share for the year ended December 31, 2008 compared to the year ended December 31, 2007, due to lower outstanding shares. Net income was positively impacted by increased product sales volumes due to increased demand for certain Navistar product lines as well as production efficiencies and reduced fixed expenses. In connection with the construction of a new manufacturing facility in Mexico, the Company expensed approximately $1,212,000 of transition costs through December 31, 2008.
Looking forward, the Company anticipates decreased sales levels during 2009 as a result of the uncertainties in the current economy. Industry analysts are forecasting an overall decrease in heavy duty truck production of approximately 30% compared to 2008 levels. In response to the expected decreased sales levels, the Company is focused on reducing costs and adjusting operations. Management believes these actions will lessen the impact of the significantly reduced sales, although profitability will continue to be impacted in 2009 due to the large fixed cost component of the Company's business and due to the difficulty in maintaining production efficiencies in a decreased and volatile sales climate. Additionally, the Company expects to incur approximately $2,000,000 of transition and start up expenses in 2009 associated with its new manufacturing facility in Matamoros, Mexico which will further decrease earnings.
RESULTS OF OPERATIONS
2008 COMPARED WITH 2007
Net sales for 2008 totaled $116,655,000, an approximate 5% decrease from the $122,712,000 reported for 2007. Included in total sales are tooling project revenues of $6,116,000 for 2008 and $21,667,000 for 2007. Tooling project sales result from billings to customers for molds and assembly equipment built specifically for their products. These sales are sporadic in nature and do not represent a recurring trend. Tooling project revenues relate to both replacement models and new business awarded to the Company. Total product sales revenue for 2008, excluding tooling project revenue, totaled $110,539,000, an approximate 9% increase from the $101,045,000 reported for 2007. The primary reason for the increase in product sales is the increased volume for new programs started in 2007 and 2008.
Sales to Navistar in 2008 totaled $66,880,000, an approximate 25% increase from the 2007 amount of $53,629,000. Included in total sales is $3,120,000 of tooling sales for 2008 compared to $8,323,000 in 2007. Total product sales to Navistar increased by 41% for 2008 as compared to 2007. The increase in product sales is primarily due to increased volume for programs started in 2007, as well as increases in the demand for other products that the Company manufactures for Navistar.
Sales to PACCAR in 2008 totaled $30,201,000 an approximate 25% decrease from 2007 sales amount of $40,331,000. Included in total sales is $2,505,000 of tooling sales for 2008 compared to $12,518,000 in 2007. Total product sales to PACCAR were $27,695,000 for 2008 compared to $27,813,000 for 2007. Product sales were favorably affected by increased volume for programs started in 2007 offset by a decrease in sales for more mature products that the Company manufactures for PACCAR.
Sales to other customers decreased by approximately 32% to $19,575,000 in 2008 from $28,751,000 in 2007. This decrease is primarily related to decreases in product sales to a customer in the marine industry of approximately $5,854,000 as well as decreases in product sales to other heavy-duty truck manufacturers and an automotive customer.
Gross margin was approximately 18% of sales in 2008 compared to 14% of sales in 2007. The increase in gross margin was primarily due to improved production efficiencies. Also contributing to the increase in gross margin was lower fixed manufacturing costs due to cost reductions implemented by the Company and higher fixed cost absorption due to higher product sales volumes. Our manufacturing operations have significant fixed costs such as labor, energy, depreciation, lease expense and post retirement healthcare costs that do not change proportionately with sales. Partially offsetting the increase in gross margin was higher profit sharing expense due to higher earnings.
Selling, general, and administrative expenses ("SG&A") totaled $12,020,000 in 2008, increasing from $11,399,000 in 2007. The primary reasons for this increase are higher profit sharing expense due to increased earnings in 2008 compared to 2007.
