<PAGE>   1
                            UNITED STATES
                  SECURITIES AND EXCHANGE COMMISSION
                        Washington, D.C.  20549

                               Form 10-Q

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

                For the period ended September 30, 1998

                                  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                        33-0488566
    (State or other jurisdiction of          (I.R.S. Employer
     incorporation or organization)       Identification Number)


   3560 Hyland Avenue, Costa Mesa, CA             92626
(Address of principal executive offices)        (Zip Code)

  Registrant's telephone number, including area code: (714) 427-2000

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

There were 51,779,059 shares of Common Stock, $.001 par value, outstanding at
October 30, 1998.

<PAGE>   2

                      APRIA HEALTHCARE GROUP INC.

                               FORM 10-Q

                For the period ended September 30, 1998






PART I. FINANCIAL INFORMATION

Item 1.   Financial Statements (unaudited)

          Consolidated Balance Sheets

          Consolidated Statements of Operations

          Consolidated Statements of Cash Flows

          Notes to Consolidated Financial Statements

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

Item 3.   Quantitative and Qualitative Disclosures About Market Price


PART II.  OTHER INFORMATION

Item 1.   Legal Proceedings
Item 2.   Changes in Securities
Item 3.   Defaults Upon Senior Securities
Item 4.   Submission of Matters to a Vote of Security Holders
Item 5.   Other Information
Item 6.   Exhibits and Reports on Form 8-K


SIGNATURES

<PAGE>   3
<TABLE>
                      APRIA HEALTHCARE GROUP INC.

                      CONSOLIDATED BALANCE SHEETS

<CAPTION>
                                               September 30,  December 31,
                                                   1998           1997
                                               -------------  ------------
                                                (unaudited)
                                                  (dollars in thousands)
                   ASSETS
<S>                                            <C>           <C>
CURRENT ASSETS
  Cash and cash equivalents                    $   95,686    $   16,317
  Accounts receivable, less allowance for
    doubtful accounts of $45,738 and
    $58,413 at September 30, 1998 and
    December 31, 1997, respectively               157,680       256,845
  Inventories                                      16,227        26,082
  Prepaid expenses and other current assets         5,703        12,329
                                                ---------     ---------
          TOTAL CURRENT ASSETS                    275,296       311,573

PATIENT SERVICE EQUIPMENT, less accumulated
  depreciation of $268,141 and $245,772  at
  September 30, 1998 and December 31, 1997,
  respectively                                    136,931       184,704
PROPERTY, EQUIPMENT AND IMPROVEMENTS, NET          53,766        87,583
INTANGIBLE ASSETS, NET                             85,825       167,620
OTHER ASSETS                                          877         5,690
                                                ---------     ---------
                                                $ 552,695     $ 757,170
                                                =========     =========

   LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
  Accounts payable                              $  48,278     $  50,691
  Accrued payroll and related taxes and
    benefits                                       30,760        40,397
  Accrued insurance                                12,437        12,247
  Other accrued liabilities                        53,142        30,463
  Current portion of long-term debt               118,513         8,685
                                                ---------     ---------
          TOTAL CURRENT LIABILITIES               263,130       142,483

LONG-TERM DEBT                                    423,619       540,220

COMMITMENTS AND CONTINGENCIES                           -             -

STOCKHOLDERS' EQUITY 
  Preferred stock, 
    $.001 par value:
    10,000,000 shares authorized; none
    issued                                              -             -
  Common stock, $.001 par value:
    150,000,000 shares authorized; 51,771,259 
    and 51,568,525 shares issued and
    outstanding at September 30, 1998 
    and December 31, 1997, respectively                52            51
  Additional paid-in capital                      325,832       324,090
  Accumulated deficit                            (459,938)     (249,674)
                                                ---------     ---------
                                                 (134,054)       74,467

                                                $ 552,695     $ 757,170
                                                =========     =========
</TABLE>
            See notes to consolidated financial statements.

<PAGE>   4

<TABLE>
                      APRIA HEALTHCARE GROUP INC.

                 CONSOLIDATED STATEMENTS OF OPERATIONS
                              (unaudited)
<CAPTION>
                                    Three Months Ended     Nine Months Ended
                                      September 30,          September 30,
                                    ------------------     -----------------
                                      1998      1997         1998       1997
                                      ----      ----         ----       ----
                                     (in thousands, except per share data)
<S>                                <C>        <C>         <C>        <C>
Net revenues                       $ 219,367  $304,356    $ 710,532  $913,954
Costs and expenses:
   Cost of net revenues               96,996   104,650      263,651   337,792
   Selling, distribution and
     administrative                  164,016   151,782      446,366   449,148
   Impairment of intangible
     assets                           76,223         -       76,223         -
   Impairment of long-lived
     assets and internally
     developed software               22,187         -       22,187         -
   Provision for doubtful
     accounts                         36,860    15,194       63,471   101,141
   Amortization of intangible
     assets                            3,463     4,256       10,528    12,633
                                    --------  --------     --------  --------
                                     399,745   275,882      882,426   900,714
                                    --------  --------     --------  --------
      OPERATING (LOSS) INCOME       (180,378)   28,474     (171,894)   13,240
Interest expense, net                 12,823    12,288       35,870    37,779
                                    --------  --------     --------  --------
      LOSS) INCOME BEFORE TAXES     (193,201)   16,186     (207,764)  (24,539)
Income taxes                           1,500         -        2,500     9,911
                                    --------  --------     --------  --------
      NET (LOSS) INCOME            $(194,701) $ 16,186    $(210,264) $(34,450)
                                    ========  ========     ========  ========



Net (loss) income per common
  share                            $   (3.76) $   0.31    $   (4.07) $  (0.67)
                                   =========  ========    =========  ========
Net (loss) income per common
  share  assuming  dilution        $   (3.76) $   0.31    $   (4.07) $  (0.67)
                                   =========  ========    =========  ========

</TABLE>
            See notes to consolidated financial statements.
<PAGE>   5

<TABLE>
                      APRIA HEALTHCARE GROUP INC.

