UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

|(Mark One)
|----------
|[X]       

For the period ended
 March 31, 2005

OR

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

Commission File Number:
1-14316

APRIA HEALTHCARE GROUP INC.
(Exact name of registrant as specified in its charter)

|                                                                                                                                                                 |                                                                       
|---------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------
|Delaware(State or other
      jurisdiction ofincorporation or organization)26220 Enterprise
      Court, Lake Forest, CA(Address of principal executive offices) | 33-0488566(I.R.S. Employer
      Identification Number)92630(Zip Code)

Registrants
telephone number: (949) 639-2000

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 whether the registrant
is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes X No

As of May 2, 2005 there were outstanding
 49,035,358 shares of the Registrants common stock,  par
value $.001, which is the only class of common stock of the Registrant (not
including 9,627,659 shares held in treasury).

---

APRIA HEALTHCARE GROUP INC.

FORM 10-Q

For the period ended March 31, 2005

|                                          |  |                                                                                                                                                                                                                                                      | 
|----------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|PART I.    
        FINANCIAL INFORMATION | 
|                                          |  |                                                                                                                                                                                                                                                      | 
|Item 1.                                   |  | Financial Statements (unaudited)
       Condensed Consolidated Balance Sheets
       Condensed Consolidated Income Statements
       Condensed Consolidated Statements of Cash Flows
       Notes to Condensed Consolidated Financial Statements | 
|                                          |  |                                                                                                                                                                                                                                                      | 
|Item 2.                                   |  | Managements Discussion and Analysis ofFinancial
Condition and Results of Operations                                                                                                                                                                 | 
|                                          |  |                                                                                                                                                                                                                                                      | 
|Item 3.                                   |  | Quantitative and Qualitative Disclosures About Market Risk                                                                                                                                                                                           | 
|                                          |  |                                                                                                                                                                                                                                                      | 
|Item 4.                                   |  | Controls and Procedures                                                                                                                                                                                                                              | 
|                                          |  |                                                                                                                                                                                                                                                      | 
|                                          |  |                                                                                                                                                                                                                                                      | 
|PART II.   
         OTHER INFORMATION    | 
|                                          |  |                                                                                                                                                                                                                                                      | 
|Item 1.                                   |  | Legal Proceedings                                                                                                                                                                                                                                    | 
|                                          |  |                                                                                                                                                                                                                                                      | 
|Item 6.                                   |  | Exhibits                                                                                                                                                                                                                                             | 
|                                          |  |                                                                                                                                                                                                                                                      | 
|SIGNATURES                                |  |                                                                                                                                                                                                                                                      | 
|                                          |  |                                                                                                                                                                                                                                                      | 
|EXHIBITS                                  |  |                                                                                                                                                                                                                                                      | 

---

PART I  FINANCIAL INFORMATION

ITEM 1.     FINANCIAL STATEMENTS (unaudited)

APRIA HEALTHCARE GROUP INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)

|                                                                     | March 31, |  | December 31,
|-------------------------------------------------------------------- | --------- |  | ------------
|
|
|ASSETS                                                               |           |  |             
|CURRENT ASSETS                                                       |           |  |             
|Cash and cash equivalents                                            |           |  | $           
|Accounts receivable, less allowance
for doubtful accounts of $48,898 |           | 
|and $45,064 at March 31, 2005 and
December 31, 2004, respectively    |           |  |             
|Inventories, net                                                     |           |  |             
|Deferred income taxes                                                |           |  |             
|Prepaid expenses and other current assets                            |           |  |             
|                                                                     |           |  |             
|TOTAL CURRENT ASSETS                                                 |           |  |             
|                                                                     |           | 
|PATIENT SERVICE EQUIPMENT, less accumulated depreciation of $426,085 |           | 
|and $420,714 at March 31, 2005 and December 31, 2004, respectively   |           |  |             
|PROPERTY, EQUIPMENT AND IMPROVEMENTS, net                            |           |  |             
|DEFERRED INCOME TAXES                                                |           |  |             
|GOODWILL                                                             |           |  |             
|INTANGIBLE ASSETS, less accumulated amortization of $8,045 and       |           | 
|$6,425 at March 31, 2005 and December 31, 2004, respectively         |           |  |             
|DEFERRED DEBT ISSUANCE COSTS, net                                    |           |  |             
|OTHER ASSETS                                                         |           |  |             
|                                                                     |           |  |             
|                                                                     |           |  | $           
|                                                                     |           |  |             
|LIABILITIES AND STOCKHOLDERS EQUITY                                 |           | 
|CURRENT LIABILITIES                                                  |           | 
|Accounts payable                                                     |           |  | $           
|Accrued payroll and related taxes and benefits                       |           |  |             
|Accrued insurance                                                    |           |  |             
|Income taxes payable                                                 |           |  |             
|Other accrued liabilities                                            |           |  |             
|Current portion of long-term debt                                    |           |  |             
|                                                                     |           |  |             
|TOTAL CURRENT LIABILITIES                                            |           |  |             
|                                                                     |           | 
|LONG-TERM DEBT, exclusive of current portion                         |           |  |             
|DEFERRED INCOME TAXES                                                |           |  |             
|OTHER NON-CURRENT LIABILITIES                                        |           |  |             
|COMMITMENTS AND CONTINGENCIES (Note G)                               |           | 
|                                                                     |           | 
|STOCKHOLDERS EQUITY                                                 |           | 
|Preferred stock, $.001 par value: 10,000,000 shares authorized;      |           | 
|none issued                                                          |           |  |             
|Common stock, $.001 par value: 150,000,000 shares authorized;        |           | 
|58,653,768 and 58,236,364 shares issued at
March 31, 2005 and        |           | 
|December 31, 2004, respectively;
49,026,109 and 48,608,705 shares    |           | 
|outstanding at March 31, 2005 and December 31, 2004, respectively    |           |  |             
|Additional paid-in capital                                           |           |  |             
|Treasury stock, at cost; 9,627,659 shares
at March 31, 2005          |           | 
|and December 31, 2004                                                |           |  |             
|Retained earnings                                                    |           |  |             
|Accumulated other comprehensive income (loss)                        |           |  |             
|                                                                     |           |  |             
|                                                                     |           |  |             
|                                                                     |           |  |             
|                                                                     |           |  | $           
|                                                                     |           |  |             

See notes to condensed
consolidated financial statements.

---

APRIA HEALTHCARE GROUP INC.

CONDENSED CONSOLIDATED INCOME STATEMENTS 
(unaudited)

|                                                                           | Three Months EndedMarch 31,
|-------------------------------------------------------------------------- | ---------------------------
|
|
|
|Net revenues                                                               |                            
|Costs and expenses:   
Cost of net revenues:      Product and supply costs |                            
|Patient service equipment depreciation                                     |                            
|Nursing services                                                           |                            
|Other                                                                      |                            
|                                                                           |                            
|TOTAL COST OF NET REVENUES                                                 |                            
|                                                                           |                            
|Provision for doubtful accounts                                            |                            
|Selling, distribution and administrative                                   |                            
|Amortization of intangible assets                                          |                            
|                                                                           |                            
|TOTAL COSTS AND EXPENSES                                                   |                            
|                                                                           |                            
|                                                                           |                            
|OPERATING INCOME                                                           |                            
|Interest expense, net                                                      |                            
|                                                                           |                            
|INCOME BEFORE TAXES                                                        |                            
|Income tax expense                                                         |                            
|                                                                           |                            
|NET INCOME                                                                 |                            
|                                                                           |                            
|Basic net income per common share                                          |                            
|                                                                           |                            
|Diluted net income per common share                                        |                            
|                                                                           |                            

See notes to condensed consolidated
financial statements.

