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

Form 10-Q

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

For the quarterly period ended
 June 30, 2007

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 6, 2007 there were outstanding
43,716,287 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 17,018,405 shares held in treasury).

---

APRIA HEALTHCARE GROUP INC.

FORM 10-Q

For the period ended June 30, 2007

|                                          |  |                                                                                                                                                                                                                                                       | 
|----------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|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 Sale 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                                  |  |                                                                                                                                                                                                                                                       | 

---

Cautionary statement for purposes of the Safe
Harbor provisions of the Private Securities Litigation Reform Act of 1995:
Aprias business is subject to a number of risks which are partly or entirely beyond
the companys control. The company has described certain of those risks in its Annual
Report on Form 10-K for the fiscal year ended December 31, 2006, as filed with the
Securities and Exchange Commission on March 1, 2007. That 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. In some cases, forward-looking statements contain
terminology such as may,  will,  should,  could,
 expects,  intends, plans,  anticipates,
 believes, estimates,  predicts,  potential,  or
continue  or variations of these terms or other comparable
terminology. 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;                      
| |  | economic and political events, international conflicts and natural disasters;                      
| |  | acquisition-related risks; and                                                                     
| |  | other factors described in Aprias filings with the Securities and Exchange Commission.            

---

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 $24,139        |          | 
|and $27,324 at June 30, 2007 and
December 31, 2006, respectively            |          |  |             
|Inventories, net                                                            |          |  |             
|Deferred income taxes                                                       |          |  |             
|Deferred expenses                                                           |          |  |             
|Prepaid expenses and other current assets                                   |          |  |             
|                                                                            |          |  |             
|TOTAL CURRENT ASSETS                                                        |          |  |             
|                                                                            |          | 
|PATIENT SERVICE EQUIPMENT, less accumulated depreciation of $439,972        |          | 
|and $445,608 at June 30, 2007 and December 31, 2006, respectively           |          |  |             
|PROPERTY, EQUIPMENT AND IMPROVEMENTS, net                                   |          |  |             
|GOODWILL                                                                    |          |  |             
|INTANGIBLE ASSETS, less accumulated amortization of $8,061 and              |          | 
|$8,238 at June 30, 2007 and December 31, 2006, 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                                                   |          |  |             
|Deferred revenue                                                            |          |  |             
|Current portion of long-term debt                                           |          |  |             
|                                                                            |          |  |             
|TOTAL CURRENT LIABILITIES                                                   |          |  |             
|                                                                            |          | 
|LONG-TERM DEBT, net of current portion                                      |          |  |             
|DEFERRED INCOME TAXES                                                       |          |  |             
|INCOME TAXES PAYABLE AND OTHER NON-CURRENT LIABILITIES                      |          |  |             
|                                                                            |          |  |             
|TOTAL LIABILITIES                                                           |          |  |             
|COMMITMENTS AND CONTINGENCIES (Note J)                                      |          | 
|                                                                            |          | 
|STOCKHOLDERS EQUITY                                                        |          | 
|Preferred stock, $.001 par value: 10,000,000 shares
authorized; none issued |          | 
|                                                                            |          |  |             
|Common stock, $.001 par value: 150,000,000 shares authorized;               |          | 
|60,718,492 and 59,762,307 shares issued at
June 30, 2007 and                |          | 
|December 31, 2006, respectively;
43,701,817 and 42,789,450 shares           |          | 
|outstanding at June 30, 2007 and December 31, 2006, respectively            |          |  |             
|Additional paid-in capital                                                  |          |  |             
|Treasury stock, at cost; 17,016,675  and 16,972,857 shares
at June 30, 2007 |          | 
|and December 31, 2006                                                       |          |  |             
|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:   
  Fee for service/product arrangments |                            |  | $                       
|Capitation arrangements                                |                            |  |                         
|                                                       |                            |  |                         
|TOTAL 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               |                            |  |                         
|Amortization of intangible assets                      |                            |  |                         
|                                                       |                            |  |                         
|TOTAL COSTS AND EXPENSES                               |                            |  |                         
|                                                       |                            |  |                         
|OPERATING INCOME                                       |                            |  |                         
|Interest expense                                       |                            |  |                         
|Interest income                                        |                            |  |                         
|                                                       |                            |  |                         
|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                                                           |                         
|(Gain) loss 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
book-cash overdraft                                 |                         
|Accrued payroll and related taxes and benefits                                     |                         
|Income taxes payable                                                               |                         
|Deferred revenue                                                                   |                         
|Deferred expenses                                                                  |                         
|Accrued expenses                                                                   |                         
|Excess tax benefits from share-based compensation                                  |                         
|                                                                                   |                         
|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 book-cash overdraft included in accounts payable                         |                         
|Capitalized debt issuance costs                                                    |                         
|Excess tax benefits from share-based compensation                                  |                         
|Issuances of common stock                                                          |                         
|                                                                                   |                         
|NET CASH
USED IN FINANCING ACTIVITIES                                              |                         
|                                                                                   |                         
|NET INCREASE IN CASH AND CASH EQUIVALENTS                                          |                         
|Cash and cash equivalents at beginning of period                                   |                         
|                                                                                   |                         
|CASH AND CASH EQUIVALENTS AT END OF PERIOD                                         |                         
|                                                                                   |                         

SUPPLEMENTAL DISCLOSURES  See Note E and Note H for
cash paid for interest and income taxes, respectively. 

NON-CASH TRANSACTIONS  See Note F for tax benefit from stock option
exercises and non-cash common stock and treasury stock transactions.

Purchases of patient service equipment and property, equipment and improvements
exclude purchases that remain unpaid at the end of the respective quarter.  Such amounts are
then included in the following periods purchases when paid.  Unpaid purchases were $7,970 and
$8,152 at June 30, 2007 and December 31, 2006, respectively, and $8,722 and $10,754 at June 30,
2006 and December 31, 2005, respectively.

See notes to condensed
consolidated financial statements.

---

# NOTES TO UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

# NOTE A  BASIS OF PRESENTATION
AND 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
notes thereto included in the companys Annual Report on Form 10-K for the fiscal
year ended December 31, 2006.

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. For the six-month periods ended June 30, 2007
and 2006, approximately 35% and 36% of the companys revenues were reimbursed under
arrangements with Medicare and Medicaid. No other third-party payor group represented more
than 9% of the companys revenues for either period presented. The majority of the
companys revenues are derived from fees charged for patient care under
fee-for-service/product arrangements.

