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:                                                                                                    Commission File Number:   December 29, 2001                                                                                                                     01-07284

**BALDOR  ELECTRIC  COMPANY**

(Exact name of registrant as specified in its charter)**Missouri                                                           43-0168840**(State or other jurisdiction of                                           (I.R.S. Employerincorporation or organization)                                            Identification No.)**5711 R. S. Boreham, Jr. St., Fort Smith, Arkansas  72901                   (479) 646-4711**(Address of principal executive offices)         (Zip Code)               (Telephone Number)     Securities registered pursuant to Section 12(b) of the Act:                                                                       Name of each exchange on     Title of Each Classwhich registeredCommon Stock, $0.10 Par Value                                          New York Stock ExchangeCommon 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 theSecurities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for thepast 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 byreference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

The aggregate  market value of voting stock held by  non-affiliates  of the registrant based on the closing price onMarch 6, 2002, was $649,193,503.

At March 6, 2002, there were 33,964,718 shares of the registrant's common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to  Shareholders  for the fiscal year ended  December 29, 2001 (the "2001 Annual  Reportto  Shareholders"), are incorporated by reference into Part II.

Portions of the Proxy  Statement for the Annual Meeting of  Shareholders  to be held April 20, 2002(the "2002 Proxy  Statement"),  are incorporated by reference into Part III.
PART IItem 1.Business
Baldor Electric Company(“Baldor” or the “Company”) was incorporated in Missouri in1920. The Company operates in one industry segment, which includes the design,manufacture, and sale of electric motors, drives, generators and relatedproducts. Baldor has made several small acquisitions; however, the majority ofits growth has come internally through broadening its markets and product lines. 
Products
The AC motor product andcontrols line presently ranges in size from 1/50 up to 1500 horsepower. The DCmotor product line presently ranges from 1/50 through 800 horsepower. Theadjustable speed controls product line ranges from 1/50 to 700 horsepower. TheCompany’s industrial control products include servo products, DC controls,position controls, and inverter and vector drives. With these products, theCompany provides its customers the ability to purchase a “drive” fromone manufacturer. Baldor defines a “drive” as an industrial motor andan electronic control. Sales of industrial electric motors representedapproximately 81% of the Company’s business in 2001 and 79% in each of theyears 2000 and 1999. The bulk of the remaining sales included power generators,drives, speed reducers, industrial grinders, buffers, polishing lathes,stampings, castings, and repair parts. 

Baldor’s motors anddrives are designed, manufactured, and marketed for general purpose uses(“stock products”) and to individual customer requirements andspecifications (“custom products”). Stock products representedapproximately 65% of total product sales in 2001 and 2000, and 63% in 1999. Moststock product sales are to customers who place their orders for immediateshipment from current inventory. Custom products generally are shipped withintwo weeks from the date of order. Because of these and other factors, theCompany does not believe that its backlog represents an accurate indication offuture shipments. 
Sales andMarketing
The products of the Companyare marketed throughout the United States and in more than 60 foreign countries.The Company’s field sales organization, comprised of independentmanufacturer’s representatives and Company sales personnel, consists ofmore than 51 groups, including 40 in North America. The remainder of theCompany’s representatives are located in various parts of the worldincluding Europe, Latin America, Australia, and the Far East. 

Custom products and stockproducts are sold to original equipment manufacturers (“OEMs”). Stockproducts are also sold to independent distributors for resale, often asreplacement components in industrial machinery which is being modernized orupgraded for improved performance. 

No single customeraccounted for more than 5% of sales; therefore, the Company does not believethat the loss of any single customer would have a material effect on its totalbusiness. 
Competition
The Company facessubstantial competition in the sale of its products in all markets served. Someof the Company’s competitors are larger in size or are divisions of largediversified companies and have substantially greater financial resources. TheCompany competes by providing its customers better value through product qualityand efficiency and better services including product availability, shorterlead-times, on-time delivery, local support, product literature, and training. 

The Company is not aware ofany industry-wide statistics from which it can precisely determine its relativeposition in the industrial electric motor industry. In the United States certainindustry statistics are available from the U.S. Department of Commerce and theNational Electric Manufacturers Association. However, these sources do notinclude all competitors or all sizes of motors. The Company believes that it isa significant factor in the markets it serves and that its share of the markethas increased over the past several years. 
Manufacturing
The Company manufacturesmany of the components used in its products including laminations, motorhardware, and aluminum die castings. Manufacturing many of its own componentspermits the Company to better manage cost, quality, and availability. Inaddition to the manufacturing of components, the Company’s motormanufacturing operations include machining, welding, winding, assembling, andfinishing operations. 

