances under which an entity shall recognize
events or transactions occurring after the balance sheet date in its financial statements; and 3) the disclosure that an entity shall make about events or transactions that occurred after the
balance sheet date. This statement was effective for the Company starting with the interim period ending June 30, 2009, and was applied prospectively as required. The Company has included the
required disclosure in this Form 10-K. The adoption of this guidance did not have a material effect on Griffon's consolidated financial statements.

In
June 2009, the FASB issued new guidance which established the FASB Accounting Codification as the source of authoritative accounting principles recognized by the FASB to be applied by
nongovernmental entities in the preparation of financial statements in conformity with GAAP. The new guidance became effective for financial statements issued for interim periods ended after
September 15, 2009, and were adopted by the Company for this Form 10-K. The adoption of this guidance did not have a material effect on Griffon's consolidated financial
statements.

NOTE 3INVENTORIES

The following table details the components of inventory:

(in thousands)

At September 30,
2009

At September 30,
2008Raw materials and supplies

$
38,943

$
45,583Work in process


66,741


70,716Finished goods


33,486


50,859Total

$
139,170

$
167,158


NOTE 4PROPERTY, PLANT AND EQUIPMENT

The following table details the components of property, plant and equipment, net:

(in thousands)

At September 30,
2009

At September 30,
2008Land, building and building improvements

$
110,617

$
108,344Machinery and equipment


423,742


390,282Leasehold improvements


23,390


21,832557,749


520,458Accumulated depreciation and amortization


(321,730
)

(281,455
)Total

$
236,019

$
239,003


50

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GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

NOTE 5GOODWILL AND OTHER INTANGIBLES

The following table provides changes in carrying value of goodwill by segment through the year ended September 30, 2009:

(in thousands)

At September 30,
2007

Goodwill
Impaired in
2008

Other
adjustments
including
currency
translations

At September 30,
2008

Other
adjustments
including
currency
translations

At September 30,
2009Telephonics

$
18,545

$


$


$
18,545

$


$
18,545Clopay Building Products


12,913


(12,913
)










Clopay Plastic Products


76,959





(1,722
)

75,237


3,875


79,112Total

$
108,417

$
(12,913
)
$
(1,722
)
$
93,782

$
3,875

$
97,657


The
following table provides the gross carrying value and accumulated amortization for each major class of intangible asset:

At September 30,
2009



At September 30,
2008(dollar amounts in thousands)

Gross Carrying
Amount

Accumulated
Amortization

Average
Life
(Years)

Gross Carrying
Amount

Accumulated
AmortizationCustomer relationships

$
30,650

$
5,628


25

$
29,507

$
4,162Unpatented technology


2,990


349


15


2,990


150Total amortizable intangible assets


33,640


5,977


24


32,497


4,312Trademark


590








590


Unpatented technology


5,958








6,002


Total intangible assets

$
40,188

$
5,977




$
39,089

$
4,312


In
December 2007, Telephonics acquired certain assets and assumed certain liabilities of a video surveillance systems integration business. The purchase price was $1,750
in cash plus performance-based cash payments over a three-year period up to $1,750. On the date of acquisition, a total of $2,990, which included the purchase price and an estimate for
contingent performance-based cash payments, was recorded to Unpatented Technology. Since the acquisition, performance-based cash payments of $18 and zero were paid in 2009 and 2008, respectively.

Amortization
expense for intangible assets subject to amortization was $1,427, $1,574 and $1,764 for the years ended September 30, 2009, 2008 and 2007, respectively. Amortization
expense for each of the next five years, based on current intangible balances and classifications, is estimated as follows: 2010$1,480; 2011$1,448; 2012$1,413;
2013$1,406 and 2014$1,399.

NOTE 6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 originally initiated a plan during 2008 to
exit certain markets within the Installation Services segment through the sale or disposition of business units. As part of the decision to exit certain markets, the Company closed three units of the
Installation Services segment in 2008.

51

---



GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

NOTE 6DISCONTINUED OPERATIONS (Continued)

Subsequently,
the Company's Board of Directors approved a plan to exit all other operating activities of the Installation Services segment in 2008, with the exception of two units which
were merged into Building Products. As part of this plan, the Company closed one additional unit during the third quarter of 2008, sold nine units to one buyer in the third quarter of 2008 and sold
its two remaining units in Phoenix and Las Vegas in the fourth quarter of 2008. The plan met the criteria for discontinued operations classification in accordance with GAAP. Operating results of
substantially all of the Installation Services segment have been reported as discontinued operations in the consolidated statements of operations for all periods presented and the Installation
Services segment is excluded from segment reporting.

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

At September 30,
2009

At September 30,
2008(in thousands)

Current

Long-term

Current

Long-termAssets of discontinued operations:Accounts receivable

$


$


$
3,414

$
Prepaid and other current assets


1,576





6,081Other long-term assets





5,877





8,346Total assets of discontinued operations

$
1,576

$
5,877

$
9,495

$
8,346Liabilities of discontinued operations:Accounts payable

$
13

$


$
340

$
Accrued liabilities


4,919





14,577


Other long-term liabilities





8,784





10,048Total liabilities of discontinued operations

$
4,932

$
8,784

$
14,917

$
10,048


Installation
Services' revenue was $109,400 and $250,900 for 2008 and 2007, respectively. There was no reported revenue in 2009. Disposal costs related to the Installation Services
segment of $43,100 were included in discontinued operations in 2008.

NOTE 7ACCRUED LIABILITIES

The following table details the components of accrued liabilities:

(in thousands)

At September 30,
2009

At September 30,
2008Compensation

$
31,088

$
29,638Warranties and rebates


7,040


6,894Insurance


5,024


5,232Non income taxes


5,738


4,996Other


12,230


17,690Total

$
61,120

$
64,450


52

---



GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

NOTE 8RESTRUCTURING AND OTHER RELATED CHARGES

In 2009, the Company announced plans to consolidate facilities in its Building Products segment, actions for which are scheduled to be completed in early calendar 2011. The consolidation
is expected to produce annual savings of $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, $1 million for excess facilities and related costs, and
$9 million in other exit costs primarily in connection with production realignment. These charges are expected to be incurred primarily in 2010 and 2011.

In
the latter part of 2007, as a result of the downturn in the residential housing market and the impact on the Building Products segment, a plan, which was substantially completed in
2008, was initiated to restructure operations. This plan included charges for workforce reductions, closure or consolidation of excess facilities and other costs for the closure and relocation of its
Tempe, AZ manufacturing facility to Troy, OH.

A
summary of the restructuring and other related charges included in the line item "Restructuring and other related charges" in the Consolidated Statements of Operations recognized for
2007, 2008 and 2009 were as follows:

(in thousands)

Workforce
Reduction

Facilities &
Exit Costs

Other related
Costs

TotalAmounts incurred in:Year ended September 30, 2007

$
677

$
922

$
902

$
2,501Year ended September 30, 2008

$
647

$
(11
)
$
1,974

$
2,610Year ended September 30, 2009

$
207

$
672

$
361

$
1,240


The
activity in the restructuring accrual recorded in Accrued liabilities consisted of the following:

(in thousands)

Workforce
Reduction

Facilities &
Exit Costs

Other related
Costs

TotalAccrued liability at September 30, 2007

$
639

$
727

$
177

$
1,543Charges


647


(11
)

1,974


2,610Payments


(1,286
)

(485
)

(2,151
)

(3,922
)Accrued liability at September 30, 2008





231





231Charges


207


672


361


1,240Payments





(903
)

(361
)

(1,264
)Accrued liability at September 30, 2009

$
207

$


$


$
207


NOTE 9WARRANTY LIABILITY

The Company offers warranties against product defects for periods 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. Typical warranties require the Company to repair or replace the defective products during the warranty period at no cost to the customer.
At the time revenue is recognized, Building Products records a liability for warranty costs, estimated based on historical experience. Building Products periodically assesses its warranty obligations
and adjusts the liability as necessary. While the Company believes that its liability for product warranties is adequate, the ultimate liability for product warranties could differ materially from
estimated warranty costs.

53

---



GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

NOTE 9WARRANTY LIABILITY (Continued)

Changes
in the Company's warranty liability, included in Accrued liabilities, were as follows:

(in thousands)

Fiscal 2009

Fiscal 2008Balance, beginning of fiscal year

$
5,328

$
7,868Warranties issued and charges in estimated pre-existing warranties


5,968


898Actual warranty costs incurred


(5,589
)

(3,438
)Balance, end of fiscal period

$
5,707

$
5,328


NOTE 10NOTES PAYABLE, CAPITALIZED LEASES AND LONG-TERM DEBT

The present value of the net minimum payments on capitalized leases as of September 30, 2009 is as follows:

(in thousands)

At September 30,
2009Total minimum lease payments

$
17,526Less amount representing interest


(4,398
)Present value of net minimum lease payments


13,128Current Portion


(946
)Capitalized lease obligation, less current portion

$
12,182


Minimum
payments under current capital leases for the next five years are as follows: $1,588 in 2010, $1,436 in 2011, $1,438 in 2012, $1,432 in 2013 and $1,436 in 2014.

Included
in the consolidated balance sheet at September 30, 2009 under property, plant and equipment are cost and accumulated depreciation subject to capitalized leases of $10,450
and $1,268, respectively, and included in other assets are restricted cash and deferred interest charges of $4,629 and $308, respectively. At September 30, 2008, the amounts subject to
capitalized leases were $10,450 and $979, respectively, and included in other assets were restricted cash and deferred interest charges of $4,521 and $333, respectively. The capitalized leases carry
interest rates from 5.04% to 5.85% and mature from 2010 through 2022.

