Good morning. My name is Natasha and I will be your conference operator today. At this time, I would like to welcome everyone to the Griffon Corporation first quarter 2008 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question and answer period (Operator Instructions). It is now my pleasure to turn the floor over to your host, Mr. Harvey Blau, Chairman and Chief Executive Officer. Sir you may begin.

Good morning and welcome to a financial overview of our first quarter of 2008, which ended on December 31, 2007. I am Harvey Blau, Chairman of Griffon Corporation. With me today are Griffon's Executive Vice President, Frank Smith and Chief Financial Officer, Patrick Alesia. I’ll discuss the overall results for the quarter and then we’ll answer questions with respect to operations and financial results. First I would like to point out to the extent that matters to be discussed in this call include forward-looking statements; they involve certain risks and uncertainties that could cause the company's actual results to differ materially from those in the forward-looking statements. Second, in December 2007, we modified our credit facility, to revise certain financial covenants in effect for the first quarter of fiscal 2008 ended December 31, 2007 to maintain compliance. However, we have since anticipated that we may not be in compliance of one or more of the quarterly covenants. As a result of this possibility and in accordance with applicable accounting standards, we reclassified $62 million of long-term debt as current debt in our balance sheet. We have commenced discussions with our bank to further amend and refinance our credit facility by March 31st, 2008 for the balance of the year, which should reclassify the debt back to long-term debt. In addition, we have on our balance sheet approximately $69 million of cash that would more than offset the debt that is owed to the banks. So the amount of debt in our balance sheet indicates that this is not a major situation for us, and we expect to have it all settled in the next few weeks. The reason for the issue, to start with, is the rapid change in the economy and in our balance sheet caused by the decrease…

(Operator Instructions) Your first question comes from Bob Labick with CJS Securities.

Good morning.

Hi Bob.

Hi, a couple of questions. I want to start with Installation Services. You mentioned that you're undergoing some continuation of restructuring initiatives. Can you give us a sense of the expectations from the expected return from the charges you expect to take in, and can you talk in the context of bringing down your fixed costs in that business. You had about $80 million in SG&A last year there, I don’t know its split fixed or variable, but how much do you think you can lower your fixed cost in that business?

Okay. Frank Smith will answer that.

Yeah. Bob, I don’t really have that particular answer to the dollar. What we were talking about doing in general, was of the loss that we incurred in the first quarter. We would be looking to taking out from 50% to 60% of the loss. That should help you in trying to figure out some order of magnitude on the numbers you gave.

Okay That’s, I’ll start soon. The housing crisis has deepened, it has gotten worse, but the original goal probably a couple of months ago, was to shoot for breakeven for the year for this division through the restructuring. Is there still a possibility of getting back to breakeven at this kind of quarterly run rate basis this year, or how do you view this year playing out currently?

Bob, results in sales have deteriorated so much from what we thought, even though from previous months, that I wouldn’t be comfortable with predicting what the future holds. We are doing our absolute best to reduce these losses and deal with the situation.

Okay. Just getting into doors, again, with the restructuring initiative in place there, is there kind of target savings from the current restructuring.

Yes there is. We are shooting at for least $10 million worth of improvements through the projects that what we have underway already.

Okay. That’s all off of the current level or should I take this quarter’s G&A and somewhere in the magnitude of $10 million off of that obviously….

They are not all programs that address G&A. There's a combination of initiatives, reductions in the force, and sales and marketing program spending that will be either eliminated or deferred, and there are some sales initiatives that are taking place to improve the topline, some of which have already been put in place and will produce benefit over the remainder of the year. So it’s a combination of all lines of the P&L.

Okay great. And just moving on to films, can you tell us the, I guess the current outlook that you are seeing. You mentioned in the December quarter regarding the impact of resin. How has resin been acting recently, and what are the expectations from your group for the next 6 months in resins?