The raw materials necessaryfor the Company’s manufacturing operations are available from severalsources. These materials include steel, copper wire, gray iron castings,aluminum, insulating materials, and diesel engines, many of which are purchasedfrom more than one supplier. The Company believes that alternative sources areavailable for such materials. 
Research andEngineering
The Company’s designand development of electric motors, drives, and generators include both thedevelopment of products, which extend the product lines, and the modification ofexisting products to meet new application requirements. Additional developmentwork is done to improve production methods. Costs associated with research, newproduct development, and product and cost improvements are treated as expenseswhen incurred and amounted to $24,415,000 in 2001, $24,987,000 in 2000, and$24,881,000 in 1999. 
Environment
Compliance with lawsrelating to the discharge of materials into the environment or otherwiserelating to the protection of the environment has not had a material effect oncapital expenditures, earnings, or the financial position of the Company and isnot expected to have such an effect. 
EmployeesAs of December 29, 2001, the Company had 3,684 employees.ExecutiveOfficers of the Registrant
Information regarding executiveofficers is contained in Part III, Item 10, and incorporated herein byreference. 
InternationalOperations
Sales from internationaloperations (foreign affiliates and exports) were approximately 14% of totalsales in each of the years 2001, 2000, and 1999. See also Note I on page 26 ofthe 2001 Annual Report to Shareholders. 
The Company's products are distributed in more than 60 foreign countries,  principally in Canada,  Mexico, Europe,  Australia,  the FarEast, and Latin America.  Baldor's  wholly-owned  affiliate,  UK-based  Optimised Control Ltd., has sales offices and a development andmanufacturing  facility in the UK. Baldor and its  affiliates in Europe have sales offices in Switzerland  and Italy,  as well as salesand development  operations in Germany.  The Company owns majority interests in Australian Baldor Pty. Limited,  which has locations inSydney and Melbourne.  The Company wholly owns Baldor  Electric (Far East) Pte.  Ltd.,  located in Singapore,  and has sales offices inTaiwan, Japan, and the Philippines. The Company also wholly owns Baldor de Mexico, S.A. de C.V., located in Leon, Mexico.
The Company believes thatit is in a position to act on global opportunities as they become available. TheCompany also believes that there are additional risks attendant to internationaloperations, including currency fluctuations and possible restrictions on themovement of funds. However, these risks have not had a significant adverseeffect on the Company’s business. 
Item 2.  Properties
The  Company  believes  that its  facilities,  including  equipment  and  machinery,  are in good  condition,  suitable  for  currentoperations,  adequately  maintained  and insured,  and capable of  sufficient  additional  production  levels.  The  following  tablecontains information with respect to the Company's properties.
                                                                                   AREALOCATIONPRIMARY USE(SQ. FT.)Fort Smith, AR               AC motor production                                  294,969                             Distribution and service center                      208,000                             Administration and engineering offices                79,675                             Aluminum die casting                                  79,330                             Drives production center                             162,000St. Louis, MO                Metal stamping and engineering toolroom              187,385Columbus, MS                 AC motor production                                  156,000Westville, OK                AC and DC motor production                           207,250Fort Mill, SC                DC motor, AC motor                                   108,000                             and tachometer productionClarksville, AR              Subfractional motor, gear motor, DC motor           *165,735                             and worm-gear speed reducer productionOzark, AR                    AC motor production                                  151,783Four other                   Metal stamping and motor, drives,domestic locations           servomotor and generator production                  225,798Ten foreign                  Sales and distribution centerslocations                    and servo drive production                            99,200                                                                                2,125,125
*This property is leased pursuant to an Industrial  Revenue Bond  agreement.  The Company also has  approximately  350,000 sq. ft. ofspace available for expansion, currently fully leased to outside firms.
Item 3. LegalProceedingsThe  Company is party to a number of legal  proceedings  incidental  to its  business,  none of which is deemed to be material to itsoperations or business.Item 4.  Submission of Matters to a Vote of Security HoldersNot applicable.PART IIItem 5. Marketfor the Registrant’s Common Equity and Related Shareholder Matters
Information under thecaptions “Ticker”, “Dividends paid”, “Common stockprice range”, and “Shareholders”, on page 29 of the 2001 AnnualReport to Shareholders, is incorporated herein by reference. 
Item 6.Selected Financial Data
Information concerning netsales, net earnings, net earnings per share, dividends per share, long-termobligations, and total assets for the years ended 1991 through 2001 is containedunder the caption “Eleven-Year Summary of Financial Data” on page 14of the 2001 Annual Report to Shareholders and is incorporated herein byreference. 
Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operations
Information under thecaptions “Management’s Discussion and Analysis of FinancialCondition” and “Results of Operations” on pages 16 and 17 of the2001 Annual Report to Shareholders is incorporated herein by reference. 
Item 7a.Quantitative and Qualitative Disclosure about Market Risk
Information under thesub-caption “Market Risk” of the captions “Management’sDiscussion and Analysis of Financial Condition” and “Results ofOperations” on page 17 of the 2001 Annual Report to Shareholders isincorporated herein by reference. 
Item 8.Financial Statements and Supplementary Data
The consolidated financialstatements of the Company and related notes on pages 18 through 26, the“Report of Ernst & Young LLP, Independent Auditors” on page 27,and the “Summary of Quarterly Results of Operations (Unaudited)” onpage 19 of the 2001 Annual Report to Shareholders are incorporated herein byreference. 

