
<PAGE>
<PAGE>
                       Securities and Exchange Commission
                             Washington, D.C. 20549

                                   Form 10-K

                 Annual Report Pursuant to Section 13 or 15 (d)
                     of the Securities Exchange Act of 1934


For the Fiscal Year Ended                                 Commission File Number
     September 30, 1995                                         0-15045

                                BHA Group, Inc.
       ------------------------------------------------------------------
             (Exact name of Registrant as specified in its charter)

          Delaware                                      43-1416730
- - --------------------------------            ------------------------------------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
 incorporation or organization)


  8800 East 63rd Street, Kansas City, Missouri                    64133
- - ------------------------------------------------            ----------------
    (Address of principal executive offices)                   (Zip Code)

Registrant's telephone number, including area code:    (816) 356-8400
                                                   ---------------------------

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

                                                    Name of Each Exchange
         Title of each class                         on Which Registered
         -------------------                        ----------------------
                 None                                     - - - - -

Securities registered pursuant to Section 12(g) of the Act:

                 Class A Common Stock, $.01 par value per share
        ---------------------------------------------------------------
                                (Title of class)

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         X                No
                     ---------                 ---------

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

                                      -1-

<PAGE>
<PAGE>

As of December 15, 1995, the number of shares outstanding of the Registrant's
Class A Common Stock was 5,463,416 shares, and the number of shares outstanding
of the Registrant's Class B Common Stock was 0 shares.

The aggregate market value of the voting stock held by non-affiliates* of the
Registrant's Class A Common Stock was $69,266,918, computed by reference to the
closing price of $14.00 as reported to Registrant at which such stock was quoted
by the NASDAQ National Market on November 30, 1995.

The Registrant's definitive proxy statement for the annual meeting of
stockholders to be held on February 20, 1996 (which will be filed within 120
days after the end of the fiscal year covered by the Form 10-K) is incorporated
to Part III, items 10, 11, 12 and 13, by reference.

*Excludes value of shares held by present officers, directors and principal
stockholders of the Registrant. The determination of "affiliate" status for
purposes of this Annual Report on Form 10-K shall not be deemed a determination
as to whether a person is an affiliate of the Registrant for any other purpose.


                                      -2-


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                                     Part I


                                Item 1 - Business

BHA Group, Inc. (together with its domestic and international subsidiaries, the
"Company" or "BHA") is an industrial service company that designs, manufactures
and sells replacement parts and accessories and provides rehabilitation and
conversion services for the types of industrial air pollution control equipment
known as "baghouses", "cartridge collectors" and "electrostatic precipitators".
This equipment is used to eliminate particulate from the air by passing
particulate laden gases through fabric filters or filter bags, in the case of
baghouses, pleated media filter elements, in the case of cartridge collectors or
between electrically charged collector plates, in the case of electrostatic
precipitators. An important part of the Company's business is the maintenance,
conversion and rebuilding of this equipment through a network of employees and
independent contractors. The Company's products and services are marketed
throughout North America, South America, Europe, the Near East and the Pacific
Rim. While definitive industry statistics are not available, based upon Dun &
Bradstreet reports and other financial information available to it, the Company
believes it is a leader in worldwide sales of air pollution control replacement
parts and services.

The Company was organized as an unincorporated division of Standard Havens, Inc.
("Standard Havens") in 1975 and was incorporated in Delaware as a wholly-owned
subsidiary of Standard Havens in 1986. The Company became publicly-owned when it
completed its initial public offering of common stock in November 1986. The
Company's outstanding common stock was reclassified into Class A Common Stock
and Class B Common Stock in April 1988, after which all of the Company's Class B
Common Stock held by Standard Havens was distributed to the shareholders. Since
1988, all Company Class B Common Stock has been converted to Class A Common
Stock, and no Class B Common Stock is outstanding. The Company completed its
second public offering of common stock in February 1989. Net proceeds from that
public offering (approximately $8.3 million) were used for working capital
purposes and to finance several acquisitions.

On December 13, 1995, the Board of Directors recommended for shareholder
approval an increase in the Class A Common Stock authorized from 10 million to
20 million shares, the elimination of the Class B Common Stock, and
reclassifying the Class A Common Stock of the company to Common Stock.

In June 1989, the Company acquired the business of developing and manufacturing
acoustic horns for use in both baghouses and electrostatic precipitators of
Saracco Acoustic Sciences Corporation. Other acquisitions during 1989 relating
to products and services for electrostatic precipitators are discussed below.

In April 1989, the Company formed PrecipTech, Inc. ("PrecipTech"), a Delaware
corporation, as a wholly-owned subsidiary. PrecipTech, which had previously been
a division of BHA, was formed for the purpose of conducting and expanding the
Company's business as it relates to replacement parts, accessories and services
for electrostatic precipitators.

PrecipTech completed three acquisitions of privately held companies or their
operating assets during the calendar year 1989 as follows: ESP Specialties,
Inc., a company that manufactures

                                      -3-

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and sells replacement parts for electrostatic precipitators was acquired in
April 1989; Kinetic Controls, Inc., a company specializing in the manufacture
and sale of automatic voltage controllers for electrostatic precipitators was
acquired in July 1989; and Midwest Power Corporation, a company engaged in the
manufacture and sale of replacement parts, accessories and services for
electrostatic precipitators was acquired in October 1989.

During 1992, the Company acquired the Fabric Filters Division of Joy
Environmental Technologies which manufactures fabric filter bags. In August
1994, the Company acquired SF Air Filtration AG, which is based outside of
Zurich, Switzerland. SF Air Filtration AG designs and produces high efficiency
replacement cartridge filter elements which the Company believes will be in
demand as markets continue to move to tighten particulate control. In two
separate transactions during 1995, the Company purchased certain product rights
relating to evaporative gas cooling technology and a dust monitor product line.

Business Segment Data

The Company sells products and services in several geographical areas.
Operations of the domestic business segment are based in the U.S. The Company's
domestic operations provide products and services to the U.S. markets and
exports to Canada, Latin America, the Near East and Pacific Rim. The Company's
foreign operations manufacture and sell products in Europe. Set forth below is
information regarding the Company's business segments for each of the years in
the three-year period ended September 30, 1995 (in thousands of dollars):

<TABLE>
<CAPTION>


                                                1993             1994              1995
<S>                                          <C>            <C>              <C>

  Domestic Sales                               81,368           91,055           101,392
  Foreign Sales (European Operations)           7,537            9,860            13,331
                                             ----------      -----------      ------------
                                               88,905          100,915           114,723
                                             ==========      ===========      ============

  Domestic Assets                              55,433           55,575            64,300
  Foreign Assets (Europe)                       4,900            7,175             7,489
                                             ----------      -----------      ------------
                                               60,333           62,750            71,789
                                             ==========      ===========      ============
  Domestic Operating Income                     6,304            6,966             9,281
  Foreign Operating Income (Europe)               441              561               690
                                             ----------      -----------      ------------
                                                6,745            7,527             9,971
                                             ==========      ===========      ============
</TABLE>


U.S. export sales to Canada, Latin America, the Near East, and Pacific Rim were
$7,667,000, $10,606,000 and $13,653,000 for the years ended September 30, 1993,
1994 and 1995, respectively. These revenues are included in "Domestic Sales" in
the table above.

Products and Services

The Company believes it has the broadest product line in the air pollution 
control equipment aftermarket. This, combined with its proprietary telemarketing
system, enables it to respond promptly to customer requests, thus providing it
with a competitive advantage.

The Company manufactures and sells a wide variety of filter bags, replacement
parts and accessories for the air pollution control equipment aftermarket.
Filter bags are manufactured by the Company from fabric purchased in bulk from
fabric manufacturers. The Company

                                      -4-


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manufactures industry standard bags, as well as bags for customer specific
applications. Most filter bags are produced from fiberglass, polyester, aramid
and polypropylene fabrics. A market shift towards higher efficiency filtration
has led to an increase in production of filters that have PTFE membrane applied
to the fabric and other more specialized materials. Baghouse replacement parts
include support cages for the filter bags, clamps, spring tensioning systems,
continuous particulate monitoring systems and gaskets. Electrostatic
precipitator replacement parts include collecting plates, wires, discharge
electrodes, transformer/rectifiers, rappers and electronic controls.

In addition to standard replacement parts, the Company continues to aggressively
introduce new products and accessories which enhance the performance of a dust
collection system. These new products include continued enhancements to the
Company's electrical products for both baghouses and precipitators and the
introduction of a pleated media filter element and evaporative gas cooling
product lines. Product profitability varies considerably over different product
groups, with filter bags typically providing a lower profit margin than
replacement parts and accessories.

The Company's business also includes the maintenance, conversion and rebuilding
of industrial air pollution control equipment through a network of independent
contractors and its own service crews. A comprehensive safety program enables
both the Company and customer to control costs from a risk management
perspective. Conversion and rebuilding services involve the retrofitting of an
entire baghouse or electrostatic precipitator to restore it to original
operating parameters or improve overall performance. BHA is capable of supplying
a variety of other services specifically fitted to its customers' requirements,
including preventive maintenance, system/equipment analysis, inspections,
supervision of customer personnel and training. Information gathered during
preventive maintenance, analysis and inspections is stored in the Company's
database for future reference, and thus is a valuable source of important
customer information. In addition, knowledge gained in solving one customer's
problems is stored in the Company's database and made available on-line to the
Company's salespeople to permit them to respond promptly to similar problems
encountered by other customers. BHA believes it is the leader in providing these
services on a worldwide basis.

Customer Base

The Company's customer base is diverse both industrially and geographically, and
includes customers in virtually all sectors of the industrial economy.
International markets include Canada, Europe, Latin America, the Near East and
the Pacific Rim. The Company's products and services are used in major
industrial environments such as cement kilns, asphalt plants, steel and iron
foundries, aluminum and copper smelters, rock and gypsum dryers, chemical
plants, grain and food processing plants, refuse to energy plants, waste and
hazardous waste incinerators and electric utilities, as well as many other
areas.

The vast majority of the Company's baghouse sales represent small transactions
with numerous customers. Precipitator replacement parts sales frequently
accompany conversion or rebuild services. No customer accounted for more than
10% of the Company's annual sales during any of its last three fiscal years. The
Company does not believe that it is dependent upon any single customer or group
of customers and has no unusual geographical or industry concentrations of
business or credit risk.