Net interest expense totaled $689,000 for the year ended December 31, 2008, compared to net interest expense of $175,000 for the year ended December 31, 2007. The Company had no interest income for the year ended December 31, 2008 compared to $542,000 for the year ended December 31, 2007 due to cash previously used for investing being used to repurchase Core Molding Technologies stock from Navistar in July of 2007. Interest expense for 2008 decreased to $689,000 compared to $717,000 for 2007. The decrease in interest expense is primarily a result of lower outstanding

balances on the Company's revolving line of credit and lower interest rates on the Company's variable interest loans. Interest of approximately $82,000 related to the construction of the new manufacturing facility in Matamoros has been capitalized and therefore has not impacted interest expense in 2008. Income tax expense for 2008 was approximately 34% of total income before taxes compared to approximately 31% in 2007. In 2007, the Company adjusted the state and local tax rates due to changes in the tax laws of various states. This resulted in changes to the Company's state deferred liabilities and lowered the 2007 effective tax rate. The Company also received certain state and local tax refunds in 2007 contributing to the reduction of the effective rate. Net income for 2008 was $5,643,000 or $.84 per basic share and $.81 per diluted share, representing an increase of $1,917,000 from the 2007 net income of $3,726,000 or $.43 per basic share and $.41 per diluted share. In July 2007, the Company purchased 3,600,000 shares of its stock from Navistar. This share repurchase resulted in a favorable impact on earnings per share for the year ended December 31, 2008 compared to the year ended December 31, 2007, due to lower outstanding shares.
2007 COMPARED WITH 2006
Net sales for 2007 totaled $122,712,000, an approximate 24% decrease from the $162,330,000 reported for 2006. Included in total sales are tooling project revenues of $21,667,000 for 2007 and $12,156,000 for 2006. Tooling project sales result from billings to customers for molds and assembly equipment built specifically for their products. These sales are sporadic in nature and do not represent a recurring trend. Tooling project revenues relate to both replacement models and new business awarded to the Company. Total product sales revenue for 2007, excluding tooling project revenue, totaled $101,045,000, an approximate 33% decrease from the $150,174,000 reported for 2006. The primary reason for the decrease in product sales is lower demand resulting from an industry wide general decline in truck orders due to the new federal emissions standards that went into effect on January 1, 2007 and was partially offset by new business awarded to the Company.
Sales to Navistar in 2007 totaled $53,629,000, an approximate 34% decrease from the 2006 amount of $81,223,000. Included in total sales is $8,323,000 of tooling sales for 2007 compared to $10,206,000 in 2006. Total product sales to Navistar have decreased by 36% for 2007 as compared to 2006. The primary reason for the decrease in product sales is lower demand resulting from an industry wide general decline in truck orders as noted above, and was partially offset by new business with Navistar.
Sales to PACCAR in 2007 totaled $40,331,000, an approximate 11% increase from 2006 sales amount of $36,222,000. Included in total sales is $12,518,000 of tooling sales for 2007 compared to $1,232,000 in 2006. Total product sales to PACCAR have decreased by 21% for 2007 as compared to 2006. The primary reason for the decrease in sales to PACCAR is a result of the industry wide decline in truck orders as noted above, which was partially offset by new business with PACCAR.
Sales to other customers decreased by approximately 36% to $28,751,000 in 2007 from $44,885,000 in 2006. This decrease is primarily related to the general decline in truck orders from other truck manufacturers Core Molding Technologies serves and reduced sales to an automotive supplier.
Gross margin was approximately 14% of sales in 2007 compared to 18% of sales in 2006. The decrease in gross margin was due to a combination of factors including production inefficiencies resulting from new product launches and varying production levels caused by inconsistent customer orders. Also contributing to the decrease in gross margin was lower fixed cost absorption due to lower product sales volumes. Our manufacturing operations have significant fixed costs such as labor, energy, depreciation, lease expense and post retirement healthcare costs that do not change proportionately with sales. Partially offsetting the decrease in gross margin was lower profit sharing expense due to lower earnings.
Selling, general, and administrative expenses ("SG&A") totaled $11,399,000 in 2007, decreasing from $14,013,000 incurred in 2006. The primary reasons for this decrease are lower profit sharing expense due to lower earnings, lower wage and benefit costs related to reductions in personnel, as well as lower professional fees, outside services and insurance costs.
Interest income decreased to $542,000 in 2007 compared to $645,000 in 2006. This change is primarily due to the repurchase of 3.6 million shares of stock from Navistar. On July 18, 2007, $19,000,000 of cash balances were used to partially finance this repurchase, resulting in lower interest income. Interest expense increased to $717,000 in 2007 compared to $488,000 in 2006. The increase in interest expense is related to borrowings of $7,100,000 against the line of

credit that was used to finance the remaining portion of the stock repurchase from Navistar. Partially offsetting higher interest expense from the share repurchase was a reduction in interest associated with reductions of long term debt due to regularly scheduled payments. Variable interest rates experienced by Core Molding Technologies with respect to its two long-term borrowing facilities have increased; however, due to the interest rate swaps previously entered into by Core Molding Technologies, the interest rate is essentially fixed for these two debt instruments.
