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

Form 10-Q

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

For the quarterly period ended
 March 31, 2006

OR

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

Commission File Number:
1-14316

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

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

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

Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No

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

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

As of April 30, 2006, there were outstanding
42,404,229 shares of the Registrants common stock,  par
value $.001 per share, which is the only class of common stock of the Registrant (not
including 16,965,185 shares held in treasury).

---

APRIA HEALTHCARE GROUP INC.

FORM 10-Q

For the period ended March 31, 2006

|                                          |  |                                                                                                                                                                                                                                                       | 
|----------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|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 5.                                   |  | Other Information.                                                                                                                                                                                                                                    | 
|                                          |  |                                                                                                                                                                                                                                                       | 
|Item 6.                                   |  | Exhibits.                                                                                                                                                                                                                                             | 
|                                          |  |                                                                                                                                                                                                                                                       | 
|SIGNATURES                                |  |                                                                                                                                                                                                                                                       | 
|                                          |  |                                                                                                                                                                                                                                                       | 
|EXHIBITS                                  |  |                                                                                                                                                                                                                                                       | 

---

PART I  FINANCIAL INFORMATION

ITEM 1.     FINANCIAL STATEMENTS

APRIA HEALTHCARE GROUP INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)

|                                                                     | March 31, |  | December 31,
|-------------------------------------------------------------------- | --------- |  | ------------
|
|
|ASSETS                                                               |           |  |             
|CURRENT ASSETS                                                       |           |  |             
|Cash and cash equivalents                                            |           |  | $           
|Accounts receivable, less allowance
for doubtful accounts of $41,056 |           | 
|and $41,527 at March 31, 2006 and
December 31, 2005, respectively    |           |  |             
|Inventories, net                                                     |           |  |             
|Deferred income taxes                                                |           |  |             
|Prepaid expenses and other current assets                            |           |  |             
|                                                                     |           |  |             
|TOTAL CURRENT ASSETS                                                 |           |  |             
|                                                                     |           | 
|PATIENT SERVICE EQUIPMENT, less accumulated depreciation of $438,048 |           | 
|and $446,728 at March 31, 2006 and December 31, 2005, respectively   |           |  |             
|PROPERTY, EQUIPMENT AND IMPROVEMENTS, net                            |           |  |             
|DEFERRED INCOME TAXES                                                |           |  |             
|GOODWILL                                                             |           |  |             
|INTANGIBLE ASSETS, less accumulated amortization of $7,398 and       |           | 
|$7,988 at March 31, 2006 and December 31, 2005, respectively         |           |  |             
|DEFERRED DEBT ISSUANCE COSTS, net                                    |           |  |             
|OTHER ASSETS                                                         |           |  |             
|                                                                     |           |  |             
|                                                                     |           |  | $           
|                                                                     |           |  |             
|LIABILITIES AND STOCKHOLDERS EQUITY                                 |           | 
|CURRENT LIABILITIES                                                  |           | 
|Accounts payable                                                     |           |  | $           
|Accrued payroll and related taxes and benefits                       |           |  |             
|Accrued insurance                                                    |           |  |             
|Income taxes payable                                                 |           |  |             
|Other accrued liabilities                                            |           |  |             
|Current portion of long-term debt                                    |           |  |             
|                                                                     |           |  |             
|TOTAL CURRENT LIABILITIES                                            |           |  |             
|                                                                     |           | 
|LONG-TERM DEBT, exclusive of current portion                         |           |  |             
|DEFERRED INCOME TAXES                                                |           |  |             
|OTHER NON-CURRENT LIABILITIES                                        |           |  |             
|COMMITMENTS AND CONTINGENCIES (Note I)                               |           | 
|                                                                     |           | 
|STOCKHOLDERS EQUITY                                                 |           | 
|Preferred stock, $.001 par value: 10,000,000 shares authorized;      |           | 
|none issued                                                          |           |  |             
|Common stock, $.001 par value: 150,000,000 shares authorized;        |           | 
|59,352,414 and 59,215,749 shares issued at
March 31, 2006 and        |           | 
|December 31, 2005, respectively;
42,387,229 and 42,250,564 shares    |           | 
|outstanding at March 31, 2006 and December 31, 2005, respectively    |           |  |             
|Additional paid-in capital                                           |           |  |             
|Treasury stock, at cost; 16,965,185 shares
at March 31, 2006         |           | 
|and December 31, 2005, respectively                                  |           |  |             
|Retained earnings                                                    |           |  |             
|Accumulated other comprehensive income                               |           |  |             
|                                                                     |           |  |             
|                                                                     |           |  |             
|                                                                     |           |  |             
|                                                                     |           |  | $           
|                                                                     |           |  |             

See notes to condensed
consolidated financial statements.

---

APRIA HEALTHCARE GROUP INC.

CONDENSED CONSOLIDATED INCOME STATEMENTS 
(unaudited)

|                                                                           | Three Months EndedMarch 31,
|-------------------------------------------------------------------------- | ---------------------------
|
|
|
|Net revenues                                                               |                            
|Costs and expenses:   
Cost of net revenues:      Product and supply costs |                            
|Patient service equipment depreciation                                     |                            
|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, net                                                      |                            
|                                                                           |                            
|INCOME BEFORE TAXES                                                        |                            
|Income tax expense                                                         |                            
|                                                                           |                            
|NET INCOME                                                                 |                            
|                                                                           |                            
|Basic net income per common share                                          |                            
|                                                                           |                            
|Diluted net income per common share                                        |                            
|                                                                           |                            

See notes to condensed consolidated
financial statements.

---

APRIA HEALTHCARE GROUP INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

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

See notes to condensed
consolidated financial statements.

---

APRIA HEALTHCARE GROUP INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS

NOTE A  CERTAIN SIGNIFICANT ACCOUNTING POLICIES

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

All adjustments, consisting of normal recurring accruals
necessary for a fair presentation of the results of operations for the interim periods
presented, have been reflected herein. The unaudited results of operations for interim
periods are not necessarily indicative of the results to be expected for the entire year.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the companys Annual Report on Form 10-K/A for the fiscal
year ended December 31, 2005.

Reclassifications: Certain amounts from prior
periods have been reclassified to conform to the current period presentation. Capital
expenditures for which payment was pending at March 31, 2005, were previously reported on
the condensed consolidated statement of cash flows as purchases of patient service
equipment and property, equipment and improvements. In the current presentation, they have
been reclassified to the change in accounts payable. Also, certain respiratory therapy and
infusion therapy nursing expenses, which were previously presented in the selling,
distribution and administrative expense line, are now included as separate line items on
the condensed consolidated income statement within cost of net revenues. The respiratory
therapy and infusion therapy nursing expenses that have been reclassified to cost of net
revenues are comprised primarily of employee salary and benefit costs and fees paid to
contracted workers who are deployed to service a patient. Aprias respiratory therapy
and infusion therapy nursing personnel are also engaged in a number of administrative and
marketing tasks, and accordingly, the costs related to those activities remain classified
within selling, distribution and administrative expenses. See Clinical
Expenses.

