Management's Discussion and Analysis of Financial

Results of Operations
Summary
Baldor posted record sales and earnings for the seventh  consecutive  year.  For
the fiscal year 1998, a 6% increase in sales was leveraged  into an 11% increase
in net  earnings.  This leverage is  attributable  to improved  margins  through
increased  productivity,  lowered  manufacturing  costs and improved  quality of
products and services for our customers.  As announced in October 1998, the lead
times at all manufacturing plants was reduced from 4 to 3 weeks, the best in the
industry.

Net Sales
Baldor  reached a record  sales level of $589.4  million in 1998,  a 6% increase
over 1997 sales of $557.9 million.  Sales in 1996 were $502.9 million.  In 1998,
sales to distributor  customers  increased  slightly  compared with sales to OEM
customers.  The mix of sales  between  distributor  and OEM  customers  remained
consistent in 1998 and 1997, at 49% distributor sales and 51% OEM sales.  Baldor
serves  many  industries  and  geographic  regions by selling to a broad base of
distributors and OEMs both domestically and in more than 60 countries around the
world.  No  single  customer  accounted  for  more  than 4% of sales in any year
covered by this report. During the past two years, we saw growth in a variety of
products.  During 1998, Baldor introduced nearly 300 new products in response to
customer  feedback.  Sales  for 1998 and 1997  were  generated  without  a price
increase, with the exception of the increase on EPAct-related products effective
after October 24, 1997. Sales of products  introduced in the previous five years
accounted for approximately 30% of 1998 and 1997 sales.

Net Earnings
Net  earnings  of $44.6  million in 1998  exceeded  1997 net  earnings  of $40.4
million  by 11%.  Net  earnings  in 1996 were  $35.2  million.  Pre-tax  margins
improved to 12.2% in 1998 from 11.8% in 1997 and 11.4% in 1996.  Selling  prices
remained flat during 1998, while net earnings  improved to a record level due to
productivity  improvements and cost reduction programs.  Gross margin, operating
margin and pre-tax  margin  improved in 1998 compared to 1997.  The gross margin
improved  to 30.3% in 1998 from  30.2% in 1997 and 29.7% in 1996.  Manufacturing
costs  continued  to  improve in 1998  compared  to 1997 and 1996.  Selling  and
administrative costs as a percent of sales improved to 16.6% in 1998 compared to
16.8% in 1997 and 1996.  Baldor  continues to increase its sales  volumes with a
corresponding decrease in selling and administrative support costs. Our tax rate
improved to 38.0% in 1998 compared to 38.5% in 1997 and 1996.


International  Operations  
Sales from international  operations (foreign affiliates and exports) were $90.0
million in 1998, up from $84.2 million in 1997, and $72.8 million in 1996. Sales
from  international  operations  rose 6% compared to 1997.  We saw strong  sales
increases in Mexico and Europe during 1998.  Sales in Australia and the Far East
continued to be weaker in 1998 and 1997.  Even though foreign sales  experienced
only a moderate growth in 1998, foreign pre-tax earnings increased significantly
in 1998  compared  to 1997.  The  increase  in  foreign  pre-tax  earnings  is a
continuation of Baldor's  efforts to increase  productivity and improve costs on
an international level.

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

Year 2000
The Company's  comprehensive  Year 2000 initiative is being managed  internally.
The Company's goal is to ensure that there is no material adverse effect on
operations  and  that  transactions   with  customers,   vendors  and  financial
institutions   will  be  operational  in  the  year  2000.  A  new  Company-wide
information system that is certified by the vendor to be Year 2000 compliant was
purchased  in 1996.  This  fully  integrated  information  reporting  system was
purchased to improve  visibility  and reaction time to customer  orders,  reduce
lead times, support  international  operations,  improve productivity and better
manage inventory.  The Company is adhering to its  implementation  schedule with
75% completion as of year end 1998, with the remaining  scheduled for completion
in mid 1999. The only product that the Company presently  produces that utilizes
a real-time clock and a date stamp is the Baldor SmartMotor_. This date stamp is
used only for run time and fault logging. It is not used in any control function
and in this capacity  will function in the year 2000.  The Company has evaluated
other potential areas, such as vendor  compliance,  shop floor  technology,  and
other  infrastructure  such as phone and alarm  systems.  These  non-information
systems  are  expected  to  function  properly  in the  year  2000.  The cost of
addressing  these  systems  for the year 2000 is not  expected  to be  material.
Recently,  a review of vendors was completed with written  verification of their
compliance status. Based on the certifications  received,  the Year 2000 problem
is not expected to have a material  adverse effect on business  operations  with
our vendors.  The Company's  financial  institutions  have  provided  reasonable
assurance  that they are Year 2000  operational.  While we cannot  guarantee the
performance  of outside  parties,  we will  establish  contingency  plans,  when
needed,  in an  attempt  to  minimize  disruptions.  Based  upon the  procedures
described  and results  achieved,  the Company does not  anticipate a materially
adverse  affect from the Year 2000.  We will  continue  to monitor our  vendors,
customers and  financial  institutions  for any adverse  reactions to their Year
2000 compliance. If the situation arises, we will establish contingency plans to
address complications.
                                       16
<PAGE>    

Financial Position

Summary
Baldor's  financial position continued to remain strong in 1998. We improved our
financial  strength by expanding  research and  development for new and existing
products, by capital investments in our manufacturing facilities,  and by making
additional investments in both our employees and customers through education and
training.  Also in 1998, the Company initiated a stock repurchase  program.  Our
financial strength is an important competitive advantage which provides a strong
base to better serve our customers and finance future growth opportunities.