---

APRIA HEALTHCARE GROUP INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

|                                                                                   | Three Months EndedMarch 31,
|---------------------------------------------------------------------------------- | ---------------------------
|
|
|
|OPERATING ACTIVITIES                                                               |                            
|Net income                                                                         |                            
|Items included in net income not requiring cash:                                   |                            
|Provision for doubtful accounts                                                    |                            
|Depreciation and amortization                                                      |                            
|Amortization of deferred debt issuance costs                                       |                            
|Deferred income taxes                                                              |                            
|Stock-based compensation                                                           |                            
|Gain on disposition of assets                                                      |                            
|Changes in operating assets and liabilities, exclusive
of effects of acquisitions: |                            
|Accounts receivable                                                                |                            
|Inventories, net                                                                   |                            
|Prepaid expenses and other assets                                                  |                            
|Accounts payable, exclusive of outstanding checks                                  |                            
|Accrued payroll and related taxes and benefits                                     |                            
|Income taxes payable                                                               |                            
|Accrued expenses                                                                   |                            
|                                                                                   |                            
|NET CASH PROVIDED
 BY OPERATING ACTIVITIES                                         |                            
|INVESTING ACTIVITIES                                                               |                            
|Purchases of patient service equipment and property,                               |                            
|equipment and improvements, exclusive of effects of acquisitions                   |                            
|Proceeds from disposition of assets                                                |                            
|Cash paid for acquisitions, including payments of deferred consideration           |                            
|                                                                                   |                            
|NET CASH USED IN INVESTING ACTIVITIES                                              |                            
|FINANCING ACTIVITIES                                                               |                            
|Payments on term loans                                                             |                            
|Payments on other long-term debt                                                   |                            
|Outstanding checks included in accounts payable and other                          |                            
|Capitalized debt issuance costs                                                    |                            
|Repurchases of common stock                                                        |                            
|Issuances of common stock                                                          |                            
|                                                                                   |                            
|NET CASH
USED IN FINANCING ACTIVITIES                                              |                            
|                                                                                   |                            
|NET DECREASE IN CASH AND CASH EQUIVALENTS                                          |                            
|Cash and cash equivalents at beginning of period                                   |                            
|                                                                                   |                            
|CASH AND CASH EQUIVALENTS AT END OF PERIOD                                         |                            
|                                                                                   |                            

See notes to condensed
consolidated financial statements.

---

APRIA HEALTHCARE GROUP INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS

NOTE A  CERTAIN SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation: The accompanying unaudited
condensed consolidated financial statements include the accounts of Apria Healthcare Group
Inc. (Apria or the company) and its subsidiaries. Intercompany
transactions and accounts have been eliminated.

All adjustments, consisting of normal recurring accruals
necessary for a fair presentation of the results of operations for the interim periods
presented, have been reflected herein. The unaudited results of operations for interim
periods are not necessarily indicative of the results to be expected for the entire year.
For further information, refer to the consolidated financial statements and footnotes
thereto for the year ended December 31, 2004, included in the companys Annual Report
on Form 10-K.

Certain amounts from prior periods have been
reclassified to conform to the current period presentation.

Use of Accounting Estimates:The preparation of
financial statements in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions that affect
the amounts reported in the financial statements and accompanying notes. Actual results
could differ from those estimates.

Revenue Recognition and Concentration of Credit
Risk: Revenues are recognized on the date services and related products are provided
to patients and are recorded at amounts expected to be received under reimbursement
arrangements with third-party payors, including private insurers, prepaid health plans,
Medicare and Medicaid. Approximately 38% of the companys revenues are reimbursed
under arrangements with Medicare and Medicaid. No other third-party payor group represents
more than 9% of the companys revenues. The majority of the companys revenues
are derived from fees charged for patient care under fee-for-service arrangements.
Revenues derived from capitation arrangements represent less than 10% of total net
revenues.

Due to the nature of the industry and the reimbursement
environment in which Apria operates, certain estimates are required to record net revenues
and accounts receivable at their net realizable values. Inherent in these estimates is the
risk that they will have to be revised or updated as additional information becomes
available. Specifically, the complexity of many third-party billing arrangements and the
uncertainty of reimbursement amounts for certain services from certain payors may result
in adjustments to amounts originally recorded. Such adjustments are typically identified
and recorded at the point of cash application, claim denial or account review.

Management performs periodic analyses to evaluate
accounts receivable balances to ensure that recorded amounts reflect estimated net
realizable value. Specifically, management considers historical realization data, accounts
receivable aging trends, other operating trends and the extent of contracted business and
business combinations. Also considered are relevant business conditions such as
governmental and managed care payor claims processing procedures and system changes.
Management also performs focused reviews of certain large and/or slow-paying payors. Due
to continuing changes in the healthcare industry and with third-party reimbursement, it is
possible that estimates could change in the near term, which could have an impact on
operations and cash flows.

Accounts receivable are reduced by an allowance for
doubtful accounts which provides for those accounts from which payment is not expected to
be received, although services were provided and revenue was earned. Upon determination
that an account is uncollectible, it is written-off and charged to the allowance.

Recent Accounting Pronouncements:Financial
Accounting Standards Board (FASB) Interpretation (FIN) No. 46,
Consolidation of Variable Interest Entities, an interpretation of Accounting
Research Bulletin No. 51, was originally issued in January 2003 and subsequently revised
in December 2003. FIN No. 46, as revised, requires a variable interest entity to be
consolidated by a company if that company is subject to a majority of the risk of loss
from the variable interest entitys activities or is entitled to receive a majority
of the entitys residual returns, or both. FIN No. 46 also requires certain
disclosures about variable interest entities in which a company has a significant
interest, regardless of whether consolidation is required. Application of FIN No. 46 is
required for potential variable interest entities commonly referred to as special purpose
entities for periods ending after December 15, 2003. Application of the provisions is
required for all other variable interest entities by the end of the first reporting period
that ends after March 15, 2004. The company is currently not a beneficiary of any variable
interest entities, therefore the adoption of this interpretation did not have a material
effect on the companys consolidated financial statements.

In November 2004, the FASB issued Statement of Financial
Accounting Standards (SFAS) No. 151, Inventory Costs, which amends
and clarifies previous guidance on the accounting for abnormal amounts of idle facility
expense, freight, handling costs and spoilage. Abnormal amounts of these costs should be
recognized as current period charges rather than as a portion of inventory cost.
Additionally, SFAS No. 151 requires that the allocation of fixed production overhead be
based on the normal capacity of the production facilities, which refers to a range of
production levels within which ordinary variations are expected. The statement is
effective for inventory costs incurred during fiscal years beginning after June 15, 2005.
Apria does not expect the adoption of SFAS No. 151 to have a material effect on the
companys consolidated financial statements.

In December 2004, the FASB issued SFAS No. 123R,
Share-Based Payment. This statement replaces SFAS No. 123, Accounting
for Stock-Based Compensation, and supersedes Accounting Principles Board
(APB) Opinion No. 25, Accounting for Stock Issued to Employees.
SFAS No. 123R requires a company to measure the cost of employee services received in
exchange for an award of equity instruments based on the grant date fair value of the
award. The cost will be recognized over the period during which the employee is required
to provide service in exchange for the award (usually the vesting period). Adoption of
SFAS No. 123R was initially required as of the beginning of the first interim or annual
reporting period that begins after June 15, 2005. The Securities and Exchange Commission
subsequently amended Rule 4-01(a) of Regulation S-X to amend the required compliance date
for SFAS No. 123R to the first interim or annual reporting period for the fiscal year
beginning on or after June 15, 2005. Accordingly, Apria will adopt the statement January
1, 2006. Management is currently evaluating the statement and its transition provisions.
The impact of adoption on the results of operations cannot be estimated at this time as it
is dependent on the level of future share-based awards. However, had SFAS No. 123R been
adopted in prior periods, the effect would have approximated the SFAS No. 123 proforma
disclosures presented at the end of this Note A.

In December 2004, the FASB issued SFAS No. 153,
Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29,
Accounting for Nonmonetary Transactions. This statement eliminates the
exception from fair value measurement for nonmonetary exchanges of similar productive
assets and replaces it with an exception for exchanges that do not have commercial
substance. If the future cash flows of the entity are not expected to change significantly
as a result of the transaction, then the exchange shall be measured based on the recorded
amount of the nonmonetary assets relinquished, rather than on the fair values of the
exchanged assets. The statement is effective for nonmonetary asset exchanges beginning
after June 15, 2005. Apria does not expect the adoption of SFAS No. 153 to have a material
effect on the companys consolidated financial statements.

Stock-based Compensation:The company accounts
for its stock-based compensation plans under the recognition and measurement principles of
APB Opinion No. 25,Accounting for Stock Issued to Employees,and related interpretations. Apria has adopted the disclosure provisions of SFAS No.
123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148,
Accounting for Stock-Based Compensation  Transition and Disclosure  an
amendment of FASB Statement No. 123. For the three-month period ended March 31,
2005, net income reflects compensation expense for restricted stock awards and restricted
stock purchase rights accounted for in accordance with APB Opinion No. 25. Had
compensation expense for all of the companys stock-based compensation awards been
recognized based on the fair value recognition provisions of SFAS No. 123, Aprias
net income and per share amounts would have been adjusted to the pro forma amounts
indicated below.

|                                                                                                                                              | Three Months EndedMarch 31,
|--------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------
|
|
|
|Net income as reported                                                                                                                        |                            
|Add:  stock-based compensation
expense included      in reported net income,
net of related tax effects                                       |                            
|Deduct:  total stock-based
compensation expense      determined for all awards under fair
value-based      method, net of related tax effects |                            
|                                                                                                                                              |                            
|Pro forma net income                                                                                                                          |                            
|                                                                                                                                              |                            
|Basic net income per share:                                                                                                                   |                            
|As reported                                                                                                                                   |                            
|Pro forma                                                                                                                                     |                            
|                                                                                                                                              |                            
|Diluted net income per share:                                                                                                                 |                            
|As reported                                                                                                                                   |                            
|Pro forma                                                                                                                                     |                            

For purposes of the pro forma disclosure, the fair value
of each option grant is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions used for grants in
the three-month period ended March 31, 2004: risk-free interest rate of 2.98%; dividend
yield of 0%; expected life of 4.86 years; and volatility of 47%. There were no options
granted during the three months ended March 31, 2005.