It very hard to tell, I mean, with the price of oil, doing what it has being doing, if it goes up we're going to be under additional pressure. Right now it’s a very difficult thing to say. It could easily go up, but on the other hand, if the economy begins to falter, then maybe demand will come down. I don’t know. I really couldn’t begin to predict what's going to happen. Resin has continued, over the last few years it has been on a steady march up, with a few exceptions.

Right, absolutely. Now, you mentioned you're expecting continued volume growth. Obviously there were some good sales in the films division in the quarter. Let's just take resin out of the equation. If volume continues to grow, should we see some continued margin expansion, or any other price concessions coming this year, or excluding resin again, you had good margins in the quarter, so they continue to grow with this volume growth?

There are additional price concessions that will be coming. On the other hand, there are substantial opportunities with new products to improve margins. And those opportunities, as they are executed in the remainder of the year, will tell as to what happens to the margins.

Okay, great. And then one last question and I'll get back in queue; I appreciate all the time here. Did you discuss any broader, strategic thoughts in terms of the downturn in housing; are there opportunities to purchase assets at lows to fresh lows? Are you looking to sell anything? Are there any spin-offs? Or any just broader strategic initiatives or is it really just, buckle down, run the business, and revalue it?

Well, to answer you, the first thing is with respect to the installation business, it's our number one priority in top goal to minimize the cash burn and the losses in that division. So, we are going to keep putting pressure on what we do there, which could be anything from selling, or divestiture, or close down of operations to make sure that we keep reducing the losses in that division. Because no one knows at the present time, when this market is coming back, or if it's coming back in the same way it was before. So, that's the first thing. Second thing is, our goal in the Garage Door business is to maintain our market share, and to try to become more efficient by closing down operations, which we have, and letting people off that are can connected with the business on a seasonal basis, because this is a tough quarter coming up now because of the season. And to prepare ourselves for the second half of the year, which the Garage Door operators believe, there will be some light at the end of the tunnel towards the third, later third and fourth quarter of the year. So, we are doing everything we can to become more efficient, lower cost, and we have a major reduction program of overhead there. As far as acquisitions are concerned, it really is not on my mind at this time. The banking community right now is such that I don't think there is a lot of money available for making acquisitions. And I don't think that we want to concern ourselves with that until we straighten out our own house. As far as the Plastic Films business is concerned, we are doing everything we can try to minimize the effect of the resident price volatility. We are working very diligently down in Brazil, where we have now completed the operations down there, just to install the facilities. We have a large amount of business down there, and now we have to try to make it more profitable. The resident down there has been very volatile, and we have a team of people going down to try to do whatever is possible to make more money down there. Now, there is not only catch in doors in this company. If we have an opportunity either to merge or sell or acquire, then we are going to do it. We're going to look at every opportunity as we go along. The key is for us to be here when the market comes back. Our financials are such that, we are in pretty solid shape bank-wise, and we're going to do every thing we can to get the company to a profitable level as soon as possible.

Great. Thank you very much.

Thank you. Your next question comes from Todd Vencil of Davenport.

Hi, thanks very much. Just Bob, covered a lot of the questions that I had, but just digging in a little bit, in films, you've mentioned a loss of some volume from a customer in Europe. Please tell us also who that was?

I'd rather not. I mean, that’s no.

Okay, fair enough. And then sort of looking further out, and again understanding that the resin is a real headache right now, but just given what you said about your efforts to work on that, and given some new product opportunities, what do you feel like at this point is sort of a longer-term or reasonable margin to expect out of this business?

Well, what I have said in the past is that this is a business that goes through cycles of innovation, and when you're in the front cycle of the innovation, when you have products that are commanding the margins, they could be anywhere from 7% to 10%. And when you are at the backside of the market where your competitors have caught up, the margins are considerably less. That’s how it quite works.

So, do you feel that you are sort of coming into one of those phases, as you just said with the new products we may be moving toward, that this may be a bigger part of the picture?

There are lot of exciting opportunities is what I'd like to say it.

Okay, fair enough. You mentioned that the backlog in Telephonics is good. Can you tell us what the backlog is at this point?