**Item 9. Changes in and Disagreements with Accountants onAccounting and Financial Disclosure**

Not Applicable.
PART IIIItem 10.  Directors and Executive Officers of the Registrant
Information contained in the 2002 Proxy Statement under the caption “Proposal 1 - Election ofDirectors” is incorporated herein by reference. The current executiveofficers of the Company, each of whom is elected for a term of one year or untilhis successor is elected and qualified, are:
                                                                               Served as                                                                                OfficerNameAgePositionSinceR. S. Boreham, Jr.              77           Chairman                             1961John A. McFarland               50           President and                        1990                                             Chief Executive OfficerLloyd G. Davis                  54           Executive Vice President,            1992                                             Chief Operating Officer, and                                             SecretaryRonald E. Tucker                44           Chief Financial Officer and          1997                                             TreasurerCharles H. Cramer               57           Vice President - Personnel           1984Gene J. Hagedorn                55           Vice President - Materials           1994Randy L. Colip                  43           Vice President - Sales               1997Randal G. Waltman               52           Vice President - Motor               1997                                             Engineering and OperationsJohn L. Peeples, III            49           Vice President - International       1998Randall P. Breaux               39           Vice President - Marketing           2001Roger V. Bullock                52           Vice President - Drives              2002Jeffrey R. Hubert               48           Vice President - Sales               2002
Each of the executive officers has served as an officer or in a management capacity with the Companyfor the last five years. There are no family relationships among the directors or executive officers.
Item 11.Executive Compensation
Information contained inthe 2002 Proxy Statement under the caption “Executive Compensation”,except for the information contained in the sub-captions “Report of theBoard of Directors on Executive Compensation” and “PerformanceGraph”, is incorporated herein by reference. 
Item 12.Security Ownership of Certain Beneficial Owners and Management
The security ownership byofficers, directors, and beneficial owners of more than five percent of theCompany’s Common Stock included under the caption “Security Ownershipof Certain Beneficial Owners and Management” of the 2002 Proxy Statement isincorporated herein by reference. 
Item 13.Certain Relationships and Related TransactionsRichard E. Jaudes, a member of the Board of Directors of the Company, is also apartner at Thompson Coburn LLP, a law firm which provides legal counsel to theCompany.PART IVItem 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K(a) (1) The following consolidated financial statements of Baldor Electric Company        and its affiliates, included in the 2001 Annual Report to Shareholders, are        incorporated by reference in Item 8 of this Report:        o  Consolidated Balance Sheets                  - December 29, 2001 and December 30, 2000        o  Consolidated Statements of Earnings                  - for each of the three years in the period ended December 29, 2001        o  Consolidated Statements of Cash Flows                  - for each of the three years in the period ended December 29, 2001        o  Consolidated Statements of Shareholders' Equity                  - for each of the three years in the period ended December 29, 2001        o  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:        o  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 page 13 of this Report.(b)  Reports on Form 8-K     No reports on Form 8-K have been filed during the last quarter of the period     covered by this Report.(c)  Exhibits     See Exhibit Index at page 13 of this Report.(d)  Financial Statement Schedules     The response to this portion of Item 14 is submitted as a separate section of this Report     at page 12 hereof.                                                            SIGNATURESPursuant 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                                                          John A. McFarland                                                          President and Chief Executive Officer                                                          (Principal Executive Officer)Date:    March 18, 2002POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS,  that each person whose signature  appears below  constitutes and appoints R. S. Boreham,  Jr. and JohnA. McFarland,  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 ExchangeCommission,  granting  unto said  attorneys-in-fact  and agents full power and authority to do and perform each and every act and thingrequisite  and  necessary  to be done in and about the  premises,  as fully to all  intents  and  purposes as they might or could do inperson,  hereby  ratifying  and  confirming  all that said  attorneys-in-fact  and agents,  or any of them, or their  substitutes,  maylawfully do or cause to be done by virtue hereof.

