UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    Form 10-Q

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

                  For the quarterly period ended April 3, 1999

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


                 For the transition period from _____ to _____.


                        Commission File number 333-61043

                              STEEL HEDDLE MFG. CO.
             (Exact name of registrant as specified in its charter)

         Pennsylvania                                     57-0543389
(State or other jurisdiction of                        (I.R.S. Employer
incorporation or organization)                       Identification Number)

             1801 Rutherford Road, Greenville, South Carolina 29607
                    (Address of principal executive offices)

                  Registrant's telephone number (864) 244-4110



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. [X] yes [ ] no

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date. 100 shares of the Company's
Common Stock , par value $0.10 per share, were outstanding as of May 17, 1999.


<PAGE>

                              STEEL HEDDLE MFG. CO.

                                Table of Contents


PART I     FINANCIAL INFORMATION

<TABLE>
<CAPTION>
<S>     <C>                                                                                                   <C>
Item 1. Consolidated Balance Sheet:
             as of April 3, 1999 (Unaudited) and January 2, 1999..............................................3

        Unaudited Consolidated Statement of Operations and Comprehensive Income (Loss):
             for the Three Months Ended April 3, 1999 (Successor) and April 4, 1998
             (Predecessor)....................................................................................5

        Unaudited Consolidated Statements of Cash Flows:
             for the Three Months Ended April 3, 1999 (Successor) and April 4, 1998
             (Predecessor)....................................................................................6

        Notes to Unaudited Consolidated Financial Statements..................................................7

Item 2. Management's Discussion and Analysis of Financial Condition and Results
        of Operations .......................................................................................15

Item 3. Quantitative and Qualitative Disclosures about Market Risk...........................................20


PART II     OTHER INFORMATION................................................................................21
</TABLE>




<PAGE>


                          PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                     STEEL HEDDLE MFG. CO. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                             (Dollars in thousands)

<TABLE>
<CAPTION>
                                                                      SUCCESSOR              SUCCESSOR
                                                                       COMPANY                COMPANY
                                                                    APRIL 3, 1999         JANUARY 2, 1999
                                                                 --------------------------------------------
                                                                     (Unaudited)                (1)
<S>                                                                           <C>                    <C>
ASSETS

CURRENT ASSETS:
     Cash and cash equivalents                                                $ 1,064                $ 1,182
     Accounts receivable, net                                                  11,193                  9,873
     Income taxes receivable                                                    1,279                  1,279
     Inventories                                                               19,174                 19,730
     Prepaid expenses                                                              75                    125
                                                                 --------------------------------------------

               Total current assets                                            32,785                 32,189

PROPERTY, PLANT & EQUIPMENT:
     Cost                                                                      46,040                 46,014
     Less accumulated depreciation                                             (6,704)                (4,510)
                                                                 --------------------------------------------

                                                                               39,336                 41,504

OTHER ASSETS:
     Prepaid pension costs                                                      2,136                  2,185
     Goodwill, net                                                            106,445                107,124
     Identifiable intangible assets, net                                       11,947                 12,203
     Sundry                                                                     4,118                  4,269
                                                                 --------------------------------------------

                                                                              124,646                125,781
                                                                 --------------------------------------------

TOTAL ASSETS                                                                 $196,767               $199,474
                                                                 ============================================

</TABLE>


(1)  Derived from January 2, 1999 audited financial statements

See notes to unaudited consolidated financial statements



                                       3
<PAGE>

                     STEEL HEDDLE MFG. CO. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                    (Dollars in thousands, except share data)

<TABLE>
<CAPTION>
                                                                       SUCCESSOR             SUCCESSOR
                                                                        COMPANY               COMPANY
                                                                      APRIL 3, 1999        JANUARY 2, 1999
                                                                  -------------------------------------------
                                                                      (Unaudited)               (1)
<S>                                                                           <C>                    <C>
LIABILITIES AND SHAREHOLDER'S EQUITY

CURRENT LIABILITIES:
     Accounts payable                                                         $ 2,429                $ 2,423
     Accrued and sundry liabilities                                             8,468                  6,078
     Deferred income taxes                                                      1,902                  2,049
     Income taxes payable                                                         132                    143
     Current portion of long-term debt                                          6,985                  6,328
                                                                  -------------------------------------------

          Total current liabilities                                            19,916                 17,021

LONG-TERM DEBT, LESS CURRENT PORTION                                          128,239                130,695

RETIREMENT BENEFITS PAYABLE                                                     7,225                  7,317

DEFERRED INCOME TAXES                                                          14,828                 15,528

MINORITY INTEREST IN CONSOLIDATED
     SUBSIDIARY                                                                 1,788                  1,960


SHAREHOLDER'S EQUITY:
     Common stock - $0.10 par value per share - authorized, issued and
         outstanding 100 shares at April 3, 1999
          and January 2, 1999                                                       -                      -
     Additional paid-in capital                                                37,943                 37,943
     Deficit                                                                   (8,099)                (6,060)
     Notes receivable - shareholders                                             (350)                  (350)
     Carryover basis of management's interest                                  (4,494)                (4,494)
     Accumulated other comprehensive loss                                        (229)                   (86)
                                                                  -------------------------------------------

          Total shareholder's equity                                           24,771                 26,953
                                                                  -------------------------------------------

TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY                                   $196,767               $199,474
                                                                  ===========================================

</TABLE>

(1) Derived from January 2, 1999 audited financial statements.

See notes to unaudited consolidated financial statements

                                       4
<PAGE>

                     STEEL HEDDLE MFG. CO. AND SUBSIDIARIES

                 UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
                         AND COMPREHENSIVE INCOME (LOSS)
                             (Dollars in thousands)

<TABLE>
<CAPTION>
                                                                                 THREE MONTHS ENDED
                                                                          APRIL 3, 1999      APRIL 4, 1998
                                                                          -------------     ---------------
                                                                            SUCCESSOR        PREDECESSOR
                                                                            COMPANY            COMPANY
                                                                           (13 WEEKS)         (13 WEEKS)

<S>                                                                           <C>                 <C>
NET SALES                                                                     $ 18,529            $ 19,266

COST OF GOODS SOLD                                                              14,121              11,930
                                                                          -------------     ---------------

GROSS PROFIT                                                                     4,408               7,336

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                                     2,790               2,178

MANAGEMENT FEES                                                                    281                  68

AMORTIZATION OF GOODWILL                                                           679                 182
                                                                          -------------     ---------------

OPERATING INCOME                                                                   658               4,908

OTHER INCOME (EXPENSE):
     Interest income                                                                33                  17
     Interest expense, including amortization of deferred
          financing costs                                                       (3,480)             (1,027)
     Other financing expense                                                         -                 (50)
                                                                          -------------     ---------------

INCOME (LOSS) BEFORE MINORITY INTEREST AND INCOME
     TAXES                                                                      (2,789)              3,848

MINORITY INTEREST IN LOSS OF CONSOLIDATED SUBSIDIARY                                15                   -
                                                                          -------------     ---------------

INCOME (LOSS) BEFORE INCOME TAXES                                               (2,774)              3,848

INCOME TAX (BENEFIT) EXPENSE                                                      (735)              1,347
                                                                          -------------     ---------------

