<PAGE>   1


                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K


(Mark One)

    [X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
             EXCHANGE ACT OF 1934

      For the fiscal year ended December 30, 2000

                                       OR

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


               For the transition period from           to
                                              ---------    ---------

                         Commission File Number 33-67854

                              CMI INDUSTRIES, INC.
                              --------------------
             (Exact name of registrant as specified in its charter)

             Delaware                                            57-0836097
--------------------------------------------------------------------------------
(State or other jurisdiction of incorporation                 (I.R.S. Employer
                                                             Identification No.)

1301 Gervais Street, Suite 700, Columbia, South Carolina                 29201
--------------------------------------------------------------------------------
(Address of principal executive office)                               (Zip Code)

Registrant's telephone number including area code:                (803) 771-4434

Securities registered pursuant to Section 12(b) of the Act:            None

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

CMI Industries, Inc. is filing this report voluntarily in order to comply with
the requirements of the terms of its 9 1/2% Senior Subordinated Notes due 2003
and the indenture dated October 28, 1993 pursuant to which the Notes were
issued.

                       -----------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ ] No [X] (See note immediately above.)

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

                       -----------------------------------
No shares of the voting securities of the Registrant are held by nonaffiliates.

As of March 15, 2001, there were 595,031 shares of $1 Par Value Common Stock
outstanding.
================================================================================

<PAGE>   2

         This Report contains statements, which to the extent they are not
recitations of historical fact, may constitute "forward looking statements"
within the meaning of applicable federal securities laws. All forward looking
statements in this Report are intended to be subject to the safe harbor
protection provided by the Private Securities Litigation Reform Act of 1995 and
Section 21E of the Securities Exchange Act of 1934, as amended. For a discussion
identifying some important factors that could cause actual results to vary
materially from those anticipated in the forward looking statements made by the
Company, see "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Overview."

                                     PART I

ITEM 1. BUSINESS

GENERAL

         CMI Industries, Inc. ("CMI" or the "Company") and its subsidiaries
manufacture textile products that serve a variety of markets, including the home
furnishings, woven apparel, elasticized knit apparel and industrial/medical
markets. Headquartered in Columbia, South Carolina, the Company operates
manufacturing facilities in Clarkesville, Georgia, Clinton, South Carolina,
Greensboro, North Carolina and Stuart, Virginia. The Company had net sales from
continuing operations of $194.7 million in 2000.

         The Company was formed in 1986 at the direction of Merrill Lynch
Capital Partners, Inc. ("ML Capital Partners"), a wholly owned subsidiary of
Merrill Lynch & Co., Inc. ("ML & Co."), together with certain members of present
or former management for the purpose of acquiring Clinton Mills, Inc., a South
Carolina corporation, a predecessor in interest to the Greige Fabrics Division.
Affiliates of ML Capital Partners who acquired shares of the Company's common
stock (the "Common Stock") in 1986 and thereafter, sold all of the shares of
Common Stock owned by them back to the Company on March 14, 2000. The Company is
currently 100% owned and controlled by current or former members of management
or their affiliates. See "Item 12. Security Ownership of Certain Beneficial
Owners and Management."

CURRENT YEAR DEVELOPMENTS

         During the year ended December 30, 2000, the Company substantially
completed the sale of all of the operating assets of its Chatham Division,
completing its exit from the furniture upholstery, automotive upholstery and
consumer products businesses which allows the Company to focus on its greige and
elastics businesses.

         Also in 2000, the Company approved a plan to further reduce its
capacity for greige fabrics. Comensurate with that reduction, the Company
announced the permanent closure of its facilities in Geneva, Alabama, and the
Bailey Plant in Clinton, South Carolina. The Company expects that by reducing
its productive capacity of greige fabrics to levels more consistent with market
demand, and by consolidating its most productive technology, it will allow its
remaining greige business to compete more cost effectively in the current market
environment.

         With these changes, the Company's associate complement has been reduced
from approximately 3,700 at the beginning of 2000 to approximately 2,100 at
December 30, 2000. Additionally, the Company has been able to utilize the
proceeds generated from these initiatives to reduce its long term debt from
$128.8 million at January 1, 2000 to $79.1 million at December 30,


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<PAGE>   3

2000, and is now in a better position to improve the performance of its
remaining greige and elastics businesses.

SALES SUMMARY

         The following table presents, for the last three fiscal years, the
dollar sales and the percentages of the Company's sales contributed by each
division.

<TABLE>
<CAPTION>
                                                                 SALES BY DIVISION
                                     -------------------------------------------------------------------------
                                                               (Dollars in thousands)
                                           1998                         1999                       2000
                                     ----------------            -----------------           -----------------
     <S>                             <C>          <C>            <C>           <C>           <C>           <C>
     Greige Fabrics Division         $147,066      61%           $111,978       53%          $109,557       56%
     Elastic Fabrics Division          95,435      39%             99,042       47%            85,155       44%
                                     --------     ---            --------      ---           --------      ---
         Total                       $242,501     100%           $211,020      100%          $194,712      100%
                                     ========     ===            ========      ===           ========      ===
</TABLE>

BUSINESS SEGMENTS

         The Company currently operates in two reportable business segments
(each of which constitutes a separate and distinct division)--Greige Fabrics and
Elastic Fabrics. The following discussion provides general information as it
relates to each division:

GREIGE FABRICS DIVISION

         Products. The Greige Fabrics Division manufactures light to midweight
greige (unfinished) fabrics, including printcloths, broadcloths, twills, crepes
and other fabrics of 100% cotton and blends of polyester and combed or carded
cotton, and 100% synthetic yarns. The division can manufacture fabric in a broad
range of styles, which are determined by the fibers used, the number and size of
the yarns and the width of the fabric, but concentrates on a limited number of
styles and blends. The division currently produces fabric in widths ranging from
43 to 135 inches and typically produces between 60 and 100 styles at any one
time. The division's production flexibility enables it to be a cost effective
manufacturer of traditional fabric styles available from a large number of
domestic and foreign producers and gives it the ability to respond to changes in
demand in its markets. The division works closely with major integrated
manufacturers to satisfy their specific requirements.

         The fabrics sold by the Greige Fabrics Division are ultimately made
into a variety of home furnishings, woven apparel and industrial products. In
the home furnishings market, fabrics are used in comforters, bedspreads, sheets
and coordinating accessories, as well as curtains and other home furnishing
products. In the woven apparel markets, fabrics are used in a wide range of
items, including women's apparel, men's boxer shorts, trousers, and uniforms and
similar career apparel. Combed blends and 100% cotton fabrics are also used in
bolts of finished cloth sold at retail for home sewing and crafts. The principal
industrial uses for the division's fabrics are medical and athletic tapes.


                                       3
<PAGE>   4

         Manufacturing and Capacity. The Greige Fabrics Division's manufacture
of woven fabrics involves two principal operations: spinning cotton and blends
of cotton and polyester into yarn, and weaving yarn into fabric.

                  Spinning. The division either spins or purchases the yarn it
         uses to produce woven fabrics. Two types of spinning equipment have
         historically been used: air-jet spinning equipment, which combines
         spinning and winding into one process, and traditional ring spinning
         equipment. After completing the closing of the Bailey Plant in Clinton,
         South Carolina in April 2001, 100% of the Division's spinning capacity
         will be air jet spinning.

                  Weaving. The division employs only shuttleless weaving
         machines. The division's shuttleless machines are more versatile than
         shuttle weaving machines and are capable of weaving multiple fabrics of
         different widths simultaneously on the same machine, with some machines
         capable of producing fabrics as wide as 147 inches. The shuttleless
         machines require a lower labor complement and weave fabric at higher
         speeds and with higher quality levels than shuttle machines. The
         flexibility of the shuttleless machines permits production to be
         shifted among fabric widths to meet changing market requirements and
         demand levels.

         The division currently operates four manufacturing plants located in
Clinton, South Carolina and Clarkesville, Georgia. Three of the division's four
plants are currently operating on a 24-hour, five-day a week schedule. The
Bailey Plant, located in Clinton, South Carolina, is operating a curtailed
schedule as it is relocating production and equipment to the Vance Complex in
preparation for being permanently shutdown in April 2001. CMI tailors its
operating schedules to meet market demand, and it has the ability to adjust
these operating schedules as appropriate.

         All of the division's plants are equipped with projectile and air-jet
shuttleless machines and supporting equipment including carding, spinning and
yarn preparation equipment. The division plans to make further capital
expenditures of $1.0 million during fiscal 2001. These expenditures will include
replacement and updating of existing equipment and expenditures to consolidate
capacity to the Vance Complex in Clinton, South Carolina. Capital expenditures
and consolidation projects have been designed to expand production capabilities,
reduce production costs and increase quality. See "Item 2. Properties."

         Marketing and Sales. The Greige Fabrics Division's fabrics are sold
primarily through the Company's New York sales office. Fabrics are sold to
integrated manufacturers and converters for use in various home furnishings
products, woven apparel and a variety of industrial applications. None of the
division's customers account for more than 10% of Company sales. Fabrics are
typically manufactured to order. The division's sales are generally not
seasonal.

ELASTIC FABRICS DIVISION


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<PAGE>   5

         Products. The Elastic Fabrics Division manufactures a variety of dyed
and finished elasticized knit and woven fabrics for use in intimate apparel and
foundation garments. It also has a significant presence in the stretch fabric
activewear market, including swimwear fabrics, and produces fabrics for use in
industrial and medical products. The vertically integrated manufacturing
operations produce warp knit, circular knit and woven fabrics using a variety of
spandex, polyester, rayon, nylon, cotton and blends of cotton yarns. The
division dyes and finishes the majority of its elasticized fabrics as well as
lace products manufactured by others.

         Manufacturing and Capacity. Manufacturing warp knit, circular knit and
woven fabrics with elastomeric fibers is a more difficult and complicated
process than that required for other fabrics. Customers who purchase elasticized
fabrics typically require that the fabrics meet precise specifications related
to physical characteristics, shades, shrinkage and the like.

                  Knitting. Several types of warp knitting machines are used.
         These machines are versatile, with the capability of knitting fabrics
         up to 150 inches in width, in many different styles and at high speeds
         and low defect levels. For circular knitting, the Company uses both
         single and double knit machines, some of which have mini-jacquard
         capability.

                  Weaving. Several types of looms are used. These looms are
         versatile with the capability of weaving high quality narrow elastic
         fabric up to twelve inches in width. Certain looms have jacquard
         capabilities, and can weave logo designs into the fabric.

                  Finishing and Dyeing. Various dyeing and finishing
         technologies are utilized which allow the division to dye and finish
         its fabrics on-site to achieve consistent specifications and color
         matching for its products. The processes used depend upon the type and
         style of fabrics being produced. The division scours and dyes most of
         its fabric in either pressurized or non-pressurized dyeing vessels.
         Fabrics of regular warp construction are normally steamed in
         preparation for other finishing processes. Fabrics are sent through
         finishing frames that stretch and set the fabric at a desired width.
         Computerized color matching equipment enables the division to meet the
         stringent requirements of the markets it serves. For certain fabrics
         and shades, the division uses dyed yarn for both knitting and weaving.

         The division manufactures its wide elasticized knit fabrics at a plant
located in Greensboro, North Carolina, which operates on a 24-hour, five or
six-day a week schedule. The division manufactures narrow elasticized woven
fabrics in Stuart, Virginia, which operates on a 24-hour, five day a week
schedule. See "Item 2. Properties."

         Marketing and Sales. The Elastic Fabrics Division sells its elasticized
fabrics through the Company's New York sales office, and marketing professionals
located in Greensboro, North Carolina, Stuart, Virginia, Atlanta and Los
Angeles. One of the division's customers accounts for 17% of the Company sales.
No other customer accounts for more than 10% of the Company's sales. These
fabrics are manufactured to order and are typically not seasonal.

RAW MATERIALS


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<PAGE>   6

         The principal raw materials the Company uses are cotton and man-made
fibers and yarns. In 2000, raw materials accounted for approximately 45% of cost
of sales. The Company primarily only uses two types of fibers, cotton and
polyester as well as many types of yarns including Lycra(R), a spandex
elastomeric yarn produced by DuPont (E.I.) de Nemours & Company, in the
manufacture of its textile products. The Company believes that availability and
future price levels for fibers and yarns will depend primarily upon supply and
demand conditions, crop conditions, general inflation, government agricultural
programs and prices of petroleum-based raw materials.

         Generally, the Company has had no difficulty in obtaining raw
materials. The Company's raw materials are available from a large number of
suppliers. The Company maintains a limited supply of cotton in inventory.
Typically, the Company purchases cotton only when firm orders have been obtained
for the goods in which it will be used. However, if management concludes that a
certain grade of cotton may be in short supply or that prices may be
substantially higher in the near term, the Company may deviate from this
procedure and buy additional cotton for inventory or make commitments for cotton
in the future in excess of amounts required to meet future sales orders.
Historically, the Company has not purchased significant amounts of cotton for
inventory. The Company believes it has contracted for cotton at prices that will
permit it to be competitive with other companies in the domestic textile
industry when the cotton purchased for future use is put into production.

         The principal man-made fibers and yarns purchased by the Company are
polyester and nylon. The Company maintains a limited supply of man-made fibers
and yarns in inventory. The Company currently purchases polyester fiber for its
Greige Fabrics Division from two suppliers, although other suppliers are
available. The Company also purchases yarns of texturized filament polyester
primarily from a limited number of suppliers for use in its woven and knit
fabrics, although other suppliers are available. Currently, most of the
elastomeric yarn used in the production of elasticized fabrics is Lycra(R).

PATENTS AND TRADEMARKS

         The Company has registered stylized "Clinton" and "EFA" as trademarks.
The Company does not own or use any other patents, licenses or trademarks that
are currently material in the conduct of its business.

BACKLOG

         At December 30, 2000, the Company had aggregate unfilled orders of
$42.5 million, as compared to $62 million at January 1, 2000. As of December 30,
2000, the Greige Fabrics Division had approximately $31.5 million of unfilled
customer orders for woven fabrics, as compared to $50 million at January 1,
2000. The decrease in the Greige Fabrics Division's order backlog from 1999 to
2000 is indicative of the depressed market conditions for greige fabrics. At
December 30, 2000, the Elastic Fabrics Division had unfilled orders totaling
$11.0 million, as compared to $12 million at January 1, 2000. The reduced level
of the Elastic Fabrics Division's backlog may be attributed to the general
slowdown at retail in the last half of 2000 and a reduction in fabric
requirements by many of the Elastic Division's customers. The Company expects to
fill all of these orders in 2001. These backlogs consist of orders that are not
generally subject to cancellation prior to shipment, although the


                                       6
<PAGE>   7

Company has in the past accommodated customer requests for order deferments due
to unusual circumstances. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations--Overview."

COMPETITION AND INTERNATIONAL TRADE POLICY

         The domestic textile industry is highly competitive with no one firm
dominating the United States market. Many companies compete only in limited
segments of the textile market, and in recent years, there has been a trend
toward consolidation in the United States textile industry. Textile competition
is based in varying degrees on price, product styling and differentiation,
quality and customer service. The importance of each of these factors depends
upon the needs of particular markets and customers.

         The domestic textile industry has been fundamentally and significantly
affected by competition from abroad. The level of import protection for domestic
producers of textiles has been and will continue to be subject to domestic
political and foreign policy considerations. Under the import tariff and quota
framework developed under the Arrangement Regarding International Trade in
Textiles, commonly known as the Multifiber Arrangement (the "MFA"), most
significant exporters of fabrics were subject to annual quotas. However, the MFA
expired on December 31, 1994, and was replaced by The Uruguay Round Agreement
(the "Uruguay Agreement") on textiles and clothing which contains a schedule for
the gradual phase-out of quotas established pursuant to the MFA over a ten year
transition period. After the transition period, textile and clothing trade will
be fully integrated into the World Trade Organization and subject to the same
restrictions as other sectors. The Uruguay Agreement contains a provision for
reducing tariffs on textiles and clothing products imposed by the United States
by approximately 12% overall, with the reductions phased in over a ten year
period. The reduction in the import protection accorded domestic fabric and
apparel manufacturers has adversely affected the domestic textile industry.

         The impact of import competition varies among the Company's divisions.
The Greige Fabrics Division sells its fabrics primarily to integrated
manufacturers and also to converters for use in a wide variety of home
furnishings, woven apparel and industrial products. The division sells its
fabrics in certain markets where imports are a competitive factor, such as the
women's apparel and the over the counter fabrics for home sewing markets. In
addition, the division's fabrics are used in apparel products which compete with
imported garments. In response to the increasing effect of imports, the division
has engaged in an extensive modernization program which has added flexibility to
its manufacturing process and increased its fabric offerings. This modernization
program has resulted in increases in productivity and lower unit costs, net of
depreciation. In addition, marketing has been redirected in an effort to reduce
dependence on commodity fabrics and has focused on developing long-term customer
relationships where value added services can differentiate its fabrics from
imports. To implement this strategy, the division has generally endeavored to
decrease its sales to the apparel market and shift more of its sales to home
furnishing markets where competition from imports is less severe. However,
depending on market conditions, the division may from time to time redirect its
sales from home furnishings to apparel to avoid market weakness or to obtain a
benefit from opportunistic selling. The Greige Fabrics Division's principal
competitors include Greenwood Mills and Alice Manufacturing.


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<PAGE>   8

         The Elastic Fabrics Division and other United States manufacturers of
elasticized fabrics and garments, including intimate apparel, swimwear and
activewear, have not been subject to the same pressure from imports experienced
by many other sportswear apparel manufacturers. Customers place significant
emphasis on product design, component shade-matching and other quality-related
criteria. Customers establish strict specifications that place a premium on
customer service, which places foreign manufacturers at a disadvantage. The
division's principal elasticized fabrics competitors include Liberty Fabrics,
Darlington and Worldtex.

EMPLOYEES

         On December 30, 2000 the Company had 2,096 employees, none of whom were
covered by a collective bargaining agreement. Of these employees, 1,821 were
employed as hourly associates while 275 were employed as salaried associates.
All of the Company's employees are full-time. The Company believes that its
employee relations are good.

ENVIRONMENTAL, HEALTH AND SAFETY, AND OTHER REGULATORY MATTERS

         The Company's operations are subject to federal, state and local laws
and regulations relating to the environment, health and safety, and other
regulatory matters. Certain of the Company's operations may from time to time
involve the use of substances that are classified as toxic or hazardous
substances within the meaning of these laws and regulations. Environmental
operating permits are, or may be required, for certain of the Company's
operations and such permits are subject to modification, renewal and revocation.
The Company monitors and reviews its operations, procedures and policies for
compliance with these laws and regulations. Despite these compliance efforts,
risk of environmental liability is inherent in the operation of the Company's
businesses, as it is with other companies engaged in similar businesses, and
there can be no assurance that environmental liabilities will not have a
material adverse effect on the Company in the future.

         The Company is working under the direction of the North Carolina
Department of Environment, Health and Natural Resources and from Guilford County
Environmental Health to cleanup groundwater at its Greensboro facility resulting
from previously removed leaking underground storage tanks. The Company estimates
that remaining costs associated with the cleanup will be less than $100,000.
Partial reimbursement has been approved from the North Carolina Underground
Storage Tank Trust Fund.

