10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended January 1, 2005

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission File Number 01-07284

Baldor Electric Company

Exact name of registrant as specified in its charter

Missouri	43-0168840
State or other jurisdiction of incorporation or organization	IRS Employer Identification No.
5711 R. S. Boreham, Jr., St Fort Smith, Arkansas	72901
Address of principal executive offices	Zip Code

479-646-4711

Registrant’s telephone number, including area code

Securities registered pursuant to section 12(b) of the Act:

Title of Class	Name of each exchange on which registered
Common Stock, $0.10 Par Value	New York Stock Exchange
Common Stock Purchase Rights	New York Stock Exchange

Securities registered pursuant to section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).    Yes  x    No  ¨

The aggregate market value of voting stock held by non-affiliates of the registrant based on the closing price on July 3, 2004, was $629,113,574.

At February 26, 2005, there were 33,183,072 shares of the registrant’s common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Annual Report to Shareholders for the fiscal year ended January 1, 2005 (the “2004 Annual Report to Shareholders “), are incorporated by reference into Part I and Part II.

Portions of the Proxy Statement for the Annual Meeting of Shareholders to be held April 16, 2005 (the “2005 Proxy Statement”), are incorporated by reference into Part III.

TABLE OF CONTENTS

			Page
PART I
Item 1	-	Business	3
		Products	3
		Sales and marketing	3
		Competition	4
		Manufacturing	4
		Research and engineering	4
		Environment	4
		Employees	4
		Executive officers of the registrant	5
		International operations	5
		Access to filings on Company website	5
Item 2	-	Properties	6
Item 3	-	Legal Proceedings	6
Item 4	-	Submission of Matters to a Vote of Security Holders	6
PART II
Item 5	-	Market for the Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities	7
Item 6	-	Selected Financial Data	7
Item 7	-	Management’s Discussion and Analysis of Financial Condition and Results of Operation	8
Item 7A	-	Quantitative and Qualitative Disclosures about Market Risk	8
Item 8	-	Financial Statements and Supplementary Data	8
Item 9	-	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	8
Item 9A	-	Controls and Procedures	8
Item 9B	-	Other Information	9
PART III
Item 10	-	Directors and Executive Officers of the Registrant	9
Item 11	-	Executive Compensation	10
Item 12	-	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	10
Item 13	-	Certain Relationships and Related Transactions	10
Item 14	-	Principal Accountant Fees and Services	10
PART IV
Item 15	-	Exhibits, Financial Statement Schedules, and Reports on Form 8-K	11
SIGNATURES			12
POWER OF ATTORNEY			12
SCHEDULE II			14
INDEX OF EXHIBITS			15

PART I

Item 1. Business

Baldor Electric Company (“Baldor” or the “Company”) was incorporated in Missouri in 1920. The Company operates in one industry segment, which includes the design, manufacture, and sale of electric motors, drives, generators and related products. Baldor has made several small acquisitions; however, the majority of its growth has come internally through broadening its markets and product lines.

Products

The AC motor product line presently ranges in size from 1/50 up to 1500 horsepower. The DC motor product line presently ranges from 1/50 through 800 horsepower. The adjustable speed controls product line ranges from 1/50 to 900 horsepower. The Company’s industrial control products include servo products, DC controls, position controls, and inverter and vector drives. With these products, the Company provides its customers the ability to purchase a “drive” from one manufacturer. Baldor defines a “drive” as an industrial motor and an electronic control. The Company’s power generator line ranges from 1.3 kilowatts to 2000 kilowatts. Sales of industrial electric motors represented approximately 76% of the Company’s business in 2004, 78% in 2003, and 79% in 2002. Almost all of the remaining sales were of power generators, drives, speed reducers, industrial grinders, buffers, polishing lathes, stampings, castings, and repair parts.

Baldor’s industrial motors and drives are designed, manufactured, and marketed for general purpose uses (“stock products”) and to individual customer requirements and specifications (“custom products”). Stock products represented approximately 60% of total product sales in 2004, 62% in 2003 and 65% in 2002. Most stock product sales are to customers who place their orders for immediate shipment from current inventory. Custom products generally are shipped within two weeks from the date of order. Because of these and other factors, the Company does not believe that its backlog represents an accurate indication of future shipments.

Sales and Marketing

The products of the Company are marketed throughout the United States and in more than 60 foreign countries. The Company’s field sales organization, comprised of independent manufacturer’s representatives and Company sales personnel, consists of more than 70 locations, including 41 in North America. The remainder of the Company’s representatives are located in various parts of the world including Europe, Latin America, Australia, and the Far East.

Custom products and stock products are sold to original equipment manufacturers (“OEMs”). Stock products are also sold to independent distributors for resale, often as replacement components in industrial machinery that is being modernized or upgraded for improved performance.

No single customer accounted for more than 5% of sales; therefore, the Company does not believe that the loss of any single customer would have a material effect on its total business.

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Competition

The Company faces substantial competition in the sale of its products in all markets served. Some of the Company’s competitors are larger in size or are divisions of large diversified companies and have substantially greater financial resources. The Company competes by providing its customers better value through product quality and efficiency and better services, including product availability, shorter lead-times, on-time delivery, local support, product literature, and training.

The Company is not aware of any industry-wide statistics from which it can precisely determine its relative position in the industrial electric motor industry. In the United States certain industry statistics are available from the U.S. Department of Commerce and the National Electrical Manufacturers Association. However, these sources do not include all competitors or all sizes of motors. The Company believes that it is a significant factor in its domestic markets and that its share of the market has increased over the past several years.

Manufacturing

The Company manufactures many of the components used in its products, including laminations, stamped steel parts, and aluminum die castings. Manufacturing many of its own components permits the Company to better manage cost, quality, and availability. In addition to the manufacturing of components, the Company’s motor manufacturing operations include machining, welding, winding, assembling, and finishing operations.

The raw materials necessary for the Company’s manufacturing operations are available from several sources. These materials include steel, copper wire, gray iron castings, aluminum, insulating materials, and diesel engines. Many of these materials are purchased from more than one supplier. The Company believes that alternative sources are available for such materials.

Research and Engineering

The Company’s design and development of electric motors, drives and generators include both the development of products, which extend the product lines, and the modification of existing products to meet new application requirements. Additional development work is done to improve production methods. Costs associated with research, new product development, and product and cost improvements are treated as expenses when incurred and amounted to approximately $23,356,000 in 2004, $21,932,000 in 2003, and $22,484,000 in 2002.

Environment

Compliance with laws relating to the discharge of materials into the environment, or otherwise relating to the protection of the environment, has not had a material effect on capital expenditures, earnings, or the financial position of the Company and is not expected to have such an effect.

Employees

As of February 26, 2005, the Company had 3,814 employees.

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Executive Officers of the Registrant

Information regarding executive officers is contained in Part III, Item 10, and incorporated herein by reference.

International Sales

International sales (foreign affiliates and exports) were approximately 16% of total sales in 2004, 15% of total sales in 2003, and 14% of total sales in 2002. See also Note I on page 28 of the 2004 Annual Report to Shareholders. The majority of international sales are from products produced in the United States and exported.

The Company’s products are distributed in more than 70 foreign countries, principally in Canada, Mexico, Europe, Australia, the Far East, and Latin America. Baldor’s wholly-owned affiliate, Baldor UK Ltd., has sales offices and a development and manufacturing facility in the UK. Baldor and its affiliates in Europe have sales offices in Germany and Switzerland. The Company owns majority interests in Australian Baldor Pty. Limited which has locations in Sydney and Melbourne. The Company wholly owns Baldor Electric (Far East) Pte. Ltd. located in Singapore and Baldor Japan Corporation located in Yokohama, Japan, and has sales offices in Taiwan and the Philippines. The Company also wholly owns Baldor de Mexico, S.A. de C.V. located in Leon, Mexico.

The Company believes that it is in a position to act on global opportunities as they become available. The Company also believes that there are additional risks attendant to international operations, including currency fluctuations and possible restrictions on the movement of funds. However, these risks have not had a significant effect on the Company’s business.

Access to Filings on Company Website

The Company makes available its Forms 10-K, 10-Q, 8-K, and amendments thereto on its corporate website when filed with the SEC. These filings, along with the Company’s Annual Reports to Shareholders, Proxy Statements, Code of Ethics for Certain Executives, and certain other corporate governance documents may be viewed online free of charge by accessing the Company’s website at www.baldor.com and selecting the Investor Relations section.

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Item 2. Properties

The Company believes that its facilities, including equipment and machinery, are in good condition, suitable for current operations, adequately maintained and insured, and capable of sufficient additional production levels. The following table contains information with respect to the Company’s properties.

LOCATION	PRIMARY USE	AREA (SQ. FT.)
Fort Smith, AR	AC motor production	384,969
	Distribution and service center	208,000
	Administration and engineering offices	79,675
	Aluminum die casting	79,330
	Drives production center	162,000
St. Louis, MO	Metal stamping and engineering toolroom	187,385
Columbus, MS	AC motor production	156,000
Westville, OK	AC and DC motor production	207,250
Fort Mill, SC	DC motor, AC motor, and tachometer production	108,000
Clarksville, AR	Subfractional AC and DC motors, gear motors, worm-gear speed reducers, and tachometer production	*165,735
Ozark, AR	AC motor production	151,783
Five other domestic locations	Metal stamping and motor, drives, and generator production	278,798
15 foreign locations	Sales and distribution centers and electronic controls production	**116,597
		2,285,522

* This property is leased pursuant to an Industrial Revenue Bond agreement.

** Of this amount, approximately 90,000 sq. ft. is leased.

The Company also has approximately 350,000 sq. ft. of space available for expansion, currently fully leased to outside firms.

Item 3. Legal Proceedings

The Company is party to a number of legal proceedings incidental to its business, none of which is deemed to be material to its operations or business.

Item 4. Submission of Matters to a Vote of Security Holders

Not applicable.

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PART II

Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities

Information under the captions “Ticker”, “Dividends Paid”, “Common Stock Price Range”, and “Shareholders”, on page 33 of the 2004 Annual Report to Shareholders, is incorporated herein by reference.

During the fourth quarter of 2004, certain District Managers exercised non-qualified stock options previously granted to them under the Baldor Electric Company 1990 Stock Option Plan for District Managers (the “DM Plan”). The exercise price paid by the District Managers equaled the fair market value on the date of the grant. The total amount of shares granted under the DM Plan is approximately 1% of the outstanding shares of Baldor common stock. None of the transactions were registered under the Securities Act of 1933, as amended (the “Act”), in reliance upon the exemption from registration afforded by Section 4(2) of the Act. The Company deems this exemption to be appropriate given that there are a limited number of participants in the DM Plan and all parties are knowledgeable about the Company.

Information about equity compensation plans not approved by security holders contained in the 2004 Annual Report to Shareholders under the caption “Note K Stock Plans” is incorporated herein by reference. The following table contains information regarding the number of shares of common stock that may be issued pursuant to the Company’s equity compensation plans as of January 1, 2005.

Equity Compensation Plan Information

Plan Category	(a) Number of securities to be issued upon exercise of outstanding options, warrants, and rights	(b) Weighted- average exercise price of outstanding options, warrants, and rights		(c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Equity Compensation plans approved by security holders	2,198,871	$	18.78	1,138,426
Equity compensation plans not approved by security holders	71,004	$	20.12	142,441
Total	2,269,875	$	18.82	1,280,867

Since November 2003, the Company has been authorized to repurchase up to three million shares. No shares were repurchased during the fourth quarter of 2004. This repurchase authorization expires in December 2008.

Item 6. Selected Financial Data

Information concerning net sales, net earnings, net earnings per share, dividends per share, long-term obligations, and total assets for the years ended 1994 through 2004 is contained under the caption “Eleven-Year Summary of Financial Data” on page 16 of the 2004 Annual Report to Shareholders and is incorporated herein by reference.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation

Information under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” on pages 18 through 20 of the 2004 Annual Report to Shareholders is incorporated herein by reference.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Information under the sub-caption “Market Risk” of the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” on page 19 of the 2004 Annual Report to Shareholders is incorporated herein by reference.

Item 8. Financial Statements and Supplementary Data

The consolidated financial statements of the Company and related notes on pages 21 through 30, the “Report of Independent Registered Public Accounting Firm” on page 31, “Report of Management on Responsibility for Financial Reporting” on page 32, and the “Summary of Quarterly Results of Operations (Unaudited)” on page 22 of the 2004 Annual Report to Shareholders are incorporated herein by reference.

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

Not Applicable.

Item 9A. Controls and Procedures

Disclosures Controls and Procedures

The Company maintains a system of disclosure controls and procedures that is designed to provide reasonable assurance that information, which is required to be disclosed, is accumulated and communicated to management in a timely manner. The Company, under the supervision and with the participation of management, including the principal executive officer and principal financial officer evaluated as of January 1, 2005 the effectiveness of this system of disclosure controls and procedures, and has concluded that such disclosure controls and procedures were effective as of that date.

Internal Control Over Financial Reporting

Management’s assessment, and the attestation report of the Company’s public accounting firm, of the effectiveness of the Company’s internal control over financial reporting are incorporated herein by reference from the “Report of Management on Internal Control over Financial Reporting” located on page 32 of the 2004 Annual Report to Shareholders and “Report of Independent Registered Public Accounting Firm” located on page 31 of the 2004 Annual Report to Shareholders.

Changes in Internal Control Over Financial Reporting

There have been no significant changes in the Company’s internal controls over financial reporting or in other factors that could significantly affect those controls subsequent to the date of management’s assessment.

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Item 9B. Other Information

On November 8, 2004, the Company approved a Bonus Plan for Executive Officers to be implemented for the Company’s fiscal year 2005. The participants in this Bonus Plan will be the executive officers of the Company for fiscal year 2005. The formula used in the Bonus Plan is comprised of two independent segments. Each segment provides 50% of the bonus. Segment 1 is based on the Company’s sales plan for fiscal year 2005 and Segment 2 is based on the Company’s pre-tax earnings plan for fiscal year 2005.