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

Revenue Recognition and Concentration of Credit
Risk: Revenues are recognized on the date services and related products are provided
to patients and are recorded at amounts expected to be received under reimbursement
arrangements with third-party payors, including private insurers, prepaid health plans,
Medicare and Medicaid. Approximately 38% of the companys revenues are reimbursed
under arrangements with Medicare and Medicaid. No other third-party payor group represents
more than 9% of the companys revenues. The majority of the companys revenues
are derived from fees charged for patient care under fee-for-service arrangements.
Revenues derived from capitation arrangements represent less than 11% of total net
revenues.

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

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

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

Clinical Expenses: Respiratory therapy and
infusion therapy nursing expenses, totaling $4,952,000 and $5,626,000 for the first quarter of 2006 and
2005, respectively, are included in selling, distribution and administrative expenses.

Distribution Expenses: Distribution expenses,
totaling $44,080,000 and $42,029,000 for the three-month periods ended March 31, 2006
and 2005, respectively, are included in selling, distribution and administrative expenses.

Recent Accounting Pronouncements: In November
2004, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 151, Inventory Costs,
which amends and clarifies previous guidance on the accounting for abnormal amounts of
idle facility expense, freight, handling costs and spoilage. Abnormal amounts of these
costs should be recognized as current period charges rather than as a portion of inventory
cost. Additionally, SFAS No. 151 requires that the allocation of fixed production overhead
be based on the normal capacity of the production facilities, which refers to a range of
production levels within which ordinary variations are expected. Aprias adoption of
SFAS No. 151 on January 1, 2006, did not have a material effect on the companys
consolidated financial statements.

In December 2004, the FASB issued SFAS No. 123R,
Share-Based Payment. This statement replaces SFAS No. 123, Accounting
for Stock-Based Compensation, and supersedes Accounting Principles
Board (APB) Opinion No. 25, Accounting
for Stock Issued to Employees. SFAS No. 123R requires a company to measure the cost
of employee services received in exchange for an award of equity instruments based on the
grant date fair value of the award. The cost will be recognized over the period during
which the employee is required to provide service in exchange for the award (usually the
vesting period). Apria adopted the statement January 1, 2006 and has employed the modified
prospective method of transition. See Note F  Share-Based Compensation.

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

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

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

NOTE B  BUSINESS COMBINATIONS

Apria periodically makes acquisitions of complementary
businesses in specific geographic markets. The results of operations of the acquired
companies are included in the accompanying condensed consolidated income statements from
the dates of acquisition. During the three-month period ended March 31, 2006, cash paid
for acquisitions was $4,063,000, which included deferred payments of $3,001,000 related to
prior periods and which was reduced by receipts for acquired vehicles held for sale
totaling $13,000. At March 31, 2006, deferred consideration payable totaled $2,625,000 and
is included on the condensed consolidated balance sheet in other accrued liabilities.

During the three-month period ended March 31, 2006,
Apria closed two acquisitions of customer bases that were previously being serviced by
Apria on a subcontract basis. Amounts paid totaling $1,075,000 were allocated to other
intangible assets.

---

NOTE C  GOODWILL AND INTANGIBLE ASSETS

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

The net decrease in goodwill for the three months ended
March 31, 2006 is the result of writing off goodwill as part of the disposal accounting
for the sale of a previously acquired business back to the original seller. This amounted
to a $685,000 reduction in goodwill, offset slightly by $59,000 in adjustments to
preliminary goodwill valuations for acquisitions effected late in 2005. Substantially all of the goodwill
recorded during the periods presented is expected to be deductible for tax purposes.

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

|(dollars in thousands)   |  |  | March 31, 2006 |     | December 31, 2005
|------------------------ |  |  | -------------- | --- | -----------------
|
|
|
|Covenants not to compete |  |  |                | 5.0 |                  
|Trade names              |  |  |                | 2.0 |                  
|Customer lists           |  |  |                | 0.9 |                  
|                         |  |  |                |     |                  
|                         |  |  |                | 3.6 |                  
|                         |  |  |                |     |                  

Amortization expense was $1,277,000 for the three-month
period ended March 31, 2006. Estimated amortization expense for the current year and each
of the next five fiscal years ending December 31 is presented below:

|Year Ending December 31, | (dollars in thousands)
|------------------------ | ----------------------
|
|2006                     |                       
|2007                     |                       
|2008                     |                       
|2009                     |                       
|2010                     |                       
|2011                     |                       

NOTE D  LONG-TERM DEBT

Revolving Credit Facility: At March 31, 2006,
borrowings under the revolving credit facility were $385,000,000; outstanding letters of
credit totaled $3,855,000; credit available under the revolving facility was $111,145,000;
and Apria was in compliance with all of the covenants required by the credit agreement.

Convertible Senior Notes: At March 31, 2006, the
fair value of the $250,000,000 in convertible senior notes was $241,705,000, as determined
by reference to quoted market prices.

Hedging Activities: Apria utilizes interest rate
swap agreements to moderate its exposure to interest rate fluctuations on its underlying
variable rate long-term debt. Apria does not use derivative financial instruments for
trading or other speculative purposes. Apria has three interest rate swap agreements in
effect at March 31, 2006. One agreement, which will expire in December of 2006, has a
notional amount of $25,000,000 and a fixed rate of 3.42%. The other two agreements were
forward-starting contracts, each with a three-year term, that became effective in January
2006. Each contract has a notional amount of $25,000,000 that fixes an equivalent amount
of the companys variable rate debt at interest rates of 4.38% and 4.44%.

The swap agreements are being accounted for under SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities. The
difference between the interest received and interest paid is reflected as an adjustment
to interest expense. For the three-month periods ended March 31, 2006 and 2005, Apria
received (paid) net settlement amounts of $84,000 and $(84,000), respectively. The
aggregate fair value of the swap agreements was an asset of $1,320,000
 and $769,000 at March 31, 2006 and December 31, 2005, respectively, and is
 reflected in the accompanying condensed consolidated balance sheets in other assets.
Unrealized gains on the fair value of the swap agreements are reflected in other comprehensive
income or interest expense/income within the condensed consolidated statements of income as applicable.
Aprias exposure to credit loss under the swap
agreements is limited to the interest rate spread in the event of counterparty
non-performance.