NET INCOME (LOSS)                                                               (2,039)              2,501

OTHER COMPREHENSIVE INCOME (LOSS) -
     NET OF TAX:
     Foreign currency translation adjustment                                      (143)                 14
                                                                          -------------     ---------------

COMPREHENSIVE INCOME (LOSS)                                                    $(2,182)             $2,515
                                                                          =============     ===============
</TABLE>


See notes to unaudited consolidated financial statements


                                       5
<PAGE>

                     STEEL HEDDLE MFG. CO. AND SUBSIDIARIES

                 UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Dollars in thousands)

<TABLE>
<CAPTION>
                                                                             THREE MONTHS ENDED
                                                                        APRIL 3, 1999     APRIL 4, 1998
                                                                       --------------    ---------------
                                                                         SUCCESSOR         PREDESSOR
                                                                         COMPANY            COMPANY
                                                                        (13 WEEKS)         (13 WEEKS)
<S>                                                                      <C>                <C>
OPERATING ACTIVITIES:
     Net income (loss)                                                    $(2,039)            $ 2,501
     Adjustments to reconcile net income (loss) to net cash provided by
          (used in) operating activities:
          Depreciation                                                      2,209                 924
          Amortization                                                      1,048                 215
          Minority interest in consolidated subsidiaries                     (172)                 --
          Benefit for deferred income taxes                                  (847)                 --
          Accrued retirement benefit costs                                    (43)                 73
          Changes in operating assets and liabilities:
               Accounts receivable                                         (1,320)             (1,825)
               Inventories                                                    556              (1,041)
               Prepaid expenses                                                50                  49
               Sundry assets                                                  163                  --
               Accounts payable                                                 6                  28
               Accrued and sundry liabilities                               2,390              (2,169)
               Income taxes payable                                           (11)                987
                                                                          -------             -------
                    Net cash provided by (used in) operating                1,990                (258)
activities

INVESTING ACTIVITIES:
     Purchase of property, plant and equipment, net                          (309)               (618)
     Proceeds on disposals of property, plant and equipment                    --                  81
                                                                          -------             -------
                    Net cash used in investing activities                    (309)               (537)

FINANCING ACTIVITIES:
     Revolver borrowings (repayments), net                                 (1,501)                692
     Payments of debt                                                        (298)                 --
                                                                          -------             -------
                    Net cash provided by (used in) financing activities    (1,799)                692

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

DECREASE IN CASH AND CASH EQUIVALENTS                                        (118)               (103)

CASH AND CASH EQUIVALENTS AT  BEGINNING OF PERIOD                           1,182                 379
                                                                          -------             -------

CASH AND CASH EQUIVALENTS AT END OF PERIOD                                $ 1,064             $   276
                                                                          =======             =======

SUPPLEMENTAL CASH FLOW INFORMATION:

     Interest paid                                                        $   713             $ 1,546
     Income taxes paid                                                    $    10             $   380
</TABLE>

See notes to unaudited consolidated financial statements


                                       6
<PAGE>

STEEL HEDDLE MFG. CO. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share amounts)

1.     ORGANIZATION, ACQUISITIONS AND BASIS OF PRESENTATION

ORGANIZATION - Steel Heddle Mfg. Co. ("Steel Heddle" or the "Company"), a
Pennsylvania corporation and a wholly-owned subsidiary of Steel Heddle Group,
Inc., manufactures products and loom accessories used by textile weaving mills
and processes metal products from its wire rolling facilities for use in the
electronics, solar power and automotive industries, among others. The Company's
manufacturing plants are located in the southern United States, Mexico, and
Belgium. The Company sells to foreign and domestic companies.

THE ACQUISITION OF STEEL HEDDLE - On May 26, 1998, Steel Heddle Group, Inc. ("SH
Group") consummated the acquisition (the "Acquisition"), of SH Holdings Corp.
("Old Holdings"). SH Group, a corporation formed by American Industrial Partners
Capital Fund II, L.P. (together with its affiliates, "AIP"), was organized as a
holding company to effect the acquisition of all of the outstanding common stock
of Old Holdings. The purchase price, including transaction fees and expenses, of
approximately $175.2 million was financed with a $25 million capital
contribution from AIP (including rollover ownership interests of certain members
of management), approximately $15 million in proceeds from SH Group's issuance
of $29.25 million of 13 3/4 % Senior Subordinated Discount Debentures, issuance
of $100 million of 10 5/8% Senior Subordinated Notes (the "Notes") of Steel
Heddle and borrowings of approximately $33.6 million under a new bank credit
facility (the "Credit Facility") of Steel Heddle. The acquisition was accounted
for using the purchase method of accounting.

In accordance with the purchase method of accounting, the purchase price was
allocated to the underlying assets and liabilities of Old Holdings based upon
their estimated respective fair values at the date of Acquisition. The fair
values were determined by independent appraisals, valuations and other means
deemed appropriate by management. Based on such allocations, the purchase price
exceeded the fair value of the net assets acquired by approximately $108.7
million. In addition, certain options ("Rollover Options") to purchase the
common stock of the Predecessor that were held by continuing management
employees prior to the time of the Acquisition were converted into options to
acquire 17,707 shares of common stock of SH Group at an exercise price of $15
per share. On a fully-diluted basis, the Rollover Options represent
approximately 5% ownership interest in SH Group immediately following the
Acquisition. The carryover basis of management's interest in the Rollover
Options, $4,494, has been considered in the allocation of the purchase cost and
in the initial basis of equity. Since assets and liabilities of Old Holdings
have been adjusted to their fair values as of the date of Acquisition, the
financial information for periods prior to May 26, 1998 ("Predecessor Company")
are not comparable with financial information for periods subsequent to that
date ("Successor Company").

THE ACQUISITION OF MILLENTEX - On October 23, 1998, Steel Heddle, through its
wholly-owned subsidiary, Millentex Investment Corporation, acquired a 49%
ownership interest in Millentex, N.V. ("Millentex"), an entity organized under
the laws of the Kingdom of Belgium. Millentex was established on August 16, 1998
to effect the acquisition of the outstanding common stock of a company (the
"Belgium Company") with operations in the loom accessories industry. The
purchase price of approximately $2 million was financed via a capital
contribution from Steel Heddle and was accounted for using the purchase method
of accounting. The financial position of Millentex is included in the Company's
consolidated balance sheet at


                                       7
<PAGE>

April 3, 1999 and January 2, 1999, and the results of operations and
comprehensive loss of Millentex for the three months ended April 3, 1999 are
included in the Company's consolidated statement of operations and comprehensive
loss for the three months ended April 3, 1999.

In accordance with the purchase method of accounting, the purchase price has
been allocated to the underlying assets and liabilities of Millentex based upon
their estimated respective fair values at the date of acquisition. The fair
values were determined by independent appraisals, valuations and other means
deemed appropriate by management. Based on such allocations, the purchase price
was allocated to the identifiable assets and there was no goodwill.

BASIS OF PRESENTATION - The accompanying unaudited consolidated financial
statements of the Company have been prepared in accordance with generally
accepted accounting principles for interim financial information. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In addition,
certain other significant accounting policies arising from the Acquisition
include the following:

         Deferred financing costs associated with the Acquisition financing were
         approximately $3,927 and are being amortized using the interest method.
         Accumulated amortization was approximately $379 at April 3, 1999.