PART III

Item 10. Directors and Executive Officers of the Registrant

Information contained in the 2005 Proxy Statement under the captions “Proposal 1 - Election of Directors”, “Code of Ethics”, “Statement of Audit Committee Member Independence and Financial Expertise”, and “Section 16(a) Beneficial Ownership Reporting Compliance” is incorporated herein by reference. The current executive officers of the Company, each of whom is elected for a term of one year or until his successor is elected and qualified, are:

Name	Age	Position	Served as Officer Since
John A. McFarland	53	Chairman and Chief Executive Officer	1990
Ronald E. Tucker	47	President, Chief Financial Officer and Secretary	1997
Randall P. Breaux	42	Vice President – Marketing	2001
Roger V. Bullock	55	Vice President – Drives	2002
Randy L. Colip	46	Vice President – Sales	1997
Charles H. Cramer	60	Vice President – Human Resources	1984
Gene J. Hagedorn	58	Vice President – Materials	1994
Jeffrey R. Hubert	51	Vice President – Sales	2002
Tracy L. Long	39	Treasurer and Assistant Secretary	2003
Ronald W. Thurman	51	Vice President – Engineering	2005
Randal G. Waltman	55	Vice President – Operations	1997

Each of the executive officers has served as an officer or in a management capacity with the Company for the last five years except for Jeffrey R. Hubert. Mr. Hubert joined Baldor in July 2001 as the Company’s Director of Business Development. Prior to joining Baldor, Mr. Hubert spent 15 years in the motor business in various areas of sales, marketing, customer service, and application engineering. There are no family relationships among the directors or executive officers.

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Item 11. Executive Compensation

Information contained in the 2005 Proxy Statement under the caption “Executive Compensation”, except for the information contained in the sub-captions “Board Report on Executive Compensation” and “Performance Graph”, is incorporated herein by reference. Information contained in the 2005 Proxy Statement under the caption “Proposal 1 – Election of Directors” paragraph headed “Director Compensation” is also incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The security ownership by officers, directors, and beneficial owners of more than five percent of the Company’s Common Stock included under the caption “Security Ownership of Certain Beneficial Owners and Management” of the 2005 Proxy Statement is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions

Certain relationships and related transactions included under the caption “Compensation Committee Interlocks and Insider Participation” of the 2005 Proxy Statement is incorporated herein by reference.

Item 14. Principal Accountant Fees and Services

Information contained in the 2005 Proxy Statement under the caption “Independent Auditors” is incorporated herein by reference.

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PART IV

Item 15. Exhibits and Financial Statement Schedules

(a)  (1) The following consolidated financial statements of Baldor Electric Company and its affiliates, included in the 2004 Annual Report to Shareholders, are incorporated by reference in Item 8 of this Report:

• Consolidated Balance Sheets - January 1, 2005 and January 3, 2004

• Consolidated Statements of Earnings - for each of the three years in the period ended January 1, 2005

• Consolidated Statements of Cash Flows - for each of the three years in the period ended January 1, 2005

• Consolidated Statements of Shareholders’ Equity - for each of the three years in the period ended January 1, 2005

• Notes to Consolidated Financial Statements

        (2) The following consolidated financial statement schedule of Baldor Electric Company and its affiliates is included in Item 14(d) of this Report:

• Schedule II Valuation and Qualifying Accounts

All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable.

        (3) See Exhibit Index at pages 15-16 of this Report.

(b) Exhibits

See Exhibit Index at pages 15-16 of this Report.

(c) Financial Statement Schedules

The response to this portion of Item 15 is submitted as a separate section of this Report at page 14 hereof.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

BALDOR ELECTRIC COMPANY
(Registrant)
By	/s/ John A. McFarland
	John A. McFarland
	Chairman and Chief Executive Officer
	(Principal Executive Officer)

Date: March 16, 2005

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints John A. McFarland and Ronald E. Tucker, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign this Report and any and all amendments to this Report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as they might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their substitutes, may lawfully do or cause to be done by virtue hereof.

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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons, on behalf of the registrant, and in the capacities and on the dates indicated.

SIGNATURE PAGE FOR FORM 10-K FOR YEAR ENDED JANUARY 1, 2005.

Signature	Title	Date
/s/ John A. McFarland John A. McFarland	Chairman, Chief Executive Officer, and Director (Principal Executive Officer)	March 16, 2005
/s/ Ronald E. Tucker Ronald E. Tucker	President, Chief Financial Officer and Secretary (Principal Financial Officer) (Principal Accounting Officer)	March 16, 2005
/s/ Jefferson W. Asher, Jr.	Director	March 16, 2005
Jefferson W. Asher, Jr.
/s/ Merlin J. Augustine, Jr.	Director	March 16, 2005
Merlin J. Augustine, Jr.
/s/ R. S. Boreham, Jr.	Director	March 16, 2005
R. S. Boreham, Jr.
/s/ Richard E. Jaudes	Director	March 16, 2005
Richard E. Jaudes
/s/ Robert J. Messey	Director	March 16, 2005
Robert J. Messey
/s/ Robert L. Proost	Director	March 16, 2005
Robert L. Proost
/s/ R. L. Qualls	Director	March 16, 2005
R. L. Qualls
/s/ Barry K. Rogstad	Director	March 16, 2005
Barry K. Rogstad

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BALDOR ELECTRIC COMPANY AND AFFILIATES

SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS

(In thousands)

Column A	Column B		Column C			Column D			Column E
			Additions
Description	Balance at Beginning of Period		Charged to Costs And Expenses		Charged to Other Accounts	Deductions			Balance at End of Period
Deducted from current assets:
Allowance for doubtful accounts
2004	$	3,870	$	0		$	562	(A)	$	3,308
2003	$	4,031	$	450		$	611	(A)	$	3,870
2002	$	4,600	$	1,386		$	1,955	(A)	$	4,031

(A) Uncollectible accounts written off (net of recoveries) during year.

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BALDOR ELECTRIC COMPANY AND AFFILIATES

INDEX OF EXHIBITS

Exhibit No.		Description
3(i)	*	Articles of Incorporation (as restated and amended) of Baldor Electric Company, effective May 2, 1998, filed as Exhibit 3(i) to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 4, 1998.
3(ii)		Bylaws of Baldor Electric Company (as restated and amended February 7, 2005).
4(i).1	*	Rights Agreement, dated May 6, 1998, between Baldor Electric Company and Wachovia Bank of North Carolina, N.A. (formerly Wachovia Bank & Trust Company, N.A.), as Rights Agent, originally filed as Exhibit 1 to the Registrant’s Current Report on Form 8-K dated May 13, 1988, and refiled as Exhibit 4(i) to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1994.
4(i).2	*	Amendment Number 1 to the Rights Agreement, dated February 5, 1996, filed as Exhibit 2 to the Registrant’s Registration Statement on Form 8-A/A dated March 21, 1996.
4(i).3	*	Amendment Number 2 to the Rights Agreement, dated June 1, 1999, filed as Exhibit 4(i)(c) to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 3, 1999.
10(iii).1	* †	Officers Compensation Plan, originally filed as Exhibit 10.6 to the Registrant’s Annual Report on Form 10-K for year ended December 31, 1988, and refiled as Exhibit 10(iii)(A)(2) to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1994.
10(iii).2	* †	1987 Incentive Stock Plan, originally filed as Appendix A to Registrant’s Proxy Statement dated April 3, 1987, and refiled as Exhibit 10(iii)(A)(3) to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1994.
10(iii).3	* †	1989 Stock Option Plan for Non-Employee Directors, as restated and amended at the Board of Directors Meeting on August 10, 1998, filed as Exhibit 10(iii)A.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 4, 1998.
10(iii).4	* †	1994 Incentive Stock Option Plan, as restated and amended at the Company’s Annual Meeting on May 2, 1998, filed as Exhibit 10(iii)A.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 4, 1998.

(continued on next page)

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BALDOR ELECTRIC COMPANY AND AFFILIATES

INDEX OF EXHIBITS

(continued from previous page)

Exhibit No.		Description
10(iii).5	* †	1996 Stock Option Plan for Non-Employee Directors, as restated and amended at the Board of Directors Meeting on August 10, 1998, filed as Exhibit 10(iii)A.3 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 4, 1998.
10(iii).6	* †	Stock Option Plan for Non-Employee Directors, as approved by the Company’s Board of Directors on February 5, 2001, filed as Exhibit 10 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 29, 2001.
10(iii).7	†	Bonus Plan for Executive Officers, as approved by the Company’s Compensation Committee of the Board of Directors on November 7, 2004, and the Company’s Board of Directors on November 8, 2004, and filed as Exhibit 10(iii).7 hereto.
11		Computation of Earnings Per Share, incorporated by reference in Note J of the 2004 Annual Report to Shareholders filed as Exhibit 13.
13		Portions of the 2004 Annual Report to Shareholders. The Annual Report is being filed as an exhibit solely for the purpose of incorporating certain provisions thereof by reference. Portions of the Annual Report not specifically incorporated are not deemed “filed” for the purposes of the Securities Exchange Act of 1934, as amended.
21		Subsidiaries of the Registrant.
23(i)		Consent of Independent Auditors.
24		Powers of Attorney (set forth on signature page hereto).
31.1		Certification by Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification by Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32		Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99		Not applicable

The Registrant agrees to furnish to the Securities and Exchange Commission, upon request, pursuant to Item 601(b)(4)(iii) of Regulation S-K, copies of instruments defining the rights of the holders of long-term debt of the Registrant and its consolidated affiliates.

* Previously filed.

† Management contract or compensatory plan or arrangement.

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EX-3.(II)

EXHIBIT 3 (ii)

BYLAWS

OF

BALDOR ELECTRIC COMPANY

As adopted by the Board of Directors at the May 2, 1980, meeting

and including amendments through February 7, 2005.

ARTICLE I

OFFICES

1. Principal Office. The principal office of the corporation shall be located at such place, either within or without the State of Missouri, as the Board of Directors shall designate from time to time.

2. Registered Office and Agent. The corporation shall have and continuously maintain a registered office and a registered agent within the State of Missouri. The Board of Directors, from time to time by resolution, may change the registered agent and the address of the registered office.

3. Additional Offices. The corporation may also have offices and branch offices at such other places as the Board of Directors from time to time may designate or the business of the corporation may require.

ARTICLE II

SEAL

The seal of the corporation shall be a circular impression with the name of the corporation around the rim thereof, the word “CORPORATE” in the upper portion of the center thereof, the words “MO. 1920” in the lower portion of the center thereof, and the word “SEAL” in the center. The Board of Directors, by resolution, may change the form of the corporate seal from time to time.

ARTICLE III

MEETINGS OF SHAREHOLDERS

1. Place. All meetings of shareholders shall be held at such place within or without the State of Missouri as may be designated by the Board of Directors at a meeting held not less than fifteen days prior to such meeting of shareholders. In the event the Board of Directors fails to designate a place for the meeting to be held, then the meeting shall be held at the principal office of the corporation.

Page 1

Anything to the contrary in this Article III notwithstanding, any meeting of shareholders called expressly for the purpose of removing one or more directors shall be held at the registered office or principal office of the corporation in Missouri or in the city or county in Missouri in which the principal business office of the corporation is located.

2. Annual Meeting. The annual meeting of the shareholders shall be held the last Saturday in April or the first Saturday in May of each year, at such hour as may be specified in the notice of the meeting. However, the day fixed for such meeting in any year may be changed by resolution of the Board to such other day in April or May as the Board of Directors may deem appropriate. If the day fixed for the annual meeting shall be a legal holiday in the state of the location of such meeting, such meeting shall be held on the next succeeding business date. At the annual meeting the shareholders shall elect directors to succeed those directors whose terms expire and shall transact such other business as may properly come before the meeting.

3. Special Meetings. Special meetings of shareholders will be called by the Secretary upon request of the President or a majority of the members of the Board of Directors or upon the request of the holders of not less than eighty percent (80%) of all the outstanding shares of the corporation’s stock entitled to vote at such meeting. Notwithstanding the provisions of any Articles of the Restated Articles of Incorporation, as Amended, or any other Article herein, this Section of the Bylaws may not be amended or repealed without the consent of the holders of eighty percent (80%) of the outstanding shares of the corporation.

4. Notice. Notice, given as provided in Article X of these Bylaws, of each meeting of shareholders, stating the place, day, and hour of the meeting and, in case of a special meeting, the purpose or purposes for which the meeting is called, is required to be delivered or given as provided in Article X of these Bylaws not less than ten (10) nor more than seventy (70) days prior to the date of said meeting.

5. Quorum and Voting. A majority of the outstanding shares of stock of the corporation, as shall then be in effect, entitled to vote at any meeting, represented in person or by proxy, constitutes a quorum at all meetings of the shareholders for the transaction of business, except as otherwise provided by law, by the corporation’s Articles of Incorporation, as then in effect, or by these Bylaws; provided, however, that in the absence of such quorum, the holders of a majority of the shares entitled to vote at said meeting and represented in person or by proxy, have the right successively to adjourn the meeting to a specified date not longer than ninety (90) days after such adjournment or to another place. Notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken, and no notice of such adjournment need be given to shareholders not present at the meeting. Shares represented by a proxy which directs that the shares abstain from voting or that a vote be withheld on a matter, shall be deemed to be represented at the meeting for quorum purposes. Shares as to which voting instructions are given as to at least one of the matters to be voted on shall also be deemed to be so represented. If the proxy states how shares will be voted in the absence of instructions by the shareholder, such shares shall be deemed to be represented at the meeting.

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6. Informal Action by Shareholders. In all matters, every decision of a majority of shares entitled to vote on the subject matter and represented in person or by proxy at a meeting at which a quorum is present shall be valid as an act of the shareholders, unless a larger vote is required by law, by these Bylaws, or the corporation’s Articles of Incorporation, as then in effect. Shares represented by a proxy which directs that the shares be voted to abstain from voting or that a vote be withheld on a matter shall be deemed to be represented at the meeting as to such matter. Shares represented by a proxy as to which voting instructions are not given as to one or more matters to be voted on shall not be deemed to be represented at the meeting for purposes of the vote as to such matter or matters. A proxy which states how shares will be voted in the absence of instructions by the shareholder as to any matter shall be deemed to give voting instructions as to such matter.