                 CONSOLIDATED STATEMENTS OF CASH FLOWS
                              (unaudited)

<CAPTION>
                                                     Nine Months Ended
                                                       September 30,
                                                      1998         1997
                                                    (dollars in thousands)
<S>                                                <C>           <C>
OPERATING ACTIVITIES
Net loss                                           $(210,264)    $(34,450)
Items included in net loss not requiring
  (providing) cash:
    Provision for doubtful accounts                   63,471      101,141
    Provision for revenue adjustments                 14,642       20,000
    Provision for excess/obsolete equipment           22,563       23,000
    Depreciation                                      81,291       89,076
    Amortization of intangible assets                 10,528       12,633
    Amortization of deferred debt costs                1,256          860
    Impairment of intangible assets                   76,223            -
    Impairment of long-lived assets and
      internally developed software                   22,187            -
    Loss (gain) on disposition of assets               3,628       (1,596)
    Deferred income taxes                                  -        8,911
Changes in operating assets and liabilities, 
  net of effects of acquisitions:
    Decrease (increase) in accounts receivable        23,943      (86,085)
    Decrease in inventories                              807        1,220
    Decrease in prepaids and other assets              7,088       25,213
    Decrease in accounts payable                      (3,136)     (20,105)
    Increase (decrease) in accrued payroll and
      other liabilities                               12,849      (22,250)
Net purchases of patient service equipment,
  net of effects of acquisitions                     (26,931)     (51,795)
                                                    --------     --------
      NET CASH PROVIDED BY OPERATING ACTIVITIES      100,145       65,773

INVESTING ACTIVITIES
    Purchases of property, equipment and
      improvements, net of effects of
      acquisitions                                   (12,005)     (17,561)
    Proceeds from disposition of assets                  200        6,835
    Acquisitions and payments of contingent
      consideration                                   (2,348)      (3,862)
                                                    --------     --------
      NET CASH USED IN INVESTING ACTIVITIES          (14,153)     (14,588)

FINANCING ACTIVITIES
    Proceeds under revolving credit facility               -      129,950
    Payments under revolving credit facility               -     (174,950)
    Payments of senior and other long-term debt       (6,803)      (9,411)
    Capitalized debt costs, net                       (1,467)        (711)
    Issuances of common stock                          1,647        3,580
                                                    --------     --------
      NET CASH USED IN FINANCING ACTIVITIES           (6,623)     (51,542)
                                                    --------     --------

NET INCREASE (DECREASE) IN CASH                       79,369         (357)
CASH AT BEGINNING OF PERIOD                           16,317       26,930
                                                    --------     --------
CASH AT END OF PERIOD                               $ 95,686     $ 26,573
                                                    ========     ========

</TABLE>
            See notes to consolidated financial statements.
<PAGE>   6

                      APRIA HEALTHCARE GROUP INC.

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE A - BASIS OF PRESENTATION

The accompanying consolidated financial statements include the accounts of Apria
Healthcare Group Inc. ("the Company") and its subsidiaries. All significant
intercompany transactions and accounts have been eliminated.

In the opinion of management, 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, 1997, included in the Company's 1997 Form 10-K, as amended.

NOTE B - RECLASSIFICATIONS, USE OF ACCOUNTING ESTIMATES AND SIGNIFICANT
         ACCOUNTING POLICIES

Reclassifications: Certain amounts from prior periods have been reclassified to
conform to the current year presentation.

Use of Accounting Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make assumptions that affect the amounts reported in the financial statements
and accompanying notes. Such amounts include, among others, the allowance for
doubtful accounts, revenue adjustment reserves, patient service equipment
reserves, other asset valuation allowances and certain liabilities. Management
periodically reevaluates the estimates inherent in certain financial statement
amounts and may adjust accounts accordingly.

Significant Accounting Policies: The Company has adopted the provisions of
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income. There is no difference between comprehensive income (loss) and net
income (loss) for the periods presented herein.

NOTE C - DISPOSITIONS AND BUSINESS COMBINATIONS

During the third quarter, the Company sold its infusion business in California
to Crescent Healthcare, Inc. and is exiting the infusion business in Texas,
Louisiana, West Virginia and Western Pennsylvania. Third quarter charges related
to the wind-down of unprofitable infusion operations amounted to $6,883,000 and
a loss on sale of the California business of $3,798,000 (included in selling,
distribution and administrative) was recorded. The operations of these infusion
locations had revenues and gross profits of $35,175,000 and $12,431,000,
respectively, for the nine months ended September 30, 1998, compared to
$50,783,000 and $23,001,000 for the same period in 1997.


<PAGE>   7

The Company periodically makes acquisitions of complementary businesses in
specific geographic markets. Acquisitions that closed during the nine-month
period ended September 30, 1998 resulted in cash payments of approximately
$2,098,000. The transactions were accounted for as purchases.

NOTE D - ACCOUNTS RECEIVABLE

In August 1998, management reviewed the historic performance and collectibility
of the Company's accounts receivable portfolio. Management also reviewed its
existing policies and procedures for estimating the collectibility of its
accounts receivable. In this review, management considered the continued
high-level of bad debt write-offs and revenue adjustments. Also considered were
initiatives introduced earlier in the year: a special quality assurance function
designed to improve workflow and billing accuracy, and software enhancements to
simplify the order-intake process and thereby reduce billing errors. Based upon
this review, management has decided to change its policy on collection and is
formally shifting the focus of the collection function to the more current
balances. Management believes this concentration on more current balances will
limit the amount of receivables that age. Consequently, the accounts that do age
will undoubtedly be receivables where collection will be difficult.

With this change in collection policy, management has developed a new estimate
of the allowance for doubtful accounts and revenue adjustments. Specifically,
management refined and changed their procedures used to estimate the
collectibility of its accounts receivable by increasing the allowance related to
balances over 180 days. As a result of this change in policy, the Company
recorded an adjustment to reduce revenue and accounts receivable by $14,642,000
and increase bad debt expense and the allowance for doubtful accounts by
$12,065,000. Also recorded was a provision for specific uncollectible accounts
totaling $1,529,000 and an increase to the allowance for doubtful accounts
related to the infusion sale and the exited businesses totaling $9,128,000.

NOTE E - LONG-TERM DEBT

The Company's credit agreement with a syndicate of banks was amended twice in
1997 and further amended in January, March, April and November of 1998. The
latest amendment required a $50 million permanent repayment of the loan upon
execution. The remaining indebtedness under the credit agreement was
restructured into a $288 million term loan and a $30 million revolving credit
facility with a maturity date of August 9, 2001. Term loan principal payments
are payable quarterly, in varying amounts, commencing on March 31, 1999 and
continuing through June 30, 2001. Also, the amended agreement requires that the
Company issue not less than $50 million of convertible subordinated debentures
by February 28, 1999, the net proceeds of which must be applied to the term
loan. Further, between the effective date of the latest amendment and the
earlier of February 28, 1999 or the issuance date of the convertible
subordinated debentures, the Company is subject to prepayments on the term loan
based on excess cash flow (as defined by the agreement).


<PAGE>   8

The credit agreement, as amended, allows the Company to make acquisitions under
an acquisition "basket" provision of up to $62 million, subject to certain
restrictions, that may be increased given certain levels of financial
performance by the Company. In 1999, the acquisition limit is subject to dollar
for dollar reduction by the amount of any unusual cash expenses (as defined by
the agreement) incurred and paid in 1999.

The credit agreement, as amended, permits the Company to elect one of two
variable rate interest options at the time an advance is made. The first option
is a rate expressed as 2.5% plus the higher of the Federal Funds Rate plus 0.50%
per annum or the Bank of America "reference" rate. The second option is a rate
based on the London Interbank Offered Rate ("LIBOR") plus an additional
increment of 3.5% per annum. The agreement requires payment of commitment fees
of 0.75% on the unused portion of the revolving credit facility.