Pursuant to the  requirements of the Securities  Exchange Act of 1934, this report has been signed below by the following  persons,  onbehalf of the registrant, and in the capacities and on the dates indicated.
               SIGNATURE PAGE FOR FORM 10-K FOR YEAR ENDED DECEMBER 29, 2001.SignatureTitleDate/s/    R.S. Boreham, Jr.            Chairman and                         March 18, 2002       R. S. Boreham, Jr.           Director/s/    John A. McFarland            President,                           March 18, 2002       John A. McFarland            Chief Executive Officer, and                                    Director                                    (Principal Executive Officer)/s/    Lloyd G. Davis               Executive Vice President,            March 18, 2002       Lloyd G. Davis               Chief Operating Officer, and                                    Secretary/s/    Ronald E. Tucker             Chief Financial Officer and          March 18, 2002       Ronald E. Tucker             Treasurer                                    (Principal Financial Officer)/s/    Jefferson W. Asher, Jr.      Director                             March 18, 2002       Jefferson W. Asher, Jr./s/    Merlin J. Augustine, Jr.     Director                             March 18, 2002       Merlin J. Augustine, Jr./s/    Richard E. Jaudes            Director                             March 18, 2002       Richard E. Jaudes/s/    Robert J. Messey             Director                             March 18, 2002       Robert J. Messey/s/    Robert L. Proost             Director                             March 18, 2002       Robert L. Proost/s/    R.L. Qualls                  Director                             March 18, 2002       R. L. Qualls/s/    Barry K. Rogstad             Director                             March 18, 2002       Barry K. Rogstad                                     BALDOR ELECTRIC COMPANY AND AFFILIATES                                                   SCHEDULE II                                        VALUATION AND QUALIFYING ACCOUNTS                                                  (In thousands)Column A              Column B                   Column C                    Column D            Column E                                                Additions                                       Charged to       Charged to                      Balance at          Costs             Other                                 Balance                      Beginning            and            Accounts           Deductions          at End ofDescription           of Period         Expenses          Describe           Describe             PeriodDeducted from current assets:    Allowance for doubtful accounts     2001             $ 4,600            $ 1,043                              $ 1,043(A)          $ 4,600     2000             $ 4,350            $   520                              $   270(A)          $ 4,600     1999             $ 4,350            $   568                              $   568(A)          $ 4,350(A)     Uncollectible accounts written off (net of recoveries) during year.                                                BALDOR ELECTRIC COMPANY AND AFFILIATES                                                           INDEX OF EXHIBITSExhibit No.       Description3(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 Current Report on Form 10-Q for the quarter ended July 4, 1998.3(ii)      *      Bylaws of Baldor  Electric  Company (as restated and  amended),  dated August 2, 1999,  filed as Exhibit 3(ii) to the                  Registrant's Quarterly Report on Form 10-Q for the quarter ended October 2, 1999.4(i)       *      Rights  Agreement,  dated May 6, 1998,  between Baldor  Electric  Company and Wachovia Bank of North  Carolina,  N.A.                  (formerly  Wachovia Bank @amp; 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(ii)      *      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(iii)     *      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(i)      * +    1982 Incentive Stock Option Plan,  originally  filed as Exhibit 10.8 to the  Registrant's  Annual Report on Form 10-K                  for year ended  December 31,  1981,  refiled as Exhibit 10.1 to the  Registrant's  Annual Report on Form 10-K for the                  year ended December 28, 1991.10(ii)     * +    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)    * +    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.                                                       (continued on next page)                                                BALDOR ELECTRIC COMPANY AND AFFILIATES                                                           INDEX OF EXHIBITS                                                    (continued from previous page)Exhibit No.       Description10(iv)     * +    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(v)      * +    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, 1998.10(vi)     * +    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(vii)    * +    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, 2001.11                Computation  of Earnings Per Share,  incorporated  by reference in Note J of the 2001 Annual  Report to  Shareholders                  filed as Exhibit 13.13                Portions of the 2001 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                Affiliates of the Registrant.23                Consent of Independent Auditors.24                Powers of Attorney (set forth on signature page hereto).The  Registrant  agrees to furnish to the  Securities  and  Exchange  Commission,  upon  request,  pursuant to Item  601(b)(4)(iii)  ofRegulation  S-K,  copies of instruments  defining the rights of the holders of long-term  debt of the  Registrant and its  consolidatedaffiliates.--------------           *      Previously filed.           +      Management contract or compensatory plan or arrangement.ELEVEN YEAR SUMMARY OF FINANCIAL DATA(In thousands, except percentages and per-share data)                                             PER SHARE DATA                                                                               PERCENT                 COST                   DILUTED   BASIC              RETURN ON         NET     GOODS          NET       NET      NET                AVERAGE    SHAREHOLDERS'        SALES    SOLD         EARNINGS  EARNINGS EARNINGS  DIVIDENDS  EQUITY         EQUITY2001   557,459    401,471       22,385     0.65     0.66      0.52       8.6%       262,4852000   621,243    423,861       46,263     1.34     1.36      0.50      17.6%       260,8451999   585,551    399,833       43,723     1.19     1.21      0.45      16.5%       266,1091998   596,660    410,748       44,610     1.17     1.21      0.40      17.6%       264,2921997   564,756    389,711       40,365     1.09     1.13      0.36      18.2%       243,4341996   508,526    353,345       35,173     0.97     1.00      0.30      17.1%       200,3251995   478,315    