7. Notice of Shareholder Business at Annual Meetings. At any annual meeting of shareholders, only such business shall be conducted as shall have been properly brought before the meeting. In addition to any other requirements imposed by or pursuant to law, the corporation’s Articles of Incorporation, as then in effect, or these Bylaws, each item of business to be properly brought before an annual meeting must:

(a) be specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors or the persons calling the meeting pursuant to the corporation’s Articles of Incorporation, as then in effect;

(b) be otherwise properly brought before the meeting by or at the direction of the Board of Directors; or

(c) be otherwise properly brought before the meeting by a shareholder.

For business to be properly brought before an annual meeting by a shareholder, the shareholder must have given timely notice thereof in writing to the Secretary of the corporation. To be timely, a shareholder’s notice must be delivered to or mailed to and received at the principal office of the corporation not less than 120 days nor more than 180 days before the first anniversary of the date the corporation mailed its proxy statement in connection with the previous year’s annual meeting.

A shareholder’s notice to the Secretary of the corporation shall set forth as to each matter the shareholder proposes to bring before the annual meeting:

(a) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the annual meeting,

(b) the name and address, as they appear on the corporation’s books, of the shareholder(s) proposing such business,

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(c) the number of shares of common stock of the corporation which are beneficially owned by the proposing shareholder(s), and

(d) any material interest of the proposing shareholder(s) in such business.

Notwithstanding anything in these Bylaws to the contrary, but subject to Section 12 of Article VI hereof, no business shall be conducted at an annual meeting except in accordance with the procedures set forth in this Section 7 of Article III. The Chairman of the Board of Directors, if the facts warrant, determine and declare to the annual meeting that business was not properly brought before the annual meeting in accordance with the provisions of this Section 7 of Article III. If the Chairman of the Board of Directors so determines, the Chairman of the Board of Directors shall so declare to the meeting and any such business not properly brought before the annual meeting shall not be transacted. The Chairman of the Board of Directors shall have absolute authority to decide questions of compliance with the foregoing procedures, and the ruling thereon shall be final and conclusive. The provisions of this Section 7 shall also govern what constitutes timely notice for purposes of Rule 14a-4(c) under the Exchange Act.

ARTICLE IV

VOTING PROCEDURE

1. List of Voters. The officers having charge of the transfer book for shares of the corporation shall make a complete list of the shareholders entitled to vote at any meeting at least ten (10) days before such meeting. Said list shall be arranged in alphabetical order and shall include the address and the number of shares of stock of the corporation held by each. Said list shall be kept on file at the registered office of the corporation within the State of Missouri, at least ten (10) days prior to such meeting and shall be open to the inspection of any shareholder during said period and up to the adjournment of the meeting. Such list also shall be produced and kept open at the time and place of the meeting and shall be subject to inspection by any shareholder prior to adjournment of the meeting. The original share ledger or transfer book or a duplicate thereof kept in the State of Missouri shall be prima facie evidence as to who are the shareholders entitled to examine such list or share ledger or transfer book or to vote at any meeting of shareholders. Failure to comply with the requirements of this Section 1 of Article IV shall not affect the validity of any action taken at such meeting.

2. Inspectors. Every meeting of the shareholders shall be called to order by the Chairman of the Board of Directors, the President, or the Secretary of the corporation, or persons calling said meeting. If the object of said meeting is to elect directors or to take a vote of the shareholders on any proposition, then, the person presiding at said meeting may, and if requested to do so by any officer of the corporation or the holders of a majority of the shares present at such meeting, and represented in person or by proxy, shall, appoint not less than two persons who are not directors as inspectors to receive and canvass the votes

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given at such meeting and certify the results to the person presiding. In all cases where the right to vote any share or shares shall be questioned, it shall be the duty of the inspectors or the persons conducting the vote to require the transfer books as evidence of shares held in the corporation, and all shares that may appear standing thereon in the name of any person or persons shall be entitled to be voted by such person or persons directly by themselves or by proxy.

3. Inspectors’ Oath. Any inspector, before he shall enter upon the duties of his office, shall take and subscribe the following oath before any officer authorized by law to administer oaths: “I do solemnly swear, that I will execute the duties of an inspector of the election now to be held with strict impartiality, and according to the best of my ability.”

4. Close of Transfer Books. At each meeting of the shareholders, whether annual or special, the transfer books of the corporation shall be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any shareholder. The Board of Directors shall have the power to close the transfer books, or fix in advance a date not exceeding seventy (70) days preceding, or in advance of, the date of any meeting of shareholders as a record date for the determination of the shareholders entitled to notice of and to vote at any such meeting. If the Board of Directors shall not have fixed a record date or closed the transfer books of its shareholders entitled to notice of, and to vote at, a meeting of shareholders, only the shareholders who are shareholders of record at the close of business on the twentieth day preceding the date of the meeting shall be entitled to notice of, and to vote at, the meeting, and any adjournment of the meeting; except that, if prior to the meeting written waivers of notice of the meeting are signed and delivered to the corporation by all the shareholders of record at the time the meeting is convened, only the shareholders who are shareholders of record at the time the meeting is convened shall be entitled to vote at the meeting, and any adjournment(s) of the meeting.

ARTICLE V

VOTERS

1. Eligible Voters. Any shareholder owning one or more shares of stock on record in the stock books of the corporation on the record date or on the date of closing of the transfer books of the corporation as provided in Section 4 of Article IV of these Bylaws, shall be eligible to vote at any meeting of shareholders; provided, however, that no person or entity shall be admitted to vote any shares belonging or hypothecated to the corporation. On each matter submitted to a vote, each such shareholder shall have as many votes as he has shares of stock in this corporation. Cumulative voting in the election of directors and for any other purpose is specifically and expressly denied.

2. Proxies. A shareholder may vote either in person or by proxy executed in writing by the shareholder or his duly authorized attorney in fact or by any other method allowed by the laws of the State of Missouri. By way of explanation but not

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limitation, a shareholder may authorize another person to act for the shareholder as proxy by transmitting or authorizing the transmission of the proxy by way of a telegram, cablegram, facsimile, or other means of electronic transmission, or by telephone, to the person who will be the holder of the proxy or to a proxy solicitation firm, proxy support service organization, or like agent duly authorized by the person who will be the holder of the proxy to receive such transmission. However, any such telegram, cablegram, facsimile, or other means of electronic transmission, or telephonic transmission shall either set forth or be submitted with information from which it can be determined that the telegram, cablegram, facsimile, or other electronic transmission, or telephonic transmission was authorized by the shareholder. If it is determined that such telegrams, cablegrams, facsimiles, or other electronic transmissions, or telephonic transmissions are valid, the inspectors or, if there are not inspectors, such other persons making such determination shall specify the information upon which they relied. Electronic transmission shall mean any process of communication not directly involving the physical transfer of paper that is suitable for the retention, retrieval, and reproduction of information by the recipient. No proxy shall be valid after eleven (11) months from the date of execution or transmission unless otherwise provided in the proxy. A duly executed proxy, or a proxy otherwise transmitted in a manner authorized by this Section 2 of Article V, shall be irrevocable if it states that it is irrevocable and if, and only so long as, it is coupled with an interest sufficient in law to support an irrevocable power of attorney. The interest with which it is coupled need not be an interest in the shares themselves.

ARTICLE VI

BOARD OF DIRECTORS

1. Management and Number. The business of the corporation shall be managed under the direction of its Board of Directors. The number of directors which shall constitute the whole Board of Directors shall be fixed, from time to time, by resolutions adopted by the Board of Directors, but shall not be less than three (3) persons. The Board of Directors shall be divided into three classes whose terms expire at different times. At the annual shareholders’ meeting to be held in 1977, three (3) Directors shall be elected for a term of one (1) year; three (3) Directors for a term of two (2) years; and three (3) Directors for a term of three (3) years. At each subsequent annual shareholders’ meeting, successors to the class of directors whose terms expire that year shall be elected to hold office for a term of three (3) years. Notwithstanding the provisions of any other Article herein, this Section of the Bylaws may not be amended or repealed without the consent of the holders of two-thirds of the outstanding shares of the corporation.

2. Vacancies. Whenever any vacancy on the Board of Directors shall occur due to death, resignation, retirement, removal, increase in the number of directors, or otherwise, a majority of the remaining directors then in office, even if less than a majority of the entire Board of Directors, may fill the vacancy or vacancies. A director so elected by the Board of Directors pursuant to this Section 2 of Article

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VI to fill a vacancy or a newly created directorship need not be presented for election by shareholders until the class to which the director has been so elected by the Board of Directors is presented for election by the shareholders. The Board of Directors shall apportion any increase or decrease in directorships among the classes as nearly equal in number as possible. Notwithstanding the provisions of any other Article herein, only the remaining directors of the corporation shall have the authority, in accordance with the procedure stated above, to fill any vacancy which exists on the Board of Directors.

3. Quorum. A majority of the full Board of Directors shall constitute a quorum for the transaction of business by the Board of Directors, unless a greater number is required by the corporation’s Articles of Incorporation, as then in effect, or these Bylaws. However, in the absence of such a quorum, a majority of the directors present and voting at a meeting shall have the right successively to adjourn the meeting to a specified date, and no notice of such adjournment need be given to directors not present at the meeting. Any act or decision of a majority of the directors present at a meeting at which a quorum is present shall be the act or decision of the Board of Directors, unless the act of a greater number is required by the corporation’s Articles of Incorporation, as then in effect, or these Bylaws.

4. Place of Meetings. Meetings of directors shall be held at the principal office of the corporation or such other place or places, either within or without the State of Missouri, as may be agreed upon by the Board of Directors. Members of the Board of Directors may also participate in meetings of the Board of Directors by means of conference telephone or similar communications equipment whereby all persons participating in the meeting can hear each other, and participation in a meeting in such manner shall constitute presence in person at the meeting for all purposes.

5. Regular and Special Meetings. Regular meetings of the Board of Directors shall be held as frequently and at such time and place as may be determined by the Board of Directors from time to time. Special meetings of the Board of Directors shall be called by the Secretary of the corporation at any time on request of the Chairman of the Board, the President of the corporation, or two members of the Board of Directors.

6. Notice. Regular meetings of the Board of Directors may be held without notice. Special meetings of the Board of Directors may be held upon three (3) days’ notice, given as provided in Article X of these Bylaws or by telephone.

7. Interest in Transactions. No contract or transaction between the corporation and one or more of its directors or officers, or between the corporation and any other corporation, partnership, association, or other organization in which one or more of the corporation’s directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the board or committee thereof which authorizes the contract or transaction, or solely because his or their votes are counted for such purpose, if:

(a) The material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors of the corporation or committee, and the Board of Directors or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or

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(b) The material facts as his relationship or interest and as to the contract or transaction are disclosed or are known to the shareholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the shareholders; or

(c) The contract or transaction is fair as to the corporation as of the time it is authorized or approved by the Board of Directors, a committee thereof, or the shareholders.

Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or a committee which authorizes a contract or transaction.

8. Executive Committee. The Board of Directors may appoint two or more directors to constitute an Executive Committee and may vest such committee with all or any portion of the powers vested by law or in these Bylaws in the full Board of Directors and may provide for rules of procedure to govern the operation of such committee; provided that in no event shall the Executive Committee or any other committee have the power to approve plans of liquidation, merger, or reorganization, the sale of all or substantially all of the assets of the corporation, or amendments of these Bylaws or the corporation’s Articles of Incorporation, as then in effect, of the corporation.

9. Other Committees. The Board of Directors by resolution adopted by a majority of the whole Board of Directors may appoint other committees composed of two or more members of the Board of Directors and may vest in such committees, to the extent provided in the resolution, any portion of the powers vested by law or in these Bylaws in the full Board of Directors and may provide for rules for procedure to govern the operation of such committees.

10. Informal Action by the Board of Directors and Committees of the Board of Directors. Any action which is required to be or may be taken at a meeting of the Board of Directors or any Committee of the Board of Directors, may be taken without a meeting if consents in writing, setting forth the action so taken, are signed by all the members of the Board of Directors or of the Committee, as the case may be. The consents shall have the same force and effect as a unanimous vote of the directors, at a meeting duly held, and may be stated as such in any certificate or document filed under the provisions of the General and Business Corporation Law of Missouri. The Secretary of the corporation shall file the consents with the minutes of the meetings of the Board of Directors or the appropriate Committee of the Board of Directors, as the case may be.

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11. Qualification of Directors. The Board of Directors shall be composed of individuals who are at least 21 years of age, shareholders of the corporation, and citizens of the United States. The Board of Directors, by the affirmative vote of at least a majority of the directors then serving on the Board of Directors, shall determine that an individual meets these qualifications prior to his nomination as a director. If not nominated by the Board of Directors but nominated by shareholders of the corporation, then the Board of Directors shall determine by the affirmative vote of at least a majority of the directors then serving on the Board of Directors that such individual meets the qualifications of this Section 11 of Article VI or such individual shall not stand for election. The Board of Directors may, upon the affirmative vote of at least a majority of the directors then serving on the Board of Directors, waive any or all of the above qualification requirements as to any existing director or any individual who has been or is to be nominated as a director.

12. Nomination of Directors. Nominations for election to the Board of Directors may be made by the Board of Directors, or by any shareholder of any outstanding class of capital stock of the corporation entitled to vote in the election of directors. Nominations, other than those made by the existing Board of Directors, shall be made in writing and shall be delivered or mailed to the Secretary of the corporation not less than 120 days nor more than 180 days before the first anniversary of the date the corporation mailed its proxy statement in connection with the previous year’s annual meeting. Such nomination and notification shall contain the following information to the extent known to the notifying shareholder:

(a) The names and addresses of the proposed nominee or nominees;

(b) The principal occupation of each proposed nominee;

(c) The total number of shares that, to the knowledge of the notifying or nominating shareholder, will be noted for each of the proposed nominees;

(d) The name and residence address of each notifying or nominating shareholder; and

(e) The number of shares owned by the notifying or nominating shareholder.

Nominations not made in accordance herewith may, in his discretion, be disregarded by the Chairman of the Board of Directors, and upon his instructions, the judges of election may disregard all votes cast for each such nomination.

ARTICLE VII

OFFICERS

1. Executive Officers. The executive officers of the corporation shall be a Chairman of the Board of Directors, a President, a Vice President, a Secretary and a

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Treasurer, and such other additional officers, including an Executive Vice President, Vice Presidents by whatever designation determined by the Board of Directors, Assistant Secretaries and Assistant Treasurers, as the Board of Directors may from time to time elect. Any two or more offices may be held by the same individual.