                                      -5-

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Marketing

One of the Company's principal competitive advantages is its proprietary
telemarketing system, the core of which is a computer database containing
detailed information on over 100,000 pieces of pollution control equipment
(baghouses and electrostatic precipitators) at over 45,000 plant locations. The
growth of the telemarketing database has recently increased due to the focus on
international markets. Because of the large number of different original
equipment manufacturers and varying maintenance procedures, many pieces of
customer equipment have unique features. Included in the Company's database is
information on the location of the equipment; a phone contact for the
individuals responsible for maintaining the equipment; the type of equipment (by
manufacturer, design and unique attributes); when it was installed; what fabric,
size and design filter bags are used; when the bags were last serviced;
additional accessories that were installed; application and temperature
requirements; as well as other detailed pieces of useful information about the
equipment and the customer. This information has been gathered over the past 20
years of the Company's existence, and is continually updated following customer
calls, site inspections and maintenance jobs.

The Company keeps information in a central computer database which is accessed
on-line by its telemarketing representatives. The computer tracks customer calls
and pending orders, which helps make efficient use of the representative's time.
Each day, a list of the most important customer calls is provided to the
representative. This list includes contracts and orders in negotiation, as well
as reminders for calls to customers which have not been serviced for some time.
Once an order is taken, the information is automatically routed to the
operations area which uses the computer to generate invoices and contracts.
Invoice and technical data about the filter bags, cages, precipitator
replacement parts and accessories is sent via computer connection to the
Company's manufacturing facilities. There the bags are sewn, the support cages
and precipitator replacement parts are manufactured, and the accessories are
consolidated for shipment. The order is packaged and sent to the customer
according to a priority schedule.

Each telemarketer is furnished with data to evaluate their performance and
enable them to focus on high opportunity sales calls. Historical sales data is
made available to each telemarketer showing (i) performance by the month and
year toward targeted goals (broken down by product category) sales volume and
profit margin, (ii) the sales history for each customer, as well as the sales
potential for such customer, and (iii) a summary of each contact with each
customer and its results, including notes of any useful information for further
contacts. The Company believes that the system provides effective feedback to
telemarketing personnel to meet their sales goals.

In addition to its use on a customer-by-customer basis, the Company's
telemarketing system and database is used to develop industry statistics and
analyze market trends. Information is also extracted for marketing and
advertising campaigns and new product evaluations.

Government Regulation

The Company is not subject to direct environmental protection regulation with
respect to the manufacture or sale of its products other than regulations
applicable to manufacturers generally. The Company's customers are required to
meet national primary and secondary ambient air quality standards for specific
pollutants, including particulate matter, which have been promulgated under the
Clean Air Act, as amended (the "Act"). Title V, the cornerstone of the Act,
which has 1996 compliance deadlines, establishes a national operating permit
program. Title V will require an increase in the record keeping, monitoring and
reporting

                                      -6-

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<PAGE>


requirements to ensure compliance with the standards established by the
permitting authorities. The states have primary responsibility for implementing
these standards, and in some cases, have adopted standards which are more
stringent than those adopted by the Environmental Protection Agency ("EPA")
under the Act. Revisions to the Act have expanded the type of emissions
monitored and provided the EPA more power to revoke permits and issue fines. As
provisions in the Act are implemented, the regulations and enforcement practices
will force industry to take a more proactive approach toward the operation and
maintenance practices of their facilities which may have a positive impact on
the Company.

In April 1995, the enhanced monitoring provision originally required by Title V
was revised by the EPA to a proposed Compliance Assurance Monitoring ("CAM")
program. This program is scheduled for proposal in December 1995, with a final
promulgation date of July 1996. The CAM program will focus responsibility on
source operators for the monitoring of air pollution control equipment
parameters that would indicate compliance with emission requirements. In June
1995, the EPA issued the secondary lead smelter National Emissions Standards for
Hazardous Air Pollutants ("NESHAP") to require compliance and installation of a
continuous operation bag leak detection system by June 1997. Final promulgation
of additional proposed NESHAP's requiring industry to continuously monitor
emission points could have a favorable impact on the Company's particulate
monitor product line. The Company is not aware of any likely statutory changes
which may have a significant negative impact on its business.

Backlog 

On September 30, 1995, the backlog of orders for replacement parts and
industrial services was $33,310,000 compared to $33,192,000 at September 30,
1994 and $32,668,000 at September 30, 1993. The company believes the majority of
the backlog is shippable by September 30, 1996.

Foreign Operations

The Company entered the European market in 1982 when it acquired, as a wholly
owned subsidiary of the Company, a German corporation, Filtra GmbH, an air
pollution control replacement parts manufacturer and marketer. The name of this
organization was changed to BHA International GmbH effective October 1, 1994 for
continuity in the Company's marketing approach with other segments of the
business. BHA International GmbH manufactures replacement parts in Ahlen, German
and sells products throughout Europe.

In August 1994, the Company acquired, as a wholly owned subsidiary of the
Company, a Swiss corporation, SF Air Filtration AG, which designs and produces
high efficiency replacement cartridge filter elements. SF Air Filtration AG
manufactures pleated media filter elements in Klus/Balsthal, Switzerland and
sells these products throughout Europe.

                                      -7-

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Set forth below, is information regarding European sales and assets employed (in
thousands of dollars):


<TABLE>
<CAPTION>
                                           Fiscal Year Ended September 30,

                                        1993            1994             1995
<S>                                    <C>               <C>              <C> 

Sales                                   7,537            9,860            13,331

Identifiable Assets                     4,900            7,175             7,489

Operating Profit                          441              561               690

</TABLE>


Below is a schedule outlining the contribution of the Company's European Group
as a percentage of the consolidated amounts.


<TABLE>
<CAPTION>
                                           Fiscal Year Ended September 30,

                                       1993             1994              1995
<S>                                   <C>               <C>               <C> 

Sales                                   8%                10%               12%

Identifiable Assets                     8%                11%               10%

Operating Profit                        7%                 7%                7%

</TABLE>


BHA International GmbH's operating profits have increased steadily over the past
few years. The improvements are the result of a more narrow marketing focus
directed toward the countries of Western Europe. In previous years, its
marketing efforts were directed toward all of Europe, the Near East and Pacific
Rim. The establishment of sales and service offices in the Pacific Rim and Near
East, which provide support for export sales from the manufacturing units in the
United States, has enabled BHA International GmbH to concentrate on the European
markets and improve its ratio of accessory product sales to filter bags. This
shift in focus has had a favorable impact on its overall operating profits.

SF Air Filtration AG, which was acquired in the latter part of 1994, has
incorporated the Company's marketing strategy to its product line and achieved
positive operating profits in its first full year of operation as a wholly-owned
subsidiary of the Company.

U.S. Export Sales

The Company's domestic operations exports products from the U.S. and provides
services to customers in Canada, Latin America, the Near East and Pacific Rim.
Information regarding the Company's U.S. exports sales is included in the
Company's "Business Segment Data."

In June 1994, the Company established a liaison office in Bombay, India, with
the intention of providing sales and service assistance to customers in the Near
East. This office has provided regional support for exported product sales from
the Company's manufacturing units located in the United States. In July 1995,
approval was received from the government of India for the establishment of a
100% owned subsidiary, BHA Group International Pvt. Ltd., to replace the
Company's liaison office.

                                      -8-

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In September 1995, the Company received approval from the government of Taiwan
for the establishment of a branch office in Taipei, Taiwan. BHA Group
International, Inc., Taiwan Branch provides sales and service assistance to
customers in the Pacific Rim including regional telemarketing for exported
product sales from the Company's manufacturing units in the United States.

Competition

Based upon Dun & Bradstreet reports and other publicly available financial
information, the Company believes that it is a global leader in the air
pollution control equipment aftermarket. The Company has seen an increase in
Latin American replacement parts sales over the last three years showing growth
in Mexico, the Caribbean and South America. Sales offices have been established
in India and Taiwan, as the Near East and the Pacific Rim markets have been
targeted for growth. As a result of this movement into the international market,
the Company is facing increased competition from competitors in those specific
markets, as well as existing competitors from the U.S. and Europe. Several of
the Company's competitors are, or are part of, large integrated companies, which
have much greater resources than the Company. The competition also includes
several dozen small filter bag manufacturers which compete in local and regional
geographic markets. Generally, original equipment manufacturers in the U.S. have
not effectively competed in the aftermarket for baghouses, but have been a
significant factor in the aftermarket for electrostatic precipitators. The
domestic utility markets for precipitators have been competitive, as this
industry is restructuring in response to deregulation. Competition has had a
negative impact on the profitability of orders executed within this industry
group. The Company is having success in other precipitator industrial markets
domestically and internationally and has positioned itself anticipating strong
competition for utility orders for the next several years.

The Company believes that important competitive factors are timely and
dependable service, effective marketing, price and quality. The Company believes
it has the broadest product line in the air pollution control equipment
aftermarket. This, combined with its proprietary telemarketing system (see
"Marketing" above), enables it to respond promptly to customer requests, thus
providing it with a competitive advantage.

Employees

As of September 30, 1995, the Company's domestic operations employed 673 persons
of whom 89 were engaged in sales and marketing, 80 were engaged in management
and administration, and 504 were engaged in production. The Company's foreign
operations in Germany and Switzerland employed 71 persons, of whom 20 were
engaged in sales and marketing, 12 were engaged in management and
administration, and 39 were engaged in production. The Company's foreign sales
and services offices employed 18 persons, 13 of which were engaged in sales and
marketing and 5 were engaged in management and administration. The production
personnel in Germany were covered by a textile union contract which is
negotiable annually. The Company restricts access to its database and
customarily requires its employees having access to proprietary systems and
information to execute confidentiality agreements and, when appropriate,
covenants not to compete. The Company believes that its relations with its
employees are good.

Patents and Trademarks

The Company owns patents and trademarks, and has pending patent and trademark
applications relating to replacement parts and accessories for industrial air
pollution control equipment. The Company considers such patents and trademarks,
and the granting of the

                                      -9-

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patent and trademark applications filed, to be important. However, the business
of the Company is not dependent upon such patents and trademarks, and such
patents and trademarks and patent and trademark applications do not preclude the
marketing of generally similar items by competitors. Patents owned by the
Company expire during the period from 1997 to 2006.