---

NOTE E  STOCKHOLDERS EQUITY

For the three months ended March 31, 2006, changes to
stockholders equity are comprised of the following amounts:

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

Net income and total comprehensive income differ by
unrealized gains or losses related to interest rate swap agreements, net of taxes. For the
three months ended March 31, 2006 and 2005, total comprehensive income was $16,123,000 and
$25,398,000, respectively.

NOTE F  SHARE-BASED COMPENSATION

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

For the three-month period ended March 31, 2006, the
company recorded share-based compensation expense of $1,069,000. All such compensation is
reflected in the accompanying condensed consolidated income statement within the selling,
distribution and administrative expense line item. Share-based compensation expense
recognized in the first quarter of 2006 is based on awards ultimately expected to vest;
therefore, it has been reduced for estimated forfeitures. SFAS No. 123R requires
forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent
periods if actual forfeitures differ from those estimates. In the pro forma information
presented for periods prior to 2006, the company accounted for forfeitures as they
occurred.

For the three months ended March 31, 2006, Aprias
adoption of SFAS No. 123R reduced the companys operating income and income before
taxes by $376,000 and net income was reduced by $251,000. Basic and diluted earnings per
share were each reduced by $0.01. The adoption of SFAS No. 123R did not affect cash flow.

For the quarter ended March 31, 2006, cash received from
the exercise of options totaled $2,802,000 and income tax benefits related to stock-based
compensation arrangements amounted to $30,000.

The company estimates the fair value of stock options
using the Black-Scholes valuation model. Key input assumptions used to estimate the fair
value of stock options include the exercise price of the award, the expected option term,
the expected volatility of the companys stock over the options expected term,
the risk-free interest rate over the options term, and the companys expected
annual dividend yield. Aprias management believes that the valuation technique and
the approach utilized to develop the underlying assumptions are appropriate in calculating
the fair values of the companys stock options granted in the three months ended
March 31, 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 three months ended March 31, 2006, are
summarized in the table below. There were no stock option grants in the corresponding
period in 2005.

|                               | Three Months EndedMarch 31, 2006
|------------------------------ | --------------------------------
|
|Expected option term (1)       |                                 
|Expected volatility (2)        |                                 
|Risk-free interest rate (3)    |                                 
|Expected annual dividend yield |                                 

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

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

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

The 2003 Plan also contains the following limits:

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

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

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

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

---

The following table summarizes the activity for stock
options for the three months ended March 31, 2006:

|                                                | Options | Weighted-AverageExercise Price | Weighted-AverageRemainingContractual Term
                                 (in Years) | AggregateIntrinsicValue
|----------------------------------------------- | ------- | ------------------------------ | ------------------------------------------------------------------------------------- | -----------------------
|
|Outstanding at January 1, 2006                  |         | 4,076,705                      |                                                                                       | $                      
|Granted                                         |         | 630,000                        |                                                                                       |                        
|Exercised                                       |         | (114,665                       | )                                                                                     |                        
|Forfeited                                       |         | (40,002                        | )                                                                                     |                        
|                                                |         |                                |                                                                                       |                        
|Outstanding at March 31, 2006                   |         | 4,552,038                      |                                                                                       | $                      
|                                                |         |                                |                                                                                       |                        
|Vested or expected to vest as of March 31, 2006 |         | 4,432,390                      |                                                                                       | $                      
|                                                |         |                                |                                                                                       |                        
|Exercisable at March 31, 2006                   |         | 3,913,704                      |                                                                                       | $                      
|                                                |         |                                |                                                                                       |                        

The weighted-average fair value of stock options granted
during the three months ended March 31, 2006 was $7.39. There were no grants in the
corresponding period in 2005. The total intrinsic value of options exercised was $120,000 and
$3,255,000 for the three months ended March 31, 2006 and 2005, respectively. 

As of March 31, 2006,  total  unrecognized  stock-based  compensation  cost related to unvested  stock  options was
$3,679,000, which is expected to be expensed over a weighted-average period of 1.91 years.

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

The following table summarizes the activity for
restricted stock purchase rights for the three months ended March 31, 2006:

|                                                | Options | Weighted-AverageExercise Price | Weighted-AverageRemainingContractual Term
                                 (in Years) | AggregateIntrinsicValue
|----------------------------------------------- | ------- | ------------------------------ | ------------------------------------------------------------------------------------- | -----------------------
|
|Outstanding at January 1, 2006                  |         | 546,000                        |                                                                                       | $                      
|Granted                                         |         | -                              |                                                                                       |                        
|Exercised                                       |         | (22,000                        | )                                                                                     |                        
|Forfeited                                       |         | (34,000                        | )                                                                                     |                        
|                                                |         |                                |                                                                                       |                        
|Outstanding at March 31, 2006                   |         | 490,000                        |                                                                                       | $                      
|                                                |         |                                |                                                                                       |                        
|Vested or expected to vest as of March 31, 2006 |         | 439,532                        |                                                                                       | $                      
|                                                |         |                                |                                                                                       |                        
|Exercisable at March 31, 2006                   |         | 152,500                        |                                                                                       | $                      
|                                                |         |                                |                                                                                       |                        

The total intrinsic value of restricted stock purchase
rights exercised was $392,000 and $418,000 for the three months ended March 31, 2006 and 2005,
respectively. No such awards were granted during these two periods.

As of March 31, 2006, total unrecognized stock-based
compensation cost related to unvested restricted stock purchase rights was $4,340,000, which is
expected to be expensed over a weighted-average period of 4.08 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 three months ended March 31, 2006:

|                                                               | SharesorShare Units |  | Weighted-AverageGrant-Date
             Fair Value
|-------------------------------------------------------------- | ------------------- |  | --------------------------------------------------
|
|Nonvested restricted stock awards and
units at January 1, 2006 |                     |  |                                                   
|Granted                                                        |                     |  |                                                   
|Vested and released                                            |                     |  |                                                   
|Forfeited                                                      |                     |  |                                                   
|                                                               |                     |  |                                                   
|Nonvested restricted stock awards and units at March 31, 2006  |                     |  |                                                   
|                                                               |                     |  |                                                   

The weighted-average fair value of restricted stock
awards and units granted during the three months ended March 31, 2006  was $22.75.
There were no grants in the corresponding period in 2005. No restricted stock awards
or units were released during the periods presented in this report. 

As of March 31,  2006,  total  unrecognized  stock-based  compensation  cost related to unvested  restricted  stock
awards and units was $10,623,000, which is expected to be expensed over a weighted-average period of 4.60 years.