334,306       32,305     0.84     0.88      0.26      16.3%       211,3771994   422,714    297,212       26,359     0.69     0.73      0.21      15.3%       184,2621993   360,195    255,557       19,426     0.52     0.54      0.17      12.7%       160,5391992   322,038    229,686       15,264     0.42     0.43      0.14      10.9%       145,2261991   289,121    206,953       11,922     0.33     0.34      0.14       9.3%       133,663                    LONG        TOTAL       TERM       WORKING       ASSETS    OBLIGATIONS   CAPITAL2001   457,527     98,673      173,6382000   464,978     99,832      174,8031999   423,941     56,305      183,9561998   411,926     57,015      176,1261997   355,889     27,929      141,2681996   325,486     45,027      146,9751995   313,462     25,255      145,0691994   283,155     26,303      118,5501993   237,950     22,474      108,6011992   211,941     23,209       97,3431991   203,277     24,376       84,740Management's Discussion and Analysis of Financial Condition and Results of OperationsResults ofOperationsSummary
Difficult economicconditions and corresponding declines in customer orders resulted in decreasedsales and earnings in 2001. For the year, sales declined 10.3% from the recordsales levels of 2000. Gross and operating margins were 28.0% and 8.0%,respectively, compared to 31.8% and 13.8% a year ago. After nine consecutiveyears of increasing earnings per share, diluted EPS decreased to $.65 from arecord $1.34 in 2000. Total dividends paid in 2001 amounted to $.52 per share, a4% increase over 2000. 
Net Sales
Baldor’s 2001 saleswere $557.5 million, falling 10.3% from 2000 sales of $621.2 million. Sales in1999 were $585.6 million. Over the past three years, sales to distributor andOriginal Equipment Manufacturer (OEM’s) customers have remained atapproximately 50% each. Baldor serves many industries and geographic regions byselling to a broad base of distributors and OEMs both domestically and in morethan 60 countries around the world. No single customer accounted for more than5% of sales in any year covered by this report. 
Net EarningsNet earnings in 2001 amounted to $22.4 million, declining 51.6% from record earnings of $46.3 million in 2000.  Net earnings in 1999were $43.7 million.
Gross margin dipped to28.0% in 2001 compared to 31.8% in 2000 and 31.7% in 1999. Operating margin for2001fell to 8.0% from record margins of approximately 13.8% in 2000 and 1999.Pre-tax margin was 6.4% for 2001 compared to 11.9% in 2000 and 12.0% in 1999.The effective tax rate improved to 37.0% for 2001 compared to 37.5% in 2000 and38.0% in 1999. 
InternationalOperations
Sales from internationaloperations (foreign affiliates and exports) amounted to $78.1 million in 2001,$86.4 million in 2000 and $80.3 million in 1999. The Company experienced modestsales increases in the Far East while sales declined in the Australian, Mexicanand European markets. 
EnvironmentalRemediation
Management believes, basedon their internal reviews and other factors, that the future costs relating toenvironmental remediation and compliance will not have a material effect on thecapital expenditures, earnings, or competitive position of the Company. 
FinancialPositionSummary
Baldor’s financialposition remained strong through 2001. We maintained our financial strengthwhile continuing research and development for new and existing products, makingcapital investments in our manufacturing facilities, and continuing to invest inboth our employees’ and customers’ education and training. TheCompany’s 6 million-share stock repurchase program announced in 1998 andexpanded in 2000 and 2001is more than two-thirds complete with 4.3 millionshares repurchased as of December 29, 2001. 
Investments
Baldor believes theinvestment in our employees through training and education is a key to continuedsuccess and improved shareholder value. Baldor continues to be a leader not onlyin employee education, but also in customer training. 
Investments in property, plant and equipment were $19.4 million in 2001, $22.6 million in 2000 and $14.3 million in 1999.  Theseinvestments in property, plant and equipment were made to centralize operations, increase capacity, and improve quality andproductivity.
Baldor’s commitment toresearch and development continues to help it maintain a leadership position inthe marketplace and to satisfy customers’ needs. Investments in researchand development amounted to $24.4 million in 2001, $25.0 million in 2000 and$24.9 million in 1999. The Company continues to make investments in our existingproducts for improved performance, increased energy efficiency, andmanufacturability. 
CurrentLiquidity
Baldor’s liquidityposition remained strong in 2001 with solid working capital and a current ratio(current assets divided by current liabilities) of 3.2:1. Working Capital was$173.6 million at year-end 2001 compared to $174.8 million at the end of 2000.Liquidity was supported by cash flows from operations of $38.3 million in 2001,$46.4 million in 2000 and $52.9 million in 1999. The Company also has availablelines of credit to support operations, if needed. 
Long-Term Debtand Shareholders’ Equity
Long-term debt as apercentage of total capital was 27.3% at year-end 2001 and 27.7% at year-end2000. Baldor repurchased 121,300 shares of common stock during 2001. As ofDecember 29, 2001, 4.3 million shares had been purchased of the 6.0 millionshares authorized since September 1998. During the fourth quarter of 2001, theBoard of Directors approved the repurchase of an additional 2.0 million sharesof stock beginning January 1, 2002 that will expire on December 31, 2003.Shareholders’ equity was $262.5 million at year-end 2001 compared to $260.8million at the end of 2000. Return on average shareholders’ equity was 8.6%in 2001 and 17.6% in 2000. 
Dividend Policy
Annual dividends per sharefor 2001 increased 4.0% over 2000, which increased 11.0% over 1999. There havebeen five dividend increases in the last five years. These increases were inline with Baldor’s policy of making increases periodically, as earnings andfinancial strength warrant, and reinvesting to finance growth opportunities. Theobjective is for shareholders to obtain dividend increases over time while alsoparticipating in the growth of the Company. 
Market RiskMarket risks relating to the Company's operations result primarily from changes in commodity prices, interest rates and foreignexchange rates.  To maintain stable pricing for its customers, the Company enters into various hedging transactions as describedbelow.
The Company is a purchaserof certain commodities, primarily copper, aluminum, and steel, and periodicallyutilizes commodity futures and options for hedging purposes to reduce theeffects of changing commodity prices. Generally, contract terms of a hedgeinstrument closely mirror those of the hedged item providing a high degree ofrisk reduction and correlation. Contracts that are highly effective at meetingthis risk reduction and correlation criteria are recorded using hedgeaccounting. 