         Goodwill arising from the acquisition is approximately $108,710 and is
         being amortized over forty years using the straight-line method.
         Accumulated amortization was approximately $2,265 on April 3, 1999.

         Identifiable intangible assets acquired in the Acquisition, consisting
         principally of engineering drawings, were approximately $12,800 and are
         being amortized on the straight-line method over 12.5 years.
         Accumulated amortization was approximately $853 at April 3, 1999.

In the opinion of the management of the Company, these unaudited consolidated
financial statements contain all of the adjustments, consisting of a normal
recurring nature, necessary for fair presentation. Operating results for the
three months ended April 3, 1999 are not necessarily indicative of the results
that may be expected for fiscal 1999. Certain amounts previously presented in
the Predecessor Company consolidated financial statements for the prior period
have been reclassified to conform to the current classification. The preparation
of financial statements in accordance with generally accepted accounting
principles requires management to make estimates and assumptions that affect the
reported amounts of revenues and expense during the reporting period. Actual
results could differ from those estimates. The notes included herein should be
read in conjunction with the audited consolidated financial statements included
in Steel Heddle's Annual Report on Form 10-K for the year ended January 2, 1999.


2.     INVENTORIES

                                             Unaudited
                                           April 3, 1999         January 2, 1999
                                          ---------------       ----------------
Raw materials and component parts                $ 6,777                $ 7,614
Work in process and finished goods                12,397                 12,116
                                          ===============       ================
                                                $ 19,174               $ 19,730
                                          ===============       ================

Inventories priced by the LIFO method were approximately $10,580 at April 3,
1999 and approximately $11,067 at January 2, 1999. If all inventories had been
priced by the FIFO or average cost method, they would have been higher than the
amounts reported by approximately $1,173 and $779 at April 3, 1999 and January
2, 1999, respectively.


                                       8
<PAGE>

3.     LONG-TERM DEBT

<TABLE>
<CAPTION>
                                                                           Unaudited
                                                                          April 3, 1999       January 2, 1999
                                                                         ---------------     ----------------
<S>                                                                           <C>                  <C>
10 5/8 % Senior Subordinated Notes ("Notes")                                  $ 100,000            $ 100,000
Bank Credit Facility ("Credit Facility"):
     Term loan                                                                   30,000               30,000
     Revolving loan                                                               2,000                3,200
Foreign Notes Payable                                                               346                  654
Foreign Revolving Lines of Credit                                                 2,878                3,169
                                                                         ---------------     ----------------
                                                                                135,224              137,023
Less current portion                                                              6,985                6,328
                                                                         ===============     ================
                                                                              $ 128,239            $ 130,695
                                                                         ===============     ================
</TABLE>

The Notes are due in full on June 1, 2008. Interest on the Notes is payable
semi-annually in arrears commencing on December 1, 1998.

The Credit Facility consists of a $30 million term and a $20 million revolving
loan commitment. The term loan is payable in quarterly installments ranging from
$1 million to $2 million beginning July 3, 1999 through April 3, 2004. The term
loan and the revolving loan bear interest at the bank's prime rate (as defined)
plus 1.0 percent or Eurodollar rates (as defined) plus 2.25 percent, at the
Company's option. At April 3, 1999, the interest rates on the Credit Facility
borrowings ranged from 7.19% to 7.32% and approximately $17.3 million was
available for borrowing under the revolving loan facility. Substantially all of
the Company's assets are pledged as collateral under the Credit Facility.

The Credit Facility and the Notes contain various financial covenants, including
minimum levels of EBITDA, minimum interest coverage ratio and maximum capital
expenditures and total leverage ratio. The non-financial covenants restrict the
ability of the Company and its subsidiaries to dispose of assets, incur
additional indebtedness, prepay other indebtedness or amend certain debt
instruments, pay dividends, create liens on assets, enter into sale and
leaseback transactions, make investments, loans or advances, make acquisitions,
engage in mergers or consolidations or engage in certain transactions with
affiliates and otherwise restrict certain corporate activities. The Company was
in compliance with its various financial and non-financial covenants at April 3,
1999.

The foreign notes payable incur interest at rates ranging from 4.0% to 7.2% with
interest payments due quarterly. Principal payments ranging from $11 to $29 are
due quarterly. At April 3, 1999, the foreign revolving lines of credit incurred
interest at rates ranging from 4.09% to 4.35%. The foreign subsidiary had
approximately $532 available under these revolving lines of credit at April 3,
1999. Substantially all of the foreign entity's current assets are pledged as
collateral under two of the foreign revolving lines of credit.

                                       9
<PAGE>

4.     RELATED PARTY TRANSACTIONS

On May 26, 1998, the Company and SH Group, Inc. entered into a management
services agreement with AIP. AIP provides general management, financial and
other corporate advisory services to the Company for $895 annually, payable in
semi-annual installments on May 30 and November 29 and will be reimbursed for
out-of-pocket expenses. The agreement expires on the earlier of May 26, 2008, or
such other date as AIP and the Company mutually agree. During the three months
ended April 3, 1999, $281 in such fees and reimbursemnets was expensed.

BCC Industrial Services, Inc. ("BCC"), an affiliate of Butler Capital
Corporation, provided consulting services to the Company pursuant to a
Consulting Services Agreement dated as of January 1, 1996 and received
remuneration of $68 in the three months ended April 4, 1998.

In connection with the Acquisition, certain officers of the Company purchased
shares of the SH Group's common stock which are secured by notes from the
officers. The amended notes bear interest at 6% per year, require annual
payments beginning in 2000 and mature on May 26, 2003. The notes have been
presented as a separate component of shareholder's equity.


5.    COMMITMENTS AND CONTINGENCIES

LITIGATION - Although the Company may be subject to litigation from time to time
in the ordinary course of business, it is not a party to any pending or
threatened legal proceedings that management believes will have a material
impact on its financial position or results of operations.

ENVIRONMENTAL - The Company is subject to various federal, state and local
government laws and regulations concerning, among other things, the discharge,
storage, handling and disposal of a variety of hazardous and non-hazardous
substances and wastes.

The Company believes that it is in substantial compliance with all existing
environmental laws and regulations to which it is subject. In addition, the
Company is subject to liability under environmental laws relating to the past
release or disposal of hazardous materials. The Company has included in accrued
and sundry liabilities an accrual for hazardous waste site maintenance for the
estimated total cost over an initial period of 30 years to close out and monitor
its inactive hazardous waste site. Payment is secured by a standby letter of
credit of approximately $671. To date, and in management's belief for the
foreseeable future, additional liability under and compliance with existing
environmental laws has not had and will not have a material adverse effect on
the Company's financial position or results of operations.