Prior Period Pro Forma Presentation: Apria had
previously adopted the provisions of SFAS No. 123 through disclosure only. The following
table illustrates the effects on net income and earnings per share for the three months
ended March 31, 2005 as if the company had applied the fair value recognition provisions
of SFAS No. 123 to share-based employee awards.

|(dollars in thousands, except per share data)                                                                                                           | Three Months EndedMarch 31, 2005
|------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------
|
|Net income as reported                                                                                                                                  |                                 
|Add:  share-based compensation
expense included      in reported net income,
net of related tax effects                                                 |                                 
|Deduct:  total share-based
     compensation expense      determined for all awards under fair
     value-based      method, net of related tax effects |                                 
|                                                                                                                                                        |                                 
|Pro forma net income                                                                                                                                    |                                 
|                                                                                                                                                        |                                 
|Basic net income per share:                                                                                                                             |                                 
|As reported                                                                                                                                             |                                 
|Pro forma                                                                                                                                               |                                 
|                                                                                                                                                        |                                 
|Diluted net income per share:                                                                                                                           |                                 
|As reported                                                                                                                                             |                                 
|Pro forma                                                                                                                                               |                                 

NOTE G  INCOME TAXES

Income taxes for the three months ended March 31, 2006
have been provided at a lower effective rate than is expected to be applicable for the
entire year. The lower rate is due to the completion of a 2002 Internal Revenue Service
audit, which resulted in the reduction of federal tax contingencies of $1,761,000 and a
corresponding reduction in the tax provision for the quarter.

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

At March 31, 2006, the company had various apportioned
state net operating loss carryforwards which resulted in a deferred tax asset of
$8,827,000, net of federal tax benefit.

---

NOTE H  PER SHARE AMOUNTS

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

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

NOTE I  COMMITMENTS AND CONTINGENCIES

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

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

---

---

Cautionary statement for purposes of the Safe
Harbor provisions of the Private Securities Litigation Reform Act of 1995:
Aprias business is subject to a number of risks which are partly or entirely beyond
the companys control. The company has described certain of those risks in its Annual
Report on Form 10-K/A for the fiscal year ended December 31, 2005, as filed with the
Securities and Exchange Commission on March 23, 2006. This report may be used for purposes
of the Private Securities Litigation Reform Act of 1995 as a readily available document
containing meaningful cautionary statements identifying important factors that could cause
actual results to differ materially from those projected in any forward-looking statements
the company may make from time to time. Key factors that may have an impact on Apria
include the following:

| |  | trends
 and developments affecting the collectibility of accounts receivable;                      
|- |  | ---------------------------------------------------------------------------------------------------
| |  | government legislative
 and budget developments that could continue to affect reimbursement levels;
| |  | the effectiveness of Aprias operating systems and controls;                                       
| |  | healthcare reform and the effect of federal and state healthcare regulations;                      
| |  | pricing pressures from large payors; and                                                           
| |  | other factors described in Aprias filings with the Securities and Exchange Commission.            

In addition, the military and national security
activities in which the United States is currently engaged, and the federal
governments financial commitments to disaster recovery efforts, have and could
continue to have significant impacts on the economy and government spending priorities.
Deficit spending by the government as the result of adverse developments in the economy
and the continuing costs of military and national security activities and disaster
assistance will most likely increase pressure to reduce government expenditures for other
purposes, including government-funded programs such as Medicare and Medicaid.

---

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

Apria
operates in the home healthcare segment of the healthcare industry and provides services
in the home respiratory therapy, home infusion therapy and home medical equipment areas.
In all three lines, Apria provides patients with a variety of clinical and administrative
support services and related products and supplies, most of which are prescribed by a
physician as part of a care plan. Apria provides these services to patients in the home
through approximately 500 branch locations throughout the United States.

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

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

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

Critical
Accounting Policies.Aprias management considers the accounting
policies that govern revenue recognition and the determination of the net realizable value
of accounts receivable to be the most critical in relation to the companys
consolidated financial statements. These policies require managements most complex
and subjective judgments. Additionally, the accounting policies related to goodwill,
long-lived assets and income taxes require significant judgment. These policies are
presented in detail in the Managements Discussion and Analysis of Financial
Condition and Results of Operations section in Aprias Annual Report on Form
10-K/A for the fiscal year ended December 31, 2005.

---

Results of Operations

Net
Revenues. Net revenues were $368.1 million in the first quarter of 2006,
compared to $371.9 million in the first quarter of 2005. The decrease is primarily
attributable to the Medicare reimbursement reductions that have been in effect since the
first quarter of 2005. Reimbursement reductions for oxygen and oxygen equipment became
effective April 8, 2005 and lower dispensing fees for respiratory drugs went into effect
January 1, 2006. Further, the average sales price, or ASP, which is used as the basis for
Medicare reimbursement of respiratory drugs is updated each quarter and, as a result, is
now lower than it was one year ago. The combined effect of these Medicare reductions was $8.4
million in the first quarter of 2006 as compared to the first quarter of 2005.
Additionally, reduced pricing for three of the companys larger managed care
contracts caused revenues to decline by approximately $3.9 million, when comparing the
first quarter of 2006 to the comparable period in 2005. These reductions were partially
offset by the full period effect in 2006 of revenue from acquisitions that were closed in 2005,
which is estimated at approximately $10 million. Also mitigating the reductions in the
first quarter of 2006 was approximately $3.9 million in incremental revenues from the new
CIGNA contract that went into effect February 1, 2006.

Management
previously estimated that the CIGNA contract would contribute approximately $25 million in
net revenues to 2006. Based on results to date, such revenues are
now estimated to be at least $35 million.

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

Respiratory
Therapy.Respiratory therapy revenues are derived primarily from the provision of
oxygen systems, home ventilators, sleep apnea equipment, nebulizers, respiratory
medications and related services. Revenues from the respiratory therapy service line
declined by 1.7% in the first quarter of 2006 when compared to the corresponding period of
2005. The entire Medicare reduction of $8.4 million noted above was in the respiratory
therapy line. Excluding the Medicare reduction, the respiratory line would have increased
by 1.6%. Acquisitions of respiratory businesses effected in 2005 and revenues from the new CIGNA contract
accounted for most of the growth in the respiratory therapy revenue line.

Growth
between the first quarter of 2005 and the first quarter of 2006 in the largest respiratory
categories is as follows: Excluding Medicare reductions, revenues from oxygen
and oxygen systems were flat while revenues from respiratory medications increased by
4.1%. The CPAP/BiPAP line, which currently comprises 26% of total respiratory revenues, grew by 12.9%.