2. Election and Term. Each executive officer shall be elected by a majority of the whole number of the Board of Directors, and shall hold office as determined by the Board of Directors. At any meeting of the Board of Directors, the Board of Directors may elect such other officers as it shall deem necessary, who shall hold office as determined by the Board of Directors, and who shall have such authority and shall perform such duties as from time to time shall be prescribed by the Board of Directors.

3. Removal. Any officer elected by the Board of Directors may be removed by the affirmative vote of a majority of the entire Board of Directors whenever, in its judgment, the interests of the corporation will be served thereby.

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ARTICLE VIII

DUTIES OF OFFICERS

1. Chairman of the Board of Directors. The Chairman of the Board of Directors shall:

(a) be the Chief Executive Officer and the Chairman of the Executive Committee and the Board of Directors and shall perform such duties as shall be assigned to him and shall exercise such powers as may be granted to him by the Board of Directors;

(b) preside at all meetings of the shareholders and directors;

(c) have the authority to sign or countersign certificates, contracts, and other instruments of the corporation, including bonds, mortgages, conveyances and other contracts requiring the seal of the corporation; and

(d) in the absence of the direction by the Board of Directors to the contrary, have the power to vote all securities held by the corporation and to issue proxies therefor.

2. President. The President shall:

(a) perform such duties as shall be assigned to him and shall exercise such powers as may be granted to him by the Board of Directors or by the Chairman of the Board of Directors of the corporation;

(b) have general supervision and active management of the business and finances of the corporation;

(c) see that all orders and resolutions of the Board of Directors are carried into effect; subject, however, to the right of the directors to delegate any specific powers to any other officer or officers of the corporation, except such as may be by statute exclusively conferred upon the President;

(d) have the authority to sign or countersign certificates, contracts, and other instruments of the corporation, including bonds, mortgages, conveyances and other contracts requiring the seal of the corporation; and

(e) in the absence or disability of the Chairman of the Board of Directors, perform the duties and exercise the powers of the Chairman of the Board of Directors with the same force and effect as if performed by the Chairman of the Board of Directors, and shall be subject to all restrictions imposed upon him.

3. Vice Presidents. The Executive Vice President, if any, and the Vice Presidents shall:

(a) perform such duties as shall be assigned to them; and

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(b) exercise such powers as may be granted to them by the Board of Directors or by the Chairman of the Board of Directors.

4. The Secretary. The Secretary shall:

(a) attend all meetings of the shareholders and of the Board of Directors and act as clerk thereof, and shall record all votes and the minutes of all proceedings in a minute book to be kept for that purpose;

(b) keep in safe custody the seal of the corporation, and when authorized by the Chairman of the Board of Directors, the President or a Vice President, shall affix the seal to any instrument requiring the seal, and, when so ordered, add his signature as an attestation thereof;

(c) give, or cause to be given, a notice as required of all meetings of the shareholders and of the Board of Directors;

(d) keep or cause to be kept a stock certificate and transfer book and a list of all the shareholders and their respective addresses; and

(e) perform such other duties as may be prescribed from time to time by the Board of Directors or the Chairman of the Board of Directors.

5. The Treasurer. The Treasurer shall:

(a) have custody of the corporate funds and securities and shall keep or cause to be kept full and accurate accounts of receipts and disbursements in books of the corporation to be maintained for such purpose;

(b) deposit all moneys and other valuable effects of the corporation in the name and to the credit of the corporation in depositories designated by the Board of Directors;

(c) render to the Board of Directors and the Chairman of the Board of Directors, as they may require, an account of all transactions and of the financial condition of the corporation;

(d) disburse the funds of the corporation as may be ordered by the Board of Directors; and

(e) perform such other duties as may be prescribed from time to time by the Board of Directors or the Chairman of the Board of Directors.

6. Delegation of Power. In the absence of the Chairman of the Board of Directors, or if the Chairman of the Board of Directors is unable to perform the duties of the Chairman’s position, the President shall perform the duties and exercise the powers of the Chairman of the Board of Directors, with the same force and effect as if performed by the Chairman of the Board of Directors, and shall be subject to

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all restrictions imposed on the authority of the position. In the absence of the President, or if the President is unable to perform the duties of the President’s position, the Chief Financial Officer (or the principal financial officer) shall exercise the powers of the President with the same force and effect as if performed by the President, and shall be subject to all restrictions imposed on the authority of the position. In the absence or disability of any officer of the corporation other than the Chairman of the Board of Directors or the President, the Assistant of such officer shall perform the duties and exercise the powers of such officer with the same force and effect as if performed by such officer, and shall be subject to all restrictions imposed upon such officer. In addition, and without limiting the generality of the foregoing, in case of the absence of any officer of the corporation or for any other reason that the Board of Directors may deem sufficient, the Board of Directors, by resolution, may delegate the powers or duties of such officer to any other officer or to any director for the time being.

ARTICLE IX

CERTIFICATES OF STOCK AND TRANSFERS

1. Issuance. Certificates of stock of the corporation shall be issued and signed by:

(a) (i) the Chairman of the Board of Directors,

(ii) the President, or

(iii) a Vice President, and

(b) (i) the Secretary,

(ii) an Assistant Secretary,

(iii) the Treasurer, or

(iv) an Assistant Treasurer.

Certificates of stock of the corporation shall bear the corporate seal. Such seal may be facsimile, engraved or printed, and if any such certificate shall be signed by a transfer agent or by a registrar, the signature of any such officer upon such certificate may be facsimile, engraved or printed. Certificates shall be numbered consecutively and registered as they are issued. Each certificate shall indicate, upon its face, among other things, the name of the corporation, the owner’s name, the number and class of shares of stock represented by the certificate, the par value of shares of such class, the date of its issuance, and the manner in which the shares may be transferred.

2. Transfers. Transfers of stock shall be made only on the books of the corporation by the registered holder thereof, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary of the corporation or a transfer agent of the corporation, and on surrender of the certificates for such shares properly endorsed and the payment of all taxes thereon.

3. Transfer Books. Proper books shall be kept under the direction of the Secretary of the corporation, showing the ownership and transfer of all certificates of stock.

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The Board of Directors shall have power to close said transfer books of the corporation for a period not exceeding seventy (70) days preceding the date of payment of any dividend, or the date for the allotment of rights, or the date when any change or conversion or exchange of shares shall go into effect. In lieu of closing the stock transfer books as aforesaid, the Board of Directors may fix in advance a date not exceeding seventy (70) days preceding the date for the payment of any dividend, or the date for the allotment of rights, or the date when any change or conversion or exchange of shares shall go into effect, as a record date for the determination of the shareholders entitled to receive payment of any such dividend, or to any such allotment of rights, or to exercise the rights in respect of any change, conversion or exchange of shares. In such case, such shareholders and only such shareholders as shall have been shareholders of record on the date of closing the transfer books or on the record date so fixed shall be entitled to receive payment of such dividend, or to receive such allotment of rights, or to exercise such rights, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after such date of closing of the transfer books or such record date fixed as aforesaid.

4. Holders of Record. The corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof and accordingly shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person or entity, whether or not it shall have express or other notice thereof, save as expressly provided by the laws of the State of Missouri.

5. Lost, Stolen or Destroyed Certificates. The Board of Directors may authorize a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the corporation and alleged to have been lost, stolen or destroyed, upon the making of an affidavit of the fact by the shareholder claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors, in its discretion and as a condition precedent to the issuance thereof, may require the owner of such lost, stolen or destroyed certificate or certificates, or the owner’s legal representative, to give the corporation a bond sufficient to indemnify it against any claim that may be made against the corporation on account of the alleged loss, theft, or destruction of such certificate(s) or the issuance of such new certificate(s).

ARTICLE X

NOTICES

1. Notice Deemed Given. Whenever under the provisions of these Bylaws notice is required to be delivered to any director, officer, or shareholder, such notice shall be deemed to be delivered when:

(a) deposited in the United States mail with postage thereon prepaid,

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(b) dispatched by prepaid telegram, addressed to such party at such party’s address as it appears on the records of the corporation,

(c) delivered in person to the party, or

(d) transmitted to such party the recipient by electronic transmission, which means any process of communication not directly involving the physical transfer of paper that is suitable for the retention, retrieval, and reproduction of information by the recipient.

2. Attendance as Waiver. Notice of any meeting required to be given under the provisions of these Bylaws or the laws of the State of Missouri shall be deemed waived by the attendance at such meeting of the party or parties entitled to notice thereof, except where a party or parties attend a meeting for the express purpose of objecting to the transaction of any business because the meeting was not lawfully called or convened.

3. Waiver of Notice. Any notice required to be given under the provisions of these Bylaws or the laws of the State of Missouri may be waived by the persons entitled thereto signing a waiver of notice before or after the time of said meeting, and such waiver shall be deemed equivalent to the giving of such notice. Such waiver of notice may be executed in person by the party entitled thereto or by the shareholder’s agent duly authorized in writing so to do.

ARTICLE XI

AMENDMENTS

1. By Shareholders. These Bylaws, or any of them, or any additional or supplementary Bylaws, may be altered, amended, or repealed, and new Bylaws may be adopted at any annual meeting of the shareholders without notice, or at any special meeting the notice of which shall set forth the terms of the proposed Bylaw or Bylaws, or action to be taken with respect to any Bylaw or Bylaws, by a vote of the majority of the shares represented in person or by proxy and entitled to vote at such annual or special meeting, as the case may be.

2. By Directors. The Board of Directors also shall have the power to adopt new Bylaws, and to amend, alter, and repeal these Bylaws and any additional and supplementary Bylaws, at any regular or special meeting of the Board of Directors unless otherwise provided in the corporation’s Articles of Incorporation, as then in effect. Notice of any such action to be taken on any Bylaws need not be included in the call of said meeting.

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EX-10.(III).7

EXHIBIT 10(iii).7

BALDOR ELECTRIC COMPANY

BONUS PLAN FOR EXECUTIVE OFFICERS

PLAN ADMINISTRATION

The Board of Directors of the Company (the “Administrator”) has sole responsibility for installation, review, and revision of the Plan and all its provisions, at their discretion, including year-to-year implementation of the plan.

PLAN PARTICIPANTS

Participants include the “Executive Officers” of the Company as designated by the Board of Directors. Participation in the Plan does not constitute a guarantee of employment and incentive awards for plan participants whose employment is terminated for any reason may forfeit their rights to the “Bonus”. Participants who retire or go on disability during the plan year will receive a prorated portion of their bonus earned.

BONUS PAYMENT DATE

The bonus will be paid in a lump sum as soon as practical after the Company’s financial results for the applicable year have been certified by the outside auditors.

BONUS FORMULA FOR THE YEAR

The formula used in the Plan is based on the Company’s Sales and Profit Plan (“Company Plan”) for each year the Plan is implemented. The formula is constructed so a bonus (using the percentage as defined below) of total compensation, base and contingent combined, will be paid on a segment when that segment’s goal of the approved Company Plan is met. The formula will have two independent segments as specified below.

BONUS FORMULA		Company Plan			Stretch
Segment 1	Sales	$	tbd		$	tbd
	Bonus based on sales goals		2.5	%		5.0	%
Segment 2	Pre-tax earnings	$	tbd		$	tbd
	Bonus based on financial performance		2.5	%		5.0	%
	EPS	$	tbd		$	tbd

Segment 1 – Sales Goals

The sales component will provide 50% of the Bonus Formula. The maximum bonus to be paid for this component is 5%. For sales below Company Plan, 0% bonus is earned. For sales at or above Company Plan, the bonus will be paid on a straight line pro-rata basis up to the percentages indicated as “Stretch”.

Segment 2 – Financial Performance

The pre-tax earnings component will provide 50% of the Bonus Formula. The maximum bonus to be paid for this component is 5%. For pre-tax earnings below Company Plan, 0% bonus is earned. For pre-tax earnings at or above Company Plan, the bonus will be paid on a straight line basis up to the percentages indicated as “Stretch”.

EX-13

EXHIBIT 13

Eleven-Year Summary of Financial Data

(in thousands, except per share data)

							Per Share Data						Percent Return On Average Equity
	Net Sales		Cost Goods Sold		Net Earnings		Diluted Net Earnings		Basic Net Earnings		Dividends				Shareholders’ Equity		Total Assets		Long-Term Obligations		Working Capital
2004	$	648,195	$	473,752	$	35,052	$	1.05	$	1.06	$	0.57	12.9	%	$	283,615	$	501,560	$	104,025	$	213,145
2003		561,391		409,294		24,779		0.74		0.75		0.53	9.2	%		261,488		476,955		79,465		171,802
2002		549,507		396,815		23,895		0.69		0.70		0.52	8.9	%		274,598		472,761		105,285		199,023
2001		557,459		401,471		22,385		0.65		0.66		0.52	8.6	%		262,485		457,527		98,673		173,638
2000		621,242		423,861		46,263		1.34		1.36		0.50	17.6	%		260,845		464,978		99,832		174,803
1999		585,551		399,833		43,723		1.19		1.21		0.45	16.5	%		266,109		423,941		56,305		183,956
1998		596,660		410,748		44,610		1.17		1.21		0.40	17.6	%		264,292		411,926		57,015		176,126
1997		564,756		389,711		40,365		1.09		1.13		0.36	18.2	%		243,434		355,889		27,929		141,268
1996		508,526		353,345		35,173		0.97		1.00		0.30	17.1	%		200,325		325,486		45,027		146,975
1995		478,315		334,306		32,305		0.84		0.88		0.26	16.3	%		211,377		313,462		25,255		145,069
1994		422,714		297,212		26,359		0.69		0.73		0.21	15.3	%		184,262		283,155		26,303		118,550

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

Overview

Broad-based and consistent growth throughout 2004 resulted in record consolidated net sales for the 2004 fiscal year. For the year, net sales advanced 15.5% from 2003. Gross and operating margins were 26.9% and 9.3%, respectively, compared to 27.1% and 8.2% a year ago. Net earnings in 2004 amounted to $35.1 million, an increase of 41.4% from earnings of $24.8 million in 2003. Net earnings in 2002 were $23.9 million. Diluted earnings per share rose 41.1% to $1.05 in 2004 from $0.74 in 2003. Total dividends paid to shareholders in 2004 amounted to $0.57 per share, up from $0.53 per share in 2003.