Income tax expense for 2007 was approximately 31% of total income before taxes compared to approximately 35% in 2006. In 2007, the Company adjusted the state and local tax rates due to changes in the tax laws of various states. This resulted in changes to the Company's state deferred liabilities and lowered the 2007 effective tax rate. The Company also received certain state and local tax refunds in 2007 contributing to the reduction of the effective rate. Also contributing to the decrease in rate in 2007 was certain manufacturing production activity deductions for its U.S. manufacturing facilities under
Section 199 of the Internal Revenue Code as well as state and local tax refunds received. Section 199 deductions as a percentage of income are ratably higher in 2007 compared to 2006.
Net income for 2007 was $3,726,000 or $.43 per basic share and $.41 per diluted share, representing a decrease of $6,685,000 from the 2006 net income of $10,411,000 or $1.03 per basic share and $1.00 per diluted share.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds have been cash generated from operating activities and bank borrowings. The Company's primary cash requirements are for operating expenses and capital expenditures.
In December of 2008, the Company and its subsidiary, CoreComposites, entered into a Credit Agreement (the "Credit Agreement") with KeyBank National Association ("KeyBank") as a lender, lead arranger, sole book runner and administrative agent. Under the Credit Agreement, KeyBank has made certain loans, which include (i) a $12,000,000 construction loan, (ii) an $8,000,000 construction loan, (iii) an $8,000,000 revolving credit commitment, (iv) a $2,678,563 term loan to refinance a previous term loan with KeyBank, and (v) a letter of credit in an undrawn face amount of $3,332,493 with respect to the Company's existing industrial development revenue bond financing.
As widely reported, financial markets in the United States, Europe and Asia have been experiencing extreme disruption in recent months, including, among other things, extreme volatility in security prices, severely diminished liquidity and credit availability, rating downgrades of certain investments and declining valuations of others. Governments have taken unprecedented actions intended to address extreme market conditions that include severely restricted credit and declines in real estate values. While currently these conditions have not impaired the Company's ability to access credit markets and finance operations, there can be no assurance that there will not be a further deterioration in financial markets and confidence in major economies, which may impact the Company's ability to borrow in the future.
Cash provided by operating activities totaled $7,157,000. Net income contributed $5,643,000 to operating cash flow. Non-cash deductions of depreciation and amortization contributed $3,545,000 to operating cash flow. In addition, the increase in the postretirement healthcare benefits liability of $1,401,000 is not a current cash obligation, and this item will not be a significant cash obligation until more retirees begin to utilize their retirement medical benefits. Changes in working capital decreased cash provided by operating activities by $3,952,000. The decrease in working capital was impacted by increase in accounts receivable and inventory and decreases in accounts payable. These uses of cash were partially offset by increases in accrued liabilities. Cash used for investing activities was $12,097,000 for the year ended December 31, 2008, which primarily represented payments related to the Company's construction of a new manufacturing facility in Mexico. The Company previously announced plans to spend approximately $20.2 million on a new facility that will replace its existing leased facility in Mexico and add compression molding capabilities. To finance this project, the Company has received bank financing for new borrowings of $20,000,000, of which the Company has drawn $8,121,000 at December 31, 2008. At December 31, 2008, commitments for capital expenditures in progress were $8,455,000. Capital expenditures for 2009 are anticipated to be $11,348,000, which include $9,456,000 related to the construction of the Company's new manufacturing facility in Mexico. Financing activities increased cash flow by $4,940,000. The primary financing activity is from borrowings on the construction loan for the new facility in Mexico of 8,121,000. Partially offsetting these borrowings were principal repayments on the Company's secured note payable of $1,286,000 and the Company's industrial revenue bond of $580,000. Additionally, net repayments of $1,058,000 on the line of credit decreased financing cash flow.