                               Item 2 - Properties

Corporate Headquarters, Sales & Service Offices

The Company purchased the facility in Kansas City, Missouri, which serves as its
Corporate Headquarters (approximately 66,000 square feet) in 1994. The Company
leases office facilities in Bombay, India and Taipei, Taiwan (less than 2,000
square feet per location) for the sales organizations located in these
countries.

Manufacturing and Services Facilities

The Company owns (i) plants in Slater and Salisbury, Missouri (approximately
228,000 square feet), (ii) a plant in Folkston, Georgia (approximately 105,000
square feet), and (iii) a plant in Ahlen, Germany (approximately 30,000 square
feet). The Company leases (i) a facility in Newport News, Virginia
(approximately 17,000 square feet), (ii) a facility in Slater, Missouri
(approximately 28,000 square feet) and (iii) a facility in Klus/Balsthal,
Switzerland (approximately 20,000 square feet), (iv) a facility in Baltimore,
Maryland (approximately 3,500 square feet), (v) a facility in Covington,
Kentucky (approximately 5,000 square feet) and (vi) a facility in St. Louis,
Missouri (approximately 4,300 square feet). Operations performed at Slater and
Salisbury, Missouri and Ahlen, Germany include cutting and sewing filtration
fabrics, spot welding of metal cages and warehouse and assembly operations. The
operation in Folkston, Georgia is engaged in the manufacture of parts and
accessories for electrostatic precipitators. The operation in Newport News,
Virginia is engaged in the manufacture and assembly of computer based voltage
control systems for electrostatic precipitators. Operations in Klus/Balsthal,
Switzerland and Salisbury, Missouri are engaged in the manufacture of pleated
media filter elements for cartridge collectors. The facilities in Baltimore,
Covington and St. Louis serve as warehouse and office space for the Company's
field service crews.

The Company owns a secondary facility in Slater, Missouri (approximately 54,000
square feet) which is leased to a raw material supplier of the Company.

The buildings owned and office space leased by the Company are considered
adequate for the Company's present needs and suitable for any presently
foreseeable expansion.

                           Item 3 - Legal Proceedings

The Company is involved in no material legal proceedings other than ordinary
litigation incidental to the Company's business.

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

No matters were submitted during the fourth quarter of the fiscal year ended
September 30, 1995 to a vote of security holders through the solicitation of
proxies or otherwise.

                                      -10-



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                                    Part II


               Item 5 - Market for the Registrant's Common Stock
                      and Related Security Holder Matters

Market Information

The Class A Common Stock is traded in the over-the-counter market and quoted on
the NASDAQ National Market.

The following table sets for the range of per share bid prices for the Class A
Common Stock on the NASDAQ National Market for the past two fiscal years.

NASDAQ National Market System

<TABLE>
<CAPTION>

                                          Per Share Class A Common
                                               Stock Bid Price
                                         High                 Low

<S>                                     <C>                   <C>
Fiscal Year 1995
    Fourth Quarter                      15.00                 12.50
    Third Quarter                       14.50                 11.38
    Second Quarter                      14.25                 11.50
    First Quarter                       13.50                 11.50

Fiscal Year 1994
    Fourth Quarter                      13.00                  9.25
    Third Quarter                       10.75                  8.25
    Second Quarter                      13.25                  9.50
    First Quarter                       14.50                  9.50

</TABLE>

These market quotations reflect inter-dealer prices, without retail mark-up,
mark-down, or commission and may not necessarily represent actual transactions.

Holders

As of December 15, 1995, there were 6,435,016 shares issued and 971,600 shares
in treasury. The Company had 5,463,416 shares outstanding and owned by
approximately 618 holders of record as of this date.

Dividends

During the year ended September 30, 1994 ("fiscal 1994") and 1995 ("fiscal
1995"), the Company declared and paid quarterly dividends aggregating $.12 per
share to shareholders. The Company's Board of Directors ("Board of Directors")
has since declared a dividend of $.03 per share, payable on December 1, 1995, to
shareholders of record on November 20, 1995.

The Company does not have a formal policy for paying cash dividends on its
stock. Future determinations concerning dividends will be made, at the
discretion of the Board of Directors, based upon the Company's earnings, its
capital requirements, its financial condition, restrictions placed against
payment of dividends under any financing agreements and such other factors as
the Board of Directors, at its discretion, may from time to time deem relevant.

                                      -11-

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<PAGE>

Treasury Stock

During June 1994, the Board of Directors approved the purchase of up to 500,000
shares of the Company's Class A Common Stock. During November 1994, the Board of
Directors approved the repurchase of an additional 500,000, raising the total
number of shares authorized for repurchase to 1,000,000 shares. On November 7,
1995, an additional 500,000 shares were authorized for repurchase by the Board
of Directors, raising the total authorized for repurchase to 1,500,000 shares.
As of September 30, 1995 and December 15, 1995, a total of 971,600 shares of
Class A Common Stock had been repurchased by the Company.

                        Item 6 - Selected Financial Data

The following selected consolidated financial data should be read in conjunction
with Consolidated Financial Statements and notes thereto contained elsewhere in
the Annual Report on Form 10-K. The selected consolidated data for each of the
periods shown have been derived from such financial statements which have been
audited by KPMG Peat Marwick LLP. The consolidated financial statements, as of
September 30, 1995 and 1994 and for each of the years in the three-year period
then ended, and independent auditors report thereon are included herein.


<TABLE>
<CAPTION>

                                                                                   Years Ended September 30,
                                                                   1991       1992        1993        1994       1995
                                                                               (In Thousands, Except Per Share Data)

<S>                                                                <C>        <C>         <C>       <C>         <C>    
Selected Income Statement Data
   Net Sales                                                       69,687     81,847      88,905    100,915     114,723
   Gross Margin                                                    19,133     22,479      22,668     25,270      31,206
   Operating Expense                                               11,972     14,622      15,923     17,743      21,235
   Interest Expense/(Income)-Net                                      146        (24)          5        (47)        367
   Earnings Before Income Taxes                                     7,015      7,881       6,740      7,574       9,604
   Net Earnings                                                     3,958      4,911       4,380      4,809       5,954
   Net Earnings Per Share                                             .61        .75         .67        .75        1.03
   Weighted Average Shares Outstanding                              6,470      6,512       6,528      6,386       5,794

Selected Balance Sheet Data
   Working Capital                                                 19,782     24,348      25,414     24,721      24,887
   Total Assets                                                    45,760     54,363      60,333     62,751      71,789
   Short-Term Debt Including Current Portion of Long-Term Debt        797        490          49         56         757
   Long-Term Debt (Less Current Portion)                            1,403        963         398        351       9,899
   Shareholders' Equity                                            38,428     44,030      48,036     48,863      46,440
   Cash Dividends Declared Per Common Share                          -0-        -0-          .08        .12         .12


</TABLE>

           Item 7 - Management's Discussion and Analysis of Financial
                      Condition and Results of Operations

Operating results for the three fiscal years ended September 30, 1995:

Sales

Consolidated sales during fiscal 1995 were $114.7 million, which represented a
13.7% increase over fiscal 1994. BHA Company, Inc. ("BHA Company") sales of
$58.4 million, increased 21.0% over fiscal 1994. The increase was attributable
to higher sales of fabric filters, cages and pleated products. Sales of
maintenance services and major projects also increased during the period. BHA
Group International, Inc. ("BGI") sales were $24.2 million, representing a 39.8%

                                      -12-

<PAGE>
<PAGE>

increase over fiscal 1994. The improvement was attributable to an increase in
sales of fabric filter and electrostatic precipitator products and services to
the Latin American, Pacific Rim and Near East markets. Sales to Europe also
increased as BGI's German fabric filter company was able to significantly
increase its business within Europe and a full year of SF Air Filtration AG's
results, which was acquired in August of 1994, were included in fiscal 1995. BGI
sales, exclusive of SF Air Filtration AG sales, increased 19.6% during fiscal
1995 as compared to fiscal 1994. PrecipTech sales decreased by 9.1% to $32.1
million during fiscal 1995. The decrease was attributable to a general weakness
in the utility based market as the number of large rebuild orders executed
decreased versus the number in prior years. The decrease in sales of engineered
rebuilds was offset in part by higher sales to the industrial markets.

For fiscal 1994, consolidated sales were $100.9 million, which represented a
13.5% increase over fiscal 1993. PrecipTech sales increased 33.5% to $35.4
million during fiscal 1994 due to the execution of several large utility and
industrial rebuild orders and an increase in sales of electronic control
products. BHA Company sales of $48.5 million were consistent with sales in
fiscal 1993, as higher sales of fabric filters were offset by lower major
project and engineered systems sales. BGI sales were $17.0 million, which
represented a 28.7% increase over fiscal 1993 due to higher sales of
precipitator products and services to the Latin American market and increased
sales of baghouse products to Europe.

Gross Margin

Consolidated gross margin as a percentage of sales was 27.2%, 25.0% and 25.5%
for fiscal years 1995, 1994 and 1993, respectively. The improvement in overall
gross margin during fiscal 1995 was attributable to an improved mix of products
and markets. BHA Company gross margin percentages increased over the same period
a year ago, due to higher sales of accessory product lines and to favorable
plant absorption associated with higher sales of manufactured parts.
Consolidated gross margin percentages also improved as the growth rate in BGI
sales, which carry higher gross margin percentages than BHA Company and
PrecipTech, exceeded the domestic business sales growth rate. PrecipTech gross
margin percentages were consistent with those of the prior year.

During fiscal 1994, PrecipTech gross margin percentages were lower than fiscal
1993 due to a sales mix weighted towards utility engineered rebuild orders which
carry lower gross margin percentages than stand alone replacement parts orders.
Lower PrecipTech gross margins were offset in part by higher BHA Company gross
margin percentages which improved as compared to the previous year, due in part
to higher plant absorption associated with the increased sales of manufactured
products. Gross margins associated with the BHA Company service business also
improved due to a change in marketing focus and business methods. BGI gross
margin percentages, which are higher than domestic margins, were consistent with
the previous year.