Approximately half of Aprias
net revenues are derived from rental arrangements to provide respiratory and other home
medical equipment to patients in the home. Apria bills for these services on a monthly
basis. The initial billing and revenue recognition is generated upon proper qualification
of the patient and confirmation of delivery. Subsequent billings are processed monthly
until the period of medical necessity ends. As a matter of process, Apria generates the
subsequent billings in 30-day cycles so that each months billing falls on
approximately the same day of the month as the initial billing. At a given period-end,
some percentage of the billed amounts are considered unearned as a portion of the rental
period falls into the subsequent period. Such amounts are deferred and recognized as
revenue in the subsequent period when the remaining portion of the rental period has
elapsed. Corresponding expenses are deferred as well.

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, in these analyses, management considers, among other
things, 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.

Capitalized Software: Included
in property, equipment and improvements are costs related to internally developed and
purchased software. The company capitalizes certain software development costs in
accordance with American Institute of Certified Public Accountants Statement of Position
No. 98-1, Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use. Capitalized costs include direct costs of materials and services
incurred in developing or obtaining internal-use software and payroll and benefit costs
for employees directly involved in the development of the internal-use software. Also
included are interest costs capitalized in accordance with Statement of Financial
Accounting Standards No. 34, Capitalization of Interest Cost. During the
three- and six-month periods ended June 30, 2007, the company capitalized $134,000 and
$245,000, respectively, in interest costs. No interest was capitalized in the
corresponding periods in 2006.

---

Clinical Expenses: Respiratory
therapy and infusion therapy nursing expenses included in selling, distribution and
administrative expenses totaled $6,041,000 and $11,928,000 for the three- and six-month
periods ended June 30, 2007. For the corresponding three- and six-month periods in 2006,
the amounts were $4,707,000 and $9,659,000, respectively.

Distribution Expenses:
Distribution expenses, totaling $43,880,000 and $87,597,000 for the three- and six-month
periods ended June 30, 2007, respectively, are included in selling, distribution and
administrative expenses. In 2006, such expenses were $43,000,000 and $87,080,000 for the
corresponding three- and six-month periods.

Sales and Certain Other Taxes:
In its consolidated financial statements, Apria accounts for taxes imposed on
revenue-producing transactions by government authorities on a net basis, and accordingly,
excludes such taxes from net revenues. Such taxes include, but are not limited to sales,
use, privilege and excise taxes.

# NOTE B  RECENT
ACCOUNTING PRONOUNCEMENTS

In February 2006, the Financial
Accounting Standards Board (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 that begins after
September 15, 2006. Accordingly, the company adopted SFAS No. 155 on January 1, 2007. Such
adoption did not have a material effect on the companys consolidated financial
statements.

In June 2006, the FASB issued
Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an
interpretation of FASB Statement No. 109, Accounting for Income Taxes (FIN No.
48). This standard creates a comprehensive model to address accounting for
uncertainty in tax positions. FIN No. 48 clarifies the accounting for income taxes by
prescribing a minimum recognition threshold a tax position is required to meet before
being recognized for financial statement purposes. FIN No. 48 also provides guidance on
measurement, derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition.

The company adopted FIN No. 48 as of
January 1, 2007 and increased its liability for unrecognized tax benefits by recording a
cumulative effect adjustment of $4,232,000. This cumulative effect adjustment was recorded
as a reduction to the retained earnings balance at January 1, 2007.

FASB Staff Position No. FIN 48-1
(FSP No. 48-1), Definition of Settlement in FASB Interpretation
No. 48 was issued by the FASB in May 2007. FSP No. 48-1 amended FIN No. 48 to
provide guidance on how an enterprise should determine whether a tax position is
effectively settled for the purpose of recognizing previously unrecognized tax benefits.
FSP 48-1 required application upon the initial adoption of FIN No. 48. The adoption of FSP
No. 48-1 did not have a material effect on the companys consolidated financial
statements.

In June 2006, the Emerging Issues
Task Force (EITF) reached a consensus on EITF No. 06-3, How Taxes
Collected from Customers and Remitted to Governmental Authorities Should Be Presented in
the Income Statement (EITF No. 06-3) which became effective for the
company as of January 1, 2007. EITF No. 06-3 provides that taxes imposed by a governmental
authority on a revenue producing transaction between a seller and a customer should be
shown in the income statement on either a gross or a net basis, based on the entitys
accounting policy, which should be disclosed pursuant to Accounting Principles Board
(APB) Opinion No. 22, Disclosure of Accounting Policies. The
company will continue to present taxes within the scope of EITF No. 06-3 on a net basis.
As such, the adoption of EITF No. 06-3 did not have a material effect on the
companys consolidated financial statements.

In September 2006, the FASB issued
SFAS No. 157, Fair Value Measurements, which defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles, and
expands disclosures about fair value measurements. The statement is effective for
financial statements issued for fiscal years beginning after November 15, 2007, and
interim periods within those fiscal years. Management is currently evaluating the
statement to determine what, if any, impact the statement will have on the companys
consolidated financial statements.

In February 2007, the FASB issued
SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities
 Including an Amendment of FASB Statement No. 115 (SFAS No. 159).
SFAS No. 159 permits entities to choose to measure many financial instruments and certain
other items at fair value. Entities that elect the fair value option will report
unrealized gains and losses in earnings at each subsequent reporting date. The fair value
option may be elected on an instrument-by-instrument basis, with few exceptions. SFAS No.
159 also establishes presentation and disclosure requirements to facilitate comparisons
between companies that choose different measurement attributes for similar assets and
liabilities. The requirements of SFAS No. 159 are effective for fiscal years beginning
after November 15, 2007. Management is currently evaluating the statement to determine
what, if any, impact the statement will have on the companys consolidated financial
statements.

---

# NOTE C  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. No acquisitions were effected during the six
months ended June 30, 2007. For the six months 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, 2007 and 2006, deferred consideration payable totaled $108,000
and $1,715,000, respectively, and is included in the condensed consolidated balance sheets
in other accrued liabilities.

# NOTE D  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 intangible assets on the
companys books, all of which are subject to amortization, consist of the following:

|(dollars in thousands)   |  |  | June 30, 2007 |     | December 31, 2006
|------------------------ |  |  | ------------- | --- | -----------------
|
|
|
|Covenants not to compete |  |  |               | 5.0 |                  
|Customer lists           |  |  |               | -   |                  
|                         |  |  |               |     |                  
|                         |  |  |               | 5.0 |                  
|                         |  |  |               |     |                  

Estimated future amortization expense
is presented below:

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

# NOTE E  LONG-TERM
DEBT

Revolving Credit Facility: At
June 30, 2007, borrowings under the revolving credit facility were $155,000,000;
outstanding letters of credit totaled $10,955,000; credit available under the revolving
facility was $334,045,000; and Apria was in compliance with all covenants required by the
credit agreement. The effective interest rate at June 30, 2007, after consideration of the
effect of the swap agreement described below, was 6.34%.