At December 31, 2008, the Company had no cash on hand and an available line of credit of $8,000,000 ("Line of Credit"), which is scheduled to mature on April 30, 2010. At December 31, 2008, Core Molding Technologies had outstanding borrowings on the Line of Credit of $1,194,000. Management expects this line of credit to be adequate to meet Core Molding Technologies' liquidity needs. The Company is required to meet certain financial covenants included in its debt agreements with respect to leverage ratios, fixed charge ratios, capital expenditures as well as other customary affirmative and negative covenants. As of December 31, 2008, the Company was in compliance with its financial debt covenants for the Line of Credit, the secured note payable, the two construction loans related to the new facility in Mexico, the letter of credit securing the Industrial Revenue Bond and certain equipment leases.
On March 31, 2009, the Company entered into a first amendment to the Credit Agreement with KeyBank (the "First Amendment"). Pursuant to the terms of the First Amendment, the lender agreed to modify certain terms of the Credit Agreement. These modifications included (1) modification of the definition of EBITDA to add back transition costs up to $3,200,000 associated with the transition and startup of the new production facility in Matamoros and add back non-cash compensation expense recorded under SFAS 123R (2) modification of the fixed charge definition to exclude from consolidated interest expense any measure of ineffectiveness from interest rate swaps and amortization of loan origination and issuance costs (3) modification of the leverage ratio from 3.0x to 3.2x at June 30, 2009, 3.4x at September 30, 2009, and 3.2x at December 31, 2009 (4) increase the applicable margin for interest rates applicable to LIBOR loans effective March 31, 2009 to 400 basis points for both construction loans and the revolving line of credit; all rates decrease 25 basis points upon reaching a leverage ratio of less than 2.25 to 1.00 (5) increase the letter of credit fee on the Industrial Revenue Bond to 300 basis points (6) increase the 1% Libor floor on the $8,000,000 construction loan and revolving line of credit to 1.5% and(7) implement a 1.5% Libor floor on the $12,000,000 construction loan.
Based on the Company's forecasts which are primarily based on industry analysts' estimates of 2009 heavy and medium-duty truck production volumes as well as other assumptions management believes to be reasonable, management believes that the Company will be able to maintain compliance with the covenants as amended under the First Amendment to the Credit Agreement for the next 12 months. Management believes that cash flow from operating activities together with available borrowings under the Credit Agreement will be sufficient to meet Core Molding Technologies liquidity needs. However, if a material adverse change in the financial position of Core Molding Technologies should occur, or if actual sales or expenses are substantially different than what has been forecasted, Core Molding Technologies' liquidity and ability to obtain further financing to fund future operating and capital requirements could be negatively impacted.
CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET TRANSACTIONS The Company has the following minimum commitments under contractual obligations, including purchase obligations, as defined by the United States Securities and Exchange Commission ("SEC"). A "purchase obligation" is defined as an agreement to purchase goods or services that is enforceable and legally binding on the Company and that specifies all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum, or variable price provisions; and the approximate timing of the transaction. Other long-term liabilities are defined as long-term liabilities that are reflected on the Company's balance sheet under accounting principles generally accepted in the United States. Based on this definition, the table below includes only those contracts which include fixed or minimum obligations. It does not include normal purchases, which are made in the ordinary course of business.
The following table provides aggregated information about contractual obligations and other long-term liabilities as of December 31, 2008.

                                           2009            2010 - 2011         2012 - 2013          2014 and after            Total
Debt                                   $  2,906,000        $  6,227,000        $  4,638,000        $        264,000        $ 14,035,000
Line of credit                            1,194,000                   -                   -                       -           1,194,000
Interest                                  1,502,000           1,469,000             745,000                 253,000           3,969,000
Operating lease obligations                 362,000             349,000                   -                       -             711,000
Contractual commitments for
capital expenditures                      8,455,000                   -                   -                       -           8,455,000
Postretirement benefits                     520,000             890,000           1,375,000              13,093,000          15,878,000

Total                                  $ 14,939,000        $  8,935,000        $  6,758,000        $     13,610,000        $ 44,242,000

Future interest payments in the above table include the entire $20,000,000 of construction loans related to the new Matamoros manufacturing facility; however, only $8,121,000 has been drawn at December 31, 2008. Interest is calculated based the effective interest rates on the Company's borrowing arrangements reflective of the interest rate swap agreements in place for the long-term borrowings. As of December 31, 2008, the Company had no off-balance sheet arrangements.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management's Discussion and Analysis of Financial Condition and Results of Operations discuss the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to accounts receivable, inventories, workers compensation and self insurance healthcare accruals, post retirement benefits, and income taxes. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about . . .