Infusion
Therapy.The infusion therapy service line involves the administration of drugs or
nutrients directly into the body intravenously through a needle or catheter. Infusion
therapy services also include administering enteral nutrients directly into the
gastrointestinal tract through a feeding tube. Infusion therapy revenues increased by 5.0%
in the first quarter of 2006 when compared to the same period last year. Enteral
nutrition, which represents just under half of the infusion therapy line, increased by
7.8%.

Home
Medical Equipment/Other.Home medical equipment/other revenues are derived from
the provision of equipment to assist patients with ambulation, safety and general care in
and around the home. Home medical equipment/other revenues decreased by 4.8% in the first
quarter of 2006 when compared to the first quarter of 2005. The home medical equipment
line experienced a decline in the second half of 2005 largely due to decreases in hospital
utilization rates for many of the companys managed care contractors as well as
managed care pricing compression. However, when compared to the fourth quarter of 2005,
the home medical equipment/other line has increased by 2.1%, an early indication that the
downward trend may have reversed.

Medicare
Reimbursement. There are a number of provisions contained within recent
legislation or proposed legislation that affect or may affect Medicare reimbursement
policies for items and services provided by Apria. Such provisions are outlined below in
the chronological order of the associated legislation.

Still pending from the
Balanced Budget Act of 1997 is the streamlined authority granted to the U.S. Department of
Health and Human Services, or HHS, to increase or reduce the reimbursement for home
medical equipment, including oxygen, by up to 15% each year under an inherent
reasonableness authority. The Centers for Medicare and Medicaid Services, or CMS,
issued a rule that established a process by which such adjustments may be made. The rule
applies to all Medicare Part B services except those paid under a physician fee schedule,
a prospective payment system, or a competitive bidding program. As of this date, neither
CMS nor the durable medical equipment regional carriers, or DMERCs, have used the
expedited authority.

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

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

| |  | A freeze on annual payment increases for durable medical equipment  The freeze commenced in 2004 and will
     continue through 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Reimbursement  reductions for five durable medical equipment  categories,  including oxygen  Reimbursement for most
     of these  categories  is based on the median price paid for such items on behalf of  beneficiaries  of federal  employee
     health  benefit plans,  or FEHBP.  The new fee schedules for most products went into effect January 1, 2005. The revised
     pricing for oxygen and oxygen equipment was implemented on April 8, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  | Reimbursement  reduction for  inhalation  drugs  The previous  reimbursement  rate of 95% of the average  wholesale
     price was  reduced  to 80% of the  average  wholesale  price,  effective  January 1, 2004.  Beginning  in January  2005,
     reimbursement  for these drugs was further  reduced  through a shift to the  manufacturer-reported  average  sales price
     (subject to adjustment each quarter) plus 6%, plus a separate  dispensing fee per patient  episode.  The dispensing fees
     for 2005 were $57.00 for a 30-day supply of medications and $80.00 for a 90-day supply.  Effective  January 1, 2006, the
     dispensing  fees were  established  at $57.00 for a 30-day  supply for a new patient  and $33.00 for each 30-day  supply
     thereafter.  The 90-day dispensing fee has been lowered to $66.00.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | Establishment  of a competitive  bidding  program for Medicare Part B  Such a program would require that  suppliers
     wishing to provide certain items to beneficiaries  submit bids to Medicare.  The program, for as yet unspecified durable
     medical  equipment items and services,  is to be phased in as follows:  (i) 10 of the largest  metropolitan  statistical
     areas in 2007; (ii) 80 of the largest  metropolitan  statistical  areas in 2009; and (iii)  additional areas after 2009.
     The legislation contains special provisions for rural areas.

     On April 24, 2006, CMS issued its proposed rule for the  competitive  bidding  program under Medicare Part B, related to
     durable medical  equipment,  prosthetics and supplies  (DMEPOS) and other issues.  The document  outlines CMS general
     intent regarding  competitive  acquisition for DMEPOS  beginning some time in 2007.  However,  it does not specify:  (i)
     which DMEPOS products will be included in the 10 initial competitive  acquisition program areas; (ii) which metropolitan
     statistical areas will be included in the initial round of competitive bidding,  although it does explicitly exclude New
     York City, Chicago and Los Angeles from the first round; (iii) target cost savings; (iv) specific quality standards;  or
     (v) specific  provider  guidelines  for  preparing,  completing  and  implementing  the bids in each area. The rule also
     introduced  certain concepts not previously  addressed.  Such concepts require much more evaluation and consideration by
     all parties,  including CMS and its legal  advisors.  CMS noted that it is seeking  comments on all aspects of the rule,
     with a deadline  of June 30,  2006.  CMS also noted that it  expects  to issue the final  quality  standards,  including
     product-specific  standards,  through a program  instruction  memo,  later in the year.  Given the evaluation  that must
     still be performed, Apria cannot estimate the impact of the competitive bidding program at this time.
| |  | Incentives  for expansion of Medicare Part C  The Medicare  Modernization  Act includes  financial  incentives for
     managed care plans to expand  their  provision of Medicare  Advantage  plans in 2006 in a stated  effort to attract more
     Medicare  beneficiaries to managed care models.  The company maintains  contracts to provide  respiratory,  infusion and
     medical equipment and related services to a significant  number of managed care plans nationwide,  and believes that the
     Medicare Advantage expansion represents a growth opportunity in 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  | Reimbursement  for home  infusion  therapy  under  Medicare  Part D   Currently,  a  limited  number  of  infusion
     therapies,  supplies and  equipment  are covered by Medicare Part B. The Medicare  Modernization  Act provides  expanded
     coverage  for the drugs only,  but  excludes  coverage  for the  supplies  and  clinical  services  needed to safely and
     effectively  provide home infusion  therapy services to patients in the home. In the fourth quarter of 2005, the company
     contracted with a limited number of Medicare Part D prescription  drug plans in order to provide  continuity of care for
     existing  Medicare/Medicaid  dual eligible patients in 2006. Due to nationwide Part D implementation  issues experienced
     by home  infusion  providers  in early 2006,  the  industry is  continuing  to work with CMS to rectify the coverage and
     payment policies that are causing implementation challenges.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

