2007 was a transformational year for Baldor. With the acquisition of Reliance Electric on January 31st, we more than doubled the size of our company. Sales ended the year at $1.82 billion, more than double the $811.3 million for the year before. Earnings increased to $94.1 million, nearly double the $48.1 million in earnings the year before. Earnings per share increased to $2.08 from $1.46 in 2006. We are very proud of all we accomplished last year by bringing the best together – Baldor•Dodge•Reliance.

Our original goal was to reduce our debt by $300 million in the first three years following the acquisition. In the first 11 months, we were able to reduce our debt by $176 million. We are ahead of schedule and now expect a reduction of $300 million by the end of 2008.

During 2007, we invested in sales by creating two sales groups, one to sell Baldor•Reliance® motors and one to sell DODGE® power transmission products. This new strategy was implemented last October and is starting to show the results we seek, which are better customer service and faster sales growth.

As we brought two great companies together, we worked hard to blend two cultures, each slightly different, but both rich in values that made both companies successful. We have also approached the combination with an open mind and are implementing best practices throughout the Company. As we write this, we are 13 months into the process of bringing the best together and see even more opportunities to be a better supplier to our customers, provide more opportunities for our employees, and build a better Baldor for our shareholders.

In 2008, we will continue to identify and create synergies that make us more profitable but also allow us to grow larger and stronger by developing long-term, sustainable competitive advantages.

We expect our Super-E® high efficiency motors to again grow this year by more than 25 percent. We have also added a new line of high efficiency DODGE gear motors, and we will put more emphasis on the energy saving benefits of our high efficiency adjustable speed drives. These products are helping our customers improve their energy efficiency. We also have significant efforts underway at Baldor to improve our own energy efficiency.

Our products are in demand globally, and we continue to invest in a larger and more effective international sales organization, which now sells our products in 70 countries. International sales comprised 15 percent of total sales, but are growing faster than sales overall. We are proud that our U.S. plants are efficient enough to export our products throughout the world.

By working together, the team members of Baldor•Dodge•Reliance have accomplished a lot in this first year. But the real success of the combination is yet to come. We expect 2008 to be a record year in sales and earnings and a year when we really begin to see the strength in bringing the best together. We are building a great company - a better Baldor!

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

Best Regards,

John McFarland Chairman and CEO

Ronald Tucker President and COO