<PAGE>
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                       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, 1996                                        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:

                     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
          ---

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<PAGE>

As of December 16, 1996, the number of shares outstanding of the Registrant's
Common Stock was 5,988,127 shares.

The aggregate market value of the voting stock held by non-affiliates* of the
Registrant's Common Stock was $85,769,811, computed by reference to the closing
price of $17.00 as reported to Registrant at which such stock was quoted by the
NASDAQ National Market on December 16, 1996.

The Registrant's definitive proxy statement for the annual meeting of
stockholders to be held on February 18, 1997 (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.

<PAGE>
<PAGE>

                                     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. The Company's business also includes 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. In
1988, all Company Class B Common Stock was converted to Class A Common Stock. In
1996, the Class A Common Stock was reclassified as common stock and the Class B
Common Stock was eliminated. Additionally, the shareholders approved an increase
in common stock authorized from 10 million to 20 million shares. 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.

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.

                                      -3-
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During 1989, BHA and PrecipTech completed several acquisitions in efforts to
expand their product line and services. In June 1989, BHA acquired the business
of developing and manufacturing acoustic horns for use in both baghouses and
electrostatic precipitators of Saracco Acoustic Sciences Corporation. Further,
PrecipTech completed three acquisitions of privately held companies or their
operating assets. In April 1989, PrecipTech acquired ESP Specialties, Inc., a
company that manufactures and sells replacement parts for electrostatic
precipitators. In July 1989, PrecipTech acquired Kinetic Controls, Inc., a
company specializing in the manufacture and sale of automatic voltage
controllers for electrostatic precipitators. And in October 1989, PrecipTech
acquired Midwest Power Corporation, a company engaged in the manufacture and
sale of replacement parts, accessories and services for electrostatic
precipitators.

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.

During 1994, the Company established BHA-TEX, Inc., a Delaware Corporation. This
wholly-owned subsidiary was formed for the purpose of developing
polytetrafluoroethylene ("PTFE") membranes. BHA-TEX, Inc. successfully developed
its own expanded PTFE membrane, which it manufactures and markets under the name
BHA-TEX'r'. PTFE membranes have application both within and outside the
Company's traditional air pollution control equipment markets. In the air
pollution control market, BHA-TEX'r' is laminated to a fabric substrate which is
then converted into a replacement filter. The benefits to the customer include
improved collection efficiency, increased throughput and lower operating costs.
PTFE membranes are widely used outside of air pollution control applications.
These applications include, but are not limited to, wet filtration, electrical
insulation, medical and apparel. Some of the products and processes in these
applications are currently under patent protection. In addition to supplying the
Company's air pollution control businesses with expanded PTFE membranes for use
on filter elements, BHA-TEX, Inc. will evaluate the market niches and product
opportunities available to pursue and develop custom products and services to
meet the needs of this new base of customers.

In November 1996, the Board of Directors approved certain changes to the
Company's corporate structure. The board has determined that servicing the
customers of its corporate business through one company, instead of through
various subsidiaries, will yield the greatest sales, marketing and operational
efficiencies. In order to achieve this objective, the Board has caused three
wholly-owned subsidiaries of the Company that are involved in various air
pollution control businesses to be merged into PrecipTech, and has transferred
certain assets from the Company to PrecipTech. As part of this process, the
Board of Directors proposes to change PrecipTech's name to BHA Group, Inc. and
the Company's name to BHA Group Holdings, Inc., and is seeking the approval by
the shareholders of an amendment to the Certificate of Incorporation of the
Company to effect such name change.



                                      -4-
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<PAGE>

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 from the Consolidated Financial Statements regarding the Company's
business segments for each of the years in the three-year period ended September
30, 1996 (in thousands of dollars):

<TABLE>
<CAPTION>
                                                           1994         1995           1996

<S>                                                      <C>            <C>            <C>     
  Domestic Sales                                         $  91,055      $101,391       $105,962
  Foreign Sales (Europe)                                     9,860        13,332         15,346
                                                        ===========  ============   ============
                                                          $100,915      $114,723       $121,308
                                                        ===========  ============   ============

  Domestic Assets                                        $  55,576     $  64,299      $  68,089
  Foreign Assets (Europe)                                    7,175         7,490          7,946
                                                        ===========  ============   ============
                                                         $  62,751     $  71,789      $  76,035
                                                        ===========  ============   ============

  Domestic Operating Income                              $   6,965    $    9,281     $    9,703
  Foreign Operating Income (Europe)                            562           690          1,066
                                                        ===========  ============   ============
                                                         $   7,527    $    9,971      $  10,769
                                                        ===========  ============   ============
</TABLE>


U. S. export sales to Canada, Latin America, the Near East, and Pacific Rim were
$10,606,000, $13,653,000 and $22,410,000 for the years ended September 30, 1994,
1995 and 1996, 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 telesales
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 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 increased usage of filters that have
PTFE membrane applied to the fabric and other more specialized materials. The
Company's wholly-owned subsidiary, BHA-TEX, Inc., manufactures the expanded PTFE
membrane (BHA-TEX'r') used in its filter elements. The Company is one of the few
filter bag suppliers that manufactures its own PTFE membrane (see "Business"),
which it believes provides it a competitive advantage as it is able to control
availability, raw material costs, quality and product development. 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.

                                      -5-
<PAGE>
<PAGE>

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 standard products 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.

MARKETING

One of the Company's principal competitive advantages is its proprietary
telesales system, the core of which is a computer database containing detailed
information on over 120,000 pieces of pollution control equipment (baghouses and
electrostatic precipitators) at over 30,000 plant locations. The growth of the
database has increased significantly 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

                                      -6-

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<PAGE>

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 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 telesales 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 telesales representative 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 telesales representative 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 telesales personnel to meet their sales goals.

In addition to its use on a customer-by-customer basis, the Company's telesales
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,
establishes a national operating permit program. Title V requires appropriate
and sufficient record keeping, monitoring and reporting 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.



                                      -7-
<PAGE>
<PAGE>

During Fiscal 1996, the enhanced monitoring provision originally required by
Title V was revised by the EPA to a Compliance Assurance Monitoring ("CAM")
program. The CAM program focuses responsibility on certain 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 Fiscal 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.