---

The Deficit Reduction Act
of 2005 was signed by the President in February 2006. However, a number of lawsuits were
subsequently filed to prevent its implementation because the House and Senate approved
different versions of the bill due to a clerical error. The matter is still pending, but
should the legislation survive as written, it contains the following provisions that will
impact reimbursement to Apria:

| |  | In 2007,  durable  medical  equipment  currently  categorized in the capped rental category by CMS, such as hospital
     beds,  wheelchairs,  nebulizers,  patient lifts and continuous  positive  airway  pressure  devices,  will be considered
     purchased  outright at the end of the maximum rental period and the ownership of such devices will transfer  directly to
     the  patients.  The maximum  rental  period,  which had been 15 months with an option for the  patients to purchase  the
     equipment  in the tenth  month,  will be reduced to 13 months.  The new  13-month  rental  period  policy took effect on
     January 1, 2006,  and therefore  the first month in which the new policy will impact the  companys  revenue is February
     2007. In addition,  the service and  maintenance  fee that had been paid to suppliers  twice yearly
after the rental period
     ended  will be  eliminated.  Suppliers  will have the option of billing  Medicare  for any repairs  and/or  maintenance
     performed on the  patient-owned  equipment.  The Deficit  Reduction  Act  authorizes  the  Secretary of HHS to establish
     service and/or  maintenance fees that at this time cannot be estimated or assured.  It is, however,  unlikely that Apria
     will continue in the repair and maintenance  business.  Management estimates that the annual reduction in rental revenue
     and the loss of the service and maintenance fee will be $4 million and $16 million, respectively. Management is
     currently evaluating the impact that this change will have on the corresponding cost of sales.                                                           
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Reimbursement  for oxygen equipment will convert from an ongoing  rental method to a rent to purchase method.
 The Deficit  Reduction
     Act mandates that oxygen  equipment  reimbursement  will be limited to 36 months,  after which time the ownership of the
     equipment will transfer to the patient,  who will assume all  responsibility  for identifying when repairs or preventive
     maintenance are needed.  Providers would continue to be reimbursed for delivering  portable oxygen to those patients who
     require it. The Act applies to patients  on service  with  suppliers  from  January 1, 2006  forward.  Accordingly,  the
     first month in which the new policy will impact the company is January  2009.  The Act  authorizes  the Secretary of HHS
     to establish  service  and/or  maintenance  fees that at this time cannot be  estimated  or assured.  Due to the bundled
     nature of the existing  payment method,  which includes the  reimbursement  for contents,  and all applicable  clinical,
     delivery,  after-hours,  billing/collection  and other patient support services, the industry will work with CMS and the
     Secretary to establish fair and equitable fee schedules for such non-equipment  services.  The net impact of the changes
     cannot be estimated at this time.

     The  Presidents  current  budget  proposal  contains a provision to further reduce the maximum rental period for oxygen
     from the  now-mandated 36 months to 13 months.  No further  information is available on the proposal and it is uncertain
     whether this provision will remain in the budget that is ultimately approved by Congress.

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

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

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

     Further,  the  manufacturer of Xopenex® recently  announced that it is attempting to negotiate a solution to this issue
     directly  with CMS that would reduce the  reimbursement  rate while  maintaining  patient  access to the drug within the
     Medicare Part B program.  Apria does not have  visibility to the particulars of such a proposal but believes that such a
     solution could also have an adverse affect on its revenues and results of operations.

Medicaid
Reimbursement. In 2001, some states began adopting alternative pricing
methodologies for certain drugs and biologicals under the Medicaid program. In at least 22
states, the changes reduced the level of reimbursement received by Apria without a
corresponding offset or increase to compensate for the service costs incurred. In several
of those states, Apria elected to stop accepting new Medicaid patient referrals for the
affected drugs and biologicals.  Further, in 2005, some states implemented other payment policy
changes or changed coverage criteria altogether for medical equipment, enteral and infusion therapy.
Currently, other states are considering reductions in Medicaid reimbursement
as they work through their respective budget processes. Apria cannot
predict the outcome of such budget negotiations or whether other states will consider
reductions as well.

Gross
Margin. The gross margin was 65.5% in the first quarter of 2006 and 67.8%
in the same period last year. The principal causes of the decline are the Medicare
reimbursement reductions of $8.4 million noted above, related cost increases of $1.2
million and the managed care pricing reductions of $3.9 million. Also affecting the
comparison of the margin between the two first quarters is an increase in respiratory
therapy labor and other operating expenses which represents about 0.3% of the margin
decline.

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 3.9% for the first quarter of 2006 and 2005, respectively.
The improvement between the periods reflects improvements in cash collections and notably
the success of a credit card program designed to collect patient receivables upon delivery
and automatically on the rental due date thereafter. Also, the absence of acquisitions in
recent months has allowed the revenue management teams to focus on basics and best
practices.

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 lease 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
53.7% in the first quarter of 2006 and 52.4% in the first quarter of 2005. The increase of
1.3% is attributable to the lower revenues resulting from the Medicare and managed care
pricing changes noted above without a corresponding reduction in the companys actual
cost of providing those products and services. These revenue pricing reductions had the
effect of increasing the expense percentage by 1.6%. The annual salary increases that were
processed at the end of the first quarter in 2005 and higher fuel prices offset other
expense leveraging achieved by the company.

---

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

For the three-month periods ended March 31, 2006 and 2005, share-based compensation
expense was $1.1 million and $1.2 million, respectively. The adoption of SFAS No. 123R had
little effect on the comparison between quarters primarily due to the November 2005
acceleration of the vesting of outstanding employee stock options with per share prices
above $26.00, so that each such option became fully vested. That action eliminated the
future compensation expense of the unvested portion of such options. The share-based
compensation expense in both periods is comprised largely of expense associated with
restricted stock awards and units for which expense recognition was previously required
under the principles of APB No. 25.

Amortization
of Intangible Assets.For the quarter ended March 31, 2006, amortization
expense was $1.3 million. This compares to $1.6 million for the same period last year. The
decrease in amortization expense between the two periods is directly attributable to the
reduced level of acquisition activity in 2006 as compared to 2005. See Liquidity and
Capital Resources  Business Combinations.

Interest
Expense and Income. Interest expense was $8.3 million for the first quarter
of 2006 as compared to $7.6 million for the comparable period in 2005. Interest income was
$972,000 and $341,000 for the three months ended March 31, 2006 and 2005, respectively.
The increase in interest expense in 2006 is primarily attributable to the increase in
long-term debt incurred to repurchase $175 million of Aprias common stock late in
2005. The increase in base interest rates during 2005 also contributed to the increase.
See Liquidity and Capital Resources  Long-term Debt and Treasury Stock.

Income
Tax Expense.Income taxes for the three months ended March 31, 2006 have
been provided at a lower effective rate than is expected to be applicable for the entire
year. The lower rate is due to the completion of a 2002 Internal Revenue Service audit which
resulted in the related reduction of federal tax contingencies of $1.8 million and a corresponding
reduction in the tax provision for the quarter.

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

At
March 31, 2006, the company had various apportioned state net operating loss carryforwards
which resulted in a deferred tax asset of $8.8 million, net of federal tax benefit.