Little over $300 million.

And how does that sort of compare to last quarter and last year?

It probably kind of exists, but because of the SRC program which was, added to the backlog and which has been sort of completed, it's hard for us to put apples-to-apples.

Sure.

Based upon our projected sales of somewhere in the mid $300 millions, we have about $305 million of backlog in house.

Okay. So sort of consistent to keep providing the kind of core growth, that you saw at now again ex the SRC business in the first quarter?

Yeah.

Okay. Can you just remind us what the impact of SRC was in the last three quarters of last year?

This was in the yearly basis. It was approximately $190 million in sales for the year ending September30, with approximately $15 million in profit.

Okay.

In tax.

Got it, thanks for that.

Or if you take it out on a comparable basis for 2006, and go back and measure us against where we were without the contracts, you'll see that we have internal growth.

Got it. On the Insulation Service side, just a detail. Was there any expense from the restructuring program that was in the first quarter?

There were severance costs that were in the first quarter.

Can you put a number on that?

There were severance costs of about $300,000 occurred in the first quarter.

Okay. So relative to the $12 to $15 million pretty small slide?

Correct.

Okay.

There was a major reduction enforced on in January.

How do you expect that $12 million to $15 million to play out over the next three quarters, front-end loaded, back end loaded?

The expectation is front-end loaded.

And how much that's going to be in cash?

Almost all of it.

Okay. And then I guess anything that you can sort of add? I mean you said that with regard to the debt issues and the covenants, it's not a major situation; you expect to wrap up in the next few weeks. I can appreciate that and thanks for that color. Can you give us any color; are you thinking about moving, maybe a different structure of facility or are you just working to really modify the existing facility and move forward?

We don't know right now. We are having preliminary discussion with the banks. We should have a term sheet in the next two weeks about what they want to do and the various things they are going to offer and we are going to look at it and then make decisions.

Okay. Thanks a lot for that. That's all I've got.

Thank you. Your next question comes from Marty Pollack of NWQ Investment.

I wondered, if you could just a couple of points, one the $12 to $15 million charge, you saying is going to mostly cash. I'm just wondering that in terms of the savings you referred to I believe $10 million or so are cost reductions. Do you expect that to be the cost reductions, just actually end up being a full savings or partial savings so that, whatever the economic conditions are, the $10 provides you a cushion, can you clarify that?

I'm not quite sure I understood.

Yeah, are you referred to a $10 million?

Marty, yeah.

In an initiative to reduce costs, I was just wondering whether capturing is going to effect, I mean you have $10 million saves in here?

Marty the $10 million we referred to, this is Pat Alexia, the ones in the building products segment.

All right.

Not the installation segment.

No. I understand I'm just saying...

So, the savings that are initiated for the building products segment are real cost savings, real cash savings. The flip side on the installation side, is a restructuring program. We are not restructuring the building products segment, we are your instituting cost savings programs. We've initiated already some of those programs, which will improve consolidation of facilities etcetera, as we enumerate. So, that should be real cash savings over the year. On the Installation side that's a different situation, which Frank Smith referred to, with respect to the $12 million to $15 million.

Sorry, so the $12 million to $15 million is on Installation Services side?

That's correct.

Okay. I was not sure whether that was also spent into the building product side.

It does not.

Okay.

Building products basically should be able to cover the cost of the reductions by the cost of savings as they are on a go along basis. So, it should not have a material effect on the operations of the company. You get rid of a guy you save his dollar, you pay him severance of one balance or the other. In the Installation business, we're talking about an actual close down of facilities, actually getting rid of operations, therefore there will be costs incurred by virtue of leases, severance and inventory receivables and things of that nature.

Yeah, continuation of projects is very expensive.

We've certain obligations of products that we've entered into, that we have to finish off. So, we're trying to minimize that, by entering into ventures with other people to take over the submarine's operations, and also to continue doing business with them in the Garage Door part of the business. So, it's a sort of a complicated kind of a closedown, it's not simple like you just close the door of a store, and their will be cash required, but on an overall basis, we have to cut the losses that are being generated by this division, and we have to look at this aspect of what I would call the first aspect of an overall change in our whole philosophy.

