SOUTHFIELD, Mich. -- Federal-Mogul Corp. has reported strong gross margin and net income with improved cash flow on increased sales for the third quarter. Restructuring and cost-reduction initiatives enhanced the company’s quarterly performance as it continues to benefit from strong customer, market and product diversification and gained market share in several product segments during the quarter.

"These results demonstrate our ongoing ability to perform profitably even at these market and production levels. We had strong gross margin and net income with significantly improved cash flow versus the prior quarters of 2009. Federal-Mogul's variable cost company strategy has positioned us to take advantage of eventual volume improvements in the automotive, commercial vehicle and other market segments," said Jose Maria Alapont, Federal-Mogul president and CEO.

"The results of the third quarter show continuous improvement versus prior quarters and we believe we can further improve the performance of the company. We continue to implement cost reductions necessary to attain earnings performance consistent with our fundamental objective of achieving sustainable global profitable growth by providing customers with high quality products, leading technology and innovation, at a competitive cost," said Alapont.

Federal-Mogul reported $1.4 billion in sales during the third quarter of 2009, increases of $76 million and $142 million over the second and first quarters of 2009, respectively. With Q1 2009 as the baseline, Federal-Mogul has continued to improve operating results throughout the year and has raised gross margin by 2.6 percentage points. Sales, general and administrative (SG&A) expenses as a percent of sales improved steadily to 12.5 percent in the third quarter from 14.9 percent in the first quarter. As a result of the company's global restructuring plan, Federal-Mogul has reduced its headcount by about 11,000 employees, or 22 percent, ending the quarter with global employment of less than 39,000.

Net income in Q3 2009 was $10 million versus a net loss of $101 million during Q1 2009. Operational EBITDA for Q3 2009 was $134 million or 9.7 percent of sales, an increase of $64 million or four percentage points over Q1 2009, when the company reported operational EBITDA of $70 million or 5.7 percent.

Federal-Mogul has improved cash inflows throughout the year, generating significant cash flow of $112 million in Q3 2009, a $308 million improvement versus a cash outflow of $(196) million recorded in Q1 2009. This strong improvement was due to higher profitability combined with disciplined working capital management, including inventory reductions and improved accounts receivable performance across the company's diverse OE and aftermarket customer base. The company improved its strong cash position to about $800 million and when combined with an undrawn revolver of more than $500 million, Federal-Mogul had $1.3 billion of liquidity at the end of Q3 2009.

On a year-over-year basis, Federal-Mogul reported third quarter 2009 sales of $1.4 billion versus $1.7 billion in the third quarter of 2008, or a decline of about 15 percent on a constant dollar basis, which compares favorably to the overall downturn in the markets served by Federal-Mogul. Gross margin was $212 million or 15.4 percent of sales in Q3 2009 versus $279 million or 16.5 percent in the same period of 2008. The company's ability to maintain margins comparable to the third quarter of 2008 in a declining market environment reflects the success of Federal-Mogul's variable cost company strategy. SG&A expenses in the third quarter were $19 million lower than the same period in 2008.

Net income was $10 million in the third quarter of 2009 versus $4 million in the third quarter of 2008. Federal-Mogul's operational EBITDA for the quarter was $134 million or 9.7 percent of sales, compared to $179 million, reported during the third quarter a year ago. The company reported positive cash flow of $112 million for the third quarter, a significant increase versus $28 million during the prior year’s third quarter.

Federal-Mogul during the third quarter continued to expand its customer, market and product diversity, especially in China, India and Brazil, where the company's leading and globally recognized technology helps regional customers respond to the fast-paced demand to bring to market globally competitive vehicles.

Federal-Mogul also began high-volume production of its DuraBowl piston. This technology utilizes an innovative re-melting process to harden the piston rim, which is a key enabler for engine downsizing and turbo-boosting, allowing vehicle makers to improve fuel economy and reduce emissions.

"We continue to focus on strengthening our product portfolio to grow our revenue stream with new technologies, innovations and strong brands that bring value to our customers, especially given the increasingly challenging regulatory requirements for fuel economy, alternative fuels, reduced emissions and improved safety," said Alapont.

"Federal-Mogul's results during the third quarter demonstrate that our sustainable global profitable growth strategy has enabled the company to successfully operate in today's environment while also preparing Federal-Mogul to capitalize on new growth opportunities as the overall economy and global automotive markets strengthen," Alapont concluded.