ITEM 2. PROPERTIES

         The following table sets forth certain information relating to the
Company's principal facilities as of December 30, 2000. All of these facilities
are owned by the Company, except for the New York City sales office and the
Columbia, South Carolina executive office. The Company's New York sales office
is leased for a term expiring in 2005. The Columbia executive office is leased
for a term expiring in 2001. The Company believes all of its facilities are in
good repair and are in suitable condition for the purposes for which they are
used.


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<PAGE>   9

<TABLE>
<CAPTION>

          LOCATION                            SQ. FOOTAGE                           USE
          --------                            -----------                           ---
     <S>                                      <C>             <C>
     GREIGE FABRICS DIVISION

       Vance No. 1..............................263,000       Manufacturing (191,000 sq. ft.)
       Clinton, SC                                            Warehouse and Office (72,000 sq. ft.)

       Vance No. 2..............................544,900       Manufacturing (303,900 sq. ft.)
       Clinton, SC                                            Warehouse and Office (241,000 sq. ft.)

       Bailey...................................277,200       Manufacturing (224,100 sq. ft.)
       Clinton, SC                                            Warehouse  and Office (53,100 sq. ft.)

       Office-Clinton, SC........................37,700       Office

       Clarkesville, GA.........................268,800       Manufacturing (170,100 sq. ft.)
                                                              Warehouse and Office (98,700 sq. ft.)

     ELASTIC FABRICS DIVISION

       Greensboro, NC...........................175,300       Manufacturing (138,800 sq. ft.)
                                                              Warehouse and Office (36,500 sq. ft.)

       Stuart, VA...............................415,340       Manufacturing (328,900 sq. ft.)
                                                              Warehouse and Office (86,440 sq. ft.)

     OTHER

        CMI Sales Office
        New York, NY.............................16,332        Office

        CMI Executive Office
        Columbia, SC..............................9,330        Office
</TABLE>

ITEM 3. LEGAL PROCEEDINGS

         The Company is from time to time involved in routine litigation
incidental to its business operations, as well as product liability litigation.
In the opinion of the Company's management, none of the litigation in which it
is currently involved is material.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         No matters were submitted to a vote of the Company's security holders
during the fourth quarter of fiscal year 2000.

                                     PART II


                                       9
<PAGE>   10

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS

         None of the issued shares of the Common Stock is publicly held and
there is no established published trading market for the Common Stock. As of
March 15, 2001, there were thirty-one holders of the Company's Common Stock. See
"Item 12. Security Ownership of Certain Beneficial Owners and Management."

         During the two fiscal years ended January 1, 2000 and December 30,
2000, the Company did not pay any dividends. The Company's ability to pay
dividends was subject to limitations in its bank credit agreement and in the
indenture pursuant to which its $125 million principal amount 9-1/2% Senior
Subordinated Notes due 2003 were issued (the "Indenture"). Capitalized terms
used in this Item 5 that are not defined in this Report have the same meaning as
set forth in the Indenture.

         The Indenture prohibits the Company from paying cash dividends or
making other Restricted Payments if an Event of Default exists under the
Indenture or the Company cannot incur additional Indebtedness (other than
Permitted Indebtedness) because of an inadequate Fixed Charge Coverage Ratio.
The Indenture limits the aggregate amount of cash dividends and other Restricted
Payments that may be made subsequent to October 28, 1993 to an amount no greater
than the sum of (i) 50% of the Company's Consolidated Adjusted Net Income
accrued on a cumulative basis since October 1, 1993 (less 100% of any loss) plus
(ii) the aggregate net proceeds received by the Company after October 28, 1993
from certain issues or sales of the Company's capital stock and from capital
contributions. Notwithstanding the foregoing, so long as an Event of Default
does not exist, the Indenture permits the Company to (i) repurchase its capital
stock from Management Investors under certain circumstances in an aggregate
amount of up to $2.0 million per year, with the right to carry forward into the
immediately following year the aggregate amount of the unused portion, and (ii)
pay cash dividends and make other Restricted Payments in an aggregate amount not
to exceed $10.0 million. On March 14, 2000, the Company paid $8,949,843 to
repurchase its common stock from affiliates of Merrill Lynch Capital Partners,
Inc. under the above noted $10.0 million limitation. See "Item 12. Security
Ownership of Certain Beneficial Owners and Management." At December 30, 2000,
under the terms of the Indenture, the Company could acquire capital stock in an
amount of $3.3 million from Management Investors and could pay cash dividends or
make other Restricted Payments in an aggregate amount of $1.0 million.

         However, under a $22 million secured revolving credit facility entered
into in March 1996 as amended and restated in May 1999, and further amended in
September 1999, October 2000 and December 2000 (the "Credit Agreement"), the
Company is not permitted to make or declare any type of dividend payment.
Consequently, the limitation on restricted payments contained in the Credit
Agreement is more restrictive than the limitation contained in the Indenture, so
that at December 30, 2000 the Company was not able to pay dividends or purchase
its Common Stock from any Management Investor.


                                       10
<PAGE>   11

ITEM 6. SELECTED FINANCIAL DATA

         The following table sets forth selected historical financial
information for the Company for fiscal years 1996 through 2000, which has been
derived from the audited financial statements of the Company for such periods.
The selected financial data should be read in conjunction with "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the audited financial statements of the Company, together with
the related notes and independent accountant's report. The Company's
consolidated balance sheet as of January 1, 2000 and December 30, 2000, and
financial statements for each of the fiscal years in the three-year period ended
December 30, 2000, and the independent accountant's report thereon, are included
elsewhere in this Report. See "Index to Financial Statements and Schedules."

<TABLE>
<CAPTION>
                                                                                    FISCAL YEAR
                                                      ------------------------------------------------------------------------
                                                        1996            1997            1998            1999            2000
                                                      --------        --------        --------        --------        --------
                                                                               (Dollars in thousands)
<S>                                                   <C>             <C>             <C>             <C>             <C>
STATEMENT OF INCOME DATA
Net sales                                             $247,059        $264,941        $242,501        $211,020        $194,712
Depreciation                                            17,248          12,233          11,615          11,267          10,160
Other cost of sales                                    218,068         217,427         199,207         188,653         185,847
                                                      --------        --------        --------        --------        --------
     Gross profit                                       11,743          35,281          31,679          11,100          (1,295)
Selling, general and administrative expense             17,803          17,155          16,636          15,271          14,881
Restructuring and other nonrecurring charges(1)             --              --             304           7,000          18,500
                                                      --------        --------        --------        --------        --------
     Operating income (loss)                            (6,060)         18,126          14,739         (11,171)        (34,676)
Other income (expense)
     Interest expense                                  (15,425)        (14,499)        (12,759)        (12,910)        (11,552)
     Other income (expense), net                         1,253           2,210           1,096             695             473
                                                      --------        --------        --------        --------        --------
     Total other income (expense)                      (14,172)        (12,289)        (11,663)        (12,215)        (11,079)
                                                      --------        --------        --------        --------        --------

Income (loss) from continuing operations
     before income taxes and extraordinary item        (20,232)          5,837           3,076         (23,386)        (45,755)
Income taxes (benefit)                                  (7,374)          2,338           1,183          (8,851)             --
                                                      --------        --------        --------        --------        --------
     Income from continuing operations before
         extraordinary item                            (12,858)          3,499           1,893         (14,535)        (45,755)
Extraordinary (charge) gain                                 --              --              --              --          28,105
                                                      --------        --------        --------        --------        --------
     Income (loss) from continuing operations          (12,858)          3,499           1,893         (14,535)        (17,650)

Discontinued operations, net of taxes
     Income from discontinued operations                 2,195           3,687           1,146             577           2,561
     Gain (loss) on disposal of disc. operations            --              --              --              --          (8,982)
                                                      --------        --------        --------        --------        --------
         Net income (loss)                            $(10,663)       $  7,186        $  3,039        $(13,958)       $(24,071)
                                                      ========        ========        ========        ========        ========

Ratio of earnings to fixed charges(2)                    (0.31)x          1.40x           1.24x          (0.81)x         (2.96)x
</TABLE>


                                       11
<PAGE>   12

<TABLE>
<CAPTION>
                                                                                    FISCAL YEAR
                                                      ------------------------------------------------------------------------
                                                        1996            1997            1998            1999            2000
                                                      --------        --------        --------        --------        --------
<S>                                                   <C>             <C>             <C>             <C>             <C>
BALANCE SHEET DATA (AT END OF YEAR)
Current assets                                        $ 65,812        $ 55,394        $ 65,980        $ 59,853        $ 46,011
Net assets of discontinued operations                   64,237          64,707          64,966          57,440           8,192
Property, plant and equipment, net                      81,804          74,232          67,390          58,574          32,909
Other assets                                             7,880           8,237           9,455          10,200           8,225
Total assets                                           219,733         202,570         207,791         186,067          95,337
Current liabilities                                     33,966          27,986          27,821          23,180          16,163
Long-term debt, less current portion                   143,749         124,528         124,536         128,814          79,142

Other liabilities and deferred items                    10,173          11,012          13,351           8,598           7,574
Stockholders' equity                                    31,845          39,044          42,083          25,475          (7,542)

EBITDA(3)                                             $ 13,108        $ 33,069        $ 27,918        $  1,297        $(23,607)
Depreciation and amortization from
     continuing operations(4)                           17,915          12,733          12,083          11,773          10,596
Capital expenditures from continuing operations          5,774           4,486           5,233           4,871             323
Ratio of EBITDA to interest expense(5)                    0.88x           2.38x           2.28x           0.10x          (2.14)x
Ratio of total debt (at end of year) to EBITDA           10.97x           3.77x           4.46x          99.32x          (3.35)x
</TABLE>

----------------

(1)      Represents the write-off of transaction costs associated with the
terminated merger agreement with CMI Management, Inc. in 1998 of $1,649 and a
credit of $1,345 in 1998 related to the previously reported restructuring and
severance charges. In 1999, $7,000 was reserved for restructuring initiatives in
the following amounts: severance and related benefits, $1,000; inventory
write-offs, $2,116; property, plant and equipment write-offs, $3,068; and other
asset write-offs, $816. The Company recorded a credit of $1,100 in 2000 related
to the 1999 restructuring and severance charge. In 2000, $19,600 was reserved
for plant closings, impairment charges and other nonrecurring write offs in the
following amounts: severance and related benefits, $725; inventory write-offs,
$1,225; property, plant and equipment write-offs, $16,150; and other assets
write-offs, $1,500. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations--Overview."

(2)      For purposes of computing this ratio, earnings consist of income before
income taxes and extraordinary items, plus fixed charges. Fixed charges consist
of interest expense on debt, amortization of deferred debt cost and debt
discount cost and the estimated interest component of rent expense.

(3)      Represents income before interest, income taxes, extraordinary items,
depreciation and amortization. The Company has included information concerning
EBITDA as a measure of the Company's ability to service its debt. EBITDA should
not be considered as an alternative to, or more meaningful than, operating
income or cash flow as an indicator of the Company's operating performance. See
the Statements of Cash Flows included in the Financial Statements.

(4)      Excludes amortization of deferred debt cost and debt discount cost.

(5)      Interest expense excludes amortization of deferred debt cost and debt
discount cost.


                                       12
<PAGE>   13

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

         A number of factors influence the operating results for the Company
including general economic conditions, competition, raw material prices and
capital expenditures. Significant factors impacting the Company's operating
results over the past several years are as follows:

         Historical Business Plan. In 1992, the Company began implementing a
strategic plan with the primary goal of becoming the low-cost domestic provider
of greige fabrics while achieving greater product diversification through
acquisitions. Important elements of this new business strategy included the
continued modernization of the Company's manufacturing facilities and the
acquisition of certain strategic companies in order to reduce the Company's
reliance upon sales of greige fabrics.

         Chatham Division. In February 1992, the Company acquired the assets of
Chatham Manufacturing Company. In addition to increased product diversification,
the Chatham acquisition provided the Company with access to markets with greater
barriers to entry than the greige fabrics markets. The Chatham Division
manufactured fabrics to be sold to the automotive industry, residential and
contract furniture upholstery industries, as well as consumer products such as
blankets, mattress pads and heated pads. These industry segments are
characterized by sophisticated supplier qualification and quality requirements,
short order lead times, significant capital requirements and other barriers to
entry. Most of the division's products were not sensitive to imports, and in
many instances, provided the Company with export opportunities. Nonetheless,
Chatham's financial performance deteriorated from 1992 through 1995, and its
operating margins remained substantially below those of the Company's other
divisions.

         Greige Fabrics Division. Continuing with its acquisition strategy, the
Company acquired the Clarkesville Plant in May 1994 which expanded the Company's
products to include greige fabrics of 100% synthetic yarns for use in the
contract home furnishings and specialty markets. Because the fabrics produced at
Clarkesville are less commodity-oriented, they are more capable of consistently
producing higher margins. Despite the acquisition of the Clarkesville Plant, a
majority of the Company's Greige Fabrics Division production was still commodity
oriented light to midweight greige fabrics, including printcloths, broadcloths,
twills and other fabrics of 100% cotton and blends of polyester and cotton.
These fabrics are sold for use in home furnishings such as sheetings, curtains
and mattress ticking, career apparel and various industrial applications
including medical and athletic tape. These commodity greige fabrics are more
sensitive to general supply and demand levels, the strength of the U.S. dollar
and the availability of imported fabrics. As the economy in general continued to
strengthen throughout the 1990s and the phasing out of quotas pursuant to the
Uruguay Round Agreement of 1994 began to be implemented, there developed a
general oversupply of domestically produced greige fabrics. Consequently, market
conditions for many of the Company's greige fabrics were negatively affected by
excess capacity and deteriorating selling prices for most years since 1993.

         Elastics Fabrics Division. The Company acquired the former United
Elastic Corporation operations in January 1995. The United Elastic Corporation
acquisitions allowed the Company to


                                       13
<PAGE>   14

further diversify its product offerings to include narrow woven elastics and
provide its existing customer base with more value-added products and services.
The Elastic Fabrics Division now produces both wide and narrow elastics and
manufactures woven, warp knit and circular knit fabrics used in intimate
apparel, activewear and industrial/medical markets. The products manufactured in
this division are highly engineered and the quality of the fabrics is critical.
In addition to the acquisition of United, the Company has invested $10 million
since 1994 in new equipment and systems to become the preferred supplier to many
of its key customers.

         Throughout this time period, the Company continued to upgrade its
manufacturing capacity by investing in new equipment capable of producing better
quality fabrics more efficiently at all of its businesses. Despite these
investments and its achieving greater product diversification through
acquisitions, the Company's performance continued to deteriorate while asset
utilization rates and customer service levels also declined.

         1995 Restructuring. The Company's disappointing financial performance
in 1994 and 1995 forced the Company to make certain changes in senior management
and refocus its overall business strategy in late 1995. At that time, the
Company initiated a plan ("the 1995 Restructuring") to improve operating
performance, reduce costs and realign certain resources in order to better serve
its customers. The 1995 Restructuring consisted of: (1) additional changes in
the management of the Company; (2) the closing of the Greige Fabrics Division's
least efficient manufacturing facility; (3) the consolidation of the Chatham
Division's weaving operations in Elkin, North Carolina from three buildings to
two buildings; (4) the downsizing of the Company's corporate offices in
Columbia, South Carolina and relocation of certain resources back to the
operating divisions; (5) the write-off and proposed sale of certain idle and
impaired assets; (6) the increased emphasis on customer service and product
development investments, particularly with systems and design resources; (7) the
sale of excess inventories; and (8) other process improvement initiatives
designed to reduce costs, improve customer service levels and maximize returns
on current investments. As a result of the 1995 Restructuring, the Company
recorded a $12.9 million restructuring charge in 1995 relating to severance,
retirement, and other nonrecurring charges associated with facility closures and
overhead reductions. Each of the restructuring initiatives was completed by the
end of 1996. In total, the Company now estimates that over 900 manufacturing and
administrative positions out of approximately 5,000 were permanently eliminated
as a result of the 1995 Restructuring.

         1999 Restructuring. In the second quarter of 1999, the Company approved
a plan to pursue additional restructuring initiatives in all divisions. These
initiatives were focused on discontinuing certain weaving and yarn manufacturing
operations which, when coupled with certain yarn outsourcing strategies, have
reduced the Company's operating costs, downsizing its fabric formation capacity
to levels more in line with market demand, and conserving capital for other
equipment modernization projects. In conjunction with these efforts, the Company
consolidated certain manufacturing and divested idle equipment and related
inventories. The consolidation initiatives were completed by December 1999 and
the disposition of related assets was completed in 2000. The restructuring
initiatives also included the termination and retirement of approximately 239
associates in 1999 and included the associated severance costs relating to
insurance, vacation and other benefits. The Company reported a $7,000 charge to
1999 earnings in connection with the restructuring initiatives.


                                       14
<PAGE>   15
         The 1995 and 1999 Restructurings allowed the Company to downsize its
corporate offices, eliminate inefficient capacity and reorganize its resources
to emphasize customer service and product development. These initiatives also
helped position the Company to operate more efficiently and to respond more
quickly and cost effectively to market changes and customer demands. The
initiatives to reduce inventories and to correct capacity levels relative to
market demand, particularly in the Greige Fabrics Division, resulted in better
internal operating disciplines and a significant reduction in CMI's overall
investment in working capital. Although capacity reductions throughout the
domestic greige market positively impacted the overall market conditions during
1997, market conditions for greige fabrics have progressively deteriorated from
1998 through the first quarter of 2001. Increased imports of lower priced Asian
fabrics, excess inventories at key vertical home furnishing customers and a
stronger U.S. dollar all have combined to weaken demand, place downward pressure
on selling prices and create an oversupply situation in the marketplace similar
to that of 1995 and 1996. Consequently, operations in the Greige Fabrics
Division have been significantly curtailed beginning in the second half of 2000
and operating results continued to deteriorate throughout 2000.

         Divestiture of Chatham Division. In 2000, the Company determined it
could no longer commit the necessary capital to support the growth opportunities
of the Chatham Division and concluded that it should divest these businesses. On
May 1, 2000, the Company completed the sale of the furniture assets of the
Chatham Division to Interface Fabrics Group, Inc. for a purchase price of $25.6
million in cash. On October 26, 2000, the Company completed the sale of the
automotive assets of the Chatham Division to Borgstena Textile North America,
Inc., a wholly owned subsidiary of AB Borgstena Textile located in Borgstena,
Sweden, for a purchase price of $19.0 million. Proceeds from the sale of the
furniture and automotive assets were used to reduce the Company's outstanding
indebtedness on its secured revolving credit facility. On January 5, 2001, the
Company completed the sale of the consumer products assets of the Chatham
Division to WestPoint Stevens Inc. for a purchase price of $8.4 million.
Consequently, the Company has reported $2.6 million of income from the Chatham
Division and a $9.0 million loss on disposal as discontinued operations in 2000.