Net Sales

Net sales for 2004 were a record $648.2 million, rising 15.5% above 2003 net sales of $561.4 million. Sales in 2002 amounted to $549.5 million. Sales of electric motors increased 13.5% in 2004 and amounted to 76.2% of total product sales compared to 77.5% in 2003. Sales of drives products were up 15.7% for the year and amounted to 17.1% of total product sales in 2004 compared to 17.0% in 2003. Sales of generator products rose 41.8% during the year and comprised 6.7% of total product sales versus 5.5% in 2003. Baldor serves many industries and geographic regions by selling to a broad base of distributors and Original Equipment Manufacturers (OEMs) both domestically and in more than 70 countries around the world. For the years 2004, 2003, and 2002, sales to distributors and OEM customers remained at approximately 50% each. No single customer accounted for more than 5% of sales in any year covered by this report.

Gross Margin

Gross margin was 26.9% in 2004 compared to 27.1% in 2003 and 27.8% in 2002. Raw material costs increased sharply during 2004. Although productivity and product design improvements and price increases mitigated much of the effects of increased copper and steel costs, gross margin suffered during the year.

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Operating Margin

Operating margin for 2004 improved to 9.3% from 8.2% in 2003 and 2002. Selling and administrative expenses decreased to 17.6% of net sales in 2004 from 18.9% in 2003 and 19.5% in 2002. We continued to reduce freight and warranty cost in 2004. Together, freight and warranty costs were 0.5% of net sales lower in 2004 than in 2003. During the fourth quarter of 2004, certain contingent liablilities were adjusted by approximately $1.5 million to reflect current exposures, resulting in a reduction in selling and administrative expenses of 0.2% of sales. The remainder of improvement resulted from our ability to support a 15% increase in net sales without adding fixed selling and administrative costs.

Net Earnings

Pre-tax margin improved to 8.1% for 2004 compared to 7.0% for 2003 and 6.9% in 2002. While increased materials costs had a negative effect on gross margin, efficiencies in selling and administrative costs combined with increased sales volume resulted in better pre-tax margins. Net earnings for 2004 were up 41.4% from 2003 and diluted earnings per share increased 41.1% to $1.05. During the fourth quarter of 2004, certain accrued income tax liablilities were adjusted to reflect current exposure. The resulting reduction in income tax expense amounted to approximately $2.1 million, or $0.06 per diluted share.

International Sales

International sales (foreign affiliates and exports) amounted to $101.0 million in 2004, an increase of 22.1% over the $82.8 million in 2003. International sales were $74.8 million in 2002. The majority of international sales are from products produced in the United States and exported.

Environmental Remediation

Management believes, based on its internal reviews and other factors, that any future costs relating to environmental remediation and compliance will not have a material effect on the capital expenditures, earnings, cash flows, or competitive position of the Company.

Financial Position

Overview

The Company’s financial position remained strong through 2004. We continued to increase our financial strength while investing in research and development for new and existing products, making capital investments in our manufacturing facilities, expanding into new markets and continuing to invest in both our employees’ and customers’ education and training. Baldor believes the investment in our employees through training and education is a key to continued success and improved shareholder value.

Investments in property, plant and equipment amounted to $18.1 million in 2004, $15.1 million in 2003, and $10.6 million in 2002. These investments were made primarily to centralize operations, increase capacity, and improve quality and productivity.

The Company’s commitment to research and development continues to help us maintain a leadership position in the marketplace and satisfy customers’ needs. Investments in research and development amounted to $25.4 million in 2004, $21.9 million in 2003, and $22.5 million in 2002. We continue to make investments in new product development as well as in existing products for improved performance, increased energy efficiency, and manufacturability.

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Liquidity and Capital Resources

Our liquidity position remained solid in 2004. The Company had working capital of $213.1 million at January 1, 2005, and $171.8 million at January 3, 2004. The ratio of current assets to current liabilities was 3.5 to 1 at year-end 2004, compared to 2.7 to 1 at the end of fiscal year 2003. The increase in working capital and current ratio was partially related to the reclassification of $25 million of the Company’s outstanding long-term debt. The Company had a credit facility that expired in October 2004 and was classified as a current liability at January 3, 2004. The debt was refinanced in 2004 with a maturity date after January 1, 2006. Accordingly, the debt is classified as non-current at January 1, 2005.

Liquidity was supported by cash flows from operations of $31.2 million in 2004, $62.8 million in 2003 and $53.6 million in 2002. The 15.5% increase in net sales during 2004 resulted in increased investments in accounts receivable and inventories. Increases in trade accounts receivables in 2004 reduced operating cash flows by $19.3 million compared to 2003. This was a normal fluctuation with the increase in sales. The record sales volume of 2004 also resulted in increased investment in finished goods and raw materials inventories, reducing operating cash flows by $11.9 million when compared to 2003. Normal increases in accounts payable resulted in a $6.9 million increase in operating cash flows compared to 2003. Income tax payments made in 2004 increased $20.0 million over 2003. Payments made in 2003 were unusually low due to overpayments made in prior years.

The Company utilized a portion of its cash flows from operations to fund property, plant, and equipment additions of $18.1 million in 2004 and $15.1 million in 2003. In addition, dividends were paid to shareholders amounting to $19.1 million for 2004 and $17.5 million for 2003. In 2003, the Company also funded the acquisition of Energy Dynamics, Inc. in the amount of $5.8 million and repurchased 1.5 million shares of the Company’s common stock for $26.7 million.

Total long-term debt, including amounts classified as current maturities, was $104.0 million at January 1, 2005, compared to $105.3 million at January 3, 2004. The Company’s credit agreements contain various financial covenants, and the Company was in compliance with those covenants during all of the periods presented in this report.

Baldor’s principal source of liquidity is operating cash flows. Accordingly, the Company is dependent primarily on continued demand for our products as well as collectability of receivables from our customers. Our broad base of customers and industries served, as well as our favorable position in the marketplace, ensure that fluctuations in a particular customer’s or industry’s business will not have a material effect on the Company’s sales or collectability of receivables. As a result, management expects that the Company’s foreseeable cash needs for operations and capital expenditures will continue to be met through operating cash flows and existing credit facilities.

The table below summarizes the Company’s contractual obligations as of January 1, 2005.

			Payments due by period
(In thousands)	Total		Less than 1 Year		1 – 3 Years		3 – 5 Years		More Than 5 Years
Contractual Obligations:
Long-term debt obligations (a)	$	115,276	$	3,423	$	66,748	$	42,945	$	2,160
Operating lease obligations		9,803		3,579		2,115		1,206		2,903
Other Commercial Commitments:
Letters of Credit		2,257		2,257		0		0		0

(a) Includes interest on both fixed and variable rate obligations. Interest associated with variable rate obligations is based upon interest rates in effect at January 1, 2005. The contractual amounts to be paid on variable rate obligations are affected by changes in market interest rates. Future changes in market interest rates could materially affect the contractual amounts to be paid.

- 3 -

Dividend Policy

Annual dividends amounted to $0.57 per share in 2004 and $0.53 per share in 2003. There have been three dividend increases in the last five years and 10 increases in the last 10 years. These increases were in line with Baldor’s policy of making increases periodically, as earnings and financial strength warrant. The objective is for shareholders to obtain dividend increases over time while also participating in the growth of the Company.

Market Risk

Market risks relating to the Company’s operations result primarily from changes in commodity prices, interest rates, and foreign exchange rates. To maintain stable pricing for its customers, the Company enters into various hedging transactions as described below.

The Company is a purchaser of certain commodities, primarily copper, aluminum, and steel, and periodically utilizes commodity futures and options for hedging purposes to reduce the effects of changing commodity prices. Generally, contract terms of a hedge instrument closely mirror those of the hedged item providing a high degree of risk reduction and correlation. Contracts that are highly effective at meeting this risk reduction and correlation criteria are recorded using hedge accounting.

The Company’s interest rate risk is related to its available-for-sale securities and long-term debt. Due to the short-term nature of the Company’s securities portfolio, anticipated interest rate risk is not considered material. The Company’s debt obligations include certain notes payable to banks bearing interest at a quarterly variable rate. The Company manages its interest rate risk exposure by maintaining a mix of fixed and variable rates for debt. A 1.0% increase in variable borrowing rates would not have a material effect on the Company’s consolidated balance sheets, results of operations, or cash flows.

Foreign affiliates comprise less than 5% of total assets. The Company does not anticipate the use of derivatives for managing foreign currency risk, but continues to monitor the effects of foreign currency exchange rates.

Critical Accounting Policies

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States, which require the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and revenues and expenses during the periods reported. Actual results could differ from those estimates. The Company believes the following are the critical accounting policies, which could have the most significant effect on the Company’s reported results and require subjective or complex judgments by management.

Revenue Recognition: The Company sells products to its customers FOB shipping point. Title passes to the customer when the product is shipped. Accordingly, revenue is recognized when the product is shipped. The Company has no further obligations associated with the product sale that would impact revenue recognition after the product is shipped.

Allowance for Doubtful Accounts: The Company records allowances for doubtful accounts based on customer-specific analysis, general matters such as current assessments of past due balances and economic conditions, and historical losses. Additional allowances for doubtful accounts may be required if there is deterioration in past due balances, if economic conditions are less favorable than the Company had anticipated, or for customer-specific circumstances, such as financial difficulty.

- 4 -

Inventories: Inventories are valued at the lower of cost or market, with cost being determined principally by the last-in, first-out (LIFO) method, except for non-U.S. inventories, which are determined by the first-in, first-out (FIFO) method. The valuation of LIFO inventories is made at the end of each year based on inventory levels and costs at that time. The Company reviews the net realizable value of inventory on an on-going basis, with consideration given to deterioration, obsolescence, and other factors. If actual market conditions differ from those projected by management, adjustments to inventory values may be required.

Self-Insurance Liabilities: The Company’s self-insurance programs include primarily product liability, workers’ compensation, and health. The Company self-insures from the first dollar of loss up to specified retention levels. Eligible losses in excess of self-insurance retention levels and up to stated limits of liability are covered by policies purchased from third-party insurers. The aggregate self-insurance liability is estimated using the Company’s claims experience and risk exposure levels for the periods being valued and current conditions. Adjustments to the self-insured liabilities may be required to reflect emerging claims experience and other factors.

Long-Lived Assets and Goodwill: The Company evaluates the recoverability of the carrying amount of long-lived assets whenever events indicate that the carrying amount of an asset may not be fully recoverable. The Company evaluates the recoverability of goodwill and other intangible assets with indefinite lives annually or more frequently if events indicate that an asset may be impaired. The Company uses judgment when applying the impairment rules to determine when an impairment test is necessary. The Company is required to make estimates of its future cash flows related to the asset subject to review. These estimates require assumptions about demand for the Company’s products, future market conditions, technological developments, and future discount rates and growth rates.

Recently Issued Accounting Pronouncements

In December 2004, the FASB issued SFAS No. 123R, “Share-Based Payment,” a revision of SFAS No. 123, “Accounting for Stock-Based Compensation” and superseding APB Opinion No. 25, “Accounting for Stock Issued to Employees.” SFAS No. 123R requires the Company to expense grants made under stock option plans. That cost will be recognized over the vesting period of the plans. SFAS No. 123R is effective for the first interim or annual period beginning after June 15, 2005. Upon adoption of SFAS No. 123R, amounts previously disclosed under SFAS No. 123 will be recorded in the consolidated statement of earnings. The Company is evaluating the alternatives allowed under the standard, which the Company is required to adopt beginning in the third quarter of 2005. The Company expects the annual impact of adopting FAS 123R to be a reduction of $0.01 to $0.02 per diluted share.

In December 2004, the FASB issued FASB Staff Position No. FAS 109-2, “Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision Within the American Jobs Creation Act of 2004.” The American Jobs Creation Act of 2004 (the Act) contained a provision, which allows for an 85% dividends received deduction with respect to certain dividends received from foreign subsidiaries. The Company does not expect to repatriate foreign earnings pursuant to the Act. Accordingly, the Act is not expected to have a significant effect on the Company’s consolidated financial statements.

Forward-looking Statements

This annual report and other written reports and oral statements made from time to time by the Company and its representatives may contain forward-looking statements. The forward-looking statements (generally identified by words or phrases indicating a projection or future expectation such as “outlook,” “optimistic,” “trends,” “expect(s),” “assuming,” “expectations,” “forecasted,” “estimates,” “expected”) are based on the Company’s current expectations and some of them are subject to risks and uncertainties. Accordingly, you are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and

- 5 -

uncertainties, and that actual results may differ materially from those projected in the forward-looking statements as a result of various factors. The factors that might cause such differences include, but are not limited to, the following: (i) changes in economic conditions, (ii) developments or new initiatives by our competitors in the markets in which we compete, (iii) fluctuations in the costs of select raw materials, (iv) the success in increasing sales and maintaining or improving the operating margins of the Company, and (v) other factors including those identified in the Company’s filings made from time to time with the Securities and Exchange Commission.