With regard to working capital it seems you certainly did a very good job there and certainly in kind of reducing the net debt of the company so a lot seems to have happened. I am just wondering whether you can clarify in that how much of that was in effect coming as a real working capital reduction or is any of that effectively based on your seasonal requirements going to suggest we will be on at an advantage for the next few quarters. I mean is working capital use, kind of reverse until I use situation?

It should not, and also realize that the $62 million we reclassified on the long-term debt, actually reduced the working capital number. Once that reinstated as of March 31 our working capital will be closer to $300 million. So we have no issue there.

Okay. So essentially whatever you captured in the cash comp are essentially what you are working of from.

Correct.

Okay. With regard to telephonic, it’s seems that margins for this quarter were lower than what I think you would be expecting for the rest of the year. Were there some particular inefficiencies due to this the SRC program come running down closing. Effectively, you should be able to go back to some kind of margins near the last year or previous years

Actually our margins increased in Telephonics in the quarter Marty, from roughly around 17% to 21%, which is savings as the SG&A as a percentage of cost going up because SRC has a contract, although it was over $340 million in funding, we required very little in the way of SG&A expenses. So that the staff that we have, we continue to maintain We may maintain to continue with the additional workload that Telephonics is doing currently. But the gross profits actually increased, because a lot of the SRC work was a lower gross profit business, than was other business within Telephonics.

So effectively in future quarters and what we see on an EBIT line, will we be seeing the 9% to 10% type margins we've seen in the past, is that the recovery on the EBIT line?

That’s very doable.

Okay. Last one here. On the plastic side, the impact of Brazil, and Latin American in terms of the higher costs that you're seeing over there and its impact, some of that is coming back to the US in terms of dollar sales. Can you just describe the structural issues with regard to the currency and its impact on overall in the business?

You're talking about the Real and what effect it has on us. Is it positive or negative?

Yeah.

Well what's happening is that the Brazilian operation's profitability trails the general profitability of the business ,and we got into that business by acquisitions. So what to see is a strong translation of sales without really, sort of you might think from a profit contribution and you also see the impact on the balance sheet from the fact that the good wealth is coming in and looking at a much higher dollar figure.

Would just to remind us - So what is the amount of revenues that obviously cost and the cost in the Real, but as you sell products outside of Latin America? What is that number going to, into the US or other markets; any that going…?

We’re not exporting from Brazil right now.

So essentially it's supporting its own.

Yes it is relatively -- it actually, we have in the past and that maybe something you are thinking about. The strength the Real has actually made it very uncompetitive on an export basis.

I would have expected that. So you’re saying effectively that’s not a risk issue to…

No, the market down there is growing and is strong, and that’s where we’re selling into right now.

With regard to plastics and just the yield issues that were facing earlier with some of the other product introductions, where are you right now in terms of yields and clearly you described that as potentially a positive, I think you described that potentially in the positive going forward?

In the quarter, yields were a big part of the success because we had a substantial negative impact from resin. So, we've improved yields on many products. I think that the point I was trying to make before is, we have a lot of new products coming online and historically that has meant lower yields in the ramp-up periods.

At this point you are in effect moving into a more, let’s say high rate production of some of these products?

On the some of the - on the existing products we have done very well. So what I'm cautioning on here is that newer products are obviously going to be going through ramp-up periods and yields are much less during ramp-up periods.

But, overall, as a mix -- if you are looking at mix, more products coming into a more mature phase, previously with yield issues, the overall mix for plastics in terms of new products versus old.

In the reminder is, looking forward we expect the mix of new products to be much higher than it was in the first quarter.

Okay, but inefficiencies, specifically you had previously, the problems lets say are effectively some of those issues are resolving and you were in just in some more normalized type of…

Right, they are behind us.