Operating Expense

Selling and advertising expense as a percentage of sales was 9.4%, 8.8% and 8.5%
for fiscal years 1995, 1994 and 1993, respectively. The increase in fiscal 1995
and 1994 selling and advertising expense as a percentage of sales over fiscal
1993 is attributable to higher selling expenses associated with the increase in
international business, which requires higher selling overheads and the
establishment and expansion of several international sales and services offices.


                                      -13-

<PAGE>
<PAGE>

General and administrative expense as a percentage of sales was 9.1%, 8.7% and
9.4% for fiscal years 1995, 1994 and 1993, respectively. The fiscal 1995
increase in general and administrative expenses as a percentage of sales was due
to higher payroll and administrative expenses associated with an increase in
international and domestic business. The fiscal 1994 decrease in general and
administrative expense as a percentage of sales was the result of higher sales
volume yielding greater administrative efficiency.

Net Interest Income/Expense

Interest income was $42,000, $79,000 and $62,000 for fiscal years 1995, 1994 and
1993, respectively. Interest expense for fiscal years 1995, 1994 and 1993 was
$409,000, $32,000 and $67,000, respectively. The increase in interest expense in
1995 was attributable to borrowings under the Company's credit facilities for
the purchase of the building, which serves as the Company's headquarters, other
additions to property, plant and equipment and the acquisition of the Company's
shares as treasury stock.

Income Taxes

The effective tax rates were 38.0%, 36.5% and 35.0% in fiscal years 1995, 1994
and 1993. The higher tax rate during fiscal 1995 was attributable to higher
state taxes related to U.S. domestic earnings and the mix between domestic and
foreign operations. The lower percentage in fiscal 1993 was attributable to the
increased contribution of foreign operations to consolidated earnings.

Net Earnings

Net earnings were $6.0 million, $4.8 million and $4.4 million for fiscal years
1995, 1994 and 1993, respectively. The improvement in fiscal 1995 net earnings
reflects the higher sales volume and gross margin percentages in both the
domestic and international markets. The fiscal 1994 increase in net earnings was
attributable to higher sales volume.

Liquidity and Capital Resources

Net working capital was $24.9 million, $24.7 million and $25.4 million as of
September 30, 1995, 1994 and 1993, respectively. The current ratios at September
30, 1995, 1994 and 1993 were 2.90 to 1, 3.2 to 1 and 3.2 to 1.

Cash decreased $4.5 million from $6.8 million at September 30, 1994 to $2.3
million at September 30, 1995. Net cash provided by operating activities in
fiscal 1995 was $5.1 million. Fiscal 1994 cash provided by operating activities
was unusually high as a result of higher than normal collections due to several
large receivable balances from customers as of the end of fiscal 1993. The
Company's investing activities of $11.3 million, which included the purchase of
the building which serves as the Company's corporate headquarters, capital
improvements at its manufacturing facilities, and the acquisition of certain
product rights, were a primary reason for the overall decrease in cash. The
Company's net financing activities included the acquisition of 625,100 shares of
treasury stock for $8.0 million. The Company's investing and financing
activities were funded by net borrowings of $8.2 million under the Company's
revolving lines of credit and $2.5 million under a bank term note.

During fiscal 1995, the Company expanded its borrowing capacity through the
establishment of revolving lines of credit and increases to the limits under
existing lines of credit. At September 30, 1995, the Company had unused lines of
credit of approximately $9.2 million. The Company had unused short-term foreign
exchange borrowing arrangements of approximately $8.7 million at September 30,
1995. The Company believes that cash flow from


                                      -14-

<PAGE>
<PAGE>

operations and available credit facilities will be sufficient to meet its
capital needs for the foreseeable future.

New Accounting Pronouncement

Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
(Statement 121) was issued by the Financial Accounting Standards Board in March
1995 and is effective for fiscal years beginning after December 15, 1995 (the
Company's 1997 fiscal year). Management expects the adoption of Statement 121
will not have a significant impact on the Company's consolidated financial
statements.

              Item 8 - Financial Statements and Supplementary Data

Incorporated by reference to the consolidated financial statements attached
herewith. See Index to Consolidated Financial Statements and Schedules.

         Item 9 - Disagreements on Accounting and Financial Disclosure

There were no disagreements with the Company's principal accountants which
require disclosure pursuant to this item.







                                      -15-



<PAGE>
<PAGE>


                                    Part III


Part III (Items 10, 11, 12 and 13) is omitted by the Company in accordance with
General Instruction G to Form 10-K. The Company intends to file with the
Commission a definitive proxy statement pursuant to Regulation 14A not later
than 120 days following the close of its fiscal year ending September 30, 1995.


                                      -16-


<PAGE>
<PAGE>


                                    Part IV


   Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a) (1)  Financial Statements: See accompanying Index to Consolidated Financial
         Statements and Schedules.

(a) (2)  Financial Statement Schedules: See accompanying Index to Consolidated
         Financial Statements and Schedules. All schedules not listed have been
         omitted because they are not applicable or the information has been
         otherwise supplied in the Registrant's Financial Statements and
         Schedules.

(a) (3)  Exhibits:

         (3a)    Certificate of Incorporation, as amended (1) (2).

         (3b)    By-Laws, as amended (8).

         (10a)   BHA Group, Inc. 1986 Stock Option Plan as amended, including
                 form of Option Agreement (3).

         (10b)   Second Amendment to the BHA Group, Inc. 1986 Stock Option Plan
                 (5).

         (10c)   Lease Agreement dated September 30, 1991, with SH Properties,
                 Inc. (4).

         (10d)   Loan Agreement between Standard Havens, Inc. and certain
                 insurance companies (1), and assumption agreement pursuant to
                 which the company became the sole obligor under the loan (2).

         (10e)   Employee Stock Ownership Plan of BHA (1).

         (10f)   401(K) Plan of BHA (1).

         (10g)   Loan Agreement between BHA Group, Inc. and Boatmen's First
                 National Bank of Kansas City, N.A. (2).

         (10h)   Directors and Officers Insurance and Company Reimbursement
                 Policy issued by National Union Fire Insurance Company of
                 Pittsburgh, Pennsylvania (2).

         (10i)   Employment Agreement dated September 1, 1993 between BHA Group,
                 Inc. and Lamson Rheinfrank, Jr. (6).

         (10j)   Employment Agreement dated September 1, 1993 between BHA Group,
                 Inc. and Michael T. Zak (6).

         (10k)   Employment Agreement dated September 1, 1993 between BHA Group,
                 Inc. and James E. Lund (6).

                                      -17-

<PAGE>
<PAGE>

         (10l)   Employment Agreement dated September 1, 1993 between BHA Group,
                 Inc. and James J. Thome (6).

         (10m)   Employment Agreement dated September 1, 1993 between BHA Group,
                 Inc. and James C. King (6).

         (10n)   Employment Agreement dated January 1, 1995 between BHA Group,
                 Inc. and James C. Shay (8).

         (10o)   Rights Agreement dated as of December 13, 1995, between BHA
                 Group, Inc., and Boatmen's Trust Company, including Form of
                 Rights Certificate (Exhibit A) and Summary of Rights to
                 Purchase Common Stock (Exhibit B) (7).

         (11)    Computation of earnings per common share (8).

         (21)    Subsidiaries of the Registrant (8).

         (23)    Independent Auditors' Consent (8).


(b)      Reports on Form 8-K: Filed on December 22, 1995 reporting an Item 5
         event (the approval by the Board of Directors of a Rights Agreement).

(c)      Exhibits:  See (a) (3) above.

(d)      Financial Statement Schedules:  See (a) (2) above.

Notes to Index

(1)      Filed as an exhibit to the Company's Registration Statement on Form
         S-1, as amended (Registration No. 33-8644) which is incorporated herein
         by reference.

(2)      Filed as an exhibit to the Company's Annual Report on Form 10-K for the
         fiscal year ended September 30, 1988 which is incorporated herein by
         reference.

(3)      Filed as an exhibit to the Company's Annual Report on Form 10-K for the
         fiscal year ended  September 30, 1990 which is  incorporated  herein by
         reference.

(4)      Filed as an exhibit to the Company's Annual Report on Form 10-K for the
         fiscal year ended September 30, 1991 which is incorporated herein by
         reference.

(5)      Filed as an exhibit to the Company's Annual Report on Form 10-K for the
         fiscal year ended September 30, 1992 which is incorporated herein by
         reference.

(6)      Filed as an exhibit to the Company's Annual Report on Form 10-K for the
         fiscal year ended September 30, 1993 which is incorporated herein by
         reference.


                                      -18-


<PAGE>
<PAGE>

(7)      Filed as an exhibit to the Company Current Report on Form 8-K filed
         with the Securities and Exchange Commission on December 15, 1995, which
         is incorporated herein by reference.

(8)      Filed as an exhibit hereto.

                                      -19-

<PAGE>
<PAGE>




                                   Signatures

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

                                          BHA Group, Inc.



Dated: December 15, 1995          By:  /s/ James E. Lund
       ----------------------        --------------------------------
                                       James E. Lund, President

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



Dated: December 15, 1995          By:  /s/ James E. Lund
       ----------------------        --------------------------------
                                       James E. Lund, President
                                       Principal Executive Officer and Director


Dated: December 15, 1995          By:  /s/ Lamson Rheinfrank, Jr.
       ----------------------         --------------------------------
                                       Lamson Rheinfrank, Jr.
                                       Chairman of the Board


Dated: December 15, 1995          By:  /s/ Michael T. Zak
       ----------------------         --------------------------------
                                       Michael T. Zak
                                       Vice Chairman and Director


Dated: December 15, 1995          By:  /s/ Don H. Alexander
       ----------------------         --------------------------------
                                       Don H. Alexander
                                       Director


Dated: December 15, 1995          By:  /s/ Robert Freeland
       ----------------------         --------------------------------
                                       Robert Freeland
                                       Director


Dated: December 15, 1995          By:  /s/ Thomas A. McDonnell
       ----------------------         --------------------------------
                                       Thomas A. McDonnell
                                       Director


Dated: December 15, 1995          By:  /s/ James J. Thome
       ----------------------         --------------------------------
                                       James J. Thome
                                       Executive Vice President and Director


Dated: December 15, 1995          By:  /s/ James C. King
       ----------------------         --------------------------------
                                       James C. King
                                       Senior Vice President, Secretary and
                                         Director


Dated: December 15, 1995          By:  /s/ Richard C. Green, Jr.
       ----------------------         --------------------------------
                                       Richard C. Green, Jr.
                                       Director


Dated: December 15, 1995          By:  /s/ James C. Shay
       ----------------------         --------------------------------
                                       James C. Shay
                                       Principal Financial & Accounting Officer


                                      -20-



<PAGE>
<PAGE>

                        BHA GROUP, INC. AND SUBSIDIARIES

            Index to Consolidated Financial Statements and Schedules


Independent Auditors' Report

Financial Statements:
    Consolidated  Balance  Sheets - September  30,  1995 and 1994
    Consolidated Statements of Earnings -
        Years ended September 30, 1995, 1994 and 1993 
    Consolidated Statements of Shareholders' Equity -
        Years ended September 30, 1995, 1994 and 1993 
    Consolidated Statements of Cash Flows -
        Years ended September 30, 1995, 1994 and 1993
    Notes to Consolidated Financial Statements

                                                                        Schedule
                                                                        --------
Schedule - Years ended September 30, 1995, 1994 and 1993 as required:
     Valuation and Qualifying Accounts                                      II


All  other  schedules  are  omitted  because  they  are  not  applicable  or the
information  is  contained in the  consolidated  financial  statements  or notes
thereto.