Borrowings under the credit agreement are secured by substantially all the
assets of the Company and the agreement also contains numerous restrictions,
including, but not limited to, covenants requiring the maintenance of certain
financial ratios, limitations on additional borrowings, capital expenditures,
mergers, acquisitions and investments and restrictions on cash dividends, loans
and other distributions.

As of September 30, 1998, as required in its amended credit agreement, the
Company was in compliance with the credit agreement covenants.

In October 1998, the Company announced that it expects to make a distribution of
rights entitling stockholders to subscribe, on a prorata basis, for an aggregate
of $50 million principal amount of the Company's convertible subordinated
debentures. The Company has entered into a standby commitment agreement with one
of its institutional stockholders on behalf of certain of its affiliates
pursuant to which the stockholder has agreed, subject to certain conditions, to
purchase any of the debentures not purchased by others in the offering. A
registration statement for the rights offering is expected to be filed with the
Securities and Exchange Commission in the near future; the record date is set
for December 1, 1998.

NOTE F - EQUITY

The change in stockholders' equity, other than from net loss, resulted primarily
from the exercise of stock options. For the nine months ended September 30,
1998, proceeds from the exercise of stock options amounted to $1,647,000.

NOTE G - IMPAIRMENT OF INTANGIBLE ASSETS

The deterioration in the infusion therapy industry and the Company's decision to
withdraw from the infusion business in certain geographic markets served as
potential indicators of intangible asset impairment. Other potential indicators
of impairment identified by management include, among other issues, the
Company's depressed common stock price, failure to meet its already lowered
financial expectations, the threat of continued Medicare reimbursement
reductions, government investigations against the Company, slower than expected
progress in improving its revenue management process, and reported financial
difficulties within major managed care organizations with which the Company does
business which has resulted in collection difficulties.


<PAGE>   9

In the third quarter of 1998, management conducted an evaluation of the carrying
value of the Company's recorded intangible assets. Management considered current
and anticipated industry conditions, recent changes in its business strategies,
and current and anticipated operating results. The evaluation resulted in an
impairment charge of $71,452,000 of which $32,145,000 related to infusion
therapy and $39,307,000 related to respiratory/home medical equipment.

The impairment charge recognized for the infusion business line resulted
primarily from the deteriorating operating and industry trends and lower future
earnings expectations. The impairment recognized for the RT/HME business line
resulted primarily from the scheduled and potential Medicare reimbursement
reductions and to the adverse impact that withdrawal from the infusion business
in certain areas is expected to have on the RT/HME business. The Company had,
until recently, marketed itself as an integrated, full-service provider. The
Company's inability to provide infusion therapy in certain geographic areas may
result in the loss of RT/HME contract business.

Also included in the impairment charge is the write-off of $4,771,000 in
intangible assets primarily associated with the exit of the infusion business in
certain areas.

NOTE  H  -  IMPAIRMENT OF LONG-LIVED ASSETS AND INTERNALLY  DEVELOPED
            SOFTWARE

One of the actions taken as a result of the management's new strategic direction
is the termination of the project to implement an enterprise resource planning
(ERP) system. Accordingly, the Company wrote off related software and other
capitalized costs of $7,548,000 in the third quarter of 1998. As part of the
decision to terminate the ERP project, management evaluated its current systems
to determine their long-term viability in the context of the Company's new
overall strategic direction. It was determined that the Company was at some risk
in continuing to run the infusion billing system on its current platform which
is no longer supported by the computer industry. To eliminate the risk, the
Company is currently converting the infusion system to the IBM AS/400 operating
platform on which the respiratory/home medical equipment system currently
operates. Also, the Company is now proceeding with a number of enhancements to
the systems, rendering certain previously developed modules obsolete. Further,
pharmacy and branch consolidations and closures resulted in a variety of
computer equipment that was no longer needed. Due to its age and technological
obsolescence, it was deemed to have no future value. As a result of these
actions, the Company recorded an impairment charge of $11,843,000.

NOTE I - OTHER SIGNIFICANT CHARGES

The Company recorded charges totaling $3,939,000 for severance, stay bonuses and
other employee costs (included in selling, distribution and administrative) and
a charge of $5,400,000 (included in cost of net revenues) to settle several
procurement contracts.

NOTE J - INCOME TAXES

Current income tax expense includes state tax amounts accrued and paid on a
basis other than or in addition to taxable income.


<PAGE>   10

At December 31, 1997 the Company had a federal net operating loss carryforward
of approximately $230,000,000 which will begin to expire in 2003. Additionally,
the Company has various state operating loss carryforwards which began to expire
in 1997. As a result of an ownership change in 1992 which met specified criteria
of Section 382 of the Internal Revenue Code, future use of a portion of the
federal and state operating loss carryforwards generated prior to 1992 are
limited to approximately $5,000,000 per year. Because of the annual limitation,
approximately $57,000,000 of the Company's net operating loss carryforwards may
expire unused.

NOTE K - PER SHARE AMOUNTS

<TABLE>

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

<CAPTION>
                                     Three Months Ended   Nine Months Ended
                                       September 30,        September 30,
                                     ------------------   -----------------
                                       1998     1997        1998    1997
                                       ----     ----        ----    ----
                                     (in thousands, except per share data)
<S>                                <C>         <C>       <C>         <C>
Numerator:
  Net (loss) income                $(194,701)  $16,186   $(210,264)  $(34,450)
  Numerator for basic per
    share amounts - (loss)
    income available to common
    stockholders                   $(194,701)  $16,186   $(210,264)  $(34,450)

  Numerator for diluted per
    share amounts - (loss)
    income available to common
    stockholders                   $(194,701)  $16,186   $(210,264)  $(34,450)


Denominator:
  Denominator for basic per
    share amounts - weighted
    average shares                    51,765    51,481      51,717     51,384

  Effect of dilutive securities:
    Employee stock options                 -       413           -          -
                                    --------  --------    --------   --------
    Dilutive potential common
      shares                               -       413           -          -
                                    --------  --------    --------   --------
  Denominator for diluted per
    share amounts - adjusted
    weighted average shares           51,765    51,894      51,717     51,384
                                    ========  ========    ========   ========

Basic (loss) income pe  share
  amounts                           $  (3.76)   $ 0.31     $ (4.07)   $ (0.67)
                                    ========  ========    ========   ========
Diluted (loss) income per share
  amounts                           $  (3.76)   $ 0.31     $ (4.07)   $ (0.67)
                                    ========  ========    ========   ========

Employee stock options excluded from the 
  computation of diluted per share
  amounts:

    Exercise price exceeds
      average market price of
      common stock                 6,041,496 1,984,663    3,522,753 1,277,619
    Other                             23,671         -       78,487   513,720
                                   --------- ---------    --------- ---------
                                   6,065,167 1,984,663    3,601,240 1,791,339
                                   ========= =========    ========= =========

Average exercise price per
  share that exceeds average
  market price of common stock        $11.20    $19.99       $14.55    $21.48
                                      ======    ======       ======    ======
</TABLE>


<PAGE>   11

Due to the net losses incurred for the three months ended September 30, 1998 and
for the nine months ended September 30, 1998 and 1997, the impact of employee
stock options is antidilutive and there is no difference between basic and
diluted per share amounts for these periods.