         Additional Plant Closings in Greige Division. Also in 2000, the Company
evaluated various alternatives to realign its operations in an effort to improve
the operating margins of its Greige Fabrics Division going forward. The Company
developed a plan to consolidate capacity and reduce overhead costs by
permanently closing two greige fabric manufacturing facilities and consolidating
certain technologies to one of its remaining operations. The Company believes
that by downsizing its productive capacity to levels more in line with market
demand, and by consolidating its most productive technologies, it will allow its
remaining greige business to compete more cost effectively in the current market
environment. As part of the downsizing effort and consolidation plan, the
Company will report a $6.1 million charge in 2000 for plant closing costs
associated with disposing of the idle facilities, equipment and related
inventory as well as severance and benefit expenses for the 350 terminated
associates. Management does not believe that the downsizing and consolidation
plan will generate sufficient cash flows in the Greige Division to cover the
carrying amounts of its remaining assets. Consequently, as of December 30, 2000,
the Company has also reported a $12.0 million impairment charge on the remaining
buildings and machinery and equipment associated with this business.

         Ongoing Strategy. The Company expects to continue to assess other
strategic alternatives which are consistent with maximizing shareholder value,
maintaining its liquidity and maximizing its


                                       15
<PAGE>   16

tax planning opportunities and attributes. In 2001, the Company expects to
utilize the proceeds received from the sale of the Consumer Products assets, a
$4.0 million refund from the IRS and the disposition of idle facilities and
equipment in the Greige Fabrics Division to maintain adequate liquidity for its
ongoing businesses. Additionally, the Company expects to complete the downsizing
and consolidation of its Greige Division and return its focus back to the
Elastics Division, where historically, the Company has been able to capitalize
on its superior customer service and generate significantly higher returns on
the capital invested in this segment. In conjunction with these operational
initiatives, the Company is evaluating alternatives to address its leverage and
its overall capital structure. In this regard, the Company has engaged a
financial advisor and is pursuing a refinancing of the existing secured
revolving credit facility.

RESULTS OF OPERATIONS

         The following table sets forth for the periods indicated the
percentages that certain income and expense items bear to sales for such
periods. All years refer to the Company's fiscal years.

<TABLE>
<CAPTION>
                                                                                 FISCAL YEAR
                                                                     ---------------------------------
                                                                     1998          1999          2000
                                                                     -----         -----         -----
         <S>                                                         <C>           <C>           <C>
         Net sales...............................................    100.0%        100.0%        100.0%
         Depreciation............................................      4.8           5.3           5.3
         Other cost of sales.....................................     82.1          89.4          95.4
                                                                     -----         -----         -----
         Gross profit............................................     13.1           5.3          (0.7)
         Selling, general and administrative expenses............      6.9           7.2           7.6
         Restructuring and other nonrecurring charges............      0.1           3.3           9.5
                                                                     -----         -----         -----
         Operating income (loss).................................      6.1          (5.3)        (17.8)
         Other income (expense)
            Interest expense.....................................     (5.3)         (6.1)         (5.9)
            Other, net...........................................      0.5           0.3           0.2
                                                                     -----         -----         -----
         Income (loss) from continuing operations before
            income taxes and extraordinary item..................      1.3         (11.1)        (23.5)
         Income taxes (benefit)..................................      0.5          (4.2)           --
                                                                     -----         -----         -----
         Income from continuing operations before
            extraordinary item...................................      0.8          (6.9)        (23.5)
         Extraordinary (charge)/gain.............................       --            --          14.4
         Income from continuing operations.......................      0.8          (6.9)         (9.1)
         Income from discontinued operations.....................      0.5           0.3           1.3
         Gain (loss) on disposal of discontinued operations......       --            --          (4.6)
                                                                     -----         -----         -----
         Net income (loss) ......................................      1.3%         (6.6)%       (12.4)%
                                                                     =====         =====         =====
</TABLE>

     Fiscal Year 2000 Compared to Fiscal Year 1999

         The Company's net sales decreased $16.3 million or 7.7% from $211.0
million in 1999 to $194.7 million in 2000. Sales of the Greige Fabrics Division
decreased $2.4 million or 2.1%, and sales of the Elastic Fabrics Division
decreased $13.9 million or 14.0%. The continued decline in sales for the Greige
Fabrics Division was primarily attributable to increased imports of lower priced
Asian fabrics, excess inventories at key home furnishing customers, and a
stronger U.S. dollar which together, have severely weaken the domestic greige
fabrics market. These factors resulted in a 3.5% decrease in average selling
prices for lightweight printcloth greige fabrics. The Company expects average
selling prices for printcloth fabrics to continue to be affected by lower priced
imported fabrics and reduced demand from certain key home furnishing customers.
The company anticipates these


                                       16
<PAGE>   17

factors to continue to negatively impact the performance of the Greige Fabrics
Division in 2001. The decrease in sales for the Elastic Fabrics Division
consisted of a $10.2 million or a 14.3% decline in sales of wide warp knit
elasticized fabrics while sales of narrow woven elasticized fabrics fell $3.7
million or 13.4% in 2000. The decrease in sales of the Elastics Division may be
attributed to a general slowdown at retail for many of the Company's intimate
apparel customers. Inventory destocking initiatives at many national retailers
have curtailed demand for both the Company's narrow and wide elastic fabric
products.

         In conjunction with the Company's decreased sales, gross profit
decreased $12.4 million from $11.1 million in 1999 to a loss of $1.3 million in
2000, which resulted in a gross margin decline from 5.3% of sales in 1999 to a
negative gross margin of 0.7% of sales in 2000. The decrease in gross profits
was directly attributable to the deteriorating market conditions for greige
fabrics which resulted in lower selling prices and forced the Company to curtail
its greige operations. Gross profits in the Greige Fabrics Division were down
$7.3 million in 2000. Gross profit in the Elastic Fabrics Division decreased
$5.1 million in 2000 due to lower sales and the negative effect associated with
higher levels of unabsorbed fixed costs.

         Selling, general and administrative expenses decreased $0.4 million or
2.6% from $15.3 million in 1999 to $14.9 million in 2000. The Company continued
to realize benefits from its restructuring and downsizing initiatives as
administrative expenses declined $0.5 million in 2000 but selling expenses
remained relatively unchanged.

         In 2000, the Company approved a plan to pursue capacity reduction and
consolidation initiatives in the Greige Fabrics Division, resulting in a $6.1
million charge to earnings for plant closure costs. Additionally, the Company
reported a $12.0 million impairment charge on the remaining property, plant, and
equipment associated with the Greige Division and also recorded a $1.5 million
charge related to other non-recurring asset write-offs.

         Interest expense decreased $1.3 million or 10.5% from $12.9 million in
1999 to $11.6 million in 2000. The decline in interest reflects the Company's
ability to reduce its long-term debt in 2000 by $49.7 million with proceeds from
the sale of the Chatham Division.

         As a result of the above mentioned items, the loss from continuing
operations before income taxes and extraordinary items increased $22.4 million
for the year ended December 30, 2000 over the corresponding period in 1999, and
the provision for income taxes was reduced to zero in connection with the
Company's decision to report a valuation allowance for the estimated tax
benefits associated with the net losses reported in 2000. As a result, the
Company has reported a $45.8 million loss from continuing operations before
extraordinary items for the year ended December 30, 2000.

         Also included in 2000 was extraordinary income of $28.1 million
associated with the Company's purchase of its Notes at market prices below face
value and a $6.4 million loss associated with the Chatham Division. In 2000, the
Company divested substantially all of the assets of its Chatham Division and
accordingly, reported $2.6 million of income from discontinued operations and a
$9.0 million loss on the sale of the Chatham Division.

     Fiscal Year 1999 Compared to Fiscal Year 1998


                                       17
<PAGE>   18

         The Company's net sales decreased $31.5 million or 13.0% from $242.5
million in 1998 to $211.0 million in 1999. Sales of the Greige Fabrics Division
decreased $35.1 million or 23.9%, and sales of the Elastic Fabrics Division
increased $3.6 million or 3.8%. The decrease in sales for the Greige Fabrics
Division was primarily attributable to increased imports of lower priced Asian
fabrics, excess inventories at key home furnishing customers, and a stronger
U.S. dollar which all combined to severely weaken the domestic greige fabrics
market. These factors resulted in a 23.7% decrease in average selling prices for
lightweight printcloth greige fabrics and a corresponding decrease in sales
volume of 9.1%. The increase in sales for the Elastic Fabrics Division was
principally attributable to stronger demand for wide warp knit elasticized
fabrics. Sales of narrow woven elasticized fabrics fell slightly in 1999, and
market conditions for narrow elastics continued to remain soft and sales were
below historical levels.

         In conjunction with the Company's decreased sales, gross profit
decreased $20.6 million from $31.7 million in 1998 to $11.1 million in 1999,
which resulted in a gross margin decline from 13.1% to 5.3%. The decrease in
gross profits was directly attributable to the deteriorating market conditions
for greige fabrics which resulted in lower selling prices and forced the Company
to curtail its greige operations. Gross profit in the Elastic Fabrics Division
increased due to higher sales while gross margins improved slightly as a result
of better product mix and operating improvements at the narrow elastic facility
in Stuart, Virginia.

         Selling, general and administrative expenses decreased $1.3 million or
8.2% from $16.6 million in 1998 to $15.3 million in 1999. The decrease in
selling, general and administrative expenses was primarily due to the decline in
incentive compensation paid to management. The Company paid approximately $0.4
million in incentive compensation in 1999 as compared to $0.9 million in 1998.
The Company continued to realize benefits from its restructuring and downsizing
initiatives as administrative expenses declined $1.0 million in 1999 but
increased as a percentage of sales at 5.7%. Selling expenses decreased $0.4
million in 1999 but remained unchanged as a percentage of sales compared to
1998.

         In 1999 the Company approved a plan to pursue additional restructuring
initiatives in all divisions, resulting in a $7.0 million charge to earnings. Of
this charge, $1.0 million was reserved for severance and benefits costs related
to the net termination and retirement of approximately 239 associates in 1999.
The remaining $6.0 million was reserved for nonrecurring asset write-offs of
inventory, $2.1 million; property, plant and equipment, $3.1; and other assets,
$0.8 million.

         Interest expense increased $0.1 million or 1.2% from $12.8 million in
1998 to $12.9 million in 1999. The increase was due to higher debt balances in
1999.

         Income taxes (benefit) as a percent of income (loss) before taxes
changed from 38.5% in 1998 to 37.9% in 1999.

         In 2000, the Company sold substantially all of the operating assets of
its Chatham Division. Accordingly, the Company has reported Chatham's income of
$0.6 million in 1999 and $1.1 million in 1998 as discontinued operations.


                                       18
<PAGE>   19

         As a result of the foregoing factors, the Company reported a net loss
of $14.0 million in 1999 as compared to a net income of $3.0 million in 1998.

THE NOTES AND FINANCING AGREEMENTS

         In October 1993, the Company consummated an underwritten public
offering (the "Offering") of $125 million principal amount of 9-1/2% Senior
Subordinated Notes due 2003 (the "Notes"). Immediately upon the issuance of the
Notes, the Company's then principal operating subsidiaries were merged with and
into the Company. The net proceeds of the Offering, together with initial
borrowings under a new $70 million revolving credit facility from The First
National Bank of Boston, which served as the agent bank (the "Agent Bank"),
NationsBank, N.A. and The Wachovia Bank of South Carolina, N.A. and a $5 million
uncommitted line of credit from The Wachovia Bank of South Carolina, N.A., were
used to refinance $118.7 million of outstanding debt, comprised of $40.9 million
in term loans and $46.7 million in revolving credit loans under then-existing
loan agreements with the Company's subsidiaries, and $31.1 million of 12% Senior
Subordinated Debentures due 1999 issued by Clinton Mills, Inc. (the "Clinton
Debentures"). In December 1994 the revolving credit facility was increased to
$92 million and the Wachovia line of credit was increased to $8 million. In June
1995, the Wachovia line of credit was reduced to $4 million.

         In March 1996, the Company replaced the $92 million unsecured revolving
credit facility with the Credit Agreement and renewed the Wachovia line of
credit at $4 million (the "Wachovia Credit Facility" and, together with the
Credit Agreement constitute the "Bank Credit Facilities"). The Company and the
lenders amended the Credit Agreement in February 1997 to reduce the borrowing
limit to $65 million, to contemplate the realignment of the Company's assets
into separate operating entities, which were completed during 1997, and to
extend the maturity of the Credit Agreement by two years to January 2000. The
Company and its lenders amended the Credit Agreement again in June 1999 to
reduce the borrowing limit to $45 million and to extend the maturity of the
Credit Agreement by another two years to March 2002. In September 1999, the
Company terminated the Wachovia Credit Facility. On March 15, 2000, Fleet
Capital Corporation was appointed as the Agent Bank. In connection with the sale
of the furniture fabric assets on May 1, 2000, the automotive assets on October
27, 2000, and the consumer products assets on January 5, 2001, the Company and
its lenders amended the Credit Agreement to allow for the disposition of those
assets, reduce the borrowing limit under the Credit Agreement and waive or amend
certain financial covenants. Currently, the Credit Agreement has been reduced to
a borrowing limit of $22 million and all financial covenants have been waived
through the fourth quarter of 2000.

          The Credit Agreement now provides for a revolving credit facility of
up to $22.0 million, including a letter of credit facility of up to $5.0
million. The borrowings under the Credit Agreement are secured by certain
inventories, all receivables and certain intangibles. The amount available under
the revolving credit facility is limited to a percentage of the collateral
pledged by the Company, as evidenced by a monthly borrowing base certificate to
be delivered by the Company, and is reduced by any outstanding letters of credit
issued under the letter of credit facility and an additional $7.0 million
reserve. The maximum and average amounts outstanding during 2000 were $28.6
million and $5.9 million, respectively; at December 30, 2000, $4.0 million was
outstanding.


                                       19
<PAGE>   20

         Interest Rates and Fees. Interest under the Credit Agreement is payable
at one of two specified rates, as selected by the Company, as follows: (i) the
rate announced as the base rate of the Agent Bank plus a margin and (ii) a
Eurodollar rate plus a margin. The interest rate margins are calculated based
upon the Company's availability under the credit facility and the ratio of the
Company's funded indebtedness to EBITDA. The margin for base rate loans is
currently 0.25%, and the margin for Eurodollar rate loans is currently 1.75%.
The Company pays a commitment fee on the unused portion of the revolving credit
facility, payable quarterly in arrears. The commitment fee also is calculated
based upon availability and the funded indebtedness to EBITDA ratio. The
commitment fee is currently 0.5%. The Company also pays a quarterly agency fee
of $25,000 to the Agent Bank. In addition, the Company will pay a fee on the
date any letter of credit is issued under the Credit Agreement and each
anniversary date thereafter in an amount equal to (i) 1.0% of the stated amount
of any standby letter of credit and (ii) 0.375% of the stated amount of any
documentary letter of credit.

         Restrictive Covenants. The Credit Agreement contains covenants
customary for a secured revolving credit facility including, among others,
covenants restricting the incurrence of indebtedness, the creation or existence
of liens, the declaration or the payment of dividends, the repurchase or
redemption of debt and equity securities of the Company, certain transactions
with related parties, and certain corporate transactions such as sales and
purchases of assets, mergers or consolidations. Under the Credit Agreement, the
Company may incur additional senior indebtedness in an aggregate principal
amount of up to $18.5 million. Up to $10.5 million of such additional senior
indebtedness may be secured by purchase money liens. The Credit Agreement also
contains affirmative covenants relating to compliance with laws, preservation of
corporate existence, maintenance of insurance, payment of taxes, maintenance of
properties, delivery of financial and other information to the lenders under the
Credit Agreement and other matters.

         The Company is required to maintain certain financial ratios. At
December 30, 2000, the Company was required to maintain a minimum interest
coverage ratio (EBITDA to interest) of not less than 1.5 to 1 for the previous
four consecutive quarters. The Company was also required to maintain a fixed
charge coverage ratio of 1.1 to 1, meaning that (i) consolidated EBITDA less
cash used to pay for taxes and capital expenditures must exceed (ii) all
interest plus principal due on long term indebtedness of the Company and its
consolidated subsidiaries for the four most recent fiscal quarters. As of
December 30, 2000, the Company was in compliance with or has received waivers
for, all of the covenants under the Credit Agreement.

         Security. Borrowings under the Credit Agreement are secured by the
Company's receivables, certain inventories and certain intangibles. The Credit
Agreement contains a negative covenant limiting the Company's right to grant
security interests or other liens in its other assets. However, up to $10.5
million of any additional senior purchase money indebtedness permitted under the
Credit Agreement may be secured by equipment acquired by the Company.

         Events of Default. The Credit Agreement contains certain events of
default customary for this type of credit facility, including, among others,
payment events of default, covenant defaults, an event of default based on a
change of control of the Company, and a cross-default to other indebtedness of,
and bankruptcy and judgment defaults to, the Company.

LIQUIDITY AND CAPITAL RESOURCES


                                       20
<PAGE>   21

         For the year ended December 30, 2000, the Company used proceeds of
$43.7 million from the sale of its furniture fabric and automotive fabric assets
to fund $14,130 of negative cash flow from operations, to repurchase its 9 1/2%
Notes for $20.9 million, to invest $0.3 million for capital expenditures, to
repurchase $8.9 of the Company's common stock and to repay $0.2 million of
outstanding indebtedness under its secured credit facility. Additionally, the
Company also reduced its cash position by $1.7 million during the year ended
December 30, 2000.

         Excluding net assets associated with discontinued operations and
amounts outstanding on the revolving credit facility, working capital at
December 30, 2000, was approximately $29.8 million as compared to approximately
$36.6 million at January 1, 2000. The Company's net assets of discontinued
operations held for sale have declined from $57.4 million at January 1, 2000 to
$8.2 million at December 30, 2000. The Company collected the balance of the
proceeds for these net assets of discontinued operations in the first quarter of
2001. (See Note 3 to consolidated financial statements.) Management is not aware
of any present or potential impairments to the Company's short-term liquidity.
However, if general market conditions do not improve for the textile industry,
the Company may not be able to meet its long-term obligations related to the 9
1/2% Senior Subordinated notes due October 1, 2003.

         The Company believes that the remaining proceeds from sale of the
Chatham Division, funds from operations during fiscal 2001 and amounts available
under the amended credit agreement (see Note 2 to consolidated financial
statements) are adequate to finance capital expenditures of approximately $3.0
million during 2001, in addition to meeting working capital requirements and
scheduled debt service payments. The Company also continues to consider various
strategic business alternatives in respect of its operations and financing
alternatives in respect to its capital structure, which are consistent with
maximizing shareholder value, improving liquidity and maximizing the Company's
tax planning strategies and attributes. In performing such reviews, the Company
has engaged a financial advisor and is pursuing a possible refinancing of the
existing credit agreement.

