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

Form 10-Q

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

For the quarterly period ended
 June 30, 2006

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 a large
accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of
accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange
Act.
          
          
Large accelerated filer  [X]        
               
               
Accelerated filer  [   ]      
               
               
Non-accelerated filer  [   ]

Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act).   
 Yes  No X

As of August 9, 2006 there were outstanding
42,436,691 shares of the Registrants common stock,  par
value $.001 per share, which is the only class of common stock of the Registrant (not
including 16,965,185 shares held in treasury).

---

APRIA HEALTHCARE GROUP INC.

FORM 10-Q

For the period ended June 30, 2006

|                                          |  |                                                                                                                                                                                                                                                       | Page
|----------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----
|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 1A.                                  |  | Risk Factors.                                                                                                                                                                                                                                         |     
|                                          |  |                                                                                                                                                                                                                                                       |     
|Item 2.                                   |  | Unregistered Sales of Equity Securities and Use of Proceeds.                                                                                                                                                                                          |     
|                                          |  |                                                                                                                                                                                                                                                       |     
|Item 3.                                   |  | Defaults Upon Senior Securities.                                                                                                                                                                                                                      |     
|                                          |  |                                                                                                                                                                                                                                                       |     
|Item 4.                                   |  | Submission of Matters to a Vote of Security Holders.                                                                                                                                                                                                  |     
|                                          |  |                                                                                                                                                                                                                                                       |     
|Item 5.                                   |  | Other Information.                                                                                                                                                                                                                                    |     
|                                          |  |                                                                                                                                                                                                                                                       |     
|Item 6.                                   |  | Exhibits.                                                                                                                                                                                                                                             |     
|                                          |  |                                                                                                                                                                                                                                                       |     
|SIGNATURES                                |  |                                                                                                                                                                                                                                                       |     
|                                          |  |                                                                                                                                                                                                                                                       |     
|EXHIBITS                                  |  |                                                                                                                                                                                                                                                       |     

---

PART I  FINANCIAL INFORMATION

ITEM 1.     FINANCIAL STATEMENTS

APRIA HEALTHCARE GROUP INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)

|                                                                     | June 30, |  | December 31,
|-------------------------------------------------------------------- | -------- |  | ------------
|
|
|ASSETS                                                               |          |  |             
|CURRENT ASSETS                                                       |          |  |             
|Cash and cash equivalents                                            |          |  | $           
|Accounts receivable, less allowance
for doubtful accounts of $38,642 |          | 
|and $41,527 at June 30, 2006 and
December 31, 2005, respectively     |          |  |             
|Inventories, net                                                     |          |  |             
|Deferred income taxes                                                |          |  |             
|Prepaid expenses and other current assets                            |          |  |             
|                                                                     |          |  |             
|TOTAL CURRENT ASSETS                                                 |          |  |             
|                                                                     |          | 
|PATIENT SERVICE EQUIPMENT, less accumulated depreciation of $442,227 |          | 
|and $446,728 at June 30, 2006 and December 31, 2005, respectively    |          |  |             
|PROPERTY, EQUIPMENT AND IMPROVEMENTS, net                            |          |  |             
|DEFERRED INCOME TAXES                                                |          |  |             
|GOODWILL                                                             |          |  |             
|INTANGIBLE ASSETS, less accumulated amortization of $7,421 and       |          | 
|$7,988 at June 30, 2006 and December 31, 2005, 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 I)                               |          | 
|                                                                     |          |  |             
|TOTAL LIABILITIES                                                    |          |  |             
|                                                                     |          |  |             
|                                                                     |          | 
|STOCKHOLDERS EQUITY                                                 |          | 
|Preferred stock, $.001 par value: 10,000,000 shares authorized;      |          | 
|none issued                                                          |          |  |             
|Common stock, $.001 par value: 150,000,000 shares authorized;        |          | 
|59,380,414 and 59,215,749 shares issued at
June 30, 2006 and         |          | 
|December 31, 2005, respectively;
42,415,229 and 42,250,564 shares    |          | 
|outstanding at June 30, 2006 and December 31, 2005, respectively     |          |  |             
|Additional paid-in capital                                           |          |  |             
|Treasury stock, at cost; 16,965,185 shares
at June 30, 2006          |          | 
|and December 31, 2005                                                |          |  |             
|Retained earnings                                                    |          |  |             
|Accumulated other comprehensive income                               |          |  |             
|                                                                     |          |  |             
|TOTAL STOCKHOLDERS EQUITY                                           |          |  |             
|                                                                     |          |  |             
|                                                                     |          |  | $           
|                                                                     |          |  |             

See notes to condensed
consolidated financial statements.

---

APRIA HEALTHCARE GROUP INC.

CONDENSED CONSOLIDATED INCOME STATEMENTS 
(unaudited)

|                                             | Three Months EndedJune 30, |  | Six Months EndedJune 30,
|-------------------------------------------- | -------------------------- |  | ------------------------
|
|
|
|Net revenues                                 |                            |  | $                       
|Costs and expenses:                          |                            | 
|Cost of net revenues:                        |                            | 
|Product and supply costs                     |                            |  |                         
|Patient service equipment depreciation       |                            |  |                         
|Respiratory therapy services                 |                            |  |                         
|Nursing services                             |                            |  |                         
|Other                                        |                            |  |                         
|                                             |                            |  |                         
|TOTAL COST OF NET REVENUES                   |                            |  |                         
|                                            
|Provision for doubtful accounts              |                            |  |                         
|Selling, distribution and administrative     |                            |  |                         
|Qui tamsettlement and related costs (Note I) |                            |  |                         
|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)

|                                                                                   | Six Months EndedJune 30,
|---------------------------------------------------------------------------------- | ------------------------
|
|
|
|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                                                              |                         
|Share-based compensation                                                           |                         
|Loss (gain) on disposition of assets and other                                     |                         
|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                                                               |                         
|Proceeds from revolving credit facilities                                          |                         
|Payments on revolving credit facilities                                            |                         
|Payments on other long-term debt                                                   |                         
|Change in outstanding checks included in accounts payable                          |                         
|Capitalized debt issuance costs                                                    |                         
|Issuances of common stock                                                          |                         
|                                                                                   |                         
|NET CASH
(USED IN) PROVIDED BY FINANCING ACTIVITIES                                |                         
|                                                                                   |                         
|NET INCREASE (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.

---

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/A for the fiscal year ended December 31, 2005, as filed with the
Securities and Exchange Commission on March 23, 2006. 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;
| |  | potential reductions in reimbursement rates by government and third-party payors;                  
| |  | the effectiveness of Aprias operating systems and controls;                                       
| |  | healthcare reform and the effect of federal and state healthcare regulations;                      
| |  | pricing pressures from large payors; 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, and the federal
governments financial commitments to disaster recovery efforts, have and could
continue to have significant impacts on the economy and government spending priorities.
Deficit spending by the government as the result of adverse developments in the economy
and the continuing costs of military and national security activities and disaster
assistance will most likely increase pressure to reduce government expenditures for other
purposes, including government-funded programs such as Medicare and Medicaid.

---

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 in consolidation.

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 included in the companys Annual Report on Form 10-K/A for the fiscal year
ended December 31, 2005.

Reclassifications: Certain amounts from prior
periods have been reclassified to conform to the current period presentation. Purchases of
patient service equipment and property, equipment and improvements presented on the
condensed consolidated statement of cash flows for the six months ended June 30, 2005,
have been revised to exclude purchases that were unpaid at the end of that period. Also,
certain respiratory therapy and infusion therapy nursing expenses, which were previously
presented in the selling, distribution and administrative expense line, are now included
as separate line items on the condensed consolidated income statement within cost of net
revenues. The respiratory therapy and infusion therapy nursing expenses that have been
reclassified to cost of net revenues are comprised primarily of employee salary and
benefit costs and fees paid to contracted workers who are deployed to service a patient.
Aprias respiratory therapy and infusion therapy nursing personnel are also engaged
in a number of administrative and marketing tasks, and accordingly, the costs related to
those activities remain classified within selling, distribution and administrative
expenses. See Clinical Expenses.

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 materially 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 36% 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 11% 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 to record 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.

Clinical Expenses: Respiratory therapy and
infusion therapy nursing expenses, totaling $4,707,000 and $9,659,000 for the three and
six-month periods ended June 30, 2006, respectively, are included in selling, distribution
and administrative expenses. For the corresponding periods in 2005, respiratory therapy
and infusion therapy nursing expenses were $5,839,000 and $11,465,000, respectively.

Distribution Expenses: Distribution expenses,
totaling $43,000,000 and $87,080,000 for the three- and six-month periods ended June 30,
2006, respectively, are included in selling, distribution and administrative expenses. For
the corresponding periods in 2005, distribution expenses were $42,880,000 and $84,909,000,
respectively.

Recent Accounting Pronouncements: In November
2004, the Financial Accounting Standards Board (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. Aprias adoption of
SFAS No. 151 on January 1, 2006 did not 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). Apria adopted
the statement January 1, 2006 and has employed the modified prospective method of
transition. See Note F  Share-Based Compensation.

In May 2005, the FASB issued SFAS No. 154,
Accounting Changes and Error Corrections, which replaces APB Opinion
No. 20, Accounting Changes, and FASB Statement No. 3, Reporting
Accounting Changes in Interim Financial Statements. SFAS No. 154 changes the
accounting for, and the reporting of, a change in accounting principle. The statement also
defines and requires retrospective application of a change in accounting principle to
prior periods financial statements unless impracticable. If retrospective
application is impracticable, the new accounting principle must be applied to the asset
and liability balances as of the beginning of the earliest period practicable and a
corresponding adjustment to the opening balance of retained earnings for the same period,
rather than being reported in the income statement. Additionally, SFAS No. 154 addresses a
change in accounting for estimates effected by a change in accounting principle and
redefines restatement as a revision to reflect the correction of an error. Aprias
adoption of SFAS No. 154 on January 1, 2006 did not have a material effect on the
companys consolidated financial statements.

In February 2006, the FASB issued SFAS No. 155,
Accounting for Certain Hybrid Financial Instruments. The statement amends SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities and SFAS
No. 140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities. The statement is effective for all financial
instruments acquired or issued after the beginning of an entitys first fiscal year
beginning after September 15, 2006. Accordingly, the company plans to adopt SFAS No. 155
on January 1, 2007. Management is currently evaluating the statement to determine what, if
any, impact it will have on the companys consolidated financial statements.

In March 2006, the FASB issued SFAS No. 156,
Accounting for Servicing of Financial Assets, which amends SFAS No. 140,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities. The statement is effective as of the beginning of an entitys
first fiscal year beginning after September 15, 2006. Accordingly, the company plans to
adopt SFAS No. 156 on January 1, 2007. Management is currently evaluating the statement to
determine what, if any, impact it will have on the companys consolidated financial
statements.

In July 2006, the FASB issued FASB Interpretation
(FIN) No. 48, Accounting for Uncertainty in Income Taxes, which becomes
effective for fiscal years beginning after December 15, 2006. Management of the company
has not completed their assessment of the effects of FIN No. 48 on the consolidated
financial statements.