COMMITMENT (RELATED PARTY) - Also in connection with the financing of the May
26, 1998 acquisition, SH Group issued $29,250 of 13 3/4% Senior Discounted
Debentures ("Debentures"). The Debentures are a legal obligation of SH Group,
however, SH Group is dependent on dividends from Steel Heddle to meet the debt
service requirements of the Debentures. The Debentures (original proceeds of
$15,016 and accreted value of $16,815 at April 3, 1999) will mature on June 1,
2009. The Debentures are accreting to a principal amount of $29,250 on June 1,
2003. Interest on the Debentures will be payable semi-annually in arrears
commencing on December 4, 2003. Cash flow requirements of Steel Heddle to
service SH Group's Debentures commence on December 4, 2003 and total
approximately $2,011 in 2003, $4,022 in each of 2004 to 2008, and $31,261
($2,011 representing interest and $29,250 representing principal) in 2009.
Payment of such dividends by Steel Heddle to SH Group are permitted under the
terms of the Credit Facility and Notes.


6.     SEGMENT INFORMATION


                                       10
<PAGE>

The Company has two reportable segments, the Textile Products Group ("Textile
Products") and the Metal Products Group ("Metal Products"). Textile Products
manufactures textile loom accessories including heddles, dropwires, harness
frames and reeds, all of which are used to hold or guide individual yarns during
the weaving process. Metal Products processes and sells rolled products. Metal
Product's wire rolling operation provides material used by Textile Products and
a variety of other industries, including electronics, automotive and solar
power. Included in other below are amounts associated with the Company's Mexican
subsidiary, the shuttle division, frame reconditioning, tools and molds and the
corporate division. The Company's reportable segments are business units that
offer different products or primarily generate sales from different customers.
No customer accounted for over 10% of the consolidated sales of the Company
during the three months ended April 3, 1999 (Successor) or the three months
ended April 4, 1998 (Predecessor).

The Company evaluates performance and allocates resources based on gross profit
or loss before selling, general and administrative expenses, management fees,
amortization of goodwill, net interest expense and income tax expense or
benefit. The accounting policies of the reportable segments are the same as
those described in the summary of significant accounting policies. Intersegment
sales and transfers are recorded at cost. There is no intercompany profit or
loss on intersegment sales or transfers.


<TABLE>
<CAPTION>
SUCCESSOR COMPANY
Unaudited
3 Months Ended                                     Textile         Metal
April 3, 1999                                     Products       Products         Other           Total
------------------------------------            -------------- -------------- --------------- ---------------
<S>                                                    <C>           <C>               <C>           <C>
Revenues from external
     customers                                        $15,275        $ 2,399           $ 855         $18,529
Intersegment revenues                                      80          1,810              31           1,921
Segment profit                                          3,452            890              66           4,408

PREDECESSOR COMPANY
Unaudited
3 Months Ended                                     Textile         Metal
April 4, 1998                                     Products       Products         Other           Total
------------------------------------            -------------- -------------- --------------- ---------------
Revenues from external
     customers                                       $ 15,287        $ 2,694         $ 1,285        $ 19,266
Intersegment revenues                                     186          1,549              75           1,810
Segment profit                                          5,713          1,303             320           7,336
</TABLE>


<TABLE>
<CAPTION>
                                                                  SUCCESSOR                     PREDECESSOR
                                                                  Unaudited                     Unaudited
                                                                  3 Months                      3 Months
                                                                    Ended                         Ended
PROFIT                                                          April 3, 1999                 April 4, 1998
                                                               ----------------              ----------------
<S>                                                                    <C>                           <C>
Total profit for reportable segments                                    $ 4,342                       $ 7,016
Other profit                                                                 66                           320
Unallocated amounts:
     Selling, general and administrative                                 (2,790)                       (2,178)
     Management fees                                                       (281)                          (68)
     Amortization of goodwill                                              (679)                         (182)
     Interest, net                                                       (3,447)                       (1,010)
     Other                                                                   -                            (50)
                                                               ----------------              ----------------
(Loss) income before minority interest
     and income taxes                                                  $ (2,789)                      $ 3,848
                                                               ================              ================
</TABLE>


                                       11
<PAGE>


7.     ADOPTION OF NEW ACCOUNTING STANDARDS

In January 1999, the Company adopted Statement of Position (SOP) 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use", which provides guidance on accounting for the costs of computer
software developed or obtained for internal use. SOP 98-1 requires external and
internal indirect costs of developing or obtaining internal-use software to be
capitalized as a long-lived asset and also requires training costs included in
the purchase price of computer software costs associated with research and
development to be expensed as incurred. The adoption of this statement did not
have a significant effect on the Company's consolidated financial position,
results of operations or cash flows.




8.     PAYMENT OF STEEL HEDDLE'S SENIOR SUBORDINATED NOTES

Payment of the Notes is unconditionally guaranteed, jointly and severally, on a
senior subordinated basis by certain of Steel Heddle's wholly owned
subsidiaries. Management has determined that separate complete financial
statements of the guarantor entities would not be material to users of the
financial statements, therefore, the following information sets forth condensed
consolidating financial statements of the guarantor and non-guarantor
subsidiaries.


                 UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET
                                  APRIL 3, 1999
                                    SUCCESSOR

<TABLE>
<CAPTION>
                                            Combined       Combined             Reclassifications
                                            Guarantor    Non-Guarantor      The          And
                                           Subsidiaries   Subsidiaries    Company    Eliminations  Consolidated
                                           ------------  -------------    -------    ------------  ------------
<S>                                              <C>            <C>         <C>      <C>
Assets:
Cash and cash equivalents                         $ 12          $ 247       $ 805    $               $ 1,064
Accounts receivable                                             3,394       7,799                     11,193
Inventories                                                     4,124      15,050                     19,174
Income taxes receivable                                            28       1,251                      1,279
Prepaid expenses                                   234             29          44           (232)         75
                                           ----------- -------------- ------------ ------------- ------------
          Total current assets                     246          7,822      24,949           (232)     32,785
Due from affiliates                                             3,323      73,255        (76,578)          -
Notes receivable from affiliates                75,182                                   (75,182)          -
Investments in subsidiaries                      3,260                     80,183        (83,443)          -
Property, plant & equipment, net                                3,170      36,166                     39,336
Other assets and deferred charges, net                            538     124,107              1     124,646
                                           =========== ============== ============ ============= ============
          Total assets                        $ 78,688       $ 14,853    $338,660      $(235,434)  $ 196,767
                                           =========== ============== ============ ============= ============

Liabilities and shareholder's equity:
Accounts payable and accrued and
     sundry liabilities                    $                   $2,108      $9,023         $ (234)    $10,897
Due to affiliates, net                           1,160                                    (1,160)          -
Deferred income taxes                                                       1,902                      1,902
Income taxes                                                      132                                    132
Current portion of long-term debt                               2,985       4,000                      6,985
                                           ----------- -------------- ------------ ------------- ------------
          Total current liabilities              1,160          5,225      14,925         (1,394)     19,916
Long-term debt, less current portion                              239     203,182        (75,182)    128,239
Retirement benefits payable                                       557       6,668                      7,225
Deferred income taxes                                           1,151      13,677                     14,828
Redeemable common stock
Minority interest                                                                          1,788       1,788
Shareholder's equity                            77,528          7,681     100,208       (160,646)     24,771
                                           ----------- -------------- ------------ ------------- ------------
          Total liabilities and share-
               holder's equity                $ 78,688       $ 14,853    $338,660      $(235,434)  $ 196,767
                                           =========== ============== ============ ============= ============
</TABLE>