Convertible Senior Notes: At
June 30, 2007, the fair value of the $250,000,000 in convertible senior notes was
$262,303,000, 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, 2007, Apria
had one interest rate swap agreement in effect which will expire in January 2009 and has a
notional amount of $25,000,000 with a fixed rate of 4.44%. Apria also had an interest swap
agreement which expired in December 2006 that had a notional amount of $25,000,000 with a
fixed rate of 3.42%.

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. Apria received a net settlement amount of
$117,000 for the six-month period ended June 30, 2007 and $216,000 for the same six-month
period in 2006. The aggregate fair value of the swap agreement was an asset of $297,000
and $356,000 at June 30, 2007 and December 31, 2006, respectively, and is reflected in the
accompanying condensed consolidated balance sheets in other assets. Unrealized gains and
losses on the fair value of the swap agreements are reflected in net income, as the
transactions no longer qualify for hedge accounting. Aprias exposure to credit loss
under the swap agreement is limited to the interest rate spread in the event of
counterparty nonperformance. Apria does not anticipate losses due to counterparty
nonperformance as its counterparties to the swap agreement are nationally recognized
financial institutions with strong credit ratings.

Interest paid on debt totaled
$10,684,000 and $16,278,149 for the six-month periods ended June 30, 2007 and 2006,
respectively.

# NOTE F 
STOCKHOLDERS EQUITY

For the six months ended June 30,
2007, changes to stockholders equity were comprised of the following amounts:

|(dollars in thousands)                                  
|--------------------------------------------------------
|
|Net income                                              
|Issuances of common stock (including non-cash issuances)
|Excess tax benifits from share-based compensation       
|Tax shortfalls on share-based compensation              
|Restricted stock retained in treasury upon vesting      
|Share-based compensation                                
|Cumulative effect adjustment for FIN No. 48 adoption    
|Other comprehensive loss, net of taxes                  
|                                                        
|                                                        
|                                                        

Common stock valued at $97,000 was
issued during the six months ended June 30, 2007 in a non-cash transaction.

Net income and total comprehensive income
differ by other comprehensive loss, net of taxes. Such loss represents the amortization of
a balance in accumulated other comprehensive income that was previously recorded in
connection with certain interest rate swap agreements. For the three months ended June 30,
2007 and 2006, total comprehensive income was $20,794,000 and $18,360,000. For the six
months ended June 30, 2007 and 2006, total comprehensive income was $39,893,000 and
$34,483,000 respectively.

# NOTE G 
SHARE-BASED COMPENSATION

For the three- and six-month periods
ended June 30, 2007, the company recorded share-based compensation expense of $3,228,000
and $4,664,000, respectively. For 2006, share-based compensation expense was $812,000 and
$1,881,000, for the corresponding three- and six-month periods. All such compensation is
reflected in the accompanying condensed consolidated income statement within the selling,
distribution and administrative expense line item. The related awards were granted to
executive and certain management personnel or members of the companys Board of
Directors and therefore no portion of the share-based compensation has been classified
within cost of net revenues. Share-based compensation expense recognized in the periods
presented is based on awards ultimately expected to vest; therefore, it has been reduced
for estimated forfeitures.

---

For the six months ended June 30,
2007 and 2006, cash received from the exercise of share-based awards totaled $16,554,000
and $2,873,000, respectively.

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 three- and six-month periods ended June 30, 2007 and 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, 2007 and 2006,
are summarized in the table below.

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

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

Stock Options:Aprias
incentive plan provides for the granting of stock options to employees and non-employee
directors. In the past, such grants to employees have included both non-qualified and
incentive stock options, though in May 2007 the Compensation Committee of the
companys Board of Directors determined to grant only non-qualified options in the
future. 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, 2007:

|                                               | Options | Weighted-AverageExercise Price | Weighted-AverageRemainingContractual Term
                                 (in Years) | AggregateIntrinsicValue
|---------------------------------------------- | ------- | ------------------------------ | ------------------------------------------------------------------------------------- | -----------------------
|
|Outstanding at January 1, 2007                 |         | 4,056,314                      |                                                                                       | $                      
|Granted                                        |         | 646,830                        |                                                                                       | $                      
|Exercised                                      |         | (815,694                       | )                                                                                     | $                      
|Forfeited                                      |         | (64,667                        | )                                                                                     | $                      
|                                               |         |                                |                                                                                       |                        
|Outstanding at June 30, 2007                   |         | 3,822,783                      |                                                                                       | $                      
|                                               |         |                                |                                                                                       |                        
|Vested or expected to vest as of June 30, 2007 |         | 3,586,594                      |                                                                                       | $                      
|                                               |         |                                |                                                                                       |                        
|Exercisable at June 30, 2007                   |         | 2,592,612                      |                                                                                       | $                      
|                                               |         |                                |                                                                                       |                        

---

The weighted-average fair value of stock
options granted during the six months ended June 30, 2007 and 2006 was $10.60 and $7.37,
respectively. There were 684,000 stock options granted in the corresponding period in
2006. The total intrinsic value of options exercised was $9,371,000 and $120,000 for the
six months ended June 30, 2007 and 2006, respectively.

As of June 30, 2007, total
unrecognized stock-based compensation cost related to unvested stock options was
$8,466,000, which is expected to be expensed over a weighted-average period of 2.30 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/or 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, 2007:

|                                               | RestrictedStockPurchaseRights | Weighted-AverageExercise Price | Weighted-AverageRemainingContractual Term
                                 (in Years) | AggregateIntrinsicValue
|---------------------------------------------- | ----------------------------- | ------------------------------ | ------------------------------------------------------------------------------------- | -----------------------
|
|Outstanding at January 1, 2007                 |                               | 300,000                        |                                                                                       | $                      
|Granted                                        |                               | -                              |                                                                                       |                        
|Exercised                                      |                               | (23,000                        | )                                                                                     | $                      
|Forfeited                                      |                               | -                              |                                                                                       |                        
|                                               |                               |                                |                                                                                       |                        
|Outstanding at June 30, 2007                   |                               | 277,000                        |                                                                                       | $                      
|                                               |                               |                                |                                                                                       |                        
|Vested or expected to vest as of June 30, 2007 |                               | 211,718                        |                                                                                       | $                      
|                                               |                               |                                |                                                                                       |                        
|Exercisable at June 30, 2007                   |                               | 8,000                          |                                                                                       | $                      
|                                               |                               |                                |                                                                                       |                        

The total intrinsic value of
restricted stock purchase rights exercised was $534,000 and $532,000 for the six months
ended June 30, 2007 and 2006, respectively. No such awards were granted during these two
periods.