In
October 2006, a subsidiary of the Company entered into a capital lease totaling $14,290 for real estate it occupies in Troy, Ohio. Approximately $10,000 was used to acquire the
building and the remaining amount is restricted for improvements. The lease matures in 2021, bears interest at a fixed rate of 5.1%, is secured by a mortgage on the real estate and is guaranteed by
the Company.

54

---



GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

NOTE 10NOTES PAYABLE, CAPITALIZED LEASES AND LONG-TERM DEBT (Continued)

Debt
at September 30 2009 and 2008 consisted of the following:

At September 30,(in thousands)

2009

20084% convertible subordinated debt

$
79,380

$
130,000Note payable to banksrevolving credit


73,925


79,143Capital leasereal estate


12,978


13,698Real estate mortgages


7,746


8,175ESOP loan


5,625


1,880Capital leaseequipment


150


292Total debt


179,804


233,188less: Current portion


(81,410
)

(2,258
)Long-term debt

$
98,394

$
230,930


Minimum
payments under debt agreements for the next five years are as follows: $81,409 in 2010, $1,955 in 2011, $5,119 in 2012, $75,770 in 2013 and $1,916 in 2014.

In
June 2008, Building Products and Plastics 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 $100,000 (the "Clopay Credit Agreement"). Borrowings under the Clopay
Credit Agreement bear interest (3.3% at September 30, 2009) at rates based upon LIBOR or the prime rate and are collateralized by the U.S. stock and assets of Building Products and Plastics. At
September 30, 2009 and September 30, 2008, $35,925 and $33,900, respectively, were outstanding under the Clopay Credit Agreement and approximately $32,448 was available for borrowing at
September 30, 2009. The Company has been in compliance with all financial covenants under the Clopay Credit Agreement since its inception. The balance of the debt approximates its fair value.

In
March 2008, Telephonics 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 $100,000 (the "Telephonics Credit Agreement"). Borrowings under the Telephonics Credit Agreement bear interest (1.9% at
September 30, 2009) at rates based upon LIBOR or the prime rate and are collateralized by the stock and assets of Telephonics. At September 30, 2009 and September 30, 2008,
$38,000 and $44,500, respectively, were outstanding under the Telephonics Credit Agreement and approximately $56,973 was available for borrowing at September 30, 2009. The Company has been in
compliance with all financial covenants under the Telephonics Credit Agreement since its inception. The balance of the debt approximates its fair value.

The
Telephonics Credit Agreement and the Clopay Credit Agreement include various sublimits for standby letters of credit. At September 30, 2009, there was approximately $16,722 of
aggregate standby letters of credit outstanding under these credit facilities. Additionally, these agreements limit dividends and advances that these subsidiaries may pay to the parent.

The
Company had outstanding $79,380 of 4% convertible subordinated notes due 2023 (the "Notes") at September 30, 2009. Holders may convert the Notes at a conversion price of
$22.41 per share, as adjusted pursuant to the rights offering and 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. The Company has irrevocably elected to pay noteholders at least $1 in cash for each $1 principal

55

---



GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

NOTE 10NOTES PAYABLE, CAPITALIZED LEASES AND LONG-TERM DEBT (Continued)

amount
of Notes presented for conversion. The excess of the value of the Company's Common Stock that would have been issuable upon conversion over the cash delivered will be paid to Noteholders in
shares of the Company's Common Stock. The fair value is approximately $79 million, which is based upon quoted market price (level 1 inputs). If the stock price remains below the
conversion price, it is likely that these notes will be put to the Company in July of 2010, as such they have been classified as a component of Notes payable and current portion of
long-term debt.

During
2009, the Company purchased $50,620 face value of the Notes from certain noteholders for $42,741. The Company recorded a pre-tax gain from debt extinguishment of
approximately $7,879, offset by a $519 proportionate reduction in the related deferred financing costs for a net gain of $7,360.

The
Company had outstanding $130,000 of Notes at September 30, 2008.

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 balance of the loan and any outstanding interest, will be payable. The primary purpose of this loan, and it predecessor loans was to purchase 547,605 shares of the
Company's stock in October 2008. The loan bears interest (1.54% at September 30, 2009) at rates based upon the prime rate or LIBOR. The balance of the loan was $5,625 as of September 30,
2009, and the outstanding balance approximates fair value.

Real
estate mortgages bear interest at rates from 6.3% to 6.6% with maturities extending through 2016 and are collateralized by real property whose carrying value at September 30,
2009 aggregated approximately $11,200. These mortgages approximate fair value.

NOTE 11EMPLOYEE BENEFIT PLANS

The Company offers defined contribution plans to most of its U.S. employees. In addition to employee contributions to the plans, the Company makes contributions based upon various
percentages of compensation and/or employee contributions, which were $5,800 in 2009, $9,800 in 2008 and $10,300 in 2007.

The
Company also has a qualified and a non-qualified defined benefit plan covering certain employees with benefits based on years of service and employee compensation.
Griffon adopted the FASB amendments on September 30, 2007, which required the Company to recognize the funded
status of its defined benefit plans in the Consolidated Balance Sheets with a corresponding adjustment to Accumulated other comprehensive income, net of tax. Over time, these amounts will be
recognized as part of net periodic pension costs in the Consolidated Statements of Operations.

Griffon
is responsible for overseeing the management of the investments of the qualified defined benefit plan and uses the service of an investment manager to manage these assets based
on agreed upon risk profiles set by Griffon management. The primary objective of the qualified defined benefit plan is to secure participant retirement benefits. As such, the key objective in this
plan's financial management is to promote stability and, to the extent appropriate, growth in the funded status. Financial objectives are established in conjunction with a review of current and
projected plan financial requirements. The fair value of a majority of the plan assets were determined by the plans' trustee using quoted market prices identical instruments (level 1 inputs) as
of September 30, 2009. The fair value of various other investments were determined by the plan's trustee using direct observable market corroborated inputs, including quoted market prices for
similar assets (level 2 inputs).

56

---



GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

NOTE 11EMPLOYEE BENEFIT PLANS (Continued)

The
qualified defined benefit plan has been frozen to new entrants since December 2000. Certain employees who were part of the plan prior to December 2000 continue to accrue a service
benefit for an additional 10 years, at which time all plan participants will stop accruing service benefits. A 10% change in the discount rate, average wage increase or return on assets would
not have a material effect on the financial statements of the Company.

The
non-qualified supplemental executive retirement plan is supported by the general assets of Griffon.

Griffon
uses judgment to estimate the assumptions used in determining the future liability of the plan, as well as the investment returns on the assets invested for the plan. The
expected return on assets assumption used for pension expense was developed through analysis of historical market returns, current market conditions and the past experience of plan asset investments.
The discount rate assumption is determined by developing a yield curve based on high quality bonds with maturities matching the plans' expected benefit payment stream. The plans' expected cash flows
are then discounted by the resulting year-by-year spot rates.

Net
periodic costs were as follows:

Defined Benefits for the Years
Ended September 30,

Supplemental Benefits for the Years
Ended September 30,(in thousands)

2009

2008

2007

2009

2008

2007Net periodic benefit costsService cost

$
425

$
520

$
626

$
22

$
137

$
621Interest cost


1,638


1,571


1,528


2,586


2,432


2,200Expected return on plan assets


(1,723
)

(2,081
)

(1,794
)







Amortization of:Prior service costs


9


9


9


328


328


313Actuarial (gain) loss


325


135


522


596


821


1,988Transition obligation


(1
)

(1
)

(1
)







Total net periodic benefit costs

$
673

$
153

$
890

$
3,532

$
3,718

$
5,122


The
tax benefits in 2009, 2008 and 2007 for the amortization of pension costs in other comprehensive income were $117, $50 and $186, respectively.

The
estimated net actuarial loss and prior service cost that will be amortized from Accumulated other comprehensive income into net periodic pension cost during 2010 are $2,050 and $337,
respectively.

The
weighted-average assumptions used in determining the net periodic benefit costs were as follows:

Defined Benefits for the Years
Ended September 30,

Supplemental Benefits for the Years
Ended September 30,2009

2008

2007

2009

2008

2007Discount rate


7.50
%

6.30
%

5.85
%

7.50
%

6.30
%

5.85
%Average wage increase


3.50
%

3.50
%

3.50
%

5.00
%

5.00
%

5.00
%Expected return on assets


8.50
%

8.50
%

8.50
%










57

---



GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

NOTE 11EMPLOYEE BENEFIT PLANS (Continued)

Plan assets and benefit obligation of the defined benefit plans were as follows:

Defined Benefits at
September 30,

Supplemental Benefits at
September 30,(in thousands)

2009

2008

2009

2008Change in benefit obligationBenefit obligation at beginning of fiscal year

$
22,263

$
25,283

$
36,429

$
40,368Benefits earned during the year


425


520


22


137Interest cost


1,638


1,571


2,586


2,432Benefits paid


(1,251
)

(1,041
)

(3,899
)

(2,849
)Actuarial (gain) loss


6,728


(4,070
)

6,494


(3,659
)Benefit obligation at end of fiscal year


29,803


22,263


41,632


36,429Change in Plan AssetsFair value of plan assets at beginning of fiscal year


20,442


24,325





Actual return on plan assets


(365
)

(3,851
)




Company contributions


1,051


1,009


3,899


2,849Benefits paid


(1,251
)

(1,041
)

(3,899
)

(2,849
)Fair value of plan assets at end of fiscal year


19,877


20,442





Projected benefit obligation in excess of plan assets

$
(9,926
)
$
(1,821
)
$
(41,632
)
$
(36,429
)Amounts recognized in the statement of financial position consist of:Accrued liabilities

$
(876
)
$
(853
)
$
(3,898
)
$
(3,904
)Other liabilities (long-term)


(9,050
)

(968
)

(37,734
)

(32,525
)Total Liabilites


(9,926
)

(1,821
)