ENVIRONMENTAL

         Federal and state laws and regulations relating to the discharge of
materials into the environment are continually changing; therefore it is
difficult to gauge the total future impact of such regulations on the Company.
The Company believes that based on all currently available information, the
resolution of environmental matters will not have a material adverse effect on
the Company. However, future events, such as changes in or modified
interpretations of existing laws and regulations or enforcement policies may
give rise to additional compliance and other costs that could have a material
adverse effect on the Company.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Interest rate risk. The Company has exposure to interest rate changes
primarily relating to interest rate changes under the Credit Agreement. See
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations--The Notes and Financing Agreements."


                                       21
<PAGE>   22

The Company's Credit Agreement bears interest at rates which vary with changes
in (i) the Eurodollar Rate or (ii) a rate of interest announced publicly by
Fleet Capital Bank. Although the Company is not presently a party to any
contracts in which it speculates on the direction of interest rates, the Company
has in the past and may, in the future, enter into contracts which have the
effect of speculating on the direction of interest rates. As of December 30,
2000, the Company had outstanding debt balances of $4.0 million which bore
interest at variable rates. The Company believes that the effect, if any, of
reasonably possible near-term changes in interest rates on the Company's
consolidated financial position, results of operations or cash flows would not
be material.

         Commodity price risk. A portion of the Company's raw material is cotton
which is subject to price volatility caused by weather, production problems,
delivery difficulties and other factors which are outside the control of the
Company. The Company believes that at certain times, changes in cotton pricing
may not be adjusted for by changes in its product pricing and therefore could
have a significant effect on the Company. Consequently, the Company purchases
futures contracts to hedge against fluctuations in the price of raw material
cotton. Increases or decreases in the market price of cotton may affect the fair
value of cotton commodity futures contracts. As of December 30, 2000, the
Company had contracted for 14,488 bales of cotton through commodity futures
contracts. A 10% decline in the market price of cotton would have a negative
impact of approximately $0.4 million on the fair value of the Company's
outstanding futures contracts.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The financial statements filed as a part of this Report are listed in
the Index to Consolidated Financial Statements and Schedules.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

         None


                                       22
<PAGE>   23

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The following table sets forth certain information concerning the
current executive officers and directors of the Company:

<TABLE>
<CAPTION>
NAME                           AGE                   POSITION
----                           ---                   --------

<S>                            <C>          <C>
Joseph L. Gorga                48           Director; Chairman, President and Chief Executive Officer
James A. Ovenden               37           Director; Chief Financial Officer; Executive Vice President
                                               and Secretary
Steve F. Warren                54           Director; Executive Vice President and President, Greige
                                               Fabrics Division
James F. Robbins               47           Executive Vice President and President, Elastic Fabrics
                                               Division
William R. Davis               60           Director
Rupinder S. Sidhu              44           Director
J. Richard Swetenburg          66           Director
</TABLE>

---------------

         Each member of the Board of Directors holds office until the next
annual meeting of the stockholders and until his successor is elected and
qualified. Officers are appointed by the Board of Directors and serve at the
discretion of the Board.

         Joseph L. Gorga was named Chairman of the Board of Directors, President
and Chief Executive Officer and appointed as a director of the Company in
November 1995. Prior to 1995, Mr. Gorga joined a predecessor of the Elastic
Fabrics Division as its President in 1991.

         James A. Ovenden joined the Company in 1987 as Assistant Treasurer and
became Treasurer in 1988. He was appointed to the newly-created office of Chief
Financial Officer in 1993 and was elected Executive Vice President and Assistant
Secretary in 1993. He became a director of the Company in 1990 and has served as
Secretary since 1995.

         Steve F. Warren, Executive Vice President of the Company and President
of the Greige Fabrics Division, joined a predecessor of the Greige Fabrics
Division in 1973 and has served in various executive positions for the Company
until becoming President of the Greige Fabrics Division in 2000. Mr. Warren was
elected as a director of the Company in May 2000.

         James F. Robbins joined the Company in 1992 as Executive Vice President
for Marketing, Elastic Fabrics. In 1996, he was elected Executive Vice President
and President in charge of the Elastic Fabrics Division.

         Rupinder S Sidhu has served as a director of the Company since 1986.
Mr. Sidhu is Managing Director of Arena Capital Partners. He is also President
of Merion Capital Partners LLC, a private investment company, a position he has
held since 1994. He was a special limited partner of Stonington Partners, Inc.,
a private investment firm, from 1993 through 1994. He was a member of the Board
of Directors of ML Capital Partners, a private investment firm affiliated with
ML & Co., from 1987 to


                                       23
<PAGE>   24

February 2000. From 1993 to July 1994, he was a Partner of ML Capital Partners
and a Senior Vice President of MLCP from 1987 to 1994. Mr. Sidhu was also a
Managing Director of the Investment Banking Division of ML & Co. from 1989 to
1994, a Director of the Investment Banking Division of Merrill Lynch, Pierce,
Fenner & Smith Incorporated from 1984 to 1989. Mr. Sidhu is currently a director
of Alliance Mortgage Company.

         William R. Davis was elected as a director of the Company in May 2000.
Mr. Davis has been a Senior Vice President of Carolina First Bank, or its
predecessors, since 1993. Carolina First Bank is the trustee of trusts holding
126,698 shares of the Company's common stock.

         J. Richard Swetenburg was elected as a director of the Company in May
2000. Mr. Swetenburg previously served in various executive positions for a
predecessor of the Greige Division until his retirement in 1990.

ITEM 11. EXECUTIVE COMPENSATION

         Compensation Summary. The following table shows, for the last three
fiscal years of the Company, annual compensation paid by the Company to Joseph
L. Gorga, the President and Chief Executive Officer and the three other
executive officers of the Company serving at the end of the 2000 fiscal year
(collectively, the "Named Executive Officers").

                          Summary Compensation Table(1)

<TABLE>
<CAPTION>
                                                                                               Long Term
                                                                                              Compensation
                                                      Annual Compensation                        Awards
                                        ----------------------------------------------------   ----------
                                                                                Other Annual   Securities
                                                    Salary        Bonus         Compensation   Underlying
Name and Principal Position              Year         ($)         ($)(2)           ($)(4)      Options(#)
---------------------------              ----       -------      --------       ------------   ----------

<S>                                      <C>        <C>           <C>               <C>        <C>
Joseph L. Gorga                          2000       450,000       150,000(3)        21,400            --
  President and Chief                    1999       414,000        85,000           19,760         7,500
  Executive Officer                      1998       395,000       175,000           20,800            --

James A. Ovenden                         2000       281,000       100,000(3)        14,630            --
  Executive Vice President               1999       260,000        50,000           13,600         7,500
  and Chief Financial Officer            1998       250,000       100,000           15,000            --

Steve F. Warren                          2000       180,000            --           10,450            --
  President, Greige Fabrics              1999       145,000            --            7,250            --
                                         1998       140,000        20,000            7,200            --

James F. Robbins                         2000       255,000            --           13,587            --
  President, Elastic Fabrics             1999       242,000        85,000           12,864         7,500
                                         1998       232,000       100,000           13,920            --
</TABLE>

---------------

(1)      The Company does not maintain a "long-term incentive plan," as that
term is defined by applicable rules of the Securities and Exchange Commission
(the "Commission"), and has not made any awards of restricted stock or stock
appreciation rights.


                                       24
<PAGE>   25

(2)      Bonus amounts for Messrs. Gorga, Ovenden, Warren and Robbins represent
amounts paid under the Company's Incentive Compensation Program, which provides
for discretionary awards and for cash bonuses in years in which returns and
earnings before interest, taxes and depreciation exceed predetermined levels.
Bonuses for Messrs. Gorga and Ovenden are based on the performance of the
Company and bonuses for Mr. Warren and Mr. Robbins are based on the performance
of the Greige Fabrics Division and the Elastic Fabrics Division, respectively.
No amounts were earned under the Company's Incentive Compensation Program for
2000. See "--Employment and Severance Agreements."

(3)      In 2000, Mr. Gorga and Mr. Ovenden were provided special incentive
compensation pursuant to their New Employment Agreements and in connection with
completing the sale of the Chatham Division.

(4)      Represents the Company's contribution on behalf of the Named Executive
Officer to the Company's 401(k) Plan for Associates of CMI Industries, Inc. and
the Company's 401(n) Deferred Compensation Plan.

         Stock Option Exercises. The following table sets forth information with
respect to unexercised stock options held by the Named Executive Officers as of
December 30, 2000. None of the Named Executive Officers exercised any options
during the Company's 2000 fiscal year.

                    Aggregated Fiscal Year End Option Values

<TABLE>
<CAPTION>
                                                                   Value of Unexercised
                                     Number of Unexercised        In-the-Money Options at
                                  Options at Fiscal Year End      Fiscal Year End ($)(1)
              Name                Exercisable/Unexercisable      Exercisable/Unexercisable
              ----                --------------------------     -------------------------
         <S>                      <C>                            <C>
         Joseph L. Gorga                   82,500/0                        $0/$0
         James A. Ovenden                  52,500/0                        $0/$0
         Steve F. Warren                         --                        $0/$0
         James F. Robbins                  17,500/0                        $0/$0
</TABLE>

---------------

(1)      Calculated based on the difference between the estimated value of the
Common Stock underlying the options at December 30, 2000 and the exercise price.
Because the Common Stock is privately held and not listed on any securities
exchange, the fair market value of the Common Stock is not readily
ascertainable. Management's estimate of the value of the Common Stock underlying
the options includes a discount to reflect the lack of a public market for the
Common Stock and the restrictions applicable to the Common Stock held by
Management Investors pursuant to the terms of the Management Subscription
Agreements and the Restated Stockholders Agreement. See "--Management
Subscription Agreements" and "Item 12. Security Ownership of Certain Beneficial
Owners and Management."

         Awards Under Long-Term Incentive Plans. The Company does not maintain a
"long-term incentive plan" as that term is defined by applicable rules of the
Commission.

         The 401(k) Plan. Effective January 1, 1995, the Company established The
401(k) Plan for Associates of CMI Industries, Inc., which covers substantially
all of the Company's employees. Under


                                       25
<PAGE>   26

the 401(k) plan, the Company matches 50% of employee contributions, not to
exceed 2% of pay, for all eligible and participating employees. Messrs. Gorga,
Ovenden, Warren and Robbins participate in the 401(k) plan.

         The 401(n) Plan. Effective January 1, 1995, the Company established The
401(n) Deferred Compensation Plan for CMI Industries, Inc., which covers a
select group of highly compensated associates. The 401(n) Plan is a
non-qualified plan established to provide retirement benefits for CMI's
executives whose retirement benefits were limited due to the freezing of the
accrued benefits under the Company's defined benefit retirement plans, and the
restrictions on benefits in the 401(k) Plan. The Board in its discretion may
authorize a supplemental match for select executives. Messrs. Gorga, Ovenden,
Warren and Robbins participate in the 401(n) Deferred Compensation Plan. In
2001, the Company terminated the 401(n) Deferred Compensation Plan and is
currently distributing the invested assets of the Plan to Plan Participants.

         Defined Benefit Retirement Plans. Effective December 31, 1994, the
Company merged its two defined benefit plans, the Chatham Manufacturing, Inc.
Pension Plan and the Clinton Retirement Income Program and curtailed future
benefits. Effective December 1, 2000, the Company terminated the merged defined
benefit plan and paid out all plan participant benefit obligations either in the
form of lump sum payments or purchased annuities from the plan assets.

         Compensation Committee Interlocks and Insider Participation. During the
2000 fiscal year, the Compensation Committee of the Company's Board of Directors
was composed of Messrs. Rupinder S. Sidhu, William R. Davis, and Joseph L.
Gorga. Mr. Gorga is the President and Chief Executive Officer of the Company.
Messrs. Sidhu and Davis are not, and have not been at any time, either officers
or employees of the Company. Messrs. Sidhu was affiliated with ML Capital
Partners or ML & Co. ML Capital Partners, through various affiliates,
beneficially owned 62.57% of the outstanding shares of Common Stock until March
14, 2000. See "Item 12. Security Ownership of Certain Beneficial Owners and
Management."

COMPENSATION OF DIRECTORS

          In 2000, the Company paid $4,000 per quarter and $1,000 per meeting to
its outside directors (Messrs. Sidhu, Davis and Swetenburg) for serving as a
Director.

EMPLOYMENT AND SEVERANCE AGREEMENTS

         Mr. Gorga. Effective January 1, 1996, the Company and Mr. Gorga entered
into an amended and restated employment agreement providing for the employment
of Mr. Gorga as the President and Chief Executive Officer of the Company. The
agreement had a term of two years, subject to annual renewals unless either
party objected. In September 1997, the parties agreed to an amendment to the
amended and restated employment agreement whereby, among other matters, the term
of the agreement was extended for another two year period. In September 1999,
the parties agreed to an amendment which extended the agreement until September
30, 2000 subject to an automatic renewal unless either the Company or the
employee elects to terminate the agreement. In March 2000, the parties agreed to
an additional amendment which modified the circumstances in which Mr. Gorga
would be entitled to severance compensation in the event of a Change in Control
of the Company.


                                       26
<PAGE>   27

Effective July 7, 2000, the Company and Mr. Gorga entered into a new agreement
to extend, modify and restate the existing employment agreement for an initial
term of three years. Under the new agreement, Mr. Gorga is entitled to an annual
salary of $450,000, subject to increase or decrease by the Board's compensation
committee. He is entitled to participate in Company benefit plans, including the
Incentive Compensation Plan.

         In the event Mr. Gorga is terminated without cause during the term of
the agreement, the agreement provides for the payment to him of the greater of
the base salary which would accrue over the remaining term of the agreement or
one years base salary, together with any applicable bonus, on a prorated basis,
under an incentive compensation or other plan, and continued health and life
insurance benefits during the period in which the payments are made. If Mr.
Gorga is terminated or resigns under specified circumstances following a change
of control (as defined) that occurs during the term of the agreement or within
six months after its expiration while still employed by the Company, Mr. Gorga
will be entitled to two years' base salary from the termination or resignation,
any applicable bonus, on a prorated basis, under an incentive compensation or
other plan, and continued health and life insurance coverage for two years. In
addition, with respect to certain change of control situations, the bonus
payable to Mr. Gorga under any incentive compensation plan then in effect,
rather than being calculated on a pro rata basis as of the termination date,
would be double the maximum amount to which Mr. Gorga otherwise would be
entitled for the entire year, regardless of the actual performance of the
Company.

         As incentive to complete the sale of the Chatham Division, Mr. Gorga
was also entitled to receive special compensation (as defined) based upon the
successful completion of these divestitures. Payments that result in the
imposition of an excise tax penalty under section 4999 of the Internal Revenue
Code of 1986, as amended, would result in a reimbursement payment so that Mr.
Gorga's after tax situation is not affected by the additional tax. The agreement
also contains certain agreements of Mr. Gorga relating to noncompetition with
the Company.

         Mr. Ovenden. Effective January 1, 1996, the Company and Mr. Ovenden
entered into an amended and restated employment agreement providing for the
employment of Mr. Ovenden as the Executive Vice President and Chief Financial
Officer of the Company. The agreement had a term of two years, subject to annual
renewals unless either party objected. In September 1997, the parties agreed to
an amendment to the amended and restated employment agreement whereby, among
other matters, the term of the agreement was extended for another two year
period. In September 1999, the parties agreed to an amendment which extended the
agreement until September 30, 2000 subject to an automatic renewal unless either
the Company or the employee elects to terminate the agreement. In March 2000,
the parties agreed to an additional amendment which modified the circumstances
in which Mr. Ovenden would be entitled to severance compensation in the event of
a Change of Control of the Company. Effective July 7, 2000, the Company and Mr.
Ovenden entered into a new agreement to extend, modify and restate the existing
employment agreement for an initial term of three years. Under the new
agreement, Mr. Ovenden is entitled to an annual salary of $281,000, subject to
increase or decrease by the Board's compensation committee. He is entitled to
participate in Company benefit plans, including the Incentive Compensation Plan.

         In the event Mr. Ovenden is terminated without cause during the term of
the agreement, the agreement provides for the payment to him of the greater of
the base salary which would accrue over


                                       27
<PAGE>   28

the remaining term of the agreement or one year's base salary, together with any
applicable bonus, on a prorated basis, under an incentive compensation or other
plan, and continued health and life insurance benefits during the period in
which the payments are made. If Mr. Ovenden is terminated or resigns under
specified circumstances following a change of control (as defined) that occurs
during the term of the agreement or within six months after its expiration,
while still employed by the Company, Mr. Ovenden will be entitled to two years
base salary from the termination or resignation, any applicable bonus, on a
prorated basis, under an incentive compensation or other plan, and continued
health and life insurance coverage for two years. In addition, with respect to
certain change of control situations, the bonus payable to Mr. Ovenden under any
incentive compensation plan then in effect, rather than being calculated on a
pro rata basis as of the termination date, would be double the maximum amount to
which Mr. Ovenden otherwise would be entitled for the entire year, regardless of
the actual performance of the Company.

         As incentive to complete the sale of the Chatham Division, Mr. Ovenden
was entitled to receive special compensation (as defined) based on the
successful completion of these divestitures. Payments that result in the
imposition of an excise tax penalty under section 4999 of the Internal Revenue
Code of 1986, as amended, would result in a reimbursement payment so that Mr.
Ovenden's after tax situation is not affected by the additional tax. The
agreement also contains certain agreements of Mr. Ovenden relating to
noncompetition with the Company.

MANAGEMENT SUBSCRIPTION AGREEMENTS

         Pursuant to a management subscription agreement (the "Management
Subscription Agreement"), certain of the Company's officers and employees
acquired shares of Common Stock in December 1986. Mr. Ovenden, who acquired
shares of Common Stock in 1987, is subject to a subscription agreement
substantially identical to the Management Subscription Agreement. The Management
Subscription Agreement and Mr. Ovenden's separate subscription agreement grant
the Company an option to purchase and each of the management investors an
option, under certain circumstances, to sell at, depending upon such
circumstances, either the fair market value or an adjusted purchase price (as
defined therein), the shares of Common Stock owned by such management investor
in the event of his death, incapacity or termination of employment.


                                       28
<PAGE>   29

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth information with respect to the
beneficial ownership of shares of Common Stock as of March 15, 2001 of all
stockholders known by the Company to be the beneficial owners of more than five
percent of its outstanding Common Stock, of each director of the Company, each
Named Executive Officer named in the Summary Compensation Table, and of all
directors and executive officers as a group.

<TABLE>
<CAPTION>
                                                               SHARES BENEFICIALLY OWNED
                                                               --------------------------
                                                                NUMBER           PERCENT
                                                               OF SHARES         OF TOTAL
                                                               ---------         --------

<S>                                                            <C>               <C>
Steve F. Warren(1).........................................     120,000            20.2%
  2 Baywater Lane, Greensboro, NC 27408
G. Thaddeus Williams.......................................      97,000            16.3%
  333 Springlake Drive, Columbia, SC 29206
Joseph L. Gorga(2).........................................      87,500            12.9%
  4102 Brambletye Drive, Greensboro, NC 27407
James A. Ovenden(3)........................................      62,500             9.7%
  10 Sunturf Circle, Columbia, SC 29223
Russell G. Vance...........................................      46,650             7.8%
J. R. Swetenburg(4)........................................      40,002             6.7%
James F. Robbins(5)........................................      17,500             2.9%
Rupinder S. Sidhu..........................................          --              --
William R. Davis...........................................          --              --
Carolina First Bank, as Trustee............................     126,698            21.3%
  211 North Broad Street, Clinton, SC 29325

All directors and executive officers as a group
  (7 persons)(1)(2)(3)(4)(5)...............................     327,502            43.8%
</TABLE>

(1)      Amounts for Mr. Warren include 60,000 shares of Common Stock held by a
limited partnership in which Mr. Warren is a general partner.