---

NOTE B  BUSINESS COMBINATIONS

Apria periodically makes acquisitions of complementary
businesses in specific geographic markets. The results of operations of the acquired
companies are included in the accompanying consolidated income statements from the dates
of acquisition. During the three-month period ended March 31, 2005, cash paid for
acquisitions was $28,938,000, which included deferred payments of $4,292,000 that were
related to prior year acquisitions. At March 31, 2005, deferred consideration payable
totaled $7,583,000 and is included on the consolidated balance sheet in other accrued
liabilities.

During the three-month period ended March 31, 2005,
Apria acquired seven companies in which the revenue mix was primarily attributable to
respiratory therapy business. Pending receipt of additional valuation information, amounts
preliminarily allocated to goodwill, other intangible assets and patient service equipment
were $19,701,000, $2,580,000 and $2,315,000, respectively. This allocation is inclusive of
amounts not yet paid.

The following supplemental unaudited pro forma
information presents the combined operating results of Apria and the businesses that were
acquired by Apria during the three-month period ended March 31, 2005, as if the
acquisitions had occurred at the beginning of the periods presented. The pro forma
information is based on the historical financial statements of Apria and those of the
acquired businesses. Amounts are not necessarily indicative of the results that may have
been obtained had the combinations been in effect at the beginning of the periods
presented or that may be achieved in the future.

|                                    | Three Months EndedMarch 31,
|----------------------------------- | ---------------------------
|
|
|
|Net revenues                        |                            
|Net income                          |                            
|                                   
|Basic net income per common share   |                            
|Diluted net income per common share |                            

---

NOTE C  GOODWILL AND INTANGIBLE ASSETS

Apria accounts for intangible assets and goodwill under
the initial recognition provisions of SFAS No. 141, Business Combinations, and
the financial accounting and reporting provisions of SFAS No. 142, Goodwill and
Other Intangible Assets. Goodwill and other intangible assets with indefinite lives
are not amortized but are tested for impairment annually, or more frequently if
circumstances indicate that the possibility of impairment exists. If the carrying value of
goodwill or an intangible asset exceeds its fair value, an impairment loss is recognized.

The net change in the carrying amount of goodwill of
$18,658,000 for the three months ended March 31, 2005, is the result of business
combinations. Substantially all of the goodwill recorded in conjunction with business
combinations completed during the periods presented is expected to be deductible for tax
purposes.

Intangible assets, all of which are subject to
amortization, consist of the following:

|(dollars in thousands)   |  |  | March 31, 2005 |     | December 31, 2004
|------------------------ |  |  | -------------- | --- | -----------------
|
|
|
|Covenants not to compete |  |  |                | 4.7 |                  
|Trade names              |  |  |                | 2.0 |                  
|Customer lists           |  |  |                | < 1 |                  
|                         |  |  |                |     |                  
|                         |  |  |                |     |                  
|                         |  |  |                |     |                  

Amortization expense was $1,620,000 for the three-month
period ended March 31, 2005. Estimated amortization expense for the current year and each
of the next five fiscal years ending December 31 is presented below:

|Year Ending December 31, | (dollars in thousands)
|------------------------ | ----------------------
|
|2005                     |                       
|2006                     |                       
|2007                     |                       
|2008                     |                       
|2009                     |                       
|2010                     |                       

---

NOTE D  LONG-TERM DEBT

Revolving Credit Facility: At March 31, 2005,
borrowings under the revolving credit facility were $224,750,000; outstanding letters of
credit totaled $3,855,000; credit available under the revolving facility was $271,395,000;
and Apria was in compliance with all of the financial covenants required by the credit
agreement.

Convertible Senior Notes: At March 31, 2005, the
fair value of the $250,000,000 in convertible senior note was $275,135,000,
as determined by reference to quoted market prices.

Hedging Activities: Apria utilizes interest rate
swap agreements to moderate its exposure to interest rate fluctuations on its underlying
variable rate long-term debt. Apria does not use derivative financial instruments for
trading or other speculative purposes. Apria has two interest rate swap agreements with
terms of three and four years and a total notional amount of $50,000,000 that fix an
equivalent amount of its variable rate debt at interest rates of 3.04% and 3.42% before
applicable margin. The swap agreements are being accounted for as cash flow hedges under
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities.
Accordingly, the difference between the interest received and interest paid is reflected
as an adjustment to interest expense. For the three-month periods ended March 31, 2005 and
2004, Apria paid net settlement amounts of $84,000 and $422,000, respectively. At March
31, 2005, the aggregate fair value of the swap agreements was an asset of $327,000 and is
reflected in the accompanying consolidated balance sheet in other assets. Unrealized gains
and losses on the fair value of the swap agreements are reflected, net of taxes, in
accumulated other comprehensive income (See Note E  Stockholders
Equity). Aprias exposure to credit loss under the swap agreements is limited
to the interest rate spread in the event of counterparty non-performance.

NOTE E  STOCKHOLDERS EQUITY

For the three months ended March 31, 2005, changes to
stockholders equity are comprised of the following amounts:

|(dollars in thousands)                              
|----------------------------------------------------
|
|Net income                                          
|Proceeds from the exercise of stock options         
|Tax benefit related to the exercise of stock options
|Stock-based compensation                            
|Other comprehensive income, net of taxes            
|                                                    
|                                                    
|                                                    

Net income and total comprehensive income differ by
unrealized gains or losses related to interest rate swap agreements, net of taxes. For the
three months ended March 31, 2005 and 2004, total comprehensive income was $25,398,000 and
$27,654,000, respectively.

NOTE F  INCOME TAXES

Income taxes for the three months ended March 31, 2005 have been
provided at a lower effective rate than is expected to be applicable for the entire year.
The lower rate is primarily due to a decrease in the valuation allowance account of $2,597,000
and the corresponding reduction of the tax provision for the quarter ended March 31, 2005.
This resulted from state net operating loss carryforwards that became realizable
based on a change in estimate of expected future earnings. Income taxes for the
three-month period ended March 31, 2004 were provided at the effective tax rate expected
to be applicable for that year.

At March 31, 2005, the company had various apportioned
state net operating loss carryforwards which resulted in a deferred tax asset of
$9,974,000, net of federal tax benefit.

The company believes it has adequately provided for
income tax issues not yet resolved with federal, state and local tax authorities. At March
31, 2005, $18,600,000, net of tax benefit, was accrued for such tax matters and is
included in income taxes payable. Although not probable, the most adverse resolution of
these federal, state and local tax issues could result in additional charges to earnings
in future periods in addition to the $18,600,000 accrued as of March 31, 2005. Based upon
a consideration of all relevant facts and circumstances, the company does not believe the
ultimate resolution of tax issues for all open tax periods will have a materially adverse
effect upon its results of operations or financial condition.

Apria utilized $5,017,000 of federal net operating loss
carryforwards in 2004. The remaining $7,106,000 of federal net operating loss
carryforwards expired unused on December 31, 2004.

---

NOTE G  COMMITMENTS AND CONTINGENCIES

As previously reported, since mid-1998 Apria has been
the subject of an investigation conducted by the U.S. Attorneys office in Los
Angeles and the U.S. Department of Health and Human Services. The investigation concerns
the documentation supporting Aprias billing for services provided to patients whose
healthcare costs are paid by Medicare and other federal programs. Apria is cooperating
with the government and has responded to various document requests and subpoenas.

The investigation relates to two civil qui tam
lawsuits against Apria filed under seal on behalf of the government. In 2004 the
government provided Apria with redacted copies of the complaints in these lawsuits for the
first time. On the copies provided to Apria, the names of the plaintiffs, the courts and
the dates instituted were blacked out. In general, both complaints allege that for an
unspecified period of time commencing in 1995 Apria knowingly engaged in various schemes
to defraud the government by submitting false claims for payment and by manipulating and
falsifying documentation in support of such claims. The complaints do not quantify the
alleged damages sought and do not identify any of the particular individuals, patient
accounts or Apria facilities alleged to be involved in any improper billing. To date, the
U.S. Attorneys office has not informed Apria of any decision to intervene in the
qui tam actions; however, it could reach a decision with respect to intervention at
any time.