(41,632
)

(36,429
)Net actuarial losses


14,189


5,698


18,833


12,935Prior service cost


33


43


939


1,266Net asset at transition, other





(1
)




Deferred taxes


(4,978
)

(2,009
)

(6,920
)

(4,970
)Total Accumulated other comprehensive (earnings) loss, net of tax


9,244


3,731


12,852


9,231Net amount recognized at September 30,

$
(682
)
$
1,910

$
(28,780
)
$
(27,198
)Accumulated benefit obligations

$
29,674

$
22,153

$
41,317

$
36,113Information for plans with accumulated benefit obligations in excess of plan assets:ABO

$
29,674

$
22,153

$
41,317

$
36,113PBO


29,803


22,263


41,632


36,429Fair value of plan assets


19,877


20,442








58

---



GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

NOTE 11EMPLOYEE BENEFIT PLANS (Continued)

The
weighted-average assumptions used in determining the benefit obligations were as follows:

Defined Benefits at
September 30,

Supplemental Benefits at
September 30,2009

2008

2009

2008Discount rate


5.60
%

7.50
%

5.00
%

7.50
%Average wage increase


3.50
%

3.50
%

5.00
%

5.00
%


The
actual and weighted-average assets allocation for qualified benefit plans were as follows:

At September 30,2009

2008

TargetEquity securities


0.0
%

58.0
%

54.0
%Fixed income


91.7
%

33.0
%

44.0
%Other


8.3
%

9.0
%

2.0
%Total


100.0
%

100.0
%

100.0
%


Estimated
future benefit payments to retirees, which reflect expected future service, are as follows:

(in thousands)
For the fiscal years ending September

Defined
Benefits

Supplemental
Benefits2010

$
876

$
3,8982011


940


3,8982012


1,115


3,8982013


1,262


3,8982014


1,378


3,8982015 through 2019


8,422


17,049


The
Company expects to contribute $3,800 to the Defined Benefit plan in 2010, in addition to the $3,898 in payments related to the Supplemental Benefits that will be funded from the
general assets of Griffon.

The
Company has an ESOP that covers substantially all domestic employees. Shares of the ESOP which have been allocated to employee accounts are charged to expense based on the fair value
of the shares transferred and are treated as outstanding in earnings per share. Compensation expense under the ESOP was $796 in 2009, $338 in 2008 and $740 in 2007. The cost of the shares held by the
ESOP and not yet allocated to employees is reported as a reduction of Shareholders' Equity. In connection with the rights offering in September 2008, the ESOP purchased 74,100 shares underlying rights
associated with the unallocated shares of the ESOP. The ESOP shares were as follows:

At September 30,2009

2008Allocated shares


2,126,058


2,169,523Unallocated shares


780,697


190,8322,906,755


2,360,355


59

---



GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

NOTE 12INCOME TAXES

Income taxes have been based on the following components of Income before taxes and discontinued operations:

For the Years Ended September 30,(in thousands)

2009

2008

2007Domestic

$
16,661

$
(14,019
)
$
26,004Non-U.S.


9,345


18,401


15,432$
26,006

$
4,382

$
41,436


Provision
(benefit) for income taxes on income from continuing operations was comprised of the following:

For the Years Ended September 30,(in thousands)

2009

2008

2007Current

$
4,831

$
4,082

$
23,275Deferred


(826
)

212


(10,004
)Total

$
4,005

$
4,294

$
13,271U.S. Federal

$
3,302

$
7,170

$
9,070State and local


1,543


1,105


2,465Non-U.S.


(840
)

(3,981
)

1,736Total provision

$
4,005

$
4,294

$
13,271


The
Company's income tax provision (benefit) included benefits of $1,387 in 2009, $11,422 in 2008 and $1,426 in 2007 reflecting the reversal of previously recorded tax
liabilities primarily due to the resolution of various tax audits and due to the closing of certain statutes for prior years' tax returns.

Included
in Prepaids and other current assets are tax receivable amounts of $6,074 and $18,035 at September 30, 2009 and 2008, respectively.

Differences
between the effective income tax rate applied to income from continuing operations and U.S. Federal income statutory rate were as follows:

For the Years Ended September 30,(in thousands)

2009

2008

2007U.S. Federal income tax rate


35.0
%

35.0
%

35.0
%State and local taxes, net of Federal benefit


3.6


(8.7
)

2.7Non-U.S. taxes


(15.8
)

21.3


(4.7
)German income tax rate adjustment








(2.4
)Settlement of tax contingencies


(0.8
)

(208.5
)

(2.7
)Non-deductible goodwill





103.1


Non-U.S. dividends


3.2


42.7


4.8Valuation allowance


(11.2
)

95.8


Meals and entertainment


0.8


5.9


0.7Non-U.S. purchase price adjustment





9.7


Other


0.6


1.7


(1.4
)Effective tax rate from continuing operations


15.4
%

98.0
%

32.0
%


60

---



GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

NOTE 12INCOME TAXES (Continued)

The tax effect of temporary differences that give rise to future deferred tax assets and liabilities are as follows:

At September 30,(in thousands)

2009

2008Deferred tax assets:Bad debt reserves

$
1,323


2,704Inventory reserves


5,469


5,532Deferred compensation


23,361


17,690Compensation benefits


281


2,690Insurance reserve


3,263


4,122Interest carryforward





2,154Restructuring reserve


578


2,532Warranty reserve


2,665


2,646Net operating loss and foreign tax credit


12,154


13,284Other reserves and accruals


1,197


1,58950,291


54,943Valuation allowance


(4,726
)

(8,040
)Total deferred tax assets


45,565


46,903Deferred tax liabilities:Deferred income


(3,350
)

(513
)Goodwill


(6,770
)

(5,942
)Depreciation and amortization


(14,841
)

(16,651
)Interest


(10,431
)

(13,380
)Other


(1,424
)

(1,302
)Total deferred tax liabilities


(36,816
)

(37,788
)Net deferred tax assets

$
8,749

$
9,115


During
2009 the valuation allowance decreased $3,314 due to the use and expected future benefit of foreign tax credits.

The
components of the net deferred tax asset (liability), by balance sheet account, were as follows:

At September 30,(in thousands)

2009

2008Prepaid and other current assets

$
10,024

$
6,139Other assets


8,590


3,095Other liabilities


(11,475
)

(7,424
)Assets of discontinued operations


1,610


7,305Net deferred tax assets

$
8,749

$
9,115


The
Company has not recorded deferred income taxes on the undistributed earnings of its non-U.S. subsidiaries because of management's ability and intent to indefinitely
reinvest such earnings

61

---



GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

NOTE 12INCOME TAXES (Continued)

outside
the U.S. At September 30, 2009, the Company's share of the undistributed earnings of the non-U.S. subsidiaries amounted to approximately $43,000.

At
September 30, 2009 and 2008, the Company had no loss carryforwards for federal tax purposes and had loss carryforwards for non-U.S. tax purposes of $17,141 and
$15,303, respectively. The non-U.S. loss carryforwards of $17,141 are available for carryforward indefinitely.

The
Company had State and local loss carryforwards at September 30, 2009 and 2008 of $2,900 and $1,800, respectively, which expire in varying amounts through 2029.

The
Company had foreign tax credit carryforwards of $6,326 and $8,040 at September 30, 2009 and 2008, respectively, which are available for use through 2018.

The
Company files U.S. Federal, state and local tax returns, as well as Germany, Canada, Brazil and Sweden non-U.S. jurisdiction tax returns. The Company's U.S.
federal income tax returns are no longer subject to income tax examination for years before 2006, the Company's German income tax returns are no longer subject to income tax examination for years
before 2006 and the Company's major U.S. state and other non-U.S. jurisdictions are no longer subject to income tax examinations for years before 2000. Various U.S. state and
non-U.S. statutory tax audits are currently underway. The Company does not believe that its unrecognized tax benefits will materially change within the next twelve months.

The
following is a roll forward of the unrecognized tax benefits activity:

(in thousands)Balance at October 1, 2007

$
21,646Additions based on tax positions related to the current year


1,244Reductions based on tax positions related to prior years


(10,086
)Lapse of statutes


(1,066
)Settlements


(104
)Balance at September 30, 2008


11,634Additions based on tax positions related to the current year


1,395Reductions based on tax positions related to prior years


(358
)Lapse of statutes


(895
)Settlements


(3,638
)Balance at September 30, 2009

$
8,138


If
recognized, the amount of potential tax benefits net of federal benefit that would impact the Company's effective tax rate is $6,580. The Company recognizes potential accrued interest
and penalties related to unrecognized tax benefits in income tax expense. At September 30, 2009 and 2008, the combined amount of accrued interest and penalties related to tax positions taken or
to be taken on Griffon's tax returns and recorded as part of the reserves for uncertain tax positions was $1,407 and $1,982, respectively.

NOTE 13STOCKHOLDERS' EQUITY AND EQUITY COMPENSATION

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

62

---



GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

NOTE 13STOCKHOLDERS' EQUITY AND EQUITY COMPENSATION (Continued)

fund
future growth. The rights had an exercise price of $8.50 per share. In conjunction with the rights offering, GS Direct, L.L.C. ("GS Direct"), an affiliate of Goldman Sachs, 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. The Company received a total of $248.6 million in
gross proceeds from the rights offering and issued 29.2 million shares as follows: In September 2008, the Company received $241.3 million of gross proceeds, and issued
28.4 million shares, 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; in October 2008, an
additional $5.3 million of rights offering proceeds were received, and 620,486 shares were issued, in connection with the second closing of the rights offering; and in April 2009,
$2.0 million of rights offering proceeds were received, and 233,298 shares were issued, in connection with the rights offering.