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 condensed consolidated income statements from
the dates of acquisition. During the six-month period ended June 30, 2006, cash paid for
acquisitions was $5,040,000, which included deferred payments of $3,985,000 related to
prior periods. At June 30, 2006, deferred consideration payable totaled $1,715,000 and is
included on the condensed consolidated balance sheet in other accrued liabilities.

During the six-month period ended June 30, 2006, Apria
closed two acquisitions of customer lists that were previously being serviced by Apria on
a subcontract basis. Amounts paid totaling $1,075,000 were allocated to other intangible
assets. Revenues and net income from these acquisitions are not material to the
companys consolidated financial statements.

---

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 impairment might exist. If the carrying value of goodwill or
an intangible asset exceeds its fair value, an impairment loss is recognized.

The net decrease in goodwill for the six months ended
June 30, 2006 is primarily the result of writing off goodwill as part of the disposal
accounting for the sale of a previously acquired business back to the original seller.
This amounted to a $685,000 reduction in goodwill. Additionally, there was $210,000 in
adjustments to preliminary goodwill valuations for acquisitions effected in 2005.
Substantially all of the goodwill recorded 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)   |  |  | June 30, 2006 |     | December 31, 2005
|------------------------ |  |  | ------------- | --- | -----------------
|
|
|
|Covenants not to compete |  |  |               | 5.0 |                  
|Trade names              |  |  |               | 2.0 |                  
|Customer lists           |  |  |               | 1.0 |                  
|                         |  |  |               |     |                  
|                         |  |  |               | 3.7 |                  
|                         |  |  |               |     |                  

Estimated amortization expense for the current year and
each of the next five years ending December 31 is presented below:

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

NOTE D  LONG-TERM DEBT

Revolving Credit Facility: Aprias credit
agreement with Bank of America and a syndicate of lenders was amended and restated
effective June 23, 2006. The amendment extended the maturity date from November 23, 2009
to June 23, 2011 and lowered the applicable interest rate margins and commitment fees. The
new applicable margins range from 0.625% to 1.25% for Eurodollar loans and from zero to
0.25% for base rate loans. The range for commitment fees on the unused portion of the
revolving credit facility is now 0.10% to 0.20%.

At June 30, 2006, borrowings under the revolving credit
facility were $335,000,000; outstanding letters of credit totaled $3,855,000; credit
available under the revolving facility was $161,145,000; and Apria was in compliance with
all covenants required by the credit agreement.

Convertible Senior Notes: At June 30, 2006, the
fair value of the $250,000,000 in convertible senior notes was $235,075,000, 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. At June 30, 2006, Apria had two interest rate swap
agreements in effect. One agreement, which will expire in December 2006, has a notional
amount of $25,000,000 with a fixed rate of 3.42%. The other agreement, a forward-starting
contract with a three-year term, became effective in January 2006, and has a notional
amount of $25,000,000 that fixes an equivalent amount of the companys variable rate
debt at 4.44%.

During the second quarter, Apria terminated one of its
swap agreements. Such agreement had a notional amount of $25,000,000, and fixed variable
rate debt at 4.38%. Aprias counterparty paid cash to terminate the in-the-money
agreement.

The swap agreements are being accounted for under SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities. The
difference between the interest received and interest paid is reflected as an adjustment
to interest expense. For the six-month periods ended June 30, 2006 and 2005, Apria paid
net settlement amounts of $251,000 and $101,000, respectively. The aggregate fair value of
the two remaining swap agreements was an asset of $885,000 and $769,000 at June 30, 2006
and December 31, 2005, respectively, and is reflected in the accompanying condensed
consolidated balance sheets in other assets. Unrealized gains on the fair value of the
swap agreements are reflected in other comprehensive income or interest expense/income
within the condensed consolidated statements of income as applicable. 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 six months ended June 30, 2006, changes to
stockholders equity were 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 loss, 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 June 30, 2006 and 2005, total comprehensive income was $18,360,000 and
$2,630,000 respectively. For the six months ended June 30, 2006 and 2005, total
comprehensive income was $34,483,000 and $28,028,000, respectively.

---

NOTE F  SHARE-BASED COMPENSATION

Effective January 1, 2006, Apria adopted the provisions
of SFAS No. 123R, Share-Based Payment, which establishes accounting for equity
instruments exchanged for employee services. Under the provisions of SFAS No. 123R,
share-based compensation cost is measured at the grant date, based on the calculated fair
value of the award, and is recognized as an expense over the employees requisite
service period (generally the vesting period of the equity grant). Prior to January 1,
2006, the company accounted for share-based compensation to employees in accordance with
APB No. 25, Accounting for Stock Issued to Employees, and related
interpretations. The company also followed the disclosure requirements of SFAS No. 123,
Accounting for Stock-Based Compensation, as amended by SFAS No. 148,
Accounting for Stock-Based Compensation  Transition and Disclosure. The
company elected to employ the modified prospective transition method as provided by SFAS
No. 123R and, accordingly, financial statement amounts for the prior periods presented
have not been restated to reflect the fair value method of expensing share-based
compensation.

For the three and six month periods ended June 30, 2006,
the company recorded share-based compensation expense of $813,000 and $1,882,000,
respectively. All such compensation is reflected in the accompanying condensed
consolidated income statement within the selling, distribution and administrative expense
line item. Share-based compensation expense recognized in the first six months of 2006 is
based on awards ultimately expected to vest; therefore, it has been reduced for estimated
forfeitures. SFAS No. 123R requires forfeitures to be estimated at the time of grant and
revised, if necessary, in subsequent periods if actual forfeitures differ from those
estimates. In the pro forma information presented for periods prior to 2006, the company
accounted for forfeitures as they occurred.

For the three and six months ended June 30, 2006,
Aprias adoption of SFAS No. 123R reduced the companys operating income and
income before taxes by $30,000 and $350,000, respectively and net income was reduced by
$107,000 and $316,000, respectively. Basic and diluted earnings per share were each
reduced by $0.01 for the six months ended June 30, 2006. For the three months ended June
30, 2006, basic and diluted earnings per share were unchanged. The adoption of SFAS No.
123R did not affect cash flow.

For the three and six months ended June 30, 2006, cash
received from the exercise of options totaled $71,000 and $2,873,000, respectively and
income tax benefits related to stock-based compensation arrangements amounted to $30,000.

The company estimates the fair value of stock options
using the Black-Scholes valuation model. Key input assumptions used to estimate the fair
value of stock options include the exercise price of the award, the expected option term,
the expected volatility of the companys stock over the options expected term,
the risk-free interest rate over the options term, and the companys expected
annual dividend yield. Aprias management believes that the valuation technique and
the approach utilized to develop the underlying assumptions are appropriate in calculating
the fair values of the companys stock options granted in the six months ended June
30, 2006. Estimates of fair value are not intended to predict actual future events or the
value ultimately realized by persons who receive equity awards.

The key input assumptions that were utilized in the
valuation of the stock options granted during the six months ended June 30, 2006, are
summarized in the table below. There were no stock option grants in the corresponding
period in 2005.

|                               | Six Months EndedJune 30, 2006
|------------------------------ | -----------------------------
|
|Expected option term (1)       |                              
|Expected volatility (2)        |                              
|Risk-free interest rate (3)    |                              
|Expected annual dividend yield |                              

|   
|---
|(1)
|(2)
|(3)

---

2003 Performance Incentive Plan: In July 2003,
Aprias shareholders approved the 2003 Performance Incentive Plan (2003
Plan), which permits the grant of stock options, stock appreciation rights
(SARs), stock bonuses, restricted stock, performance stock, stock units,
phantom stock, dividend equivalents, or similar rights to purchase or acquire shares, and
cash awards. Any award may be paid or settled in cash. The 2003 Plan is currently the only
plan from which stock-based awards may be granted.

The maximum number of shares that may be issued as
awards under the 2003 Plan equals the sum of (1) 6,500,000 shares, plus (2) the number of
shares subject to stock options granted under previous plans, which expire or are
cancelled or terminated without being exercised, after the effective date of the 2003
Plan.

The 2003 Plan also contains the following limits:

| |  | grants of incentive stock options up to 2,000,000 shares,                                                                                
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------
| |  | grants of options and SARs during any calendar year to any individual up to 500,000 shares,                                              
| |  | shares subject to all awards granted to an individual during any calendar year up to 1,000,000 shares,                                   
| |  | awards granted to non-employee directors up to 700,000 shares,                                                                           
| |  | awards granted, other than for stock options and SARs, up to 2,275,000 shares,                                                           
| |  | performance-based awards, other than stock options and SARs, granted to an individual up to 500,000 shares in a calendar
       year, and
| |  | performance-based awards, payable in cash, granted to an individual
up to $10,000,000 in a calendar year.                                

The per share exercise price of an option or SAR
(collectively referred to as options) generally may not be less than the per
share fair market value on the date of grant. The maximum term of an option is ten years
from the date of grant. Performance based awards may also be issued from the 2003 Plan.
The vesting or payment of such awards will depend on the companys performance to
established measurement criteria. The performance measurement period may range from three
months to ten years. Performance based awards may be paid in stock or in cash. The company
has historically issued new shares when options or stock-based awards are exercised.

The company believes that share-based awards better
align the interests of its senior management and other key employees with those of its
shareholders as well as serving as an effective tool to attract, retain and motivate plan
participants.

Stock Options:Aprias incentive plan
provides for the granting of stock options to employees and non-employee directors. Such
grants may include non-qualified and incentive stock options. The exercise price of an
option is established at the fair market value of a share of Apria common stock on the
date of grant. Vesting of stock options is time-based and is generally over a three-year
period.

---

The following table summarizes the activity for stock
options for the six months ended June 30, 2006:

|                                               | Options | Weighted-AverageExercise Price | Weighted-AverageRemainingContractual Term
                                 (in Years) | AggregateIntrinsicValue
|---------------------------------------------- | ------- | ------------------------------ | ------------------------------------------------------------------------------------- | -----------------------
|
|Outstanding at January 1, 2006                 |         | 4,076,705                      |                                                                                       | $                      
|Granted                                        |         | 684,000                        |                                                                                       |                        
|Exercised                                      |         | (114,665                       | )                                                                                     |                        
|Forfeited                                      |         | (235,170                       | )                                                                                     |                        
|                                               |         |                                |                                                                                       |                        
|Outstanding at June 30, 2006                   |         | 4,410,870                      |                                                                                       | $                      
|                                               |         |                                |                                                                                       |                        
|Vested or expected to vest as of June 30, 2006 |         | 4,313,307                      |                                                                                       | $                      
|                                               |         |                                |                                                                                       |                        
|Exercisable at June 30, 2006                   |         | 3,825,870                      |                                                                                       | $                      
|                                               |         |                                |                                                                                       |                        

The weighted-average fair value of stock options granted
during the six months ended June 30, 2006 was $7.37. There were 34,000 stock options
granted in the corresponding period in 2005. The total intrinsic value of options
exercised was $120,000 and $8,775,000 for the six months ended June 30, 2006 and 2005,
respectively.

As of June 30, 2006, total unrecognized stock-based
compensation cost related to unvested stock options was $3,668,000, which is expected to
be expensed over a weighted-average period of 1.68 years.