Additionally, the Company manufactures and sells its products in Europe, Latin
America, Canada, the Near East and the Pacific Rim. The Company's international
customers, as do the domestic customers, operate in compliance with certain
standards established and promulgated by the permitting authorities.

BACKLOG

On September 30, 1996, the backlog of orders for replacement parts and
industrial services was $40,908,000 compared to $33,310,000 at September 30,
1995 and $33,192,000 at September 30, 1994. The Company believes the majority of
the backlog is shippable by September 30, 1997.

FOREIGN OPERATIONS

The Company entered the European market in 1982 when it acquired Filtra GmbH, a
German corporation which operates as an air pollution control replacement parts
manufacturer and marketer. The name of this wholly-owned subsidiary 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 a Swiss corporation, SF Air Filtration AG,
which designs and produces high efficiency replacement cartridge filter
elements. This wholly-owned subsidiary manufactures pleated media filter
elements in Klus/Balsthal, Switzerland and sells these products throughout
Europe.

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

<TABLE>
<CAPTION>
                                  FISCAL YEAR ENDED SEPTEMBER 30,
                                 1994          1995           1996

<S>                             <C>         <C>            <C>    
Sales                           $9,860      $13,332        $15,346

Identifiable Assets              7,175        7,490          7,946

Operating Profit                $  562      $   690       $  1,066
</TABLE>

                                      -8-
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Below is a schedule outlining the contribution of the Company's European Group
referred to above as a percentage of the consolidated amounts.

<TABLE>
<CAPTION>
                                  FISCAL YEAR ENDED SEPTEMBER 30,
                                 1994           1995          1996

<S>                             <C>            <C>            <C>
Sales                           10%            12%            13%

Identifiable Assets             11%            10%            10%

Operating Profit                 7%             7%            10%
</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 as a wholly-owned subsidiary of the Company.

U.S. EXPORT SALES

The Company's domestic operations export products from the U.S. and provide
services to customers in Canada, Latin America, the Near East and Pacific Rim.
Information regarding the Company's U.S. export 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 baghouse and electrostatic precipitator replacement
parts and services 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.

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. In an
effort to further expand its presence in this region, the Company has
established a sales office in the Philippines. The Company has made application
with the Philippine's government for approval to operate as a representative
office for which it expects approval in February 1997.



                                      -9-
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As discussed above, parts and services supplied to the Near East and Pacific Rim
markets are primarily U.S. sourced. As such, sales to these regions are included
in "U.S. Export Sales" in the "Business Segment Data" section of this report.
The foreign assets on September 30, 1996 were not significant and as such, are
not included in the "Foreign Assets" section of "Business Segment Data."

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. 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 overall slowdown in the new equipment market for electrostatic
precipitators has increased competition for replacement parts and services. The
Company does not see this situation improving significantly during 1997. Outside
of the U.S., however, electrostatic precipitators are more prevalent than
baghouses for use in air pollution control systems. The Company continues to
position itself for additional growth in the international marketplace.

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, 1996, the Company's domestic operations employed 690 persons
of whom 80 were engaged in sales and marketing, 75 were engaged in management
and administration, and 535 were engaged in production. The Company's foreign
operations in Germany and Switzerland employed 80 persons, of whom 24 were
engaged in sales and marketing, 14 were engaged in management and
administration, and 42 were engaged in production. The Company's foreign sales
and service offices in the Near East and Pacific Rim employed 20 persons, 14 of
which were engaged in sales and marketing and 6 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.



                                      -10-
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<PAGE>

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 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, Taipei, Taiwan and Manila,
Philippines (less than 2,000 square feet per location) for the sales
organizations located in these countries.

MANUFACTURING AND SERVICES FACILITIES

The Company owns (i) five plants in Slater and Salisbury, Missouri (in aggregate
approximately 293,000 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 21,000 square feet), (ii) a facility in
Klus/Balsthal, Switzerland (approximately 20,000 square feet), (iii) a facility
in Baltimore, Maryland (approximately 3,500 square feet), (iv) a facility in
Covington, Kentucky (approximately 5,000 square feet) and (v) 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, manufacturing PTFE membranes
and warehouse and assembly operations. The operation in Folkston, Georgia
engages 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 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.


                                      -11-
<PAGE>
<PAGE>


          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, 1996 to a vote of security holders through the solicitation of
proxies or otherwise.



                                      -12-
<PAGE>
<PAGE>


                                     PART II

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

MARKET INFORMATION

The 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 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
FISCAL YEAR 1996
<S>                               <C>             <C>  
    Fourth Quarter                15.25           13.00
    Third Quarter                 16.59           11.59
    Second Quarter                12.96           11.36
    First Quarter                 13.64           11.82

FISCAL YEAR 1995

    Fourth Quarter                13.64           11.36
    Third Quarter                 13.18           10.34
    Second Quarter                12.96           10.46
    First Quarter                 12.27           10.46
</TABLE>

These market quotations reflect inter-dealer prices, without retail mark-up,
mark-down, or commission and may not necessarily represent actual transactions.
All share price information in the above table has been adjusted to give effect
to the 1996 stock dividend of 10%.

HOLDERS

As of December 16, 1996, there were 7,108,914 shares issued and 1,120,787 shares
in treasury. The Company had 5,988,127 shares outstanding and owned by
approximately 922 holders of record as of this date.

DIVIDENDS

During the years ended September 30, 1994, 1995 and 1996, 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, 1996, to shareholders of
record on November 20, 1996.

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.



                                      -13-
<PAGE>
<PAGE>

Additionally, the Company's Board of Directors declared a 10% stock dividend,
payable July 10, 1996 to shareholders of record on June 30, 1996. Under the
dividend, shareholders were issued .10 share of common stock for each share of
common stock held as of the record date.

RECENT SALES OF UNREGISTERED SECURITIES

The company has not sold any equity securities during the report period that
were not registered under the Securities Exchange Act of 1933 as amended.

TREASURY STOCK

During the period June 1994 through November 1995, the Company's Board of
Directors authorized it to purchase up to an aggregate of 1,500,000 shares of
BHA Common Stock. Through September 30, 1996 the Company had repurchased 
1,109,665 shares under its authorized stock purchase plan (number of shares
has been adjusted for the 1996 stock dividend of 10%).

                        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, 1996 and 1995 and for each of the years in the three-year period
ended September 30, 1996, and independent auditors report thereon are included
herein.