                                       12
<PAGE>


            UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
                    FOR THE THREE MONTHS ENDED APRIL 3, 1999
                                    SUCCESSOR

<TABLE>
<CAPTION>
                                            Combined       Combined               Reclassifications
                                            Guarantor    Non-Guarantor      The          And
                                           Subsidiaries   Subsidiaries    Company    Eliminations  Consolidated
                                           -------------  ------------    -------    ------------  ------------
<S>                                         <C>                          <C>          <C>
Net sales                                   $                 $ 2,752    $ 15,777     $             $ 18,529
Cost of goods sold                                              2,319      11,802                     14,121
                                           ----------- -------------- ------------ ------------- ------------
Gross profit                                                      433       3,975                      4,408
Selling, general and administrative
     expenses                                        1            396       2,393                      2,790
Other expenses                                                                960                        960
                                           ----------- -------------- ------------ ------------- ------------
Operating income (loss)                             (1)            37         622                        658
Other income (expense), net                      2,363            (41)     (5,769)                    (3,447)
                                           ----------- -------------- ------------ ------------- ------------
Income (loss) before minority interest
     and income taxes                            2,362             (4)     (5,147)                    (2,789)
Minority interest in loss of
     consolidated subsidiary                        15                                                    15
                                           ----------- -------------- ------------ ------------- ------------
Income (loss) before income taxes                2,377             (4)     (5,147)                    (2,774)
Income tax expense (benefit)                       803            (11)     (1,527)                      (735)
Equity in earnings (losses) of
     subsidiaries                                    6                      1,586       (1,592)            -
                                           ----------- -------------- ------------ ------------- ------------

Net income (loss)                              $ 1,580             $7    $ (2,034)     $(1,592)     $ (2,039)
                                           =========== ============== ============ ============= ============

</TABLE>


                                       13
<PAGE>

            UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
                    FOR THE THREE MONTHS ENDED APRIL 4, 1998
                                   PREDECESSOR

<TABLE>
<CAPTION>
                                            Combined       Combined                 Reclassifications
                                            Guarantor    Non-Guarantor      The          And
                                           Subsidiaries  Subsidiaries    Company    Eliminations  Consolidated
                                           ------------  -------------    -------    ------------  ------------
<S>                                         <C>                          <C>          <C>
Net sales                                   $                   $ 230    $ 19,036     $             $ 19,266
Cost of goods sold                                                251      11,678                     11,930
                                           ----------- -------------- ------------ ------------- ------------
Gross profit                                                      (21)      7,357                      7,336
Selling, general and administrative
     expenses                                                       5       2,173                      2,178
Other expenses                                                                250                        250
                                           ----------- -------------- ------------ ------------- ------------
Operating income (loss)                                           (26)      4,934                      4,908
Other income (expense), net                      2,194                     (3,254)                    (1,060)
                                           ----------- -------------- ------------ ------------- ------------
Income (loss) before income taxes                2,194            (26)      1,680                      3,848
Income tax expense (benefit)                       834             (9)        522                      1,347
Equity in earnings (losses) of
     subsidiaries                                                           1,343       (1,343)            -
                                           ----------- -------------- ------------ ------------- ------------

Net income (loss)                              $ 1,360          $ (17)     $2,501      $(1,343)       $2,501
                                           =========== ============== ============ ============= ============
</TABLE>



            UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
                    FOR THE THREE MONTHS ENDED APRIL 3, 1999
                                    SUCCESSOR

<TABLE>
<CAPTION>
                                            Combined        Combined              Reclassifications
                                            Guarantor    Non-Guarantor      The          And
                                           Subsidiaries   Subsidiaries    Company    Eliminations  Consolidated
                                           ------------  -------------    -------    ------------  ------------
<S>                                             <C>              <C>        <C>             <C>      <C>
Net cash provided by (used in)
     operating activities                       $ (342)          $104       $2,228          $ -      $ 1,990
                                           ----------- -------------- ------------ ------------- ------------
Investing activities:
     Purchase of property plant and
          equipment                                                (1)        (308)                      (309)
                                           ----------- -------------- ------------ ------------- ------------
Net cash used in investing activities               -              (1)        (308)           -          (309)
Financing activities:
     Revolver borrowings (payments) net                          (301)      (1,200)                    (1,501)
     Payments of debt                                            (298)                                   (298)
     Intercompany transactions, net               342            (16)         (326)                        -
                                           ----------- -------------- ------------ ------------- ------------
Net cash provided by (used in)
     financing activities                         342            (615)        (973)           -        (1,799)
                                           ----------- -------------- ------------ ------------- ------------
Net increase (decrease) in cash and
     cash equivalents                                -           (512)        394             -          (118)
Cash and cash equivalents at
     beginning of period                            12            759         411             -        1,182
                                           ----------- -------------- ------------ ------------- ------------
Cash and cash equivalents at end
     of period                                    $ 12           $247       $ 805           $ -      $ 1,064
                                           =========== ============== ============ ============= ============
</TABLE>


                                       14
<PAGE>

            UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
                    FOR THE THREE MONTHS ENDED APRIL 4, 1998
                                   PREDECESSOR

<TABLE>
<CAPTION>


                                            Combined       Combined              Reclassifications
                                            Guarantor    Non-Guarantor      The          And
                                           Subsidiaries   Subsidiaries    Company    Eliminations  Consolidated
                                           ------------  -------------    -------    ------------  ------------
<S>                                            <C>             <C>        <C>               <C>        <C>
Net cash provided by (used in)
     operating activities                      $ 2,166         $ (49)     $ (2,375)         $ -        $ (258)
Net cash used in investing activities                                         (537)                      (537)
Financing activities:
     Proceeds from debt                                                        692                        692
     Intercompany transactions, net             (2,165)           (13)       2,178                         -
                                           ----------- -------------- ------------ ------------- ------------
Net cash provided by (used in)
     financing activities                       (2,165)           (13)       2,870            -           692
                                           ----------- -------------- ------------ ------------- ------------
Net increase (decrease) in cash and
     cash equivalents                                1            (62)         (42)           -          (103)
Cash and cash equivalents at
     beginning of period                            16             96          267            -           379
                                           ----------- -------------- ------------ ------------- ------------
Cash and cash equivalents at end
     of period                                    $ 17            $34        $ 225          $ -          $276
                                           =========== ============== ============ ============= ============

</TABLE>


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

FORWARD LOOKING STATEMENTS

This document contains forward-looking statements within the meaning of the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.
Although the Registrant believes its plans are based upon reasonable assumptions
as of the current date, it can give no assurances that such expectations can be
attained. Factors that could cause actual results to differ materially from the
Registrant's expectations can be found in the Registrant's Registration
Statement on Form S-4 (File No. 333-61043) under the heading "Risk Factors."

The following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements and the related notes thereto included
elsewhere in this Form 10-Q as well as the Company's Annual Report on Form 10-K
for the year ended January 2, 1999.

OVERVIEW

The Company has two reportable segments, Textile Products and Metal Products.
Textile Products manufactures textile loom accessories including heddles,
dropwires, harness frames and reeds, all of which are used to hold or guide
individual yarns during the weaving process. In Metal Products, the Company
processes and sells rolled products. In its wire rolling operations, the Company
converts round rod to flat wire through a rolling process which results in a
flat wire with a round edge. Originally developed to satisfy in-house heddle
manufacturing needs, the Company's rolled products can also be found in a
variety of other industries, including electronics, automotive and solar power.