(2)      Amounts for Mr. Gorga include 82,500 shares issuable upon exercise of
presently exercisable options to acquire Common Stock.

(3)      Amounts for Mr. Ovenden include 52,500 shares issuable upon exercise of
presently exercisable options to acquire Common Stock.

(4)      Amounts for Mr. Swetenburg do not include 79,998 shares of Common Stock
held by a trust for the benefit of Mr. Swetenburg's children, as to which Mr.
Swetenburg disclaims beneficial ownership.

(5)      Amounts for Mr. Robbins represent shares issuable upon exercise of
presently exercisable options to acquire common stock.

CHANGE IN OWNERSHIP


                                       29
<PAGE>   30

         On March 14, 2000, the Company pursuant to a Stock Acquisition
Agreement dated February 23, 2000 between the Company and certain of its
stockholders who are affiliated with ML Capital Partners, purchased 994,387
shares of the Company's Common Stock held by the affiliates of ML Capital
Partners for a purchase price of $9.00 per share representing an aggregate
purchase price of $8,949,483 (the "Stock Purchase Transaction"). As a result of
the Stock Purchase transaction, the stockholder affiliates of ML Capital
Partners, which previously owned more than 62% of the outstanding Common Stock
of the Company, no longer own any Common Stock. Instead, members of management
and other stockholders with historical ties to the Company own all of the
outstanding shares of Common Stock. The consideration paid to the stockholder
affiliates of ML Capital Partners was funded through the Credit Agreement.

RESTATED STOCKHOLDERS AGREEMENT

         In connection with the organization of the Company in 1986, all
stockholders entered into a stockholders agreement with the Company, which was
amended and restated in its entirety in February 1992 (the "Restated
Stockholders Agreement"). The Restated Stockholders Agreement provided that the
ML Capital Partners affiliates were entitled to designate four of the Company's
seven directors and the management investors were entitled to designate three of
the Company's directors. In addition, certain matters regarding corporate
governance and certain significant transactions between the Company and
unrelated parties require the approval of the Board of Directors and the holders
of more than two-thirds of the outstanding shares of Common Stock. Under the
terms of the Restated Stockholders Agreement, as subsequently amended in
contemplation of the Stock Purchase Transaction, upon completion of the Stock
Purchase Transaction the board composition provisions, governance provisions and
significant transaction provisions described above terminated and are no longer
part of the agreement. The Restated Stockholders Agreement also provides for
certain restrictions on the transfer of shares of Common Stock by the current
stockholders, tag-along rights and rights of first refusal in connection with
certain proposed transfers of Common Stock.

         Under the Restated Stockholders Agreement, as currently in effect, all
the stockholders of the Company have certain registration rights with respect to
their Common Stock. These rights include demand and "piggyback" registration
rights. The Company is obligated to register shares of Common Stock under the
demand registration rights if holders of 25% or more of the outstanding shares
request registration. The registration rights extend until February 14, 2002 or
terminate sooner upon (i) the merger or consolidation of the Company with an
unaffiliated corporation in which the management investors own less than 65% of
the surviving or resulting corporation or (ii) the sale of substantially all the
assets of the Company to an unaffiliated person. The remaining provisions of the
Restated Stockholders Agreement would terminate under the foregoing
circumstances or sooner in the event of (i) a public offering of Common Stock at
the conclusion of which at least 30% of the outstanding shares shall have been
sold to the public or (ii) the sale of 60% or more of the shares of Common Stock
owned by the management investors as a group.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS


                                       30
<PAGE>   31

         Purchase of Common Stock. In October 1997, Mr. Gorga, a director and
the President and Chief Executive Officer of the Company, purchased 5,000 shares
of Common Stock for a purchase price of $27.50. Mr. Gorga delivered a
non-recourse promissory note to the Company in payment of 90% of the purchase
price for these shares of Common Stock and paid the balance in cash. Mr. Gorga's
note bears interest at a per annum rate of 6.55% and is payable in ten years.
Mr. Gorga pledged the purchased shares as security for payment of his promissory
note. In 2000, the Board of Directors forgave $87,500 of the outstanding
principal balance of the promissory note and all accrued but unpaid interest on
both the amount forgiven and the remaining outstanding principal balance.

         On March 14, 2000, the Company pursuant to a Stock Acquisition
Agreement dated February 23, 2000 between the Company and certain of its
stockholders who are affiliated with ML Capital Partners, purchased 994,387
shares of the Company's Common Stock held by the affiliates of ML Capital
Partners for a purchase price of $9.00 per share, for an aggregate purchase
price of $8,949,483. As a result of the transaction, the stockholder affiliates
of ML Capital Partners, which previously owned more than 62% of the outstanding
Common Stock of the Company, no longer own any Common Stock. See "Item 12.
Security Ownership of Certain Beneficial Owners and Management--Change in
Ownership."

         Market Making Activities. In October 1993, ML & Co. underwrote a public
offering of the Notes. The Company used the proceeds of the Offering, together
with initial borrowings under a credit agreement, to refinance the indebtedness
outstanding under certain subsidiary loan agreements and to call the Clinton
Debentures for redemption. ML & Co. received an underwriting discount of
$3,046,875 in connection with the Offering. The Company has agreed, if required
by ML & Co., to maintain the effectiveness of the registration statement
pursuant to which the Notes were registered with the Commission to enable ML &
Co. to make a market in the Notes. The Company also agreed to indemnify ML & Co.
against certain liabilities, including liabilities under the federal securities
laws. For a discussion of the relationship between each of ML & Co. and its
affiliates and the Company, see "Item 12. Security Ownership of Certain
Beneficial Owners and Management."

         Registration Rights. All current stockholders of the Company have
certain registration rights with respect to their Common Stock. See "Item 12.
Security Ownership of Certain Beneficial Owners and Management."


                                       31
<PAGE>   32

                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

         (a)      The following documents are filed as a part of this Report:

<TABLE>
                  <S>      <C>
                  1.       The financial statements filed as a part of this
                           Report are listed in the attached index to
                           consolidated financial statements and schedules.

                  2.       The financial statement schedules filed as a part of
                           this Report are listed in the attached index to
                           consolidated financial statements and schedules.

                  3.       Exhibits

                  2.1--    Stock Acquisition Agreement between CMI Industries,
                           Inc. and certain of its stockholders who are
                           affiliated with Merrill Lynch Capital Partners, Inc.
                           dated February 23, 2000.(15)

                  3.1--    Certificate of Incorporation of CMI Industries, Inc.,
                           as amended.(1)

                  3.2--    Bylaws of CMI Industries, Inc.(1)

                  3.3--    Amendment to the Bylaws of CMI Industries, Inc.(19)

                  4.1--    Indenture dated as of October 28, 1993 between CMI
                           Industries, Inc. and Chemical Bank, Trustee
                           (including the form of Note).(2)

                  4.2--    First Supplemental Indenture of CMI Industries, Inc.
                           9-1/2% Senior Subordinated Notes Due 2003 dated as of
                           June 17, 1998, Supplementing the Indenture of October
                           28, 1993.(11)

                  4.3--    Amended and Restated Loan and Security Agreement
                           dated as of May 28, 1999 by and among CMI Industries,
                           Inc. and the Lenders named therein and BankBoston,
                           N.A. as Agent.(14)

                  4.4--    Amendment No. 1 dated September 30, 1999 to Amended
                           and Restated Loan and Security Agreement dated as of
                           May 28, 1999 between CMI Industries, Inc. and
                           BankBoston N.A. as Agent for the Lenders(15)

                  4.5--    Amendment No. 2 dated May 4, 2000 to Amended and
                           Restated Loan and Security Agreement dated as of May
                           28, 1999 between CMI Industries, Inc. and BankBoston
                           N.A. as Agent for the Lender(19)
</TABLE>


                                       32
<PAGE>   33

<TABLE>
                  <S>      <C>
                  4.6--    Amendment No. 3 dated May 31, 2000 to Amended and
                           Restated Loan and Security Agreement dated as of May
                           28, 1999 between CMI Industries, Inc. and BankBoston,
                           N.A. as Agent for the Lender(19)

                  4.7--    Amendment No. 4 dated October 26, 2000 to Amended and
                           Restated Loan and Security Agreement dated as of May
                           28, 1000 between CMI Industries, Inc. and BankBoston
                           N.A. as Agent for the Lenders(20)

                  4.8--    Notice of Voluntary Reduction of Credit Facility and
                           Revolving Credit Amount dated December 11, 2000
                           (filed with this report)

                  4.9--    Assignment and Acceptance of Bank of America, N.A. to
                           Fleet Capital Corporation, dated December 11, 2000
                           (filed with this report)

                  10.1--   Management Subscription Agreement dated as of
                           December 23, 1986 among CMI Industries, Inc. and the
                           persons listed on Schedule I thereto(1)

                  10.2--   Subscription Agreement dated as of June 1, 1987
                           between CMI Industries, Inc. and James A. Ovenden(1)

                  10.3--   Subscription Agreement dated as of November 9, 1988
                           between CMI Industries, Inc. and Michael H. deHavenon
                           (1)

                  10.4--   Amendment No. 1 to Management Subscription Agreement
                           dated as of April 14, 1989 among CMI Industries, Inc.
                           and the persons listed on Schedule 1 thereto(1)

                  10.5--   Amendment No. 1 to Subscription Agreement dated as of
                           April 14, 1989 between CMI Industries, Inc. and James
                           A. Ovenden(1)

                  10.6--   Description of CMI Industries, Inc. Incentive
                           Compensation Program(1)*

                  10.7--   CMI Holdings, Inc. 1989 (now known as CMI Industries,
                           Inc.) Non-Qualified Stock Option Plan(1)*

                  10.8--   CMI Industries, Inc. 1992 Non-Qualified Stock Option
                           Plan dated February 14, 1992(1)*

                  10.9--   Option Agreement dated January 14, 1991 between CMI
                           Industries, Inc. and Joseph L. Gorga.(1)*

                  10.10--  Amended and Restated Stockholders Agreement dated
                           February 14, 1992 among CMI Industries, Inc. and its
                           Stockholders.(1)

                  10.11--  Amended and Restated Employment Agreement dated as of
                           January 1, 1991 between Clinton Mills, Inc. and G.
                           Thaddeus Williams as amended effective as of July 1,
                           1993 by Amendment No. 1 to Amended and Restated
                           Employment Agreement dated August 24, 1993 between
                           Clinton Mills, Inc. and G. Thaddeus Williams.(1)*
</TABLE>


                                       33
<PAGE>   34

<TABLE>
                  <S>      <C>
                  10.12--  Amendment No. 1 to Amended and Restated Stockholders
                           Agreement dated March 31, 1994(4)

                  10.13--  Amendment No. 2 to Stockholders Agreement, dated as
                           of March 14, 1996 among CMI Industries, Inc. and its
                           Stockholders.(16)

                  10.14--  Amendment No. 3 to Stockholders Agreement, dated as
                           of March 14, 2000 among CMI Industries, Inc. and its
                           Stockholders.(16)

                  10.15--  CMI Industries, Inc. 1994 Non-Qualified Stock Option
                           Plan(4)

                  10.16--  Option Agreement between CMI Industries, Inc. and
                           Joseph L. Gorga dated January 2, 1994 pursuant to the
                           CMI Industries, Inc. 1992 Stock Option Plan(5)*

                  10.17--  Option Agreement between CMI Industries, Inc. and
                           Joseph L. Gorga dated January 2, 1994 pursuant to the
                           CMI Industries, Inc. 1994 Stock Option Plan(5)*

                  10.18--  Severance and Consulting Agreement dated August 23,
                           1995, by and between CMI Industries, Inc. and G.
                           Thaddeus Williams(6)

                  10.19--  Option Agreement between CMI Industries, Inc. and
                           Joseph L. Gorga dated January 23, 1995, pursuant to
                           the CMI Industries, Inc. 1994 Stock Option Plan(7)*

                  10.20--  Amendment No. 1 to Option Agreement between CMI
                           Industries, Inc. and Joseph L. Gorga dated January
                           31, 1996(7)*

                  10.21--  Option Agreement between CMI Industries, Inc. and
                           Joseph L. Gorga dated January 31, 1996, pursuant to
                           the CMI Industries, Inc. 1992 Stock Option Plan(7)*

                  10.22--  Option Agreement between CMI Industries, Inc. and
                           Joseph L. Gorga dated January 31, 1996, pursuant to
                           the CMI Industries, Inc. 1994 Stock Option Plan(7)*

                  10.23--  Option Agreement between CMI Industries, Inc. and
                           James A. Ovenden dated January 31, 1996, pursuant to
                           the CMI Industries, Inc. 1994 Stock Option Plan(7)*

                  10.24--  Option Agreement between CMI Industries, Inc. and
                           James F. Robbins dated January 31, 1997, pursuant to
                           the CMI Industries, Inc. 1992 Stock Option Plan(9)*


                  10.25--  Agreement Regarding Restriction of Shares of CMI
                           Industries, Inc. Common Stock between CMI Industries,
                           Inc. and Joseph L. Gorga dated October 21, 1997(10)*

                  10.26--  Employment Agreement dated July 7, 2000 between the
                           Company and Joseph L. Gorga(19)
</TABLE>


                                       34
<PAGE>   35

<TABLE>
                  <S>      <C>
                  10.27--  Employment Agreement dated July 7, 2000 between the
                           Company and James A. Ovenden(19)

                  12--     Computation of Ratio of Earnings to Fixed Charges
                           (filed with this Report)

                  21--     Subsidiaries of CMI Industries, Inc. (filed with this
                           Report)

                  23.1--   Consent on Financial Statement Schedules of Arthur
                           Andersen LLP (filed with this Report)
</TABLE>

---------------

(1)      Filed as an exhibit to the Registration Statement on Form S-1
         (Commission File No. 33-67854) filed by CMI Industries, Inc. with
         respect to its $125,000,000 principal amount 9-1/2% Senior Subordinated
         Notes due 2003 and declared effective October 22, 1993.

(2)      Filed as an exhibit to the Company's Quarterly Report on Form 10-Q on
         December 6, 1993 and incorporated herein by this reference.

(3)      Filed as an exhibit to the Company's Annual Report on Form 10-K on
         March 29, 1994 and incorporated herein by this reference.

(4)      Filed as an exhibit to the Company's Quarterly Report on Form 10-Q on
         May 16, 1994 and incorporated herein by this reference.

(5)      Filed as an exhibit to the Company's Annual Report on Form 10-K on
         March 31, 1995 and incorporated herein by this reference.

(6)      Filed as an exhibit to the Company's Quarterly Report on Form 10-Q on
         November 14, 1995 and incorporated herein by this reference.

(7)      Filed as an exhibit to the Company's Annual Report on Form 10-K on
         March 29, 1996 and incorporated herein by this reference.

(8)      Filed as an exhibit to the Company's Quarterly Report on Form 10-Q on
         November 12, 1996 and incorporated herein by this reference.

(9)      Filed as an exhibit to the Company's Annual Report on Form 10-K on
         March 27, 1997 and incorporated herein by this reference.

(10)     Filed as an exhibit to the Company's Quarterly Report on Form 10-Q on
         November 18, 1997 and incorporated herein by this reference.

(11)     Filed as an exhibit to the Company's Quarterly Report on Form 10-Q on
         August 7, 1998 and incorporated herein by this reference.


                                       35
<PAGE>   36

(12)     Filed as an exhibit to the Company's Report on Form 8-K on August 10,
         1998 and incorporated herein by this reference.

(13)     Filed as an exhibit to the Company's Annual Report on Form 10-K on
         March 31, 1999 and incorporated herein by this reference.

(14)     Filed as an exhibit to the Company's Quarterly Report on Form 10-Q on
         August 16, 1999 and incorporated herein by this reference.

(15)     Filed as an exhibit to the Company's Quarterly Report on Form 10-Q on
         November 15, 1999 and incorporated herein by this reference.

(16)     Filed as an exhibit to the Company's Report on Form 8-K dated March 15,
         2000 and incorporated herein by this reference.

(17)     Filed as an exhibit to the Company's Annual Report on Form 10-K on
         March 31, 2000 and incorporated herein by this reference.

(18)     Filed as an exhibit to the Company's Quarterly Report on Form 10-Q on
         May 16, 2000 and incorporated herein by this reference.

(19)     Filed as an exhibit to the Company's Quarterly Report on Form 10-Q on
         August 15, 2000 and incorporated herein by this reference.

(20)     Filed as an exhibit to the Company's Quarter Report on Form 10-Q on
         November 16, 2000 and incorporated herein by this reference.

*        Identifies a management contract or compensatory plan or arrangement
         required to be filed pursuant to Item 14(c) of Form 10-K.

(b)      Reports on Form 8-K filed in the last quarter of the Company's 2000
         fiscal year.

         Form 8-K filed on February 5, 2001 to announce the Company's plans to
shutdown two facilities in its Greige Fabrics Division. Additionally, the
Company disclosed that its lenders had waived compliance by the Company for the
Fiscal Year ended December 30, 2000 of certain financial covenants of the
Amended and Restated Loan and Security Agreement dated as of May 28, 1999.


                                       36
<PAGE>   37

                            SUPPLEMENTAL INFORMATION

         The Company has not provided its security holders with an annual report
covering the Company's last fiscal year, or a proxy statement, a form of proxy
or other proxy soliciting material. After the filing of this Annual Report on
Form 10-K, the Company will send to the holders of its 9 1/2% Senior
Subordinated Notes an annual report containing audited financial statements of
the Company, together with an opinion thereon expressed by the Company's
independent auditors. The Company will furnish to the Securities and Exchange
Commission four copies of such annual report when it is sent to such holders.


                                       37
<PAGE>   38

                                   SIGNATURES

         Pursuant to the requirements of the 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.

                                            CMI INDUSTRIES, INC.