<TABLE>
<CAPTION>
                                                                   YEARS ENDED SEPTEMBER 30,
                                                          1992      1993      1994      1995      1996
                                                             (IN THOUSANDS, EXCEPT PER SHARE DATA)
SELECTED INCOME STATEMENT DATA
<S>                                                       <C>      <C>      <C>       <C>       <C>    
  Net Sales                                               81,847   88,905   100,915   114,723   121,308
  Gross Margin                                            22,479   22,668    25,270    31,206    34,817
  Operating Expense                                       14,622   15,923    17,743    21,235    24,048
  Interest Expense/(Income)-Net                             (24)        5      (47)       367       732
  Earnings Before Income Taxes                             7,881    6,740     7,574     9,604    10,037
  Net Earnings                                             4,911    4,380     4,809     5,954     6,707
  Net Earnings Per Share                                     .68      .61       .68       .93      1.09
  Weighted Average Shares Outstanding                      7,163    7,181     7,024     6,373     6,137

SELECTED BALANCE SHEET DATA

  Working Capital                                         24,348   25,414    24,721    24,887    28,451
  Total Assets                                            54,363   60,333    62,751    71,789    76,035
  Short-Term Debt Including Current Portion of
  Long-Term Debt                                             490       49        56       757       595
  Long-Term Debt (Less Current Portion)                      963      398       351     9,899     8,244
  Shareholders' Equity                                    44,030   48,036    48,863    46,440    51,696
  Cash Dividends Declared Per Common Share                 -0-        .08       .12       .12       .12

</TABLE>

* All periods presented have been adjusted to reflect the 1996 Stock dividend
of 10%.

                                      -14-
<PAGE>
<PAGE>

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

FISCAL 1996 COMPARED TO FISCAL 1995
NET SALES

Consolidated net sales for BHA Group, Inc. (BHA) were $121.3 million for the
year ended September 30, 1996 (fiscal 1996) compared to $114.7 million for the
year ended September 30, 1995 (fiscal 1995). The increase was attributable to
higher BHA Group International, Inc. (BGI) and BHA Company, Inc. (BHA Company)
sales offset by lower PrecipTech, Inc. (PrecipTech) sales. BGI sells fabric
filter and electrostatic precipitator replacement parts and services to
customers outside of the U.S. in Europe, Latin America, the Near East and
Pacific Rim. During fiscal 1996, its sales grew 43% to $34.7 million as sales
increased across both its fabric filter and electrostatic precipitator product
lines in virtually all of the markets it serves. BHA Company sells fabric filter
replacement parts and services to customers in the U.S. and Canada. Its sales
during fiscal 1996 increased 5% to $61.1 million due to higher sales of its
newer products and major projects. PrecipTech sells replacement parts and
services for electrostatic precipitators to customers in the U.S. and Canada.
Its sales during fiscal 1996 decreased 21% to 25.5 million as the domestic
market for electrostatic precipitator replacement parts and services was
extremely competitive. Within PrecipTech's business, the labor portion of
project revenues decreased as customers elected to execute this work using
internal resources.

GROSS MARGIN

Consolidated gross margin as a percentage of sales was 28.7% and 27.2% during
fiscal years 1996 and 1995. The improvement in the consolidated gross margin
percentage was primarily attributable to the continued increase in international
sales through BGI, which has been running at higher gross margin percentages
than BHA's domestic businesses. BHA's domestic operations, BHA Company and
PrecipTech, also showed increases in gross margin percentages over the same
period in the prior year. BHA Company's gross margin percentage improved due to
a favorable sales mix of replacement parts and services which included higher
sales of newer products. PrecipTech gross margins increased over the same period
a year ago due to a sales mix weighted towards replacement parts with higher
gross margin percentages than the engineered rebuild orders executed in the
prior year.

OPERATING EXPENSE

Selling and advertising expense as a percentage of sales was 10.5% and 9.4% for
fiscal years 1996 and 1995. The increase was attributable to higher selling
expenses associated with the increase in international business and other costs
to develop new markets and products. General and administrative expense as a
percentage of sales for 1996 was 9.3% which was consistent with 9.1% for 1995.

NET INTEREST INCOME/EXPENSE

Interest income was $25,000 and $42,000 for fiscal years 1996 and 1995. Interest
expense for fiscal years 1996 and 1995 was $757,000 and $409,000. The increase
in interest expense during 1996 was attributable to an increase in the average
borrowings outstanding under BHA's revolving credit facilities. This was
primarily a function of timing as BHA did not draw down significant amounts
under its lines of credit in 1995 until after the first quarter of its fiscal
year. During 1996, BHA reduced its net borrowings under its lines of credit by
$1.3 million.



                                      -15-
<PAGE>
<PAGE>

INCOME TAXES

The effective tax rates were 33.2% and 38.0% in fiscal years 1996 and 1995. The
decrease in the effective income tax rate was attributable to research and
development tax credits earned, other benefits derived from the increase in
BHA's international business and a lower effective state income tax rate.

NET EARNINGS

Net earnings were $6.7 million and $6.0 million for fiscal years 1996 and 1995.
The improvement was attributable to higher sales volume and an increase in gross
margin percentage combined with a lower effective income tax rate.

FISCAL 1995 COMPARED TO FISCAL 1994
NET SALES

Consolidated net sales during fiscal 1995 were $114.7 million, which represented
a 14% increase over the year ended September 30, 1994 (fiscal 1994). BHA Company
sales of $58.4 million increased 21% over fiscal 1994 due to higher sales of
fabric filters, cages, pleated products and services. BGI sales were $24.2
million, representing a 40% increase over fiscal 1994. The improvement was
attributable to an increase in sales of fabric filter and electrostatic
precipitator products and services to the European, Latin American, Pacific Rim
and Near East markets. BGI sales also increased as a full year of SF Air
Filtration AG's results, which was acquired in August of 1994, were included in
the fiscal 1995 results. PrecipTech sales decreased by 9% 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 as
compared to the prior year.