Investments
Baldor believes the investment in our employees  through  training and education
is a key to continued success and shareholder value. Once again, this investment
was recognized when we were honored for the second  consecutive  year in Fortune
magazine's  list of "100 Best Companies To Work For In America."  Investments in
property,  plant and  equipment  for 1998 were $38.2  million  compared to $26.9
million in 1997 and $23.1  million in 1996.  The 1998  investments  in property,
plant and equipment were made to centralize  operations,  increase capacity, and
improve  quality and  productivity.  The new Fort Smith Drives  Center opened in
1998 and has  received  ISO 9000  certification.  This new Drives  Center is the
consolidation  of three  locations  and has  resulted  in  quality  and  service
improvements for our customers at less cost. These investments helped to improve
operating  margin to 13.8% in 1998 from 13.4% in 1997, the best levels  achieved
since 1981. Baldor's commitment to research and development continues to help it
maintain a  leadership  position in the  marketplace  and to satisfy  customers'
needs. In 1998,  Baldor increased its investments in research and development to
$25.3  million  compared to $22.9  million in 1997 and $19.9 million in 1996. We
also  continue  to  make  investments  in  our  existing  products  for  greater
performance, energy efficiency improvements, and manufacturability.  In 1998 and
1997,  new  products  developed  in the last  five  years  as a result  of these
investments accounted for approximately 30% of the Company's total sales.

Current Liquidity
Baldor's  liquidity  position  in 1998  improved  over 1997 with an  increase in
working  capital of 24.6% and an increase in the current  ratio to 3.2.  Working
capital  was $176.1  million at the end of 1998  compared  to $141.3  million in
1997,  and $146.9  million in 1996. The current ratio was 3.2 in 1998 and 2.8 in
1997. The Company also has available lines of credit to support operations.


Long-Term Debt and Shareholders' Equity
Long-term  debt  increased to 17.7% of total  capitalization  at the end of 1998
compared to 10.3% in 1997.  The  increase in 1998  reflects  the  mid-term  loan
funded to repurchase common stock. Baldor also refinanced certain bond issues in
1998 to lower  its cost of debt.  Baldor  repurchased  655,700  shares of common
stock  during  1998  and  increased  dividends  per  share  by  11%  over  1997.
Shareholders'  equity was $264.3  million at the end of 1998  compared to $243.4
million  in 1997.  Return  on  average  shareholders'  equity  was 17.6% in 1998
compared to 18.2% in 1997.

Dividend Policy
Dividends  per share  for 1998  increased  11% over  1997.  There  have been six
dividend  increases in the last five years.  These  increases  were in line with
Baldor's  policy of making  increases  periodically,  as earnings and  financial
strength warrant,  and reinvesting a major portion of earnings to finance growth
opportunities.  The objective is for  shareholders to obtain dividend  increases
over time while also participating in the growth of the Company.

Market Risk
The Company's interest rate risk arises from its  available-for-sale  securities
and long-term  debt.  Approximately  75% of the Company's  securities  portfolio
mature  within  one year.  Due to the  short-term  nature  of these  securities,
anticipated  interest  rate  risk  is not  considered  material.  The  Company's
fixed-rate debt is 61% of the total debt obligations. A one percent adverse move
in interest  rates would not  materially  affect  earnings in a given year.  The
Company's risk to foreign currency exchange rates has historically been minimal.
Foreign affiliates  comprise less than 10% 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. The Company
utilizes  short-term  swaps to hedge against the  fluctuations in copper prices.
The hedges are for materials to be used in production and are not speculative. A
10%  adverse  movement  in the price of copper  would not  result in a  material
effect on earnings in a given year.
                                       17
<PAGE>
<TABLE>
<CAPTION>

Consolidated Balance Sheets

Baldor Electric Company and Affiliates

                                                                                   JANUARY 2      JANUARY 3
                                                                                        1999           1998
<S>               <C>                                                            <C>            <C>        
ASSETS (In thousands, except share data)                                                ----           ----
CURRENT ASSETS:   Cash and cash equivalents ................................     $    24,793    $     9,575
                  Marketable securities ....................................          13,996         11,900
                  Receivables, less allowances
                  of $4,350 and $3,525, respectively .......................          90,045         88,740
                  Inventories: Finished products ...........................          74,561         71,616
                               Work-in-process .............................          12,939         10,675
                               Raw materials ...............................          42,477         41,793
                                                                                      ------         ------
                                                                                     129,977        124,084
                  LIFO valuation adjustment (deduction) ....................         (26,170)       (27,543)
                                                                                     -------        ------- 
                                                                                     103,807         96,541
                  Other current and deferred tax assets ....................          23,847         12,684
                                                                                      ------         ------
                  TOTAL CURRENT ASSETS .....................................         256,488        219,440
OTHER ASSETS ...............................................................          32,301         32,352
PROPERTY, PLANT   Land and improvements ....................................           6,007          4,533
AND EQUIPMENT:    Buildings and improvements ...............................          42,283         33,227
                  Machinery and equipment ..................................         213,793        190,009
                  Allowances for depreciation and amortization
                  (deduction) ..............................................        (138,946)      (123,672)
                                                                                    --------       -------- 
                  Net property, plant and equipment ........................         123,137        104,097
                                                                                 $   411,926    $   355,889
                                                                                 ===========    ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT           Accounts payable .........................................     $    18,900    $    19,935
LIABILITIES:      Employee compensation ....................................           5,620          5,684
                  Profit sharing ...........................................           9,420          8,858
                  Anticipated warranty costs ...............................           5,925          5,200
                  Accrued insurance obligations ............................          15,960         13,836
                  Other accrued expenses ...................................          20,052         22,003
                  Income taxes .............................................           3,505          1,586
                  Current maturities of long-term obligations ..............             980          1,070
                                                                                         ---          -----
                  TOTAL CURRENT LIABILITIES ................................          80,362         78,172
LONG-TERM OBLIGATIONS ......................................................          57,015         27,929
DEFERRED INCOME TAXES ......................................................          10,257          6,354
SHAREHOLDERS'     Preferred stock, $0.10 par value
EQUITY:             Authorized shares: 5,000,000
                    Issued and outstanding shares:  None
                  Common stock, $0.10 par value
                    Authorized shares:  1998 - 150,000,000; 1997 - 50,000,000
                    Issued shares:  1998 - 38,409,135; 1997 - 37,951,901 ...           3,841          3,795
                  Additional capital .......................................          31,495         44,606
                  Retained earnings ........................................         264,545        233,602
                  Accumulated other comprehensive income ...................            (428)          (582)
                  Treasury stock at cost (1,732,116 shares in 1998
                  and 1,923,142 shares in 1997) ............................         (35,161)       (37,987)
                                                                                     -------        ------- 
                  TOTAL SHAREHOLDERS' EQUITY ...............................         264,292        243,434
                                                                                     -------        -------
                                                                                 $   411,926    $   355,889
                                                                                 ===========    ===========
</TABLE>