Apria has acknowledged that there may be errors
and omissions in supporting documentation affecting a portion of its billings. However, it
believes that most of the alleged documentation errors and omissions should not give rise
to any liability. Accordingly, Apria believes that most of the assertions made by the
government and the qui tam plaintiffs are legally and factually incorrect and that
Apria is in a position to assert numerous meritorious defenses.

During the past several years, Apria and representatives
of the government have been analyzing and discussing the documentation underlying
Aprias billings to the federal government for services provided by Apria from
mid-1995 through 1998 to a sample of 300 patients selected by the government. Government
representatives and counsel for the plaintiffs asserted in 2001 that, by a process of
extrapolation from the patient files in the sample to all of Aprias government
billings during the sample period, Apria could have a very significant liability to the
government under the False Claims Act. Differences between Apria and the government have
been reduced on a number of issues as a result of the analysis and discussions referred to
above. Consequently, while Aprias potential liability could still be very material,
Apria believes that the amount the government is now seeking is significantly less than
asserted in 2001.

Apria and government representatives are continuing to
explore whether it will be possible to resolve this matter on a basis that would be
considered fair and reasonable by all parties. Notwithstanding the progress made to date
in reducing the differences between Apria and the government, there remain significant
disagreements as to the number and the legal implications of billing documentation
deficiencies in the 300-patient sample. Accordingly, Apria cannot provide any assurances
as to the outcome of its discussions with the government, or as to the outcome of the
qui tam litigation in the absence of a settlement. Management cannot estimate the
possible loss or range of loss that may result from these proceedings and, therefore, has
not recorded any related accruals.

If a judge, jury or administrative agency were to
determine that false claims were submitted to federal healthcare programs or that there
were significant overpayments by the government, Apria could face civil and administrative
claims for refunds, sanctions and penalties for amounts that would be highly material to
its business, results of operations and financial condition, including the exclusion of
Apria from participation in federal healthcare programs.

Apria is also engaged in the defense of certain claims
and lawsuits arising out of the ordinary course and conduct of its business, the outcomes
of which are not determinable at this time. Apria has insurance policies covering such
potential losses where such coverage is cost effective. In the opinion of management, any
liability that might be incurred by Apria upon the resolution of these claims and lawsuits
will not, in the aggregate, have a material adverse effect on Aprias results of
operations or financial condition.

---

NOTE H  PER SHARE AMOUNTS

The following table sets forth the computation of basic
and diluted per share amounts:

|                                                                                                          | Three Months EndedMarch 31,
|--------------------------------------------------------------------------------------------------------- | ---------------------------
|
|
|
|Numerator:                                                                                                |                            
|Net income                                                                                                |                            
|Numerator for basic and diluted per share amounts
  net      income available to common stockholders     |                            
|Denominator:                                                                                              |                            
|Denominator for basic per share
amounts  weighted average shares                                         |                            
|Effect of dilutive securities:
      Employee stock options and awards 
dilutive potential common shares |                            
|                                                                                                          |                            
|Denominator for diluted per share amounts 
adjusted weighted average shares                              |                            
|                                                                                                          |                            
|                                                                                                          |                            
|Basic net income per common share                                                                         |                            
|                                                                                                          |                            
|Diluted net income per common share                                                                       |                            
|                                                                                                          |                            
|Employee stock options
excluded from the computation of diluted    per share amounts:                     |                            
|Shares for which exercise price
exceeds average market price of common stock                              |                            
|Average exercise price per
share that exceeds average market       price of common stock                  |                            

---

---

Cautionary statement for purposes of the Safe
Harbor provisions of the Private Securities Litigation Reform Act of 1995:
Aprias business is subject to a number of risks which are partly or entirely beyond
the companys control. The company has described certain of those risks in its Annual
Report on Form 10-K for the fiscal year ended December 31, 2004, as filed with the
Securities and Exchange Commission on March 16, 2005. This report may be used for purposes
of the Private Securities Litigation Reform Act of 1995 as a readily available document
containing meaningful cautionary statements identifying important factors that could cause
actual results to differ materially from those projected in any forward-looking statements
the company may make from time to time. Key factors that may have an impact on Apria
include the following:

| |  | trends
 and developments affecting the collectibility of accounts receivable;                                  
|- |  | ---------------------------------------------------------------------------------------------------------------
| |  | government legislative
 and budget developments that could continue to affect reimbursement levels;            
| |  | the ongoing government
investigation regarding patients covered by Medicare and other federal programs;        
| |  | the effectiveness of the Aprias operating systems and controls;                                               
| |  | healthcare reform and the effect of federal and state healthcare regulations;                                  
| |  | pricing pressures from large payors;                                                                           
| |  | the successful implementation of the companys acquisition strategy and integration of acquired
businesses; and
| |  | other factors described in Apria's filings with the Securities and Exchange Commission.                        

In addition,  the military and national security
 activities in which the United States is currently engaged,  have and could continue to
have significant  impacts on the economy and government spending  priorities.  The
effects of any further such  developments,  including  the ongoing occupation  in Iraq,
pose  significant risks and  uncertainties  to Aprias  business.
 Deficit  spending by the  government  as the result of adverse
 developments in the economy and the continuing costs of military and national security activities
 have increased  pressure  to reduce  government expenditures for other purposes, including
government-funded programs such as Medicare and Medicaid.

---

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

Apria
operates in the home healthcare segment of the healthcare industry and provides services
in the home respiratory therapy, home infusion therapy and home medical equipment areas.
In all three lines, Apria provides patients with a variety of clinical services and
related products and supplies, most of which are prescribed by a physician as part of a
care plan. Apria provides these services to patients in the home throughout the United
States through approximately 480 branch locations.

Critical
Accounting Policies.Aprias management considers the accounting
policies that govern revenue recognition and the determination of the net realizable value
of accounts receivable to be the most critical in relation to the companys
consolidated financial statements. These policies require managements most complex
and subjective judgments. Additionally, the accounting policies related to goodwill,
long-lived assets and income taxes require significant judgment. These policies are
presented in detail in Aprias Annual Report on Form 10-K for the fiscal year ended
December 31, 2004  Managements Discussion and Analysis of Financial
Condition and Results of Operations.

Results of Operations

Net
Revenues.Net revenues were $371.9 million in the first quarter of 2005,
compared to $350.9 million for the corresponding period in 2004, representing an increase
of 6.0%. Revenues for 2004 for respiratory medications were reduced by $3.6 million due to
Medicare reimbursement reductions that went into effect January 1, 2004. Additional
Medicare pricing reductions became effective January 1, 2005 for respiratory medications and
certain equipment items, which further eroded revenue growth. Expected Medicare
reimbursement reductions on oxygen and oxygen equipment were delayed until April 8, 2005,
when the revised 2005 fee schedule was implemented. Management estimates the impact of the
2005 Medicare reimbursement reductions to be approximately $4.5 million for the quarter
ended March 31, 2005. Apria has also experienced a decline in revenues as a result of the
transition out of the Gentiva CareCentrix (Gentiva) contract, which management
chose not to renew for 2004. The related reduction to revenues is estimated at
$10.4 million for the first three months of 2005 as compared to the first three months of 2004.
Further, the company is experiencing
increased pricing pressure from its managed care customers as these organizations seek to
lower costs by obtaining more favorable pricing from providers such as Apria. Managed care
organizations are also evaluating alternative delivery models for certain products and
services, which include those provided by Apria. This may cause Apria to provide reduced
levels of certain products and services in the future, resulting in a corresponding
reduction in revenue.

The
growth in revenues, after consideration of the Medicare and Gentiva revenue reductions,
was due to volume increases from contracted and traditional sources and
the acquisition of complementary businesses. Aprias acquisition strategy generally
results in the rapid integration of acquired businesses into existing operating locations.
This rapid integration limits Aprias ability to separately track the amount of
revenue generated by an acquired business. Therefore, estimating the net revenue
contribution from acquisitions requires certain assumptions. Based on its analysis, Apria
estimates that approximately $22.0 million of the net revenue growth between the
three-month periods in 2004 and 2005 was derived from acquisitions.

---

The
following table sets forth a summary of net revenues by service line:

|                             | Three Months Ended March 31,
|---------------------------- | ----------------------------
|
|
|
|
|
|Respiratory therapy          |                             
|Infusion therapy             |                             
|Home medical equipment/other |                             
|                             |                             
|Total net revenues           |                             
|                             |                             

Respiratory
Therapy.Respiratory therapy revenues are derived primarily from the provision of
oxygen systems, home ventilators, sleep apnea equipment, nebulizers, respiratory
medications and related services. Net revenues in the respiratory therapy service line
increased 6.2% in the first quarter of 2005 as compared to the corresponding period in
2004. This growth was primarily driven by volume increases and acquisitions of respiratory
therapy businesses. The Medicare reimbursement reduction for respiratory medications
caused a decline of 1.5% in the revenue growth rate for the three-month period ended March
31, 2005. The growth in this service line was also reduced by the exit from the Gentiva
contract in 2004, representing approximately 3.5% of prior year first quarter respiratory
revenues.