GROSS MARGIN

Consolidated gross margin as a percentage of sales was 27.2% and 25.0% for
fiscal years 1995 and 1994. The improvement in overall gross margin percentage
during fiscal 1995 was attributable to a favorable mix of products and markets.
BHA Company gross margin percentages increased in fiscal 1995 due to higher
sales of accessory product lines and to favorable plant absorption associated
with higher sales of manufactured parts. Consolidated gross margin percentage
also improved as the growth rate in BGI sales, which carries a higher gross
margin percentage than BHA Company and PrecipTech, exceeded the domestic
business sales growth rate.

OPERATING EXPENSE

Selling and advertising expense as a percentage of sales was 9.4% and 8.8% for
fiscal years 1995 and 1994. The increase in fiscal 1995 was attributable to
higher selling expenses associated with the increase in international business
which included the establishment and expansion of several international sales
and service offices. General and administrative expense as a percentage of sales
was 9.1% and 8.7% for fiscal years 1995 and 1994. The increase in fiscal 1995
was due to higher payroll and administrative expenses associated with the
increase in international and domestic business.

NET INTEREST INCOME/EXPENSE

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



                                      -16-
<PAGE>
<PAGE>

INCOME TAXES

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

NET EARNINGS

Net earnings were $6.0 million and $4.8 million for fiscal years 1995 and 1994.
The improvement in fiscal 1995 earnings reflects the higher sales volume and
gross margin percentages in both the domestic and international markets.

LIQUIDITY AND CAPITAL RESOURCES

Net working capital was $28.5 million and $24.9 million at September 30, 1996
and 1995, respectively. The current ratios at September 30, 1996 and 1995 were
3.1 to 1 and 2.9 to 1, respectively. Cash was $2.3 million at September 30, 1996
and 1995.

Cash provided by operating activities was $8.4 million, $5.1 million and $13.5
million in fiscal 1996, 1995 and 1994, respectively. The amount of net cash
provided by operating activities can fluctuate significantly as a result of
changes in accounts receivable and inventory balances.

Investing activities have resulted in a net use of cash during each of the past
three fiscal years due to expenditures for property, plant and equipment
together with acquisitions. Capital expenditures were $4.2 million, $9.9 million
and $3.7 million in fiscal 1996, 1995 and 1994, respectively. Capital
expenditures during fiscal 1995 increased in part due to the purchase of the
office building which serves as BHA's corporate headquarters.

During fiscal 1996, net cash used in financing activities of $3.5 million
included a net reduction of $1.3 million in amounts borrowed under BHA's
revolving lines of credit. During fiscal 1995, net cash provided by financing
activities of $1.5 million included net borrowings of $8.2 million under
revolving lines of credit and $2.5 million which was borrowed under a term loan.
The proceeds of these borrowings were used to purchase BHA Common Stock for $8.0
million and finance BHA's investing activities. Net cash used in financing
activities during fiscal 1994 was $4.4 million, which included $3.6 million
in purchases of shares of BHA Common Stock.

At September 30, 1996, BHA had unused bank lines of credit of $12.4 million and
unused short-term foreign exchange borrowing arrangements of $9.7 million.
During November 1996, BHA borrowed $5 million under a five year unsecured term
note at a fixed interest rate of 7% from one of its current lenders. The
proceeds of the term note were used to pay down existing variable interest rate
bank debt. BHA increased its net borrowing capacity by approximately $3.5
million as a result of this transaction. BHA believes that cash flow from
operations and available credit lines 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 Boards in
March 1995 and is effective for fiscal years beginning after December 15, 1995
(BHA's 1997 fiscal year). Management expects that the adoption of Statement 121
will not have a significant impact on BHA's consolidated financial statements.



                                      -17-
<PAGE>
<PAGE>

              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.


                                      -18-
<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, 1996.


                                      -19-
<PAGE>
<PAGE>

                                     PART IV

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

<TABLE>
<S>     <C>                                                                                   
(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).
</TABLE>

                                      -20-
<PAGE>
<PAGE>

<TABLE>
<S>           <C>
        (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 (9).

        (21)  Subsidiaries of the Registrant (9).

        (23)  Independent Auditors' Consent (9).

(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.
</TABLE>

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.

                                      -21-
<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 to the Company's Annual Report on Form 10-K for the
        fiscal year ended September 30, 1995 which is incorporated herein by
        reference.

(9)     Filed as an exhibit hereto.


                                      -22-
<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.

<TABLE>
<S>                                      <C>
Dated:     December 16, 1996             By:   /s/ James E. Lund
           ---------------------               -------------------------------------------------
                                               James E. Lund, President
</TABLE>

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.

<TABLE>
<S>                                      <C>
Dated:     December 16, 1996             By:   /s/ James E. Lund
           ---------------------               -------------------------------------------------
                                               James E. Lund, President
                                               Principal Executive Officer and Director

Dated:     December 16, 1996             By:   /s/ Lamson Rheinfrank, Jr.
           ---------------------               -------------------------------------------------
                                               Lamson Rheinfrank, Jr.
                                               Chairman of the Board

Dated:     December 16, 1996             By:   /s/ Michael T. Zak
           ---------------------               -------------------------------------------------
                                               Michael T. Zak
                                               Vice Chairman and Director

Dated:     December 16, 1996             By:   /s/ Don H. Alexander
           ---------------------               -------------------------------------------------
                                               Don H. Alexander
                                               Director

Dated:     December 16, 1996             By:   /s/ Robert Freeland
           ---------------------               -------------------------------------------------
                                               Robert Freeland
                                               Director

Dated:     December 16, 1996             By:   /s/ Thomas A. McDonnell
           ---------------------               -------------------------------------------------
                                               Thomas A. McDonnell
                                               Director

Dated:     December 16, 1996             By:   /s/ James J. Thome
           ---------------------               -------------------------------------------------
                                               James J. Thome
                                               Executive Vice President and Director

Dated:     December 16, 1996             By:   /s/ James C. King
           ---------------------               -------------------------------------------------
                                               James C. King
                                               Senior Vice President, Secretary and Director

Dated:     December 16, 1996             By:   /s/ Richard C. Green, Jr.
           ---------------------               -------------------------------------------------
                                               Richard C. Green, Jr.
                                               Director

Dated:     December 16, 1996             By:   /s/ James C. Shay
           ---------------------               -------------------------------------------------
                                               James C. Shay
                                               Principal Financial & Accounting Officer
</TABLE>

                                      -23-

<PAGE>
<PAGE>

                        BHA GROUP, INC. AND SUBSIDIARIES

            INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES

Independent Auditors' Report

Financial Statements:

    Consolidated Balance Sheets - September 30, 1996 and 1995
    Consolidated Statements of Earnings

       Years ended September 30, 1996, 1995 and 1994
    Consolidated Statements of Shareholders' Equity

       Years ended September 30, 1996, 1995 and 1994
    Consolidated Statements of Cash Flows

       Years ended September 30, 1996, 1995 and 1994
    Notes to Consolidated Financial Statements

                                                                       Schedule

Schedule - Years ended September 30, 1996, 1995 and 1994 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.