The
Company expenses the fair value of equity compensation grants over the related vesting period. Compensation cost related to stock-based awards with graded vesting are amortized using
the straight-line attribution method. Options for an aggregate of 1,375,000 shares of Common Stock were previously authorized for grant under the Company's 2001 Stock Option Plan at
September 30, 2009. As of September 30, 2009, options for 89,774 shares remain available for future grants under this plan. The plan provides for the granting of options at an exercise
price of not less than 100% of the fair market value at the date of grant. Options generally expire ten years after date of grant and become exercisable in equal installments over two to four years.

During
2006, shareholders approved the Griffon Corporation 2006 Equity Incentive Plan ("Incentive Plan") under which awards of performance shares, performance units, stock options, stock
appreciation rights, restricted shares and deferred shares may be granted. Options under the Incentive Plan generally expire ten years after the date of grant and are granted at an exercise price of
not less than
100% of the fair market value at the date of grant. The shareholders approved an amendment to the Incentive Plan in 2009. The maximum number of shares of common stock available for award under the
Incentive Plan is 7,750,000. The number of shares available under the Incentive Plan is reduced by a factor of two-to-one for awards other than stock options. If the remaining
shares available under the Incentive Plan at September 30, 2009 were awarded through stock options, 3,720,440 shares would be issued or if the remaining shares were awarded as restricted stock,
1,860,220 shares would be issued.

63

---



GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

NOTE 13STOCKHOLDERS' EQUITY AND EQUITY COMPENSATION (Continued)

A summary of stock option activity for the years ended September 30, 2009, 2008 and 2007 is as follows:

Options($ in thousands, except per share data)

Shares

Weighted
Average
Exercise
Price

Aggregated
Intrinsic
Value

Weighted
Average
Contractual
Term (Years)Outstanding at October 1, 2006


2,845,586

$
13.74Granted


34,000


15.92Exercised


(628,307
)

14.15

$
2,665Forfeited/expired


(42,506
)

22.48Outstanding at September 30, 2007


2,208,773


13.49


7,483


4.0Exercisable at September 30, 2007


2,050,460


12.76


7,483


3.6Outstanding at October 1, 2007


2,208,773


13.49Granted


25,000


14.19Exercised


Forfeited/expired


(832,882
)

11.08Outstanding at September 30, 2008


1,400,891


13.87


670


4.5Exercisable at September 30, 2008


1,329,066


13.40


670


4.3Outstanding at October 1, 2008


1,400,891


13.87Granted


350,000


20.00Exercised


(33,000
)

6.12


109Forfeited/expired


(27,552
)

20.55Outstanding at September 30, 2009


1,690,339


15.18


980


4.6Exercisable at September 30, 2009 through:September 30, 2010


550September 30, 2011


386,650September 30, 2012


232,500September 30, 2013


202,726September 30, 2014


163,000September 30, 2015


225,038September 30, 2016


78,500September 30, 2017


14,750September 30, 2018


116,667Total Exercisable


1,420,381

$
14.21

$
980


3.9


($ in thousands, except per share data)

Options Outstanding

Options ExercisableRange of
Exercises Prices

Shares

Weighted
Average
Exercise
Price

Aggregated
Intrinsic
Value

Weighted
Average
Contractual
Term (Years)

Shares

Weighted
Average
Exercise
Price

Aggregated
Intrinsic
Value

Weighted
Average
Contractual
Term (Years)$6.17 to $6.33


57,200


6.33

$
214


1.1


57,200


6.33

$
214


1.1$7.75 to $11.14


505,000


8.92


766


1.8


505,000


8.92


766


1.8$12.39 to $17.23


475,764


14.73





4.5


464,014


14.73





4.4$19.49 to $26.06


652,375


21.13





7.3


394,167


21.51





6.4Totals


1,690,339




$
980





1,420,381




$
980


64

---



GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

NOTE 13STOCKHOLDERS' EQUITY AND EQUITY COMPENSATION (Continued)

Unrecognized compensation expense related to non-vested options was $506 at September 30, 2009 and will be recognized over a
weighted average vesting period of 1.1 years. The fair value of options vested during the years ended September 30, 2009, 2008 and 2007 were $631, $775 and $801, respectively.

A
summary of restricted stock activity for the years ended September 30, 2009, 2008 and 2007 is as follows:

Restricted Stock($ in thousands, except per share data)

Shares

Weighted
Average
Grant
Price

Aggregated
Intrinsic
Value*

Weighted
Average
Contractual
Term (Years)Outstanding at October 1, 2006


309,326

$
23.96

$
58


4.5Granted


15,704


15.92


250Fully Vested


(67,775
)

23.84


1,180Forfeited








Outstanding at September 30, 2007


257,255


23.51


97


3.4Granted


300,000


8.98


2,694Fully Vested


(98,255
)

22.38


3,252Forfeited








Outstanding at September 30, 2008


459,000


14.25


11


2.8Granted


1,202,500


8.38


10,077Fully Vested


(53,000
)

24.20


511Forfeited


(6,000
)

9.30


56Outstanding at September 30, 2009


1,602,500


9.53

$
2,414


3.1


*Aggregated
intrinsic value at the date the shares were outstanding, granted, vested or forfeited, as applicable.


Unrecognized
compensation expense related to non-vested shares of restricted stock was $12,211 at September 30, 2009 and will be recognized over a weighted average
vesting period of 3.0 years.

In
connection with the September 2008 rights offering, the Company was obligated under certain anti-dilution provisions within its stock option plans to reduce the exercise
price of the then-outstanding options and recorded stock-based compensation expense of approximately $354. Also in September 2008, in connection with an investment in conjunction with the
rights offering, the Company's Chief Executive Officer purchased 578,151 shares of Common Stock at $8.50 per share, representing a discount to the fair value of such shares at closing. The Company
recorded stock-based compensation expense related to this transaction of approximately $104.

65

---



GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

NOTE 13STOCKHOLDERS' EQUITY AND EQUITY COMPENSATION (Continued)

The Company has an Outside Director Stock Award Plan (the "Outside Director Plan"), which was approved by the shareholders in 1994, under which 330,000 shares may be issued to
non-employee directors. Annually, each eligible director is awarded shares of the Company's Common Stock having a value of $10, which vests over a three-year period.
For shares issued under the Outside Director Plan, the fair market value of the shares at the date of issuance is recognized as compensation expense over the vesting period. In 2009, 2008 and 2007,
12,732, 12,155 and 4,680 shares, respectively, were issued under the Outside Director Plan.

At
September 30, 2009, a total of approximately 7,282 shares of the Company's authorized Common Stock were reserved for issuance in connection with stock compensation plans.

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, which
vests in April 2011. The fair value of the restricted stock on the date of grant was $675. 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. The closing stock price on date of grant was $9.00 and the grant vests in three equal annual installments beginning April 2009. The fair
value of the options on the date of grant was $721 or $2.06 per share.

In
March 2009, the Company's Chief Executive Officer received a restricted stock grant of 675,000 shares of Common Stock, which vests in March 2013. The fair value of the restricted
stock on the date of grant was $5,063 or $7.50 per share.

In
addition to the above 2009 grants, the Company granted to employees 446,500 shares of restricted stock during 2009, each with 4 year cliff vesting, with a total fair value of
$4,282, or a weighted average fair value of $9.59 per share.

On
November 18, 2009, the Company granted to employees 237,500 shares of restricted stock each with 4 year cliff vesting, with a total fair value of $2,249 or a fair value
of $9.47 per share.

The
fair value of restricted stock and option grants is amortized over the respective vesting periods.

Using
historical data as of the grant dates, the fair value of the 2009, 2008 and 2007 option grants was estimated as of the grant dates using the Black-Scholes option pricing model with
the following weighted average assumptions:

2009
Grant

2008
Grant

2007
GrantRisk-free interest rate


3.04
%

4.09
%

4.59
%Dividend yield


0.00
%

0.00
%

0.00
%Expected life (years)


7.0


7.0


7.0Volatility


38.98
%

40.00
%

40.00
%Option exercise price

$
20.00

$
14.19

$
15.92Fair value of options granted

$
2.06

$
6.89

$
7.95


For
the years ended September 30, 2009, 2008 and 2007, stock based compensation expense totaled $4,145, $3,327 and $2,412, respectively.

66

---



GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

NOTE 14ACCUMULATED OTHER COMPREHENSIVE INCOME

The components of Accumulated other comprehensive income were:

At September 30,(in thousands)

2009

2008

2007Foreign currency translation adjustment

$
50,266

$
38,431

$
45,089Minimum pension liability


(22,096
)

(12,962
)

(15,567
)Accumulative other comprehensive income

$
28,170

$
25,469

$
29,522


NOTE 15COMMITMENTS AND CONTINGENT LIABILITIES

Operating leases

The Company rents real property and equipment under operating leases expiring at various dates. Most of the real property leases have
escalation clauses related to increases in real property taxes. Rent expense for all operating leases totaled approximately $24,700, $32,400 and $31,600 in 2009, 2008 and 2007, respectively. The
Company has engaged in sale-leaseback transactions for various manufacturing equipment used at selected U.S. locations. Net proceeds received from these transactions, classified as
operating leases, for the years ended September 30, 2009, 2008 and 2007 were zero, $4,791, and $1,751, respectively. Aggregate future minimum lease payments for operating leases at
September 30, 2009 are $20,000 in 2010, $13,000 in 2011, $10,000 in 2012, $7,000 in 2013, $3,000 in 2014 and $3,000 thereafter.

Legal and environmental

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 (the "Peekskill Site") owned by ISC Properties, Inc. ("ISC"), a wholly-owned subsidiary of the Company. ISC 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 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 was required by the DEC, and did conduct accordingly over the next several years, supplemental remedial
investigations, including soil vapor investigations, under the Consent Order.