Infusion
Therapy.The infusion therapy service line involves the administration of a drug
or nutrient directly into the body intravenously through a needle or catheter. Infusion
therapy services also include administering enteral nutrients directly into the
gastrointestinal tract through a feeding tube. Infusion therapy revenues increased 5.1% in
the first quarter of 2005. Enteral nutrition, which makes up approximately 44% of the
revenue in the infusion service line, increased by 7.6% in the first three months of 2005
when compared to the corresponding period in 2004.

Home
Medical Equipment/Other.Home medical equipment/other revenues are derived from
the provision of equipment to assist patients with ambulation, safety and general care in
and around the home. Home medical equipment/other revenues increased 5.8% in the first
quarter of 2005 versus the first quarter of 2004. Diabetic supplies, historically a very
small percentage of the home medical equipment line, grew significantly in the first
quarter of 2005 when compared to the first quarter of 2004. This growth is directly attributable
to the March 2004 acquisition of a
company that entered the diabetic supply market just prior to being acquired by Apria.
Excluding the growth in diabetic supplies, home medical equipment/other revenue was flat
for the three months ended March 31, 2005, when compared to the same period in 2004.
Medicare reimbursement reductions implemented in 2005 that impact this line of business
represent 1.6% of home medical equipment/other revenues for the first quarter ended March 31, 2004.

Revenue
Recognition and Certain Concentrations.Revenues are recognized on the date
services and related products are provided to patients and are recorded at amounts
estimated to be received under reimbursement arrangements with third-party payors,
including private insurers, prepaid health plans, Medicare and Medicaid. Due to the nature
of the industry and the reimbursement environment in which Apria operates, certain
estimates are required to record net revenues and accounts receivable at their net
realizable values. Inherent in these estimates is the risk that they will have to be
revised or updated as additional information becomes available, which could have an impact
on the consolidated financial statements.

In
2005, approximately 38% of Aprias revenues are being reimbursed under arrangements
with Medicare and Medicaid. No other third-party payor represents more than 9% of the
companys revenues. The majority of the companys revenues are derived from fees
charged for patient care under fee-for-service arrangements. Revenues derived from
capitation arrangements represent less than 10% of total net revenues for all periods
presented.

Medicare Reimbursement.In December 2003, the Medicare Prescription Drug, Improvement and Modernization Act
of 2003, which is herein referred to as the Medicare Modernization Act, became law. The
Medicare Modernization Act includes a number of provisions that affect Medicare Part B
reimbursement policies for items and services provided by Apria, the most significant
of which are:

| |  | Reimbursement  reductions for five durable medical equipment  categories,  including oxygen  Reimbursement for most
              of these  categories  is based on the median  price paid for such items on behalf of  beneficiaries  of federal
              employee  health benefit  plans,  or FEHBP.  The new fee schedules  went into effect January 1, 2005.  However,
              the reimbursement  reduction for oxygen was delayed until the Office of the Inspector General, or OIG, provided
              the Centers for  Medicare  and  Medicaid  Services,  or CMS,  with the  additional  data  required to establish
              pricing.  On March 30,  2005,  the OIG issued a report  containing  the final 2005  Medicare  fee  schedule for
              oxygen and oxygen  equipment.  The revised  pricing was to be implemented as soon as possible and no later than
              April 8,  2005.  Any 2005  claims  for  oxygen  and  oxygen  equipment  that  had been  submitted  prior to the
              implementation  of the new fee schedule were paid based on 2004 pricing schedules and will not be retroactively
              adjusted.  Further,  a freeze on annual payment  increases for durable  medical  equipment has been  instituted
              from 2004 through 2008.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Reimbursement  reduction for  inhalation  drugs  The previous  reimbursement  rate of 95% of the average  wholesale
              price was reduced to 80% of the average wholesale price,  effective January 1, 2004. Beginning in January 2005,
              reimbursement  for these drugs was further reduced through a shift to the  manufacturer-reported  average sales
              price,  as defined by the  Medicare  Modernization  Act,  plus 6%, plus a separate  dispensing  fee per patient
              episode.  The dispensing  fees for 2005 have been  established at $57.00 for a 30-day supply of medications and
              $80.00 for a 90-day supply.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  | Establishment  of a competitive  bidding  program  Such a program would require that  suppliers  wishing to provide
              certain items to beneficiaries  submit bids to Medicare.  The program,  for as yet unspecified  durable medical
              equipment items and services,  is to be transitioned into (i) 10 of the largest metropolitan  statistical areas
              in 2007;  (ii) 80 of the largest  metropolitan  statistical  areas in 2009;  and (iii)  additional  areas after
              2009.  The legislation contains special provisions for rural areas.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | Reimbursement  for home  infusion  therapy  under  Medicare  Part D   Currently,  a  limited  number  of  infusion
              therapies,  supplies and  equipment  are covered by Medicare  Part B. The Medicare  Modernization  Act provides
              expanded  coverage for home infusion  drugs.  The industry is currently  working with CMS to further define the
              coverage and payment policies that will govern the administration of this benefit, which takes effect in 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  | Incentives  for expansion of Medicare Part C  The Medicare  Modernization  Act includes  financial  incentives for
              managed care plans to expand their provision of Medicare  Advantage plans in 2006 in a stated effort to attract
              more Medicare  beneficiaries to managed care models.  The company maintains  contracts to provide  respiratory,
              infusion and medical  equipment and related services to a significant  number of managed care plans nationwide,
              and believes that the Medicare Advantage expansion represents a growth opportunity starting in 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

Aprias management
estimates that the revision to inhalation drug reimbursement in 2004 resulted in a revenue
reduction of approximately $15.0 million from 2003 levels.  Management further estimates
that 2005 net revenues will be
reduced from 2004 levels by approximately $40.0 million as a result of the lower Medicare
pricing implemented in 2005. The impact of the competitive bidding program scheduled to
commence in 2007 cannot be estimated at this time.

The Balanced Budget Act of
1997 contained several provisions that lowered Aprias Medicare reimbursement levels.
Subsequent legislationthe Medicare Balanced Budget Refinement Act of 1999 and the
Medicare, Medicaid and SCHIP Benefits Improvement and Protection Act of
2000mitigated some of the effects of the original legislation. The Medicare
Modernization Act also addressed some of the issues pending from the earlier legislation.
However, still pending from the 1997 Legislation is the streamlined authority granted to
the Secretary of the U.S. Department of Health and Human Services, or HHS, to increase or
reduce the reimbursement for home medical equipment, including oxygen, by up to 15% each
year under an inherent reasonableness authority. In December 2002, CMS issued an interim
final rule that establishes a process by which such adjustments may be made. The rule
applies to all Medicare Part B services except those paid under a physician fee schedule,
a prospective payment system, or a competitive bidding program. As of this date, neither
CMS nor the durable medical equipment regional carriers have used the expedited authority.

Medicaid
Reimbursement. Since 2001, some states have adopted alternative pricing
methodologies for certain drugs and biologicals under the Medicaid program. In at least 22
states, these changes have reduced the level of reimbursement received by Apria without a
corresponding offset or increase to compensate for the service costs incurred. In several
of those states, Apria has elected to stop accepting new Medicaid patient referrals for
the affected drugs. Apria is continuing to provide services to patients already on
service, and for those who receive other Medicaid-covered respiratory, home medical
equipment or infusion therapies, if the reimbursement levels for those services remain
adequate. Further, some states are considering other reductions in Medicaid reimbursement
as they work through their respective states budget process. Apria management cannot
predict the outcome of such budget negotiations and whether other states will consider
reductions as well.

Gross Profit.Gross margins were 70.6% and 71.8% for the first quarters of 2005 and 2004,
respectively. The decline is primarily due to the Medicare reimbursement reductions and
the effects of the non-renewal of the Gentiva contract in 2004. Further eroding the gross
margin is a manufacturers price increase for a particular respiratory drug, effected
concurrently with higher government reimbursement for that drug in 2005. This price
increase is estimated to have a $1.2 million negative impact on Aprias gross margin
for the three-month period ended March 31, 2005.