                                       21

<PAGE>
<PAGE>
[KPMG LOGO]
The Global Leader

                                [BHA LOGO]

                        BHA GROUP, INC. AND SUBSIDIARIES








                        Consolidated Financial Statements

                        September 30, 1995, 1994 and 1993


                   (With Independent Auditors' Report Thereon)

                                       22
<PAGE>
<PAGE>

[LOGO] Peat Marwick LLP
1000 Walnut, Suite 1600
P.O. Box 13127
Kansas City, MO 64199

                          INDEPENDENT AUDITORS' REPORT

The Board of Directors
BHA Group, Inc.:


We have audited the accompanying  consolidated balance sheets of BHA Group, Inc.
and subsidiaries as of September 30, 1995 and 1994 and the related  consolidated
statements  of  earnings,  shareholders'  equity  and cash flows for each of the
years in the  three-year  period ended  September 30, 1995.  These  consolidated
financial   statements  are  the   responsibility  of  BHA'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  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the financial position of BHA Group, Inc. and
subsidiaries at September 30, 1995 and 1994 and the results of their  operations
and  their  cash  flows  for each of the years in the  three-year  period  ended
September 30, 1995 in conformity with generally accepted accounting principles.

                                                           KPMG PEAT MARWICK LLP


November 7, 1995

                                       23



<PAGE>
<PAGE>
                        BHA GROUP, INC. AND SUBSIDIARIES
                           Consolidated Balance Sheets
                           September 30, 1995 and 1994

<TABLE>
<CAPTION>

                                                                              1995               1994
                                                                              ----               ----
<S>                                                                      <C>                 <C>      
                      Assets
Current assets:
 Cash and cash equivalents                                               $  2,316,677         6,796,976
 Accounts receivable, less allowance for doubtful
  receivables of $830,496 in
  1995 and $756,928 in 1994                                                19,074,975        14,957,812
 Inventories (note 1)                                                      14,864,490        12,452,044
 Prepaid expenses                                                             856,488         1,223,122
 Deferred income taxes (note 5)                                               860,000           635,000
                                                                         ------------        ----------
     Total current assets                                                  37,972,630        36,064,954
                                                                         ------------        ----------

Property, plant and equipment, at cost:
 Land and improvements                                                        955,255           670,241
 Buildings and improvements                                                14,479,697        10,384,234
 Machinery and equipment                                                   23,885,716        18,711,729
 Office furniture, fixtures and equipment                                   2,569,224         2,266,738
                                                                         ------------        ----------
                                                                           41,889,892        32,032,942

 Less accumulated depreciation and amortization                            17,127,848        13,654,884
                                                                         ------------        ----------
     Net property, plant and equipment                                     24,762,044        18,378,058
                                                                         ------------        ----------

Intangible and other assets, less accumulated
 amortization (note 3)                                                      3,814,504         2,919,428
Excess of cost over net assets of businesses acquired,
 less accumulated amortization (note 3)                                     5,239,662         5,388,352
                                                                         ------------        ----------
                                                                         $ 71,788,840        62,750,792
                                                                         ============        ==========

       Liabilities and Shareholders' Equity

Current liabilities:
 Current installments of long-term debt (note 4)                         $    756,696            56,016
 Accounts payable                                                           6,299,344         7,177,851
 Accrued compensation and employee benefit costs                            4,059,919         2,550,358
 Accrued expenses and other current liabilities                               397,123           383,376
 Reserve for warranty and product service                                     848,534           795,463
 Income taxes payable                                                         724,379           380,720
                                                                         ------------        ----------
     Total current liabilities                                             13,085,995        11,343,784
                                                                         ------------        ----------

Deferred income taxes (note 5)                                              2,364,000         2,193,000
Long-term debt, excluding current installments (note 4)                     9,898,683           350,717

Shareholders' equity (note 2 and 4):
 Class A common stock $.01 par vaiue. Authorized 10,000 000 shares;
   issued 6,426,302 and 6,380,002 shares, respectively                         64,263            63,800
 Additional paid-in capital                                                24,923,428        24,402,261
 Retained earnings                                                         33,194,128        27,925,706
 Foreign currency translation adjustment                                      280,441            37,986
 Unearned compensation (note 6)                                              (418,312)               --
 Less cost of 971,600 and 346,500 shares of common stock in treasury      (11,603,786)       (3,566,462)
                                                                         ------------        ----------
     Total shareholders' equity                                            46,440,162        48,863,291
                                                                         ------------        ----------

Commitments and contingent liabilities (note 7)                          $ 71,788,840        62,750,792
                                                                         ============        ==========

</TABLE>

See accompanying notes to consolidated financial statements.




                                       24







<PAGE>
<PAGE>

                        BHA GROUP, INC, AND SUBSIDIARIES

                       Consolidated Statements of Earnings

                  Years ended September 30, 1995, 1994 and 1993

<TABLE>
<CAPTION>

                                                                                   1995               1994                  1993
                                                                                   ----               ----                  ----
<S>                                                                           <C>                   <C>                  <C>      
Net sales                                                                    $ 114,722,893         100,914,568          88,904,928
Cost of sales                                                                   83,516,735          75,644,885          66,237,077
                                                                             -------------         -----------          ----------
        Gross margin                                                            31,206,158          25,269,683          22,667,851
                                                                             -------------         -----------          ----------
Operating expenses:
  Selling and advertising expense                                               10,778,323           8,927,722           7,546,421
  General and administrative expense                                            10,456,564           8,814,812           8,376,750
                                                                             -------------         -----------          ----------
        Total operating expenses                                                21,234,887          17,742,534          15,923,171
                                                                             -------------         -----------          ----------
        Operating income                                                         9,971,271           7,527,149           6,744,680
Interest expense                                                                  (409,436)            (32,220)            (67,018)
Interest income                                                                     41,952              79,499              62,490
                                                                             -------------         -----------          ----------
        Earnings before income taxes                                             9,603,787           7,574,428           6,740,152
                                                                             -------------         -----------          ----------
Income taxes (note 5):
  Current                                                                        3,704,000           2,531,000           2,380,000
  Deferred                                                                         (54,000)            234,000             (20,000)
                                                                             -------------         -----------          ----------
        Total income taxes                                                       3,650,000           2,765,000           2,360,000
                                                                             -------------         -----------          ----------
        Net earnings                                                         $   5,953,787           4,809,428           4,380,152
                                                                             =============         ===========          ==========
Earnings per common share                                                    $        1.03                0.75                0.67
                                                                                      ====                ====                ====
</TABLE>


See accompanying notes to consolidated financial statements.





                                       25




<PAGE>
<PAGE>

                        BHA GROUP, INC. AND SUBSIDIARIES

                Consolidated Statements of Shareholders' Equity

                 Years ended September 30, 1995, 1994 and 1993


<TABLE>
<CAPTION>


                                                                                      1995            1994         1993
                                                                                      ----            ----         ----
<S>                                                                               <C>              <C>             <C> 
Class A common stock (note 2):
  Balance at beginning of year                                                     $    63,800         63,660        45,587
  Issuance of 46,300 shares of common stock in 1995, 14,000 shares
    in 1994, and 66,651 shares in 1993                                                     463            140           667
  Conversion from Class B common stock                                                    --            --           17,406
                                                                                    ----------     ----------    ----------
  Balance at end of year                                                                64,263         63,800        63,660
                                                                                    ----------     ----------    ----------
Class B common stock (note 2):
  Balance at beginning of year                                                            --            --           17,406
  Conversion of 1,740,614 shares to Class A common stock                                  --            --          (17,406)
                                                                                    ----------     ----------    ----------
  Balance at end of year                                                                  --            --            --
                                                                                    ----------     ----------    ----------
Additional paid-in capital:
  Balance at beginning of year                                                      24,402,261     24,219,654    23,651,937
  Excess of proceeds over par value of common stock issued                             521,167        182,607       567,717
                                                                                    ----------     ----------    ----------
  Balance at end of year                                                            24,923,428     24,402,261    24,219,654
                                                                                    ----------     ----------    ----------
Retained earnings:
  Balance at beginning of year                                                      27,925,706     23,877,816    20,006,564
  Net earnings                                                                       5,953,787      4,809,428     4,380,152
  Payment of cash  dividends on Class A common stock ($.12 per share in 1995
    and 1994 and $.08 per share in 1993)                                              (685,365)      (761,538)     (508,900)
                                                                                    ----------     ----------    ----------
  Balance at end of year                                                            33,194,128     27,925,706    23,877,816
                                                                                    ----------     ----------    ----------
Foreign currency translation adjustment:
  Balance at beginning of year                                                          37,986       (124,769)      308,679
  Equity adjustment from foreign currency translation                                  242,455        162,755      (433,448)
                                                                                    ----------     ----------    ----------
  Balance at end of year                                                               280,441         37,986      (124,769)
                                                                                    ----------     ----------    ----------
Unearned compensation (note 6):
  Balance at beginning of year                                                            --             --            --
  Issuance of 45,000 share of restricted Class A common stock                         (517,500)          --            --
  Recognition of compensation expense                                                   99,188           --            --
                                                                                    ----------     ----------    ----------
  Balance at end of year                                                              (418,312)          --            --
                                                                                    ----------     ----------    ----------
Treasury stock:
  Balance at beginning of year                                                      (3,566,462)          --            --
  Acquisition of 625,100 and 346,500 shares of common
    stock at cost in 1995 and 1994, respectively                                    (8,037,324)    (3,566,462)        --
                                                                                    ----------     ----------    ----------
  Balance at end of year                                                           (11,603,786)    (3,566,462)        --
                                                                                    ----------     ----------    ----------
        Total shareholders' equity                                                 $46,440,162     48,863,291    48,036,361
                                                                                   ===========     ==========    ==========
</TABLE>

See accompanying notes to consolidated financial statements.