As of June 30, 2007, total
unrecognized stock-based compensation cost related to unvested restricted stock purchase
rights was $2,498,000, which is expected to be expensed over a weighted-average period of
2.82 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, 2007:

|                                                               | SharesorShare Units |  | Weighted-AverageGrant-Date
             Fair Value
|-------------------------------------------------------------- | ------------------- |  | --------------------------------------------------
|
|Nonvested restricted stock awards and
units at January 1, 2007 |                     |  |                                                   
|Granted                                                        |                     |  |                                                   
|Vested and released                                            |                     |  |                                                   
|Forfeited                                                      |                     |  |                                                   
|                                                               |                     |  |                                                   
|Nonvested restricted stock awards and units at June 30, 2007   |                     |  |                                                   
|                                                               |                     |  |                                                   

The weighted-average fair value of restricted
stock awards and units granted during the six months ended June 30, 2007 and 2006 was
$30.33 and $22.75, respectively. There were 272,000 awards granted in the corresponding
period in 2006. Restricted stock awards or units released during the six months ended June
30, 2007 and 2006 were 108,491 and 17,000 shares, respectively, and the total intrinsic
value was $3,357,000 and $375,000, respectively.

As of June 30, 2007, total
unrecognized stock-based compensation cost related to unvested restricted stock awards and
units was $15,055,000, which is expected to be expensed over a weighted-average period of
1.99 years.

---

# NOTE H  INCOME
TAXES

The effective income tax rate for the
three months ended June 30, 2007 was 37.6% compared with 37.1% for the three months ended
June 30, 2006. The effective income tax rate for the three months ended June 30, 2007
reflected a favorable net adjustment of $630,000, which primarily related to the
settlement of a Federal tax issue for the companys 2005 tax year. Similarly, the
effective income tax rate for the three months ended June 30, 2006 reflected a favorable
net adjustment of $953,000, which primarily related to a reduction in the companys
tax contingency accrual resulting from a change in estimate in measuring its state tax
uncertainties.

The effective income tax rate for the
six months ended June 30, 2007 was 38.3% compared with 36.0% for the six months ended June
30, 2006. The effective income tax rate for the six months ended June 30, 2006 was
significantly lower than the companys normalized effective tax rate due to favorable
net adjustments totaling $2,036,000. These 2006 favorable net adjustments primarily
related to decreases in the companys tax contingency accrual due to the completion
of its 2002 Federal tax audit and a change in estimate in measuring the companys
state tax uncertainties.

The company adopted FIN No. 48 as of
January 1, 2007. In conjunction with its FIN No. 48 adoption, the company increased its
liability for unrecognized tax benefits by recording a cumulative effect adjustment of
$4,232,000. This cumulative effect adjustment was recorded as a reduction to the retained
earnings balance at January 1, 2007.

A reconciliation of the beginning and
ending balances of the companys liability for unrecognized tax benefits at June 30,
2007 is as follows:

|(dollars in thousands)                                                                                                                         
|-----------------------------------------------------------------------------------------------------------------------------------------------
|
|Balance at January 1, 2007 (before penalties and
interest and federal     and/or state tax benefits)                                           
|Additions for tax positions related to the current year (excluding  
         penalties and interest and before
federal and state tax benefits)
|Additions for tax positions related to prior years (excluding     
      penalties and interest and before
federal and state tax benefits)     
|Reductions for tax positions related to prior years                                                                                            
|Settlements (before federal and/or state tax benefits)                                                                                         
|                                                                                                                                               
|Balance at June 30, 2007 (before
penalties and interest     
and federal and/or state benefits)
  [a]                                          
|                                                                                                                                               
|Penalties and interest at
June 30, 2007 (before           federal and/or state tax benefits) [b]                                               
|Federal and/or state tax
benefits on [a] and [b]                                                                                               
|                                                                                                                                               
|Balance at June 30, 2007 (including penalties and interest and
 net of     federal and/or state tax benefits)                                  
|                                                                                                                                               

The amount of unrecognized tax benefits
which, if ultimately recognized, could favorably affect the effective tax rate in a future
period is $16,948,000 as of January 1, 2007 and $17,016,000 as of June 30, 2007. The
$16,948,000 and $17,016,000 unrecognized tax benefit amounts are both net of federal
and/or state tax benefits.

As of June 30, 2007, the company
believes it is reasonably possible that certain unrecognized tax benefits, related to
state tax uncertainties, could be realized within the succeeding 12 months. The company
estimates that these unrecognized tax benefits could be up to $2,000,000 and ultimate
realization is dependent upon the occurrence of certain events (including the expiration
of the statutes of limitations). The $2,000,000 amount is net of federal and/or state tax
benefits.

The company recognizes interest
expense and penalties related to unrecognized tax benefits as part of its provision for
income taxes. The company has provided $3,844,000 and $4,998,000 in accrued interest and
penalties (before federal and/or state tax benefits) within its liability for unrecognized
tax benefits as of January 1, 2007 and June 30, 2007, respectively.

The company is currently under
examination by the Internal Revenue Service for its calendar 2005 tax year and by certain
state tax agencies for its calendar tax years 2001 through 2004.

Net income taxes paid for the
six-month periods ended June 30, 2007 and 2006, were $11,583,000 and $10,753,000,
respectively.

---

# NOTE I  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                                          |                            |  | $ | 20,829                  
|Numerator for basic and diluted per share amounts  |                            | 
|income available to common stockholders             |                            |  | $ | 20,829                  
|                                                   
|Denominator:                                        |                            | 
|Denominator for basic per share                     |                            | 
|amounts  weighted average shares                   |                            |  |   | 43,650                  
|                                                   
|Effect of dilutive securities:                      |                            | 
|Employee stock options and awards                  |                            | 
|dilutive potential common shares                    |                            |  |   | 582                     
|                                                    |                            |  |   |                         
|Denominator for diluted per share amounts          |                            | 
|adjusted weighted average shares                    |                            |  |   | 44,232                  
|                                                    |                            |  |   |                         
|                                                   
|Basic net income per common share                   |                            |  | $ | 0.48                    
|                                                    |                            |  |   |                         
|Diluted net income per common share                 |                            |  | $ | 0.47                    
|                                                    |                            |  |   |                         
|                                                   
|Employee stock options excluded from the            |                            | 
|computation of diluted per share amounts:           |                            | 
|                                                   
|Shares for which exercise price exceeds             |                            | 
|average market price of common stock                |                            |  |   | 1,033                   
|                                                   
|Average exercise price per share that exceeds       |                            | 
|average market price of common stock                |                            |  | $ | 32.65                   
|                                                    |                            |  |   |                         

---

# NOTE J 
COMMITMENTS AND CONTINGENCIES

Litigation: Apria is the
defendant in a purported California class action lawsuit asserting 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). The complaint seeks compensatory and punitive damages in an
unspecified amount as well as other relief on behalf of a purported class consisting of
certain hourly employees of the company in the State of California. The company has filed
an answer to the complaint denying all material allegations and asserting a number of
affirmative defenses. To date, the plaintiff has not filed a motion for class
certification. The court has set the case for trial beginning November 26, 2007. Based on
the companys preliminary investigation of the allegations, the company 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.