Provision for
Doubtful Accounts.The provision for doubtful accounts results from
managements estimate of the net realizable value of accounts receivable after
considering actual write-offs of specific receivables. The provision was 3.9% of net
revenues for the first quarter of 2005 and 3.8% for the same period last year. The
provision is generally higher in the first quarter than it is for the rest of the year due
to delays in cash collections resulting from insurance plan deductible requirements and
payor changes as new enrollment periods commence. Also impacting the provision
requirements in the first quarter of 2005 are higher co-pay amounts and delays caused by
the Medicare reimbursement changes. See Liquidity and Capital Resources 
Accounts Receivable.

Selling,
Distribution and Administrative.Selling, distribution and administrative
expenses are comprised of expenses incurred in support of operations and those associated
with administrative functions. Expenses incurred by the operating locations include
salaries and other expenses in the following functional areas: selling, distribution,
clinical, intake, reimbursement, warehousing and repair. Many of these operating costs are
variable with revenue growth patterns. Certain expenses, such as facility lease and fuel
costs, are very sensitive to market-driven price fluctuations. Administrative expenses
include overhead costs incurred by the operating locations and corporate support
functions. These expenses do not vary as closely with revenue growth as do the operating
costs. Selling, distribution and administrative expenses, expressed as percentages of net
revenues, were 55.3% in the first quarter of 2005, up from 53.4% in the first quarter of
2004. The percentage increase between the quarters is primarily attributable to the lower
revenues resulting from Medicare pricing changes without a corresponding reduction in
the companys actual cost of providing those products and services. Outsourced
collection fees and higher fuel prices also factored into the increase. Advertising costs
related to the companys diabetic supply business are also higher in the first
quarter of 2005 as compared to the first quarter of 2004 because this business was not
acquired until late in the first quarter of 2004. Other incremental costs include severance
charges related to the departure of two executives and a reduction in workforce at the
Corporate office. Management has implemented several new productivity initiatives aimed at
reducing costs to mitigate the effects of the 2005 Medicare reimbursement reductions.

---

Amortization of
Intangible Assets.For the quarter ended March 31, 2005, amortization
expense was $1.6 million. This compares to $1.3 million for the same period last year. The
increase is due to ongoing acquisition activity and the valuation of certain customer
relationships acquired in business combinations. See Liquidity and Capital Resources
 Business Combinations.

Interest Expense.Interest expense was $4.8 million for the first quarter of 2005, down from
$5.0 million in the first quarter of 2004. The decrease is due to lower debt levels and
reduced interest rates on debt that was refinanced in the fourth quarter of 2004. See
Liquidity and Capital Resources  Long-term Debt.

Income
Taxes. Income taxes for the three months ended March 31, 2005 have been
provided at a lower effective rate than is expected to be applicable for the entire year.
The lower rate is primarily due to a decrease in the valuation allowance account of $2.6
million and the corresponding reduction of the tax provision for the quarter ended March 31, 2005.
This resulted from state net operating loss carryforwards that became realizable
based on a change in estimate of expected future earnings. Income taxes for the
three-month period ended March 31, 2004 were provided at the effective tax rate expected
to be applicable for that year.

At March 31, 2005, the
company had various apportioned state net operating loss carryforwards which resulted in a
deferred tax asset of $10.0 million, net of federal tax benefit.

The company believes it
has adequately provided for income tax issues not yet resolved with federal, state and
local tax authorities. At March 31, 2005, $18.6 million, net of tax benefit, was accrued
for such tax matters and is included in income taxes payable. Although not probable, the
most adverse resolution of these federal, state and local tax issues could result in
additional charges to earnings in future periods in addition to the $18.6 million accrued
as of March 31, 2005. Based upon a consideration of all relevant facts and circumstances,
the company does not believe the ultimate resolution of tax issues for all open tax
periods will have a materially adverse effect upon its results of operations or financial
condition.

Apria utilized $5.0
million of federal net operating loss carryforwards in 2004. The remaining $7.1 million of
federal net operating loss carryforwards expired unused on December 31, 2004.

Liquidity and Capital Resources

Aprias principal
source of liquidity is its operating cash flow, which is supplemented by a $500.0 million
revolving credit facility. Aprias ability to generate operating cash flows in excess
of its operating needs has afforded it the ability, among other things, to pursue its
acquisition strategy and fund patient service equipment expenditures to support revenue
growth. Management believes that its operating cash flow and revolving credit line will
continue to be sufficient to fund its operations and growth strategies. However,
sustaining current cash flow levels is dependent on many factors, some of which are not
within Aprias control, such as government reimbursement levels and the financial
health of its payors.

Cash
Flow. Cash provided by operating activities was $51.6 million in the first
three months of 2005 compared with $65.7 million in the corresponding period in 2004. The
decrease in operating cash flow between the two periods can be attributed to several
factors, including the Medicare reimbursement changes and the exit from the Gentiva
contract which negatively impacted net income for the first quarter of 2005. Also reducing
operating cash flow was a higher increase in accounts receivable during the first quarter
of 2005 as compared to
the same period in 2004, resulting from acquisition activity, higher co-pay amounts, and
delays in cash collections due to the Medicare pricing changes.

Cash used in investing
activities decreased to $63.1 million for the first three months of 2005 compared to $67.0
million during the same period last year. The decrease is primarily attributable to lower
expenditures for acquisitions in 2005. Expenditures for patient service equipment
increased slightly in the first quarter of 2005 when compared to the corresponding period
in 2004.

Cash used in financing
activities was $261,000 during the first three months of 2005 compared to $54.0 million
for the first three months of 2004. Cash used in 2004 primarily relates to the $50.0
million repurchase of the companys common stock.

---

Contractual Cash
Obligations.The following table summarizes Aprias long-term cash
payment obligations to which the company is contractually bound. The years presented below
represent 12-month rolling periods ending March 31.

|(dollars in millions)                                                                                                                                    | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | Year 6+ | Totals
|-------------------------------------------------------------------------------------------------------------------------------------------------------- | ------ | ------ | ------ | ------ | ------ | ------- | ------
|
|Revolving loan                                                                                                                                           |        |        | $      | -      |        | $       | -     
|Convertible senior notes                                                                                                                                 |        |        |        | -      |        |         | -     
|Capital lease obligations                                                                                                                                |        |        |        | 2      |        |         | 1     
|Other long-term debt                                                                                                                                     |        |        |        | 1      |        |         | -     
|Operating leases                                                                                                                                         |        |        |        | 63     |        |         | 49    
|Deferred acquisition payments                                                                                                                            |        |        |        | 8      |        |         | -     
|                                                                                                                                                         |        |        |        |        |        |         |       
|Total contractual cash obligations                                                                                                                       |        |        | $      | 74     |        | $       | 50    
|                                                                                                                                                         |        |        |        |        |        |         |       
|                                                                                                                                                         |        |        |        |        |        |         |       
|The holders of the convertible senior notes
will first have the option to require Apria to repurchase all or a portion
of their notes in September 2008.

Accounts Receivable.Accounts receivable before allowance for doubtful accounts increased to
$283.3 million at March 31, 2005 from $264.4 million at December 31, 2004, which is
primarily due to delays in cash collections in the first quarter resulting from insurance
plan deductible requirements and payor changes as new enrollment periods commence. Also
impacting accounts receivable balances are higher co-payments, delays caused by Medicare
pricing changes and acquisition activity. Days sales outstanding, which are calculated as
of each period end by dividing accounts receivable, less allowance for doubtful accounts,
by the 90-day rolling average of net revenues, were 57 at March 31, 2005, 53 at March 31,
2004 and 52 at December 31, 2004. The increase in days sales outstanding at the end of the
first quarter of 2005 is directly attributable to the same delays in cash collections that
are causing temporary increases in accounts receivable balances. Days sales outstanding is
also negatively impacted by the 2005 Medicare reimbursement reductions, which reduces the
90-day rolling average net revenue from previous levels.

Accounts aged in excess of
180 days of total receivables for certain payor categories, and in total, are as follows:

|                   | March 31, |  | December 31,
|------------------ | --------- |  | ------------
|
|
|Medicare           |           |  |             
|Medicaid           |           |  |             
|Self pay           |           |  |             
|Managed care/other |           |  |             
|                   |           |  |             
|                   |           |  |             
|                   |           |  |             

Evaluation of Net
Realizable Value.Management performs various analyses to evaluate accounts
receivable balances to ensure that recorded amounts reflect estimated net realizable
value. Management applies specific percentages to the accounts receivable aging to
estimate the amount that will ultimately be uncollectible and therefore should be
reserved. The percentages are increased as the accounts age. Accounts aged in excess of
360 days are reserved at 100%. Management establishes and monitors these percentages
through analyses of historical realization data, accounts receivable aging trends, other
operating trends, the extent of contracted business and business combinations. Also
considered are relevant business conditions, such as governmental and managed care payor
claims processing procedures and system changes. If indicated by such analyses, management
may periodically adjust the uncollectible estimate and corresponding percentages. Further,
focused reviews of certain large and/or problematic payors are performed to determine if
their respective reserve levels are appropriate.