Date: March 30, 2001                         /s/ JOSEPH L. GORGA
                                            ------------------------------------
                                            Joseph L. Gorga, President
                                            and Chief Executive Officer

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

<TABLE>
<CAPTION>
SIGNATURE                                   TITLE                            DATE
<S>                                 <C>                                 <C>


/s/ JOSEPH L. GORGA                 President, Chief Executive          March 30, 2001
---------------------------         Officer, and Director
Joseph L. Gorga


/s/ JAMES A OVENDEN                 Principal Financial and             March 30, 2001
---------------------------         Accounting Officer, and Director
James A. Ovenden


/s/ STEVE F. WARREN                 Executive Vice President and        March 30, 2001
---------------------------         Director
Steve F. Warren


/s/ WILLIAM R. DAVIS                Director                            March 30, 2001
---------------------------
William R. Davis


/s/ RUPINDER S. SIDHU               Director                            March 30, 2001
---------------------------
Rupinder S. Sidhu


/s/ J. R. SWETENBURG                Director                            March 30, 2001
---------------------------
J. R. Swetenburg
</TABLE>


                                       38
<PAGE>   39

                   INDEX TO FINANCIAL STATEMENTS AND SCHEDULES

CMI INDUSTRIES, INC. AND SUBSIDIARIES

<TABLE>
<S>                                                                                                <C>
         Financial Statements:

Report of Independent Public Accountants .....................................................     42

Consolidated Balance Sheets as of January 1, 2000 and December 30, 2000 ......................     43

Consolidated Statements of Operations for the years ended January 2, 1999
     January 1, 2000, and December 30, 2000 ..................................................     44

Consolidated Statements of Changes in Stockholders' Equity (Deficit) for the years
     ended January 2, 1999, January 1, 2000 and December 30, 2000 ............................     45

Consolidated Statements of Cash Flows for the years ended January 2, 1999,
     January 1, 2000 and December 30, 2000 ...................................................     46

Notes to the Consolidated Financial Statements ...............................................     48

         Schedules:

Schedule V - Property, Plant and Equipment for the years ended January 2, 1999,
     January 1, 2000 and December 30, 2000 ...................................................     65

Schedule VI - Accumulated Depreciation and Amortization of Property, Plant
     and Equipment for the years ended January 2, 1999, January 1, 2000
     and December 30, 2000 ...................................................................     66

Schedule VIII - Valuation and Qualifying Accounts for the years ended
     January 2, 1999, January 1, 2000 and December 30, 2000 ..................................     67
</TABLE>


                                       39
<PAGE>   40

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To The Board of Directors of
CMI Industries, Inc.:

We have audited the accompanying consolidated balance sheets of CMI Industries,
Inc. (a Delaware corporation) and subsidiaries as of December 30, 2000 and
January 1, 2000, and the related consolidated statements of operations, changes
in stockholders' equity (deficit) and cash flows for each of the three years in
the period then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of CMI
Industries, Inc. and subsidiaries as of December 30, 2000 and January 1, 2000
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 30, 2000, in conformity with
accounting principles generally accepted in the United States.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 of the
consolidated financial statements, the Company has suffered recurring losses
from operations and other adverse conditions that raise substantial doubt about
its ability to continue as a going concern. Management's plans to deal with
these conditions are also described in Note 1. The accompanying consolidated
financial statements do not include any adjustments that might be necessary
should the Company be unable to continue as a going concern.


                                             /s/ ARTHUR ANDERSEN LLP

Columbia, South Carolina
March 30, 2001


                                       40
<PAGE>   41

                      CMI INDUSTRIES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                      JANUARY 1, 2000 AND DECEMBER 30, 2000
                        (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                                   1999          2000
                                                                                 --------      --------

<S>                                                                              <C>           <C>
ASSETS
Current Assets:
   Cash and cash equivalents                                                     $  2,263      $    578
   Receivables, net                                                                29,762        22,473
   Inventories, net                                                                23,234        19,899
   Net assets of discontinued operations held for sale, net                        57,440         8,192
   Deferred income taxes                                                            3,434         1,964
   Other current assets                                                             1,160         1,097
                                                                                 --------      --------
         Total current assets                                                     117,293        54,203

Property, plant and equipment, net                                                 58,574        32,909
Intangible and other assets, net                                                   10,200         8,225
                                                                                 --------      --------

                                                                                 $186,067      $ 95,337
                                                                                 ========      ========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
   Book overdraft                                                                $  8,200      $  5,436
   Accounts payable                                                                 8,244         5,536
   Accrued expenses, including restructuring charges                                6,736         5,191
   Current portion of long-term debt                                                   --         3,979
                                                                                 --------      --------
         Total current liabilities                                                 23,180        20,142

Long-term debt                                                                    128,814        75,163
Other liabilities                                                                   8,598         7,574
                                                                                 --------      --------
                                                                                  137,412        82,737
Commitments and contingencies

Stockholders' Equity (Deficit):
   Common stock of $1 par value per share; 2,100,000 shares
      authorized, 1,589,318 shares issued and outstanding at
     January 1, 2000 and 820,000 authorized, 595,031 shares
     issued and outstanding at December 30, 2000                                    1,589           595
   Paid-in capital                                                                  8,814           862
   Retained earnings (loss)                                                        15,072        (8,999)
                                                                                 --------      --------
         Total stockholders' equity (deficit)                                      25,475        (7,542)
                                                                                 --------      --------

                                                                                 $186,067      $ 95,337
                                                                                 ========      ========
</TABLE>

           The accompanying notes to consolidated financial statements
                  are an integral part of these balance sheets.
                      CMI INDUSTRIES, INC. AND SUBSIDIARIES


                                       41
<PAGE>   42


                      CONSOLIDATED STATEMENTS OF OPERATIONS
   FOR THE YEARS ENDED JANUARY 2, 1999, JANUARY 1, 2000 AND DECEMBER 30, 2000
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                     1998            1999            2000
                                                                  ----------      ----------      ----------

<S>                                                               <C>             <C>             <C>
Net sales                                                         $  242,501      $  211,020      $  194,712
Cost of sales                                                        210,822         199,920         196,007
                                                                  ----------      ----------      ----------
      Gross profit (loss)                                             31,679          11,100          (1,295)
Selling, general and administrative expenses                          16,636          15,271          14,881
Write-off of merger costs                                              1,649              --              --
Provision for restructuring and other nonrecurring
   asset write-offs                                                       --           7,000          19,600
Credits to restructuring and severance charges                        (1,345)             --          (1,100)
                                                                  ----------      ----------      ----------
      Operating income (loss)                                         14,739         (11,171)        (34,676)

Other income (expenses):
    Interest expense                                                 (12,759)        (12,910)        (11,552)
    Other, net                                                         1,096             695             473
                                                                  ----------      ----------      ----------
         Total other expenses, net                                   (11,663)        (12,215)        (11,079)

      Income (loss) from continuing operations before
      income tax provision and extraordinary item                      3,076         (23,386)        (45,755)

Income tax provision (benefit)                                         1,183          (8,851)             --
                                                                  ----------      ----------      ----------


      Net income (loss) from continuing operations
      before extraordinary item                                        1,893         (14,535)        (45,755)

Extraordinary gain on repurchase of debt, net of taxes                    --              --          28,105
                                                                  ----------      ----------      ----------
      Net income (loss) from continuing operations                     1,893         (14,535)        (17,650)

Discontinued operations, net of taxes
      Income from discontinued operations                              1,146             577           2,561
      Loss on disposal of discontinued operations                         --              --          (8,982)
                                                                  ----------      ----------      ----------

      Net income (loss)                                           $    3,039      $  (13,958)     $  (24,071)
                                                                  ==========      ==========      ==========
</TABLE>

           The accompanying notes to consolidated financial statements
                    are an integral part of these statements.


                                       42
<PAGE>   43

                      CMI INDUSTRIES, INC. AND SUBSIDIARIES

      CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
   FOR THE YEARS ENDED JANUARY 2, 1999, JANUARY 1, 2000 AND DECEMBER 30, 2000
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                              COMMON STOCK                                        TOTAL
                                         ----------------------      PAID-IN       RETAINED    STOCKHOLDERS'
                                          SHARES        AMOUNT       CAPITAL       EARNINGS   EQUITY(DEFICIT)
                                         --------      --------      --------      --------   ---------------

<S>                                      <C>           <C>           <C>           <C>        <C>
Balance as of January 3, 1998               1,695      $  1,695      $ 11,358      $ 25,991      $ 39,044
     Net income                                --            --            --         3,039         3,039
                                         --------      --------      --------      --------      --------

Balance as of January 2, 1999               1,695      $  1,695      $ 11,358      $ 29,030      $ 42,083
     Purchase of common stock                (106)         (106)       (2,544)           --        (2,650)
     Net loss                                  --            --            --       (13,958)      (13,958)
                                         --------      --------      --------      --------      --------

Balance as of January 1, 2000               1,589      $  1,589      $  8,814      $ 15,072      $ 25,475
     Purchase of common stock                (994)         (994)       (7,952)           --        (8,946)
     Net loss                                  --            --            --       (24,071)      (24,071)
                                         --------      --------      --------      --------      --------

Balance as of December 30, 2000               595      $    595      $    862      $ (8,999)     $ (7,542)
                                         ========      ========      ========      ========      ========
</TABLE>

           The accompanying notes to consolidated financial statements
                   are an integral part of these statements.


                                       43
<PAGE>   44
                      CMI INDUSTRIES, INC. AND SUBSIDIARIES
   CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JANUARY 2, 1999,
                      JANUARY 1, 2000 AND DECEMBER 30, 2000
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>

                                                                         1998           1999           2000
                                                                       --------       --------       --------
<S>                                                                    <C>            <C>            <C>
CASH FLOWS FROM CONTINUING OPERATING ACTIVITIES:
Net income (loss)                                                      $  1,893       $(14,535)      $(17,650)
Adjustments to reconcile net income (loss) to net cash
provided  by operating activities:
         Depreciation and amortization                                   12,593         12,275         11,095
         Gain on purchase of Senior Subordinated Notes                       --             --        (28,105)
         Nonrecurring asset write-offs                                       --          6,000         17,775
Changes in assets and liabilities:
         Receivables                                                     (3,377)           538          7,289
         Inventories                                                        475          2,018          2,460
         Other current assets                                            (5,502)         5,279             63
         Intangible and other assets                                     (1,670)        (1,191)          (767)
         Book overdraft                                                   6,224         (4,047)        (2,764)
         Accounts payable                                                (1,612)          (585)        (2,708)
         Accrued expenses, including restructuring charges               (2,432)            (9)        (1,629)
         Income taxes payable                                              (141)            --             --
         Deferred income taxes                                            3,113         (8,000)         1,470
         Other liabilities                                                 (774)          (187)          (659)
         Net cash provided by (used in) continuing
            operating activities                                       --------       --------       --------
                                                                          8,790         (2,444)       (14,130)
                                                                       --------       --------       --------

CASH FLOWS FROM DISCONTINUED OPERATIONS:
Net income                                                                1,146            577          2,561
         Loss on disposal of discontinued operations                         --             --         (8,982)
         Proceeds from sale of furniture fabric assets                       --             --         25,630
         Proceeds from sale of automotive assets                             --             --         18,076
         Depreciation and amortization                                    4,854          5,123          1,959
         Changes in net assets of discontinued operations                (5,082)        (1,565)         3,579
                                                                       --------       --------       --------
Net cash provided by discontinued operations activities                     918          4,135         42,823
                                                                       --------       --------       --------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment, net                          (5,233)        (4,871)          (323)
                                                                       --------       --------       --------
              Net cash provided by (used in) investing activities        (5,233)        (4,871)          (323)
                                                                       --------       --------       --------
</TABLE>


                                       44
<PAGE>   45


                      CMI INDUSTRIES, INC. AND SUBSIDIARIES
   CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JANUARY 2, 1999,
                      JANUARY 1, 2000 AND DECEMBER 30, 2000
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>

                                                                         1998           1999           2000
                                                                       --------       --------       --------
<S>                                                                     <C>           <C>            <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) borrowings on revolving credit facilities               (2,293)         4,182           (203)
Purchase of common stock from management                                     --         (2,650)        (8,946)
Purchase of Senior Subordinated Notes                                        --             --        (20,906)
                                                                       --------       --------       --------
              Net cash (used in) provided by financing activities        (2,293)         1,532        (30,055)
                                                                       --------       --------       --------
Net increase (decrease) in cash and cash equivalents                      2,182         (1,648)        (1,685)
Cash and cash equivalents, beginning of period                            1,729          3,911          2,263
                                                                       --------       --------       --------
Cash and cash equivalents, end of period                               $  3,911       $  2,263       $    578
                                                                       ========       ========       ========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
         Interest                                                      $ 12,233       $ 12,296       $ 12,448
                                                                       ========       ========       ========
         Income taxes                                                  $  2,068       $     --       $     --
                                                                       ========       ========       ========
</TABLE>

       The accompanying notes to consolidated financial statements are an
                        integral part of these statements


                                       45
<PAGE>   46

                      CMI INDUSTRIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   FOR THE YEARS ENDED JANUARY 2, 1999, JANUARY 1, 2000 AND DECEMBER 30, 2000
                        (IN THOUSANDS, EXCEPT SHARE DATA)

1.       DESCRIPTION OF COMPANY AND MANAGEMENT PLANS

DESCRIPTION OF COMPANY

CMI Industries, Inc. ("CMI," a Delaware corporation and subsequently referred to
as the "Company") is a diversified manufacturer of textile products serving a
variety of markets. The Company merged its two primary operating subsidiaries,
Clinton Mills, Inc. and Chatham Manufacturing, Inc. ("Chatham"), with and into
the Company upon the closing of the Offering (see Note 4). The Company currently
operates through two divisions: the Greige Fabrics Division and the Elastic
Fabrics Division. The Company historically operated a third division, the
Chatham Division, but had substantially divested the operating assets of this
Division in 2000 and consequently, has reported the results of the Chatham
Division as discontinued operations (see Note 3).

MANAGEMENT PLANS

The domestic textile industry has been fundamentally and significantly affected
by competition from abroad. Market conditions for greige fabrics have
progressively deteriorated over the last few years. Increased imports of lower
price Asian fabrics, excess inventories at key vertical home furnishing
customers and a strong U. S. dollar all have combined to weaken demand, place
downward pressure on selling prices and create an oversupply situation in the
domestic market place for greige fabrics.

The Company reported a net loss from continuing operations before extraordinary
item of $45,755 and $14,535 for the fiscal years ended December 30, 2000 and
January 1, 2000, which includes a provision for restructuring and other
nonrecurring asset write-offs of $19,600 and $7,000, respectively, and a credit
to restructuring and severance costs of $1,100 in 2000 resulting in a negative
equity balance of $7,542 at December 30, 2000. During fiscal 2000 and 1999, the
Company's cash used in operating activities was $14,130 and $2,444,
respectively. As of December 30, 2000, the Company received waivers for all debt
covenant violations. Debt covenant violations are projected for each quarter in
2001 and operating results in fiscal 2001 indicate continuing losses.

As discussed in Notes 3 and 10, the Company sold, closed or consolidated several
manufacturing facilities as part of their initiatives to remain competitive. The
Company continues to assess other strategic alternatives that are consistent
with maximizing shareholder value, maintaining liquidity and maximizing its tax
planning opportunities. In 2001, the Company expects to utilize the proceeds
received from the sale of the consumer products assets (see Note 3), a $4
million refund from the IRS, excess assets available from the Company's
terminated defined benefit plan (see Note 6), and the funds available from
disposing of idle facilities and equipment in the Greige Fabrics Division (see
Note 10) to continue to maintain adequate liquidity for its on-going business.
In addition, the Company expects to complete the downsizing and consolidation of
its Greige Fabrics Division.

1.       DESCRIPTION OF COMPANY AND MANAGEMENT PLANS (CONTINUED)


                                       46
<PAGE>   47


The Company believes these initiatives will result in the elimination of losses
reported in the Greige Fabrics Division and allow the Company to refocus its
efforts back to the Elastics Division where historically, the Company generated
significantly better returns. These initiatives will also enable the Company to
utilize proceeds available from such initiatives discussed above plus additional
senior secured bank financing to potentially significantly reduce its long-term
debt obligations and interest expense in 2001.

The Company expects these initiatives to result in future profitability;
however, such plans require management to make estimates and assumptions
regarding future operations, the availability of financing and the continued
willingness of bondholders to sell the Notes back to the Company at prices
significantly below face value (see Note 4). The Company has engaged the
services of a financial advisor to work with the Company in developing and
completing these strategies.


2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The financial statements include the accounts of the Company and its
wholly-owned subsidiaries. The Company uses a 52-53 week fiscal year. There were
52 weeks in the Company's accompanying statements of operations for the years
ended January 2, 1999, January 1, 2000, and December 30, 2000. All significant
intercompany balances and transactions have been eliminated.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Estimates also affect the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS

The Company includes cash, demand deposits and highly liquid investments with
maturities of less than three months in cash and cash equivalents in its
consolidated financial statements. The book overdraft consists of outstanding
checks that had not been presented to a bank for payment.

INVENTORIES

Inventories are stated at the lower of cost (first-in, first-out method) or
market and include the costs of raw materials, direct labor and manufacturing
overhead.

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

PROPERTY, PLANT AND EQUIPMENT


                                       47
<PAGE>   48

Additions to property, plant and equipment are stated at cost. Depreciation of
property, plant and equipment is calculated for financial reporting purposes
using the straight-line method over the estimated useful lives of the assets.
For income tax purposes, depreciation is calculated principally by accelerated
methods. Estimated useful lives are as follows:

<TABLE>
                  <S>                                <C>
                  Buildings                          20 years
                  Land improvements                  20 years
                  Machinery and equipment            3-10 years
</TABLE>

The Company periodically assesses the realizability of its property, plant and
equipment. When indicators are present and the undiscounted cash flows estimated
to be generated by long-lived assets used in operations are less than the
assets' carrying amount, an impairment loss is recorded (see Note 10).

INTANGIBLE AND OTHER ASSETS

Capitalized debt issuance costs are amortized over the remaining terms of the
respective debt using the straight-line method.

REVENUE RECOGNITION

The Company recognizes a sale when goods are shipped.

LINE OF BUSINESS AND CREDIT RISK

The Company's line of business is the manufacturing and selling of fabrics and
other textile products for the home furnishings, apparel and industrial markets.
Export sales are insignificant. Substantially all of the Company's accounts
receivable are due from companies in the above markets located throughout the
United States. The Company generally does not require collateral for its
accounts receivable.

The Company performs ongoing credit evaluations of its customers' financial
condition and carries credit insurance on a majority of its outstanding trade
receivables. The Company establishes an allowance for doubtful accounts based
upon factors surrounding the credit risk of specific customers, historical
trends and other information, including the amount of credit insurance on
specific accounts.

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

INCOME TAXES

The Company follows Statement of Financial Accounting Standards (SFAS) No. 109
"Accounting for Income Taxes," which requires deferred income taxes to be
recognized for the tax consequences of


                                       48
<PAGE>   49

"temporary differences" by applying enacted statutory tax rates to differences
between the financial statement carrying amounts and the tax bases of existing
assets and liabilities. A valuation allowance is recorded to reduce a deferred
tax asset to that portion that is expected to more likely than not be realized.

OTHER

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities"--This statement
established accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the balance sheet and measure those instruments
at fair value. This statement could increase volatility in earnings and other
comprehensive income. The effective date of this statement was amended by SFAS
Nos. 137 and 138 and, as amended, is effective for all fiscal quarters of fiscal
years beginning after June 15, 2000. The Company will adopt SFAS No. 133
effective January 1, 2001. The Company has concluded that adoption of SFAS No.
133 will not have a material impact on the Company's financial position or
results of operations.