- 6 -

Consolidated Balance Sheets

Baldor Electric Company and Affiliates

(In thousands, except share data)	January 1 2005			January 3 2004
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	12,054		$	10,635
Marketable securities		32,392			36,654
Receivables, less allowances for doubtful accounts of $3,308 in 2004 and $3,870 in 2003.		101,088			83,200
Inventories:
Finished products		81,078			73,668
Work in process		12,239			10,721
Raw materials		59,732			51,295
		153,049			135,684
LIFO valuation adjustment		(31,544	)		(23,561	)
		121,505			112,123
Prepaid expenses		3,920			3,703
Other current assets and deferred income taxes		26,786			28,578
TOTAL CURRENT ASSETS		297,745			274,893
PROPERTY, PLANT AND EQUIPMENT:
Land and improvements		6,126			6,287
Buildings and improvements		60,179			59,530
Machinery and equipment		303,281			286,629
Allowances for depreciation and amortization		(232,376	)		(216,812	)
NET PROPERTY, PLANT AND EQUIPMENT		137,210			135,634
OTHER ASSETS:
Goodwill		62,785			62,845
Other		3,820			3,583
TOTAL ASSETS	$	501,560		$	476,955
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	39,075		$	28,966
Employee compensation		7,825			6,820
Profit sharing		6,885			5,436
Accrued warranty costs		6,335			6,625
Accrued insurance obligations		11,613			12,515
Other accrued expenses		6,037			7,494
Dividends payable		4,959			4,595
Income taxes payable		1,871			4,821
Current maturities of long-term obligations		0			25,819
TOTAL CURRENT LIABILITIES		84,600			103,091
LONG-TERM OBLIGATIONS		104,025			79,465
DEFERRED INCOME TAXES		29,320			32,911
SHAREHOLDERS’ EQUITY:
Preferred stock, $0.10 par value Authorized shares: 5,000,000 Issued and outstanding shares: None
Common stock, $0.10 par value Authorized shares: 150,000,000 Issued: 2004 - 40,423,054; 2003 - 40,018,261 Outstanding: 2004 - 33,109,762; 2003 - 32,829,738		4,042			4,002
Additional capital		61,117			53,683
Retained earnings		354,696			338,696
Accumulated other comprehensive income (loss)		1,050			(675	)
Treasury stock: 2004 - 7,313,292; 2003 - 7,188,523		(137,290	)		(134,218	)
TOTAL SHAREHOLDERS’ EQUITY		283,615			261,488
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	501,560		$	476,955

See notes to consolidated financial statements.

Consolidated Statements of Earnings

Baldor Electric Company and Affiliates

	Year Ended
(In thousands, except share data)	January 1 2005		January 3 2004		December 28 2002
Net sales	$	648,195	$	561,391	$	549,507
Other income, net		1,938		1,960		1,383
		650,133		563,351		550,890
Cost and expenses:
Cost of goods sold		473,752		409,294		396,815
Selling and administrative		113,933		106,343		107,407
Profit sharing		6,885		5,436		5,285
Interest		3,235		2,949		3,454
		597,805		524,022		512,961
Earnings before income taxes		52,328		39,329		37,929
Income taxes		17,276		14,550		14,034
NET EARNINGS	$	35,052	$	24,779	$	23,895
Net earnings per share-basic	$	1.06	$	0.75	$	0.70
Net earnings per share-diluted	$	1.05	$	0.74	$	0.69
Weighted average shares outstanding-basic		32,953,382		32,928,369		34,060,853
Weighted average shares outstanding-diluted		33,485,261		33,404,733		34,622,136

See notes to consolidated financial statements.

Summary of Quarterly Results of Operations (Unaudited)

Baldor Electric Company and Affiliates

(In thousands, except per share data)

	Quarter
	First		Second		Third		Fourth**		Total
2004: Net sales	$	152,823	$	163,695	$	168,832	$	162,845	$	648,195
Gross profit		42,188		44,616		44,739		42,900		174,443
Net earnings		7,439		8,472		8,731		10,410		35,052
Net earnings per share-basic		0.23		0.26		0.26		0.31		1.06
* Net earnings per share-diluted		0.22		0.25		0.26		0.31		1.05
2003: Net sales	$	137,389	$	138,523	$	138,980	$	146,499	$	561,391
Gross profit		37,380		37,760		36,826		40,131		152,097
Net earnings		6,165		5,999		6,065		6,550		24,779
Net earnings per share-basic		0.18		0.18		0.19		0.20		0.75
Net earnings per share-diluted		0.18		0.18		0.18		0.20		0.74

* The sum of the quarter amounts does not agree to the total due to rounding

** Fourth quarter 2003 included 14 weeks. All other quarters presented included 13 weeks. Fourth quarter 2004 includes income tax adjustments of $(2.1) million and contincency reserve adjustments of $(838,000), net of tax.

Consolidated Statements of Cash Flow

Baldor Electric Company and Affiliates

	Year Ended
(In thousands)	January 1 2005			January 3 2004			December 28 2002
Operating activities:
Net earnings	$	35,052		$	24,779		$	23,895
Adjustments to reconcile net earnings to net cash from operating activities:
Losses (gains) on sales of marketable securities		165			(94	)		(46	)
Depreciation		17,271			17,180			17,595
Amortization		1,872			1,659			1,410
Deferred income taxes		583			8,909			4,435
Changes in operating assets and liabilities:
Receivables		(17,888	)		1,408			(448	)
Inventories		(9,382	)		2,561			13,081
Other current assets		235			(1,593	)		452
Accounts payable		10,109			3,242			(3,541	)
Accrued expenses and other liabilities		169			(2,227	)		(2,590	)
Income taxes		(5,709	)		3,640			(934	)
Other - net		(1,286	)		3,307			265
Net cash from operating activities		31,191			62,771			53,574
Investing activities:
Additions to property, plant and equipment		(18,107	)		(15,132	)		(10,556	)
Marketable securities purchased		(29,176	)		(39,152	)		(32,014	)
Marketable securities sold		33,024			29,516			16,045
Acquisitions (net of cash acquired)		0			(5,831	)		0
Net cash used in investing activities		(14,259	)		(30,599	)		(26,525	)
Financing activities:
Additional long-term obligations		43,000			0			14,000
Reduction of long-term obligations		(44,259	)		(3,898	)		(7,268	)
Unexpended debt proceeds		396			2			3
Dividends paid		(19,052	)		(17,518	)		(17,931	)
Common stock repurchased		0			(26,686	)		0
Stock option plans		4,402			2,048			3,098
Net cash used in financing activities		(15,513	)		(46,052	)		(8,098	)
Net increase (decrease) in cash and cash equivalents		1,419			(13,880	)		18,951
Beginning cash and cash equivalents		10,635			24,515			5,564
Ending cash and cash equivalents	$	12,054		$	10,635		$	24,515

See notes to consolidated financial statements.

Consolidated Statements of Shareholders’ Equity

Baldor Electric Company and Affiliates

	Common Stock			Additional Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock (at cost)			Total
(In thousands, except share data)	Shares	Amount
BALANCE AT DECEMBER 30, 2001	39,411	$	3,941	$	44,224	$	325,642		$	(8,164	)	$	(103,158	)	$	262,485
Comprehensive income
Net earnings							23,895									23,895
Other comprehensive income
Securities valuation adjustment, net of taxes of $51										85						85
Translation adjustments										1,900						1,900
Derivative unrealized loss, net of taxes of $831										1,299						1,299
Total other comprehensive income																3,284
Total comprehensive income															$	27,179
Stock option plans (net of 60,580 shares exchanged and $509,000 tax benefit)	282		28		4,433								(1,363	)		3,098
Cash dividends at $0.52 per share							(17,931	)								(17,931	)
Other							(233	)								(233	)
BALANCE AT DECEMBER 28, 2002	39,693	$	3,969	$	48,657	$	331,373		$	(4,880	)	$	(104,521	)	$	274,598
Comprehensive income
Net earnings							24,779									24,779
Other comprehensive income (loss)
Securities valuation adjustment, net of tax benefits of $85										(145	)					(145	)
Translation adjustments										2,809						2,809
Derivative unrealized gain, net of taxes of $985										1,541						1,541
Total other comprehensive income																4,205
Total comprehensive income															$	28,984
Stock option plans (net of 134,890 shares exchanged and $321,000 tax benefit)	325		33		5,026								(3,011	)		2,048
Cash dividends at $0.53 per share							(17,518	)								(17,518	)
Acquisition							62									62
Common stock repurchased (1,500,000 shares)													(26,686	)		(26,686	)
BALANCE AT JANUARY 3, 2004	40,018	$	4,002	$	53,683	$	338,696		$	(675	)	$	(134,218	)	$	261,488
Comprehensive income
Net earnings							35,052									35,052
Other comprehensive income (loss)
Securities valuation adjustment, net of tax benefits of $92										(157	)					(157	)
Translation adjustments										1,746						1,746
Derivative unrealized gain, net of taxes of $87										136						136
Total other comprehensive income																1,725
Total comprehensive income															$	36,777
Stock option plans (net of 124,769 shares exchanged and $630,000 tax benefit)	405		40		7,434								(3,072	)		4,402
Cash dividends at $0.57 per share							(19,052	)								(19,052	)
BALANCE AT JANUARY 1, 2005	40,423	$	4,042	$	61,117	$	354,696		$	1,050		$	(137,290	)	$	283,615

See notes to consolidated financial statements.

Notes to Consolidated Financial Statements

Baldor Electric Company and Affiliates

January 1, 2005

NOTE A SIGNIFICANT ACCOUNTING POLICIES

Line of Business: The Company operates in one industry segment that includes the design, manufacture and sale of industrial electric motors, drives and generators.

Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results may differ from those estimates.

Consolidation: The consolidated financial statements include the accounts of the Company and all its affiliates. Intercompany accounts and transactions have been eliminated in consolidation.

Fiscal Year: The Company’s fiscal year ends on the Saturday nearest to December 31, which results in a 52-week or 53-week year. Fiscal year 2004 contained 52 weeks. Fiscal year 2003 contained 53 weeks, and fiscal year 2002 contained 52 weeks.

Cash Equivalents: Cash equivalents consist of highly liquid investments having original maturities of three months or less.

Marketable Securities: All marketable securities are classified as available-for-sale and are available to support current operations or to take advantage of other investment opportunities. Those securities are stated at estimated fair value based upon market quotes. Unrealized gains and losses, net of tax, are computed on the basis of specific identification and are included in accumulated other comprehensive income. Realized gains, realized losses, and declines in value, judged to be other than temporary, are included in other income. The cost of securities sold is based on the specific identification method and interest earned is included in other income.

Accounts Receivable: Trade receivables are recorded in the balance sheet at outstanding principal, adjusted for charge-offs and allowances for doubtful accounts. The allowance for doubtful accounts is estimated based on historical losses and current conditions.

Inventories: The Company values inventories at the lower of cost or market, with cost being determined principally by the last-in, first-out method (LIFO), except for $16,835,000 in 2004 and $16,183,000 in 2003, at foreign locations, valued by the first-in, first-out method (FIFO).

Property, Plant and Equipment: Property, plant and equipment are stated at cost. Depreciation and amortization are computed principally using the straight-line method over the estimated useful lives of the assets ranging from 10 to 39 years for buildings and improvements and 3 to 15 years for machinery and equipment. Capitalized software costs amounting to $24.8 million and $22.1 million, net of accumulated amortization, at January 1, 2005, and January 3, 2004, respectively, are included in machinery and equipment and are amortized over their estimated useful life of 15 years.

Fair Value of Financial Instruments: The Company’s methods and assumptions used to estimate the fair value of financial instruments include quoted market prices for marketable securities and discounted cash flow analysis for fixed rate long-term debt. The Company estimates that the fair value of its financial instruments approximates carrying value at January 1, 2005, and January 3, 2004. The carrying amounts of cash and cash equivalents, receivables, and trade payables approximated fair value at January 1, 2005, and January 3, 2004, due to the short-term maturities of these instruments.

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Self-Insurance Liabilities: The Company’s self-insurance programs include primarily product liability, workers’ compensation, and health. The Company self-insures from the first dollar of loss up to specified retention levels. Eligible losses in excess of self-insurance retention levels and up to stated limits of liability are covered by policies purchased from third-party insurers. The aggregate self-insurance liability is estimated using the Company’s claims experience and risk exposure levels for the periods being valued and current conditions. Adjustments to the self-insured liabilities may be required to reflect emerging claims experience and other factors.

Goodwill: Goodwill and indefinite-lived intangible assets are reviewed for impairment on an annual basis, and more frequently if events occur or circumstances change that indicate possible impairment. The January 1, 2005, and January 3, 2004, annual impairment tests resulted in no impairments.

Long-Lived Assets: Impairment losses are recognized on long-lived assets when information indicates the carrying amount of these assets will not be recovered through future operations or sale.

Benefit Plans: The Company has a profit-sharing plan covering most employees with more than two years of service. The Company contributes 12% of pre-tax earnings of participating companies to the Plan.

Income Taxes: Income taxes are provided based on the liability method of accounting. Deferred income taxes are provided for the expected future tax consequences of temporary differences between the basis of assets and liabilities reported for financial and tax purposes.

Research and Engineering: Costs associated with research, new product development, and product cost improvements are treated as expenses when incurred and amounted to approximately $25.4 million in 2004, $21.9 million in 2003, and $22.5 million in 2002.

Derivatives: The Company recognizes all derivatives on the balance sheet at fair value. Derivatives that are not hedges are adjusted to fair value through earnings. If the derivative is a cash flow hedge, changes in the fair value are recognized in accumulated other comprehensive income (loss) until the hedged item is recognized in earnings. If a hedge transaction is terminated, any unrealized gain (loss) at the date of termination is carried in accumulated other comprehensive income (loss) until the hedged item is recognized as earnings. The ineffective portion of a derivative’s change in fair value is recognized in earnings in the period of change.

Shipping and Handling Costs: The Company classifies all amounts billed to customers for shipping and handling as revenue and classifies gross shipping and handling costs paid as selling expense. Costs included in selling and administrative expenses related to shipping and handling amounted to approximately $22.8 million in 2004, $20.9 million in 2003, and $22.4 million in 2002.

Stock-Based Compensation: The Company has certain stock-based employee compensation plans, which are described more fully in Note J. In accounting for these plans, the Company applies the intrinsic value method permitted under SFAS No. 123, “Accounting for Stock-Based Compensation,” as amended by SFAS No. 148, Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations.

SFAS No. 123 requires pro forma disclosure of the effects on net income and earnings per share when applying the fair value method of valuing stock-based compensation. The following table sets forth the pro forma disclosure of net income and earnings per share using the Black-Scholes option pricing model. For purposes of this disclosure, the estimated fair value of options is amortized over the applicable compensatory periods.