Medicare Reimbursement: There
are a number of provisions contained within recent legislation or proposed legislation
that affect or may affect Medicare reimbursement polices for items and services provided
by Apria. The company cannot be certain of the ultimate impact of all adopted and
contemplated changes, and therefore, cannot provide assurance that these changes will not
have a material adverse effect on Aprias financial condition or results of
operations.

Supplier Concentration: Apria
currently purchases approximately 69.6% of its patient service equipment and supplies from
five vendors under short and long term contractual arrangements. However, no single
supplier provides more than 25% of the companys equipment and supplies. Although
there are a limited number of suppliers, management believes that other vendors could
provide similar products on comparable terms. However, a change in suppliers could cause
delays in service delivery and possible losses in revenue, which could adversely affect
operating results.

Guarantees and Indemnities:From time to time Apria enters into certain types of contracts that contingently
require the company to indemnify parties against third party claims. These 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 or 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 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 locations throughout the United States.

Strategy.Aprias strategy is to position itself in the marketplace as
          the low cost, quality provider of a broad range of home healthcare services to
          managed care and Medicare customers. The specific elements of its strategy are
          to:

| |  | achieve strong sales growth;                                              
|- |  | --------------------------------------------------------------------------
| |  | leverage its nationwide infrastructure to reduce costs and expand profits;
| |  | deliver superior customer service; and                                    
| |  | attract, develop and advance leaders within the company.                  

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 for the year ended December 31, 2006.

Government
Reimbursement Update. On April 10, 2007, the Centers for Medicare and
Medicaid Services, or CMS, published the final rule (Final Rule) implementing
the Medicare Part B competitive bidding program for certain items of Durable Medical
Equipment, Prosthetics, Orthotics and Supplies (DMEPOS). By statute, CMS must
phase in the program over time, with the first phase establishing competitive bidding in
10 of the largest metropolitan statistical areas (MSAs) for 2008, with 70
additional markets added in 2009 and nationwide implementation in 2010. Competitive
bidding imposes a new and significant risk to suppliers of DMEPOS. If a DMEPOS supplier
operating in a Competitive Bidding Area, or CBA, is not awarded a contract for that CBA,
the supplier generally will not be able to bill and collect from Medicare for most DMEPOS
supplied in that CBA for the time period covered by competitive bidding (unless a supplier
is covered by the grandfathering provision for existing oxygen or capped
rental patients). The government has stated that contracts with winning bidders will be
three years in length, except for diabetic supplies, which will be 21 months in length. A
new competitive bidding period will begin after those contracts end. Because the
applicable statute mandates savings and CMS bidding rules require that bids must be
less than current Medicare allowable rates, a DMEPOS supplier awarded one of the winning
bids for the CBA will receive lower Medicare payment rates than those in existence prior
to competitive bidding. In addition, there is a risk that the new competitive bidding
prices will become a new benchmark for reimbursement from private payors. As competitive
bidding is phased in across the country, most DMEPOS suppliers, including Apria, will
likely experience a substantial reduction in reimbursement.

The
Final Rule listed both the 10 MSAs and product categories that CMS selected for the
initial phase of the program. Apria services all nine of the domestic markets included in
the list of initial 10 CBAs (Puerto Rico markets excluded). Nine of the 10 product
categories selected for the first phase are common to all nine domestic markets. The tenth
product category is specific to the Miami and Puerto Rico markets only. In the first
phase, CMS is accepting bids from suppliers for the following product categories: Oxygen
Supplies and Equipment; Standard Power Wheelchairs, Scooters and Related Accessories;
Complex Rehabilitative Power Wheelchairs and Related Accessories; Mail-Order Diabetic
Supplies; Enteral Nutrients, Equipment and Supplies; Continuous Positive Airway Pressure
Devices, Respiratory Assist Devices and Related Supplies and Accessories; Hospital Beds
and Related Accessories; Negative Pressure Wound Therapy Pumps and Related Supplies and
Accessories; Walkers and Related Accessories; and (Miami and Puerto Rico only) Support
Surfaces (group 2 mattresses and overlays).

The
deadline for suppliers to submit bids for participation in the program was originally 60
days after issuance of the Request for Bids (RFB). However, after issuing the
RFBs in mid-May, 2007, CMS and its Competitive Bidding Implementation Contractor
extended the deadline for bid submission three times in response to
concerns raised by individual suppliers, industry associations and Congress about
difficulties experienced with the bid process and Internet-based application process. The
revised deadline for submission is now September 25, 2007. CMS has also revised the
following key targeted dates for implementation of the first phase of the program: October
31, 2007  the accreditation deadline associated with competitive bidding; and July
1, 2008  new payment levels go into effect for the selected product categories in
the 10 selected CBAs.

---

The
Final Rule, among other things, generally requires Medicare beneficiaries who live in a
CBA to receive equipment and services that are included within the competitive bidding
program exclusively from suppliers who are awarded contracts by CMS, with a few
exceptions. The reimbursement rate for the items and services will be the single payment
rate that is determined through the bid process. Aprias Medicare-reimbursed revenue
for the selected products in the applicable markets during the initial year of competitive
bidding represents less than 2% of the companys total net revenue. If Apria becomes
a winning contract supplier in each of the nine initial CBAs serviced by Apria and the
subject revenue were impacted by a 10% to 15% payment reduction as estimated by CMS, it
would represent less than 0.3% of Aprias total net revenue during the initial year
of competitive bidding. However, Apria cannot predict or guarantee that the reimbursement
rates in the CBAs will be reduced as CMS has estimated, and will not be even lower than
the CMS projection. In the second and subsequent years of competitive bidding, the adverse
financial impact will increase substantially in amounts that cannot currently be
determined. If Apria is selected as a winning contract supplier, it believes that its
geographic coverage, clinical marketing programs and purchasing strength provide
competitive advantages to maintain and enhance market share, but at lower reimbursement
rates. However, there is no guarantee that Apria will be selected as a winning contract
supplier and be awarded a competitive bidding contract by CMS in any of the initial CBAs.
If Apria is not selected as a contract supplier for a particular CBA, it will generally
not be allowed to supply Medicare beneficiaries with products subject to competitive
bidding within that CBA, unless it elects to continue providing service to existing
patients under the grandfathering provision of the Final Rule. Under this
provision a supplier may continue to service its patients prior to the
implementation of competitive bidding even if the supplier was not awarded a contract,
provided certain conditions are met. Because of Aprias combination of both managed
care and traditional business, Apria believes it can nevertheless maintain a strong
overall market position.