Restricted Stock Purchase Rights:In 2003 and
2004, Apria granted restricted stock purchase rights to certain members of executive
management. The awards represented the right to purchase a certain number of shares of
Apria common stock at a future date at a specified exercise price. The exercise price was
established at 25% of the fair market value of a share of Apria common stock on the date
of grant. Such awards generally require that certain performance conditions and service
conditions be met before the awards will vest.

---

The following table summarizes the activity for
restricted stock purchase rights for the six months ended June 30, 2006:

|                                               | Options | Weighted-AverageExercise Price | Weighted-AverageRemainingContractual Term
                                 (in Years) | AggregateIntrinsicValue
|---------------------------------------------- | ------- | ------------------------------ | ------------------------------------------------------------------------------------- | -----------------------
|
|Outstanding at January 1, 2006                 |         | 546,000                        |                                                                                       | $                      
|Granted                                        |         | -                              |                                                                                       |                        
|Exercised                                      |         | (33,000                        | )                                                                                     |                        
|Forfeited                                      |         | (51,000                        | )                                                                                     |                        
|                                               |         |                                |                                                                                       |                        
|Outstanding at June 30, 2006                   |         | 462,000                        |                                                                                       | $                      
|                                               |         |                                |                                                                                       |                        
|Vested or expected to vest as of June 30, 2006 |         | 413,333                        |                                                                                       | $                      
|                                               |         |                                |                                                                                       |                        
|Exercisable at June 30, 2006                   |         | 141,500                        |                                                                                       | $                      
|                                               |         |                                |                                                                                       |                        

The total intrinsic value of restricted stock purchase
rights exercised was $532,000 and $418,000 for the six months ended June 30, 2006 and
2005, respectively. No such awards were granted during these two periods.

As of June 30, 2006, total unrecognized stock-based
compensation cost related to unvested restricted stock purchase rights was $4,018,000,
which is expected to be expensed over a weighted-average period of 3.84 years.

Restricted Stock Awards and Units: Aprias incentive plan provides for the granting of restricted stock and
restricted stock units to its non-employee directors and employees (limited to executive
management). Such awards generally require that certain performance conditions and service
conditions be met before the awards will vest.

The following table summarizes the activity for
restricted stock awards and units for the six months ended June 30, 2006:

|                                                               | SharesorShare Units |  | Weighted-AverageGrant-Date
             Fair Value
|-------------------------------------------------------------- | ------------------- |  | --------------------------------------------------
|
|Nonvested restricted stock awards and
units at January 1, 2006 |                     |  |                                                   
|Granted                                                        |                     |  |                                                   
|Vested and released                                            |                     |  |                                                   
|Forfeited                                                      |                     |  |                                                   
|                                                               |                     |  |                                                   
|Nonvested restricted stock awards and units at June 30, 2006   |                     |  |                                                   
|                                                               |                     |  |                                                   

The weighted-average fair value of restricted stock
awards and units granted during the six months ended June 30, 2006 was $22.71. There were
81,384 awards granted in the corresponding period in 2005. Restricted stock awards or
units released during the six months ended June 30, 2006 and 2005, were 17,000 and 26,000
shares, respectively. The total intrinsic value of restricted stock awards or units
released was $375,000 and $832,000 for the six months ended June 30, 2006 and 2005,
respectively.

As of June 30, 2006, total unrecognized stock-based
compensation cost related to unvested restricted stock awards and units was $10,135,000,
which is expected to be expensed over a weighted-average period of 3.29 years.

---

Prior Period Pro Forma Presentation: Apria had
previously adopted the provisions of SFAS No. 123 through disclosure only. The following
table illustrates the effects on net income and earnings per share for the three and six
months ended June 30, 2005 as if the company had applied the fair value recognition
provisions of SFAS No. 123 to share-based employee awards.

|                                                                                                                                         | Three Months EndedJune 30, |   | Six Months EndedJune 30,
|---------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | - | ------------------------
|
|
|
|Net income as reported                                                                                                                   |                            | $ | 3,016                   
|Add:  stock-based compensation expense included
    in reported net income, net of related tax effects                                   |                            |   | 678                     
|                                                                                                                                        
|Deduct: total stock-based
compensation expense    determined for all awards under fair
value-based    method, net of related tax effects |                            |   | (2,116                  
|                                                                                                                                         |                            |   |                         
|Pro forma net income                                                                                                                     |                            | $ | 1,578                   
|                                                                                                                                         |                            |   |                         
|                                                                                                                                        
|Basic net income per share:                                                                                                             
|As reported                                                                                                                              |                            | $ | 0.06                    
|Pro forma                                                                                                                                |                            | $ | 0.03                    
|                                                                                                                                        
|Diluted income per share:                                                                                                               
|As reported                                                                                                                              |                            | $ | 0.06                    
|Pro forma                                                                                                                                |                            | $ | 0.03                    

---

NOTE G  INCOME TAXES

Income taxes for the six-month period ended June 30,
2006 have been provided at a lower effective rate than is expected to be applicable for
the entire year. The lower rate is due to a decrease in state tax contingencies from a
change in estimate during the second quarter of 2006, and a decrease in Federal tax
contingencies for a 2002 Internal Revenue Service, or IRS, audit completed during the
first quarter of 2006. This decrease was partially offset by an increase in Federal tax
contingencies for a 2003 IRS audit, expected to be completed by the end of 2006.

Income taxes for the six-month period ended June 30,
2005 were provided at a higher effective rate than was applicable for that year. The
higher rate was due to an accrual recorded to reflect the settlement of two
previously-disclosed qui tam lawsuits, a portion of which was not deductible. This
higher rate was partially offset by a decrease in the valuation allowance and
corresponding reduction of the tax provision that was recorded in the first quarter of
2005. Such adjustment resulted from state net operating loss carryforwards that became
realizable based on a change in estimate of expected future earnings.

At June 30, 2006, the company had various apportioned
state net operating loss carryforwards which resulted in a deferred tax asset of
$8,827,000 net of Federal tax benefit.

NOTE H  PER SHARE AMOUNTS

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

|                                                    | Three Months EndedJune 30, |  |   | Six Months EndedJune 30,
|--------------------------------------------------- | -------------------------- |  | - | ------------------------
|
|
|
|Numerator:                                          |                            |  |   |                         
|Net income                                          |                            |  | $ | 18,458                  
|Numerator for basic and diluted per share amounts  |                            | 
|income available to common stockholders             |                            |  | $ | 18,458                  
|                                                   
|Denominator:                                        |                            | 
|Denominator for basic per share                     |                            | 
|amounts  weighted average shares                   |                            |  |   | 42,405                  
|                                                   
|Effect of dilutive securities:                      |                            | 
|Employee stock options                             |                            | 
|dilutive potential common shares                    |                            |  |   | 384                     
|                                                    |                            |  |   |                         
|Denominator for diluted per share amounts          |                            | 
|adjusted weighted average shares                    |                            |  |   | 42,789                  
|                                                    |                            |  |   |                         
|                                                   
|Basic net income per common share                   |                            |  | $ | 0.44                    
|                                                    |                            |  |   |                         
|Diluted net income per common share                 |                            |  | $ | 0.43                    
|                                                    |                            |  |   |                         
|                                                   
|Employee stock options excluded from the            |                            | 
|computation of diluted per share amounts:           |                            | 
|                                                   
|Shares for which exercise price exceeds             |                            | 
|average market price of common stock                |                            |  |   | 3,824                   
|                                                   
|Average exercise price per share that exceeds       |                            | 
|average market price of common stock                |                            |  | $ | 26.36                   
|                                                    |                            |  |   |                         

---

NOTE I  COMMITMENTS AND CONTINGENCIES

Apria is the defendant in a California class action
lawsuit containing blanket claims of liability under various California employee
protection statutes and regulations relating to payment of regular and overtime wages, the
timeliness of such payments, the maintenance and provision of access to required payroll
records, and the provision of meal and rest periods. Venegas vs. Apria Healthcare,
Inc.,et al., was filed on February 21, 2006 in the California Superior Court
for the County of San Francisco (Case No. CGC -- 06 -- 449669). No class has been
certified at this time, but on behalf of a purported class consisting of certain hourly employees
of the company
in the State of California, the complaint seeks
compensatory and punitive damages in an unspecified amount as well as other relief. The
company has filed an answer to the complaint denying all material allegations and
asserting a number of affirmative defenses. Based on the companys preliminary
investigation of the allegations, management believes there are meritorious defenses to
the claims and the company intends to vigorously defend the lawsuit. No assurance can be
given, however, that the ultimate disposition of this case will not have a material
adverse effect on the companys financial condition or results of operations.
Management cannot estimate the possible loss or range of loss that may result from these
proceedings and, therefore, has not recorded any related accruals.

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 the companys financial
condition or results of operations.

Qui Tam Settlement and Related Costs:As
previously reported, Apria was the subject of an investigation launched in mid-1998 by the
U.S. Attorneys office in Los Angeles and the U.S. Department of Health and Human
Services. The investigation concerned the documentation supporting Aprias billing
for services provided to patients whose healthcare costs were paid by Medicare and other
federal programs. The investigation related to two civil qui tam lawsuits against
Apria filed by individuals suing on behalf of the government. Apria and representatives of
the government and the individual plaintiffs reached a preliminary agreement in early
August 2005 to settle these lawsuits for the aggregate sum of $17,600,000, without any
admission of wrongdoing by Apria. The settlement was finalized in a definitive agreement
that was fully executed and became effective on September 30, 2005, and Apria paid the
settlement amount on that date. Apria also incurred $1,658,000 in legal fees and other
related costs. Aprias condensed consolidated financial statements for the period
ended June 30, 2005 reflect an initial accrual of $20,000,000 for the settlement and
related costs. During the fourth quarter of 2005, such accrual was adjusted to
$19,258,000, the aggregate of the actual amounts of the settlement and related costs.

---

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 and administrative support
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 through
approximately 500 branch locations throughout the United States.

Aprias branch
locations are organized into 15 geographic regions. Each region consists of a number of
branches and a regional office that provides key administrative support services. All
regions provide the same products and services, including respiratory therapy, infusion
therapy, home medical equipment and supplies. Many operational support and administrative
services are provided at a corporate level. Management continues to evaluate opportunities
to gain efficiencies and cost savings by consolidating additional regional functions.
Management currently considers each region an operating segment. For financial reporting
purposes, all the companys operating segments are aggregated into one reportable
segment in accordance with the aggregation criteria of Statement of Financial Accounting
Standards (SFAS) No. 131, Disclosures about Segments of an Enterprise
and Related Information.

Strategy.Aprias mission is to be the first choice of patients and
          payors for homecare needs. Apria has positioned itself in the marketplace as the
          low cost, quality provider of a broad range of home healthcare services to
          managed care customers and to Medicare. The specific elements of the
          companys strategy to achieve its mission and optimize its market position
          are as follows:

| |  | Growth - Apria's primary focus is to restore strong organic sales growth  following a decline in revenue during
                the third and fourth quarters of 2005 and to increase market share in its core service lines.  The company will
                continue to invest in service line extensions.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Productivity  - Apria  strives to leverage its  nationwide  infrastructure  to reduce  costs by enhancing  best
                practices and by investing in systems improvements.                                                                                                                           
| |  | Service - Apria differentiates itself from the competition by setting a high standard for customer service.                                                                                                                                                                                                   
| |  | People - Apria  recruits,  develops  and advances  individuals  who are leaders in order to respond to changing
                market conditions and to maximize sales and earnings growth.                                                                                                                  

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
the Managements Discussion and Analysis of Financial Condition and Results of
Operations section in Aprias Annual Report on Form 10-K/A for the fiscal year
ended December 31, 2005.