                                      26


<PAGE>
<PAGE>

                        BHA GROUP, INC. AND SUBSIDIARIES

                     Consolidated Statements of Cash Flows

                 Years ended September 30, 1995, 1994 and 1993

<TABLE>
<CAPTION>
                                                                                             1995           1994           1993
                                                                                             ----           ----           ----
<S>                                                                                         <C>             <C>            <C>
Cash flows from operating activities:
  Net earnings                                                                           $ 5,953,787      4,809,428      4,380,152
  Adjustments to reconcile net earnings to net cash provided
    by operating activities:
      Depreciation and amortization                                                        4,285,692      3,628,857      3,100,200
      Provision for deferred income taxes                                                    (54,000)       234,000        (20,000)
  Changes in assets and liabilities, net of amounts in business acquired:
      Accounts receivable                                                                 (4,117,163)     6,561,027     (6,044,331)
      Inventories                                                                         (2,412,446)      (839,877)      (595,133)
      Prepaid expenses                                                                       366,634         42,068         85,569
      Accounts payable                                                                      (878,507)    (1,875,358)     3,093,075
      Accrued expenses and other liabilities                                               1,576,379        765,101        230,118
      Income taxes payable                                                                   343,659        143,005        165,334
                                                                                         -----------      ---------     ----------
        Net cash provided by operating activities                                          5,064,035     13,468,251      4,394,984
                                                                                         -----------      ---------     ----------
      
Cash flows from investing activities:
  Additions to property, plant and equipment                                              (9,856,950)    (3,696,371)    (5,449,628)
  Additions to excess cost over net assets of businesses acquired                               --             --          (42,617)
  Net assets of businesses acquired, excluding cash                                             --       (2,257,423)          --
  Acquisition of product rights and other intangible assets                               (1,459,886)      (410,000)          --
  Proceeds from sale of fixed assets                                                            --           58,114         16,968
                                                                                         -----------      ---------     ----------
        Net cash used in investing transactions                                          (11,316,836)    (6,305,680)    (5,475,277)
                                                                                         -----------      ---------     ----------

Cash flows from financing activities:
  Proceeds from issuance of common stock                                                       4,130           --          269,358
  Payment of cash dividends on common stock                                                 (685,365)      (761,538)      (508,900)
  Purchase of treasury stock                                                              (8,037,324)    (3,566,462)          --
  Repayments of long-term debt                                                              (457,514)       (41,002)    (1,005,787)
  Borrowing on lines of credit, net                                                        8,206,120           --             --
  Proceeds from long-term debt                                                             2,500,000           --             --
  Payment on other long-term liabilities                                                        --             --         (200,000)
                                                                                         -----------      ---------     ----------
        Net cash provided (used) by financing activities                                  (1,530,047)    (4,369,002)    (1,445,329)
                                                                                         -----------      ---------     ----------

Effect of exchange rate changes                                                              242,455        162,755       (213,886)
                                                                                         -----------      ---------     ----------
        Net increase (decrease) in cash and cash equivalents                              (4,480,299)     2,956,324     (2,739,508)

Cash and cash equivalents at beginning of year                                             6,796,976      3,840,652      6,580,160
                                                                                         -----------      ---------     ----------
Cash and cash equivalents at end of year                                                 $ 2,316,677      6,796,976      3,840,652
                                                                                         ===========      =========     ==========
Supplemental  disclosures  of cash flow  information:  
  Cash paid during the year for:
   Interest                                                                              $   402,000         32,000        108,000
                                                                                         ===========      =========     ==========
   Income taxes                                                                          $ 3,306,000      2,420,000      2,215,000
                                                                                         ===========      =========     ==========
Supplemental disclosure of noncash investing and financing activities:
  Issuance of common stock to officers and employees                                     $   517,500        140,000          --
                                                                                         ===========      =========     ==========
</TABLE>


See accompanying notes to consolidated financial statements.


                                      27



<PAGE>
<PAGE>





                        BHA GROUP, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                       September 30, 1995, 1994 and 1993


(1)  Summary of Significant Accounting Policies

     Presentation

     The consolidated  financial  statements include the accounts of BHA  Group,
          Inc. (BHA) and its wholly-owned foreign and domestic subsidiaries. All
          significant   intercompany   balances  and   transactions   have  been
          eliminated in consolidation.

     Revenue Recognition

     BHA recognizes  revenues at the time  products are shipped or services  are
          performed.

     Inventories

     BHA values  its  inventory  at  the  lower  of  cost  or  market.  Cost  is
          determined using the first-in, first-out (FIFO) method.

     Components of inventories at September 30, 1995 and 1994 were as follows:

<TABLE>
<CAPTION>

                                          1995               1994
                                          ----               ----
<S>                                   <C>                 <C>      
        Raw materials                 $ 9,223,825         8,625,316
        Work-in-process                 1,580,177         1,159,831
        Finished goods                  4,060,488         2,666,897
                                      -----------        ----------
                        Total         $14,864,490        12,452,044
                                      ===========        ==========

</TABLE>

     Property, Plant and Equipment

     Property,  plant and  equipment  are carried at cost.  Major  renewals  and
          betterments are charged to the property  accounts,  while replacements
          and maintenance and repairs which do not improve or extend the life of
          the respective assets are charged to expense as incurred.

     Depreciation and Amortization

     Depreciation and amortization of property, plant and equipment are computed
          on the  straight-line  method  using  estimated  useful lives by major
          asset class as follows:

<TABLE>
     <S>                                                      <C>
     Buildings and improvements                                   30 years
     Machinery and equipment                                  4 -  8 years
     Office furniture, fixtures and equipment                 3 - 10 years


</TABLE>

                                                                     (Continued)


                                       28

<PAGE>
<PAGE>


                                


                        BHA GROUP, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


     Income Taxes

     BHA adopted   Statement   of  Financial   Accounting   Standard  No.   109,
          "Accounting  for  Income  Taxes,"  (Statement  No.  109) in the  first
          quarter of fiscal  1994.  Prior  year  financial  statements  were not
          restated. Under Statement No. 109, deferred tax assets and liabilities
          are  recognized  for  the  future  tax  consequences  attributable  to
          differences  between  the  financial  statement  carrying  amounts  of
          existing  assets  and  liabilities  and their  respective  tax  bases.
          Deferred tax assets and  liabilities  are measured  using  enacted tax
          rates  expected to be recovered or settled.  Under  Statement 109, the
          effect on deferred tax assets and liabilities of a change in tax rates
          is  recognized  in earnings in the period that  includes the enactment
          date.  The  adoption of Statement  No. 109 did not have a  significant
          impact on the consolidated financial statements of BHA.

     No provision  is  made  for income taxes on  undistributed  earnings of the
          foreign  subsidiaries  because such  earnings  have been  indefinitely
          invested in the foreign subsidiaries.

     Warranty and Product Service

     BHA provides a  reserve for estimated  warranty and product  service claims
          based  on  historical  experience  and  consideration  of  changes  in
          products and technology.

     Foreign Currency Translation

     Financial statements of BHA's foreign  subsidiaries  located in Germany and
          Switzerland  are translated  into U. S. dollars at current and average
          exchange  rates.   Translation   gains  and  losses  are  included  in
          shareholders' equity.

     Transaction gains and losses resulting from  fluctuations in exchange rates
          between the  functional  currency (U. S.  dollars) and the currency in
          which a foreign  currency  transaction is denominated  are included in
          net  earnings.   Transaction   gains  included  in  the   consolidated
          statements  of earnings for 1995,  1994 and 1993  amounted to $14,700,
          $14,617 and $75,231, respectively.

     Forward Exchange Contracts

     BHA has  entered  into  forward  exchange  contracts  in  order  to fix the
          currency  exchange rate related to intercompany  transactions with its
          foreign subsidiaries. Changes in the value of these instruments due to
          currency movements offset the foreign exchange gains and losses of the
          corresponding  intercompany  transactions.  At September  30, 1995 and
          1994,  the  aggregate  amount of such forward  exchange  contracts was
          approximately $1,450,000 and $750,000, respectively. The fair value of
          the outstanding forward exchange contracts  approximates the aggregate
          amount outstanding at September 30, 1995.

                                                                     (Continued)


                                       29

<PAGE>
<PAGE>


                                


                        BHA GROUP, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


     Earnings Per Common Share

     Earnings per common share is computed based on the average number of common
          shares and common share equivalents outstanding (5,793,929,  6,385,902
          and 6,528,053 for 1995, 1994 and 1993, respectively). The common share
          equivalents which had a dilutive effect on earnings per share and were
          included in the computation of earnings per share amounted to 123,934,
          71,145 and 179,942 for 1995,  1994 and 1993,  respectively.  The stock
          options which result in common share equivalents are described in note
          6.

     Cost in Excess of Net Assets Acquired and Intangible Assets

     Cost in excess of net  assets  acquired  is being  amortized  over  periods
          ranging  from  thirty  to  forty  years,   and  is  presented  in  the
          accompanying   consolidated   balance   sheets   net  of   accumulated
          amortization  of $675,000 and $526,000 at September 30, 1995 and 1994,
          respectively.

     Intangible assets are being  amortized  over  periods  ranging from five to
          seventeen  years and are  presented in the  accompanying  consolidated
          balance  sheets net of  accumulated  amortization  of  $3,973,000  and
          $3,425,000 at September 30, 1995 and 1994, respectively

     BHA assesses  the  recoverability  of cost in excess of net assets acquired
          and intangible assets by determining  whether the amortization of such
          balances over the remaining life can be recovered through undiscounted
          future operating cash flows.