In
the second quarter of 2007, various members of Congress introduced legislation that would
amend or modify existing laws and regulations, including the Final Rule, pertaining to
oxygen therapy, home medical equipment and home infusion therapy. The Home Oxygen Patient
Protection Act of 2007, introduced in both the U.S. House of Representatives and the
Senate, would repeal the transfer of ownership of oxygen equipment that is mandated by the
Deficit Reduction Act. Separately, a House bill entitled Medicare Durable Medical
Equipment Access Act of 2007, would not repeal but would make changes to the current plans
for competitive bidding. Another House bill entitled The Medicare Home Infusion Therapy
Coverage Act of 2007 would close a gap in Medicare drug coverage for patients who require
home infusion therapy by establishing appropriate coverage, quality and payment guidelines
designed to cover providers non-drug service costs. Apria cannot predict whether all
or some of these bills will move any further.

Early
in the third quarter of 2007, the Senate and House of Representatives debated and passed
differing versions of the Childrens Health and Medicare Protection Act, or
CHAMP. The bills are intended to re-authorize and expand the State
Childrens Health Insurance Program. In addition, the House bill contains numerous
Medicare provisions that would increase payment rates to physicians and certain other
providers, while decreasing payments to others. The House bill contains a provision that
would reduce the maximum capped rental period for oxygen from the 36-month level mandated
by the DRA to 18 months. After an August recess, Congress will resume debate on the bill;
House and Senate leaders will reconcile the two disparate bills through the conference
process, after which time the President will either authorize or veto the legislation.
Apria cannot predict whether all or some of these bills will result in changes to existing
legislation and is unable to estimate the financial impact of such changes until such
proposed legislation becomes law.

CMS
announced in the second quarter that after reviewing extensive public comments filed
earlier in the year, it reached a decision to not issue a National Coverage Determination
for inhalation drug therapies covered by Medicare. Rather, CMS will defer the decision to
the local contractors; a timeframe has not been established. In addition, CMS announced
that effective July 1, 2007, Medicare would no longer reimburse providers for compounded
inhalation drugs. Because compounding levels at Apria are minimal, this change has no
significant effect on Apria.

On
July 2, 2007, the Secretary of the U.S. Department of Health and Human Services announced
a two-year effort designed to further protect Medicare beneficiaries from fraudulent
suppliers of DMEPOS. The initiative is focused on preventing deceptive companies from
operating in South Florida and Southern California. Based on the results of the project,
it could be expanded nationwide. Subsequently, on July 27, CMS issued a proposed rule
requiring all DMEPOS suppliers to provide CMS with a surety bond of at least $65,000 for
each NPI the supplier holds. The rule would ensure that Medicare can recover any erroneous
payment amounts or civil money penalties up to $65,000 that result from fraudulent or
abusive supplier billing practices. Apria fully supports the elimination of fraudulent
suppliers and is working with CMS to support these initiatives.

For
detailed disclosure on other legislative and regulatory activities that affect or may
affect Medicare and Medicaid reimbursement policies for products and services provided by
Apria, please refer to the Business  Government Regulation section in
Aprias Annual Report on Form 10-K for the year ended December 31, 2006.

---

# Results of Operations

Net
Revenues and Gross Margin. Net revenues increased 4.8% to $394.0 million in
the second quarter of 2007, when compared to $376.1 million in the same quarter of 2006.
On a year-to-date basis, net revenues increased 5.3% to $783.3 million in 2007 from prior
year net revenues of $744.1 million. The growth in both time periods is primarily
attributable to sales volume increases, as pricing increases have been negligible. In the
second quarter and six-month periods of 2007, net revenue was reduced by approximately
$1.8 million and $2.5 million, respectively, due to a change in Medicare reimbursement
methodology for certain durable medical equipment items. Such equipment previously had a
maximum rental period of 15 months with a patient purchase option, but currently rental
payments cease at the 13th month with transfer of ownership to the patient. The
change was mandated by the Deficit Reduction Act of 2005 and became effective for patients
commencing service on or after January 1, 2006 for this particular set of items. This
change first impacted Aprias revenues in February 2007 for most of its equipment
categories and with the impact for an additional category commencing in May 2007.

Gross
margins were stable at 65.9% in the second quarter of 2007 compared to 65.7% in the same
period last year with the year-to-date gross margin at 65.6% in both years.

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.

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

|                             | 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 5.1% in the second quarter of 2007 when compared to the corresponding period
in 2006. For the six-month period ended June 30, 2007, respiratory therapy revenues grew
by 5.6% as compared to the prior year six-month period. Of the aforementioned 2007
Medicare revenue reductions, the amounts that impacted the respiratory therapy line
totaled $1.2 million for the second quarter and $1.6 million year-to-date.

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 6.0%
and 6.2% in the three- and six-month periods ended June 30, 2007, when compared to the
same periods last year. The growth was generated primarily by the enteral nutrition
offering, which represents just under half of the infusion therapy line.

Home
Medical Equipment/Other. Home medical equipment/other revenues are derived from
the provision of equipment to assist patients with ambulation, safety and general care in
and around the home. Home medical equipment/other revenues increased by 1.5% for the
second quarter and 2.6% year-to-date when comparing the 2007 periods to the corresponding
periods in 2006. Medicare reductions impacted the home medical equipment/other line in the
amounts of $593,000 and $868,000 for the quarter and year-to-date periods, respectively.

---

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 2.8% and 2.6% for the second quarter of 2007 and 2006, respectively.
The year-to-date percentage was 2.7% for both years. The recent improvement in the
provision for doubtful accounts has slowed somewhat due to Medicare and a certain payor
claims processing carrier conversions and the resulting increase in the related accounts
receivable aging.

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
53.1% in the second quarter of 2007, compared to 52.7% in the second quarter of 2006. For
the six-month periods, the expense to net revenue percentages were 53.1% in 2007, compared
to 53.2% in 2006. The Medicare revenue reductions 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. The effect of these revenue reductions on the
expense percentage is 0.2% on both the quarter and year-to-date comparisons. Mitigating
this effect and the effect of annual salary rate increases was expense leveraging achieved
through the successful implementation of a number of cost saving initiatives. Such
initiatives include those in the revenue management area whereby productivity and
efficiencies have been enhanced by consolidating and centralizing certain functions.
Billing and collection activities for several of the companys larger payors have
been centralized as have certain other related functions. Also, in the logistics area,
automating the routing of deliveries resulted in decreased miles per delivery stop and
increased stops per driver. The company has been successful in converting these
productivity improvements to cost savings.

Share-based
compensation is reflected within the selling, distribution and administrative expense line
item. For the three-month periods ended June 30, 2007 and 2006, share-based compensation
expense was $3.2 million and $812,000, respectively. For the six-month periods,
share-based compensation expense was $4.7 million in 2007 and $1.9 million in 2006.