                                      -24-


<PAGE>

<PAGE>

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
(In thousands)                                           September 30,   1996      1995
----------------------------------------------------------------------------------------
<S>                                                                    <C>         <C>  
ASSETS
Current assets:
        Cash and cash equivalents                                      $ 2,304     2,317
        Accounts receivable, less allowance for doubtful receivables
                of $932 in 1996 and $830 in 1995                        19,364    19,075
        Inventories (note 1)                                            18,358    14,865
        Prepaid expenses                                                 1,105       856
        Deferred income taxes (note 4)                                     975       860
                                                                       -----------------
                        Total current assets                            42,106    37,973
                                                                       -----------------

Property, plant and equipment, at cost:
        Land and improvements                                              955       955
        Buildings and improvements                                      15,896    14,480
        Machinery and equipment                                         26,358    23,886
        Office furniture, fixtures and equipment                         2,877     2,569
                                                                       -----------------
                                                                        46,086    41,890
        Less accumulated depreciation and amortization                  20,662    17,128
                                                                       -----------------
                        Net property, plant and equipment               25,424    24,762
                                                                       -----------------

Intangible and other assets, less accumulated amortization (note 2)      3,422     3,814

Excess of cost over net assets of businesses acquired,
        less accumulated amortization (note 2)                           5,083     5,240
                                                                       -----------------
                                                                       $76,035    71,789
                                                                       =================

</TABLE>


                                       25

<PAGE>
<PAGE>
                                                BHA Group, Inc. and Subsidiaries

<TABLE>
<CAPTION>

(In thousands, except share data)                         September 30,           1996         1995
----------------------------------------------------------------------------------------------------
<S>                                                                            <C>            <C>
LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES:
Current liabilities:
        Current installments of long-term debt (note 3)                         $    595         757
        Accounts payable                                                           5,764       6,299
        Accrued compensation and employee benefit costs                            5,347       4,060
        Accrued expenses and other current liabilities                               414         397
        Reserve for warranty and product service                                     970         849
        Income taxes payable                                                         565         724
                                                                                --------------------
                        Total current liabilities                                 13,655      13,086
                                                                                --------------------

Deferred income taxes (note 4)                                                     2,440       2,364

Long-term debt, excluding current installments (note 3)                            8,244       9,899

Shareholders' equity (notes 3 and 5):
        Common Stock $.01 par value 
                Authorized 20,000,000 shares; issued
                7,091,211 and 6,426,302 shares, respectively                          71          64
        Additional paid-in capital                                                33,392      24,923
        Retained earnings                                                         31,963      33,194
        Foreign currency translation adjustment                                     (138)        281
        Unearned compensation (note 5)                                              (315)       (418)
        Less cost of 1,077,787 and 971,600 shares of common stock in treasury    (13,277)    (11,604)
                                                                                --------------------
                        Total shareholders' equity                                51,696      46,440
                                                                                --------------------
Commitments and contingent liabilities (note 6)
                                                                                $ 76,035      71,789
                                                                                ====================
</TABLE>

See accompanying notes to consolidated financial statements.





                                       26

<PAGE>
<PAGE>
                                                BHA Group, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF EARNINGS

<TABLE>
<CAPTION>

(In thousands, except per share data)         Years ended September 30,               1996        1995         1994
---------------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>            <C>          <C>    
Net sales                                                                         $ 121,308      114,723      100,915
Cost of sales                                                                        86,491       83,517       75,645
                                                                                  -----------------------------------
        Gross margin                                                                 34,817       31,206       25,270
                                                                                  -----------------------------------

Operating expenses:
        Selling and advertising expense                                              12,744       10,778        8,928
        General and administrative expense                                           11,304       10,457        8,815
                                                                                  -----------------------------------
                Total operating expenses                                             24,048       21,235       17,743
                                                                                  -----------------------------------

                Operating income                                                     10,769        9,971        7,527
Interest expense                                                                       (757)        (409)         (32)
Interest income                                                                          25           42           79
                                                                                  -----------------------------------

                Earnings before income taxes                                         10,037        9,604        7,574
                                                                                  -----------------------------------

Income taxes (note 4):
        Current                                                                       3,369        3,704        2,531
        Deferred                                                                        (39)         (54)         234
                                                                                  -----------------------------------
                Total income taxes                                                    3,330        3,650        2,765
                                                                                  -----------------------------------

                Net earnings                                                      $   6,707        5,954        4,809
                                                                                  ===================================
Earnings per common share*                                                             1.09          .93          .68
                                                                                  ===================================
</TABLE>

*Earnings per share for all periods presented have been adjusted to reflect the
1996 stock dividend of 10%.


See accompanying notes to consolidated financial statements.



                                       27

<PAGE>
<PAGE>
                                                BHA Group, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>