The Company’s interestrate 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’sdebt obligations include certain notes payable to banks bearing interest at aquarterly variable rate. The Company does not currently utilize derivatives formanaging interest rate risk, but continues to monitor changes in market interestrates. 

Foreign affiliates compriseless than 10% of total assets. The Company does not anticipate the use ofderivatives for managing foreign currency risk, but continues to monitor theeffects of foreign currency exchange rates. 
RecentlyIssued Accounting Standards
In June 2001, the FinancialAccounting Standards Board (FASB) issued Statements of Financial AccountingStandards No. 141, “Business Combinations” (SFAS 141), and No. 142,“Goodwill and Other Intangible Assets” (SFAS 142). SFAS 141 eliminatesthe pooling-of-interests method of accounting for business combinations andrequires any business combination completed after June 30, 2001, to be accountedfor by the purchase method. Additionally, SFAS 141 changes the criteria torecognize intangible assets apart from goodwill. Under SFAS 142, goodwill andindefinite lived intangible assets are no longer amortized but are reviewedannually, or more frequently if impairment indicators arise, for impairment.Separable intangible assets with finite lives will continue to be amortized overtheir useful lives. Because of the different transition dates for goodwill andintangible assets acquired on or before June 30, 2001, and those acquired afterthat date, pre-existing goodwill and intangibles will be amortized during thistransition period until adoption, whereas new goodwill and other indefinitelived intangible assets acquired June 30, 2001, are not amortized. Companies arerequired to adopt SFAS 142 in their fiscal year beginning after December 15,2001. Accordingly, the Company will adopt SFAS 142 for its fiscal year beginningDecember 30, 2001. 
Forward-lookingStatements
This annual report andother written reports and oral statements made from time to time by the Companyand its representatives may contain forward-looking statements. Theforward-looking statements (generally identified by words or phrases indicatinga projection or future expectation such as “outlook”,“optimistic”, “trends”, “expect(s)",“assuming”, “expectations”, “forecasted”,“estimates”, “expected”) are based on the Company’scurrent expectations and some of them are subject to risks and uncertainties.Accordingly, you are cautioned that any such forward-looking statements are notguarantees of future performance and involve risks and uncertainties, and thatactual results may differ materially from those projected in the forward-lookingstatements as a result of various factors. The factors that might cause suchdifferences include, but are not limited to, the following: (i) changes ineconomic conditions, (ii) developments or new initiatives by our competitors inthe markets in which we compete, (iii) fluctuations in the costs of select rawmaterials, (iv) the success in increasing sales and maintaining or improving theoperating margins of the Company, and (v) other factors including thoseidentified in the Company’s filings made from time to time with theSecurities and Exchange Commission. 
Consolidated Balance SheetsBaldor Electric Company and Affiliates                                                                     December 29    December 30ASSETS (In thousands, except share data)                                    2001       2000CURRENT ASSETS:  Cash and cash equivalents                                $5,564         $5,868                 Marketable securities                                    11,052          9,137                 Receivables, less allowances for doubtful accounts                 of $4,600,000 in 2001 and 2000.                          83,182        100,494                 Inventories:                         Finished products                                83,919         83,709                         Work in process                                  10,155         10,506                         Raw materials                                    56,751  53,047                                                                         150,825        147,067                 LIFO valuation adjustment                               (24,604)       (26,116)                                                                         126,221        120,951                 Other current assets and deferred income taxes           25,262  25,971                 TOTAL CURRENT ASSETS                                    251,281        262,421OTHER ASSETS:    Goodwill                                                 57,158         60,358                 Other                                                     6,973          3,379PROPERTY, PLANT  Land and improvements                                     6,267          6,217AND EQUIPMENT:   Buildings and improvements                               54,372         50,314                 Machinery and equipment                                 266,627        253,426                 Allowances for depreciation and amortization           (185,151)      (171,137)                 NET PROPERTY, PLANT AND EQUIPMENT                       142,115 138,820 $457,527$464,978LIABILITIES AND SHAREHOLDERS' EQUITYCURRENT          Accounts payable                                        $28,830        $26,813LIABILITIES:     Employee compensation                                     5,997          6,154                 Profit sharing                                            5,102          9,717                 Accrued warranty costs                                    6,625          6,625                 Accrued insurance obligations                            15,694         14,409                 Other accrued expenses                                   14,670         17,813                 Income taxes payable (receivable)                        (1,046)         5,447                 Current maturities of long-term obligations               1,771      640                 TOTAL CURRENT LIABILITIES                                77,643         87,618LONG-TERM OBLIGATIONS                                                     98,673         99,832DEFERRED INCOME TAXES                                                     18,726         16,683SHAREHOLDERS'    Preferred stock, $.10 par valueEQUITY:            Authorized shares:  5,000,000                   Issued and outstanding shares:  