See notes to consolidated financial statements.
                                       18
<PAGE>
<TABLE>
<CAPTION>

Consolidated Statements of Earnings
Baldor Electric Company and Affiliates

                                                                            Years ended
                                                                            -----------
                                                               January 2     January 3   December 28
(In thousands, except share data)                                   1999          1998          1996
                                                                    ----          ----          ----
<S>                                                          <C>           <C>           <C>        
Net sales ................................................   $   589,406   $   557,940   $   502,875
Other income, net ........................................         2,019         1,843         2,497
                                                                   -----         -----         -----
                                                                 591,425       559,783       505,372
Costs and expenses:     Cost of goods sold ...............       410,747       389,711       353,345
                        Selling and administrative .......        97,566        93,455        84,522
                        Profit sharing ...................         9,439         8,858         7,645
                        Interest .........................         1,721         2,124         2,668
                                                                   -----         -----         -----
                                                                 519,473       494,148       448,180
Earnings before income taxes .............................        71,952        65,635        57,192
Income taxes .............................................        27,342        25,270        22,019
                                                                  ------        ------        ------
                        NET EARNINGS .....................   $    44,610   $    40,365   $    35,173
                                                             ===========   ===========   ===========
Net earnings per share-diluted ...........................   $      1.17   $      1.09   $      0.97
                                                             ===========   ===========   ===========
Net earnings per share-basic .............................   $      1.21   $      1.13   $      1.00
                                                             ===========   ===========   ===========
Weighted average shares outstanding-diluted ..............    38,067,014    37,062,624    36,290,312
                                                              ==========    ==========    ==========
Weighted average shares outstanding-basic ................    36,911,175    35,691,572    35,091,161
                                                              ==========    ==========    ==========
</TABLE>

See notes to consolidated financial statements 
                                       19
<PAGE>
<TABLE>
<CAPTION>


Summary of Quarterly Results of Operations (unaudited)
Baldor Electric Company and Affiliates

                                                                     Quarter
                                             ----------------------------------------------------
                                                First     Second      Third     Fourth      Total
(In thousands, except per share data):          -----     ------      -----     ------      -----
<S>     <C>                                  <C>        <C>        <C>        <C>        <C>     
1998:   Net sales .........................  $154,209   $152,083   $147,358   $135,756   $589,406
        Gross profit ......................    46,583     46,122     44,550     41,404    178,659
        Net earnings ......................    11,580     11,544     11,192     10,294     44,610
        Net earnings per share-diluted ....      0.31       0.30       0.29       0.27       1.17
        Net earnings per share-basic ......      0.32       0.31       0.30       0.28       1.21

1997:   Net sales .........................  $129,914   $141,929   $142,492   $143,605   $557,940
        Gross profit ......................    39,077     42,841     42,983     43,328    168,229
        Net earnings ......................     9,392     10,258     10,291     10,424     40,365
        Net earnings per share-diluted ....      0.26       0.28       0.27       0.28       1.09
        Net earnings per share-basic .....       0.27       0.29       0.29       0.29       1.13


</TABLE>
                                       19
<PAGE>
<TABLE>
<CAPTION>

Consolidated Statements of Cash Flow
Baldor Electric Company and Affiliates

                                                                                                       Years Ended
                                                                                          January 2      January 3   December 28
(In thousands)                                                                                 1999           1998          1996
                                                                                               ----           ----          ----
<S>                       <S>                                                              <C>            <C>           <C>     
Operating activities:     Net earnings .............................................       $ 44,610       $ 40,365      $ 35,173
                          Adjustments     Depreciation and amortization ............         20,511         19,337        17,277
                          to reconcile    Deferred income taxes ....................          2,968          5,316        (1,943)
                          net earnings    Changes in     Receivables ...............           (931)        (7,295)       (2,815) 
                          to net cash     operating      Inventories ...............         (7,312)        (3,181)       (8,698)
                          provided by     assets and     Other current assets ......         (9,851)          (813)       (2,826)
                          operating       liabilities:   Accounts payable ..........         (1,280)        (1,093)        1,318  
                          activities:                    Accrued expenses ..........           (617)         7,558         7,149
                                                         Income taxes ..............          2,249            447        (1,201)
                                                         Other, net ................            191         (2,498)         (873)
                                                                                                ---         ------          ---- 
                          Net cash from operating activities .......................         50,538         58,143        42,561
Investing activities:     Additions to property, plant and equipment ...............        (38,210)       (26,857)      (23,183)
                          Marketable securities purchased ..........................        (17,996)       (14,847)      (33,315)
                          Marketable securities sold ...............................         15,900         20,839        43,910
                          Acquisitions .............................................            732                       (7,597)  
                                                                                                ---         ------         -----
                          Net cash used in investing activities ....................        (39,574)       (28,462)      (12,588)
Financing activities:     Additional long-term borrowings                                    30,750                       38,000
                          Reduction of long-term obligations .......................         (1,754)       (17,141)      (18,093)
                          Unexpended debt proceeds .................................            466           (367)          353
                          Dividends paid ...........................................        (14,832)       (12,958)      (10,498)
                          Stock option plans .......................................          3,073          2,410         3,902
                          Common stock repurchased .................................        (13,449)                     (42,009)
                                                                                            -------         ------       ------- 
                          Net cash from (used in) financing activities .............          4,254        (28,056)      (28,345)
                                                                                              -----        -------       ------- 
Net increase in cash and cash equivalents ..........................................         15,218          1,625         1,628
Beginning cash and cash equivalents ................................................          9,575          7,950         6,322
                                                                                              -----          -----         -----
Ending cash and cash equivalents ...................................................       $ 24,793       $  9,575      $  7,950
                                                                                           ========       ========      ========
</TABLE>
                                                                        