(In thousands, except share and per share data)        Years ended September 30,     1996        1995      1994
---------------------------------------------------------------------------------------------------------------
<S>                                                                                <C>         <C>       <C>
Common stock:
        Balance at beginning of year                                               $     64       64        64
        Issuance of 21,100 shares of common stock in 1996,
                46,300 shares in 1995, and 14,000 shares in 1994                         --       --        --
        Issuance of 643,809 shares for 10% stock dividend                                 7       --        --
                                                                                   ----------------------------
        Balance at end of year                                                            71       64        64
                                                                                   ----------------------------
Additional paid-in capital:
        Balance at beginning of year                                                 24,923    24,402    24,220
        Excess over par value of common stock issued                                    160       521       182
        Common stock issued from treasury
           for stock option exercises                                                  (616)     --        --
        Income tax benefit from stock option exercises                                  401      --        --
        Issuance of 10% stock dividend                                                8,524      --        --
                                                                                   ----------------------------
        Balance at end of year                                                       33,392    24,923    24,402
                                                                                   ----------------------------
Retained earnings:
        Balance at beginning of year                                                 33,194    27,926    23,878
        Net earnings                                                                  6,707     5,954     4,809
        Payment of cash dividends on Common stock
           ($.12 per share in 1996, 1995 and 1994)                                     (675)     (686)     (761)
        Issuance of 10% stock dividend                                               (7,263)     --        --
                                                                                   ----------------------------
        Balance at end of year                                                       31,963    33,194    27,926
                                                                                   ----------------------------
Foreign currency translation adjustment:
        Balance at beginning of year                                                    281        38      (125)
        Equity adjustment from foreign currency translation                            (419)      243       163
                                                                                   ----------------------------
        Balance at end of year                                                         (138)      281        38
                                                                                   ----------------------------
Unearned compensation (note 5):
        Balance at beginning of year                                                   (418)     --        --
        Issuance of 45,000 shares of restricted Common stock                           --        (517)     --
        Recognition of compensation expense                                             103        99      --
                                                                                   ----------------------------
        Balance at end of year                                                         (315)     (418)     --
                                                                                   ----------------------------
Treasury stock:
        Balance at beginning of year                                                (11,604)   (3,567)     --
        Acquisition of 42,198, 625,100 and 346,500
           shares of common stock at cost in 1996, 1995
           and 1994, respectively                                                      (601)   (8,037)   (3,567)
        Issuance of 31,878 shares from treasury
           for stock option exercises, net                                              195         --     --
        Issuance of 95,867 new treasury shares
           for 10% stock dividend                                                    (1,267)        --     --
                                                                                   ----------------------------
        Balance at end of year                                                      (13,277)  (11,604)   (3,567)
                                                                                   ----------------------------
                Total shareholders' equity                                         $ 51,696    46,440    48,863
                                                                                   ============================
</TABLE>


See accompanying notes to consolidated financial statements.



                                       28

<PAGE>
<PAGE>
                                                BHA Group, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

(in thousands)                                        Years ended September 30,     1996       1995       1994
---------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>         <C>         <C>
Cash flows from operating activities:
        Net earnings                                                              $ 6,707      5,954      4,809
        Adjustments to reconcile net earnings to net cash
        provided by operating activities:
                Depreciation and amortization                                       4,461      4,286      3,629
                Provision for deferred income taxes                                   (39)       (54)       234
        Changes in assets and liabilities, net of amounts in business acquired:
                Accounts receivable                                                  (289)    (4,117)     6,561
                Inventories                                                        (3,493)    (2,412)      (840)
                Prepaid expenses                                                     (249)       366         42
                Accounts payable                                                     (535)      (879)    (1,875)
                Accrued expenses and other liabilities                              1,553      1,576        765
                Income taxes payable                                                  240        344        143
                                                                                  -----------------------------
                        Net cash provided by operating activities                   8,356      5,064     13,468
                                                                                  -----------------------------

Cash flows from investing activities:
        Additions to property, plant and equipment                                 (4,195)    (9,857)    (3,696)
        Net assets of business acquired, excluding cash                              --         --       (2,257)
        Acquisition of product rights
           and other intangible assets                                               (274)    (1,460)      (410)
        Proceeds from sale of fixed assets                                           --         --           57
                                                                                  -----------------------------
                        Net cash used in investing transactions                    (4,469)   (11,317)    (6,306)
                                                                                  -----------------------------

Cash flows from financing activities:
        Proceeds from issuance of common stock                                         32          4       --
        Payment of cash dividends on common stock                                    (675)      (686)      (761)
        Purchase of treasury stock                                                   (601)    (8,037)    (3,567)
        Stock option exercises - net payments                                        (421)      --         --
        Proceeds from long-term debt                                                 --        2,500       --
        Repayments of long-term debt                                                 (564)      (457)       (41)
        Borrowings (repayments) on lines of credit, net                            (1,252)     8,206       --
                                                                                  -----------------------------
                        Net cash provided by (used in) financing activities        (3,481)     1,530     (4,369)
                                                                                  -----------------------------
Effect of exchange rate changes                                                      (419)       243        163
                                                                                  -----------------------------
        Net increase (decrease) in cash and cash equivalents                          (13)    (4,480)     2,956
Cash and cash equivalents at beginning of year                                      2,317      6,797      3,841
                                                                                  -----------------------------
Cash and cash equivalents at end of year                                          $ 2,304      2,317      6,797
                                                                                  =============================
Supplemental disclosures of cash flow information:
        Cash paid during the year for:
                Interest                                                          $   708        402         32
                                                                                  =============================
                Income taxes                                                      $ 3,127      3,306      2,420
                                                                                  =============================
Supplemental disclosure of noncash investing and financing activities:
        Issuance of common stock to directors, officers and employees             $   128        517        140
                                                                                  =============================
</TABLE>



                                       29



<PAGE>
<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

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

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, 1996 and 1995 were as follows:

$ in thousands                                          1996                1995
--------------------------------------------------------------------------------
Raw materials                                        $13,448               9,225
Work-in-process                                          373               1,580
Finished goods                                         4,537               4,060
                                                     ---------------------------
Total                                                $18,358              14,865
                                                     ===========================

Property, Plant and Equipment
Property, plant and equipment are carried at cost. Major renewals and
betterments are charged to the property accounts, while replacements,
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:

        Buildings and improvements                        30 years
        Machinery and equipment                          4-8 years
        Office furniture, fixtures and equipment        3-10 years

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. The
adoption of Statement No. 109 did not have a significant impact on the
consolidated financial statements of BHA. 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.

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 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 1996, 1995 and 1994 amounted to $24,304, $14,700 and
$14,617, respectively.

Forward Exchange Contracts
BHA periodically enters 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, the aggregate amount of such
forward exchange contracts was approximately $1,450,000. The fair value of the
outstanding forward exchange contracts approximates the aggregate amount
outstanding at September 30, 1995. There were no forward exchange contracts
outstanding at September 30, 1996.

Treasury Stock
Since June 1994, the Board of Directors of BHA have periodically approved the
purchase of up to 1,500,000 shares of the Company's common stock. The purchases
of common stock are recorded at cost on the date of purchase. Issuances of
common stock from the treasury are recorded at the average cost of common stock
held in the treasury.