3.       DISCONTINUED OPERATIONS

During 2000, the Company has substantially completed the sale of a majority of
the assets of its Chatham Division. On May 1, 2000, the Company completed the
sale of the furniture assets of the Chatham Division to Interface Fabrics Group,
Inc. for a purchase price of $25.6 million in cash. On October 27, 2000, the
Company completed the sale of the automotive assets of the Chatham Division to
Borgstena Textile North America, Inc., a wholly owned subsidiary of AB Borgstena
Textile located in Borgstena, Sweden, for a purchase price of $19.0 million.
Proceeds from the sale of the furniture assets and automotive assets have been
used to pay down outstanding obligations under the secured revolving credit
facility. Also in October 2000, the Company signed a non-binding letter of
intent to sell the consumer products assets of its Chatham Division to WestPoint
Stevens, Inc. The Company completed this sale on January 5, 2001 for a purchase
price of $8.4 million.

The entire Chatham Division is considered one segment under APB Opinion No. 30:
"Reporting the Results of Operations--Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions." The measurement date for the sale of the Chatham
Division is October 27, 2000. The Company has reported the results of the
operations of the Chatham Division and the loss on disposal as discontinued
operations during the year ended December 30, 2000. The results of operations
for all periods presented have been restated for the discontinued operations.
Net assets associated with the Chatham Division have been segregated on
3.       DISCONTINUED OPERATIONS (CONTINUED)

the balance sheet and reflect the net book value as of January 1, 2000 and the
remaining net realizable value of the net assets held for sale as of December
30, 2000 as follows:

<TABLE>
<CAPTION>
Net assets of discontinued operations:                             January 1, 2000    December 30, 2000
                                                                   --------------     -----------------
<S>                                                                <C>                <C>
Current assets                                                          $34,171            $11,854
Property, plant and equipment                                            26,699              2,216
</TABLE>


                                       49
<PAGE>   50

<TABLE>
<S>                                                                     <C>                <C>
Other assets                                                                207                --
Liabilities                                                              (3,637)           (3,878)
                                                                        -------           -------
                                                                        $57,440           $10,192

Net proceeds anticipated from sale of remaining net assets of
Chatham Division below the remaining net book value                          --             2,000
                                                                        -------           -------
Net assets of discontinued operations held for sale                     $57,440           $ 8,192
                                                                        =======           =======
</TABLE>

Summary operating results for the Chatham Division are as follows for the years
ended:

<TABLE>
<CAPTION>
                                                              January 2, 1999     January 1, 2000     December 30, 2000
                                                              ---------------     ---------------     -----------------
<S>                                                           <C>                 <C>                 <C>
Revenues                                                          $170,290            $163,284            $105,360
Costs and expenses                                                 168,427             162,356             102,799
                                                                  --------            --------            --------
     Income from discontinued operations before taxes                1,863                 928               2,561
Income tax expense                                                     717                 351                  --
                                                                  --------            --------            --------
     Income from discontinued operations                          $  1,146            $    577            $  2,561
                                                                  ========            ========            ========
</TABLE>

For the twelve months ended December 30, 2000, the pre-tax loss on the disposal
of the Chatham Division was $6,421, which includes a $8,982 loss on the sale of
the Chatham Division and income from discontinued operations in 2000 of $2,561.

4.       LONG-TERM DEBT

In October 1993, the Company completed a public offering ("the Offering") of
$125,000 in aggregate principal amount of 9 1/2% Senior Subordinated Notes
("Notes") due October 1, 2003. The Notes are general unsecured obligations of
the Company. Interest on the Notes is payable semiannually. The Notes are
redeemable at the option of the Company at a redemption price of 100% (expressed
as a percentage of the principal amount), plus accrued interest, if redeemed
after October 1, 2000.

During 2000, the Company purchased $49,675 (face value) of these Notes in the
open market at prices lower than face value. After a reduction of $664 for the
write-off of the related unamortized bond issue discount and debt issue costs,
these purchases have resulted in an extraordinary gain of $28,105, net of income
taxes. The recorded balance of $75,163 at December 30, 2000, is presented net of
$162 of unamortized bond issue discount that is being amortized over the period
to maturity. The latest information available indicates the fair value of the
Notes was approximately $22,500 at December 30, 2000. The fair value presented
herein is not necessarily indicative of the amounts that the Company would
realize in a current market exchange.

4.       LONG-TERM DEBT (CONTINUED)

In March 1996, the Company replaced a $92 million unsecured revolving credit
facility with a new credit agreement. The Company and its lenders amended the
new credit agreement in February 1997 to reduce the borrowing limit to $65
million, to contemplate the realignment of the Company's assets into separate
operating entities, which was completed during 1997, and to extend the maturity
of the secured revolving credit facility by two years to January 2000. The
Company and its lenders amended the secured revolving credit facility again in
June 1999 to reduce the borrowing limit to $45 million and to extend the
maturity of the secured revolving credit facility by another two years to March
2002.


                                       50
<PAGE>   51

In connection with the sale of the furniture fabric assets on May 1, 2000,
the automotive assets on October 27, 2000, and the consumer products assets on
January 5, 2001, the Company and its lenders amended the facility to allow for
the disposition of those assets, reduce the borrowing limit under the facility
and waive or amend certain financial covenants. Currently, the secured revolving
credit facility has been reduced to a borrowing limit of $22 million. The
borrowings under the amended credit agreement are secured by all receivables,
certain inventories and certain intangibles.

Long-term debt at January 1, 2000 and December 30, 2000 consisted of:

<TABLE>
<CAPTION>
                                                                         1999         2000
                                                                       --------     -------
<S>                                                                     <C>          <C>
     Borrowings under credit agreements:
       Secured revolving credit facility                               $  4,182     $ 3,979
       Senior subordinated notes, net                                   124,632      75,163
                                                                       --------     -------
                                                                        128,814      79,142
     Less current portion                                                    --       3,979
                                                                       --------     -------
         Long-term debt                                                $128,814     $75,163
                                                                       ========     =======
</TABLE>

The amended secured revolving credit facility requires a commitment fee of 1/2
of 1% per annum on all unused amounts and as of December 30, 2000, the Company
could have borrowed an additional $14 million under the amended secured
revolving credit facility. Interest on the secured revolving credit facility is
based on a floating prime rate or an eurodollar rate plus 1 3/4%. At December
30, 2000, the prime borrowing interest rate on the revolving credit facility was
9 1/4%.

The credit agreements and indenture pursuant to which the Notes were issued
contain various restrictive covenants and conditions requiring, among other
things, minimum levels of net worth, certain interest coverage ratios,
prohibitions against certain borrowings and advances, and a negative covenant
limiting the Company's right to grant security interests or other liens on its
assets. In addition, the credit agreements and the indenture contain
restrictions on the Company's ability to pay cash dividends or purchase its
capital stock. Under the most restrictive covenant, as of December 30, 2000, the
Company was not authorized to pay cash dividends or make any capital stock
purchases. At December 30, 2000, the Company was in compliance with, or had
received waivers for, all covenants under all credit agreements.

4.       LONG-TERM DEBT (CONTINUED)

As part of the Company's workers' compensation insurance agreements in South
Carolina, Alabama, Georgia and Virginia, the Company has obtained letters of
credit for $900, $200, $250 and $75 respectively. The letters of credit expire
on January 11, 2002, June 30, 2001, January 11, 2002 and April 10, 2001,
respectively. At December 30, 2000, the Company owed no amount under these
letters of credit.

5.       INCOME TAXES


                                       51
<PAGE>   52

Components of income tax expense (benefit) from continuing and discontinued
operations for the years ended January 2, 1999, January 1, 2000 and December 30,
2000, consisted of the following:

<TABLE>
<CAPTION>
                                                                         1998           1999           2000
                                                                       --------       --------       --------
<S>                                                                    <C>            <C>            <C>
         State                                                         $     --       $     --       $     --
         Federal                                                             --             --             --
         Deferred                                                         1,900         (8,500)        (9,100)
         Establishment of valuation reserve                                  --             --          9,100
                                                                       --------       --------       --------
                                                                       $  1,900       $ (8,500)      $     --
                                                                       ========       ========       ========
</TABLE>

Alternative minimum taxes that have been paid as of December 30, 2000 and are
available indefinitely as carryforward credits for future federal income taxes
aggregated approximately $7,240. Such carryforward credits have been considered
in the determination of the net deferred income tax liability at December 30,
2000. Net operating loss carryforwards of approximately $23,800 at December 30,
2000 expire in years 2019 and 2020.

5.       INCOME TAXES (CONTINUED)

Total income tax expense (benefit) differed from the amounts computed by
applying the U.S. federal income tax rate of 34 percent in 1998, 1999 and 2000
to income (loss) before income taxes as a result of the following:

<TABLE>
<CAPTION>

                                                                         1998           1999           2000
                                                                       --------       --------       --------
<S>                                                                    <C>            <C>            <C>
     Computed "expected" tax expense (benefit)                         $  1,679       $ (7,636)      $ (8,184)
     Change in income taxes resulting from:
     State income taxes, net of federal income tax benefit                  163           (770)          (808)
     Other, net                                                              58            (94)          (108)
     Establishment of valuation reserve                                      --             --          9,100
                                                                       --------       --------       --------
</TABLE>


                                       52
<PAGE>   53
<TABLE>
<S>                                                                    <C>            <C>            <C>
     Total income tax expense (benefit)                                $  1,900       $ (8,500)      $     --
                                                                       ========       ========       ========
</TABLE>

Temporary differences between the financial statement carrying amounts and tax
basis of assets and liabilities that give rise to the net deferred income tax
(assets) at January 1, 2000, and December 30, 2000 relate to the following:

<TABLE>
<CAPTION>
                                                                        1999           2000
                                                                      --------       --------
<S>                                                                   <C>            <C>
Plant & equipment, principally due to difference in depreciation
      methods                                                         $ 13,392       $  1,220
Benefit of net operating loss for tax purposes                          (4,331)        (9,053)
Alternative minimum tax credits                                         (8,697)        (7,240)
Accrued expenses not currently deductible and other, net                (3,798)         4,009
                                                                      --------       --------
Net deferred income tax (assets) before valuation allowance             (3,434)       (11,064)
Valuation reserve                                                           --         (9,100)
                                                                      --------       --------
Net deferred income tax (assets)                                      $ (3,434)      $ (1,964)
                                                                      ========       ========
</TABLE>

Due to the continued losses from continuing operations in 2000, the Company has
established a valuation allowance of $9,100 in 2000 to offset any potential tax
benefits associated with tax losses generated in 2000. The Company will continue
to report a valuation allowance until such time that it has determined that
operations have returned to profitability. The Company has tax planning
strategies in place for fiscal 2001 to realize the net deferred tax assets that
exists at December 30, 2000.


                                       53
<PAGE>   54

6.       BENEFIT PLANS

Effective December 31, 1994, the Company curtailed future benefits and merged
its two defined benefit plans, the Clinton Retirement Income Program (the
"CRIP") and the Pension Plan of Chatham Manufacturing, Inc. into the CRIP, which
covers substantially all of its associates who qualify as to age and service. In
general, the pension benefits are based on either years of service and
percentages of the average of the five highest years of compensation or total
compensation earned through December 31, 1994. The Company's funding policy is
to contribute the amounts recommended by its independent actuary, which are
determined after considering the funding status of the Company's plans, ERISA
guidelines and tax deductibility. The curtailment of these plans did not reduce
either plan assets or vested benefits of the participants.

Effective December 1, 2000, the Company terminated the CRIP. The accumulated
benefits were settled by the purchase of nonparticipating annuity contracts or
the payment of lump sums. The loss from plan termination of approximately $1.7
million recognized in fiscal 2000 is included in the provision for restructuring
and other nonrecurring asset write-offs caption in the accompanying consolidated
statement of operations.

The following table sets forth the funded status of the plans and amounts
recognized in the accompanying consolidated balance sheets at January 2, 1999,
January 1, 2000, and December 30, 2000:

<TABLE>
                                                              1998           1999           2000
                                                            --------       --------       --------
<S>                                                         <C>            <C>            <C>
     Change in benefit obligation
      Benefit obligation at end of prior fiscal year        $ 35,823       $ 36,056       $ 38,104
      Interest cost                                            2,416          2,265          2,670
      Net actuarial (gain)/loss                                1,933          4,115         (2,477)
      Benefits paid                                           (4,116)        (4,332)        (2,926)
      Settlement                                                  --             --        (35,371)
                                                            --------       --------       --------
      Benefit obligation at end of year                     $ 36,056       $ 38,104       $      0
                                                            ========       ========       ========

     Change in plan assets
      Fair value of assets at end of prior fiscal year      $ 40,325       $ 40,390       $ 38,759
      Actual return on plan assets                             4,181          2,701          7,315
      Benefits paid                                           (4,116)        (4,332)        (2,926)
      Settlement                                                  --             --        (40,322)
                                                            --------       --------       --------
      Fair value of assets at end of year                   $ 40,390       $ 38,759       $  2,826
                                                            --------       --------       --------

     Funded status                                          $  4,334       $    655       $  2,826
      Unrecognized net actuarial (gain)/loss                  (1,195)         3,234          3,295
      Settlement                                                  --             --         (3,295)
                                                            --------       --------       --------
      Prepaid pension cost                                  $  3,139       $  3,889       $  2,826
                                                            ========       ========       ========
</TABLE>


                                       54
<PAGE>   55

6.       BENEFIT PLANS (CONTINUED)

Net pension expense (income) excluding the loss on termination consists of the
following components:

<TABLE>
<CAPTION>
                                                                         1998           1999           2000
                                                                       --------       --------       --------
<S>                                                                    <C>            <C>            <C>
Service cost - benefits earned during the period                       $     --       $     --       $     --
Interest cost on projected benefit obligation                             2,416          2,265          2,670
Actual return on plan assets                                             (4,181)        (2,701)        (7,315)
Net amortization                                                            776           (314)         4,052
                                                                       --------       --------       --------
Net pension expense (income)                                           $   (989)      $   (750)      $   (593)
                                                                       ========       ========       ========
</TABLE>

The assumptions used in determining the actuarial present value of benefit
obligations and the net periodic pension costs are as follows:

<TABLE>
<CAPTION>

                                                                           1998           1999           2000
                                                                           ----           ----           ----
<S>                                                                        <C>            <C>            <C>
        Expected long-term return on assets - both plans                    9.0%           9.0%           9.0%
        Weighted average discount rate                                     6.75%          7.50%          7.50%
</TABLE>

The plans' assets include marketable equity securities, guaranteed interest
contracts, and corporate and government debt securities.

The Company had a contributory Profit Sharing and Retirement Savings Plan for
the employees of Chatham. The Plan provided for contributions to the Plan by the
Company as designated by the Board of Directors and voluntary contributions by
the employees from 1% to 10% of their compensation. Effective January 1, 1995,
this plan was amended and restated, converting it into The 401(k) Plan for
Associates of CMI Industries, Inc., which covers substantially all of the
Company's associates. Under the 401(k) Plan, the Company matches 50% of employee
contributions, not to exceed 2% of pay, for all eligible and participating
associates. Additionally, the Company can make additional contributions at the
discretion of the Board of Directors. The Company's matching contributions
totaled $1,167 for 1998, $1,026 for 1999, and $827 for 2000.

The Company is substantially self-insured for employee health and workers'
compensation benefits. Provision for claims under these self-insured programs is
recorded based upon actuarially determined estimates of the aggregate liability
for claims incurred. The Company has accrued $2,740 and $2,220 for payments
under these plans at January 1, 2000 and December 30, 2000, respectively.


                                       55
<PAGE>   56

6.       BENEFIT PLANS (CONTINUED)

In connection with the acquisition of Chatham, the Company assumed obligations
under a Supplemental Executive Retirement Plan ("SERP"), which is a
non-qualified plan that provides certain current and former Chatham officers
defined pension benefits in excess of limits imposed by federal tax law. At
January 1, 2000, and December 30, 2000, the accrued SERP liability was $3,211
and $3,075, respectively, which equals the projected benefit obligation and is
included in other liabilities in the accompanying balance sheets. The expense
was $263, $266 and $277 for the periods ended January 2, 1999, January 1, 2000,
and December 30, 2000, respectively. An irrevocable trust has been established
to hold certain assets of the Company (life insurance contracts with a net cash
value of $1,476 at December 30, 2000) as a reserve for the discharge of
liabilities under the plan.

The 1989 CMI Industries, Inc. Non-Qualified Stock Option Plan provided for the
grant of up to 35,000 shares of common stock. In 1992, Chatham's Board of
Directors adopted the Chatham Manufacturing, Inc. 1992 Non-Qualified Stock
Option Plan which provided for the grant of up to 140,000 shares of Chatham
common stock. Options to purchase Chatham common stock were converted to options
to purchase the Company's stock. In 1994, the Company adopted the 1994 CMI
Industries, Inc. Stock Option Plan which provided for the grant of up to 50,000
shares of the Company's stock. As of December 30, 2000, options to acquire
173,000 shares of the Company's common stock were outstanding and were fully
vested. In 2000, the Company's Board of Directors approved an amendment to each
of the Stock Option Plans which reduced the exercise price on all outstanding
options to $9 per share and extended the term on certain options for five years.

Management has determined that no compensation expense should be recorded based
on these options. Since the inception of these plans, 500 options have been
exercised. The Company accounts for stock option plans under APB Opinion No. 25,
under which no compensation cost has been recognized. Had compensation cost for
these plans been determined in accordance with FASB Statement No. 123, there
would not have been a material impact on the Company's net income.