     Business Risk

     BHA has no  significant or unusual geographical or industry  concentrations
          of business or credit risk.

     Statements of Cash Flows

     For purposes  of the  consolidated  statements of cash flows, BHA considers
          overnight  invested cash and  investments in market  securities,  with
          maturities of three months or less to be cash equivalents.

     Fair Value of Financial Instruments

     The carrying  amounts  of cash,  accounts  receivable and accounts  payable
          approximate  fair  value  because  of the  short  maturities  of these
          instruments.  The carrying amount of long-term debt  approximates fair
          value at September  30, 1995, as  substantially  all such debt accrues
          interest at variable rates.

                                                                     (Continued)


                                       30

<PAGE>
<PAGE>


                                


                        BHA GROUP, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


(2)  Common Stock

     On March 14, 1988, shareholders  approved a  recapitalization providing for
          the   redesignation  or   reclassification   of  each  of  BHA's  then
          outstanding  common stock into one share of Class A common stock,  the
          creation  of a Class B common  stock  and the  increase  of the  total
          number of  authorized  shares.  During 1993,  shareholders  elected to
          convert  33,859  Class B common  shares  into shares of Class A common
          stock.  BHA elected to convert  the  remaining  1,706,755  outstanding
          shares of Class B common  stock into shares of Class A common stock on
          April 21, 1993.

     In June 1994,  the  Board  of  Directors of BHA approved the purchase of up
          to  500,000  shares  of the  Company's  Class A  common  stock.  As of
          September 30, 1994, the Company had acquired 346,500 shares of Class A
          common stock.  In November 1994,  the Board of Directors  approved the
          purchase of an additional 500,000 shares,  raising the total number of
          shares  authorized for repurchase to 1,000,000 shares. As of September
          30, 1995,  the Company had acquired a total of 971,600 shares of Class
          A common stock at a cost of $11,603,786.

(3)  Acquisition of Businesses and Product Rights

     In two  separate  transactions  during 1995, BHA  acquired  certain product
          rights and other  information  relating  to  evaporative  gas  cooling
          technology  and  a  dust  monitoring  product  line  for  a  total  of
          $1,450,000.  Of this amount,  a total of $1,200,000  was paid prior to
          September 30, 1995. The evaporative gas cooling agreement provides for
          royalty  payments to the former owner for product sales  subsequent to
          the  purchase  date.  The costs  associated  with the  technology  and
          product  right  acquisitions  are being  amortized on a  straight-line
          basis over periods ranging from six to ten years.

     In August  1994,  BHA   acquired  SF  Air   Filtration,   AG,  located   in
          Switzerland,  for  $2,540,000.  The acquisition was accounted for as a
          purchase,  with the purchase  price  allocated to the assets  acquired
          based upon the  estimated  fair values as of the date of  acquisition.
          The  excess  of the  purchase  price  over  the  net  assets  acquired
          amounting to $1,497,000 is being  amortized on a  straight-line  basis
          over thirty years.

     In October 1993,  BHA acquired  certain product  rights,  which  includes a
          trademark,  relating to an accessory  product line for  $410,000.  The
          cost of the product rights is being amortized on a straight-line basis
          over ten years.

(4)  Notes Payable to Banks and Long-term Debt

     In 1995, BHA  entered into  a $2,500,000  unsecured term loan, the proceeds
          of which were used to  purchase  the  building  which  serves as BHA's
          corporate headquarters.  The unsecured term loan has variable interest
          rates tied to the bank's prime interest rate.  Principal  payments are
          due in quarterly  installments  over a five year period  through 2000.
          The  outstanding  balance  under  this  term  loan was  $2,125,000  at
          September 30, 1995.

                                                                     (Continued)


                                       31

<PAGE>
<PAGE>


                                


                        BHA GROUP, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


     BHA has unsecured  bank  lines  of credit  amounting  to  $16,000,000   for
          working capital purposes and other corporate matters. These lines bear
          interest  at  variable  rates which are based on the prime rate and/or
          LIBOR.  The  facilities   included   revolving  credit  agreements  of
          $3,000,000 and $5,000,000 which expire in 1998 and 2000, respectively,
          in which BHA pays  0.25% as  commitment  fees on the  unused  portion.
          Lines of credit of $3,000,000  and  $5,000,000,  for which BHA pays no
          commitment fee, are also available. These lines expire during 1996. At
          September 30, 1995, $8,015,000 was outstanding under all bank lines of
          credit at a weighted average interest rate of 7.06%.

     BHA's foreign subsidiary located in Germany maintains a line of credit with
          a foreign bank in the amount of DM1,800,000  (approximately $1,261,000
          (U.S.)).  As of September 30, 1995, there were no amounts  outstanding
          under  this  line of  credit.  BHA's  foreign  subsidiary  located  in
          Switzerland also maintains a line of credit with a foreign bank in the
          amount of SFR200,000  (approximately $164,000 (U.S.)). As of September
          30, 1995, $191,000 was outstanding under these lines of credit.

     The term loan  and domestic bank lines of credit  require BHA,  among other
          things, to maintain minimum levels of net worth,  minimum fixed charge
          coverage, minimum current ratio and maximum leverage ratio. BHA was in
          compliance  with all covenants at September 30, 1995. At September 30,
          1995, $6,440,000 of retained earnings were available for dividends.

     A summary of long-term debt at September 30, 1995 and 1994 follows:

<TABLE>
<CAPTION>

                                                            1995         1994
                                                            ----         ----
<S>                                                        <C>            <C>
  Unsecured lines of credit with variable interest rates   $8,206,120          -
  Notes payable to banks,  bearing  interest at 6.5% to
    7.5%, with annual principal payments of $56,000 to
    $500,000 from 1995 to 2000                              2,449,259    406,733
  Less current installments                                   756,696     56,016
                                                           ----------    -------
      Long-term debt, excluding current
        installments                                       $9,898,683    350,717
                                                           ==========    =======

</TABLE>


     Annual payments on  long-term  debt for the next five  fiscal  years are as
          follows:

<TABLE>
                        <S>                          <C>
                       1996                       $    756,696
                       1997                          1,711,790
                       1998                          2,431,556
                       1999                            571,690
                       2000                          5,183,647
                                                  ------------ 
                                                  $ 10,655,379
                                                  ============
</TABLE>

                                                                     (Continued)


                                       32

<PAGE>
<PAGE>


                                


                        BHA GROUP, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


(5)  Income Taxes

     The components  of total income tax  expense for the years ended  September
          30, 1995, 1994 and 1993 are as follows:

<TABLE>
<CAPTION>

                                                   1995          1994           1993
                                                   ----          ----           ----
      <S>                                        <C>             <C>          <C>
      Current income tax expense:
        Federal                                 $3,271,000      2,235,000     2,166,000
        State and local                            433,000        296,000       214,000
      Deferred income tax expense (benefit):
        Federal                                    (48,000)       205,000       (18,000)
        State                                       (6,000)        29,000        (2,000)
                                                ----------      ---------     ---------
                                                $3,650,000      2,765,000     2,360,000
                                                ==========      =========     =========

</TABLE>


     The effective  tax  rate  differs  from  the  expected  tax  rate  for  the
          respective years as follows:

<TABLE>
<CAPTION>
                                                    1995    1994   1993
                                                    ----    ----   ----
  <S>                                                <C>     <C>    <C>
    Expected income tax expense                     34.0%   34.0   34.0
    Difference in tax rates of foreign subsidiaries  (.7)   (2.7)  (2.0)
    State income taxes, net                          2.9     2.8    2.4
    Other, net                                       1.8     2.4     .6
                                                    ----    ----   ----
             Effective income tax rate              38.0%   36.5   35.0
                                                    ====    ====   ====

  </TABLE>


     The tax effects  of  temporary  differences  that give rise to  significant
          portions of the deferred tax assets and  deferred tax  liabilities  at
          September 30, 1995 and 1994 are presented below:

<TABLE>
<CAPTION>

                                                       1995         1994
                                                       ----         ----
  <S>                                               <C>             <C>    
    Deferred tax assets:
      Reserves not currently deductible             $  795,000      445,000
      Inventories                                      319,000      256,000
      Other, net                                       217,000      170,000
                                                    ----------   ----------
             Total gross deferred tax assets         1,331,000      871,000
                                                    ----------   ----------

    Deferred tax liabilities:
      Intangible and other assets                      778,000      840,000
      Property, plant and equipment                  1,172,000    1,132,000
      Prepaid expenses                                 161,000      172,000 
      Deferred compensation                            235,000         --
      Other, net                                       489,000      285,000
                                                    ----------   ----------
             Total gross deferred tax liabilities    2,835,000    2,429,000
                                                    ----------   ----------
             Net deferred tax liability             $1,504,000    1,558,000
                                                    ==========   ==========

</TABLE>


                                                                     (Continued)


                                       33


<PAGE>
<PAGE>


                                


                        BHA GROUP, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


       At September 30, 1995 and 1994,  deferred tax assets and  liabilities are
          classified in the accompanying consolidated balance sheets as follows:

<TABLE>
<CAPTION>
                                                        1995            1994
                                                        ----            ----
    <S>                                               <C>                 <C>    
    Current deferred income tax asset               $   860,000         635,000
    Noncurrent deferred income tax liability         (2,364,000)     (2,193,000)
                                                    -----------     -----------
      Net deferred income tax liability             $(1,504,000)     (1,558,000)
                                                    ===========     ===========

</TABLE>

     BHA has not  recorded  a  valuation  allowance  relating  to  deferred  tax
          assets, as taxable temporary  differences are expected to be offset by
          deductible temporary differences.