---

Results of Operations

Net
Revenues. Net revenues were $376.1 million in the second quarter of 2006,
compared to $374.9 million for the same quarter of 2005. For the six-month period ended
June 30, 2006, net revenues were $744.1 million compared to $746.8 million for the
corresponding period in 2005. Lower dispensing fees for respiratory drugs went into effect
January 1, 2006 and the average sales prices, or ASPs, which are used as the basis for
Medicare reimbursement of respiratory drugs and are updated each quarter, are lower in
2006 than in 2005. The reimbursement reduction for oxygen and oxygen equipment that became
effective April 8, 2005 affected the comparison between the 2006 and 2005 year-to-date
periods, but not the comparison of the second quarters of 2006 and 2005. The combined
effect of these Medicare reductions on year-to-year comparisons was $3.3 million for the
second quarter of 2006 and $11.7 million for the first six months of 2006. Additionally,
reduced pricing for three of the companys larger managed care contracts caused
revenues to decline by approximately $3.2 million and $6.3 million for the quarter and
year-to-date periods in 2006, respectively. Further, incremental 2006 revenue from 2005
acquisitions is estimated at approximately $6.2 million for the three-month period and
$16.4 million for the six-month period. Incremental revenues from the new contract with
CIGNA Health Corporation that went into effect February 1, 2006 were $12.3 million and
$16.2 million, respectively, for the quarter and year-to-date periods in 2006.

Apria expects to continue
to face pricing pressures from Medicare as well as from its managed care customers as
these payors 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 potential
change may cause Apria to provide reduced levels of certain products and services in the
future, resulting in a corresponding reduction in revenue. See Medicare
Reimbursement.

|                             | Three Months Ended June 30, |  | Six Months Ended June 30,
|---------------------------- | --------------------------- |  | -------------------------
|
|
|
|
|
|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. Revenues from the respiratory therapy service line
increased by 0.1% in the second quarter of 2006 and decreased 0.8% year-to-date when
compared to the corresponding periods of 2005. The Medicare reductions noted above
adversely affected revenues for the respiratory therapy line. Excluding these reductions,
revenues from the respiratory line would have increased by 1.4% and 1.5% for the second
quarter and first half of 2006, respectively. Acquisitions of respiratory businesses
completed in 2005 and revenues from the new CIGNA contract accounted for most of the
growth in revenue in the respiratory therapy revenue line.

Growth between the
year-to-date periods in 2005 and 2006 in the largest respiratory categories is as follows:
Excluding the effects of the Medicare reductions, revenues from oxygen and oxygen systems
were relatively flat and revenues from respiratory medications increased 3.2% in 2006.
Revenues from the continuous positive and bi-level airway pressure devices and related
supplies, which currently comprise 27% of total respiratory revenues, grew by 12.7%.

Infusion
Therapy.The infusion therapy service line involves the administration of drugs or
nutrients 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 by 5.7%
and 5.3% in the three and six months ended June 30, 2006 when compared to the same periods
last year. Enteral nutrition, which represents just under half of the infusion therapy
line, increased by 12.6% and 10.2% for the three and six months ended June 30, 2006,
respectively.

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 decreased by 5.3% and 5.1% for the
three and six months ended June 30, 2006, when compared to the corresponding periods in
2005. The home medical equipment line was impacted by decreases in hospital utilization
rates for many of the companys managed care contractors that began in the second
half of 2005. Managed care pricing compression has also had a negative effect on this
line.

---

Medicare
Reimbursement. There are a number of legislative and regulatory activities
by the Centers for Medicare and Medicaid Services, or CMS, that affect or may affect
Medicare reimbursement policies for items and services provided by Apria. Such provisions
are outlined below in chronological order.

The Balanced Budget Act of
1997 granted streamlined authority to 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. CMS issued
a rule that established 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.

In September 2003, the HHS
Office of Inspector General, or OIG, issued a proposed rule intended to clarify terms and
the application of program exclusion authority for submitting claims containing excessive
charges. Under the rule, a provider could be excluded if its charges to Medicare or
Medicaid are substantially in excess of the providers usual charges, unless there is
good cause. The proposed clarification defined substantially in excess as
those charges that are 120% or more of the providers usual charges. The company,
along with many other providers and members of the public, submitted formal comments to
the OIG regarding the proposed rule in the fall of 2003. Based upon statements of federal
legislators issued in early 2006, it is the companys understanding that the OIG is
currently working on a final rule. Because the company is unaware of what changes the OIG
may make to the proposed rule before it is made final, Apria cannot at this time quantify
any negative impact that this rule, if and when issued, may have on the company.

In December 2003, the
Medicare Prescription Drug, Improvement and Modernization Act of 2003, also referred to as
the Medicare Modernization Act, or MMA, became law. The provisions contained therein which
are significant to Apria are as follows:

| |  | A freeze on annual payment increases for durable medical equipment  The freeze
commenced in 2004 and will continue through 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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 for most products went into effect January 1, 2005. The revised
pricing for oxygen and oxygen equipment was implemented on April 8, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  | 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 (subject
to adjustment each quarter) plus 6%, plus a separate dispensing fee per patient episode.
The dispensing fees for 2005 were $57.00 for a 30-day supply of medications and $80.00 for
a 90-day supply. Effective January 1, 2006, the dispensing fees were established at $57.00
for a 30-day supply for a new patient and $33.00 for each 30-day supply thereafter. The
90-day dispensing fee was lowered to $66.00. Historically, the dispensing fees have been
published annually by CMS as part of the physician fee schedule.  However, the proposed rates
for the dispensing fees were not included in the advance copy of the proposed physician fee
schedule released on August 8, 2006.  CMS has indicated there will be no change to the
dispensing fees in 2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  | Establishment of a competitive bidding program for Medicare Part B  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 phased in as follows: (i) 10 of the largest metropolitan statistical
areas, or MSAs, in 2007; (ii) 80 of the largest MSAs in 2009; and (iii) additional areas
after 2009. The legislation contains special provisions for rural areas. 


On
April 24, 2006, CMS issued a proposed rule for the competitive bidding program under
Medicare Part B, related to durable medical equipment, prosthetics and supplies, or
DMEPOS, and related matters. The document outlines CMS general intent and proposed
procedures and requirements regarding competitive acquisition for DMEPOS beginning some
time in 2007. However, it does not specify: (i) which DMEPOS products will be included in
the 10 initial competitive acquisition program areas; (ii) which MSAs will be included in
the initial round of competitive bidding, although it does explicitly exclude New York
City, Chicago and Los Angeles from the first round; (iii) target cost savings; (iv)
specific quality standards; or (v) specific provider guidelines for preparing, completing
and implementing the bids in each area. The proposed rule also introduced certain concepts
not previously addressed. Such concepts require much more evaluation and consideration by
all parties, including CMS and its legal advisors. CMS accepted comments on all aspects of
the proposed rule as of June 30, 2006, and Apria submitted extensive comments. 


After
reviewing comments submitted by stakeholders on the proposed rule for the competitive
bidding program, on August 1, 2006, CMS issued a final rule, the August 1 Final Rule,
related to only selective aspects of the competitive bidding program. CMS informed the
provider community that it would issue additional final rules and guidance related to
competitive bidding later in 2006. The August 1 Final Rule finalized CMS plan to
work with Competitive Bidding Implementation Contractors, or CBICs, to administer the
competitive bidding program in conjunction with CMS and the DME Medicare Administrator
Contractors, or DME MACs. It also clarified CMS plan to administer certain aspects
of accrediting providers in order to qualify their participation in competitive bidding.
CMS also noted that it expects to issue the final quality standards, including
product-specific standards, through a program instruction memo or through other CMS
communication, later in the year. Given the limited information available regarding
CMS plan for the competitive bidding program, such as the final list of products and
services and the MSAs to be included, Apria cannot estimate the impact of the competitive
bidding program at this time.
| |  | 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 in 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | 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 the drugs only, but excludes
coverage for the supplies and clinical services needed to safely and effectively provide
home infusion therapy services to patients in the home. The company has contracted with a
limited number of Medicare Part D prescription drug plans in order to provide continuity
of care for Medicare/Medicaid dual eligible patients. Due to nationwide Part D
implementation issues experienced by home infusion providers in the first half of 2006,
the industry is continuing to work with CMS to rectify the coverage and payment policies
that are causing implementation challenges. In addition, a bill was introduced in Congress
this summer to move home infusion therapy coverage from Medicare Part D to Part B and
provide for benefit coverage in a more comprehensive manner and one that is analogous to
how the therapy is covered by the managed care sector. The likelihood of the bills
passage is unknown at this time.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

The Deficit Reduction Act
of 2005, or DRA, was signed by the President in February 2006. However, a number of
lawsuits were subsequently filed to prevent its implementation because the House and
Senate approved different versions of the bill due to a clerical error. Two of these cases
have been dismissed at the district court level, one case is being pursued on appeal and
three others are still pending in district court. Should the legislation survive as
written, it contains the following provisions that will impact reimbursement to Apria:

| |  | In 2007, durable medical equipment currently categorized in the capped rental category by
CMS, such as hospital beds, wheelchairs, nebulizers, patient lifts and continuous positive
airway pressure devices, will be considered purchased outright at the end of the maximum
rental period and the ownership of such devices will transfer directly to the patients.
The maximum rental period, which had been 15 months with an option for the patients to
purchase the equipment in the tenth month, will be reduced to 13 months. The new 13-month
rental period policy took effect on January 1, 2006, and therefore the first month in
which the new policy will impact the companys revenue is February 2007. In addition,
the service and maintenance fee that had been paid to suppliers twice yearly after the
rental period ended will be eliminated for patients commencing service on or after January
1, 2006. Management estimates that the reduction in rental revenues and the loss of the
service and maintenance fee in 2007 will be approximately $4.5 million and $2.0 million,
respectively. Instead, suppliers will have the option of billing Medicare for any repairs
and/or maintenance performed on the patient-owned equipment, though the reimbursement
rates for such work have not yet been established. Depending on the ultimate level of such
reimbursement, Apria may not continue to provide repair and maintenance service on the
patient-owned equipment. Management is currently evaluating the impact of these changes on
revenues in future years and on the corresponding cost of sales.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Reimbursement for oxygen equipment will convert from an ongoing rental method to a
rent-to-purchase method. The DRA mandates that oxygen equipment reimbursement will be
limited to 36 months, after which time the ownership of the equipment will transfer to the
patient, who will assume all responsibility for identifying when repairs or preventive
maintenance are needed. Such repairs and preventive maintenance have historically been
provided by home oxygen providers and included in the bundled monthly payment Medicare
pays for oxygen therapy. The DRA did authorize the Secretary of HHS to establish service
and/or maintenance fees, but the circumstances and rates are still unknown. The DRA
applies to patients on service with suppliers from January 1, 2006 forward. Accordingly,
the first month in which the new repair and maintenance policy will impact the company is
January 2009. 