On May 26, 1998, Steel Heddle Group, Inc. consummated the acquisition of SH
Holdings Corp. ("Old Holdings"). SH Group, a corporation formed by AIP, was
organized as a holding company to effectuate the acquisition of substantially
all the outstanding stock of Old Holdings. The acquisition has been accounted
for using the purchase method of accounting, whereby the purchase cost has been
allocated to the fair value of the 

                                       15
<PAGE>

tangible and identifiable intangible assets acquired and liabilities assumed
with the excess identified as goodwill.

As a result of the Acquisition, the assets and liabilities of Old Holdings were
revalued to their respective fair values under the principles of APB No. 16,
"Business Combinations." The most significant effects were to increase property,
plant and equipment, certain intangibles, inventory and certain liabilities.
Accordingly, financial information for periods prior to May 26, 1998
(Predecessor) is not comparable with that for periods subsequent to May 26, 1998
(Successor). The principal differences include increased depreciation and
amortization expense resulting from write-up of the Company's fixed and
intangible assets and goodwill and increased interest expense resulting from
financing the Acquisition.

On October 23, 1998, Steel Heddle, through its wholly owned subsidiary,
Millentex Investment Corporation, acquired a 49% ownership interest in
Millentex, an entity organized under the laws of the Kingdom of Belgium.
Millentex, was established on August 16, 1998 to effect the acquisition of the
outstanding common stock of a company with operations in the loom accessories
industry. The purchase price of approximately $2 million was financed via a
capital contribution from Steel Heddle and was accounted for using the purchase
method of accounting.

In accordance with the purchase method of accounting, the purchase price has
been allocated to the underlying assets and liabilities of Millentex based upon
their estimated respective fair values at the date of acquisition. The fair
values have been determined by independent appraisals, valuations and other
means deemed appropriate by management. Based on such allocations, the purchase
price was allocated to identifiable assets and there was no goodwill.

The financial position at April 3, 1999, and the results of operations for the
three months ended April 3, 1999 of Millentex are included in the Company's
consolidated financial statements at April 3, 1999. In the calculation of
Adjusted EBITDA for the twelve months ended April 3, 1999, in accordance with
the definition of consolidated EBITDA in the credit facility, the results of
Millentex are included on a pro forma basis for the full twelve months.

BASIS OF PRESENTATION

The following table sets forth certain unaudited performance details for the
periods shown. Net sales, cost of sales, gross profit, selling, general and
administrative expenses, operating income and net income (loss) of the Company
are presented in thousands of dollars and as a percentage of sales.

<TABLE>
<CAPTION>

                                                Three Months                                 Three Months
                                                   Ended                                         Ended
                                                April 3, 1999                                April 4, 1998
                                                  Successor                                  Predecessor
                                              ------------------                           -----------------
<S>                                            <C>         <C>                               <C>       <C>
Net sales                                      $18,529    100.0%                             $19,266   100.0%
Cost of sales                                   14,121     76.2                               11,930    61.9
Gross profit                                     4,408     23.8                                7,336    38.1
SG&A                                             2,790     15.1                                2,178    11.3
Operating income                                   658      3.6                                4,908    25.5
Net income (loss)                               (2,039)    11.0                                2,501    13.0
</TABLE>

                                       16
<PAGE>

COMPARISON OF RESULTS OF OPERATIONS

THREE MONTHS ENDED APRIL 3, 1999 (SUCCESSOR) COMPARED TO THREE MONTHS ENDED
APRIL 4, 1998 (PREDECESSOR)

Net Sales. Net sales decreased $737 or 3.8% for the three months ended April 3,
1999 compared to the three months ended April 4, 1998. This decrease in net
sales resulted from a decrease in Textile Products net sales of $12 or 0.1% to
$15,275, a decrease in Metal Products net sales of $295 or 11.0% to $2,399 and a
decrease in other net sales of $430 or 33.5% to $855. Textile Products net sales
includes net sales of Millentex (acquired October 23, 1998) of $2,524 during the
three months ended April 3, 1999. Net sales for Textile Products, Metal Products
and other decreased due to a decrease in domestic net sales as foreign net sales
have increased with the acquisistion of Millentex.

The decrease in domestic net sales of Textile Products is attributable to a
number of factors. Mill operating rates in the filament sector have been
adversely affected by a surge in low cost fabric imports from Asia. Fewer new
looms and the Company's associated products were purchased during the three
months ended April 3, 1999. During the three months ended April 4, 1998, the
Company made some shipments related to the record number of new loom purchases
in 1997. In addition, as the significant number of new looms were previously
installed, an increased amount of used accessories became available within
larger mills to support their short-term accessory needs. Finally, mill managers
have been reducing operating costs and expenditures for new accessories in
reaction to uncertainties created in the domestic textile market by the Asian
economic downturn.

Metal Products net sales declined as a result of pricing pressures and as a
large customer began efforts to reduce inventory levels.

The decrease in other net sales for the three months ended April 3, 1999 is due
to a decrease in shuttle and tool and die net sales. Shuttle net sales decreased
as fewer shuttle looms remain as these looms are being replaced by faster more
efficient shuttleless looms. Tool and die net sales decreased during the three
months ended April 3, 1999 as certain large projects for a customer were
completed.

Gross Profit. Gross profit for the three months ended April 3, 1999 decreased
$2,928 to $4,408, or 23.8% of nets sales, compared to gross profit of $7,336 or
38.1% of net sales for the three months ended April 4, 1998. Included in gross
profit for the three months ended April 3, 1999 is gross profit of $399 related
to Millentex. The decrease is primarily due to the decline in domestic sales in
the Textile Products business segment, lower international prices for Textile
Products sold in Asian markets due to heightened competition for fewer orders,
underabsorption of fixed costs resulting from decreased units sold or
transferred intercompany and to additional depreciation and amortization expense
resulting from the write-up of the Company's assets in connection with the new
basis of accounting used in the Acquisition. Depreciation and amortization,
including Millentex depreciation of $164, charged to cost of goods sold totaled
$2,264 for the three months ended April 3, 1999, an increase of $1,431 compared
to the comparable period of 1998.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the three months ended April 3, 1999 increased $612
to $2,790 or 15.1% of net sales from $2,178 or 11.3% of net sales for the three
months ended April 4, 1998. The increase is due to the inclusion of Millentex
selling, general and administrative expenses of $396, an increase in
depreciation expense of $110 associated with the write-up of the Company's
assets in connection with the new basis of accounting in the Acquisition and an
increase in costs incurred in connection with the Company's year 2000 computer
project of $40.

Operating Income. Operating income for the three months ended April 3, 1999 was
$658, or 3.6% of net sales compared to $4,908, or 25.5% of nets sales for the
three months ended April 4, 1998. Millentex contributed operating income of $3
during the three months ended April 3, 1999. The decrease of $4,250, or 86.6% is
due to the decrease in gross profit as described above, a $213 increase in
management fees and an increase of $497 in amortization of goodwill in
connection with the new basis of accounting used in the Acquisition.