     The components of  deferred income tax benefit for the year ended September
          30, 1993 are as follows:

<TABLE>
                 <S>                                 <C>

                 Prepaid commissions                  $ 36,000
                 Depreciation and amortization         (30,000)
                 Experience method on bad debts          1,000
                 Inventory capitalization              (15,000)
                 Other, net                            (12,000)
                                                      --------
                       Deferred income tax benefit    $(20,000)
                                                      ========

</TABLE>


     BHA has  not  provided  deferred  taxes  on  the  cumulative  undistributed
          earnings/(losses)  of  its  foreign  subsidiaries,  which  approximate
          $285,000,  $(183,000) and  $(712,000) at September 30, 1995,  1994 and
          1993,  respectively,  as  management  considers  these  earnings to be
          permanently  invested.  Net earnings of the foreign  subsidiaries were
          approximately  $468,000,  $529,000  and  $374,000  for the years ended
          September 30, 1995, 1994 and 1993, respectively.

(6)  Incentive Stock Plan

     BHA has  an incentive stock plan for key employees, officers and directors.
          On February 21, 1995,  the  shareholders  approved an amendment to the
          plan.  The  amendment  increased the total number of shares of Class A
          common  stock   available  for  issuance  from  970,000  to  1,280,000
          including  allocation of an additional  200,000 shares for issuance as
          stock  options,  90,000  shares for issuance as  restricted  stock and
          20,000  shares  for  issuance  to  outside  directors  in lieu of cash
          payment of director fees. The expiration date of the Plan was extended
          to  August  9,  2004.  The  plan  provides  that the  options  must be
          exercised within ten years from the date of grant and the option price
          may not be less than 100% of the fair  market  value of the  shares on
          the date of grant.  In addition,  certain  options are not exercisable
          unless the fair market value of the shares is at least $20 per share.

     During fiscal 1995, the Company awarded 45,000 shares of restricted  stock,
          under the incentive stock plan, to certain  employees.  The fair value
          of the  awards  at  the  date  of  issuance  is  being  recognized  as
          compensation expense ratably over the five-year vesting period.

                                                                     (Continued)


                                       34


<PAGE>
<PAGE>


                                


                        BHA GROUP, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


        A summary of transactions in the stock option plan is as follows:

<TABLE>
<CAPTION>

                                                     1995
                                        -------------------------------
                                          Number          Exercise
                                        of shares          prices
                                        ---------          ------
  <S>                                    <C>             <C>
  Outstanding at beginning of year       759,655       $ 3.11/17.00
  Granted                                210,000              12.75
  Canceled                                (3,000)             12.00
  Exercised                               (1,300)              3.11
                                         -------
  Outstanding at end of year             965,355         3.11/17.00
                                         =======
  Exercisable at end of year             483,573         3.11/17.00
                                         =======


<CAPTION>
                                                     1994
                                        -------------------------------
                                          Number          Exercise
                                        of shares          prices
                                        ---------          ------
  <S>                                    <C>             <C>
  Outstanding at beginning of year       525,842       $ 3.11/17.00
  Granted                                246,625         8.25/ 9.50
  Canceled                               (12,812)       11.50/17.00
                                         -------
  Outstanding at end of year             759,655         3.11/17.00
                                         =======
  Exercisable at end of year             439,155         3.11/17.00
                                         =======


<CAPTION>
                                                     1993
                                        -------------------------------
                                          Number          Exercise
                                        of shares          prices
                                        ---------          ------
  <S>                                    <C>             <C>
  Outstanding at beginning of year       592,493       $ 3.11/17.00
  Exercised                              (66,651)        3.11/11.50
                                         -------
  Outstanding at end of year             525,842         3.11/17.00
                                         =======
  Exercisable at end of year             406,905         3.11/17.00
                                         =======

</TABLE>


(7)  Commitments and Contingent Liabilities

     Employee Benefit Plans

     BHA has  a  noncontributory  Employee  Stock  Ownership  Plan (ESOP)  which
          includes  substantially all domestic  employees who are not covered by
          collective bargaining  agreements.  BHA, with approval of its Board of
          Directors,  makes  discretionary  contributions to the ESOP.  Benefits
          become  vested  according  to age and years of service.  Contributions
          charged to operating expenses were $865,000, $537,000 and $428,000 for
          the years ended September 30, 1995, 1994 and 1993, respectively.

                                                                     (Continued)


                                       35

<PAGE>
<PAGE>


                                

                        BHA GROUP, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


     BHA's eligible  domestic  employees   participate  in  a  voluntary  401(k)
          employee  benefit plan (401(k) Plan).  The 401(k) Plan covers eligible
          employees not covered by a collective bargaining agreement. The 401(k)
          Plan provides that 50% of a participant's contribution will be matched
          by BHA subject to a maximum  contribution which is determined annually
          at the  discretion of the Board of Directors.  Benefits  become vested
          according to age and years of service. BHA made matching contributions
          of $110,000,  $103,000 and $93,000 for the years ended  September  30,
          1995, 1994 and 1993, respectively.

     Leases

        A summary of  noncancelable,  long-term  operating lease  commitments on
          office facilities and equipment follows:

<TABLE>
<CAPTION>


                           Years ending
                          September 30,
                          -------------
                             <S>                  <C>
                              1996               $ 653,587
                              1997                 401,693
                              1998                 271,169
                              1999                  90,582
                              2000                  42,840

</TABLE>

     It is expected  that in the  normal  course  of business,  expiring  leases
          will be renewed or  replaced  by similar  leases on other  properties.
          Total rental  expense on  noncancelable,  long-term  operating  leases
          amounted to  approximately  $640,000,  $683,000  and  $670,000 for the
          years ended September 30, 1995, 1994 and 1993, respectively.

     Letters of Credit

     Under the bank lines of credit  described  in note 4,  standby  letters  of
          credit are issued to assure BHA's performance under certain contracts.
          In  addition to those bank lines of credit,  BHA has  another  line of
          credit  agreement  totaling  $5,000,000 for the issuance of letters of
          credit. Open standby letters of credit amounted to $29,000 and $22,000
          at September 30, 1995 and 1994, respectively.

                                                                     (Continued)


                                       36

<PAGE>
<PAGE>


                                


                        BHA GROUP, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


(8)  Supplemental Financial Information

     The Company   sells  products  and  services in several  geographic  areas.
          Operations  of the domestic  business  segment are based in the United
          States (U. S.). The domestic  business segment  provides  products and
          services to the U. S.  markets and exports to Canada,  Latin  America,
          the  Near  East  and  Pacific  Rim.  The  foreign   business   segment
          manufactures  and  sells in  Europe.  Set forth  below is  information
          regarding the Company's business segments for each of the years in the
          three-year period ended September 30, 1995:

<TABLE>
<CAPTION>

                                         1995                1994                1993
                                         ----                ----                ----

<S>                                  <C>                   <C>                <C>       
     Domestic assets                 $  64,299,341         55,575,714         55,433,307
     Foreign assets - "Europe"           7,489,499          7,175,078          4,900,040
                                     -------------      -------------      -------------
       Total                         $  71,788,840         62,750,792         60,333,347
                                     =============      =============      =============

     Domestic sales                  $ 101,391,446         91,055,057         81,367,975
     Foreign sales - "Europe"           13,331,447          9,859,511          7,536,953
                                     -------------      -------------      -------------
       Total                         $ 114,722,893        100,914,568         88,904,928
                                     =============      =============      =============

     Domestic operating income       $   9,280,775          6,965,665          6,303,260
     Foreign operating income -
      "Europe"                             690,496            561,484            441,420
                                     -------------      -------------      -------------
           Total                     $   9,971,271          7,527,149          6,744,680
                                     =============      =============      =============

</TABLE>

     U.S. export sales to unaffiliated  customers in Canada,  Latin America, the
          Near East and Pacific Rim were $13,653,000, $10,606,000 and $7,667,000
          for the years ended September 30, 1995,  1994 and 1993,  respectively.
          These revenues are included in "Domestic Sales" in the table above.

(9)  Quarterly Financial Data (Unaudited)

     Summarized quarterly financial data are as follows:

<TABLE>
<CAPTION>

                                              Three months ended
                             ------------------------------------------------------------
                             December 31     March 31         June 30        September 30
                             -----------     --------         -------        ------------
<S>                          <C>             <C>             <C>              <C>
   1995:
     Net sales              $27,258,354      30,264,138      28,936,466      28,263,935
     Gross margin             7,252,538       8,081,293       7,777,331       8,094,996
     Net earnings             1,410,957       1,580,697       1,484,338       1,477,795
     Earnings per share             .23             .27             .26             .26

   1994:
     Net sales              $24,874,501      28,095,309      21,873,159      26,071,599
     Gross margin             5,928,623       6,496,926       6,041,208       6,802,926
     Net earnings             1,054,747       1,170,260       1,225,315       1,359,106
     Earnings per share             .16             .18             .19             .22


</TABLE>

                                       37

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                                       38


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<PAGE>


                                                                     Schedule II


                        BHA GROUP, INC. AND SUBSIDIARIES

                       Valuation and Qualifying Accounts


<TABLE>
<CAPTION>

                                                           Charged to
                                               Beginning    costs and                     Ending
                                                balance     expenses      Deductions      balance
                                                -------      --------      ----------     -------
<S>                                          <C>             <C>           <C>           <C>    
Allowance for doubtful receivables:
     Year ended September 30, 1995            $ 756,928       451,837       378,269       830,496
                                              =========     =========     =========     =========

     Year ended September 30, 1994            $ 684,497       274,288       201,857       756,928
                                              =========     =========     =========     =========

     Year ended September 30, 1993            $ 654,430       227,382       197,315       684,497
                                              =========     =========     =========     =========

Reserve for warranty and product service:
     Year ended September 30, 1995            $ 795,463     1,168,820     1,115,749       848,534
                                              =========     =========     =========     =========

     Year ended September 30, 1994            $ 350,449     1,149,586       704,572       795,463
                                              =========     =========     =========     =========

     Year ended September 30, 1993            $ 307,226       918,671       875,448       350,449
                                              =========     =========     =========     =========

</TABLE>

See accompanying independent auditors' report.


                                       39
<PAGE>
<PAGE>
                                           Exhibit Index
<TABLE>
<CAPTION>

    Exhibit No.                             Description                   Page

   <S>                      <C>                                           <C>

        3b                               By Laws, As Amended               41-67

       10n                  Employment Agreement Dated January 1, 1995     68-79
                            Between BHA Group, Inc. and James C. Shay

       11                    Computation of Earnings Per Common Share        80

       21                        Subsidiaries of BHA Group, Inc.             81

       23                         Independent Auditors' Consent              82

</TABLE>


                                        40
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