NOTE L - COMMITMENTS AND CONTINGENCIES

The Company is engaged in the defense of certain claims and lawsuits, the
outcomes of which are not determinable at this time. The Company has insurance
policies covering potential losses from claims and lawsuits where such coverage
is available and cost effective. In the opinion of management, any liability
that might be incurred by the Company upon the resolution of these claims and
lawsuits will not, in the aggregate, have a material adverse effect on the
consolidated results of operations or financial position of the Company. The
Company is also in the process of responding to subpoenas from the United States
Attorney's office, as to which the Company is unaware of what claims or
proceedings, if any, may result.


CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995: The Company's business is subject to a
number of risks, some of which are beyond the Company's control. The Company has
described certain of those risks in this Form 10-Q and in previous documents
filed with the Securities and Exchange Commission (including the Current Report
on Form 8-K filed on June 26, 1997 and the Form 10-K filed on April 15, 1998).
Such reports may be used for purposes of the Private Securities Litigation
Reform Act of 1995 as readily available documents 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. These risks include ongoing
issues pertaining to management stability and recruiting, the collectibility of
its accounts receivable, the cost of and the Company's ability to implement its
reorganization plan, healthcare reform and the effect of federal and state
healthcare regulations, the ongoing U.S. Attorney investigation regarding the
Company's billing practices, pricing pressures (including changes in
governmental reimbursement levels), the effectiveness of its information systems
and controls, the highly competitive market, recent losses, the concentration
and market power of large payors, the Company's high leverage and restrictions
on its borrowing capacity, dependence on relationships with third parties and
the availability and adequacy of insurance.


<PAGE>   12

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

Background: In June 1997, the Company announced that it retained an investment
banking firm as its financial advisor to explore strategic alternatives to
enhance shareholder value, including the possible sale, merger, or
recapitalization of the Company. During the first quarter of 1998, the Company
entered into a recapitalization agreement, however, the agreement was terminated
by mutual consent of the parties on April 3, 1998. By May 1998, the Company's
active exploration of strategic alternatives was terminated as a result of the
hiring of a new Chief Executive Officer and other key management executives and
the reconfiguration of the Board of Directors. This process and resulting
uncertainties are believed to have adversely affected the Company's financial
results.

   In July 1998, after an evaluation of the business, the Company's new
management team announced its strategic plan, or "reorganization", to improve
the Company's performance. The key elements of the reorganization are: (1) no
change would be made to the fundamental nature of the business, (2) the Company
would withdraw from unprofitable components of the business, which would include
exiting the infusion therapy business in certain geographic areas (3) a
comprehensive cost reduction and capital conservation program would be
instituted, (4) the debt and capital structure would be reexamined, and (5) the
Company would pursue expansion through internal growth and acquisitions.
Significant actions taken by the Company's new management team since it
announced the reorganization include the change in management's collection
policy and a refinement of the accounts receivable collectibility estimation
methodologies as described below in Liquidity and Capital Resources - Accounts
Receivable, the sale of the California component of the infusion therapy
business ("the infusion sale"), the decision to exit the infusion therapy
business in Texas, Louisiana, West Virginia and Western Pennsylvania, the
decision to close or sell its operations in downstate New York, and the
consolidation or closure of certain small branch locations throughout the United
States (collectively, "the exited businesses"). Other significant actions
include, the termination of plans to proceed with the capital-intensive
implementation of an enterprise resource planning system, a significant
reduction of corporate and regional labor and general administrative costs and
the development of a comprehensive plan to capture cost savings in the areas of
purchasing, distribution and inventory management. Each of these measures is
discussed more fully below.

Results of Operations
---------------------
     Net Revenues: Net revenues were $219.4 million for the three-month period
ended September 30, 1998 compared with $304.4 million for the same period in
1997. For the nine months ended September 30, 1998, net revenues decreased to
$710.5 million from $914.0 million for the same period last year. A number of
factors impacted revenue, the most significant of which was the reduction in
Medicare reimbursement rates. The Balanced Budget Act of 1997 contained several
provisions affecting reimbursement rates for products and services provided by
the Company. The reimbursement rates for home oxygen therapy were reduced by 25%
effective January 1, 1998 with an additional 5% reduction scheduled for 1999,
and the reimbursement rates for respiratory drugs were reduced by 5%. The
estimated impact of the rate reductions on revenues for the first nine months in
1998 was approximately $43.4 million; the impact of the additional 5% reduction
on 1999 revenues is estimated at approximately $9.0 million. Also included in

<PAGE>   13

the Balanced Budget Act of 1997 was a freeze on Consumer Price Index-based
reimbursement rate increases for 1998 through 2002. Further, authority has been
granted to the Secretary of Health and Human Services to reduce Medicare
reimbursement under an inherent reasonableness rulemaking procedure. In
September 1998, at least two products the Company provides were identified as
potential 1999 reimbursement reduction candidates (estimated impact on revenues
in 1999: $5.7 million) with many other products under review for future
reductions.

     The Company's 1997 decisions to discontinue the medical supply, women's
health and nursing management service lines, which represented combined 1997
revenues of approximately $55.8 million, contributed to revenue declines in
1998. However, some small portion of the medical supply and nursing management
business has continued due to core- business customer requirements.
Additionally, the Company's planned exiting of unprofitable managed care
contracts represented approximately $25.0 million and $15.2 million in annual
revenues during 1997 and during the first nine months of 1998, respectively.
Also, the Company disposed of several unprofitable branch locations in
California and Arizona in the latter part of 1997 with annual revenues of
approximately $3.3 million.

     As part of the reorganization, the Company reviewed its procedures for
estimating the collectibility of accounts receivable. The review resulted in an
adjustment to the estimate for unidentified revenue adjustments, and
accordingly, a charge of $14.6 million was recorded in the third quarter of 1998
(see Accounts Receivable). Such revenue adjustments result from (1) differences
in contract prices due to complex contract terms, a biller's lack of familiarity
with a contract, payor, or system price, (2) subsequent changes to estimated
revenue amounts for services not covered by a preexisting contract and (3)
failure subsequent to service delivery to qualify a patient for reimbursement
due to lack of written authorization or a missed filing or appeal deadline. The
nine-month period in 1997 reflects a $20.0 million charge recorded in the second
quarter to provide for estimated revenue adjustments.

     Other conditions and factors had an adverse impact on net revenues in 1998,
but are difficult to quantify. First, the process discussed above to identify a
strategic alternative to enhance shareholder value created uncertainties that
affected the Company's ability to retain current business and secure new
business. Next, formidable competition at both the local and national levels
affected revenues and margins, especially in the infusion line. Finally, a
shortage in trained sales personnel also contributed to the decrease in
revenues.