Okay and last question and if I may, CapEx, do you foresee covenant issues forcing you to sort of a look at CapEx, I mean are you anticipating that you may have to reduce that number, to be in a more attractive position in terms of working with the covenants What is that CapEx budget?

No Marty, those issues will be all resolved with the new credit facility.

Okay, do you have at this point an idea what the CapEx budget will be for 08?

I think we forecast it something in the area of $30 million.

Okay, thank you.

Okay.

Thank you. (Operator Instructions). Your next question comes from Michael Lobello of Marlboro Capital.

I've a couple of questions that are almost more clarifications of what earlier people have asked. First one, on the margin in front, there has been a few questions in terms of the longer term margin impact, from rising resin cost. I was wondering if you could comment on, just in the shorter term, going into the first quarter, how you think margins in the plastic’s business going to maintain relative to where we are coming on there.?

I am sorry, I didn't have the last part of your question.

I was wondering how going into the first calendar quarter of this year. How you think that margins in the plastic business are going to hold up? Just given the resin environment that we're in right now?

I don't know. I believe that at the moment that resin prices being what they are, we would expect that it's not material, but I don't know what resin prices are going to do.

Okay. And then the other question I had also relates to input cost. Historically, you guys have done a very good job of in terms of passing through flat-rolled yield pricing increases in the Garage Door business?

Yes.

Obviously, that's another sector where there has been some substantial increases. Kind of looking into 2008, would you just talk in terms of your ability to continue passing along these price increases on to customers, or do you think you might have to eat some of that input cost?

Well, let me first say that, I think our management team has done a great job of being able to manage the buy up resin in the past, and we have reason to believe that we've done better than maybe the indexes would indicate. But there is no question that there are some market forces out there right now that may put pressure on increasing the price of steel, and if in that, we are not able to manage to round up through our procurement people, we'll have to address that question when it comes up.

Also as you can imagine, it's very difficult to project the prices of steel, and based upon the economy and where the automotive business is, and where the housing business is, there may not be any price increases in steel, and may even go the other way. We don't see any major upward pressure on the steel prices.

Have your customers though, even recently been taking the, sort of pass through in terms of the prices?

I don't think there's been a new pass through in prices this year or last year?

Okay. Well thank you very much, I appreciate your time.

Thank you. Your next question is a follow-up from Todd Vencil of Davenport.

Hello, a couple of housekeeping items and then, sort of a broader thing, you mentioned the CapEx budget. Could you just tell me what you're anticipating this year for D&A in the tax rate?

Depreciation should be in the area of $40 million.

Okay.

The effective tax rate should be somewhere around 39%.

Okay. And then just generally, as I was listening to your response to one of the questions about the installation business, this sort of question came up. In light of Mr. Blau’s comment about is the first aspect of an overall change in the whole philosophy, can you go into that a little bit and talk about when all is said and done, what you think of magnitude? But what's the magnitude of the reduction in the size of this business for you guys, in terms of insulation going to be ultimately?

We are reviewing that constantly, what I'm really trying to say to you is that this is the start of closing up of four or five of our operations, and closing one of our major operations, which has been losing money. And we're going to review each of the other entities, and see what's continuing to lose money, and make a decision on each of them. So that by the end of the year, if we're not in a situation where we're breakeven or making money, we're certainly going to be looking at every one of the operations. That's really what I'm saying to you.

Got it. And if we just look with the four five operations that you're kind of starting out with.

Yes.

Just to say, what’s the percentage impact on the sales there broadly?

Well; as I said earlier in the call that we are looking to eliminate 50% to 60% of the first quarter loss.

Sure.

So, you are talking about maybe 40% to 50% of the sales.

Yeah. Thanks for that. I appreciate it. Thanks guys.

Thank you.

I want to thank you all. If there's one last question I'll take it and otherwise I will be speaking to you next quarter and we hope that we'll see some light at the end of the tunnel.

Your This concludes today's conference call. You may now disconnect.