Unbilled
Receivables.Included in accounts receivable are earned but unbilled receivables
of $38.2 million and $36.3 million at March 31, 2005 and at December 31, 2004,
respectively. Delays, ranging from one day up to several weeks, between the date of
service and billing can occur due to delays in obtaining certain required payor-specific
documentation from internal and external sources. Earned but unbilled receivables are aged
from date of service and are considered in Aprias analysis of historical performance
and collectibility. The higher unbilled amount at March 31, 2005 is largely due to
acquisitions effected during the first quarter of 2005.

Inventories and
Patient Service Equipment.Inventories consist primarily of pharmaceuticals
and disposable products used in conjunction with patient service equipment. Patient
service equipment consists of respiratory and home medical equipment that is provided to
in-home patients for the course of their care plan, normally on a rental basis and
subsequently returned to Apria for redistribution after cleaning and maintenance is
performed.

The branch locations serve
as the primary point from which inventories and patient service equipment are delivered to
the patient. The branches are supplied with inventory and equipment from the regional
warehouses, which coordinate purchasing with the corporate office. The regions are also
responsible for repairs and scheduled maintenance of patient service equipment, which adds
to the frequent movement of equipment between the region and branch locations. Further,
the majority of Aprias patient service equipment is located in patients homes.
While the utilization varies widely between equipment types, on the average, approximately
80% of the equipment is on rent at any given time. Inherent in this asset flow is the fact
that losses will occur. Management has successfully instituted a number of controls over
the companys inventories and patient service equipment to minimize such losses.
Depending on the product type, the company performs physical inventories on an annual or
quarterly basis and adjusts the related balances accordingly. Inventory and patient
service equipment losses for the three months ended March 31, 2005 and 2004 were $466,000
and $387,000, respectively. There can be no assurance that Apria will be able to maintain
its current level of control over inventories and patient service equipment. Continued
revenue growth is directly dependent on the companys ability to fund its equipment
and inventory requirements. The increases in both accounts between December 31, 2004 and
March 31, 2005 reflect purchases to support increased business levels and the addition of
patient items recorded in conjunction with acquisitions that closed in 2005.

Long-Term
Debt.  Revolving Credit Facility. At March 31, 2005, borrowings under Aprias revolving credit
facility were $224.8 million; outstanding letters of credit totaled $3.8 million; and
credit available under the revolving facility was $271.4 million. The company continues to
be in compliance with all of the financial covenants required by the credit agreement.

Convertible Senior
Notes. At March 31, 2005, the fair value of the $250.0 million in convertible senior notes
was $275.1 million, as determined by reference to quoted market prices.

Hedging
Activities.Apria is exposed to interest rate fluctuations on its underlying
variable rate long-term debt. Aprias policy for managing interest rate risk is to
evaluate and monitor all available relevant information, including but not limited to, the
structure of its interest-bearing assets and liabilities, historical interest rate trends
and interest rate forecasts published by major financial institutions. The tools Apria may
utilize to moderate its exposure to fluctuations in the relevant interest rate indices
include, but are not limited to: (i) strategic determination of repricing periods and
related principal amounts, and (ii) derivative financial instruments such as interest rate
swap agreements, caps or collars. Apria does not use derivative financial instruments for
trading or other speculative purposes.

At March 31, 2005, Apria
had two interest rate swap agreements in effect to fix its LIBOR-based variable rate debt.
The terms of such agreements are as follows: a three-year agreement with a notional amount
of $25.0 million and a fixed rate of 3.04%, expiring December 2005; and a four-year
agreement with a notional amount of $25.0 million and a fixed rate of 3.42%, expiring
December 2006.

The swap agreements are
being accounted for as cash flow hedges under SFAS No. 133, Accounting for
Derivative and Hedging Activities. Accordingly, the difference between the interest
received and interest paid is reflected as an adjustment to interest expense. For the
first quarter of 2005, Apria paid a net settlement amount of $84,000. Unrealized gains and
losses on the fair value of the swap agreements are reflected, net of taxes, in other
comprehensive income. At March 31, 2005, the aggregate fair value of the swap agreements
was an asset of $327,000. While no assurances can be made, Apria does not anticipate
losses due to counterparty nonperformance as its counterparties to the various swap
agreements are nationally recognized financial institutions with strong credit ratings.

During the second quarter
of 2005, Apria entered into two new interest rate swap agreements. The forward-starting
agreements, each with a notional amount of $25.0 million, become effective January 2006.
Both agreements are for a three-year term with fixed rates of 4.44% and 4.38%,
respectively.

Business
Combinations.Pursuant to one of its primary growth strategies, Apria
periodically acquires complementary businesses in specific geographic markets. The results
of operations of the acquired companies are included in the accompanying condensed
consolidated income statements from the dates of acquisition. Covenants not to compete are
being amortized over the life of the respective agreements. Tradenames and customer lists
are being amortized over the period of their expected benefit.

The aggregate
consideration for acquisitions that closed during the first three months of 2005 was $28.1
million. Pending receipt of additional valuation information, the preliminary allocation
of this amount includes $19.7 million to goodwill, $2.6 million to other intangible assets
and $2.3 million to patient service equipment.

Cash paid for
acquisitions, which includes amounts deferred from prior year acquisitions, totaled $28.9
million and $34.6 million in the first three months of 2005 and 2004, respectively.

The success of
Aprias acquisition strategy is directly dependent on Aprias ability to
maintain and/or generate sufficient liquidity to fund such acquisitions and on the
companys ability to successfully integrate the acquired operations.

HIPAA. 
          The Health Insurance Portability and Accountability Act of 1996, or
          HIPAA, is comprised of a number of components. Pursuant to the administrative
          simplification section of
          HIPAA, HHS has issued multiple regulations, each with its own compliance
          date.  Regulation under HIPAA that may have a material effect on Apria govern
          the following:

| |  | privacy of individually identifiable health information - compliance date: April 14, 2003 - Apria was
materially compliant by this date;                                                                                                                
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | standard electronic transaction and code sets - compliance date: October 16, 2003 - Apria was materially
compliant by this date;                                                                                                                        
| |  | electronic security of individually identifiable health information - compliance date: April 20, 2005 -
Apria was materially compliant by this date;                                                                                                    
| |  | standards for unique national health identifier for healthcare providers for use in connection
with standard transactions  compliance date: May 23, 2007  Apria expects to be
 materially compliant with these regulations by the compliance date; and
| |  | the first installment of an interim enforcement rule, when issued in full, will address
both substantive and procedural requirements for the imposition of civil monetary penalties.                                                                    

Apria faces potential
criminal or civil sanctions if it does not comply with existing or new laws and
regulations related to patient health information, use of standard transaction and code
sets and use of standard identifiers. New health information standards, whether
implemented pursuant to HIPAA or otherwise, could have a significant effect on the manner
in which Apria handles healthcare related data and communicates with payors.

Federal
Investigation. As previously reported, since mid-1998 Apria has been the subject
of an investigation conducted by the U.S. Attorneys office in Los Angeles and the
U.S. Department of Health and Human Services. The investigation concerns the documentation
supporting Aprias billing for services provided to patients whose healthcare costs
are paid by Medicare and other federal programs. Apria is cooperating with the government
and has responded to various document requests and subpoenas.

The investigation relates
to two civil qui tam lawsuits against Apria filed under seal on behalf of the
government. In 2004 the government provided Apria with redacted copies of the complaints
in these lawsuits for the first time. On the copies provided to Apria, the names of the
plaintiffs, the courts and the dates instituted were blacked out. In general, both
complaints allege that for an unspecified period of time commencing in 1995 Apria
knowingly engaged in various schemes to defraud the government by submitting false claims
for payment and by manipulating and falsifying documentation in support of such claims.
The complaints do not quantify the alleged damages sought and do not identify any of the
particular individuals, patient accounts or Apria facilities alleged to be involved in any
improper billing. To date, the U.S. Attorneys office has not informed Apria of any
decision to intervene in the qui tam actions; however, it could reach a decision
with respect to intervention at any time.

Apria has acknowledged
that there may be errors and omissions in supporting documentation affecting a
portion of its billings. However, it believes that most of the alleged documentation
errors and omissions should not give rise to any liability. Accordingly, Apria believes
that most of the assertions made by the government and the qui tamplaintiffs are
legally and factually incorrect and that Apria is in a position to assert numerous
meritorious defenses.