None                 Common Stock, $.10 par value                   Authorized shares:  150,000,000                   Issued shares:  2001 - 39,411,473;                   2000 - 39,020,528                                       3,941          3,902                 Additional capital                                       44,224         38,024                 Retained earnings                                       325,642        321,026                 Accumulated other comprehensive income                   (8,164)        (3,977)                 Treasury stock (5,493,053 shares in 2001                 and 5,251,894 shares in 2000)                          (103,158)       (98,130)                 TOTAL SHAREHOLDERS' EQUITY                              262,485 260,845$457,527$464,978See notes to consolidated financial statements.Consolidated Statements of EarningsBaldor Electric Company and Affiliates                                                                  Year Ended                                                                   December 29     December 30       January 1(In thousands, except share data)                        2001       2000     2000Net sales                                            $557,459        $621,242        $585,551Other income, net                                         839      1,838    1,943                                                      558,298         623,080         587,494Cost and expenses:  Cost of goods sold                401,471         423,861         399,833                    Selling and administrative        111,253         111,611         104,903                    Profit sharing                      5,136           9,747           9,445                    Interest                            4,906     3,840    2,790    522,766   549,059  516,971Earnings before income taxes                           35,532          74,021          70,523Income taxes                                           13,147    27,758   26,800                                NET EARNINGS          $22,385   $46,263  $43,723Net earnings per share-basic                            $0.66           $1.36           $1.21Net earnings per share-diluted                          $0.65           $1.34           $1.19Weighted average shares outstanding-basic          33,896,164      33,980,529      36,077,484Weighted average shares outstanding-diluted        34,505,550      34,570,328      36,787,349See notes to unaudited condensed consolidated financial statements.Summary of Quarterly Results of Operations (Unaudited)Baldor Electric Company and Affiliates                                                                 Quarter                         First  Second   Third  Fourth   Total2001:Net sales                         $150,155    $146,668    $138,125    $122,511    $557,459     Gross profit                        42,610      41,793      39,048      32,537     155,988     Net earnings                         7,167       6,449       5,423       3,346      22,385     Net earnings per share-basic          0.21        0.19        0.16        0.10        0.66   * Net earnings per share- diluted       0.21        0.19        0.16        0.10        0.652000:Net sales                         $158,019    $163,190    $155,376    $144,657    $621,242     Gross profit                        50,959      52,337      49,207      44,878     197,381     Net earnings                        12,220      12,535      11,485      10,023      46,263     Net earnings per share-basic          0.35        0.37        0.34        0.30        1.36   * Net earnings per share- diluted       0.35        0.36        0.33        0.29        1.34*The sum of the quarter amounts does not agree to the total due to rounding.Consolidated Statements of Cash FlowBaldor Electric Company and Affiliates                                                                                                        Year Ended                                                                                                      December 29  December 30   January 1(In thousands)                                                                                   2001       2000     2000Operating activities: Net earnings                                                            $22,385      $46,263     $43,723                      Adjustments   Depreciation                                               18,555       18,686      19,597                      to reconcile  Amortization                                                2,124        1,152       1,170                      net earnings  Deferred income taxes                                       1,800        3,690       2,832                      to net cash   Changes in     Receivables                                 17,312          (65)     (8,425)                      from          operating      Inventories                                 (5,270)     (10,888)     (2,378)                      operating     assets and     Other current assets                         1,586         (481)       (856)                      activities:   liabilities:   Accounts payable                             2,017       (2,621)      7,874                                                   Accrued expenses and other liabilities      (6,629)      (3,514)     (1,734)                                                   Income taxes                                (6,187)      (1,715)      2,247                                                   Other - net                                 (9,443)      (4,154)    (11,108)                      Net cash from operating activities                                       38,250     46,353  52,942Investing activities: Additions to property, plant and equipment                              (19,361)     (22,577)    (14,298)                      Marketable securities purchased                                          (7,941)      (4,597)    (35,052)                      Marketable securities sold                                                6,125       26,266      18,243                      Acquisitions (net of cash acquired)                                        (925)     (40,272)          0                      Net cash used in investing activities                                   (22,102)     (41,180)    (31,107)Financing activities: Additional long-term obligations                                         65,500       41,362       6,000                      Reduction