On
July 27, 2006, CMS issued an advance copy of an Oxygen Payment Proposed
Rule, regarding implementation of certain aspects of the DRAs provisions related to
oxygen therapy and home medical equipment coverage for Medicare Part B. The Oxygen Payment
Proposed Rule establishes new payment categories for oxygen content and equipment, and
also suggests new payment rates. After the 36-month rental cap is reached, providers would
continue to be reimbursed for delivering oxygen contents to those patients who require it,
as well as certain limited maintenance services, but the Oxygen Payment Proposed Rule does
not provide reimbursement for certain non-repair, non-maintenance service costs that Apria
may incur. The Oxygen Payment Proposed Rule is silent as to how certain clinical,
delivery, after-hours, billing/collection and other patient support services will be
provided to patients and reimbursed by the Medicare program. The proposed new payment
amounts would go into effect January 1, 2007, but the 36-month rental period would be
retroactively assigned to January 1, 2006 for all beneficiaries requiring oxygen as of
December 31, 2005. Since the rule is still in a proposed status, the net impact of the
changes cannot be estimated at this time. 


The
Presidents current healthcare proposals seek to further reduce the maximum rental
period for oxygen equipment from the now-mandated 36 months to 13 months. There are other
initiatives to reduce the rental period further, but it is uncertain whether any of these
initiatives will ultimately be approved by Congress. There also are other legislative
provisions that have been introduced in Congress that would repeal the oxygen
reimbursement cap and equipment ownership issues included in the DRA, but it is uncertain
whether and when any of this legislation ultimately would be passed by Congress.

Other outstanding issues
that will or could have an impact on Medicare reimbursement levels to Apria are summarized
as follows:

---

| |  | In late December 2005, CMS issued the 2006 Health Care Procedure Coding System, or HCPCS,
fee schedule for Medicare Part B medications and the new two-tiered dispensing fee for
inhalation therapies. The fee schedule took effect on January 1, 2006, and included two
HCPCS codes for commercially manufactured budesonide (Pulmicort®)1 and DuoNeb®2. The
fee schedule also included a revised definition for the HCPCS codes for commercially
manufactured budesonide and budesonide compounded from a powder, and separated these
products into two unique codes. Management estimates that the impact of this change is an
annual revenue reduction of approximately $3 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In January 2006, CMS published a final regulation that would shift payment for certain
respiratory assist devices from the current frequent and substantial payment
category to the capped rental category. Under frequent and
substantial payment, Medicare payment continues for the duration of time the
beneficiary requires the device, while capped rental payment continues for 13
months (a reduction from 15 months, mandated by the recently enacted DRA.) The change in
the payment category became effective April 1, 2006. The policy applies to those
respiratory assist devices (also known as BiPAP STs) that have a backup rate feature that
delivers pressure whenever the users spontaneous breathing efforts are insufficient.
The first claims received for each Medicare beneficiary with a date of service on or after
April 1, 2006, including beneficiaries with existing rental equipment, are counted as the
first rental month in the capped rental period. Thus, the first month in which the new
categorization will impact the companys revenue will be May 2007. The estimate for
this change in payment categories is a reduction in annual revenues of $4 million.
Management is currently evaluating the impact that this change will have on the
corresponding cost of sales.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  | In January 2006, CMS announced the designation of four specialty contractors, DME MACs,
which soon will be responsible for handling the administration of Medicare claims from
suppliers of durable medical equipment. Thus, all applicable claims will be handled by
these new entities. The four new DME MACs were originally scheduled to replace the
existing DMERCs on July 1, 2006; however, two of the four will be delayed until October 1,
2006. It is difficult at this time to predict precisely how this transformation will
affect the suppliers. The company cannot predict or estimate the potential impact of this
change on collections of its accounts receivable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  | On March 24, 2006, the three Program Safeguard Contractors, or PSCs, overseeing durable
medical equipment issued a proposed Local Coverage Determination, or LCD, for nebulizer
medications covered by Medicare Part B. In their respective geographic regions, the PSC
medical directors are responsible for implementing medical policies that conform to
Medicare rules, regulations, coverage guidelines and payment policies for Part B as
mandated by law or other regulations. The LCD for nebulizer medications proposes to change
the payment and coverage policies for certain inhalation therapies that are provided in
conjunction with the durable medical equipment nebulizer. Specifically, four provisions
were proposed: (i) payment for levalbuterol (commercially manufactured as brand-name
Xopenex®)3 will be based on the allowance for generic albuterol sulfate; (ii) payment
for commercially-manufactured, brand-name DuoNeb® will be based on the allowance for
separate unit dose vials of albuterol sulfate and ipratropium bromide; (iii) coverage for
a variety of other nebulizer drugs will be eliminated because the PSCs assert that there
is inadequate support in the medical literature for administration using a DME nebulizer;
and (iv) maximum monthly utilization limits for budesonide will be defined. The PSCs
issued a deadline of May 8, 2006 by which formal comments from the public and interested
parties were required to be submitted. In addition, the three PSCs scheduled public
hearings on the subject, all of which were completed by May 17, 2006. Nothing further has
been published since that time. 


Apria
participated  along with numerous other industry representatives, manufacturers,
providers, physician and patient advocacy groups  in the public hearings and has
also submitted formal written comments to the PSCs and CMS. The company believes that the
MMA is clear in its intent to prescribe the Part B average sales price reimbursement
formula for single-source drugs which applies to both DuoNeb® and Xopenex®. The
company further believes that the PSCs do not have the legal authority to circumvent the
average sales price methodology through the issuance of an LCD that invokes their
authority to use the Least Costly Alternative as the basis for reimbursement
for these drugs. Apria is working with industry representatives to further demonstrate to
the PSCs that such a decision would have an unprecedented, extraordinary and negative
impact on access to prescription medications used in the front-line treatment of chronic
obstructive pulmonary disease. The company has determined that if the four provisions of
the LCD are implemented as proposed in the March 24 document, it will generally not
provide DuoNeb® and Xopenex® to existing or future patients, as the cost would far
exceed the reimbursement rate. The company would undertake an effort to inform existing
patients and physicians of the option to use the generic drugs that the PSCs have deemed
to be therapeutically equivalent to these brand-name drugs. Such an effort would mitigate
but not eliminate the full effect of the change in reimbursement; the estimated annual
gross profit reduction of providing the replacement medications in lieu of the brand name
drugs is $13 million. 


The
manufacturer of Xopenex® previously had announced that it is attempting to negotiate a
solution to this issue directly with CMS that would reduce the reimbursement rate while
maintaining patient access to the drug within the Medicare Part B program. Apria does not
have the particulars of such a proposal but believes that such a solution could also have
an adverse affect on its revenues and results of operations. In the advance copy of the
physician fee schedule released on August, 8, 2006, CMS states that it is reopening the
comment period for the final rule addressing reimbursement for Medicare Part B drugs under
the average sales price methodology. It is possible that this process may impact
reimbursement for nebulizer medication covered by Medicare Part B, including Xopenex®.
At this time, Apria cannot predict how this reopening of the comment period will affect
the negotiation process or the ultimate payment rate

---

|1 |  | Pulmicort ® is a registered
trademark of AstraZeneca AB Corporation
|- |  | -------------------------------------------------------------------
|2 |  | DuoNeb® is a registered
trademark of Dey L.P.                      
|3 |  | Xopenex ® is a registered
trademark of Seprecor, Inc.              

---

Medicaid
Reimbursement. In 2001, some states began adopting alternative pricing
methodologies for certain drugs and biologicals under the Medicaid program. In at least 22
states, the changes 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 elected to stop accepting new Medicaid patient referrals for the
affected drugs and biologicals. Further, in 2005, some states implemented other payment
policy changes or changed coverage criteria altogether for medical equipment, enteral and
infusion therapy. Currently, other states are considering reductions in Medicaid
reimbursement as they work through their respective budget processes. Apria cannot predict
the outcome of such budget negotiations or whether other states will consider reductions
as well.

Gross Margin.The gross margin was 65.7% in the second quarter of 2006 and 68.1% in the
same period last year. For the six months ended June 30, 2006 and 2005, the margins were
65.6% and 67.9%, respectively. The principal causes of the decline are the Medicare
reimbursement reductions and managed care pricing reductions discussed above, as well as
shifts in product mix to lower margin items.

Provision for
Doubtful Accounts.The provision for doubtful accounts is based on
managements estimate of the net realizable value of accounts receivable after
considering actual write-offs of specific receivables. Accounts receivable which are not
expected to be collected are estimated and provided for by applying specific percentages
to each receivables aging category, which is determined by the number of days the
receivable is outstanding. The provision for doubtful accounts, expressed as a percentage
of net revenues, was 2.6% and 3.4% for the second quarter of 2006 and 2005, respectively.
On a year-to-date basis, the provision was 2.7% and 3.6% for the first six months of 2006
and 2005, respectively. The improvement between the periods reflects improvements in cash
collections and notably the success of a credit card program designed to collect patient
receivables upon delivery and automatically on the rental due date thereafter. Also, the
absence of acquisitions in recent months has allowed the revenue management teams to focus
on basics and best practices, as discussed below under Liquidity and Capital
Resources  Accounts Receivable.

Selling,
Distribution and Administrative.Selling, distribution and administrative
expenses are comprised of expenses incurred in direct 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, intake, reimbursement, warehousing and repair. Many of these operating costs
are directly variable with revenue growth patterns. Some are also very sensitive to
market-driven price fluctuations such as facility leases and fuel costs. The
administrative expenses include overhead costs incurred by the operating locations and
corporate support functions. These expenses do not fluctuate with revenue growth as
closely as operating costs.

Selling, distribution and
administrative expenses, expressed as percentages of net revenues, were 52.7% in the
second quarter of 2006 and 53.3% in the second quarter of 2005. For the six months ended
June 30, 2006, selling distribution and administrative expenses were 53.2% compared to
52.9% for the same period last year. The Medicare and managed care pricing changes noted
above resulted in lower revenues, however, there was no corresponding reduction in the
companys actual cost of providing the related products and services. These revenue
pricing factors had the effect of increasing the expense percentages by 0.9% and 1.3% for
the three- and six-month periods ended June 30, 2006, respectively. Therefore, absent the
revenue pricing effects, the comparison between the reported periods reflects expense
leveraging achieved through the successful implementation of a number of cost saving
initiatives.

Share-based compensation
is reflected within the selling, distribution and administrative expense line item.
Effective January 1, 2006, Apria adopted the provisions of SFAS No. 123R,
Share-Based Payment. Prior to 2006, the company accounted for share-based
compensation in accordance with APB No. 25, Accounting for Stock Issued to
Employees, and related interpretations. The company elected to employ the modified
prospective transition method as provided by SFAS No. 123R and, accordingly, financial
statement amounts for the prior periods presented have not been restated to reflect the
fair value method of expensing share-based compensation.