<PAGE>   14

      Gross Profit: Gross margins for the third quarter and the nine months
ended September 30, 1998 were 55.8% and 62.9%, respectively, compared to 65.6%
and 63.0% for the same periods in the prior year. The gross margins for the 1998
periods reflect the Medicare reimbursement rate reduction and the revenue
adjustment charge discussed above. Also reflected in the gross margins for the
third quarter and nine months periods of 1998 were $14.8 million in additional
charges consisting of $5.4 million estimated to settle certain procurement
contracts, $3.5 million to provide for an additional estimate of losses in the
Company's oxygen cylinders and $2.8 million to provide for additional losses and
obsolescence in inventory and patient service equipment as a result of the
Company upgrading its equipment quality standards. In addition, the Company
recorded a $3.5 million charge in order to write-down operational assets in
connection with its exiting of certain portions of its infusion therapy
business. The gross margins for the 1997 periods reflect the $20.0 million
revenue adjustment charge and a $23.0 million charge to provide for losses in
inventory and patient service equipment.

     Selling, Distribution and Administrative: Selling, distribution and
administrative expenses as a percentage of net revenues were 74.8% and 62.8% for
the third quarter and first nine months of 1998, respectively, compared with
49.9% and 49.1% for the same periods in 1997. Reflected in the third quarter and
nine-month periods of 1998 are the following reorganization charges: $3.8
million loss on the infusion sale, $1.8 million to record certain costs
associated with the exited businesses (see Dispositions and Business
Combinations), $3.9 million in severance, stay bonuses and other employee costs
and $2.0 million in lease liability on vacant facilities due to consolidation
activities. Other charges recorded in the third quarter of 1998 include
additional amounts for legal fees and settlements.

     In response to the reduction in revenues, management has taken steps to
reduce costs, the most significant of which is a reduction in the Company's
labor force. From September 30, 1997 to September 30, 1998, full-time equivalent
employees have been reduced by approximately 1,200. The labor force reduction
commenced in the fourth quarter of 1997 and continues through 1998. The labor
reductions made in the third quarter of 1998 resulted from the reorganization of
the Company's field operations into 16 geographic regions (previously 23) and
through the elimination of positions at the Company's corporate headquarters.

     Impairment of Intangible Assets: The deterioration in the infusion therapy
industry and the Company's decision to withdraw from the infusion business in
certain geographic markets served as potential indicators of intangible asset
impairment. Other potential indicators of impairment identified by management
include, among other issues, the Company's depressed common stock value, failure
to meet its already lowered financial expectations, the threat of continued
Medicare reimbursement reductions, government investigations against the Company
(see Recent Developments), slower than expected progress in improving its
revenue management process, and reported financial difficulties within major
managed care organizations with which the Company does business which has
resulted in collection difficulties.


<PAGE>   15

     In the third quarter of 1998, management conducted an evaluation of the
carrying value of the Company's recorded intangible assets. Management
considered current and anticipated industry conditions, recent changes in its
business strategies, and current and anticipated operating results. The
evaluation resulted in an impairment charge of $71.4 million of which $32.1
million related to infusion therapy and $39.3 million related to
respiratory/home medical equipment.

     The impairment charge recognized for the infusion business line resulted
primarily from the deteriorating operating and industry trends and lower future
earnings expectations. The impairment recognized for the RT/HME business line
resulted primarily from the scheduled and potential Medicare reimbursement
reductions and to the adverse impact that withdrawal from the infusion business
in certain areas is expected to have on the RT/HME business. The Company had,
until recently, marketed itself as an integrated, full-service provider. The
Company's inability to provide infusion therapy in certain geographic areas may
result in the loss of RT/HME contract business.

     Also included in the impairment charge is the write-off of $4.8 million in
intangible assets associated with the exited businesses (see Dispositions and
Business Combinations).

     Impairment of Long-lived Assets and Internally Developed Software: One of
the actions taken as a result of management's new strategic direction is the
termination of the project to implement an enterprise resource planning (ERP)
system. Accordingly, the Company wrote off related software and other
capitalized costs of $7.5 million in the third quarter of 1998. As part of the
decision to terminate the ERP project, management evaluated its current systems
to determine their long-term viability in the context of the Company's new
overall strategic direction. It was determined that the Company was at some risk
in continuing to run the infusion billing system on its current platform which
is no longer supported by the computer industry. To mitigate the risk, the
Company is currently converting the infusion system to the IBM AS/400 operating
platform on which the respiratory/home medical equipment system currently
operates. Also, the Company is now proceeding with a number of enhancements to
the systems rendering certain previously developed modules obsolete. Further,
pharmacy and branch consolidations and closures rendered a variety of computer
equipment obsolete. Due to its age and technological obsolescence, it was deemed
to have no future value. As a result of these actions, the Company recorded an
impairment charge of $11.8 million.

      The Company also recognized additional asset impairments of $1.4 million
in conjunction with the exited businesses (see Dispositions and Business
Combinations) and $1.4 million related to other facility closures and
consolidations.


<PAGE>   16

     Provision for Doubtful Accounts: The provision for doubtful accounts as a
percentage of net revenues was 16.8% and 8.9% for the quarter and nine-month
periods ended September 30, 1998 as compared to 5.0% and 11.1% for the same
periods in the prior year. The 1998 periods reflect a charge of $12.1 million to
increase the allowance for doubtful accounts due to the change in management's
collection policy as described below (see Accounts Receivable). Also recorded in
the third quarter of 1998 are charges totaling $9.1 million to increase the
allowance for doubtful accounts on accounts receivable associated with the
infusion sale and the exited businesses (see Dispositions and Business
Combinations). The provision in the nine-month period in 1997 reflects a $55.0
million charge taken in the second quarter of 1997 to increase the allowance for
doubtful accounts.

     Amortization of Intangible Assets: Amortization of intangible assets was
$3.5 million and $10.5 million for the third quarter and first nine months of
1998, respectively, compared to $4.3 million and $12.6 million for the same
periods last year. The decreases are due to the $133.5 million write-off of
impaired goodwill in the fourth quarter of 1997. The resulting reduction in
amortization expense was offset somewhat by a reduction in the amortization
period for a certain class of the Company's goodwill from 40 years to 20 years.

     Interest Expense: Interest expense was $12.8 million and $35.9 million for
the three- and nine-month periods ended September 30, 1998, respectively,
compared to $12.3 million and $37.8 million for the same periods in 1997.
Reflected in the 1998 periods are lower long-term debt levels, offset by higher
effective interest rates, as compared to the 1997 periods.

     Income Taxes: Income tax expense for the nine months ended September 30,
1998 was $2.5 million versus $9.9 million for the same period last year. The
decrease is attributable to valuation allowances that were recorded in prior
years. The recorded tax expense in 1998 includes state taxes payable on a basis
other than or in addition to taxable income.