Inflation.Apria experiences pricing pressures in the form of continued reductions in
          reimbursement rates, particularly from managed care organizations and from
          governmental payors such as Medicare and Medicaid. The company is also impacted
          by rising costs for certain inflation-sensitive operating expenses such as labor
          and employee benefits, facility and equipment leases, and vehicle fuel.

Liquidity and Capital Resources

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

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

Cash
Flow. Cash provided by operating activities was $38.2 million in the first
three months of 2006 compared to $51.7 million in the corresponding period in 2005. The
decrease in operating cash flow between the two periods is due primarily to the Medicare
reimbursement reductions, the timing of
the payment of payroll liabilities and an increase in accounts receivable caused by the
first quarter 2006 revenue increase that trended upward toward the end of the quarter.

Cash
used in investing activities decreased to $42.3 million for the first three months of 2006
compared to $63.3 million during the same period last year. A significant reduction in the
level of business combinations executed during the first quarter of 2006 is the primary
driver of this decrease. The increase in purchases of patient service and other equipment
in 2006 is directly attributable to the new CIGNA contract. In order to accelerate
the CIGNA transition, Apria not only increased purchases of new equipment, but also purchased
from previous providers equipment that was already in place with existing patients.

Cash
used in financing activities was $5.2 million during the first three months of 2006
compared to $261,000 for the first three months of 2005. Cash used in 2006 related
primarily to the $5.0 million pay down on the revolver balance.

---

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

|(dollars in millions)                                                                                                                                    | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | Year 6+ | Totals
|-------------------------------------------------------------------------------------------------------------------------------------------------------- | ------ | ------ | ------ | ------ | ------ | ------- | ------
|
|Revolving loan                                                                                                                                           |        |        | $      | -      |        | $       | -     
|Convertible senior notes                                                                                                                                 |        |        |        | -      |        |         | -     
|Capital lease obligations                                                                                                                                |        |        |        | 1      |        |         | -     
|Other debt                                                                                                                                               |        |        |        | 1      |        |         | 1     
|Operating leases                                                                                                                                         |        |        |        | 55     |        |         | 43    
|Deferred acquisition payments                                                                                                                            |        |        |        | 3      |        |         | -     
|                                                                                                                                                         |        |        |        |        |        |         |       
|Total contractual cash obligations                                                                                                                       |        |        | $      | 60     |        | $       | 44    
|                                                                                                                                                         |        |        |        |        |        |         |       
|                                                                                                                                                         |        |        |        |        |        |         |       
|The holders of the convertible senior notes
will first have the option to require Apria to repurchase all or a portion
of their notes in September 2008.

Accounts
Receivable. Accounts receivable before allowance for doubtful accounts
increased to $270.6 million at March 31, 2006, from $268.0 million at December 31, 2005.
Days sales outstanding (calculated as of each period-end by dividing accounts receivable,
less allowance for doubtful accounts, by the 90-day rolling average of net revenues) were
56 days at March 31, 2006 compared to 57 at December 31, 2005. The decrease in days sales
outstanding is a result of the increase in net revenues for the first quarter (or last 90
days) of 2006, when compared to the fourth quarter of 2005.

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

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

Unbilled
Receivables.Included in accounts receivable are earned but unbilled receivables
of $37.0 million and $41.6 million at March 31, 2006 and December 31, 2005, respectively.
Delays, ranging from a day up to several weeks, between the date of service and billing
can occur due to delays in obtaining certain required payor-specific documentation from
internal and external sources. Earned but unbilled receivables are aged from date of
service and are considered in Aprias analysis of historical performance and
collectibility. The higher unbilled amount at December 31, 2005 is largely due to
acquisitions effected throughout 2005. The time-consuming processes of converting patient
files onto Aprias systems and obtaining provider numbers from governmental payors
routinely delay billing of the newly acquired business.

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

The
branch locations serve as the primary point from which inventories and patient service
equipment are delivered to patients. Certain products and services, such as infusion
therapy and respiratory medications, bypass the branches and are provided directly to
patients from pharmacies or other central locations. The branches are supplied with
inventory and equipment from central warehouses that service specific areas of the
country. Such warehouses are also responsible for repairs and scheduled maintenance of
patient service equipment, which adds to the frequent movement of equipment between
locations. Further, the majority of Aprias patient service equipment is located in
patients homes. While utilization varies widely between equipment types, on the
average, approximately 80% of equipment is on rent at any given time. Inherent in this
asset flow is the fact that losses will occur. Management has successfully instituted a
number of controls over the companys inventories and patient service equipment to
minimize such losses. Depending on the product type, the company performs physical
inventories on an annual or quarterly basis. 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 (pickups) and losses for the three
months ended March 31, 2006 and 2005, were $(4,000) and $466,000, respectively.

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Long-term
Debt. Revolving Credit Facility. Borrowings under
Aprias revolving credit facility were $385.0 million; outstanding letters of credit
totaled $3.9 million; and credit available under the revolving facility was $111.1
million. The company continues to be in compliance with all of the covenants required by
the credit agreement. The effective interest rate at March 31, 2006, after consideration
of the effect of the swap agreements described below, was 5.89%. See Hedging
Activities.

Convertible
Senior Notes.At March 31, 2006, the fair value of the $250 million in convertible
senior notes was $241.7 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
March 31, 2006, Apria had three interest rate swap agreements in effect to fix its
 variable rate debt. One such agreement has a notional amount of $25 million, a
fixed rate of 3.42% and expires in December 2006. The other two agreements were
forward-starting contracts which became effective in January 2006. Both agreements have a
three-year term and a notional amount of $25 million, with fixed rates of 4.38% and 4.44%. In
2005, Apria also had a swap agreement with an aggregate notional amount of $25 million
that expired in December 2005.

The
swap agreements are being accounted for under SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. The difference between the interest
received and interest paid is reflected as an adjustment to interest expense. For the
three-month periods ended March 31, 2006 and 2005, Apria received (paid) net settlement
amounts of $84,000 and $(84,000), respectively. The aggregate fair
value of the swap agreements was an asset of $1.3 million and $769,000 at March 31, 2006 and
December 31, 2005, 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 the condensed
consolidated income statements as applicable. Aprias exposure to credit loss
under the swap agreements is limited to the interest rate spread in the event of
counterparty non-performance.

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

Business
Combinations.Apria periodically acquires complementary businesses in
specific geographic markets. Because of the potential for a higher gross margin, Apria
targets respiratory therapy businesses. These transactions are accounted for as purchases
and the results of operations of the acquired companies are included in the accompanying
condensed consolidated income statements from the dates of acquisition. In
accordance with SFAS No. 142, goodwill is no longer being amortized. Covenants not to
compete are being amortized over the life of the respective agreements. Tradenames and
customer lists are being amortized over the period of their expected benefit.