For the six-month periods
ended June 30, 2006 and 2005, share-based compensation expense was $1.9 million and $2.2
million, respectively. The adoption of SFAS No. 123R had a minimal effect on the
comparison between quarters primarily due to the November 2005 acceleration of the vesting
of outstanding employee stock options with per share prices above $26.00, so that each
such option became fully vested. That action eliminated the future compensation expense of
the unvested portion of such options. The share-based compensation expense in both periods
is comprised largely of expense associated with restricted stock awards and units for
which expense recognition was previously required under the principles of APB No. 25.

---

Qui tam Settlement
and Related Costs.In early August 2005, Apria reached a preliminary
agreement to settle two qui tam lawsuits for the aggregate sum of $17.6 million.
Such agreement was reached prior to the filing of the companys Form 10-Q for the
quarter ended June 30, 2005, and therefore an initial accrual of $20 million was recorded
in the period ended June 30, 2005 to provide for the settlement amount plus an estimate
for legal fees and other related costs. The settlement was finalized in a definitive
agreement that was fully executed and became effective on September 30, 2005, and Apria
paid the settlement amount on that date. Actual legal fees and related costs ultimately
totaled $1.7 million. During the fourth quarter of 2005, the initial accrual was adjusted
to the actual expenditures incurred.

Amortization of
Intangible Assets.For the quarter and six months ended June 30, 2006,
amortization expense was $1.7 million and $2.9 million, respectively. This compares to
$1.5 million and $3.1 million for the same periods last year. See Liquidity and
Capital Resources  Business Combinations.

Interest Expense and
Income.Interest expense was $8.6 million for the second quarter of 2006 as
compared to $5.1 million for the comparable period in 2005. For the year-to-date periods
in 2006 and 2005, interest expense was $16.8 million and $9.8 million, respectively. The
increase in interest expense in 2006 is primarily attributable to the increase in
long-term debt incurred to repurchase $175 million of Aprias common stock late in
2005. The increase in base interest rates during 2005 also contributed to the increase.
Interest income was $541,000 and $186,000 for the three months ended June 30, 2006 and
2005, respectively. For the year-to-date periods in 2006 and 2005, interest income was
$1.5 million and $159,000, respectively. See Liquidity and Capital Resources 
Long-term Debt and Treasury Stock.

Income Tax Expense.Income taxes for the six-month period ended June 30, 2006 have been
provided at a lower effective rate than is expected to be applicable for the entire year.
The lower rate is due to a decrease in state tax contingencies from a change in estimate
during the second quarter of 2006, and a decrease in Federal tax contingencies for a 2002
Internal Revenue Service, or IRS, audit completed during the first quarter of 2006. This
decrease was partially offset by an increase in Federal tax contingencies for a 2003 IRS
audit, expected to be completed by the end of 2006.

Income taxes for the
six-month period ended June 30, 2005 were provided at a higher effective rate than was
applicable for that year. The higher rate was due to an accrual recorded to reflect the
settlement of two previously-disclosed qui tam lawsuits, a portion of which was not
deductible. This higher rate was partially offset by a decrease in the valuation allowance
and corresponding reduction of the tax provision that was recorded in the first quarter of
2005. Such adjustment resulted from state net operating loss carryforwards that became
realizable based on a change in estimate of expected future earnings.

At June 30, 2006, the
company had various apportioned state net operating loss carryforwards which resulted in a
deferred tax asset of $8.8 million net of Federal tax benefit.

Inflation.Apria is impacted by rising costs for certain inflation-sensitive
          operating expenses such as vehicle fuel, labor and employee benefits and
          facility and equipment leases.

Liquidity and Capital Resources

Aprias principal
source of liquidity is its operating cash flow, which is supplemented by a $500 million
revolving credit facility. In recent years, Apria has generated operating cash flows in
excess of its operating needs, which has afforded it the ability to pursue acquisitions
and fund patient service equipment purchases to support revenue growth. Aprias
management believes that its operating cash flow will continue to be sufficient to fund
its operations and growth strategies. However, in late 2005, Apria drew upon its revolving
credit facility for the $175 million common stock repurchase and in September 2008, the
holders of the $250 million convertible senior notes will have an opportunity to require
Apria to repurchase some or all of the notes. Accordingly, Apria management has begun to
explore financing alternatives.

Further, Apria has
initiated a project to implement a new enterprise-wide information system. The overall objective of
the project is to deliver the necessary technology and automation across the organization
to enable service improvements, productivity and access to information. Management has
completed the system selection phase and expects to progress to initial phases of
development in 2006. The total cost of the project will be determined once the
implementation roadmap and project planning are completed.

Cash Flow.Cash provided by operating activities was $128.9 million in the first six
months of 2006 compared to $96.3 million in the corresponding period in 2005. The increase
in operating cash flow between the two periods is due primarily to strong cash collections
of receivables; minimal income tax payments due to a favorable IRS tax ruling; and the
timing of payroll liabilities.

Cash used in investing
activities decreased to $70.7 million for the first six months of 2006 compared to $157.9
million during the same period last year. A significant reduction in the level of
acquisitions executed during the first half of 2006 is the primary driver of this
decrease. The increase in purchases of patient service and other equipment in 2006 is
directly attributable to the new CIGNA contract. In order to accelerate the CIGNA
transition, Apria not only increased purchases of new equipment but also purchased from
previous providers equipment that was already in place with existing patients. The CIGNA
related purchases were largely completed in the first quarter of 2006.

---

Cash used in financing
activities was $49.7 million during the first six months of 2006 compared to cash provided
by financing activities of $35.2 million for the first six months of 2005. The primary
drivers of this change are noted above, the most significant of which are the improvement
in operating cash flow and the absence of acquisitions. As a result, during the second
quarter, the company reduced the amount owed on its revolving line of credit by $55
million.

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 June 30.

|(dollars in millions)                                                                                                                                                                                                                                                                                                                                                                                                                          | 2007 | 2008 | 2009 | 2010 | 2011 | There-after | Totals
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---- | ---- | ---- | ---- | ---- | ----------- | ------
|
|Revolving loan                                                                                                                                                                                                                                                                                                                                                                                                                                 |      |      | $    | -    |      | $           | -     
|Convertible senior notes (3 3/8%) (1)                                                                                                                                                                                                                                                                                                                                                                                                          |      |      |      | -    |      |             | -     
|Capital lease obligations and other debt                                                                                                                                                                                                                                                                                                                                                                                                       |      |      |      | 1    |      |             | -     
|Operating leases                                                                                                                                                                                                                                                                                                                                                                                                                               |      |      |      | 54   |      |             | 45    
|Deferred acquisition payments                                                                                                                                                                                                                                                                                                                                                                                                                  |      |      |      | 2    |      |             | -     
|                                                                                                                                                                                                                                                                                                                                                                                                                                               |      |      |      |      |      |             |       
|Total contractual cash obligations                                                                                                                                                                                                                                                                                                                                                                                                             |      |      | $    | 57   |      | $           | 45    
|                                                                                                                                                                                                                                                                                                                                                                                                                                               |      |      |      |      |      |             |       
|                                                                                                                                                                                                                                                                                                                                                                                                                                               |      |      |      |      |      |             |       
|(1) 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. Interest on these notes is paid bi-annually in March
and September. Unless the notes are earlier converted, redeemed or repurchased,
such interest payments will total $8.4 million annually in years 2007 through 2011 and $8.4 million
annually until the notes mature in 2033.

Accounts Receivable.Accounts receivable before allowance for doubtful accounts decreased to
$255.5 million at June 30, 2006, from $268.0 million at December 31, 2005. Days sales
outstanding (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 52
days at June 30, 2006 compared to 57 at December 31, 2005. The decrease in days sales
outstanding is a result of strong cash collections and the relative absence of
acquisitions in recent months, as discussed below under Unbilled Receivables.

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

|                   | June 30, |  | December 31,
|------------------ | -------- |  | ------------
|
|
|Total              |          |  |             
|                   |         
|Medicare           |          |  |             
|Medicaid           |          |  |             
|Self pay           |          |  |             
|Managed care/other |          |  |             

Unbilled
Receivables.Included in accounts receivable are earned but unbilled receivables
of $32.4 million and $41.6 million at June 30, 2006 and December 31, 2005, respectively.
Delays, ranging from a 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 December 31, 2005 is largely due to
acquisitions effected throughout 2005. The time-consuming processes of converting patient
files onto Aprias systems and obtaining provider numbers from governmental payors
routinely delay billing of the newly acquired business.

---

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
patients. Certain products and services, such as infusion therapy and respiratory
medications, bypass the branches and are provided directly to patients from pharmacies or
other central locations. The branches are supplied with inventory and equipment from
central warehouses that service specific areas of the country. Such warehouses are also
responsible for repairs and scheduled maintenance of patient service equipment, which adds
to the frequent movement of equipment between locations. Further, the majority of
Aprias patient service equipment is located in patients homes. While
utilization varies widely between equipment types, on the average, approximately 81% of
equipment is on rent at any given time. Inherent in this asset flow is the fact that
losses will occur. Depending on the product type, the company performs physical
inventories on an annual or quarterly basis. Inventory and patient service equipment
balances in the financial records are adjusted to reflect the results of these physical
inventories. Inventory and patient service equipment losses for the six months ended June
30, 2006 and 2005, were $2.2 million and $1.3 million, respectively.

Long-term Debt.Revolving Credit Facility.Aprias credit agreement with Bank
of America and a syndicate of lenders was amended and restated effective June 23, 2006.
The amendment extended the maturity date from November 23, 2009 to June 23, 2011 and
lowered the applicable interest rate margins. The new applicable margins range from 0.625%
to 1.25% for Eurodollar loans and from zero to 0.25% for base rate loans. The range for
commitment fees on the unused portion of the revolving credit facility is now 0.10% to
0.20%.

At June 30, 2006,
borrowings under Aprias revolving credit facility were $335.0 million; outstanding
letters of credit totaled $3.9 million; and credit available under the revolving facility
was $161.1 million. The company continues to be in compliance with all covenants required
by the credit agreement. The effective interest rate at June 30, 2006, after consideration
of the effect of the swap agreements described below, was 6.35%. See Hedging
Activities below.

Convertible Senior
Notes.At June 30, 2006, the fair value of the $250 million in convertible senior
notes was $235.1 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: (1) strategic determination of repricing periods and
related principal amounts, and (2) 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 June 30, 2006, Apria
had two interest rate swap agreements in effect to fix its variable rate debt. One such
agreement has a notional amount of $25 million, a fixed rate of 3.42% and expires in
December 2006. The other agreement, a forward-starting contract, became effective in
January 2006. The agreement has a three-year term and a notional amount of $25 million,
with a fixed rate of 4.44%.

During the second quarter,
Apria terminated one of its swap agreements. Such agreement had a notional amount of $25
million, and fixed variable rate debt at 4.38%. Aprias counterparty paid cash to
terminate the in-the-money agreement.

The swap agreements are
being accounted for under SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities. The difference between the interest received and interest paid
is reflected as an adjustment to interest expense. For the six-month periods ended June
30, 2006 and 2005, Apria paid net settlement amounts of $251,000 and $101,000,
respectively. The aggregate fair value of the two remaining swap agreements was an asset
of $885,000 and $769,000 at June 30, 2006 and December 31, 2005, respectively, and is
reflected in the accompanying condensed consolidated balance sheets in other assets.
Unrealized gains on the fair value of the swap agreements are reflected in other
comprehensive income or interest expense/income within the condensed consolidated
statements of income as applicable. Aprias exposure to credit loss under the swap
agreements is limited to the interest rate spread in the event of counterparty
non-performance.