     As of December 31, 1997, the Company has substantial federal and state net
operating losses ("NOLs") which can be carried forward to offset taxable income
recognized by the Company in the future. Additionally, based on the first three
quarters of 1998, the Company estimates there being an additional federal
carryforward of approximately $130 million, which will expire in 2018. The
Company's ability to utilize those NOLs, however, is subject to Section 382 of
the Internal Revenue Code which provides that upon the occurrence of an
ownership change the benefits of NOLs can be reduced or eliminated. Based on
information as of early October about the Company's stockholdings, the Company
was approximately halfway toward an ownership change. Additional purchases of
stock in the Company by existing 5% shareholders or acquisitions of stock by new
5% shareholders could bring the Company closer to or, if large enough, could
cause an additional ownership change and thus trigger an additional Section 382
limitation on NOLs.


<PAGE>   17

Liquidity and Capital Resources
-------------------------------

     Operating Cash Flow: Cash provided by the Company's operations for the nine
months ended September 30, 1998 was $100.1 million versus $65.8 million for the
same period last year. This increase was achieved despite the significant
decrease in net income, after adding back the non-cash charges, between the two
periods. A significant reason for the improvement in operating cash flow was the
decrease in accounts receivable during the first nine months of 1998 as compared
to a significant increase in the same period in 1997 (see Accounts Receivable).
Also contributing to the increase in operating cash flow was a 48% reduction in
net purchases of patient service equipment. Additionally, less cash was used in
1998 due to the timing of payments against accounts payable and payroll and
other accrued liabilities. Cash flow was enhanced in 1997 with a $12.0 million
federal tax refund received in the first quarter.

     Accounts Receivable: Accounts receivable before allowance for doubtful
accounts decreased by $111.8 million during the first nine months of 1998. The
decrease is attributable to the decline in net revenues, a high-level of bad
debt write-offs and revenue adjustments and strong cash collections.

      In August 1998, management reviewed the historic performance and
collectibility of the Company's accounts receivable portfolio. Management also
reviewed its existing policies and procedures for estimating the collectibility
of its accounts receivable. In this review, management considered the continued
high-level of bad debt write-offs and revenue adjustments. Also considered were
initiatives introduced earlier in the year: a special quality assurance function
designed to improve workflow and billing accuracy, and software enhancements to
simplify the order-intake process and thereby reduce billing errors. Based upon
this review, management has decided to change their policy on collection and is
formally shifting the focus of the collection function to the more current
balances. Management believes this concentration on more current balances will
limit the amount of receivables that age. Consequently, the accounts that do age
will undoubtedly be receivables where collection will be difficult.

      With this change in collection policy, management has developed a new
estimate of the allowance for doubtful accounts and revenue adjustments.
Specifically, management refined and changed their procedures used to estimate
the collectibility of its accounts receivable by increasing the allowance
related to balances over 180 days. As a result of this change in policy, the
Company recorded an adjustment to reduce revenue and accounts receivable by
$14.6 million and increase bad debt expense and the allowance for doubtful
accounts by $12.1 million. Also recorded was a provision for specific
uncollectible accounts totaling $1.5 million and an increase to the allowance
for doubtful accounts related to the infusion sale and the exited businesses
totaling $9.1 million (see Provision for Doubtful Accounts and Dispositions and
Business Combinations).

     Dispositions and Business Combinations: As part of the new strategic
direction, management performed an extensive profitability study to identify
product lines and/or geographic markets as potential candidates for exit. Most
significant of the decisions arising from the study is the decision to withdraw
from the infusion business in California, Texas, Louisiana, West Virginia and
Western Pennsylvania. Shortly after the Company announced its plans to exit the
infusion line in these geographic markets, a buyer emerged for the California
locations. Crescent Healthcare, Inc. purchased substantially all the assets
(accounts receivable excluded) and business of the California infusion

<PAGE>   18

locations. The Company recorded a $3.8 million loss on the sale in the third
quarter of 1998. In the other locations where the Company has decided to exit
the infusion business, management is currently working with its business
partners to modify contracts and transfer patients to other providers and
expects the transition to be substantially complete by the end of 1998. The
operations of these infusion locations had revenues and gross profits of $35.2
million and $12.4 million, respectively, for the nine months ended September 30,
1998, compared to $50.8 million and $23.0 million for the same period in 1997.
Another significant action taken in conjunction with the reorganization was the
decision to withdraw from the downstate New York market in all product lines.
Revenues and gross profit in this market totaled approximately $12.6 million and
$7.9 million for the nine months ended September 30, 1998, respectively,
compared to $17.2 million and $9.6 million for the same period last year.

     The Company periodically makes acquisitions of complementary businesses in
specific geographic markets. The cost of acquisitions that closed during the
nine-month period ended September 30, 1998 totaled approximately $2.1 million.

     Long-term Debt: The Company's credit agreement with a syndicate of banks
was amended twice in 1997 and further amended in January, March, April and
November of 1998. The latest amendment required a $50 million permanent
repayment of the loan upon execution. The remaining indebtedness under the
credit agreement was restructured into a $288 million term loan and a $30
million revolving credit facility with a maturity date of August 9, 2001. Term
loan principal payments are payable quarterly, in varying amounts, commencing on
March 31, 1999 and continuing through June 30, 2001. Also, the amended agreement
requires that the Company issue not less than $50 million of convertible
subordinated debentures by February 28, 1999 (see Recent Developments), the net
proceeds of which must be applied to the term loan. Further, between the
effective date of the latest amendment and the earlier of February 28, 1999 or
the issuance date of the convertible subordinated debentures, the Company is
subject to prepayments on the term loan based on excess cash flow (as defined by
the agreement).

     The credit agreement, as amended, allows the Company to make acquisitions
under an acquisition "basket" provision of up to $62 million, subject to certain
restrictions, that may be increased given certain levels of financial
performance by the Company. In 1999, the acquisition limit is subject to dollar
for dollar reduction by the amount of any unusual cash expenses (as defined by
the agreement) incurred and paid in 1999.

     The credit agreement, as amended, permits the Company to elect one of two
variable rate interest options at the time an advance is made. The first option
is a rate expressed as 2.5% plus the higher of the Federal Funds Rate plus 0.50%
per annum or the Bank of America "reference" rate. The second option is a rate
based on the London Interbank Offered Rate ("LIBOR") plus an additional
increment of 3.5% per annum. The agreement requires payment of commitment fees
of 0.75% on the unused portion of the revolving credit facility.


<PAGE>   19

     Borrowings under the credit agreement are secured by substantially all the
assets of the Company and the agreement also contains numerous restrictions,
including, but not limited to, covenants requiring the maintenance of certain
financial ratios, limitations on additional borrowings, capital expenditures,
mergers, acquisitions and investments and restrictions on cash dividends, loans
and other distributions.

     As of September 30, 1998, as required in its amended credit agreement, the
Company was in compliance with the credit agreement covenants.