The
aggregate consideration for acquisitions that closed during the first three months of 2006
was $1.1 million. Allocation of this amount was made to other intangible assets. Because
Apria had already been servicing the existing patient bases on a subcontract basis, there
was no patient service equipment acquired. Cash paid for acquisitions, which includes
amounts deferred from prior periods, totaled $4.1 million and $28.9 million in the first
three months of 2006 and 2005, respectively.

Off-Balance Sheet Arrangements

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

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

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ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK

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

At
March 31, 2006, Aprias revolving credit facility borrowings totaled $385.0 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 (LIBOR). All such interest rate options are subject to the
application of an interest margin as specified in the bank credit agreement. At March 31,
2006, all of Aprias outstanding revolving debt was tied to LIBOR.

During
the first quarter of 2006, Apria had three interest rate swap agreements in effect to fix
its LIBOR-based variable rate debt. One of the agreements, which will expire in December
2006, has a notional amount of $25 million and a fixed rate of 3.42%. The other two
agreements, which were forward-starting contracts with three-year terms, became effective
in January 2006. Each contract has a notional amount of $25 million and fixed rates of
4.38% and 4.44%.

Based
on the revolving debt outstanding and the swap agreements in place at March 31, 2006, a
100 basis point change in the applicable interest rates would increase or decrease
Aprias annual cash flow and pretax earnings by approximately $3.1 million. See
Managements Discussion and Analysis of Financial Condition and Results of
Operations  Long-term Debt  Hedging Activities.

ITEM 4.     CONTROLS AND PROCEDURES

As
of the end of the period covered by this report, the companys management, including
the companys principal executive officer and principal financial officer, carried
out an evaluation of the effectiveness of the companys disclosure controls and
procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended, or the Exchange Act). Based upon that evaluation, the
companys principal executive officer and principal financial officer each concluded
that the companys disclosure controls and procedures were effective as of the end of
the period covered by this report.

During
the period covered by this report, there have been no changes to the companys
internal control over financial reporting (as such term is defined in Rules 13a-15(d) and
15d-15(d) under the Exchange Act) that have materially affected, or are reasonably likely
to materially affect, the companys internal control over financial reporting.

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PART II  OTHER INFORMATION

ITEM 1.     LEGAL PROCEEDINGS

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

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

ITEM 1A.     RISK FACTORS

The risk factors presented in Aprias
Annual Report on Form 10­K/A, as filed with the Securities and Exchange Commission on
March 23, 2006, are updated by reference to the Medicare Reimbursement section
included in Managements Discussion and Analysis of Financial Condition and Results
of Operations in this Quarterly Report on Form 10-Q.  There were no material changes to
any of the other risk factors previously disclosed in the Form 10K/A.

ITEM 5.     OTHER INFORMATION

As
of May 5, 2006, the company entered into Amended and Restated Employment Agreements with
Lawrence M. Higby, the companys Chief Executive Officer, and Lawrence A. Mastrovich,
the companys President and Chief Operating Officer, as well as Amended and Restated
Executive Severance Agreements with Amin I. Khalifa, the companys Executive Vice
President and Chief Financial Officer, W. Jeffrey Ingram, the companys Executive
Vice President, Sales, and Daniel J. Stark, the companys Executive Vice President,
Customer Services. The amendments conformed certain defined terms used in each of the
agreements, contain certain provisions related to compliance with Section 409A of the
Internal Revenue Code of 1986, as amended (the Code), and made a number of
other immaterial changes. The form of compensation related to certain executive
perquisites to be paid to Messrs. Higby and Mastrovich was changed pursuant to their
amended agreements, which resulted in modest increases in their base salaries (2.8% and
2.4%, respectively), in lieu of receiving the perquisites to which they were previously
entitled. In addition, the provision regarding golden parachute excise taxes under Mr.
Khalifas Executive Severance Agreement was modified to provide that in the event any
payments to Mr. Khalifa would trigger the golden parachute excise tax under Section 4999
of the Code, such payments will only be reduced if such reduction would result in a better
after tax result for Mr. Khalifa.

As
of May 5, 2006, the company also entered into Noncompetition Agreements with Messrs.
Khalifa, Ingram and Stark. Pursuant to these agreements, Messrs. Khalifa, Ingram and Stark
each agree not to compete with the company for a period of one year following a
termination of employment in connection with a Change in Control, as defined in their
respective Amended and Restated Severance Agreements. The Noncompetition Agreements
provide that if the employment of any of those executives is terminated, other than for
disability or Cause, as defined in their Amended and Restated Severance Agreements, in
connection with or within two years following such a Change in Control, the company shall
make payments to such executive totaling $750,000.

The
complete text of each Amended and Restated Employment Agreement, Amended and Restated
Executive Severance Agreement and Noncompetition Agreement is filed as an exhibit to this
quarterly report on Form 10-Q, and the foregoing summaries are qualified in their entirety
by reference thereto.

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ITEM 6.     EXHIBITS

| |                   |  |                                                                                                                      
| | ----------------- |  | ---------------------------------------------------------------------------------------------------------------------
| | Exhibits:         |  |                                                                                                                      
| | ExhibitNumber10.1 |  | ReferenceDeferred Compensation Plan, effective
July 17, 2003.                                                        
| | 10.2              |  | Form of Restricted Stock Unit Award Agreement as
granted under the Registrants 2003 Performance Incentive Plan.     
| | 10.3              |  | Amended and Restated Employment Agreement dated as of May 5, 2006,
between Registrant and Lawrence M. Higby.         
| | 10.4              |  | Amended and Restated Employment Agreement dated as of May 5, 2006,
between Registrant and Lawrence A. Mastrovich.    
| | 10.5              |  | Amended and Restated Executive Severance Agreement dated as of May 5, 2006,
between Registrant and Amin I. Khalifa.  
| | 10.6              |  | Amended and Restated Executive Severance Agreement dated as of May 5, 2006,
between Registrant and Daniel J. Starck. 
| | 10.7              |  | Amended and Restated Executive Severance Agreement dated as of May 5, 2006,
between Registrant and W. Jeffrey Ingram.
| | 10.8              |  | Noncompetition Agreement dated as of May 5, 2006,
between Registrant and Amin I. Khalifa.                            
| | 10.9              |  | Noncompetition Agreement dated as of May 5, 2006,
between Registrant and Daniel J. Starck.                           
| | 10.10             |  | Noncompetition Agreement dated as of May 5, 2006,
between Registrant and W. Jeffrey Ingram.                          
| | 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                                                                               
|May 10, 2006 | /s/ AMIN I. KHALIFA
Amin I. KhalifaExecutive Vice President and Chief Financial Officer
(Principal Financial Officer)