Treasury Stock.In November 2005, Apria purchased 7.3 million shares of its common stock
for $175 million through an accelerated share repurchase program. Under the agreement,
Aprias counterparty borrowed shares that were sold to Apria at an initial price of
$23.83. The agreement contained a provision that subjected Apria to a purchase price
adjustment based on the volume weighted average price of the companys common stock
over the period during which the counterparty purchased the shares. Such provision
resulted in an additional $242,000 owed to the counterparty that Apria elected to settle
in cash in February 2006. This amount was recorded as a liability at December 31, 2005,
with a corresponding charge to interest expense reflecting the change in the fair value of
the settlement contract.

Apria has decided not to
complete its previously-announced $75 million share repurchase in order to focus on
reducing its long-term debt.

Business
Combinations.Apria periodically acquires complementary businesses in
specific geographic markets. Given the potential for a higher gross margin, Apria targets
respiratory therapy businesses. These transactions are accounted for as purchases and the
results of operations of the acquired companies are included in the accompanying condensed
consolidated income statements from the dates of acquisition. In accordance with SFAS No.
142, goodwill is no longer being amortized. 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 six months of 2006 was $1.1
million. Allocation of this amount was made to other intangible assets. Consequently,
because Apria had already been servicing the existing patient bases on a subcontract
basis, no patient service equipment was acquired. Cash paid for acquisitions, which
includes amounts deferred from prior periods, totaled $5.0 million and $96.2 million in
the first six months of 2006 and 2005, respectively.

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
relationship with the company.

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 December 31, 2005,
Aprias revolving credit facility borrowings totaled $390 million. The bank credit
agreement governing the revolver provides interest rate options based on the following
indices: Federal Funds Rate, the Bank of America prime rate or the London Interbank
Offered Rate, or LIBOR. All such interest rate options are subject to the application of
an interest margin as specified in the bank credit agreement. At December 31, 2005, all of
Aprias outstanding revolving debt was tied to LIBOR.

During 2005, Apria had two
interest rate swap agreements in effect to fix its LIBOR-based variable rate debt. One of
the agreements, which expired in December 2005, had a notional amount of $25 million and a
fixed rate of 3.04%. The other agreement, which will expire in December 2006, has a
notional amount of $25 million and a fixed rate of 3.42%. During the second quarter of
2005, the company entered into two new interest rate swap agreements. The forward starting
contracts, each with a notional amount of $25 million, became effective in January 2006.
Both agreements have a three-year term with fixed rates of 4.38% and 4.44%.

Based on the revolving
debt outstanding and the swap agreements in place at December 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 $3.65 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 required by Rule
13a-15(b) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, the
companys management, including the companys principal executive officer and
principal financial officer, carried out an evaluation of the effectiveness of the
companys disclosure controls and procedures (as such term is defined in Rules
13a-15(e) and 15d-15(e) under the Exchange Act. Based upon this evaluation, the
companys principal executive officer and principal financial officer each concluded
that the companys disclosure controls and procedures were effective as of the end of
the period covered by this report.

During the quarter ended
June 30, 2006, there have been no changes to the companys internal control over
financial reporting (as such term is defined in Rules 13a-15(d) and 15d-15(d) under the
Exchange Act) 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

Apria is the defendant in
a California class action lawsuit containing blanket claims of liability under various
California employee protection statutes and regulations relating to payment of regular and
overtime wages, the timeliness of such payments, the maintenance and provision of access
to required payroll records, and the provision of meal and rest periods. Venegas vs.
Apria Healthcare, Inc.,et al., was filed on February 21, 2006 in the
California Superior Court for the County of San Francisco (Case No. CGC -- 06 -- 449669).
No class has been certified at this time, but on behalf of a purported class consisting of
certain hourly employees of the company in the State of California, the complaint seeks
compensatory and punitive damages in an unspecified amount as well as other relief. The
company has filed an answer to the complaint denying all material allegations and
asserting a number of affirmative defenses. Based on the companys preliminary
investigation of the allegations, management believes there are meritorious defenses to
the claims and the company intends to vigorously defend the lawsuit. No assurance can be
given, however, that the ultimate disposition of this case will not have a material
adverse effect on the companys financial condition or results of operations.

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 financial condition or results of operations.

ITEM 1A.     RISK FACTORS

The risk factors presented
in Aprias Annual Report on Form 10­K/A, as filed with the Securities and
Exchange Commission on March 23, 2006, are incorporated herein by reference with the
exception of the risk factor titled Medicare/Medicaid Reimbursement Rates
which is restated below in its entirety.

Medicare/Medicaid Reimbursement RatesContinued
reductions in Medicare and Medicaid reimbursement rates could have a material
adverse effect on Aprias results of operations and financial condition.

Medicare
Reimbursement. There are a number of legislative and regulatory activities
by the Centers for Medicare and Medicaid Services, or CMS, that affect or may affect
Medicare reimbursement policies for items and services provided by Apria. Such provisions
are outlined below in chronological order.

The Balanced Budget Act of
1997 granted streamlined authority to 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. CMS issued
a rule that established 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.

In September 2003, the HHS
Office of Inspector General, or OIG, issued a proposed rule intended to clarify terms and
the application of program exclusion authority for submitting claims containing excessive
charges. Under the rule, a provider could be excluded if its charges to Medicare or
Medicaid are substantially in excess of the providers usual charges, unless there is
good cause. The proposed clarification defined substantially in excess as
those charges that are 120% or more of the providers usual charges. The company,
along with many other providers and members of the public, submitted formal comments to
the OIG regarding the proposed rule in the fall of 2003. Based upon statements of federal
legislators issued in early 2006, it is the companys understanding that the OIG is
currently working on a final rule. Because the company is unaware of what changes the OIG
may make to the proposed rule before it is made final, Apria cannot at this time quantify
any negative impact that this rule, if and when issued, may have on the company.

In December 2003, the
Medicare Prescription Drug, Improvement and Modernization Act of 2003, also referred to as
the Medicare Modernization Act, or MMA, became law. The provisions contained therein which
are significant to Apria are as follows:

| |  | A freeze on annual payment increases for durable medical equipment  The freeze
commenced in 2004 and will continue through 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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 for most products went into effect January 1, 2005. The revised
pricing for oxygen and oxygen equipment was implemented on April 8, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  | 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 (subject
to adjustment each quarter) plus 6%, plus a separate dispensing fee per patient episode.
The dispensing fees for 2005 were $57.00 for a 30-day supply of medications and $80.00 for
a 90-day supply. Effective January 1, 2006, the dispensing fees were established at $57.00
for a 30-day supply for a new patient and $33.00 for each 30-day supply thereafter. The
90-day dispensing fee was lowered to $66.00. Historically, the dispensing fees have been
published annually by CMS as part of the physician fee schedule. However, the proposed
rates for the dispensing fees were not included in the advance copy of the proposed
physician fee schedule released on August 8, 2006. CMS has indicated there will be no change to the dispensing
fees in 2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  | Establishment of a competitive bidding program for Medicare Part B  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 phased in as follows: (i) 10 of the largest metropolitan statistical
areas, or MSAs, in 2007; (ii) 80 of the largest MSAs in 2009; and (iii) additional areas
after 2009. The legislation contains special provisions for rural areas. 


On
April 24, 2006, CMS issued a proposed rule for the competitive bidding program under
Medicare Part B, related to durable medical equipment, prosthetics and supplies, or
DMEPOS, and related matters. The document outlines CMS general intent and proposed
procedures and requirements regarding competitive acquisition for DMEPOS beginning some
time in 2007. However, it does not specify: (i) which DMEPOS products will be included in
the 10 initial competitive acquisition program areas; (ii) which MSAs will be included in
the initial round of competitive bidding, although it does explicitly exclude New York
City, Chicago and Los Angeles from the first round; (iii) target cost savings; (iv)
specific quality standards; or (v) specific provider guidelines for preparing, completing
and implementing the bids in each area. The proposed rule also introduced certain concepts
not previously addressed. Such concepts require much more evaluation and consideration by
all parties, including CMS and its legal advisors. CMS accepted comments on all aspects of
the proposed rule as of June 30, 2006, and Apria submitted extensive comments. 


After
reviewing comments submitted by stakeholders on the proposed rule for the competitive
bidding program, on August 1, 2006, CMS issued a final rule, the August 1 Final Rule,
related to only selective aspects of the competitive bidding program. CMS informed the
provider community that it would issue additional final rules and guidance related to
competitive bidding later in 2006. The August 1 Final Rule finalized CMS plan to
work with Competitive Bidding Implementation Contractors, or CBICs, to administer the
competitive bidding program in conjunction with CMS and the DME Medicare Administrator
Contractors, or DME MACs. It also clarified CMS plan to administer certain aspects
of accrediting providers in order to qualify their participation in competitive bidding.
CMS also noted that it expects to issue the final quality standards, including
product-specific standards, through a program instruction memo or through other CMS
communication, later in the year. Given the limited information available regarding
CMS plan for the competitive bidding program, such as the final list of products and
services and the MSAs to be included, Apria cannot estimate the impact of the competitive
bidding program at this time.
| |  | 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 in 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | 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 the drugs only, but excludes
coverage for the supplies and clinical services needed to safely and effectively provide
home infusion therapy services to patients in the home. The company has contracted with a
limited number of Medicare Part D prescription drug plans in order to provide continuity
of care for Medicare/Medicaid dual eligible patients. Due to nationwide Part D
implementation issues experienced by home infusion providers in the first half of 2006,
the industry is continuing to work with CMS to rectify the coverage and payment policies
that are causing implementation challenges. In addition, a bill was introduced in Congress
this summer to move home infusion therapy coverage from Medicare Part D to Part B and
provide for benefit coverage in a more comprehensive manner and one that is analogous to
how the therapy is covered by the managed care sector. The likelihood of the bills
passage is unknown at this time.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

The Deficit Reduction Act
of 2005, or DRA, was signed by the President in February 2006. However, a number of
lawsuits were subsequently filed to prevent its implementation because the House and
Senate approved different versions of the bill due to a clerical error. Two of these cases
have been dismissed at the district court level, one case is being pursued on appeal and
three others are still pending in district court. Should the legislation survive as
written, it contains the following provisions that will impact reimbursement to Apria:

| |  | In 2007, durable medical equipment currently categorized in the capped rental category by
CMS, such as hospital beds, wheelchairs, nebulizers, patient lifts and continuous positive
airway pressure devices, will be considered purchased outright at the end of the maximum
rental period and the ownership of such devices will transfer directly to the patients.
The maximum rental period, which had been 15 months with an option for the patients to
purchase the equipment in the tenth month, will be reduced to 13 months. The new 13-month
rental period policy took effect on January 1, 2006, and therefore the first month in
which the new policy will impact the companys revenue is February 2007. In addition,
the service and maintenance fee that had been paid to suppliers twice yearly after the
rental period ended will be eliminated for patients commencing service on or after January
1, 2006. Management estimates that the reduction in rental revenues and the loss of the
service and maintenance fee in 2007 will be approximately $4.5 million and $2.0 million,
respectively. Instead, suppliers will have the option of billing Medicare for any repairs
and/or maintenance performed on the patient-owned equipment, though the reimbursement
rates for such work have not yet been established. Depending on the ultimate level of such
reimbursement, Apria may not continue to provide repair and maintenance service on the
patient-owned equipment. Management is currently evaluating the impact of these changes on
revenues in future years and on the corresponding cost of sales.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Reimbursement for oxygen equipment will convert from an ongoing rental method to a
rent-to-purchase method. The DRA mandates that oxygen equipment reimbursement will be
limited to 36 months, after which time the ownership of the equipment will transfer to the
patient, who will assume all responsibility for identifying when repairs or preventive
maintenance are needed. Such repairs and preventive maintenance have historically been
provided by home oxygen providers and included in the bundled monthly payment Medicare
pays for oxygen therapy. The DRA did authorize the Secretary of HHS to establish service
and/or maintenance fees, but the circumstances and rates are still unknown. The DRA
applies to patients on service with suppliers from January 1, 2006 forward. Accordingly,
the first month in which the new repair and maintenance policy will impact the company is
January 2009. 