of long-term obligations                                      (65,529)      (2,605)     (7,085)                      Unexpended debt proceeds                                                      7           (7)      5,890                      Dividends paid                                                          (17,641)     (16,910)    (16,199)                      Common stock repurchased                                                 (2,337)     (35,311)    (25,132)                      Stock option plans                                                        3,548      2,063   2,001                      Net cash used in financing activities                                   (16,452)     (11,408)    (34,525)Net decrease in cash and cash equivalents                                                        (304)      (6,235)    (12,690)Beginning cash and cash equivalents                                                             5,868     12,103  24,793Ending cash and cash equivalents                                                               $5,564     $5,868 $12,103See notes to consolidated financial statements.Consolidated Statements of Shareholders' EquityBaldor Electric Company and Affiliates                                                                                                   Accumulated                                                                                                      Other        Treasury                                                  Common Stock         Additional    Retained     Comprehensive      Stock(In thousands, except share data)               Shares      Amount      Capital      Earnings        Income        (at cost)      TotalBALANCE AT JANUARY 2, 1999                      36,677      $3,841      $31,495      $264,545           ($428)     ($35,161)   $264,292Comprehensive income     Net earnings                                                                      43,723                                    43,723     Other comprehensive income (loss)          Securities valuation adjustment,          net of taxes of $169                                                                           (274)                     (274)          Translation adjustments                                                                      (1,974)                   (1,974)     Total other comprehensive income (loss)                                                                                     (2,248)Total comprehensive income                                                                                                      $41,475Stock option plans (net of shares exchanged)       236          31        3,476                                      (1,506)      2,001Cash dividends at $.45 per share                                                      (16,199)                                  (16,199)Common stock repurchased                        (1,321)                                                             (25,132)    (25,132)Other                                                                                    (328)                                     (328)BALANCE AT JANUARY 1, 2000                      35,592       3,872       34,971       291,741          (2,676)      (61,799)    266,109Comprehensive income     Net earnings                                                                      46,263                                    46,263     Other comprehensive income (loss)          Securities valuation adjustment,          net of taxes of $158                                                                            263                       263          Translation adjustments                                                                      (1,453)                   (1,453)     Total other comprehensive income (loss)                                                                                     (1,190)Total comprehensive income                                                                                                      $45,073Stock option plans (net of shares exchanged)       234          30        3,275                                      (1,242)      2,063Cash dividends at $.50 per share                                                      (16,910)                                  (16,910)Common stock repurchased                        (2,057)                    (222)                                    (35,089)    (35,311)Other                                                                                    (179)                                     (179)                                                BALANCE AT DECEMBER 30, 2000                    33,769       3,902       38,024       320,915          (3,866)      (98,130)    260,845Comprehensive income     Net earnings                                                                      22,385                                    22,385     Other comprehensive income (loss)          Securities valuation adjustment,          net of taxes of $37                                                                              61                        61          Translation adjustments                                                                      (2,999)                   (2,999)          Derivative unrealized loss,          net of tax benefit of $870                                                                   (1,360)                   (1,360)     Total other comprehensive income (loss)                                                                                     (4,298)Total comprehensive income                                                                                                      $18,087Stock option plans (net of shares exchanged)       270          39        6,200                                      (2,691)      3,548Cash dividends at $.52 per share                                                      (17,641)                                  (17,641)Common stock repurchased                          (121)                                                              (2,337)     (2,337)Other                                                                                     (17)                                      (17)BALANCE AT DECEMBER 29, 2001                    33,918      $3,941      $44,224      $325,642         ($8,164)    ($103,158)   $262,485See notes to consolidated financial statements.Notes toConsolidated Financial StatementsBaldor