See notes to consolidated financial statements    
                                       20
<PAGE>

<TABLE>
<CAPTION>

Consolidated Statements of Shareholders' Equity
Baldor Electric Company and Affiliates

                                                                                                       Other
                                                                                                 Accumulated   Treasury        
                                                                     Additional      Retained  Comprehensive      Stock   
(In thousands, except per share amounts)        Shares      Amount      Capital      Earnings         Income   (at cost)      Total
                                                ------      ------      -------      --------         ------   ---------      -----
<S>                                            <C>         <C>         <C>          <C>             <C>       <C>         <C>     
BALANCE AT DECEMBER 31, 1995                    27,870      $2,817      $32,476      $182,354        $ 1,246   $ (7,516)   $211,377
Comprehensive income    
        Net earnings                                                                   35,173                                35,173
        Other comprehensive income      
          Securities valuation adjustment,
          net of taxes of $22                                                                             35                     35
          Translation adjustments,
          net of taxes of $563                                                                          (900)                  (900)
                                                                                                                               ---- 
        Total other comprehensive income                                                                                       (865)
                                                                                                                               ---- 
Total comprehensive income                                                                                                 $ 34,308
                                                                                                                           ========
Stock option plans (net of shares exchanged)       380          45        5,290                                  (1,433)      3,902
Cash dividends at $0.30 per share                                                     (10,498)                              (10,498)
Common stock repurchased                        (2,210)                                                         (42,009)    (42,009)
Contributions to benefit plans                     160                     (654)                                  3,899       3,245
                                                   ---       -----         ----       -------           ----      -----       -----
BALANCE AT DECEMBER 28, 1996                    26,200       2,862       37,112       207,029            381    (47,059)    200,325
Comprehensive income    
        Net earnings                                                                   40,365                                40,365
        Other comprehensive income      
          Translation adjustments,
          net of taxes of $603                                                                          (963)                  (963)
                                                                                                                               ---- 
Total comprehensive income                                                                                                 $ 39,402
                                                                                                                           ========
Stock option plans (net of shares exchanged)       263          33        4,365                                  (1,988)      2,410
Four-for-three common stock split                8,999         900                      (900)                   
Cash dividends at $0.36 per share                                                    (12,958)                               (12,958)
Contributions to benefit plans                     115                      647                                   2,242       2,889
Acquisition and other                              452                    2,482           66                      8,818      11,366
                                                   ---       -----        -----           --            ----      -----      ------
BALANCE AT JANUARY 3, 1998                      36,029       3,795       44,606      233,602            (582)   (37,987)    243,434
Comprehensive income    
        Net earnings                                                                  44,610                                 44,610
        Other comprehensive income                                                      
          Securities valuation adjustment,
          net of taxes of $54                                                                             87                     87
          Translation adjustments,                   
          net of taxes of $41                                                                             67                     67
                                                                                                                                 --
        Total other comprehensive income                                                                                        154
                                                                                                                                ---
Total comprehensive income                                                                                                 $ 48,505
                                                                                                                           ========
Stock option plans (net of shares exchanged)       355          46        5,547                                  (2,520)      3,073
Cash dividends at $0.40 per share                                                    (14,832)                               (14,832)
Common stock repurchased                          (656)                                                         (13,449)    (13,449)
Acquisition and other                              949                  (18,658)       1,165                     18,795       1,302
                                                   ---      ------      -------        -----           -----     ------       -----
BALANCE AT JANUARY 2, 1999                      36,677      $3,841      $31,495     $264,545         $  (428)  $(35,161)   $264,292
                                                ======      ======      =======     ========         =======   ========    ========
</TABLE>

See notes to consolidated financial statements.
                                       21
<PAGE>

Notes to Consolidated Financial Statements
Baldor Electric Company and Affiliates  January 2, 1999

NOTE A
SIGNIFICANT ACCOUNTING POLICIES

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

Use of Estimates:  The  preparation of financial  statements in conformity  with
generally accepted  accounting  principles requires management to make estimates
and  assumptions  that  affect  the  amounts  reported  in  the  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- or 53-week year.  Fiscal
year 1998 and 1996  contained  52 weeks,  while  fiscal year 1997  contained  53
weeks.  In 1998,  the Company  changed  the fiscal  year end of certain  foreign
affiliates  from  November 30 to December 31. The extra month was recorded as an
adjustment to retained earnings.

Cash Equivalents:  Cash equivalents  consist of highly liquid investments having
original  maturities  of three  months  or less  and are  valued  at cost  which
approximates market.

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.