Amortization
of Intangible Assets.For the quarters ended June 30, 2007 and 2006,
amortization expense was $706,000 and $1.7 million, respectively. For the year-to-date
periods in 2007 and 2006, amortization expense was $1.7 million and $2.9 million,
respectively. The decreases reflect the absence of acquisitions in 2007. See
Liquidity and Capital Resources  Business Combinations.

Interest
Expense and Income.Interest expense was $5.7 million for the second
quarter of 2007 as compared to $8.6 million for the comparable period in 2006. For the
six-month periods, interest expense was $12.0 million in 2007 and $16.8 million in 2006.
For the first quarter of 2007 and 2006, interest income was $722,000 and $542,000,
respectively. Year-to-date, interest income was $1.2 million in 2007 and $1.5 million in
2006. The decreases in interest expense in 2007 are primarily attributable to the decrease
in long-term debt as a result of the continued pay down of the revolving credit line. See
Liquidity and Capital Resources  Long-term Debt.

Income
Tax Expense.The effective income tax rate for the three months ended June
30, 2007 was 37.6% compared with 37.1% for the three months ended June 30, 2006. The
effective income tax rate for the three months ended June 30, 2007 reflected a favorable
net adjustment of $630,000 which primarily related to the settlement of a Federal tax
issue for the companys 2005 tax year. Similarly, the effective income tax rate for
the three months ended June 30, 2006 reflected a favorable net adjustment of $953,000
which primarily related to a reduction in the companys tax contingency accrual
resulting from a change in estimate in measuring its state tax uncertainties.

---

The
effective income tax rate for the six months ended June 30, 2007 was 38.3% compared with
36.0% for the six months ended June 30, 2006. The effective income tax rate for the six
months ended June 30, 2006 was significantly lower than the companys normalized
effective tax rate due to favorable net adjustments totaling approximately $2.0 million.
These 2006 favorable net adjustments primarily related to decreases in the companys
tax contingency accrual due to the completion of its 2002 Federal tax audit and a change
in estimate in measuring the companys state tax uncertainties.

The
companys effective tax rate is based on expected income, statutory tax rates and tax
planning opportunities available to it in the various jurisdictions in which the company
operates. Significant management estimates and judgments are required in determining the
companys effective tax rate. The company is routinely under audit by federal, state
or local authorities regarding the timing and amount of deductions, allocation of income
among various tax jurisdictions and compliance with federal, state and local tax laws. Tax
assessments related to these audits may not arise until several years after tax returns
have been filed. Although predicting the outcome of such tax assessments involves
uncertainty, the company believes that the recorded tax liabilities appropriately reflect
its potential obligations under FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes.

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. 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 continues to evaluate
its financing alternatives regarding its ability to repurchase these notes to the extent
required by the holders.

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 improvements in service, productivity and access to
information. Development of certain modules commenced in 2006. The overall project plan is
being designed and developed and is expected to be implemented over several years.

Cash
Flow.Cash provided by operating activities was $131.6 million in the first
six months of 2007 compared to $128.9 million in the corresponding period in 2006. This
increase was achieved despite the more rapid accounts receivable growth in 2007 when
compared to the same period in 2006, which was largely attributable to a temporary
slowdown in Medicare payments. (See Results of Operations  Provision for
Doubtful Accounts). Among the items mitigating this impact was a reduction in resale
inventory purchases in the 2007 period and an increase in the number of days accrued for
payroll at June 30, 2007, when compared to the same date in 2006. Favorable timing for
other general expense disbursements contributed to the increase in operating cash flow.

Cash
used in investing activities decreased to $55.8 million for the first six months of 2007
compared to $70.7 million during the same period last year. The decrease in 2007 was due
to an absence of acquisitions and to a reduction in capital expenditures resulting from
the companys success at implementing and monitoring initiatives designed to improve
patient service equipment utilization.

Cash
used in financing activities was $62.0 million during the first six months of 2007
compared to $49.7 million for the first six months of 2006. As a result of the strong
operating cash flow and $16.6 million in cash proceeds received upon the issuance of
common stock in connection with the exercise of stock options and other share-based
awards, the company reduced the amount owed on its revolving line of credit by $80 million
during the first half of 2007.

---

Contractual
Cash Obligations.The following table summarizes the 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)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | 2008 | 2009 | 2010 | 2011 | 2012 | There-after | Totals
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---- | ---- | ---- | ---- | ---- | ----------- | ------
|
|Revolving loan (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |      |      | $    | -    |      | $           | -     
|Convertible senior notes (3 3/8%) (2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |      |      |      | -    |      |             | -     
|Interest on convertible senior notes  (3)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |      |      |      | 8    |      |             | 8     
|Operating leases                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |      |      |      | 52   |      |             | 47    
|Software licenses and related maintenance                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |      |      |      | 1    |      |             | -     
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |      |      |      |      |      |             |       
|Total contractual cash obligations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |      |      | $    | 61   |      | $           | 55    
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |      |      |      |      |      |             |       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |      |      |      |      |      |             |       
|(1) Interest on outstanding borrowings
is payable quarterly.(2) 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. (3)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 until the notes mature in 2033. Amounts presented above assume notes are not
earlier converted, redeemed or repurchased.(4) The contractual obligations
table excludes the companys liability for unrecognized tax benefits under FIN No. 48 because
the company cannot make a reliable estimate of the timing of cash payments.

Accounts
Receivable.Accounts receivable before allowance for doubtful accounts
decreased to $235.4 million at June 30, 2007 from $238.4 million at December 31, 2006.
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
48 days at June 30, 2007 compared to 49 days at December 31, 2006.

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

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

Unbilled
Receivables.Included in accounts receivable are earned but unbilled receivables
of $27.3 million and $30.0 million at June 30, 2007 and December 31, 2006, 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.

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 86% 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, 2007 and 2006 were $821,000 and $2.2 million, respectively.

---

Long-term
Debt.At June 30, 2007, borrowings under the revolving credit facility were $155.0
million; outstanding letters of credit totaled $11.0 million; credit available under the
revolving facility was $334.0 million; and Apria was in compliance with all covenants
required by the credit agreement. The effective interest rate at June 30, 2007, after
consideration of the effect of the swap agreement described below, was 6.20%. See
Hedging Activities below.

Convertible
Senior Notes.At June 30, 2007, the fair value of the $250 million in convertible
senior notes was $262 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, 2007, Apria had one interest rate swap agreement in effect which will expire in
January 2009 and has a notional amount of $25 million with a fixed rate of 4.44%. Apria
also had an interest swap agreement which expired in December 2006 that had a notional
amount of $25 million with a fixed rate of 3.42%.