In
April 2009, the DEC advised ISC's representatives that both the DEC and the New York State Department of Health had reviewed and accepted an August 2007 Remedial Investigation Report
and an Additional Data Collection Summary Report dated January 30, 2009. With the acceptance of these reports, ISC completed the Remedial Investigation required under the Consent Order and was
authorized, accordingly, by the DEC to conduct the Feasibility Study required by the Consent Order. Pursuant to the requirements of the Consent Order and its obligations thereunder, ISC, without
acknowledging any responsibility to perform any remediation at the Site, submitted to the DEC in August 2009, a draft Feasibility Study which recommended for the soil, groundwater and sediment medias,
remediation alternatives having a current net capital cost value, in the aggregate, of

67

---



GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

NOTE 15COMMITMENTS AND CONTINGENT LIABILITIES (Continued)

approximately
$5 million. ISC will be resubmitting a revised draft to respond to comments received from the DEC on October 20, 2009.

U.S. Government investigations and claims

Defense contracts and subcontracts, including the Company's contracts and subcontracts, are subject to audit and review by various
agencies and instrumentalities of the United States government, including among others, the Defense Contract Audit Agency ("DCAA"), the Defense Contract Investigative Service ("DCIS"), and the
Department of Justice which has responsibility for asserting claims on behalf of the US government. In addition to ongoing audits, pursuant to an administrative subpoena the Company is currently
providing information to the U.S. Department of Defense Office of the Inspector General. No claim has been asserted against the Company, and the Company is unaware of any material financial exposure
in connection with the Inspector General's inquiry.

In
general, departments and agencies of the U.S. Government have the authority to investigate various transactions and operations of the Company, and the results of such investigations
may lead to administrative, civil or criminal proceedings, the ultimate outcome of which could be fines, penalties, repayments or compensatory or treble damages. U.S. Government regulations provide
that certain findings against a contractor may lead to suspension or debarment from future U.S. Government contracts or the loss of export privileges for a company or an operating division or
subdivision. Suspension or debarment could have material adverse effect on Telephonics because of its reliance on government contracts.

Contingent acquisition purchase price liabilities

In connection with certain acquisitions, the Company has recorded contingent consideration of $2,861 and $3,461 at September 30,
2009 and 2008, respectively, included in other liabilities.

General legal

The Company is subject to various laws and regulations relating to the protection of the environment and is a party to legal
proceedings arising in the ordinary course of business. Management believes, based on facts presently known to it, that the resolution of the matter above and such other matters will not have a
material adverse effect on the Company's consolidated financial position, results of operations or cash flows.

NOTE 16EARNINGS PER SHARE

Earnings per share (EPS)

The rights offering discussed in the Stockholders' Equity and Equity Compensation footnote contained a bonus element to existing
shareholders that required the Company to adjust the shares used in the computation of basic and fully-diluted weighted-average shares outstanding for all periods

68

---



GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

NOTE 16EARNINGS PER SHARE (Continued)

presented
prior to the offering. Basic and diluted EPS from continuing operations for the years ended September 30, 2009, 2008 and 2007 were determined using the following information:

For the Years Ended September 30,(Shares in thousands)

2009

2008

2007Weighted average shares outstandingbasic


58,699


32,667


32,405Incremental shares from 4% convertible notes








22Incremental shares from stock based compensation


303


169


930Weighted average shares outstandingdiluted


59,002


32,836


33,357Anti-dilutive options excluded from diluted EPS computation


1,305


980


633


NOTE 17RELATED PARTIES

Simultaneously with the closing of the September 2008 rights offering and related investment by GS Direct, two employees of GS Direct joined the Company's Board of Directors. Prior to
the rights offering, the Company had retained an affiliated entity of GS Direct, for financial advisory services, and paid or incurred expenses of approximately $2,432 and $250 during the years ended
September 30, 2008 and 2007, respectively.

NOTE 18QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

Quarterly results of operations for the years ended September 30, 2009 and 2008 were as follows:

Continuing Operations

Net Income (loss)(in thousands, except per share data)

Income (loss)

Per Share
Basic

Per Share
Diluted



Per Share
Basic

Per Share
DilutedQuarter ended

Revenue

Gross Profit

Income (loss)2009December 31, 2008

$
302,334

$
58,957

$
4,271

$
0.07

$
0.07

$
4,274

$
0.07

$
0.07March 31, 2009


276,087


53,975


(1,503
)

(0.03
)

(0.03
)

(854
)

(0.02
)

(0.02
)June 30, 2009


287,385


66,286


6,892


0.12


0.12


6,941


0.12


0.12September 30, 2009


328,244


77,905


12,341


0.21


0.21


12,430


0.22


0.22$
1,194,050

$
257,123

$
22,001

$
0.37

$
0.37

$
22,791

$
0.39

$
0.392008December 31, 2007

$
294,802

$
64,758

$
1,539

$
0.05

$
0.05

$
(1,355
)
$
(0.04
)
$
(0.04
)March 31, 2008


298,571


57,450


(4,146
)

(0.13
)

(0.13
)

(21,369
)

(0.66
)

(0.66
)June 30, 2008


322,267


73,380


9,356


0.29


0.29


(9,800
)

(0.30
)

(0.30
)September 30, 2008


353,665


77,409


(6,661
)

(0.21
)

(0.21
)

(7,979
)

(0.24
)

(0.24
)$
1,269,305

$
272,997

$
88

$
0.00

$
0.00

$
(40,503
)
$
(1.24
)
$
(1.24
)


Notes to Quarterly Financial Information (unaudited): Earnings (loss) per share are computed independently for each quarter and year presented; as such the sum of the quarters
may not be equal to the full year amounts.


69

---



GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

NOTE 18QUARTERLY FINANCIAL INFORMATION (UNAUDITED) (Continued)

Income (loss) from continuing operations and Net income (loss), and the related per share earnings, for the three months
and year ended September 30, 2008, included a $12,913 Building Products goodwill write-off.Income (loss) from continuing operations and Net income (loss), and the related per share earnings, included restructuring
and other related charges related to Building Products of $1,691, $701, $38 and $1,202 for the three-month periods ended December 31, 2007, March 31, 2008, June 30, 2009 and
September 30, 2009, respectively and $2,610 and $1,240 for the years ended September 30, 2008 and 2009, respectively.


NOTE 19BUSINESS SEGMENTS

The Company's reportable business segments are as follows:



The
Company evaluates performance and allocates resources based on operating results before interest income or expense, income taxes and certain nonrecurring items of income or expense.

70

---





GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

NOTE 19BUSINESS SEGMENTS (Continued)

Information on the Company's business segments is as follows:

GRIFFON CORPORATION  REVENUE, INCOME & OTHER DATA BY SEGMENT

(in thousands)

For the Years Ended September 30,REVENUE

2009

2008

2007Telephonics

$
387,881

$
366,288

$
472,549Clopay Building Products


393,414


435,321


486,606Clopay Plastic Products


412,755


467,696


406,574Total consolidated net sales

$
1,194,050

$
1,269,305

$
1,365,729




INCOME BEFORE TAXES AND DISCONTINUED OPERATIONSSegment operating profit (loss):Telephonics

$
34,883

$
32,862

$
45,888Clopay Building Products


(11,326
)

(17,444
)

7,117Clopay Plastic Products


24,072


20,620


17,263Total segment operating profit


47,629


36,038


70,268Unallocated amounts


(20,960
)

(21,281
)

(17,823
)Gain from debt extinguishment, net


7,360





Net interest expense


(8,023
)

(10,375
)

(11,009
)Income before taxes and discontinued operations

$
26,006

$
4,382

$
41,436


Unallocated amounts typically include general corporate expenses not attributable to reportable segment.

DEPRECIATION and AMORTIZATIONSegment:Telephonics

$
6,657

$
6,753

$
5,800Clopay Building Products


13,223


12,071


11,041Clopay Plastic Products


21,930


22,638


20,986Total segment


41,810


41,462


37,827Corporate


536


1,461


1,631Total consolidated depreciation and amortization

$
42,346

$
42,923

$
39,458




CAPITAL EXPENDITURESSegment:Telephonics

$
7,564

$
5,862

$
5,428Clopay Building Products


7,560


8,227


15,596Clopay Plastic Products


16,801


38,718


8,634Total segment


31,925


52,807


29,658Corporate


772


309


79Total consolidated capital expenditures

$
32,697

$
53,116

$
29,737


71

---



GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

NOTE 19BUSINESS SEGMENTS (Continued)



ASSETS

At
September 30,
2009

At
September 30,
2008

At
September 30,
2007Segment assets:Telephonics

$
271,809

$
251,016

$
241,639Clopay Building Products


169,251


197,740


217,744Clopay Plastic Products


364,626


356,635


351,314Total segment assets


805,686


805,391


810,697Corporate (principally cash and equivalents)


339,190


348,334


72,666Total continuing assets


1,144,876


1,153,725


883,363Assets from discontinued operations


531


17,841


76,495Consolidated total

$
1,145,407

$
1,171,566

$
959,858


Segment
information by geographic region was as follows:

For the Years Ended September 30,REVENUE BY GEOGRAPHIC AREA

2009

2008

2007United States

$
827,009

$
853,692

$
978,220Germany


97,879


110,900


83,446Canada


69,198


64,378


57,759Brazil


41,566


44,019


34,526United Kingdom


17,594


23,276


33,893All other countries


140,804


173,040


177,885Consolidated revenue

$
1,194,050

$
1,269,305

$
1,365,729




PROPERTY, PLANT & EQUIPMENT BY GEOGRAPHIC AREA

At
September 30,
2009

At
September 30,
2008

At
September 30,
2007United States

$
150,132

$
151,733

$
128,595Germany


64,503


67,800


79,132All other countries


21,384


19,470


22,505Consolidated property, plant and equipment

$
236,019

$
239,003

$
230,232


Plastics
sales to P&G were approximately $224,000 in 2009, $262,000 in 2008 and $218,000 in 2007. Telephonics' sales to the United States Government and its agencies,
either as a prime contractor or subcontractor, aggregated approximately $276,000 in 2009, $257,000 in 2008 and $375,000 in 2007.