     At September 30, 1998, borrowings under the credit agreement totaled $338
million.

     Under the Indenture governing the Company's $200.0 million 9 1/2% Senior
Subordinated Notes due 2002, the Company's ability to incur indebtedness becomes
restricted at times when the Company's "Fixed Charge Coverage Ratio" (as defined
in the Indenture) is less than 3.0 to 1.0. Charges taken in the second and
fourth quarters of 1997 and in the third quarter of 1998 resulted in the Fixed
Charge Coverage Ratio being less than 3.0 to 1.0. This condition is expected to
continue at least through the third quarter of 1999. The Company has changed its
cash management procedures to avoid the need to incur indebtedness that would
otherwise require a modification of the terms of the Indenture and has
accumulated a cash balance of $95.7 million ($50 million of which must be used
to make the required loan prepayment described above) as of September 30, 1998.
The Company believes that cash provided by operations will be sufficient to
finance its current operations for at least the next 12 months or until the
borrowing restriction is eliminated.

     Other Balance Sheet Changes: The decrease in accrued payroll and related
taxes and benefits at September 30, 1998, compared to December 31, 1997 is due
to the difference in the number of days' costs accrued at each period-end. At
December 31, 1997, other assets was primarily comprised of payments for
businesses acquired late in the year. The payments were then allocated to the
various underlying acquired assets in early 1998.

     Year 2000 Issue: As the year 2000 approaches, an issue ("Year 2000 Issue")
impacting all companies has emerged regarding how existing application software
programs and operating systems can accommodate this date value. In brief, many
existing application programs in the marketplace were designed to accommodate a
two digit date position which represents the year (e.g., "95" is stored on the
system and represents the year 1995). Consequently, the year 1999 could be the
maximum date value that systems would be able to accurately process.

     Beginning in late 1997, the Company conducted a comprehensive review of its
existing computer systems, including an assessment of the nature and potential
extent of the impact of the Year 2000 Issue. As a result, the Company has begun
the modification process of its software in order for its computer systems to
function properly in the year 2000 and thereafter. The Company is utilizing
internal resources to reprogram and test the software for the year 2000
modifications. The project is currently on schedule and the Company anticipates
all phases of the project, including the testing and implementation phases, to
be completed by December 31, 1998. Further, the Company's systems underwent two
external assessments of the Year 2000 Issue and received a "low" risk rating.
The total cost of the project is not expected to have a material effect on the
Company's results of operations; all costs are being expensed as incurred.


<PAGE>   20

     Additionally, a formal process has been instituted to assess other
potential risks the Company may face in light of the Year 2000 Issue. Examples
of such issues include, but are not limited to, electronic interfaces with
external agents such as payors (including Medicare and Medicaid), banks and
suppliers. As a contingency, in the event of failure on the part of an external
agent, the exchange of data and payments can continue via paper documents and
other more-traditional methods. Potential internal operational issues include
date-sensitive security systems and elevators. Another area of potential risk is
with certain patient service equipment items that have microprocessors with date
functionality that could malfunction in the year 2000. Among other steps, the
Company has initiated formal communications with all its significant suppliers
of patient service equipment to ensure those third parties are also working to
remediate their own year 2000 issues, if applicable. If the Company is unable to
resolve all its Year 2000 issues with external agents, it may have a material
adverse effect on the Company's business, results of operations or financial
condition.

     Expectations about future year 2000-related costs are subject to various 
uncertainties that could cause the actual results to differ materially from the 
Company's expectations, including the success of the Company in identifying 
systems and programs that are not year 2000-ready, the nature and amount of 
programming required to upgrade or replace each of the affected programs, the 
availability, rate and magnitude of related labor and consulting costs and the 
success of the Company's business partners, vendors and clients in addressing 
the Year 2000 Issue.

     Recent Developments: In October 1998, the Company announced that it expects
to make a distribution of rights entitling stockholders to subscribe, on a
prorata basis, for an aggregate of approximately $50 million principal amount of
the Company's convertible subordinated debentures. The Company has entered into
a standby purchase agreement with one of its institutional stockholders on
behalf of certain of its affiliates pursuant to which the stockholder has
agreed, subject to certain conditions, to purchase any of the debentures not
purchased by others in the offering. A registration statement for the rights
offering is expected to be filed with the Securities and Exchange Commission in
the near future; the record date is set for December 1, 1998.

      On July 8, 1998, the Company issued a press release reporting that it had
received six subpoenas from the U. S. Attorney's office in Sacramento,
California, requesting documents related to the Company's billing practices. The
documents requested include those located at the Company's corporate
headquarters and offices in San Diego and Sacramento, California, and
Canonsburg, Pennsylvania. On July 29, 1998, the Company received another
subpoena requesting additional billing-related documents from its Sacramento
office. The Company is in the process of complying with the subpoenas.

     The Company has experienced problems as the result of errors and
deficiencies in supporting documentation affecting a portion of its billings,
including billings under the Medicare and Medicaid programs. If the U.S.
Attorney were to conclude that such errors and deficiencies constituted criminal
violations, or were to make claims for the maximum amount potentially
recoverable as a result, the Company could face criminal charges and/or civil
claims for amounts that would be highly material to its business and financial
condition. Such amounts could include claims for treble damages. It is the
Company's position that the assertion of criminal charges or the assertion of
any such claims would be unwarranted. If such charges or claims were asserted,
the Company believes that it would be in a position to assert numerous defenses.
However, no assurance can be provided as to the outcome of any such possible
proceedings.

     Presently, the Company is unaware of what claims or proceedings, if any,
the government may be contemplating with respect to these subpoenas.



<PAGE>   21

Item 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT  MARKET RISK

          Not applicable.

PART II.  OTHER INFORMATION

Item 1.   Legal Proceedings

               The Company and certain of its present and former officers and/or
          directors are defendants in a class action lawsuit, In Re Apria
          Healthcare Group Securities Litigation, filed in the U.S. District
          Court for the Central District of California, Southern Division (Case
          No. SACV98-217 GLT). This case is a consolidation of three similar
          class actions filed in March and April, 1998. Pursuant to a Court
          Order dated May 27, 1998, the plaintiffs in the original three class
          actions filed a Consolidated Amended Class Action Complaint on August
          6, 1998. The Amended Complaint purports to establish a class of
          plaintiff shareholders who purchased the Company's common stock
          between May 22, 1995 and January 20, 1998. No class has been certified
          at this time. The Amended Complaint alleges, among other things, that
          the defendants made false and/or misleading public statements
          regarding the Company and its financial condition in violation of
          federal securities laws. The Amended Complaint seeks compensatory and
          punitive damages as well as other relief.

