2008 was a record year for Baldor. Sales ended the year at $1.95 billion, up 7% over the previous year. Earnings were $99,423,000, up 6% over the year before. Earnings per share increased to $2.15 from $2.08 in the prior year. We paid off approximately $50,000,000 of debt during the year and have paid off approximately $225,000,000 since January 31, 2007. This year we expect to reduce debt by a minimum of $125,000,000.

Our Super-E^® premium efficiency motor sales increased again by more than 25% for the fourth straight year. Baldor Super-E motors allow our customers to reduce their electricity bills. We continue to expand our offering of Super-E motors and expect above average growth throughout the year. At the end of 2010, new energy standards enacted by the United States will require even broader use of these motors. This should increase our sales in 2011 and reduce our country’s consumption of electricity.

We are pleased with the growth in both sales and profitability of our international business. Sales increased by approximately 10% during the year. Profitability has now improved to a level equal to our domestic business. We continue to see opportunities in the international markets.

During the year we acquired Poulies Maska, a manufacturer of sheaves and bushings based in Canada. Sales for Maska were approximately $33,000,000 last year, from plants in Canada and China. Profitability and sales growth at Maska are above our company average, and the China plant will help us as we begin to manufacture motors for the Chinese market.

Two of our plants were recognized for their outstanding performance last year. Our Weaverville, North Carolina, plant was selected as Industry Week’s Plant of the Year. Our Ozark, Arkansas, plant was selected as the Plant of the Year by Plant Services magazine. We are very proud of the Baldor employees in these plants and congratulate them for this national recognition.

Like an individual, our company has shared beliefs or values that drive its behavior. Our values define our culture, which we describe as “the way we do things around here.” This year’s annual report will give you a “peek” at the culture of Baldor.

Baldor’s culture is important because it defines the way we treat our customers, our shareholders and each other as employees of Baldor. While our culture is defined by many small and important details, there are ten values that we often talk about. These values are:

1. Do the right thing – honesty/ integrity
2. I value customers/my fellow employees/our owners
3. Safety before all other tasks
4. Quality is the biggest driver of productivity
5. Everything we do can and should be improved
6. I value individuals, but not above the team
7. I make and keep commitments
8. I set goals for myself – I’m committed to excellence
9. I practice teamwork – I trust my team members
10. Respect the environment and our community

In the report that follows, we’ll touch on most of these values in an effort to help you better understand our company. If after reading our report you have questions or comments, or want to be part of our culture as a customer, shareholder or employee, please feel free to contact us.

As we write this letter, it’s obvious that 2009 will be a challenging year for our company. We’re confident that the strength of our culture and the determination of our employees will allow us to emerge from the current recession stronger and better positioned than any of our competitors.

Thank you for your confidence in Baldor Electric Company. We recognize we must continue to earn it day-by-day and are determined to do so.

Best regards,

John McFarland Chairman and CEO

Ronald Tucker President and COO