Inventories: The Company values inventories at the lower of cost or market, cost
being determined principally by the last-in, first-out method (LIFO), except for
$16,718,000  in 1998,  $13,882,000  in 1997 and  $14,166,000  in 1996 at foreign
locations, valued by the first-in, first-out method (FIFO).


Property, Plant and Equipment:  Property, plant and equipment,  including assets
under capital leases,  are stated at cost.  Depreciation  and  amortization  are
computed  principally using the  straight-line  method over the estimated useful
lives of the assets and the remaining term of capital leases, respectively. 

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 long-term
debt.  The Company  estimates  that the fair value of its financial  instruments
approximates carrying value at January 2, 1999 and January 3, 1998.

Long-Lived  Assets:  Impairment  losses are recognized on long-lived assets when
information  indicates the carrying amount of these assets,  intangibles and any
goodwill  related to  long-lived  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.  Baldor  contributes 12% of earnings before
income taxes 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  $25,300,000  in 1998,  $22,900,000  in 1997, and
$19,900,000 in 1996.

Comprehensive  Income:  In 1998,  the Company  adopted  Statement  of  Financial
Accounting  Standards  (SFAS) No.  130,  Reporting  Comprehensive  Income.  This
statement  requires  companies  to classify  components  of other  comprehensive
income by their nature in a financial  statement  and  disclose the  accumulated
balance of other  comprehensive  income  separately  from retained  earnings and
additional  paid-in  capital in the equity  section of the  balance  sheet.  The
effect of the adoption was not material.


Segment Reporting:  In 1998, the Company adopted SFAS No. 131,  Disclosure About
Segments of an Enterprise and Related Information. The statement requires public
companies to report financial and descriptive information about their reportable
operating  segments.  Currently,  the Company has only one  reportable  segment.
Therefore, adoption of SFAS No. 131 was not material.

Computer  Software Costs: In March 1998, the AICPA issued  Statement of Position
(SOP) 98-1,  Accounting  For the Costs of  Computer  Software  Developed  For or
Obtained For Internal-Use. The SOP is effective for fiscal years beginning after
December 15, 1998, with early adoption  encouraged.  The Company adopted the SOP
at the beginning of 1998. The SOP requires the  capitalization  of certain costs
incurred with developing or obtaining  software for internal-use.  The effect of
this accounting  change did not have a material effect on the Company's  results
of operations.

Financial  Derivatives:  In June 1998, the Financial  Accounting Standards Board
issued  SFAS  No.  133,  Accounting  for  Derivative   Instruments  and  Hedging
Activities. This statement becomes effective for fiscal year 2000. The Statement
will require companies to recognize all derivatives on the balance sheet at fair
value. The Company's use of derivatives is minimal,  and management continues to
study the effects of adopting the standard and  currently  believes the adoption
will not have a material effect.

Reclassification: The Company has reclassified the presentation of certain prior
year information to be consistent with the presentation in the current year.
                                       22
<PAGE>
NOTE B  LONG-TERM OBLIGATIONS

Long-term obligations consist of the following:
(In thousands)                                                  1998      1997
Industrial Development Bonds:                                 ------    ------
 due through 2004 at 5.30% fixed rate ....................   $ 3,970   $ 4,515
 due through 2004 at 4.15% variable rate .................     2,300     2,300
 due through 2004 at 6.0% fixed rate .....................        15        24
 due through 2009 at 7.75% fixed rate (refinanced in 1998)               2,860
 due through 2009 at 7.875% fixed rate ...................     6,495     6,860
 due through 2010 at 3.15% variable rate .................     3,440     3,440
 due through 2010 at 4.10% variable rate .................     2,025
Notes payable to banks:
 due March 1, 2000 at 5.55% variable rate ................    14,750     9,000
 due October 23, 2001 at 5.07% fixed rate ................    25,000
                                                              ------    ------
                                                              57,995    28,999
Less current maturities ..................................       980     1,070
                                                                 ---     -----
                                                             $57,015   $27,929
                                                             =======   =======

At January 2, 1999,  Industrial  Development  Bond  proceeds of  $6,291,000  are
included in Other Assets.  Certain long-term  obligations are  collateralized by
property,  plant and equipment with a net book value of $8,882,000 at January 2,
1999.

Maturities of long-term  obligations during each of the five fiscal years ending
2003 are:  1999 -  $980,000;  2000 -  $15,790,000;  2001 -  $26,100,000;  2002 -
$2,265,000; and 2003 - $2,420,000.  Industrial Development Bonds include capital
lease  obligations  of $2,040,000 at January 2, 1999.  Aggregate  future minimum
capital lease payments at January 2, 1999 are $3,505,000  including  interest of
$1,465,000.

Certain  long-term  obligations  require,  among other things,  that the Company
maintain  certain  financial  ratios and restrict  cumulative cash dividends and
other  distributions.  Retained earnings of $15,204,000 at January 2, 1999, were
unrestricted.  At January 2, 1999, the Company had outstanding letters of credit
totaling $8,733,000.

Interest paid was  $2,233,000 in 1998,  $3,577,000  in 1997,  and  $2,988,000 in
1996.  

The Company had lines of credit aggregating  $15,000,000 available at January 2,
1999, with no outstanding  borrowings under these lines.  These  arrangements do
not have termination dates but are reviewed annually. Interest on these lines of
credit is at rates mutually agreed upon at the time of borrowing.