               Two similar class actions were filed during July, 1998 in the
          Superior Court for the State of California for the County of Orange:
          Schall v. Apria Healthcare Group Inc., et al. (Case No. 797060) and
          Thompson v. Apria Healthcare Group Inc., et al. (Case No. 797580).
          These two actions were consolidated by a Court Order dated October 22,
          1998. Pursuant to that Order, a consolidated and amended complaint
          must be filed by December 7, 1998. The Company anticipates that
          allegations similar to those asserted in the Amended Complaint in the
          federal action will be asserted in the consolidated state action,
          although the claims will be founded on state law, as opposed to
          federal law.

               The Company believes that it has meritorious defenses to the
          plaintiffs' claims in all of these class actions, and it intends to
          vigorously defend itself in both the federal and state cases. In the
          opinion of the Company's management, the ultimate disposition of these
          class actions will not have a material adverse effect on the Company's
          financial condition or results of operations.


<PAGE>   22

                On July 8, 1998, the Company issued a press release reporting
          that it had received six subpoenas from the U. S. Attorney's office in
          Sacramento, California, requesting documents related to the Company's
          billing practices. The documents requested include those located at
          the Company's corporate headquarters and offices in San Diego and
          Sacramento, California, and Canonsburg, Pennsylvania. On July 29,
          1998, the Company received another subpoena requesting additional
          billing-related documents from its Sacramento office. The Company is
          in the process of complying with the subpoenas.

                The Company has experienced problems as the result of errors and
          deficiencies in supporting documentation affecting a portion of its
          billings, including billings under the Medicare and Medicaid programs.
          If the U.S. Attorney were to conclude that such errors and
          deficiencies constituted criminal violations, or were to make claims
          for the maximum amount potentially recoverable as a result, the
          Company could face criminal charges and/or civil claims for amounts
          that would be highly material to its business and financial condition.
          Such amounts could include claims for treble damages. It is the
          Company's position that the assertion of criminal charges or the
          assertion of any such claims would be unwarranted. If such charges or
          claims were asserted, the Company believes that it would be in a
          position to assert numerous defenses. However, no assurance can be
          provided as to the outcome of any such possible proceedings.

                Presently, the Company is unaware of what claims or proceedings,
          if any, the government may be contemplating with respect to these
          subpoenas.

Items 2-3.     Not applicable

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

               (a)  Annual Meeting of Stockholders of the Company on July 28,
                    1998.

               (b)  Directors re-elected at the Annual Meeting for a term
                    expiring in 2001:
                         Philip R. Lochner, Jr.
                         Beverly Benedict Thomas

                    Members of the Board whose terms expire in 1999:
                         David L. Goldsmith
                         Leonard Green
                         Richard H. Koppes

                    Members of the Board whose terms expire in 2000:
                         Philip L. Carter
                         H.J. Mark Tompkins
                         Ralph V. Whitworth


<PAGE>   23

               (c)  Matters Voted Upon at Annual Meeting:

                    Election of Directors - The Company's Board currently
                    consists of nine directors and is divided into three classes
                    with staggered three year terms. Stockholder voting results
                    for the two directors re-elected were as follows:

                                                     FOR            WITHHELD
                                                  ---------        ---------
                    Philip R. Lochner, Jr.        43,402,444       1,031,250
                    Beverly Benedict Thomas       43,402,743       1,030,951

Item 5.   Other Information

          David H. Batchelder was elected to the Board of Directors at the July
          28, 1998 Board meeting immediately following the Annual Meeting. His
          term will expire in 2001.

Item 6.        Exhibits and Reports on Form 8-K

          (a)  Exhibits:

               Exhibit
               Number    Reference
               -------   ---------

               10.1      Standby Purchase Agreement dated as of November 3, 1998
                         between Apria Healthcare Group Inc. and Relational
                         Investors, LLC, on behalf of the entities named
                         therein.

               10.2      Registration Rights Agreement dated as of November
                         3, 1998 between Apria Healthcare Group Inc. and
                         Relational Investors, LLC, on behalf of the entities
                         named therein.

               10.3      Amended and Restated Credit Agreement dated as of
                         November 13, 1998 between Apria Healthcare Group Inc.
                         and certain of its subsidiaries and Bank of America
                         National Trust and Savings Association, NationsBank,
                         N.A., and other financial institutions.

               16.1      Letter dated July 8, 1998 from Ernst & Young, LLP
                         addressed to the Securities and Exchange Commission.
                         Incorporated by reference to the Company's Current
                         Report on Form 8-K, filed on July 6, 1998.

               27.1      Financial Data Schedule.


<PAGE>   24

          (b) Reports on Form 8-K:

               1.   The Company filed a Current Report on Form 8-K, dated July
                    6, 1998, with the Securities and Exchange Commission
                    reporting that the Company had elected to change the
                    independent auditors for the Company's fiscal year ending
                    December 31, 1998. The Company reported the following
                    specific information:

               (i)      Effective July 6, 1998, the Company dismissed Ernst &
                        Young, LLP as its independent auditors for the fiscal
                        year ending December 31, 1998.

               (ii)     The reports of Ernst & Young, LLP on the financial
                        statements for each of the past two years contained no
                        adverse opinion or disclaimer of opinion, and no such
                        report was qualified or modified as to uncertainty,
                        audit scope or accounting principles.

               (iii)    The decision to change independent auditors was not
                        recommended or approved by the Audit Committee of the
                        Company's Board of Directors.

               (iv)     There were no disagreements on any matter of accounting
                        principles or practices, financial statement
                        disclosure, or auditing scope or procedure, between the
                        Company and its independent auditors during the
                        Company's two most recent fiscal years or during the
                        year-to-date period ended July 6, 1998.

               2.   The Company filed a Current Report on Form 8-K, dated July
                    15, 1998, with the Securities and Exchange Commission
                    reporting that the Company had engaged Deloitte & Touche LLP
                    as the principal accountants to audit the Company's
                    financial statements for the fiscal year ending December 31,
                    1998.

<PAGE>   25

                                   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



November 16, 1998                       /s/JAMES E. BAKER
                                        ----------------------------
                                        James E. Baker
                                        Vice President, Controller
                                        (Chief Accounting Officer)






<PAGE>   26
                                 EXHIBIT INDEX


               Exhibit
               Number    Description
               -------   -----------

               10.1      Standby Purchase Agreement dated as of November 3, 1998
                         between Apria Healthcare Group Inc. and Relational
                         Investors, LLC, on behalf of the entities named
                         therein.

               10.2      Registration Rights Agreement dated as of November
                         3, 1998 between Apria Healthcare Group Inc. and
                         Relational Investors, LLC, on behalf of the entities
                         named therein.

               10.3      Amended and Restated Credit Agreement dated as of
                         November 13, 1998 between Apria Healthcare Group Inc.
                         and certain of its subsidiaries and Bank of America
                         National Trust and Savings Association, NationsBank,
                         N.A., and other financial institutions.

               16.1      Letter dated July 8, 1998 from Ernst & Young, LLP
                         addressed to the Securities and Exchange Commission.
                         Incorporated by reference to the Company's Current
                         Report on Form 8-K, filed on July 6, 1998.

               27.1      Financial Data Schedule.