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Pro Forma Information (In thousands except per share data)

2004
Net income, as reported			$	35,052
Add: Stock-based compensation expense included in reported net income, net of tax effects				161
Less: Stock-based compensation expense determined under fair value method, net of related tax effects				(632	)
Pro forma net income			$	34,581
	Basic		Diluted
Earnings per share:
Reported	$	1.06	$	1.05
Pro forma	$	1.05	$	1.03
2003
Net income, as reported			$	24,779
Add: Stock-based compensation expense included in reported net income, net of tax effects				446
Less: Stock-based compensation expense determined under fair value method, net of related tax effects				(807	)
Pro forma net income			$	24,418
	Basic		Diluted
Earnings per share:
Reported	$	0.75	$	0.74
Pro forma	$	0.74	$	0.73
2002
Net income, as reported			$	23,895
Add: Stock-based compensation expense included in reported net income, net of tax effects				581
Less: Stock-based compensation expense determined under fair value method, net of related tax effects				(1,162	)
Pro forma net income			$	23,314
	Basic		Diluted
Earnings per share:
Reported	$	0.70	$	0.69
Pro forma	$	0.68	$	0.67

Revenue Recognition: The Company sells products to its customers FOB shipping point. Title passes to the customer when the product is shipped. Accordingly, revenue is recognized when the product is shipped. The Company has no further obligations associated with the product sale that would impact revenue recognition after the product is shipped.

Earnings Per Share: The Company’s presentation of financial results includes both basic earnings per share and diluted earnings per share in accordance with SFAS No. 128, “Earnings Per Share.” Basic earnings per share excludes any dilutive effects of options, warrants, and convertible securities. Diluted earnings per share includes all dilutive common stock equivalents.

Foreign Currency Translation: Assets and liabilities of foreign affiliates are translated into U.S. dollars at year-end exchange rates. Income statement items are generally translated at average exchange rates prevailing during the period. Translation adjustments are recorded in accumulated other comprehensive income (loss) in shareholders’ equity.

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Product Warranties: The Company accrues for product warranty claims based on historical experience and the expected costs to provide warranty service. Changes in the carrying amount of product warranty reserves for the year ended January 1, 2005, are as follows:

(In thousands)

Balance at January 3, 2004	Charges to Costs and Expenses	Deductions	Balance at January 1, 2005
$ 6,625	$ 2,277	$ (2,567)	$ 6,335

Amounts included in selling and administrative costs amounted to $2,277,000 in 2004, $2,700,000 in 2003, and $2,804,000 in 2002.

NOTE B LONG-TERM OBLIGATIONS

Long-term obligations consist of the following:

(In thousands)	2004		2003
Industrial Development Bonds:
Due in 2004 at variable rates ranging from 1.34% to 4.02%	$	0	$	810
Due in 2010 at variable rate of 1.74%		2,025		5,465
Notes payable to banks:
Due October 23, 2004 at 4.97% fixed rate		0		25,000
Due March 31, 2004 at 1.92% variable rate		0		12,000
Due July 31, 2004 at 1.91% variable rate		0		15,000
Due January 31, 2007 at 2.88% variable rate		47,000		47,000
Due March 15, 2006 at 2.90% variable rate		15,000		0
Due October 25, 2009 at 3.62% fixed rate		25,000		0
Due September 30, 2009 at 4.63% fixed rate		15,000		0
Due November 1, 2004 at 10.16% fixed rate		0		9
		104,025		105,284
Less current maturities		0		25,819
	$	104,025	$	79,465

Certain long-term obligations are collateralized by property, plant and equipment with a net book value of approximately $626,000 at January 1, 2005.

Maturities of long-term obligations during the five year period ending 2009 are: 2005 - $0; 2006 - $15,000,000; 2007 - $47,000,000; 2008 - $0, 2009 and thereafter - $42,025,000.

Certain long-term obligations require that the Company maintain various financial ratios. These ratios were all met for 2004 and 2003. At January 1, 2005, the Company had outstanding letters of credit totaling $2,257,000 that will expire between February 28, 2005, and July 1, 2005. The Company expects to renew these letters of credit prior to expiration.

Interest paid was $3,037,000 in 2004, $2,878,000 in 2003 and $3,312,000 in 2002.

The Company has a note payable to bank of $47,000,000 secured by trade accounts receivable. This note was renewed March 5, 2004, with a maturity date of February 1, 2007. The Company utilizes a wholly-owned special purpose entity (SPE) to securitize the receivables. The SPE has no other purpose other than the securitization and is consolidated in the Company’s financial statements.

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NOTE C MARKETABLE SECURITIES

Baldor currently invests in only high-quality, short-term investments, which it classifies as available-for-sale. Differences between amortized cost and estimated fair value at January 1, 2005, and January 3, 2004, are not material and are included in accumulated other comprehensive income (loss). Because investments are predominantly short-term and are generally allowed to mature, realized gains and losses for both years have been minimal. The following table presents the estimated fair value breakdown of investments by category:

(In thousands)	2004		2003
Municipal debt securities	$	18,865	$	20,678
U.S. corporate debt securities		1,696		4,435
U.S. Treasury & agency securities		11,831		11,641
Other debt securities		1,412		3,639
		33,804		40,393
Less cash equivalents		1,412		3,739
	$	32,392	$	36,654

The estimated fair value of marketable debt and equity securities at January 1, 2005, was $3,377,000 due in one year or less, $24,382,000 due in one to five years, $2,917,000 due in five to ten years, and $3,128,000 due after ten years. Because of the short-term nature of the investments, expected maturities and contractual maturities are generally the same.

NOTE D INCOME TAXES

The Company made income tax payments of $21,893,000 in 2004, $1,818,000 in 2003, and $10,174,000 in 2002. Income tax expense consists of the following:

(In thousands)	2004		2003		2002
Current: Federal	$	13,056	$	3,908	$	8,829
State		2,968		1,456		1,283
Foreign		669		277		(513	)
		16,693		5,641		9,599
Deferred: Federal		46		8,418		3,837
State		537		491		598
Foreign		0		0		0
		583		8,909		4,435
	$	17,276	$	14,550	$	14,034

Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The sources of these differences relate primarily to depreciation, certain liabilities and bad debt expense.

The following table reconciles the difference between the Company’s effective income tax rate and the federal corporate statutory rate:

	2004		2003		2002
Statutory federal income tax rate	35.0	%	35.0	%	35.0	%
State taxes, net of federal benefit	4.4	%	3.3	%	3.2	%
Other	(6.4	)%	(1.3	)%	(1.2	)%
Effective income tax rate	33.0	%	37.0	%	37.0	%

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The Company adjusted certain income tax liabilities during the fourth quarter of 2004 to reflect current exposure. These adjustments amounted to approximately $2.1 million and accounted for the reduction in effective income tax rate for 2004. The adjustments are included in Other in the above reconciliation.

The principal components of deferred tax assets (liabilities) are as follows:

(In thousands)	2004			2003
Accrued liabilities	$	3,653		$	4,989
Bad debt reserves		900			1,079
Foreign net operating losses		1,382			1,679
Employee compensation and benefits		898			(2,300	)
		6,833			5,447
Valuation allowance		(388	)		(363	)
Deferred tax assets		6,445			5,084
Property, plant, equipment and intangibles		(27,295	)		(28,098	)
Derivative unrealized (gains) losses		(1,033	)		(946	)
Securities valuation		(70	)		(22	)
Deferred tax liabilities		(28,398	)		(29,066	)
Net deferred tax liabilities	$	(21,953	)	$	(23,982	)

Valuation allowance of $388,000 is to adjust foreign net operating loss carryforwards to expected future utilization.

The Company has accumulated but undistributed earnings of foreign subsidiaries aggregating approximately $6.6 million at January 1, 2005 that are expected to be permanently reinvested in the business. It is not currently practicable to estimate the tax liability that might be payable on the repatriation of these foreign earnings.

NOTE E FINANCIAL DERIVATIVES

Hedging of Copper and Aluminum Requirements

Periodically, the Company uses derivative financial instruments to reduce its exposure to various market risks. The Company does not regularly engage in speculative transactions, nor does the Company regularly hold or issue financial instruments for trading purposes. Generally, contract terms of a hedge instrument closely mirror those of the hedged item providing a high degree of risk reduction and correlation and are recorded using hedge accounting. Instruments that do not meet the criteria for hedge accounting are marked to fair value with unrealized gains or losses reported currently in earnings.

The Company had derivative balances related to cash flow hedges, with a fair value of $2,650,000 and $2,426,000 recorded in other current assets at January 1, 2005, and January 3, 2004, respectively.

The amount recognized in cost of sales on cash flow hedges amounted to approximately $(4.7 million) and $(934,000) in 2004 and 2003, respectively. The Company expects that after-tax gains, totaling approximately $1.6 million recorded in accumulated other comprehensive income (loss) at January 1, 2005, related to cash flow hedges, will be recognized in cost of sales within the next twelve months. The Company generally does not hedge anticipated transactions beyond 18 months.

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NOTE F SHAREHOLDERS’ EQUITY

Shareholder Rights Plan

The Company maintains a shareholder rights plan intended to encourage a potential acquirer to negotiate directly with the Board of Directors. The purpose of the plan is to ensure the best possible treatment for all shareholders. Under the terms of the plan, one Common Stock Purchase Right (a Right) is associated with each outstanding share of common stock. If an acquiring person acquires 20% or more of the Company’s common stock then outstanding, the Rights become exercisable and would cause substantial dilution. Effectively, each such Right would entitle its holder (excluding the 20% owner) to purchase shares of Baldor common stock for half of the then current market price, subject to certain restrictions under the plan. A Rights holder is not entitled to any benefits of the Right until it is exercised. The Rights, which expire in May 2008, may be redeemed by the Company at any time prior to someone acquiring 20% or more of the Company’s outstanding common stock and in certain events thereafter.

Accumulated Other Comprehensive Income (Loss)

Balances of related after-tax components comprising accumulated other comprehensive income (loss), included in shareholders’ equity are as follows:

(In thousands)	Unrealized Gains on Securities			Unrealized Gains (Losses) on Derivatives			Foreign Currency Translation Adjustments			Total Accumulated Other Comprehensive Income (Loss)
Balance at December 28, 2002	$	181		$	(61	)	$	(5,000	)	$	(4,880	)
Net change 2003		(145	)		1,541			2,809			4,205
Balance at January 3, 2004		36			1,480			(2,191	)		(675	)
Net change 2004		(157	)		136			1,746			1,725
Balance at January 1, 2005	$	(121	)	$	1,616		$	(445	)	$	1,050

Share Repurchases

On February 14, 2003, the Company, pursuant to its stock repurchase plan, repurchased 1.5 million shares of its common stock for cash in the amount of $26.7 million.

NOTE G COMMITMENTS AND CONTINGENCIES

Operating Lease Commitments

The Company leases certain computers, buildings, and other equipment under operating lease agreements. Related rental expense was $6,100,000 in 2004, $6,600,000 in 2003, and $5,800,000 in 2002. Future minimum payments for operating leases having non-cancelable lease terms in excess of one year are: 2005 - $3,579,000; 2006 - $1,279,000; 2007 - $836,000; 2008 - $674,000; 2009 and thereafter - $3,435,000.

Legal Proceedings and Contingent Liabilities

The Company is subject to a number of legal actions arising in the ordinary course of business. Management expects that the ultimate resolution of these actions will not materially affect the Company’s financial position, results of operations, or cash flows. During the fourth quarter of 2004, certain contingent liabilities were adjusted by approximately $1.5 million to reflect current exposures, resulting in a reduction in selling and administrative expenses.

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NOTE H ACQUISITIONS

On February 13, 2003, the Company acquired all of the stock of Energy Dynamics, Inc. (“EDI”) for cash in the amount of $5.8 million. EDI is a designer, assembler, and marketer of industrial generator sets. The acquisition has been accounted for as a purchase with resulting goodwill of approximately $5.8 million. EDI’s results of operations for the year ended January 3, 2004, were not material to the Company’s consolidated financial statements. Accordingly, pro forma information has not been presented. The Company’s consolidated financial statements include the results of operations and the assets and liabilities of EDI after February 12, 2003.

NOTE I FOREIGN OPERATIONS

The Company’s foreign operations include both export sales and the results of its foreign affiliates in Europe, Australia, Singapore, and Mexico. Consolidated sales, earnings before income taxes, and identifiable assets consist of the following:

(In thousands)	2004		2003		2002
Net Sales:
United States Companies
Domestic customers	$	547,092	$	479,414	$	474,729
Export customers		46,396		40,926		36,792
		593,488		520,340		511,521
Foreign Affiliates		54,707		41,051		37,986
	$	648,195	$	561,391	$	549,507
Earnings Before Income Taxes:
United States Companies	$	50,217	$	39,076	$	38,524
Foreign Affiliates		2,111		253		(595	)
	$	52,328	$	39,329	$	37,929
Assets:
United States Companies	$	480,865	$	457,727	$	455,699
Foreign Affiliates		20,695		19,228		17,062
	$	501,560	$	476,955	$	472,761

NOTE J STOCK PLANS

At January 1, 2005, the Company had various stock plans. Grants can and have included: (1) incentive stock options to purchase shares at market value at grant date, and/or (2) non-qualified stock options to purchase shares of stock equal to and less than the stock’s market value at grant date. Grants from the 1990 Plan expire six years from the grant date. All other grants expire 10 years from the date of grant. The 1987, 1989, and 1996 Plans have expired except for options outstanding. A summary of the Company’s stock plans follows.

1990 Plan — Only non-qualified options can be granted from this Plan. Options vest and become 50% exercisable at the end of one year and 100% exercisable at the end of two years. There are no charges to income. Shares authorized for grants: 1990 Plan—501,600.

1987 and 1994 Plans — Incentive stock options vest and become fully exercisable with continued employment of six months for officers and three years for non-officers. Restrictions on non-qualified stock options normally lapse after a period of five years or earlier under certain circumstances. Related compensation expense for the non-qualified stock options is amortized over the applicable compensatory period. Shares authorized for grants: 1987 Plan – 2,700,000; 1994 Plan - 4,000,000.

1989, 1996 and 2001 Plans — Each non-employee director is granted an annual grant consisting of non-qualified stock options to purchase: (1) 3,240 shares at a price equal to the market value at grant date, and (2) 2,160 shares at a price equal to 50% of the market value at

- 8 -

grant date. These options are immediately exercisable. Related compensation expense on the options granted at 50% of market is amortized over the applicable compensatory period. Shares authorized for grants: 1989 Plan—540,000; 1996 Plan—200,000; 2001 Plan - 200,000.