During the past several
years, Apria and representatives of the government have been analyzing and discussing the
documentation underlying Aprias billings to the federal government for services
provided by Apria from mid-1995 through 1998 to a sample of 300 patients selected by the
government. Government representatives and counsel for the plaintiffs asserted in 2001
that, by a process of extrapolation from the patient files in the sample to all of
Aprias government billings during the sample period, Apria could have a very
significant liability to the government under the False Claims Act. Differences between
Apria and the government have been reduced on a number of issues as a result of the
analysis and discussions referred to above. Consequently, while Aprias potential
liability could still be very material, Apria believes that the amount the government is
now seeking is significantly less than asserted in 2001.

Apria and government
representatives are continuing to explore whether it will be possible to resolve this
matter on a basis that would be considered fair and reasonable by all parties.
Notwithstanding the progress made to date in reducing the differences between Apria and
the government, there remain significant disagreements as to the number and the legal
implications of billing documentation deficiencies in the 300-patient sample. Accordingly,
Apria cannot provide any assurances as to the outcome of its discussions with the
government, or as to the outcome of the qui tam litigation in the absence of a
settlement. Management cannot estimate the possible loss or range of loss that may result
from these proceedings and, therefore, has not recorded any related accruals.

If a judge, jury or
administrative agency were to determine that false claims were submitted to federal
healthcare programs or that there were significant overpayments by the government, Apria
could face civil and administrative claims for refunds, sanctions and penalties for
amounts that would be highly material to its business, results of operations and financial
condition, including the exclusion of Apria from participation in federal healthcare
programs.

---

Off-Balance Sheet Arrangements

Apria is not a party to
off-balance sheet arrangements as defined by the Securities and Exchange Commission.
However, from time to time the company enters into certain types of contracts that
contingently require the company to indemnify parties against third-party claims. The
contracts primarily relate to: (i) certain asset purchase agreements, under which the
company may provide customary indemnification to the seller of the business being
acquired; (ii) certain real estate leases, under which the company may be required to
indemnify property owners for environmental and other liabilities, and other claims
arising from the companys use of the applicable premises; and (iii) certain
agreements with the companys officers, directors and employees, under which the
company may be required to indemnify such persons for liabilities arising out of their
employment relationship.

The terms of such
obligations vary by contract and in most instances a specific or maximum dollar amount is
not explicitly stated therein. Generally, amounts under these contracts cannot be
reasonably estimated until a specific claim is asserted. Consequently, no liabilities have
been recorded for these obligations on the companys balance sheets for any of the
periods presented.

ITEM 3.    
 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Apria is exposed to
interest rate fluctuations on its underlying variable rate long-term debt. Apria utilizes
interest rate swap agreements to moderate such exposure. Apria does not use derivative
financial instruments for trading or other speculative purposes.

At March 31, 2005,
Aprias revolving credit facility borrowings totaled $224.8 million. The bank credit
agreement governing the term loans provides interest rate options based on the following
indices: Federal Funds Rate, Prime Rate or the London Interbank Offered Rate
(LIBOR). All such interest rate options are subject to the application of an
interest margin as specified in the bank credit agreement. At March 31, 2005, all of
Aprias outstanding revolving debt was tied to LIBOR.

At March 31, 2005, Apria
had a three-year interest rate swap agreement with a notional amount of $25.0 million and
a fixed rate of 3.04% and a four-year interest rate swap agreement with a notional amount
of $25.0 million and a fixed rate of 3.42%. Both rates are before application of the
interest margin.

Based on the revolving
debt outstanding and the swap agreements in place at March 31, 2005, a 100 basis point
change in the applicable interest rates would increase or decrease Aprias annual
cash flow and pretax earnings by approximately $1.7 million. See Managements
Discussion and Analysis of Financial Condition and Results of Operations  Long-term
Debt  Hedging Activities.

ITEM 4.     CONTROLS AND PROCEDURES

As of the end of the
period covered by this report, the company carried out an evaluation, under the
supervision and with the participation of the companys management, including the
companys principal executive officer and principal financial officer, of the
effectiveness of the design and operation of the companys disclosure controls and
procedures. Based upon that evaluation, the principal executive officer and principal
financial officer concluded that the companys disclosure controls and procedures are
effective in timely alerting them to material information relating to the company that is
required to be included in the companys periodic Securities and Exchange Commission
filings.

During the period covered
by this report, there have been no changes to the companys internal control over
financial reporting or in other factors that have materially affected, or are reasonably
likely to materially affect, the companys internal control over financial reporting.

---

PART II  OTHER INFORMATION

ITEM 1.     LEGAL PROCEEDINGS

As previously reported,
since mid-1998 Apria has been the subject of an investigation conducted by the U.S.
Attorneys office in Los Angeles and the U.S. Department of Health and Human
Services. The investigation concerns the documentation supporting Aprias billing for
services provided to patients whose healthcare costs are paid by Medicare and other
federal programs. Apria is cooperating with the government and has responded to various
document requests and subpoenas.

The investigation relates
to two civil qui tam lawsuits against Apria filed under seal on behalf of the
government. In 2004 the government provided Apria with redacted copies of the complaints
in these lawsuits for the first time. On the copies provided to Apria, the names of the
plaintiffs, the courts and the dates instituted were blacked out. In general, both
complaints allege that for an unspecified period of time commencing in 1995 Apria
knowingly engaged in various schemes to defraud the government by submitting false claims
for payment and by manipulating and falsifying documentation in support of such claims.
The complaints do not quantify the alleged damages sought and do not identify any of the
particular individuals, patient accounts or Apria facilities alleged to be involved in any
improper billing. To date, the U.S. Attorneys office has not informed Apria of any
decision to intervene in the qui tam actions; however, it could reach a decision
with respect to intervention at any time.

Apria has acknowledged
that there may be errors and omissions in supporting documentation affecting a
portion of its billings. However, it believes that most of the alleged documentation
errors and omissions should not give rise to any liability. Accordingly, Apria believes
that most of the assertions made by the government and the qui tamplaintiffs are
legally and factually incorrect and that Apria is in a position to assert numerous
meritorious defenses.

During the past several
years, Apria and representatives of the government have been analyzing and discussing the
documentation underlying Aprias billings to the federal government for services
provided by Apria from mid-1995 through 1998 to a sample of 300 patients selected by the
government. Government representatives and counsel for the plaintiffs asserted in 2001
that, by a process of extrapolation from the patient files in the sample to all of
Aprias government billings during the sample period, Apria could have a very
significant liability to the government under the False Claims Act. Differences between
Apria and the government have been reduced on a number of issues as a result of the
analysis and discussions referred to above. Consequently, while Aprias potential
liability could still be very material, Apria believes that the amount the government is
now seeking is significantly less than asserted in 2001.

Apria and government
representatives are continuing to explore whether it will be possible to resolve this
matter on a basis that would be considered fair and reasonable by all parties.
Notwithstanding the progress made to date in reducing the differences between Apria and
the government, there remain significant disagreements as to the number and the legal
implications of billing documentation deficiencies in the 300-patient sample. Accordingly,
Apria cannot provide any assurances as to the outcome of its discussions with the
government, or as to the outcome of the qui tam litigation in the absence of a
settlement. Management cannot estimate the possible loss or range of loss that may result
from these proceedings and, therefore, has not recorded any related accruals.

If a judge, jury or
administrative agency were to determine that false claims were submitted to federal
healthcare programs or that there were significant overpayments by the government, Apria
could face civil and administrative claims for refunds, sanctions and penalties for
amounts that would be highly material to its business, results of operations and financial
condition, including the exclusion of Apria from participation in federal healthcare
programs.

Apria is also engaged in
the defense of certain claims and lawsuits arising out of the ordinary course and conduct
of its business, the outcomes of which are not determinable at this time. Apria has
insurance policies covering such potential losses where such coverage is cost effective.
In the opinion of management, any liability that might be incurred by Apria upon the
resolution of these claims and lawsuits will not, in the aggregate, have a material
adverse effect on Aprias results of operations or financial condition.

ITEM 6.     EXHIBITS

| |                   |  |                                                                                                      
| | ----------------- |  | -----------------------------------------------------------------------------------------------------
| | ExhibitNumber31.1 |  | ReferenceCertification of Chief Executive Officer pursuant
to Securities Exchange Act Rule 13a-14(a).
| | 31.2              |  | Certification of Chief Financial Officer pursuant
to Securities Exchange Act Rule 13a-14(a).         
| | 32.1              |  | Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350.                         
| | 32.2              |  | Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350.                         

---

SIGNATURES

Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

|             |                                                                                                                      
|------------ | ---------------------------------------------------------------------------------------------------------------------
|             | APRIA HEALTHCARE GROUP INC.
Registrant                                                                               
|May 10, 2005 | /s/ AMIN I. KHALIFA
Amin I. KhalifaExecutive Vice President and Chief Financial Officer
(Principal Financial Officer)