Net Income (Loss). The Company incurred a net loss of $(2,039), 11.0% of net
sales, for the three months ended April 3, 1999 compared to net income of
$2,501, 13.0% of net sales, for the three months ended April 4, 1998. The loss
during 1999 is due primarily to an increase in interest expense resulting from
debt issued in connection with the Acquisition and to the factors noted above.
The effective tax rate for the year ended 


                                       17
<PAGE>

January 1, 2000 is significantly different from the statutory rate due to an
increase in the amount of nondeductible goodwill amortization related to the
Acquisition.

LIQUIDITY AND CAPITAL RESOURCES

The Company's principal sources of funds are cash provided by operating
activities and borrowings under its revolving credit facility. The Credit
Facility consists of a $30 million term and a $20 million revolving loan
commitment. The term loan is payable in quarterly installments ranging from $1
million to $2 million beginning July 3, 1999 through April 3, 2004. The term
loan and the revolving loan bear interest at the bank's prime rate plus 1.0
percent or Eurodollar rates plus 2.25 percent, at the Company's option. At April
3, 1999, the interest rates on the Credit Facility borrowings ranged from 7.19%
to 7.32% and approximately $17.3 million was available for borrowing under the
revolving loan facility.

The Credit Facility and the Notes contain various financial covenants, including
minimum levels of EBITDA, minimum interest coverage ratio and maximum capital
expenditures and total leverage ratio. The non-financial covenants restrict the
ability of the Company and its subsidiaries to dispose of assets, incur
additional indebtedness, prepay other indebtedness or amend certain debt
instruments, pay dividends, create liens on assets, enter into sale and
leaseback transactions, make investments, loans or advances, make acquisitions,
engage in mergers or consolidations or engage in certain transactions with
affiliates and otherwise restrict certain corporate activities. The Company was
in compliance with its various financial and non-financial covenants at April 3,
1999.

Cash Flows from Operating Activities. The Company has historically generated
sufficient internal cash flow from operations to fund its operations, capital
expenditures and working capital requirements. Cash provided by operating
activities for the three months ended April 3, 1999 increased to $1,990 from
cash used in operating activities of $258 for the three months ended April 4,
1998. The increase was primarily due to the Company's reduction in working
capital requirements.

Cash Flows used in Investing Activities. Net cash used in investing activities
for the three months ended April 3, 1999 decreased to $309 from $537 for the
three months ended April 4, 1998. The Company's capital expenditures for the
period were $309, a decrease of $309 compared to the same period in 1998. These
expenditures were primarily for the replacement of machinery and equipment.

Cash Flows used in Financing Activities. Cash flows used in financing activities
for the three months ended April 3, 1999 was $1,799 compared to cash flows
provided by financing activities of $692 for the three months ended April 4,
1998. This change resulted from the net repayment of amounts borrowed under the
Company's revolving lines of credit and notes payable during the three months
ended April 3, 1999.

Adjusted EBITDA. EBITDA represents operating income plus depreciation and
amortization and is calculated in a manner consistent with the definition of
"Consolidated EBITDA" in the Note Indenture. Adjusted EBITDA, as presented
below, represents EBITDA plus items which management believes to be unusual,
including, but not limited to, management and transaction fees paid to Butler
and AIP, supplemental bonus compensation, compensation expense for certain
eliminated management positions and incremental increases in obsolete inventory
reserves. Adjusted EBITDA is calculated in a manner substantially consistent
with the definition of "Consolidated EBITDA" in the credit agreement. Adjusted
EBITDA was $4,120 for the three months ended April 3, 1999, $6,149 for the three
months ended April 4, 1998, $17,315 for the twelve months ended April 3, 1999
and $23,293 for the twelve months ended April 4, 1998.

Adjusted EBITDA is included herein as it is a basis upon which the Company
assesses its financial performance, and certain covenants in the credit
agreement are tied to similar measures. Adjusted EBITDA is not intended to
represent cash flow from operations as defined by GAAP and should not be used as
an alternative to net income as an indicator of operating performance or to cash
flows as a measure of liquidity. Adjusted EBITDA, as presented, represents a
useful measure of assessing the Company's ongoing operating activities without
the impact of financing activities and unusual items. While EBITDA and Adjusted
EBITDA 

                                       18
<PAGE>

are frequently used as a measure of operations and the ability to meet debt
service requirements, it is not necessarily comparable to other similarly titled
captions of other companies due to potential inconsistencies in the method of
calculation.

Liquidity. The Company's principal sources of funds are cash provided by
operating activities and borrowings under its revolving credit facility. The
Company believes that such funds will be adequate for the Company's foreseeable
working capital needs, planned capital expenditures and debt service obligations
on both a short-term and a long-term basis. However, the level of the Company's
indebtedness could have important consequences, including, but not limited to,
the following: (i) the Company's ability to obtain additional financing in the
future for working capital, capital expenditures, acquisitions, product
development, general corporate purposes or other purposes may be materially
limited or impaired; (ii) significant amounts of the Company's borrowings bear
interest at variable rates, which could result in higher interest expense in the
event of increases in interest rates; (iii) the Company's debt agreements
contain financial and restrictive covenants, the failure to comply with which
may result in an event of default which if not cured or waived, could have a
material adverse effect on the Company; (iv) the Company may be substantially
more leveraged than certain of its competitors, which may place the Company at a
competitive disadvantage; and (v) the Company's substantial degree of leverage
may limit its flexibility to adjust to changing market conditions, reduce its
ability to withstand competitive pressures and make it more vulnerable to a
downturn in general economic conditions or in its business or be unable to carry
out capital spending. The Company's ability to fund its operations and make
planned capital expenditures, to make scheduled debt payments, to refinance
indebtedness and to remain in compliance with all of the financial covenants
under its debt agreements depends on its future operating performance and cash
flow, which in turn, are subject to prevailing economic conditions and to
financial, business and other factors, some of which are beyond its control.

YEAR 2000 MATTERS

Certain computer programs written with two digits rather than four to define the
applicable year may experience problems handling dates near the end of and
beyond the year 1999. This may cause computer applications to fail or to create
erroneous results unless corrective actions are taken.

Steel Heddle initiated the process of preparing its computer systems and
applications for the Year 2000 in 1997. This process involves addressing the
impacts on information technology (IT) systems plus non-IT systems involving
embedded chip technology. The process involves modifying or replacing certain
hardware and software maintained by the Company as well as communicating with
customers and suppliers to ensure that they are taking appropriate actions to
remedy their Year 2000 issues. The Company will utilize both internal and
external resources to reprogram or replace, and test the software for Year 2000
modifications. The Company anticipates completing the Year 2000 project during
the third quarter of 1999, which is prior to any anticipated impact on its
operating systems. The Company is also developing contingency plans in the event
there are any systems disruptions as a result of the Year 2000 problem.

With respect to IT systems, the plan includes programs relating to (i) computer
applications, including those for mainframes, client server systems and personal
computers and (ii) IT infrastructure, including hardware, software, network
technology and data communications. In the case of non-IT systems the Year 2000
plan includes programs relating to equipment and processes used in manufacturing
and equipment and systems in buildings not encompassed by manufacturing
equipment.