	1990 Plan	1987 and 1994 Plans	1989, 1996 and 2001 Plans
Type	Non-compensatory	Compensatory	Compensatory
Administrator	Stock Option Committee	Stock Option Committee	Executive Committee
Recipients	District Managers	Employees	Non-employee Directors
Status	Active	Active - 1994 Plan	Active - 2001 Plan
		Expired - 1987 Plan	Expired - 1989 & 1996 Plans

Options Outstanding at Fiscal Year-End	Granted at Market		Granted at Market		Granted at Less than Market		Granted at Market		Granted at Less than Market
Range of exercise prices	$	17.06 - $20.70	$	13.56 - $26.56	$	6.78 - $13.91	$	13.44 -  $23.40	$	6.72 - $11.70
Options outstanding		71,004		1,741,316		202,850		161,352		93,353
Weighted-average exercise price	$	20.12	$	20.05	$	9.88	$	21.00	$	10.42
Weighted-average remaining contractual life		3.6 years		5.2 years		5.2 years		5.9 years		5.7 years
Options currently exercisable		48,504		1,401,816		202,850		161,352		93,353
Weighted-average exercise price	$	19.85	$	19.70	$	9.88	$	21.00	$	10.42

A summary of the Company’s weighted average variables, using the Black-Scholes option pricing model, and stock option activity for fiscal years 2004, 2003, and 2002 follows.

				2004						2003						2002
Weighted Average Variables
Volatility					1.4	%					2.0	%					2.5	%
Risk-free interest rates					4.0	%					3.7	%					5.0	%
Dividend yields					2.3	%					2.6	%					2.4	%
Expected option life					7.5 years						6.7 years						7.6 years
Remaining contractual life					5.2 years						5.4 years						5.2 years
	Exercise Price			Fair Value Price			Exercise Price			Fair Value Price			Exercise Price			Fair Value Price
Per share price of options granted during year
At market price	$	23.85		$	2.34		$	20.27		$	1.45		$	21.68		$	3.08
At less than market price	$	11.70		$	6.14		$	10.11		$	4.55		$	9.81		$	9.04
	Shares			Weighted Average Price/Share			Shares			Weighted Average Price/Share			Shares			Weighted Average Price/Share
Stock Option Activity
Total options outstanding
Beginning Balance		2,491,187		$	17.99			2,499,790		$	17.26			2,601,234		$	16.62
Granted		244,600			23.10			421,500			18.85			233,300			19.17
Exercised		(404,793	)		15.79			(325,170	)		16.30			(281,618	)		14.65
Expired		(61,119	)		22.42			(104,933	)		19.13			(53,126	)		19.86
Ending Balance		2,269,875			18.82			2,491,187			17.99			2,499,790			17.26
Shares authorized for grant		8,141,600						8,141,600						8,141,600
Shares exercisable, at year end		1,907,875			18.32			1,993,787			17.29			2,110,490			16.74
Shares reserved for future grants, at year end		1,280,867						1,466,348						1,793,381

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NOTE K EARNINGS PER SHARE

The table below details earnings per share for the years indicated:

	2004		2003		2002
Numerator Reconciliation:
The numerator is the same for diluted and basic EPS:
Net earnings (in thousands)	$	35,052	$	24,779	$	23,895
Denominator Reconciliation:
Weighted average shares - basic		32,953,382		32,928,369		34,060,853
Effect of dilutive securities - stock options		531,879		476,364		561,283
Weighted average shares - diluted		33,485,261		33,404,733		34,622,136
Earnings Per Share - basic	$	1.06	$	0.75	$	0.70
Earnings Per Share - diluted	$	1.05	$	0.74	$	0.69

The total number of anti-dilutive securities excluded from the above calculations were approximately 192,000 and 747,000 at January 1, 2005, and January 3, 2004, respectively.

NOTE L RECENTLY ISSUED ACCOUNTING STANDARDS

In December 2004, the FASB issued SFAS No. 123R, “Share-Based Payment,” a revision of SFAS No. 123, “Accounting for Stock-Based Compensation” and superseding APB Opinion No. 25, “Accounting for Stock Issued to Employees.” SFAS No. 123R requires the Company to expense grants made under stock option plans. That cost will be recognized over the vesting period of the plans. SFAS No. 123R is effective for the first interim or annual period beginning after June 15, 2005. Upon adoption of SFAS No. 123R, amounts previously disclosed under SFAS No. 123 will be recorded in the consolidated statement of earnings. The Company is evaluating the alternatives allowed under the standard, which the Company is required to adopt beginning in the third quarter of 2005. The Company expects the annual impact of adopting FAS 123R to be a reduction of $0.01 to $0.02 per diluted share.

In December 2004, the FASB issued FASB Staff Position No. FAS 109-2, “Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision Within the American Jobs Creation Act of 2004.” The American Jobs Creation Act of 2004 (the Act) contained a provision which allows for an 85% dividends received deduction with respect to certain dividends received from foreign subsidiaries. The Company does not expect to repatriate foreign earnings pursuant to the Act. Accordingly, the Act is not expected to have a significant effect on the Company’s consolidated financial statements.

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Report of Independent Registered Public Accounting Firm

Shareholders and Board of Directors, Baldor Electric Company and Affiliates

We have audited the accompanying consolidated balance sheets of Baldor Electric Company and affiliates as of January 1, 2005 and January 3, 2004, and the related consolidated statements of earnings, cash flows, and shareholders’ equity for each of the three years in the period ended January 1, 2005. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Baldor Electric Company and affiliates at January 1, 2005 and January 3, 2004, and the consolidated results of their operations and their cash flows for each of the three years in the period ended January 1, 2005, in conformity with accounting principles generally accepted in the United States.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Baldor Electric Company and affiliates’ internal control over financial reporting as of January 1, 2005, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 3, 2005 expressed an unqualified opinion thereon.

\s\ Ernst & Young LLP

Fort Smith, Arkansas

March 3, 2005

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Report of Independent Registered Public Accounting Firm

Shareholders and Board of Directors, Baldor Electric Company and Affiliates

We have audited management’s assessment, included in the accompanying Report of Management on Internal Control over Financial Reporting, that Baldor Electric Company and affiliates maintained effective internal control over financial reporting as of January 1, 2005, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that Baldor Electric Company and affiliates maintained effective internal control over financial reporting as of January 1, 2005, is fairly stated, in all material respects, based on the COSO criteria. Also in our opinion, Baldor Electric Company and affiliates maintained, in all material respects, effective internal control over financial reporting as of January 1, 2005, based on the COSO criteria.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the accompanying consolidated balance sheets of Baldor Electric Company and affiliates as of January 1, 2005 and January 3, 2004, and the related consolidated statements of earnings, cash flows and shareholders’ equity for each of the three years in the period ended January 1, 2005, and our report dated March 3, 2005 expresses an unqualified opinion on these statements.

\s\ Ernst & Young LLP

Fort Smith, Arkansas

March 3, 2005

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Report of Management on Responsibility for Financial Reporting

Management is responsible for the integrity and objectivity of the financial information contained in this annual report. The accompanying financial statements have been prepared in conformity with accounting standards generally accepted in the United States, applying informed judgments and estimates where appropriate.

The Audit Committee of the Board of Directors is composed solely of outside directors and is responsible for recommending to the Board the independent accounting firm to be retained for the coming year. The Audit Committee meets regularly with the independent auditors, with the Director of Audit Services, as well as with Baldor management, to review accounting, auditing, internal accounting controls, and financial reporting matters. The independent auditors, Ernst & Young LLP, and the Director of Audit Services have direct access to the Audit Committee without the presence of management to discuss the results of their audits.

\s\ John A. McFarland

JOHN A. MCFARLAND

Chairman and Chief Executive Officer

\s\ Ronald E. Tucker

RONALD E. TUCKER

President, Chief Financial Officer and Secretary

- 13 -

Report of Management on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). We maintain a system of internal controls that provide reasonable assurance that transactions are executed in accordance with management’s authorization and recorded properly to permit the preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States and that assets are safeguarded from unauthorized use or disposition.

We conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. This assessment included review of the documentation of controls, assessment of the design effectiveness of the controls, testing of the operating effectiveness of controls, and a conclusion on this assessment. Although there are inherent limitations in the effectiveness of any system of internal controls over financial reporting, based on our assessment, we have concluded that our internal control over financial reporting was effective as of January 1, 2005. Ernst & Young, LLP, an independent registered public accounting firm, has issued an attestation report on management’s assessment of internal control over financial reporting, which is included in this report.

\s\ John A. McFarland

JOHN A. MCFARLAND

Chairman and Chief Executive Officer

\s\ Ronald E. Tucker

RONALD E. TUCKER

President, Chief Financial Officer and Secretary

- 14 -

Dividends Paid

Baldor’s annual dividend rate for 2004 increased 8% percent over the 2003 rate. There have been three dividend increases in the last five years and 10 increases in the last 10 years.

	2004		2003		2002
1st quarter	$	0.14	$	0.13	$	0.13
2nd quarter		0.14		0.13		0.13
3rd quarter		0.14		0.13		0.13
4th quarter		0.15		0.14		0.13
Year	$	0.57	$	0.53	$	0.52

Common stock price range

	2004				2003
	HIGH		LOW		HIGH		LOW
1st quarter	$	24.70	$	22.18	$	22.24	$	17.98
2nd quarter		24.21		21.90		23.00		20.35
3rd quarter		24.35		21.32		22.99		19.09
4th quarter		28.75		22.65		23.29		19.65

Shareholders

At January 1, 2005, there were 4,718 shareholders of record including employee shareholders through participation in the benefit plans.

Ticker

The common stock of Baldor Electric Company trades on the New York Stock Exchange (NYSE) with the ticker symbol BEZ.

Certifications

The Company has filed the Chief Executive Officer and Chief Financial Officer certifications required by Section 302 of the Sarbanes-Oxley Act in its Form 10-K. Additionally, the Chief Executive Officer has provided the required annual certifications to the New York Stock Exchange.

- 15 -

EX-21

EXHIBIT 21

BALDOR ELECTRIC COMPANY AND AFFILIATES

SUBSIDIARIES OF THE REGISTRANT

NAME OF SUBSIDIARIES	LOCATION
Baldor of Arkansas, Inc.	Arkansas
Baldor of Nevada, Inc.	Nevada
BEC Business Trust	Massachusetts
Baldor of Texas, L.P.	Texas
Baldor International, Inc.	U.S.Virgin Islands
Southwestern Die Casting Company, Inc.	Arkansas
Baldor UK Holdings, Inc.	Delaware
Baldor UK Ltd	United Kingdom
Baldor Holdings, Inc.	Delaware
Baldor de Mexico, S.A. de C.V.	Mexico
Baldor ASR AG	Switzerland
Baldor ASR GmbH fur Antriebstechnik	Germany
Baldor ASR U.K. Limited	United Kingdom
Baldor Italia S.r.l.	Italy
Australian Baldor Pty Limited	Australia
Baldor Electric (Asia) PTE, Ltd.	Singapore
Northern Magnetics, Inc.	California
Baldor Japan Corporation	Japan
Baldor Investments, LLC	Delaware
Pow’R Gard Generator Corp.	Wisconsin
Energy Dynamics, Inc.	Wisconsin
Baldor Power Finance, Inc.	Wisconsin

EX-23.(I)

EXHIBIT 23 (i)

Consent of Independent Auditors

We consent to the incorporation by reference in this Annual Report (Form 10-K) of Baldor Electric Company and affiliates of our report dated March 3, 2005, included in the 2004 Annual Report to Shareholders of Baldor Electric Company and affiliates.

Our audits also included the financial statement schedule of Baldor Electric Company and affiliates listed in Item 15(a). This schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

We also consent to the incorporation by reference in the Registration Statements (Form S-8, No. 33-16766) Baldor Electric Company 1987 Incentive Stock Plan, (Form S-8, No. 33-28239) Baldor Electric Company Employee Savings Plan, (Form S-8, No. 33-36421) Baldor Electric Company 1989 Stock Option Plan for Non-Employee Directors, (Forms S-8, No. 33-59281, No. 33-60731, and No. 333-62331) Baldor Electric Company 1994 Incentive Stock Plan, (Form S-8, No. 333-33109) Baldor Electric Company 1996 Stock Option Plan for Non-Employee Directors, (Form S-8, No. 333-33287) Baldor Electric Company Employees’ Profit Sharing and Savings Plan, and (Form S-8, No. 333-67474) Stock Option Plan for Non-Employee Directors, of our report dated February 28, 2005, with respect to the consolidated financial statements of Baldor Electric Company and affiliates incorporated by reference and our report included in the preceding paragraph with respect to the financial statement schedule included in the Annual Report (Form 10-K) for the year ended January 1, 2005.

/s/ Ernst & Young LLP

Fort Smith, Arkansas

March 15, 2005

EX-31.1

EXHIBIT 31.1

CERTIFICATION

PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, John A. McFarland, certify that:

(1) I have reviewed this annual report on Form 10-K of Baldor Electric Company;

(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period for which this report is being prepared;

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in case of an annual report) that has materially affected, or is reasonable likely to materially affect, the registrant’s internal control over financial reporting; and

(5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 16, 2005	By:	/s/ John A. McFarland
		John A. McFarland
		Chief Executive Officer
		of Baldor Electric Company

EX-31.2

EXHIBIT 31.2

CERTIFICATION

PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Ronald E. Tucker, certify that:

(1) I have reviewed this annual report on Form 10-K of Baldor Electric Company;

(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period for which this report is being prepared;

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in case of an annual report) that has materially affected, or is reasonable likely to materially affect, the registrant’s internal control over financial reporting; and

(5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 16, 2005	By:	/s/ Ronald E. Tucker
		Ronald E. Tucker
		Chief Financial Officer
		of Baldor Electric Company

EX-32

EXHIBIT 32

CERTIFICATION

PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Baldor Electric Company (the “Company”) on Form 10-K for the period ending January 1, 2005, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John A. McFarland, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 16, 2005	By:	/s/ John A. McFarland
		John A. McFarland
		Chief Executive Officer of Baldor Electric Company

CERTIFICATION

PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Baldor Electric Company (the “Company”) on Form 10-K for the period ending January 1, 2005, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Ronald E. Tucker, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 16, 2005	By:	/s/ Ronald E. Tucker
		Ronald E. Tucker
		Chief Financial Officer
		of Baldor Electric Company