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 2, 1999,  and January 3, 1998 are not  material
and  are  included  in  Other  Comprehensive  Income.  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:
                                  January 2      January 3
(In thousands)                         1999           1998  
                                     ------         ------
Municipal debt securities .......   $19,759        $ 3,858
U.S. corporate debt securities ..    12,909          5,213
U.S. Treasury & agency securities     1,500          5,500
Other debt securities ...........     6,010            563
                                      -----            ---
                                     40,178         15,134
Less cash equivalents ...........    26,182          3,234
                                     ------          -----
                                    $13,996        $11,900
                                    =======        =======

The estimated fair value of marketable debt and equity  securities at January 2,
1999, was  $30,259,000  due in one year or less,  $5,466,000 due in one to three
years, and $4,453,000 due after three 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  $23,694,000  in 1998,  $24,101,000  in
1997, and $22,718,000 in 1996. Income tax expense consists of the following:

(In  thousands)                               1998        1997       1996  
                                              ----        ----       ----  
Current: Federal ........................  $20,820     $22,879    $19,887  
         State ..........................    2,646       2,949      2,591
         Foreign ........................      908         573        637
Deferred: ...............................    2,968      (1,131)    (1,096)
                                             -----      ------     ------ 
                                           $27,342     $25,270    $22,019
                                           =======     =======    =======
                                                      
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:

                                          1998      1997      1996
                                          ----      ----      ----
Statutory federal income tax rate .       35.0%     35.0%     35.0%
State taxes, net of federal benefit        2.8       2.9       3.0
Other .............................        0.2       0.6       0.5
                                           ---       ---       ---
Effective income tax rate .........       38.0%     38.5%     38.5%
                                          ====      ====      ==== 

                                       23
<PAGE>

Notes to Consolidated Financial Statements (continued)

NOTE E FINANCIAL  DERIVATIVES  
Hedging of Copper and Aluminum Requirements 
The  Company  purchases   significant  amounts  of  copper  and  aluminum,   key
ingredients in its motor production, under short-term firm price contracts which
are  renegotiated  annually.  In order to hedge  itself  from  exposure to price
fluctuations  on these two metals,  the Company  utilizes  options and swaps for
quantities  of metal  estimated to be used in our product in the future.  Option
costs are carried in Other Current Assets,  net of realized gains deferred,  and
are  amortized  to Cost of Goods  Sold over the  period  that the metal is used.
Gains and losses on swaps are recorded in Cost of Goods Sold when the  contracts
are settled.

The net unamortized  costs with respect to the Company's metal hedging  programs
were not material at January 2, 1999, and January 3, 1998.

NOTE F SHAREHOLDERS' EQUITY
In 1997,  the Company's  Board of Directors  authorized a  four-for-three  stock
split  effected  in the  form of a 33%  stock  dividend.  This  resulted  in the
issuance  of  8,999,078  additional  shares of common  stock.  All per share and
weighted average share amounts have been restated to reflect this stock split.

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  Baldor  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 Baldor's outstanding common stock and in certain events
thereafter.

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  $4,800,000 in 1998,
$5,500,000  in  1997,  and  $4,800,000  in 1996.  Future  minimum  payments  for
operating  leases  having  noncancelable  lease terms in excess of one year are:
1999 - $2,271,000; 2000 - $2,434,000; 2001 - $2,050,000; 2002 - $2,004,000; 2003
-  $1,645,000;  and decline  substantially  thereafter.  

Legal  Proceedings  
The  Company  is subject to a number of legal  actions  arising in the  ordinary
course of business.  In management's  opinion,  the ultimate resolution of these
actions will not materially affect the Company's  financial  position or results
of operations.

NOTE H 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)                               1998       1997       1996
                                         --------    -------   --------
Net Sales:                           
  United States Companies
        Domestic customers ...........   $499,390   $473,702   $430,014
        Export customers .............     41,855     38,762     30,831
                                           ------     ------     ------
                                          541,245    512,464    460,845
  Foreign Affiliates .................     48,161     45,476     42,030
                                           ------     ------     ------
                                         $589,406   $557,940   $502,875
                                         ========   ========   ========
Earnings Before Income Taxes:
        United States Companies ......   $ 69,164   $ 64,710   $ 55,160
        Foreign Affiliates ...........      2,788        925      2,032
                                            -----        ---      -----
                                         $ 71,952   $ 65,635   $ 57,192
                                         ========   ========   ========
Assets:
        United States Companies ......   $378,468   $322,245   $297,496
        Foreign Affiliates ...........     33,458     33,644     27,990
                                           ------     ------     ------
                                         $411,926   $355,889   $325,486
                                         ========   ========   ========

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 the Accumulated Other Comprehensive Income in Shareholders' Equity.

NOTE I STOCK PLANS
The Company  accounts for stock option grants in accordance with APB Opinion No.
25,  Accounting  for Stock  Issued to  Employees,  and related  interpretations.
Grants can and have included:  (1) incentive stock options to purchase shares at
prices not less than the market  value at grant date,  and/or (2)  non-qualified
stock options to purchase shares of restricted  stock equal to and less than the
stock's  market value at grant date.  Grants expire 10 years from the grant date
(except  for grants  made from the 1990 Plan  which  expire six years from grant
date).  The  1981,  1987,  and  1989  Plans  have  expired  except  for  options
outstanding. A summary of the Company's stock plans follows.
                                       24
<PAGE>


Page 25

1990 Plan - Only  non-qualified  options  can be granted  and  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.

1981,  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
restriction period.