NOTE 20OTHER INCOME (EXPENSE)

Other income (expense) included $(392), $(5) and $1,570 for the years ended September 30, 2009, 2008 and 2007, respectively, of currency 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.

NOTE 21SUBSEQUENT EVENTS

The Company evaluated events occurring subsequent to September 30, 2009 through November 24, 2009 for potential recognition and disclosure in the consolidated financial
statements.

*****

72

---





GRIFFON CORPORATION        SCHEDULE ICONDENSED FINANCIAL INFORMATION OF REGISTRANT        BALANCE SHEETS

At September 30,(in thousands)

2009

2008Current Assets:Cash and equivalents

$
223,511

$
247,554Prepaid and other current assets


2,050


8,171Income taxes receivable





16,629Total current assets


225,561


272,354Property, plant and equipment, net


837


745Investment in subsidiaries


590,993


569,469Other assets


37,605


14,192Total Assets

$
854,996

$
856,760Current Liabilities:Current portion of long-term debt

$
80,005

$
188Accounts payable and accrued liabilities


15,191


16,666Total current liabilities


95,196


16,854Convertible subordinated notes





130,000Other


72,897


50,226Total Liabilities


168,093


197,080Commitments and contingenciesShareholders' equity


686,903


659,680Total Liabilities and Shareholders' Equity

$
854,996

$
856,760


73

---



GRIFFON CORPORATION

SCHEDULE ICONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)

STATEMENTS OF OPERATIONS FOR THE YEARS ENDED SEPTEMBER 30,

(in thousands)

2009

2008

2007Costs and Expenses:General and administrative expenses

$
(20,643
)
$
(21,155
)
$
(16,094
)Gain from debt extinguishment, net


7,360





Interest expense and other, net


(2,399
)

(4,994
)

(6,543
)Loss before credit for federal income taxes and equity


(15,682
)

(26,149
)

(22,637
)Credit for federal income taxes resulting from tax sharing arrangement with subsidiaries


(6,656
)

(5,963
)

(7,300
)Loss before equity in net income of subsidiaries


(9,026
)

(20,186
)

(15,337
)Equity in income of subsidiaries


31,027


20,274


43,502Income from continuing operations


22,001


88


28,165Equity in income (loss) of discontinued operations


790


(40,591
)

(6,086
)Net income (loss)

$
22,791

$
(40,503
)
$
22,079


74

---





GRIFFON CORPORATION        SCHEDULE ICONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)        STATEMENTS OF CASH FLOWS        FOR THE YEARS
ENDED SEPTEMBER 30,

(in thousands)

2009

2008

2007CASH FLOWS FROM OPERATING ACTIVITIESNet income (loss)

$
22,791

$
(40,503
)
$
22,079Adjustments to reconcile net income (loss) to net cash provided by operating activities:Stock-based compensation


4,145


3,327


2,412Amortization/write-off of deferred financing costs


1,057


495


Gain from debt extinguishment, net


(7,360
)




Deferred income taxes


(7,856
)

4,483


(5,708
)Equity in income of subsidiaries


(31,027
)

(20,274
)

(43,502
)Equity in (income) loss of discontinued operations


(790
)

40,591


6,086Change in assets and liabilities:(Increase) decrease in prepaid and other assets


199


(120
)

204Increase (decrease) in accounts payable, accrued liabilities and income taxes payable,


17,640


4,060


(9,178
)Other changes, net


4,757


(4,036
)

7,725Net cash provided by (used in) operating activities


3,556


(11,977
)

(19,882
)CASH FLOWS FROM INVESTING ACTIVITIES:Acquisition of property, plant and equipment


(372
)

(46
)

(67
)Advances (to) from subsidiaries





42,000


(6,500
)Distribution from subsidiaries


10,000


60,000


22,000Net cash provided by investing activities


9,628


101,954


15,433CASH FLOWS FROM FINANCING ACTIVITIESProceeds from issuance of shares from rights offering


7,257


241,344


Purchase of shares for treasury





(579
)

(4,355
)Proceeds from issuance of long-term debt


4,370


630


33,601Payments of long-term debt


(43,885
)

(76,417
)

(27,186
)Financing costs


(541
)

(7,111
)

Purchase of ESOP shares


(4,370
)




Exercise of stock options








2,588Tax benefit from vesting of restricted stock


217


3


1,346Capital contribution


(676
)

(4,067
)

Other, net


401


139


653Net cash provided by financing activities


(37,227
)

153,942


6,647NET INCREASE IN CASH AND EQUIVALENTS


(24,043
)

243,919


2,198CASH AND EQUIVALENTS AT BEGINNING OF PERIOD


247,554


3,635


1,437CASH AND EQUIVALENTS AT END OF PERIOD

$
223,511

$
247,554

$
3,635


75

---





GRIFFON CORPORATION AND SUBSIDIARIES        SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS        FOR THE YEARS ENDED SEPTEMBER 30, 2009, 2008 AND 2007        (in thousands)

Description

Balance at
Beginning
of Year

Recorded to
Cost and
Expense

Accounts
Written Off,
net

Other

Balance at
End of YearFOR THE YEAR ENDED SEPTEMBER 30, 2009Allowance for Doubtful AccountsBad debts

$
3,675

$
628

$
(1,210
)
$
45

$
3,138Sales returns and allowances


1,934


(247
)

(385
)

17


1,319$
5,609

$
381

$
(1,595
)
$
62

$
4,457Inventory valuation

$
8,883

$
1,783

$
(1,827
)
$
39

$
8,878FOR THE YEAR ENDED SEPTEMBER 30, 2008Allowance for Doubtful AccountsBad debts

$
3,834

$
1,257

$
(1,407
)
$
(9
)
$
3,675Sales returns and allowances


2,503


(157
)

(415
)

3


1,934$
6,337

$
1,100

$
(1,822
)
$
(6
)
$
5,609Inventory valuation

$
9,489

$
652

$
(1,314
)
$
56

$
8,883FOR THE YEAR ENDED SEPTEMBER 30, 2007Allowance for Doubtful AccountsBad debts

$
3,683

$
649

$
(591
)
$
93

$
3,834Sales returns and allowances


2,624


3,478


(3,742
)

143


2,503$
6,307

$
4,127

$
(4,333
)
$
236

$
6,337Inventory valuation

$
8,149

$
1,901

$
(801
)
$
240

$
9,489


Note:    This Schedule II is for continuing operations only.

76

---





Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not applicable.

Item 9A.    Controls and Procedures

Evaluation and Disclosure Controls and Procedures

The Company's management, with the participation of its Chief Executive Officer and Chief Financial Officer, conducted an evaluation of
the effectiveness of the design and operation of the Company's disclosure controls and procedures, as defined by Exchange Act Rule 13a-15(e). Based on that evaluation, the Chief
Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, the Company's disclosure controls and procedures were effective to ensure that
information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act are recorded, processed, summarized and reported within the time periods specified by
the SEC's rules and forms
and such information is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosures.

Management's Report on Internal Control over Financial Reporting

The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting. The
Company's internal control over financial reporting is a process designed under the supervision of its Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of the Company's financial statements for external reporting in accordance with accounting principles generally accepted in the United States of
America. Management evaluates the effectiveness of the Company's internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in Internal ControlIntegrated Framework. Management, under the supervision and with the participation of the Company's Chief Executive Officer and Chief Financial
Officer, assessed the effectiveness of the Company's internal control over financial reporting as of September 30, 2009 and concluded that it is effective.

The
Company's independent registered public accounting firm, Grant Thornton LLP, has audited the effectiveness of the Company's internal control over financial reporting as of
September 30, 2009, and has expressed an unqualified opinion in their report which appears in this Annual Report on Form 10-K.

Changes in Internal Controls

There were no changes in the Company's internal control over financial reporting identified in connection with the evaluation referred
to above that occurred during the fourth quarter of the year ended September 30, 2009 that have materially affected, or are reasonably likely to materially affect, the registrant's internal
control over financial reporting.

Inherent Limitations on the Effectiveness Controls

The Company's internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
The Company's internal control over financial reporting includes those policies and procedures that:



77

---





Management,
including the Company's Chief Executive Officer and Chief Financial Officer, does not expect that the Company's internal controls will prevent or detect all errors and all
fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a
control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control
systems, no evaluation of internal controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Also, any evaluation of the effectiveness of
controls in future periods is subject to the risk that those internal controls may become inadequate because of changes in business conditions, or that the degree of compliance with the policies or
procedures may deteriorate.

78

---





REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board
of Directors and Shareholders Griffon Corporation

We have audited Griffon Corporation (a Delaware corporation) and subsidiaries' (the "Company") internal control over financial reporting as of
September 30, 2009, based on criteria established inInternal ControlIntegrated Frameworkissued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness
of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the
Company's internal control over financial reporting based on our audit.

We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A
company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In
our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2009, based on criteria established in Internal ControlIntegrated
Frameworkissued by COSO.

We
have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Griffon Corporation and
subsidiaries as of September 30, 2009 and 2008, and the related consolidated statements of operations, shareholders' equity and comprehensive income (loss) and cash flows for each of the three
years in the period ended September 30, 2009 and our report dated November 24, 2009 expressed an unqualified opinion thereon.