The project is being conducted in phases, described as follows:
   Inventory Phase - Identify hardware, software, processes or devices that use
   or process date information. 
   Assessment Phase - Identify Year 2000 date processing deficiencies and 
   related implications. 
   Planning Phase - Determine for each deficiency an appropriate solution and 
   budget.
   Implementation and Testing Phase - Implement designed solutions and conduct 
   appropriate testing.

IT Applications: The Company has completed the inventory, assessment and
planning phases for all IT applications considered to be mission-critical and is
currently in the implementation and testing phase. 

                                       19
<PAGE>

Implementation and testing involves repair of existing systems, and in some
cases, complete replacement with purchased systems that are Year 2000 compliant.
Modified systems are subjected to rigorous testing in a non-production
environment with production data and moved to a production environment for
further testing and monitoring. Modifications to existing systems are
approximately 90 % complete. Testing and monitoring of those systems will
continue throughout 1999. Mission-critical systems scheduled for replacement
include only the general ledger accounting system, which will be replaced with a
purchased system. Replacement and testing is expected tol be completed by August
31, 1999.

IT Infrastructure: The Company has completed the inventory, assessment and
planning phases and is currently in the implementation phase. Implementation
involves repairing or replacing infrastructure hardware and software and
obtaining vendor certifications. Implementation is expected to be completed by
June 30, 1999.

Non-IT Systems: Management has reviewed production and building infrastructure
equipment and systems used in its operations and has requested written
certification from vendors. Implementation is expected to be completed by June
1999.

The Company has surveyed all of its significant suppliers and large customers to
determine the extent to which the Company's interface systems are vulnerable to
those parties' failures to remediate their Year 2000 issues. The Company has
received representations from its primary third-party vendors that they will
have resolved any Year 2000 problems in their software prior to any impact on
their operating systems. However, many of the responses will require follow-up,
which is to be completed during the third quarter of 1999.

The cost of the year 2000 project is estimated at $1,000 and is being funded
through operating cash flows. Of the total project cost, an estimated $400 is
attributable to the purchase of new software and hardware and will be
capitalized. The remaining estimated $600 million, will be expensed as incurred
and is not expected to have a material effect on the results of operations. The
Company has incurred $723 of costs, ($261 during fiscal 1999), of which $471 has
been expensed, ($131 expensed in fiscal 1999).

The Company is preparing contingency plans relating specifically to identified
Year 2000 risks and developing cost estimates relating to these plans.
Contingency plans may include stockpiling raw materials, increasing inventory
levels, and securing alternative sources of materials and supplies and other
appropriate measures. Management anticipates completion of the Year 2000
contingency plans during the third quarter of 1999. Once developed, Year 2000
contingency plans and related cost estimates will be tested and continually
refined as additional information becomes available.

The costs of the project and the date on which the Company believes it will
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources, third party modification plans
and other factors. However, there can be no guarantee that these estimates can
be achieved and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include, but are not
limited to, the availability and cost of personnel trained in this area, the
ability to locate and correct all relevant computer codes and similar
uncertainties.

Further, there can be no assurance given that any or all of the Company's
systems are or will be Year 2000 compliant or that the impact of any failure to
achieve substantial Year 2000 compliance will not have a material adverse effect
on the Company's financial condition. Furthermore, no assurance can be given
that the third parties important to Steel Heddle will successfully and timely
reprogram or replace, and test, all of their own computer hardware, software and
process control systems. However, the Company believes that its Year 2000
readiness program, including related contingency planning, should significantly
reduce the possibility of significant interruptions of normal operations.

                                       20
<PAGE>

ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement requires companies to record
derivatives on the balance sheet as assets or liabilities, measured at fair
value. Gains or losses resulting from changes in the values of those derivatives
would be accounted for depending on the use of the derivative and whether it
qualifies for hedge accounting. SFAS No. 133 will be effective for the Company
in Fiscal 2000. Adoption of this statement is not expected to have a material
impact on the Company's financial position, results of operations or cash flows.


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


Market risk relating to the Company's operations result primarily from
volatility in interest rates and foreign currency exchange rates.

Interest rate risk. The Company has exposure to interest rate changes primarily
relating to its bank term debt and revolver and its foreign debt. The bank debt
bears interest at rates which vary with changes in (i) the bank's prime rate, or
(ii) Eurodollar Rate. The foreign debt bears interest at rates which vary with
changes in the Belgium Interbank Offered Rate. The total of all such
variable-rate debt was approximately $34,878 at April 3, 1999. A 100 basis point
change in interest rates would not have a material impact on the Company's
consolidated financial position or results of operations.

Foreign currency risk. The Company has two foreign subsidiaries located in
Mexico and Belgium and conducts business in a number of other countries. Sales
by foreign subsidiaries are denominated in the local currency of the subsidiary,
and international sales from U.S. operations are generally denominated in U.S.
dollars. For the three months ended April 3, 1999, approximately 32% of the
Company's revenues are generated outside the United States. The Company's
ability to sell its products in these foreign markets may be affected by changes
in economic, political, and market conditions.

At April 3, 1999, the functional currency of the Belgium subsidiary and the
Mexican subsidiary was their respective local currency. At the beginning of
fiscal 1999, the functional currency of the Mexican subsidiary changed from the
US dollar to the local currency (peso) due to the fact that Mexico is no longer
considered highly inflationary. Gains or losses from translation of foreign
operations where the local currency is the functional currency are included as a
separate component of shareholder's equity. To date, translation losses have not
been significant. The Company's net investment in its foreign subsidiaries was
$1,542 at April 3, 1999. If the foreign currency exchange rates fluctuate by 10%
from rates at April 3, 1999, the effect on the Company's financial position and
results of operations would not be material.

                                       21
<PAGE>

                            PART II OTHER INFORMATION

<TABLE>
<CAPTION>
<S>               <C>                                                                       <C>
ITEM 1.           LEGAL PROCEEDINGS                                                         None
ITEM 2.           CHANGES IN SECURITIES AND USE OF PROCEEDS                                 None
ITEM 3.           DEFAULTS UPON SENIOR SECURITIES                                           None
ITEM 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                       None
ITEM 5.           OTHER INFORMATION                                                         None
ITEM 6.           EXHIBITS AND REPORTS ON FORM 8-K
                  (a)     Exhibit  - (27) Financial Data Schedule
                  (b)       Reports on Form 8-K - Form 8-K dated March 1, 1999
                            was filed March 22, 1999 and included notice of the
                            Joinder Agreement dated October 30, 1998 by and
                            between Millentex Investment Corporation and
                            NationsBank, N.A. and the Second Amendment to the
                            Credit Agreement, dated as of Decemeber 31, 1998, by
                            and among the Registrant, Steel Heddle International,
                            Inc., Heddle Capital Corp., NationsBank, N.A., Bank Austria
                            Creditanstalt Corporate Finance, Inc., Wachiovia, NA and DLJ
                            Capital Financing, Inc.

</TABLE>





                                   SIGNATURES


Pursuant to the requirements 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.


                                                  STEEL HEDDLE MFG. CO.

Date: May 18, 1999             By:   /s/ Jerry B. Miller
                                     -----------------------------------------
                                     Jerry B. Miller
                                     Vice President Finance and Secretary



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