                                       30

<PAGE>
<PAGE>

NOTES, CONTINUED

Earnings Per Common Share
Earnings per common share is computed based on the average number of common
shares and common share equivalents outstanding (6,137,497, 6,373,322 and
7,024,492 for 1996, 1995 and 1994, 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 123,859, 136,327 and 78,260 for
1996, 1995 and 1994, respectively. The stock options which result in common
share equivalents are described in note 5.

A 10% stock dividend was announced in June 1996. The stock dividend was paid in
July 1996 and all per share and weighted average number of common shares and
common share equivalents outstanding data in the consolidated financial
statements and related notes have been restated to reflect the stock dividend
for all periods presented.

Cost in Excess of Net Assets Acquired and Intangible Asset
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 $832,000 and $675,000 at
September 30, 1996 and 1995, 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 and $4,441,000 and $3,973,000 at
September 30, 1996 and 1995, respectively.

BHA assesses the recoverability and measures any impairment 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 marketable 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, 1996,
as substantially all such debt accrues interest at variable rates.

2.  Acquisition of Business 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. 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.

3.  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
through 2000. The outstanding balance under this term loan was $1,625,000 at
September 30, 1996.

BHA has domestic unsecured bank lines of credit amounting to $18,000,000 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
include revolving credit agreements of $3,000,000 and $5,000,000 which expire in
1998 and $5,000,000 which expires in 2000, in which BHA pays 0.25% as commitment
fees on the unused portion. A line of credit of $5,000,000, for which BHA pays
no commitment fee, is also available. This line expires during 1997. At
September 30, 1996, $6,925,000 was outstanding under all domestic bank lines of
credit at a weighted average interest rate of 6.52%.

BHA's foreign subsidiary located in Germany maintains a line of credit with a
foreign bank in the amount of DM1,800,000 (approximately $1,180,000 (U.S.)).
BHA's foreign subsidiary located in Switzerland also maintains a line of credit
with a foreign bank in the amount of SFR200,000 (approximately $160,000 (U.S.)).
As of September 30, 1996, $29,000 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, 1996. At September 30, 1996, $11,696,000 of retained
earnings were available for dividends.



                                       31

<PAGE>
<PAGE>

A summary of long-term debt at September 30, 1996 and 1995 follows:

$ in thousands                                                 1996         1995
--------------------------------------------------------------------------------
Unsecured lines of credit with
        variable interest rates                              $6,954        8,206
Notes payable to banks, bearing interest
        at 6.5% to 7.0%, with annual
        principal payments of $25,000
        to $500,000 from 1997 to 2001                         1,885        2,449
Less current installments                                       595          757
                                                             -------------------
Long-term debt, excluding
        current installments                                 $8,244        9,899
                                                             ===================

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

$ in thousands
--------------------------------------------------------------------------------
        1997                                                               $ 595
        1998                                                               2,492
        1999                                                                 572
        2000                                                               5,150
        2001                                                                  30
                                                                          ------
                                                                          $8,839
                                                                          ======

4.  Income Taxes

The components of total income tax expense for the years ended September 30,
1996, 1995 and 1994 are as follows:

$ in thousands                                      1996        1995        1994
--------------------------------------------------------------------------------
Current income tax expense:
        Federal                                  $ 3,039       3,271       2,235
        State and local                              330         433         296
Deferred income tax expense (benefit):
        Federal                                      (19)        (48)        205
        State                                        (20)         (6)         29
                                                 -------------------------------
                                                 $ 3,330       3,650       2,765
                                                 ===============================

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

                                                  1996         1995         1994
--------------------------------------------------------------------------------
Expected income tax expense                       34.0%        34.0%       34.0%
State income taxes, net                            2.2          2.9         2.8
Difference in tax rates of
        foreign subsidiaries                      (2.9)         (.7)       (2.7)
Research and experimentation
        credits                                   (2.0)          --           --
Other, net                                         1.9          1.8          2.4
                                                  ------------------------------
        Effective income tax rate                 33.2%        38.0%       36.5%
                                                  ==============================

The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at September 30, 1996
and 1995 are presented below:

$ in thousands                                                    1996     1995
--------------------------------------------------------------------------------
Deferred tax assets:
        Reserves not currently deductible                       $  912      795
        Inventories                                                314      319
        Other, net                                                 267      217
                                                                ---------------
        Total gross deferred tax assets                          1,493    1,331
                                                                ---------------

Deferred tax liabilities: 
        Intangible and other assets                                725      778
        Property, plant and equipment                              814    1,172
        Prepaid expenses                                           197      161
        Deferred compensation                                      163      235
        Other, net                                               1,059      489
                                                                ---------------
        Total gross deferred tax liabilities                     2,958    2,835
                                                                ---------------
        Net deferred tax liability                              $1,465    1,504
                                                                ===============

At September 30, 1996 and 1995, deferred tax assets and liabilities are
classified in the accompanying consolidated balance sheets as follows:

$ in thousands                                                    1996    1995
-------------------------------------------------------------------------------
Current deferred income tax asset                               $   975     860
Noncurrent deferred income tax liability                         (2,440) (2,364)
                                                                ---------------
Net deferred income tax liability                               $(1,465) (1,504)
                                                                ===============

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.

BHA has not provided deferred taxes on the cumulative undistributed
earnings/(losses) of its foreign subsidiaries, which approximate $955,000,
$285,000 and $(183,000) at September 30, 1996, 1995 and 1994, respectively, as
management considers these earnings to be permanently invested. Net earnings of
the foreign subsidiaries were approximately $670,000, $468,000, and $529,000 for
the years ended September 30, 1996, 1995 and 1994, respectively.

5.  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 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


                                       32

<PAGE>
<PAGE>

NOTES, CONTINUED

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 provide that they
are not exercisable unless the 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 market value of
the awards at the date of issuance is being recognized as compensation expense
ratably over the five-year vesting period.

In accordance with the terms of the incentive stock plan, the Compensation
Committee of the Board of Directors, which administers the plan, made the
following adjustments to the plan and outstanding options to take into account
the dilutive effect of BHA's 10% stock dividend: increased the number of shares
available for issuance under the plan from 1,280,000 to 1,379,636, adjusted the
number of shares and the exercise price of options outstanding at the time of
the stock dividend, and lowered the minimum market value of $20 per share
required for certain options to become exercisable to $18.18.