1996 Plan - 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 grant date.  These options become  exercisable in five equal
installments  beginning on the grant's first anniversary.  Related  compensation
expense  on  the  options  granted  at 50%  of  market  is  amortized  over  the
restriction period.
<TABLE>
<CAPTION>

Plan   Type               Administrator              Recipients               Status
----   ----               -------------              ----------               ------
<S>    <C>                <C>                        <C>                      <C>    
1981   Non-compensatory   Board of Directors         Employees                Expired
1987   Compensatory       Stock Option Committee     Employees                Expired
1989   Compensatory       Executive Committee        Non-employee directors   Expired
1990   Non-compensatory   Stock Option Committee     District Managers        Active
1994   Compensatory       Stock Option Committee     Employees                Active
1996   Compensatory       Executive Committee        Non-employee directors   Active
</TABLE>


The alternative fair value accounting  provided for under Statement of Financial
Accounting  Standards  No.  123  (SFAS  No.  123),  Accounting  for  Stock-Based
Compensation,  requires the use of an option valuation model. The  Black-Scholes
option  valuation  model was developed  for use in estimating  the fair value of
traded  options and  requires  input of highly  subjective  assumptions.  Traded
options have no vesting  restrictions and are fully transferable.  The Company's
stock options have characteristics  significantly different from those of traded
options  and the  assumptions  can  materially  affect the fair value  estimate.
Therefore,  in  management's  opinion,  the existing  models do not  necessarily
provide a reliable single measure of the fair value of its stock options.


For  purposes  of pro forma  disclosures,  net  income  and  earnings  per share
required by SFAS No. 123 have been  determined  as if the Company had  accounted
for its stock options under SFAS No. 123 using the Black-Scholes model. The fair
value for these options was estimated as of the grant date.  The estimated  fair
value of the option is amortized to expense over the options'  vesting  periods.
The  initial  impact on pro forma net income and net income per share may not be
representative  of the  compensation  expense in future years when the effect of
the  amortization  of  multiple  awards  would  be  reflected  in the pro  forma
disclosure.  A summary of the Company's  weighted average  variables,  pro forma
information,  and stock option  activity for fiscal years 1998,  1997,  and 1996
follows.
<TABLE>
<CAPTION>

                                                                       1998                       1997                       1996
                                                                       ----                       ----                       ----
<S>                                                 <C>          <C>           <C>          <C>           <C>           <C>
Weighted Average Variables
Volatility ...................................                        16.6%                      22.4%                      19.2%  
Risk-free interest rates .....................                         5.7%                       6.4%                       7.9%
Dividend yields ..............................                         1.7%                       1.7%                       1.8%
Expected option life .........................                    7.0 years                  7.0 years                  7.1 years
Remaining contractual life ...................                    6.3 years                  6.4 years                  6.6 years
Fair value per share price granted during year                                                                 
     At market price .........................                     $   6.24                   $   6.21                   $   4.01
     At less than market price ...............                     $   9.31                   $  10.26                   $   7.93
Pro Forma Information                                                                                          
Pro forma net income (in thousands) ..........                     $ 41,602                   $ 37,537                   $ 33,989
Pro forma earnings per share .................                     $   1.10                   $   1.02                   $   0.95
                                                                                                               
                                                                                                        
Stock Option Activity                                              Weighted                   Weighted                   Weighted
                                                                    Average                    Average                    Average
                                                       Shares   Price/Share       Shares   Price/Share      Shares    Price/Share
                                                       ------   -----------       ------   -----------      ------    -----------
Total options outstanding                                       
     Beginning Balance .......................      2,766,005       $ 11.44    2,804,114        $ 9.60    2,784,838      $   7.27
         Granted .............................        497,400         21.67      446,618         17.80      813,066         13.89
         Exercised ...........................       (459,768)         7.57     (426,641)         5.56     (728,640)         4.94
         Canceled ............................       (123,034)        17.12      (58,086)        14.92      (65,150)        10.85
                                                     --------                    -------                    -------        
     Ending Balance ..........................      2,680,603         13.74    2,766,005         11.44    2,804,114          9.60
                                                    =========                  =========                  =========          
Shares authorized for grant ..................     11,991,600                  9,991,600                  9,991,600
Shares exercisable ...........................      1,704,866                  1,955,856                  1,811,808
Shares reserved for future grants ............      2,745,305                  1,133,103                  1,539,506
</TABLE>
                                       25
<PAGE>
                                                        
Notes to Consolidated Financial Statements (continued)

NOTE J EARNINGS PER SHARE
The  Company's  presentation  of  financial  results now  includes  both diluted
earnings per share and basic 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 common stock  equivalents.  The table below  details  earnings per
share for the years indicated: 
<TABLE>
<CAPTION>

                                                         1998          1997          1996
                                                         ----          ----          ----
<S>                                               <C>           <C>           <C>   
Numerator Reconciliation:
  The numerator is the same for
  diluted and basic EPS:
        Net earnings (in thousands) ...........   $    44,610   $    40,365   $    35,173
                                                  ===========   ===========   ===========
Denominator Reconciliation:
  The denominator for basic earnings per share:
        Weighted average shares                    36,911,175    35,691,572    35,091,161
        Effect of dilutive securities:
             Stock options ....................     1,155,839     1,371,052     1,199,151
                                                    ---------     ---------     ---------
  The denominator for diluted
  earnings per share:
        Adjusted weighted
        average shares ........................    38,067,014    37,062,624    36,290,312
                                                   ==========    ==========    ==========
Basic Earnings Per Share ......................   $      1.21   $      1.13   $      1.00
Diluted Earnings Per Share ....................   $      1.17   $      1.09   $      0.97
</TABLE>

NOTE K ACQUISITIONS
In 1997, the Company acquired Optimised Controls Ltd. for cash and shares of the
Company's  common stock.  The  acquisition has been accounted for as a purchase.
Goodwill  associated  with the acquisition is being amortized on a straight-line
basis over 25 years.

On March 5, 1998,  the Company  issued 951,000 shares of common stock for all of
the outstanding stock of Northern  Magnetics,  Inc., a motor  manufacturer.  The
transaction  was accounted for as a pooling of  interests.  Northern  Magnetics'
results of operations in prior years was not material to the Company's financial
statements. As such, prior year financial statements have not been restated.
  