On
July 27, 2006, CMS issued an advance copy of an Oxygen Payment Proposed
Rule, regarding implementation of certain aspects of the DRAs provisions related to
oxygen therapy and home medical equipment coverage for Medicare Part B. The Oxygen Payment
Proposed Rule establishes new payment categories for oxygen content and equipment, and
also suggests new payment rates. After the 36-month rental cap is reached, providers would
continue to be reimbursed for delivering oxygen contents to those patients who require it,
as well as certain limited maintenance services, but the Oxygen Payment Proposed Rule does
not provide reimbursement for certain non-repair, non-maintenance service costs that Apria
may incur. The Oxygen Payment Proposed Rule is silent as to how certain clinical,
delivery, after-hours, billing/collection and other patient support services will be
provided to patients and reimbursed by the Medicare program. The proposed new payment
amounts would go into effect January 1, 2007, but the 36-month rental period would be
retroactively assigned to January 1, 2006 for all beneficiaries requiring oxygen as of
December 31, 2005. Since the rule is still in a proposed status, the net impact of the
changes cannot be estimated at this time. 


The
Presidents current healthcare proposals seek to further reduce the maximum rental
period for oxygen equipment from the now-mandated 36 months to 13 months. There are other
initiatives to reduce the rental period further, but it is uncertain whether any of these
initiatives will ultimately be approved by Congress. There also are other legislative
provisions that have been introduced in Congress that would repeal the oxygen
reimbursement cap and equipment ownership issues included in the DRA, but it is uncertain
whether and when any of this legislation ultimately would be passed by Congress.

---

Other outstanding issues
that will or could have an impact on Medicare reimbursement levels to Apria are summarized
as follows:

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| |  | In late December 2005, CMS issued the 2006 Health Care Procedure Coding System, or HCPCS,
fee schedule for Medicare Part B medications and the new two-tiered dispensing fee for
inhalation therapies. The fee schedule took effect on January 1, 2006, and included two
HCPCS codes for commercially manufactured budesonide (Pulmicort®)1 and DuoNeb®2. The
fee schedule also included a revised definition for the HCPCS codes for commercially
manufactured budesonide and budesonide compounded from a powder, and separated these
products into two unique codes. Management estimates that the impact of this change is an
annual revenue reduction of approximately $3 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In January 2006, CMS published a final regulation that would shift payment for certain
respiratory assist devices from the current frequent and substantial payment
category to the capped rental category. Under frequent and
substantial payment, Medicare payment continues for the duration of time the
beneficiary requires the device, while capped rental payment continues for 13
months (a reduction from 15 months, mandated by the recently enacted DRA.) The change in
the payment category became effective April 1, 2006. The policy applies to those
respiratory assist devices (also known as BiPAP STs) that have a backup rate feature that
delivers pressure whenever the users spontaneous breathing efforts are insufficient.
The first claims received for each Medicare beneficiary with a date of service on or after
April 1, 2006, including beneficiaries with existing rental equipment, are counted as the
first rental month in the capped rental period. Thus, the first month in which the new
categorization will impact the companys revenue will be May 2007. The estimate for
this change in payment categories is a reduction in annual revenues of $4 million.
Management is currently evaluating the impact that this change will have on the
corresponding cost of sales.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  | In January 2006, CMS announced the designation of four specialty contractors, DME MACs,
which soon will be responsible for handling the administration of Medicare claims from
suppliers of durable medical equipment. Thus, all applicable claims will be handled by
these new entities. The four new DME MACs were originally scheduled to replace the
existing DMERCs on July 1, 2006; however, two of the four will be delayed until October 1,
2006. It is difficult at this time to predict precisely how this transformation will
affect the suppliers. The company cannot predict or estimate the potential impact of this
change on collections of its accounts receivable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  | On March 24, 2006, the three Program Safeguard Contractors, or PSCs, overseeing durable
medical equipment issued a proposed Local Coverage Determination, or LCD, for nebulizer
medications covered by Medicare Part B. In their respective geographic regions, the PSC
medical directors are responsible for implementing medical policies that conform to
Medicare rules, regulations, coverage guidelines and payment policies for Part B as
mandated by law or other regulations. The LCD for nebulizer medications proposes to change
the payment and coverage policies for certain inhalation therapies that are provided in
conjunction with the durable medical equipment nebulizer. Specifically, four provisions
were proposed: (i) payment for levalbuterol (commercially manufactured as brand-name
Xopenex®)3 will be based on the allowance for generic albuterol sulfate; (ii) payment
for commercially-manufactured, brand-name DuoNeb® will be based on the allowance for
separate unit dose vials of albuterol sulfate and ipratropium bromide; (iii) coverage for
a variety of other nebulizer drugs will be eliminated because the PSCs assert that there
is inadequate support in the medical literature for administration using a DME nebulizer;
and (iv) maximum monthly utilization limits for budesonide will be defined. The PSCs
issued a deadline of May 8, 2006 by which formal comments from the public and interested
parties were required to be submitted. In addition, the three PSCs scheduled public
hearings on the subject, all of which were completed by May 17, 2006. Nothing further has
been published since that time. 


Apria
participated  along with numerous other industry representatives, manufacturers,
providers, physician and patient advocacy groups  in the public hearings and has
also submitted formal written comments to the PSCs and CMS. The company believes that the
MMA is clear in its intent to prescribe the Part B average sales price reimbursement
formula for single-source drugs which applies to both DuoNeb® and Xopenex®. The
company further believes that the PSCs do not have the legal authority to circumvent the
average sales price methodology through the issuance of an LCD that invokes their
authority to use the Least Costly Alternative as the basis for reimbursement
for these drugs. Apria is working with industry representatives to further demonstrate to
the PSCs that such a decision would have an unprecedented, extraordinary and negative
impact on access to prescription medications used in the front-line treatment of chronic
obstructive pulmonary disease. The company has determined that if the four provisions of
the LCD are implemented as proposed in the March 24 document, it will generally not
provide DuoNeb® and Xopenex® to existing or future patients, as the cost would far
exceed the reimbursement rate. The company would undertake an effort to inform existing
patients and physicians of the option to use the generic drugs that the PSCs have deemed
to be therapeutically equivalent to these brand-name drugs. Such an effort would mitigate
but not eliminate the full effect of the change in reimbursement; the estimated annual
gross profit reduction of providing the replacement medications in lieu of the brand name
drugs is $13 million. 


The
manufacturer of Xopenex® previously had announced that it is attempting to negotiate a
solution to this issue directly with CMS that would reduce the reimbursement rate while
maintaining patient access to the drug within the Medicare Part B program. Apria does not
have the particulars of such a proposal but believes that such a solution could also have
an adverse affect on its revenues and results of operations. In the advance copy of the
physician fee schedule released on August, 8, 2006, CMS states that it is reopening the
comment period for the final rule addressing reimbursement for Medicare Part B drugs under
the average sales price methodology. It is possible that this process may impact
reimbursement for nebulizer medication covered by Medicare Part B, including Xopenex®.
At this time, Apria cannot predict how this reopening of the comment period will affect
the negotiation process or the ultimate payment rate

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|1 |  | Pulmicort ® is a registered
trademark of AstraZeneca AB Corporation
|- |  | -------------------------------------------------------------------
|2 |  | DuoNeb® is a registered
trademark of Dey L.P.                      
|3 |  | Xopenex ® is a registered
trademark of Seprecor, Inc.              

---

ITEM 2.     UNREGISTERED SALES OF
EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3.     DEFAULTS UPON SENIOR
 SECURITIES

None.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS

| |           |                                                                                                                                                                                                                                                                                                                                               
| | --------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a)(b)(c) | The Annual Meeting of Stockholders of the
company on April 21, 2006.Directors elected or reelected at the Annual Meeting
for a term of one year:Vicente Anido, Jr.Terry P. BayerI.T. CorleyDavid L. Goldsmith
Lawrence M. HigbyRichard H. KoppesPhilip R. Lochner, Jr.Mahvash YazdiMatters Voted Upon at Annual Meeting:
Election of Directors
| |           | As of April 21, 2006, the companys Board of Directors consisted of
 eight members. The results of the stockholder voting were as follows:                                                                                                                                                                                                    

| |                                                                                                                                           | FOR                                                                                     | WITHHOLD/ABSTENTIONS                                                  | BROKERNON-VOTES
| | ----------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------- | --------------------------------------------------------------------- | ---------------
| | Vicente Anido, Jr.Terry P. BayerI.T. CorleyDavid L. Goldsmith
      Lawrence M. HigbyRichard H. KoppesPhilip R. Lochner, Jr.Mahvash Yazdi | 34,707,29834,769,69834,707,312
      34,534,98734,425,90034,704,45434,695,89134,768,566 | 694,283631,883 694,269 866,594
       975,681 697,127 705,690 633,015 | 
      

| |  |                                                                                                                                                                                                                                                                         
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Ratification of the Companys Independent Registered
Public Accountants                                                                                                                                                                                                 
| |  | The Board of Directors appointed Deloitte & Touche LLP
as the companys independent registered public accounting firm for the fiscal year ending year
ending December 31, 2006, subject to shareholder approval.  The results of the stockholder voting
were as follows:

| |  |                                  
| |  | ---------------------------------
| |  | ForAgainstAbstainBroker Non-Votes

ITEM 5.     OTHER INFORMATION

None.

ITEM 6.     EXHIBITS

| |                   |  |                                                                                             
| | ----------------- |  | --------------------------------------------------------------------------------------------
| | Exhibits:         |  |                                                                                             
| | ExhibitNumber10.1 |  | ReferenceFirst Amendment to Fourth Amended and
Restated Credit Agreement.                   
| | 31.1              |  | Certification 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                                                                               
|August 9, 2006 | /s/ AMIN I. KHALIFA
Amin I. KhalifaExecutive Vice President and Chief Financial Officer
(Principal Financial Officer)
|               | /s/ ALICIA PRICE
Alicia PriceVice President and Controller
(Principal Accounting Officer)