                                       56
<PAGE>   57

7.       RECEIVABLES, INVENTORIES, PROPERTY, PLANT AND EQUIPMENT, AND INTANGIBLE
         AND OTHER ASSETS

Receivables, inventories, other current assets, property, plant and equipment,
and intangible and other assets at January 1, 2000 and December 30, 2000
consisted of the following:

<TABLE>
<CAPTION>
                                                                          1999            2000
                                                                       ---------       ---------
<S>                                                                    <C>             <C>
     Receivables:
          Trade                                                        $  27,488       $  19,164
          Income tax receivable                                            2,749           4,000
          Other                                                              225             334
                                                                       ---------       ---------
                                                                          30,462          23,498
     Less allowance for doubtful accounts                                   (700)         (1,025)
                                                                       ---------       ---------
                                                                       $  29,762       $  22,473
                                                                       =========       =========
     Inventories:
          Raw materials                                                $   3,844       $   2,664
          Work-in-progress                                                10,788           8,728
          Finished goods                                                   6,340           7,260
          Supplies                                                         2,262           1,247
                                                                       ---------       ---------
                                                                       $  23,234       $  19,899
                                                                       =========       =========

Other current assets:
      Prepaid employee benefit costs                                         861             862
      Other                                                                  299             235
                                                                       ---------       ---------
                                                                       $   1,160       $   1,097
                                                                       =========       =========

Property, plant and equipment:
      Land and land improvements                                       $   1,973       $   1,951
      Buildings and leasehold improvements                                33,969          34,533
      Machinery and equipment                                            166,795         164,707
      Construction in progress                                             1,000             290
                                                                       ---------       ---------
                                                                         203,737         201,481
      Less accumulated depreciation                                     (145,163)       (168,572)
                                                                       ---------       ---------
                                                                       $  58,574       $  32,909
                                                                       =========       =========


Intangible and other assets:
      Debt issuance costs, net                                         $   1,546       $     681
      Cash value of life insurance, net of policy loans of $4,695
        at January 1, 2000 and $5,259 at December 30, 2000                 1,773           1,850
      Prepaid pension cost                                                 3,889           2,826
      Other                                                                2,992           2,868
                                                                       ---------       ---------
                                                                       $  10,200       $   8,225
                                                                       =========       =========
</TABLE>

8.  ACCRUED EXPENSES AND OTHER LIABILITIES


                                       57
<PAGE>   58

Accrued expenses and other liabilities at January 1, 2000, and December 30, 2000
consist of the following:

<TABLE>
<CAPTION>
                                                          1999        2000
                                                         ------      ------
<S>                                                      <C>         <C>
      Accrued interest                                   $3,254      $1,859
      Accrued compensation                                  790         293
      Reserve for self insurance                          1,750       1,815
      Accrued restructuring charges                         580       1,046
      Other                                                 362         178
                                                         ------      ------
          Total accrued expenses                         $6,736      $5,191
                                                         ======      ======

      Accrued SERP, deferred compensation and other      $8,116      $7,574
      Accrued severance liability                           482          --
                                                         ------      ------
          Total noncurrent other liabilities             $8,598      $7,574
                                                         ======      ======
</TABLE>

9.       COMMITMENTS, CONTINGENCIES AND OTHER MATTERS

The Company leases certain office facilities and equipment under various
operating leases expiring at various dates through 2005. Future minimum lease
payments under noncancelable operating leases are as follows at December 30,
2000:

<TABLE>
<S>               <C>                                 <C>
                  2001                                $ 2,140
                  2002                                  1,811
                  2003                                  1,337
                  2004                                    816
                  Thereafter                              376
                                                      -------
                  Total minimum lease payments        $ 6,480
                                                      =======
</TABLE>

Rental expense for continuing operations was $1,058 for 1998, $2,246 for 1999,
and $2,748 for 2000. The majority of these leases require the Company to pay
taxes, maintenance, insurance, and certain other operating expenses applicable
to the leased property.

Environmental site evaluations have been performed which concluded that some
form of groundwater and soil remediation will be required by the Company. The
Company has initiated various remediation projects and continues to monitor
these projects on an ongoing basis. Additionally, the Company may be required to
perform asbestos abatement. The Company believes that sufficient amounts are
accrued as of December 30, 2000 for the cost of these expenditures.

The Company is involved in various legal proceedings arising in the ordinary
course of business. In the opinion of management, the ultimate disposition of
these matters will not have a material adverse effect on the Company's financial
condition or results of operations.

As of December 30, 2000 the Company was committed to future capital expenditures
of $575.

9.       COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (CONTINUED)

The Company purchases significant amounts of cotton, one of its primary raw
materials, through commodity contracts. At December 30, 2000, all fixed
contracts were at prices which approximated or


                                       58
<PAGE>   59

were below current market prices, or were purchased to hedge firm sales orders
from customers in which the Company believes it has maintained margins at, or
above, recent levels. The Company's financial results are impacted by the
variability of cotton and other raw material prices.

On March 14, 2000, the Company, pursuant to a Stock Acquisition Agreement dated
February 23, 2000 between the Company and certain of its stockholders who are
affiliated with ML Capital Partners, purchased 994,387 shares of the Company's
Common Stock held by the affiliates of ML Capital Partners for a purchase price
of $9.00 per share or an aggregate of $8,949,483. As a result of this
transaction, the stockholder affiliates of ML Capital Partners which previously
owned more than 62% of the outstanding Common Stock of the Company no longer own
any Common Stock. Instead, members of management and other stockholders with
historical ties to the Company own all of the outstanding shares of Common
Stock. The consideration paid to the stockholder affiliates of ML Capital
Partners was funded through the Company's secured revolving credit facility.

10.      RESTRUCTURING CHARGES, PLANT CLOSINGS, WRITE DOWN OF CERTAIN LONG-LIVED
         ASSETS AND OTHER NONRECURRING ASSET WRITE OFFS

In December 1995, the Company approved a plan to pursue restructuring
initiatives in all divisions. These initiatives were completed by December 1996
and included the closure of one of its manufacturing facilities, the
consolidation of certain operations and the disposition of idle equipment and
inventories. The Company also downsized its corporate operations. The
restructuring charges also consist of costs for the severance and retirement of
approximately 700 associates, including the termination of consulting contracts,
insurance, vacation, and related expenses. Related to this decision, the Company
reported a $12,900 charge to earnings in 1995.

In the second quarter of 1999, the Company approved a plan to pursue additional
restructuring initiatives in all divisions. These initiatives were focused on
discontinuing certain weaving and yarn manufacturing operations and
consolidating certain manufacturing capacity, realigning certain management
responsibilities and disposing of idle equipment and related inventories. These
initiatives were completed in 2000. The restructuring initiatives included the
termination and retirement of approximately 170 associates, including the
associated severance costs relating to insurance, vacation and other benefits.
The Company reported a $7,000 charge to earnings in 1999 in connection with the
restructuring initiatives.

In connection with the restructuring charges reported in 1995 and 1999, the
Company made certain estimates concerning the net realizable value of disposing
of certain assets and the amount required to ultimately fund certain benefits.
In 1998 and 2000, the Company recognized that its losses or expenses associated
with these estimates were overstated and consequently has reported a credit to
the restructuring charge of $1,345 in 1998 and $1,100 in 2000. As of December
30, 2000, the Company had no remaining accruals or liabilities associated with
the 1995 or 1999 restructuring.

10.      RESTRUCTURING CHARGES, PLANT CLOSINGS, WRITE DOWN OF CERTAIN LONG-LIVED
         ASSETS AND OTHER NONRECURRING ASSET WRITE OFFS (CONTINUED)

The Company's Greige Division continues to be negatively affected by the growing
availability of lower priced Asian fabrics which has suppressed market selling
prices and reduced demand for


                                       59
<PAGE>   60

domestically produced greige fabrics. During fiscal 1999 and 2000, the Company
has reported operating losses of $11.9 million and $19.4 million, respectively,
for the Greige Division.

In the fourth quarter of 2000, the Company approved a plan to further reduce its
capacity for greige fabrics. The plan included the permanent closing of its
Geneva, Alabama, and Bailey Plant (Clinton, SC) operations and the consolidation
of certain technology to its Vance Complex in Clinton, SC. The Company expects
that by reducing its productive capacity to levels more in line with market
demand and consolidating its most productive equipment, it will allow its Greige
Division to compete more cost effectively in the current market environment. The
initiatives include the termination of approximately 350 associates and the
disposition of the idle facilities, equipment and related inventories. As part
of the downsizing plan, the company reported a $6.1 million charge in the fourth
quarter consisting of the following:

<TABLE>
<S>                                                         <C>
         Severance and related benefit costs                $  725
         Inventory write-offs                                1,225
         Property, plant & equipment write-offs              4,150
                                                            ------
                                                            $6,100
                                                            ======
</TABLE>

The assets that have been identified for sale for the Geneva and Bailey
operations described above have a net book value of approximately $8.2 million
at December 30, 2000 after the write-down described above. Such assets are
included in the inventory and property, plant and equipment caption in the
accompanying balance sheet. The fair value of such assets was determined
primarily by actual proceeds, or third party offers, received in fiscal 2001.

Management is continuing to evaluate alternatives to improve the operating
performance of the Greige Division. Management believes that the downsizing and
consolidation plan discussed above will not result in the Vance Complex
generating sufficient cash flows to cover the carrying amounts of its underlying
assets. As such, at December 30, 2000, the Company has reported a $12.0 million
impairment charge on the buildings and machinery and equipment associated with
this business. Fair values of such assets were estimated by management based on
their knowledge of the market for such assets and their experience with selling
the Geneva and Bailey assets described above. The net book value of the Vance
Complex building, land and property, plant and equipment after considering the
impairment charge is approximately $7.5 million at December 30, 2000.

The $6.1 million charge for plant closings and $12.0 million impairment charge
in fiscal 2000 are both included in the provision for restructuring and other
nonrecurring asset write-offs caption in the accompanying statement of
operations.


11.      WRITE-OFF OF MERGER COSTS

During 1998, the Company evaluated various alternative changes to its capital
structure, including a possible merger in which the Company entered into a
merger agreement with an acquisition company formed by senior management. As
part of the proposed transaction, the Company would have been recapitalized
whereby all of the outstanding indebtedness would have been refinanced using
borrowings under a new credit facility, the proceeds of anticipated equity
financing and the proceeds


                                       60
<PAGE>   61

of satisfactory debt financing. The parties ultimately terminated the merger
agreement because of unsatisfactory market conditions for obtaining the
financing. As part of evaluating various possibilities to changing its capital
structure and negotiating the merger agreement, the Company incurred legal,
accounting and professional advisory fees amounting to $1,649 which the Company
has written off and reported as a charge to earnings in 1998.


                                       61
<PAGE>   62


12.      SEGMENT INFORMATION

The Company manages its businesses through two operating divisions: the Greige
Fabrics Division and the Elastic Fabrics Division. The Greige Fabrics Division
produces greige woven fabrics, such as printcloths, broadcloths, twills and
other fabrics used in home furnishings, apparel and industrial applications. The
Elastic Fabrics division produces woven and knitted elasticized fabrics used in
the manufacturing of intimate apparel, activewear and swimwear. Information
about the Company's two segments and the items necessary to reconcile this
information to the Company's consolidated results are as follows:

<TABLE>
<CAPTION>
                                                                              1998             1999             2000
                                                                           ---------        ---------        ---------
<S>                                                                        <C>              <C>              <C>
     Net sales
        Greige                                                             $ 147,066        $ 111,978        $ 109,557
        Elastics                                                              95,435           99,042           85,155
                                                                           ---------        ---------        ---------
         Total                                                             $ 242,501        $ 211,020        $ 194,712
                                                                           =========        =========        =========

     Operating income (loss) before nonrecurring items
        Greige                                                             $   9,629        $ (11,875)       $ (19,360)
        Elastics                                                               9,646           11,366            6,526
        Corporate                                                             (4,232)          (3,662)          (3,342)
                                                                           ---------        ---------        ---------
        Total                                                                 15,043           (4,171)         (16,176)

     Nonrecurring items                                                          304            7,000           18,500
     Interest expense                                                         12,759           12,910           11,552
     Other expense (income), net                                              (1,096)            (695)            (473)
                                                                           ---------        ---------        ---------

     Income (loss) from continuing operations before
         income taxes and extraordinary item                               $   3,076        $ (23,386)       $ (45,755)
                                                                           =========        =========        =========
     Operating margin before nonrecurring items
        Greige                                                                  6.55%          (10.60)%         (17.67)%
        Elastics                                                               10.11            11.48             7.66
                                                                           ---------        ---------        ---------
         Total                                                                  6.20%           (1.98)%          (8.31)%
                                                                           =========        =========        =========

     Identifiable assets
        Greige                                                             $  77,239        $  68,097        $  38,610
        Elastics                                                              42,394           39,824           31,577
        Corporate                                                             23,192           20,706           16,958
                                                                           ---------        ---------        ---------
         Total assets of continuing operations                             $ 142,825        $ 128,627        $  87,145
                                                                           =========        =========        =========

     Depreciation and amortization
        Greige                                                             $   8,811        $   9,016        $   8,008
        Elastics                                                               2,920            2,360            2,252
        Corporate                                                                862              899              835
                                                                           ---------        ---------        ---------
         Total depreciation and amortization of continuing operations      $  12,593        $  12,275        $  11,095
                                                                           =========        =========        =========

     Capital expenditures
        Greige                                                             $   5,983        $   2,030        $    (445)
        Elastics                                                                (714)           2,811              846
        Corporate                                                                (36)              30              (78)
                                                                           ---------        ---------        ---------
            Total                                                          $   5,233        $   4,871        $     323
                                                                           =========        =========        =========
</TABLE>


                                       62
<PAGE>   63

                      CMI INDUSTRIES, INC. AND SUBSIDIARIES

                   SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT

           For the Three Years Ended January 2, 1999, January 1, 2000
                              and December 30, 2000
                                 (in thousands)

<TABLE>
<CAPTION>
                               Balance at                                                 Balance at
                               Beginning    Additions at                     Other          End of
                               of Period      Cost(1)      Retirements      Changes         Period
                               ----------   ------------   -----------     ---------      ----------
<S>                             <C>         <C>            <C>             <C>            <C>
1998
Land and land improvements      $  1,979      $    --        $    (9)      $       3       $  1,973
Buildings                         31,698           --             --             275         31,973
Machinery and equipment          159,520           --         (2,360)          4,202        161,362
Leasehold improvements               836           --             --              --            836
Construction in progress           2,871        6,033             --          (4,480)         4,424
                                --------      -------        -------       ---------       --------
                                $196,904      $ 6,033        $(2,369)      $      --       $200,568
                                ========      =======        =======       =========       ========

1999
Land and land improvements      $  1,973      $    --        $    --       $      --       $  1,973
Buildings                         31,973           --             --           1,160         33,133
Machinery and equipment          161,362           --         (1,412)          6,844        166,794
Leasehold improvements               836           --             --              --            836
Construction in progress           4,424        4,580             --          (8,004)         1,000
                                --------      -------        -------       ---------       --------
                                $200,568      $ 4,580        $(1,412)      $      --       $203,736
                                ========      =======        =======       =========       ========

2000
Land and land improvements      $  1,973      $    --        $   (37)      $      15       $  1,951
Buildings                         33,133           --             (2)            566         33,697
Machinery and equipment          166,794           --         (4,081)          1,994        164,707
Leasehold improvements               836           --             --              --            836
Construction in progress           1,000        1,865             --          (2,575)           290
                                --------      -------        -------       ---------       --------
                                $203,736      $ 1,865        $(4,120)      $      --       $201,481
                                ========      =======        =======       =========       ========
</TABLE>


                                       63
<PAGE>   64


                      CMI INDUSTRIES, INC. AND SUBSIDIARIES

             SCHEDULE VI - ACCUMULATED DEPRECIATION AND AMORTIZATION
                        OF PROPERTY, PLANT AND EQUIPMENT

           For the Three Years Ended January 2, 1999, January 1, 2000,
                              and December 30, 2000
                                 (in thousands)

<TABLE>
<CAPTION>
                                 Balance at                                                          Balance at
                                 Beginning      Additions at                         Other             End of
                                 of Period        Cost(1)        Retirements       Changes(2)          Period
                                 ----------     ------------     -----------       ----------        ----------
<S>                              <C>            <C>              <C>               <C>               <C>
                                                                                                          1998
Land and land improvements        $     15        $      4         $     --         $      --         $     19
Buildings                           12,829           1,598               --                --           14,427
Machinery and equipment            109,448          10,426           (1,502)               --          118,372
Leasehold improvements                 381              --               --               (21)             360
                                  --------        --------         --------         ---------         --------
                                  $122,673        $ 12,028         $ (1,502)        $     (21)        $133,178
                                  ========        ========         ========         =========         ========

                                                                                                          1999
Land and land improvements        $     19        $      3         $     --         $      --         $     22
Buildings                           14,427           1,602               --                --           16,029
Machinery and equipment            118,372          10,110           (1,108)            1,282          128,656
Leasehold improvements                 360              95               --                --              455
                                  --------        --------         --------         ---------         --------
                                  $133,178        $ 11,810         $ (1,108)        $   1,282         $145,162
                                  ========        ========         ========         =========         ========

                                                                                                          2000
Land and land improvements        $     22        $      4         $     --         $      --         $     26
Buildings                           16,029           1,682               (1)            5,128           22,838
Machinery and equipment            128,656           8,872           (3,487)           11,138          145,179
Leasehold improvements                 455              74               --                --              529
                                  --------        --------         --------         ---------         --------
                                  $145,162        $ 10,632         $ (3,488)        $  16,266         $168,572
                                  ========        ========         ========         =========         ========
</TABLE>


(1)  Depreciation is provided for financial reporting purposes on the
     straight-line method over the following estimated useful lives for the
     periods indicated.

<TABLE>
<CAPTION>

                                      1998             1999             2000
                                    --------         --------         --------
<S>                                 <C>              <C>              <C>
         Buildings                  20 years         20 years         20 years
         Land improvements          20 years         20 years         20 years
         Machinery and equipment    3-10 years       3-10 years       3-10 years
</TABLE>

(2)   The Company has recorded the 1999 nonrecurring write-off of property,
      plant and equipment and 2000 plant closure and impairment charges in
      other changes to accumulated depreciation and amortization.


                                       64
<PAGE>   65



                      CMI INDUSTRIES, INC. AND SUBSIDIARIES

                SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS

           FOR THE THREE YEARS ENDED JANUARY 2, 1999, JANUARY 1, 2000
                              AND DECEMBER 30, 2000
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                             Balance at                               Balance at
                                             Beginning      Additions                   End of
Description                                  of Period       at Cost    Deductions      Period
                                             ----------     ---------   ----------    ----------

<S>                                          <C>            <C>         <C>           <C>
Year ended January 2, 1999:
         Allowance for doubtful accounts        $700          $126        $(326)        $  500
                                                ====          ====        =====         ======

Year ended January 1, 2000:
         Allowance for doubtful accounts        $500          $227        $ (27)        $  700
                                                ====          ====        =====         ======

Year ended December 30, 2000:
         Allowance for doubtful accounts        $700          $380        $ (55)        $1,025
                                                ====          ====        =====         ======
</TABLE>


                                       65
<PAGE>   66



Report of Independent Public Accountants


To The Board of Directors of
CMI Industries, Inc.:

We have audited, in accordance with auditing standards generally accepted in the
United States, the financial statements of CMI Industries, Inc. and subsidiaries
included in this annual report and have issued our report thereon dated March
30, 2001. Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in the index are the
responsibility of the Company's management and are presented for the purposes of
complying with the Securities and Exchange Commission's rules and are not a
required part of the basic financial statements. These schedules have been
subjected to the auditing procedures applied in our audit of the basic financial
statements and, in our opinion, fairly state in all material respects the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.



                                              /s/ ARTHUR ANDERSEN LLP


Columbia, South Carolina
March 30, 2001


                                       66
<PAGE>   67


                                INDEX TO EXHIBITS


<TABLE>
<CAPTION>
Exhibit No.       Description
-----------       --------------------------------------------------------------
<S>               <C>
4.8               Notice of Voluntary Reduction of Credit Facility and Revolving
                  Credit Amount dated December 11, 2000

4.9               Assignment and Acceptance of Bank of America, N.A. to Fleet
                  Capital Corporation, dated December 11, 2000

12                Computation of Ratio of Earnings to Fixed Charges

21                Subsidiaries of CMI Industries, Inc.

23.1              Consent and Report on Financial Statement Schedules of
                  Arthur Andersen LLP
</TABLE>


                                       67