/s/ GRANT
THORNTON LLP

New
York, New York
November 24, 2009

79

---





Item 9B.    Other Information

None

PART III

The information required byPart III: Item 10,Directors, and Executive
Officers and Corporate Governance; Item 11,Executive Compensation; Item 13,Certain
Relationships and Related Transactions and Director Independence; and Item 14,Principal Accountant Fees and Servicesis
included in and incorporated by reference to the Company's definitive proxy statement in connection with its Annual Meeting of Stockholders scheduled to be held in February, 2010, to be filed with the
Securities and Exchange Commission within 120 days following the end of the Company's year ended September 30, 2009. Information relating to the executive officers of the Registrant
appears under Item 1 of this report.

Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information regarding security ownership of certain beneficial owners and management that is required to be included pursuant to
this Item 12 is included in and incorporated by reference to the Company's definitive proxy statement in connection with its Annual Meeting of Stockholders scheduled to be held in February,
2010.

The
following sets forth information relating to the Company's equity compensation plans as of September 30, 2009:

Plan Category

(a)
Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights

(b)
Weighted-average
exercise price
of outstanding
options, warrants
and rights

(c)
Number of securities
remaining available
for future
issuance under
equity compensation
plans (Excluding
securities reflected
in column (a))Equity compensation plans approved by security holders(1)


1,302,913

$
15.18


3,937,151Equity compensation plans not approved by security holders(2)


387,426


15.19





(1)Excludes
restricted shares issued in connection with the Company's equity compensation plans. The total reflected in Column (c) includes 3,670,440
shares available for grant as stock options under the Incentive Plan; however, because the number of shares available under the Incentive Plan is reduced by a factor of
two-to-one for awards other than stock options, this number would be reduced to 1,835,220 if all available shares under the Incentive Plan were issued as restricted stock.
Accordingly, if all grants under the Incentive Plan were made as restricted stock, the total in Column (c) would be reduced to 2,103,711. As of September 30, 2009, 1,623,389 unvested
shares of restricted stock have been awarded under the Company's equity compensation plans and remain subject to certain forfeiture conditions.(2)The
Company's 1998 Employee and Director Stock Option Plan is the only option plan which was not approved by the Company's stockholders. The Employee and
Director Stock Option Plan expired in February 2008.


80

---






PART IV

Item 15.    Exhibits and Financial Statement Schedules

Page(a)

(1)

Financial StatementsCovered by Report of Independent Registered Public Accounting Firm(A)

Consolidated Balance Sheets at September 30, 2009 and 2008


37(B)

Consolidated Statements of Operations for the Fiscal Years Ended September 30, 2009, 2008 and 2007


38(C)

Consolidated Statements of Cash Flows for the Fiscal Years Ended September 30, 2009, 2008 and 2007


39(D)

Consolidated Statements of Shareholders' Equity and Comprehensive Income for the Fiscal Years Ended September 30, 2009, 2008 and 2007


40(E)

Notes to the Consolidated Financial Statements


41(2)

Financial Statement SchedulesCovered by Report of Independent Registered Public Accounting FirmSchedule ICondensed Financial Information of Registrant


73Schedule IIValuation and Qualifying Accounts


76All other schedules are not required and have been omitted.(3)

Exhibitssee (b) below




Exhibit No.3.1

Restated Certificate of Incorporation (Exhibit 3.1 of Annual Report on Form 10-K for the year ended September 30, 1995 (Commission File No. 1-06620)) and exhibit 3.1 of Quarterly Report on
Form 10-Q for the quarter ended March 31, 20083.2

Amended By-laws (Exhibit 3 of Current Report on Form 8-K filed May 14, 2008 (Commission File No. 1-06620))4.1

Specimen Certificate for Shares of Common Stock of Registrant (Exhibit 4.3 of Registration Statement on Form S-3 filed September 26, 2003 (Commission File No. 333-109171)4.2

Indenture, dated as of June 22, 2004, between the Registrant and American Stock Transfer and Trust Company, including the form of note. (Exhibit 4.3 to Annual Report on Form 10-K for the year ended
September 30, 2005 (Commission File No. 1-06620))4.3

Irrevocable Election Letter related to Indenture dated as of June 22, 2004 between the Registrant and American Stock Transfer and Trust Company (Exhibit 4.4 to Annual Report on Form 10-K for the year
ended September 30, 2005 (Commission File No. 1-06620))10.1

Employment Agreement dated as of July 1, 2001 between the Registrant and Harvey R. Blau (Exhibit 10.1 of Current Report on Form 8-K dated May 2, 2001 (Commission File No. 1-06620))10.2

Employment Agreement dated as of July 1, 2001 between the Registrant and Robert Balemian (Exhibit 10.2 of Current Report on Form 8-K dated May 2, 2001 (Commission File No. 1-06620))


81

---



Exhibit No.10.3

Form of Trust Agreement between the Registrant and Wachovia Bank, National Association, as Trustee, dated October 2, 2006, relating to the Company's Employee Stock Ownership Plan (Exhibit 10.3 to Annual Report
on Form 10-K for the year ended September 30, 2005 (Commission File No. 1-06620))10.4

1992 Non-Qualified Stock Option Plan (Exhibit 10.10 of Annual Report on Form 10-K for the year ended September 30, 1993 (Commission File No. 1-06620))10.5

Non-Qualified Stock Option Plan (Exhibit 10.12 of Annual Report on Form 10-K for the year ended September 30, 1998 (Commission File No. 1-06620))10.6

Form of Indemnification Agreement between the Registrant and its officers and directors (Exhibit 28 to Current Report on Form 8-K dated May 3, 1990 (Commission File No. 1-06620))10.7

Outside Director Stock Award Plan (Exhibit 4 of Form S-8 Registration Statement No. 33-52319)10.8

1997 Stock Option Plan (Exhibit 4.2 of Form S-8 Registration Statement No. 333-21503)10.9

2001 Stock Option Plan (Exhibit 4.1 of Form S-8 Registration Statement No. 333-67760)10.10

Senior Management Incentive Compensation Plan (Exhibit 4.2 of Form S-8 Registration Statement No. 333-62319)10.11

1998 Employee and Director Stock Option Plan, as amended (Exhibit 4.1 of Form S-8 Registration Statement No. 333-102742)10.12

1998 Stock Option Plan (Exhibit 4.1 of Form S-8 Registration Statement No. 333-62319)10.13

Amendment to Employment Agreement between the Registrant and Harvey R. Blau dated August 8, 2003 (Exhibit 10.1 of Quarterly Report on Form 10-Q for the quarter ended June 30, 2003 (Commission File
No. 1-06620))10.14

Non-Qualified Stock Option Agreement (Exhibit 4.1 of Form S-8 Registration Statement No. 333-131737)10.15

Griffon Corporation 2006 Equity Incentive Plan, as amended (Exhibit 10.1 of Quarterly Report on Form 10-Q for the period ended December 31, 2008 (Commission File No. 1-06620))10.16

Amendment No. 2 to Employment Agreement, dated July 18, 2006 between the Registrant and Harvey R. Blau (Exhibit 10.1 to Current Report on Form 8-K dated July 18, 2006 (Commission File
No. 1-06620))10.17

Severance agreement, dated July 18, 2006 between the Registrant and Patrick Alesia (Exhibit 10.2 to Current Report on Form 8-K dated July 18, 2006 (Commission File No. 1-06620))10.18

Supplemental Executive Retirement Plan as amended through July 18, 2006 (Exhibit 10.3 to Current Report on Form 8-K dated July 18, 2006 (Commission File No. 1-06620))10.19

Griffon Corporation 2006 Performance Bonus Plan (Exhibit 10.2 to Current Report on Form 8-K dated February 3, 2006 (Commission File No. 1-06620))10.20

Form of Restricted Stock Award Agreement under the Griffon Corporation 2006 Equity Incentive Plan (Exhibit 10.3 to Current Report on Form 8-K/A dated February 3, 2006 (Commission File No. 1-06620))10.21

Amendment No. 3 to Employment Agreement, dated August 3, 2007, between the Registrant and Harvey R. Blau (Exhibit 10.1 to Current Report on Form 8-K dated August 3, 2006 (Commission File
No. 1-06620))


82

---



Exhibit No.10.22

Amendment No. 1 to the Severance Agreement, dated August 3, 2007, between the Registrant and Patrick L. Alesia (Exhibit 10.2 to Current Report on Form 8-K dated August 3, 2006 (Commission File
No. 1-06620))10.23

Amendment No. 1 to the Amended and Restated Supplemental Executive Retirement Plan dated August 3, 2007 (Exhibit 10.3 to the Current Report on Form 8-K dated August 3, 2006 (Commission File
No. 1-06620))10.24

Investment Agreement, dated August 7, 2008, between Griffon Corporation and GS Direct, L.L.C. (Exhibit 10.1 to the Current Report on Form 8-K dated August 13, 2008 (Commission File No. 1-06620))10.25

Credit Agreement, dated as of June 24, 2008, among Clopay Building Products Company, Inc., Clopay Plastic Products Company, Inc., the Lenders party thereto and JPMorgan Chase Bank, N.A., as
administrative agent, among others (Exhibit 10.1 to the Current Report on Form 8-K dated June 27, 2008 (Commission File No. 1-06620))10.26

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 (Exhibit 10.1
to the Current Report on Form 8-K dated April 4, 2008 (Commission File No. 1-06620))10.27

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. (Exhibit 10.2 to the Current
Report on Form 8-K dated April 4, 2008).10.28

Employment Agreement, dated March 16, 2008, between the Registrant and Ronald J. Kramer. (Exhibit 10.1 to the Current Report on Form 8-K dated March 19, 2008 (Commission File No. 1-06620))10.29

Employment Agreement dated August 6, 2009, between the Registrant and Douglas J. Wetmore (Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended June 30, 2009 (Commission File
No. 1-06620))14

Code of Ethics for Senior Financial Officers (Exhibit 14 to Annual Report on Form 10-K for the year ended September 30, 2003 (Commission File No. 1-06620))21

The following lists the Company's significant subsidiaries all of which are wholly-owned by the Company. The names of certain subsidiaries which do not, when considered in the aggregate, constitute a significant
subsidiary, have been omitted.