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

                                                 Number of         Exercise
1996                                              Shares*           Prices*
--------------------------------------------------------------------------------
Outstanding at beginning of year                 1,061,890       $ 2.83/15.45

Granted                                              5,500              11.59
Canceled                                           (24,200)       10.91/15.45
Exercised                                          (86,004)              2.83
                                                 ---------
Outstanding at end of year                         957,186         3.03/15.45
                                                 =========
Exercisable at end of year                         486,046         3.03/15.45
                                                 =========

                                                 Number of         Exercise
1995                                              Shares            Prices
--------------------------------------------------------------------------------
Outstanding at beginning of year                   835,620       $ 2.83/15.45

Granted                                            231,000              11.59
Canceled                                            (3,300)             10.91
Exercised                                           (1,430)              2.83
                                                 ---------
Outstanding at end of year                       1,061,890         2.83/15.45
                                                 =========
Exercisable at end of year                         531,930         2.83/15.45
                                                 =========

                                                 Number of         Exercise
1994                                              Shares            Prices
--------------------------------------------------------------------------------
Outstanding at beginning of year                   578,426       $ 2.83/15.45

Granted                                            271,287          7.50/8.64
Canceled                                           (14,093)       10.45/15.45
                                                 ---------
Outstanding at end of year                         835,620         2.83/15.45
                                                 =========
Exercisable at end of year                         483,070         2.83/15.45
                                                 =========

*All share and exercise price information has been adjusted to reflect the 1996
stock dividend of 10%

6.  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
years of service. Contributions charged to operating expenses were $983,000,
$865,000 and $537,000 for the years ended September 30, 1996, 1995 and 1994,
respectively.

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 100%
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. BHA matching contributions become vested based on years of service.
BHA made matching contributions of $232,000, $110,000 and $103,000 for the years
ended September 30, 1996, 1995 and 1994, respectively.

Leases
A summary of noncancelable, long-term operating lease commitments on office
facilities and equipment follows years ending September 30:

$ in thousands
--------------------------------------------------------------------------------
        1997                                               $ 614
        1998                                                 506
        1999                                                 195
        2000                                                  67
        2001                                                  32

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 $652,000,
$640,000 and $683,000 for the years ended September 30, 1996, 1995 and 1994,
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
$2,000,000 for the issuance of letters of credit. Open standby letters of credit
amounted to $248,000 and $29,000 at September 30, 1996 and 1995, respectively.



                                       33

<PAGE>
<PAGE>

7.  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, 1996:

($ in thousands)                               1996          1995          1994
--------------------------------------------------------------------------------
Domestic assets                             $ 68,089        64,299        55,576
Foreign assets - Europe                        7,946         7,490         7,175
                                            ------------------------------------
Total                                       $ 76,035        71,789        62,751
                                            ====================================

Domestic sales                              $105,962       101,391        91,055
Foreign sales - Europe                        15,346        13,332         9,860
                                            ------------------------------------
Total                                       $121,308       114,723       100,915
                                            ====================================

Domestic operating income                   $  9,703         9,281         6,965
Foreign operating
        income - Europe                        1,066           690           562
                                            ------------------------------------
Total                                       $ 10,769         9,971         7,527
                                            ====================================

U.S. export sales to unaffiliated customers in Canada, Latin America, the Near
East and Pacific Rim were $22,410,000, $13,653,000 and $10,606,000 for the years
ended September 30, 1996, 1995 and 1994, respectively. These revenues are
included in "Domestic Sales" in the table above.

8.  Quarterly Financial Data (Unaudited)
Summarized quarterly financial data are as follows:

                                               Three months ended

($ in thousands)                  Dec. 31     March 31      June 30     Sept. 30
--------------------------------------------------------------------------------
1996
Net sales                         $27,699       31,202       30,928       31,479
Gross margin                        8,095        8,938        8,621        9,163
Net earnings                        1,506        1,740        1,780        1,681
Earnings per share*                   .25          .28          .29          .27

1995
Net sales                         $27,258       30,264       28,937       28,264
Gross margin                        7,253        8,081        7,777        8,095
Net earnings                        1,411        1,581        1,484        1,478
Earnings per share*                   .21          .25          .24          .24

*Earnings per share for all periods presented have been adjusted to reflect the
1996 stock dividend of 10%.

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, 1996 and 1995 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, 1996. 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, 1996 and 1995 and the results of their operations
and their cash flows for each of the years in the three-year period ended
September 30, 1996 in conformity with generally accepted accounting principles.

KPMG PEAT MARWICK LLP
KPMG Peat Marwick LLP

November 12, 1996
Kansas City, Missouri

                                       34


<PAGE>
<PAGE>

                                                                     Schedule II

                        BHA GROUP, INC. AND SUBSIDIARIES

                        VALUATION AND QUALIFYING ACCOUNTS
                            (IN THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
                                                               Charged to
                                                 Beginning      Costs and     Deductions        Ending
                                                  Balance       Expenses                       Balance

<S>                                          <C>                <C>            <C>            <C>
Allowance for doubtful receivables:

Year ended September 30, 1996                $         830            382            280            932
                                                ============   ============   ============    ===========

Year ended September 30, 1995                $         757            451            378            830
                                                ============   ============   ============    ===========

Year ended September 30, 1994                $         685            274            202            757
                                                ============   ============   ============    ===========

Reserve for Warranty and Product Service

Year ended September 30, 1996                $         848          1,482          1,360            970
                                                ============   ============   ============    ===========

Year ended September 30, 1995                $         796          1,169          1,116            849
                                                ============   ============   ============    ===========

Year ended September 30, 1994                $         351          1,150            705            796
                                                ============   ============   ============    ===========
</TABLE>

                                      -35-

<PAGE>
<PAGE>

                                                                     Schedule II

                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
   EXHIBIT NO.                            DESCRIPTION                                PAGE
<S>                            <C>                                                   <C>
       11                      Computation of Per Share Earnings                      37

       21                       Subsidiaries of BHA Group, Inc.                       38

       23                        Independent Auditors' Consent                        39

       27                        Financial Data Schedule                              40
</TABLE>




                                      -36-


                             STATEMENT OF DIFFERENCES


The registered trademark symbol shall be expressed as ............ 'r'



<PAGE>