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. Apria
received a net settlement amount of $117,000 for the six-month period ended June 30, 2007
and $216,000 for the same six-month period in 2006. The aggregate fair value of the swap
agreement was an asset of $297,000 and $356,000 at June 30, 2007 and December 31, 2006,
respectively, and is reflected in the accompanying condensed consolidated balance sheets
in other assets. Unrealized gains and losses on the fair value of the swap agreements are
reflected in net income, as the transactions no longer qualify for hedge accounting.
Aprias exposure to credit loss under the swap agreement is limited to the interest
rate spread in the event of counterparty nonperformance. Apria does not anticipate losses
due to counterparty nonperformance as its counterparties to the swap agreement are
nationally recognized financial institutions with strong credit ratings.

Treasury
Stock.In the first six months of 2007, 43,818 shares of employee
share-based awards, valued at $1,331,000, were tendered back to the company to satisfy the
related purchase and tax obligations.

Business
Combinations.Such 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. 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.

During
the six months ended June 30, 2007 Apria did not effect any acquisitions, nor were
payments made for amounts deferred from prior periods. For the first six months of 2006,
$5.0 million was paid for acquisitions, which includes amounts deferred from prior
periods.

# 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.

---

# 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
June 30, 2007, Aprias revolving credit facility borrowings totaled $155.0 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 June 30,
2007 all of Aprias outstanding revolving debt was tied to LIBOR.

During
the first half of 2007, Apria had one interest rate swap agreement in effect to fix its
LIBOR-based variable rate debt. The agreement became effective in January 2006 for a
three-year term, and has a notional amount of $25 million that fixes an equivalent amount
of the companys variable rate debt at 4.44%.

Based
on the revolving debt outstanding and the swap agreements in place at June 30, 2007, a 100
basis point change in the applicable interest rates would increase or decrease
Aprias annual cash flow and pretax earnings by approximately $1.3 million. See
Managements Discussion and Analysis of Financial Condition and Results of
Operations  Long-term Debt  Hedging Activities.

# ITEM 4.   
  CONTROLS AND PROCEDURES

Disclosure
Controls and Procedures. As of the end of the period covered by this
report, the company carried out an evaluation, under the supervision and with the
participation of the companys management, including the companys principal
executive officer and principal financial officer, of the effectiveness of the design and
operation of the companys disclosure controls and procedures. Based upon that
evaluation, the principal executive officer and principal financial officer each concluded
that the companys disclosure controls and procedures are effective as of the end of
the period covered by this report.

Changes
in Internal Control Over Financial Reporting. During the period covered by
this report, there have been no significant changes to the companys internal control
over financial reporting 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 purported California class action lawsuit asserting 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). The complaint seeks compensatory and punitive damages in
an unspecified amount as well as other relief on behalf of a purported class consisting of
certain hourly employees of the company in the State of California. The company has filed
an answer to the complaint denying all material allegations and asserting a number of
affirmative defenses. To date, the plaintiff has not filed a motion for class
certification. The court has set the case for trial beginning November 26, 2007. Based on
the companys preliminary investigation of the allegations, the company 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 for the year ended
December 31, 2006, as filed with the Securities and Exchange Commission on March 1, 2007,
are incorporated herein by reference with the exception of the risk factor titled
Medicare/Medicaid Reimbursement Rates which is amended and restated below.

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 Reductions. There are ongoing legislative and regulatory efforts to
reduce or otherwise adversely affect Medicare and Medicaid reimbursement rates for
products and services provided by Apria. For example, the regulations implementing the
mandates under the Medicare Prescription Drug, Improvement and Modernization Act of 2003,
also referred to as the Medicare Modernization Act, reduced the reimbursement for a number
of products and services provided by Apria and established a proposed competitive bidding
program for durable medical equipment under Medicare Part B. Further, the Deficit
Reduction Act of 2005 once fully implemented by CMS, will result in reduced reimbursement
rates for certain durable medical equipment, including home oxygen equipment and services
provided by Apria, a reduced period for rental revenue, and potential increased costs
associated with replacement of certain patient-owned equipment.

In
addition to these activities, certain other proposed legislative and regulatory activities
may affect reimbursement policies and rates for other items and services provided by
Apria. These enacted and proposed changes, including actual or pending proposed reductions
in Medicare reimbursement rates, could have a material adverse effect on Aprias net
revenues, net income, cash flow and capital resources.

Medicaid
Reimbursement Reductions.For a number of years, some states have adopted
alternative pricing methodologies for certain drugs and biologicals under the Medicaid
program. In a number of states, the changes reduced the level of reimbursement Apria
received for these items without a corresponding offset or increase to compensate for the
service costs incurred for dispensing or administering the drug or biological. In several
of those states, Apria elected to stop accepting new Medicaid patient referrals for the
affected drugs and biologicals. Some states continue to consider new or other reductions
in Medicaid reimbursement for drugs, biologicals, and other durable medical equipment and
affiliated services that Apria furnishes as they work through their respective budget
processes.

Apria
cannot estimate the ultimate impact of all legislated and contemplated Medicare and
Medicaid reimbursement changes or provide assurance to investors that additional
reimbursement reductions will not be made or will not have an adverse effect on the
companys operations and financial condition.

For
further information, see Part I  Item 2, Managements Discussion and Analysis
of Financial Condition and Results of Operations, Government Reimbursement
Update in this Quarterly Report on this Form 10-Q.

---

ITEM 2.     UNREGISTERED SALE 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 May 4, 2007.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.Norman C. Payson, M.D.
Mahvash YazdiMatters Voted Upon at Annual Meeting:
Election of Directors
| |           | As of May 4, 2007, the companys Board of Directors consisted of
 nine 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.Norman C. Payson, M.D. 
Mahvash Yazdi | 32,652,33032,663,64434,756,76834,263,90334,756,96034,757,768
34,542,74432,665,14434,757,358 | 6,521,0456,509,7314,416,6074,909,4724,416,415
4,415,6076,630,6316,508,2314,416,017 | 
      

| |  |                                                                                                                                                                                                                                                              
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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
 December 31, 2007, subject to shareholder approval.  The results of the stockholder voting
were as follows:

| |  |                                               
| |  | ----------------------------------------------
| |  | ForAgainstWithhold/AbstentionsBroker Non-Votes

ITEM 5.     OTHER INFORMATION

None.

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ITEM 6.     EXHIBITS

| |               |  |                                                                                             
| | ------------- |  | --------------------------------------------------------------------------------------------
| | Exhibits:     |  |                                                                                             
| | ExhibitNumber |  | Reference                                                                                   
| | 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.                

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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/ CHRIS A. KARKENNY
Chris A. KarkennyExecutive Vice President and Chief Financial Officer
(Principal Financial Officer)