Name of Subsidiary

State of
IncorporationClopay Corporation

DelawareTelephonics Corporation

Delaware




23*

Consent of Grant Thornton LLP31.1*

Certification of Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act31.2*

Certification of Chief Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act32*

Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 18 USC Section 1350.


---

83

---



Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized on the 24th day of November 2009.

GRIFFON CORPORATIONBy:

/s/ RONALD J. KRAMER Ronald J. Kramer, Chief Executive Officer


Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below on November 24, 2009 by the following persons on behalf of the Registrant in
the capacities indicated:

/s/ HARVEY R. BLAU Harvey R. Blau

Chairman of the Board/s/ RONALD J. KRAMER Ronald J. Kramer

Chief Executive Officer (Principal Executive Officer)/s/ DOUGLAS J. WETMORE Douglas J. Wetmore

Executive Vice President and Chief Financial Officer
(Principal Financial Officer)/s/ BRIAN G. HARRIS Brian G. Harris

Chief Accounting Officer (Principal Accounting Officer)/s/ HENRY A. ALPERT Henry A. Alpert

Director/s/ BERTRAND M. BELL Bertrand M. Bell

Director/s/ GERALD J. CARDINALE Gerald J. Cardinale

Director/s/ BLAINE V. FOGG Blaine V. Fogg

Director/s/ BRADLEY J. GROSS Bradley J. Gross

Director


84

---



/s/ ROBERT G. HARRISON Robert G. Harrison

Director/s/ CLARENCE A. HILL, JR. Clarence A. Hill, Jr.

Director/s/ DONALD J. KUTYNA Donald J. Kutyna

Director/s/ JAMES A. MITAROTONDA James A. Mitarotonda

Director/s/ MARTIN S. SUSSMAN Martin S. Sussman

Director/s/ WILLIAM H. WALDORF William H. Waldorf

Director/s/ JOSEPH J. WHALEN Joseph J. Whalen

Director


85

---





EXHIBIT INDEX

Exhibit No.3.1

Restated Certificate of Incorporation (Exhibit 3.1 of Annual Report on Form 10-K for the year ended September 30, 1995 (Commission File No. 1-06620)) and Exhibit 3.1 of Quarterly Report on
Form 10-Q for the quarter ended March 31, 20083.2

Amended By-laws (Exhibit 3 of Current Report on Form 8-K filed May 14, 2008 (Commission File No. 1-06620))4.1

Specimen Certificate for Shares of Common Stock of Registrant (Exhibit 4.3 of Registration Statement on Form S-3 filed September 26, 2003 (Commission File No. 333-109171)4.2

Indenture, dated as of June 22, 2004, between the Registrant and American Stock Transfer and Trust Company, including the form of note. (Exhibit 4.3 to Annual Report on Form 10-K for the year ended
September 30, 2005 (Commission File No. 1-06620))4.3

Irrevocable Election Letter related to Indenture dated as of June 22, 2004 between the Registrant and American Stock Transfer and Trust Company (Exhibit 4.4 to Annual Report on Form 10-K for the year
ended September 30, 2005 (Commission File No. 1-06620))10.1

Employment Agreement dated as of July 1, 2001 between the Registrant and Harvey R. Blau (Exhibit 10.1 of Current Report on Form 8-K dated May 2, 2001 (Commission File No. 1-06620))10.2

Employment Agreement dated as of July 1, 2001 between the Registrant and Robert Balemian (Exhibit 10.2 of Current Report on Form 8-K dated May 2, 2001 (Commission File No. 1-06620))10.3

Form of Trust Agreement between the Registrant and Wachovia Bank, National Association, as Trustee, dated October 2, 2006, relating to the Company's Employee Stock Ownership Plan (Exhibit 10.3 to Annual
Report on Form 10-K for the year ended September 30, 2005 (Commission File No. 1-06620))10.4

1992 Non-Qualified Stock Option Plan (Exhibit 10.10 of Annual Report on Form 10-K for the year ended September 30, 1993 (Commission File No. 1-06620))10.5

Non-Qualified Stock Option Plan (Exhibit 10.12 of Annual Report on Form 10-K for the year ended September 30, 1998 (Commission File No. 1-06620))10.6

Form of Indemnification Agreement between the Registrant and its officers and directors (Exhibit 28 to Current Report on Form 8-K dated May 3, 1990 (Commission File No. 1-06620))10.6

Form of Indemnification Agreement between the Registrant and its officers and directors (Exhibit 28 to Current Report on Form 8-K dated May 3, 1990 (Commission File No. 1-06620))10.7

Outside Director Stock Award Plan (Exhibit 4 of Form S-8 Registration Statement No. 33-52319)10.8

1997 Stock Option Plan (Exhibit 4.2 of Form S-8 Registration Statement No. 333-21503)10.9

2001 Stock Option Plan (Exhibit 4.1 of Form S-8 Registration Statement No. 333-67760)10.10

Senior Management Incentive Compensation Plan (Exhibit 4.2 of Form S-8 Registration Statement No. 333-62319)10.11

1998 Employee and Director Stock Option Plan, as amended (Exhibit 4.1 of Form S-8 Registration Statement No. 333-102742)10.12

1998 Stock Option Plan (Exhibit 4.1 of Form S-8 Registration Statement No. 333-62319)


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Exhibit No.10.13

Amendment to Employment Agreement between the Registrant and Harvey R. Blau dated August 8, 2003 (Exhibit 10.1 of Quarterly Report on Form 10-Q for the quarter ended June 30, 2003 (Commission File
No. 1-06620))10.14

Non-Qualified Stock Option Agreement (Exhibit 4.1 of Form S-8 Registration Statement No. 333-131737)10.15

Griffon Corporation 2006 Equity Incentive Plan, as amended (Exhibit 10.1 of Quarterly Report on Form 10-Q for the period ended December 31, 2008 (Commission File No. 1-06620))10.16

Amendment No. 2 to Employment Agreement, dated July 18, 2006 between the Registrant and Harvey R. Blau (Exhibit 10.1 to Current Report on Form 8-K dated July 18, 2006 (Commission File
No. 1-06620))10.17

Severance agreement, dated July 18, 2006 between the Registrant and Patrick Alesia (Exhibit 10.2 to Current Report on Form 8-K dated July 18, 2006 (Commission File No. 1-06620))10.18

Supplemental Executive Retirement Plan as amended through July 18, 2006 (Exhibit 10.3 to Current Report on Form 8-K dated July 18, 2006 (Commission File No. 1-06620))10.19

Griffon Corporation 2006 Performance Bonus Plan (Exhibit 10.2 to Current Report on Form 8-K dated February 3, 2006 (Commission File No. 1-06620))10.20

Form of Restricted Stock Award Agreement under the Griffon Corporation 2006 Equity Incentive Plan (Exhibit 10.3 to Current Report on Form 8-K/A dated February 3, 2006 (Commission File No. 1-06620))10.21

Amendment No. 3 to Employment Agreement, dated August 3, 2007, between the Registrant and Harvey R. Blau (Exhibit 10.1 to Current Report on Form 8-K dated August 3, 2006 (Commission File
No. 1-06620))10.22

Amendment No. 1 to the Severance Agreement, dated August 3, 2007, between the Registrant and Patrick L. Alesia (Exhibit 10.2 to Current Report on Form 8-K dated August 3, 2006 (Commission File
No. 1-06620))10.23

Amendment No. 1 to the Amended and Restated Supplemental Executive Retirement Plan dated August 3, 2007 (Exhibit 10.3 to the Current Report on Form 8-K dated August 3, 2006 (Commission File
No. 1-06620))10.24

Investment Agreement, dated August 7, 2008, between Griffon Corporation and GS Direct, L.L.C. (Exhibit 10.1 to the Current Report on Form 8-K dated August 13, 2008 (Commission File No. 1-06620))10.25

Credit Agreement, dated as of June 24, 2008, among Clopay Building Products Company, Inc., Clopay Plastic Products Company, Inc., the Lenders party thereto and JPMorgan Chase Bank, N.A., as
administrative agent, among others (Exhibit 10.1 to the Current Report on Form 8-K dated June 27, 2008 (Commission File No. 1-06620))10.26

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 (Exhibit 10.1
to the Current Report on Form 8-K dated April 4, 2008 (Commission File No. 1-06620))10.27

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. (Exhibit 10.2 to the Current
Report on Form 8-K dated April 4, 2008).10.28

Employment Agreement, dated March 16, 2008, between the Registrant and Ronald J. Kramer. (Exhibit 10.1 to the Current Report on Form 8-K dated March 19, 2008 (Commission File No. 1-06620))


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Exhibit No.10.29

Employment Agreement dated August 6, 2009, between the Registrant and Douglas J. Wetmore (Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended June 30, 2009 (Commission File
No. 1-06620))14

Code of Ethics for Senior Financial Officers (Exhibit 14 to Annual Report on Form 10-K for the year ended September 30, 2003 (Commission File No. 1-06620))21

The following lists the Company's significant subsidiaries all of which are wholly-owned by the Company. The names of certain subsidiaries which do not, when considered in the aggregate, constitute a significant
subsidiary, have been omitted.




Name of Subsidiary

State of
IncorporationClopay Corporation

DelawareTelephonics Corporation

Delaware


23*

Consent of Grant Thornton LLP31.1*

Certification of Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act31.2*

Certification of Chief Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act32*

Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 18 USC Section 1350.


*Filed
herewith. All other exhibits are incorporated herein by reference to the exhibit indicated in the parenthetical references.


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