                                     26

<PAGE>

Report of Ernst & Young LLP, Independent Auditors

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 2, 1999 and  January  3, 1998,  and the
related consolidated statements of earnings, cash flows and shareholders' equity
for each of the three years in the period ended January 2, 1999. 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  generally   accepted  auditing
standards.  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  2,  1999 and  January  3,  1998,  and the
consolidated  results of their  operations  and their cash flows for each of the
three years in the period ended January 2, 1999, in  conformity  with  generally
accepted accounting principles.

/s/  Ernst & Young LLP
----------------------
Little Rock, Arkansas
February 3, 1999



Report of Management on Responsibility
for Financial Reporting

Baldor  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 generally  accepted
accounting   principles,   applying  informed  judgements  and  estimates  where
appropriate.

Baldor  maintains  a  system  of  internal   accounting  controls  that  provide
reasonable  assurance that assets are safeguarded and  transactions are executed
in accordance with  management's  authorization  and recorded properly to permit
the preparation of financial  statements in accordance  with generally  accepted
accounting principles.

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 Manager 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 Manager of Audit Services,  have direct access to the
Audit  Committee  without the presence of  management  to discuss the results of
their audits.

Ernst & Young  LLP,  independent  certified  public  accountants,  have  audited
Baldor's  financial  statements.  Management has made available to Ernst & Young
LLP all of the  Company's  financial  records and related  data,  as well as the
minutes of shareholders' and directors' meetings.


/s/ R.S. Boreham, Jr.                           /s/ R.L. Qualls
--------------------                            ---------------
R. S. BOREHAM, JR.                              R. L. QUALLS    
Chairman of the Board                           Vice Chairman    

/s/  John McFarland                             /s/ Lloyd G. Davis
--------------------                            ------------------
    President                                  Chief Financial Officer
                                            Executive Vice President-Finance
                                                Secretary, and Treasurer
                                             


                                       27
<PAGE>

Board of Directors

Roland S. Boreham, Jr., Chairman
Chairman of the Board since 1981.
Former Chief Executive Officer.
Officer since 1961.
Director since 1961.
Chairman - Executive Committee.
Member - Nominating Committee.

R. L. Qualls, Vice Chairman
Vice Chairman of the Board since 1996.
Former Chief Executive Officer.
Officer since 1986.
Director since 1987.
Member - Executive Committee.
Member - Nominating Committee.

John A. McFarland, President
Officer since 1990.
Director since 1996.
Chairman - Nominating Committee.
Member - Executive Committee.

Jefferson W. Asher, Jr.
Independent management consultant.
Director since 1973.
Chairman - Audit Committee.

Fred C. Ballman
Former Chairman.
Former Chief Executive Officer.
Director from 1944 to 1982 and since 1992.

O. A. Baumann
The Company's manufacturer's sales
        representative in St. Louis, Missouri,
        from 1947 to 1987.
Director since 1961.

Robert J. Messey
Senior Vice President, CFO, and
        Director of Sverdrup Corporation,
a wholly owned subsidiary of Jacobi
Engineering Corp. (NYSE).
Director since 1993.
Chairman - Stock Option Committee.
Member - Audit Committee.

Robert L. Proost
Corporate Vice President, Treasurer,
        and Director of Administration of
        A.G. Edwards & Sons, Inc.
Director since 1988.
Member - Audit Committee.
Member - Stock Option Committee.

Willis J. Wheat
President Emeritus
        of Oklahoma City University.
Director since 1991.
Member - Stock Option Committee.








Page 29

Shareholder Information

Dividend policy
Baldor's dividend policy is to periodically  increase  dividends as earnings and
financial strength warrant,  but also to reinvest a major portion of earnings to
help finance growth  opportunities.  The objective is for shareholders to obtain
dividend  increases  over time  while  also  participating  in the growth of the
Company.

Dividends paid
Baldor's  dividend rate for 1998 remained at $0.10 per quarter.  There have been
six dividend increases in the last five years.

                     1998    1997    1996
                     ----    ----    ----
1st quarter         $0.10   $0.08   $0.07
2nd quarter          0.10    0.09    0.07
3rd quarter          0.10    0.09    0.08
4th quarter          0.10    0.10    0.08
                     ----    ----    ----
Year                $0.40   $0.36   $0.30
                    =====   =====   =====

Common stock price range
                       1998                   1997
                ------------------    ------------------
                   HIGH        LOW       HIGH        LOW  
1st quarter     27.1875    21.0625    19.9688    18.1875
2nd quarter     26.8750    23.0000    22.3125    18.4688
3rd quarter     26.0000    19.6250    23.8125    21.7969
4th quarter     22.0000    19.0625    23.4844    21.2500
                                                
Shareholders                                 
At January 2, 1999, there were 5,400  shareholders of record including  employee
shareholders through participation in the benefit plans.


Independent auditors
Ernst & Young LLP
425 West Capitol - Suite 3600
Little Rock, Arkansas 72201

General counsel
Blackwell Sanders Peper Martin LLP
720 Olive Street - Suite 2400
St. Louis, Missouri  63101

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

Form 10-K report
Baldor's Form 10-K report is filed with the Securities  and Exchange  Commission
and the NYSE.  Shareholders  may obtain a copy of the Form 10-K report  (without
charge) by contacting the Company's Investor Relations Department.


Shareholder inquiries
To  request  additional  copies of the Annual  Report,  or other  materials  and
information about Baldor Electric Company, please contact us at:
 
Baldor Electric Company
Attn:  Investor Relations
P. O. Box 2400
Fort Smith, Arkansas 72902
Phone:  (501) 646-4711
Fax:  (501) 648-5752
Internet:  www.baldor.com

Transfer agent and registrar
Wachovia Bank, N.A.
c/o Boston EquiServe, LP
P.O. Box 8217
Boston, Massachusetts  02266-8217
(800) 633-4236