UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

For the quarterly period ended
 September 30, 2005

OR

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

Commission File Number:
1-14316

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

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

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

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

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

As of November 4, 2005 there were outstanding
49,564,090  shares of the Registrants common stock, par
value $.001, which is the only class of common stock of the Registrant (not
including 9,627,659 shares held in treasury.)

---

APRIA HEALTHCARE GROUP INC.

FORM 10-Q

For the period ended September 30, 2005

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

---

PART I  FINANCIAL INFORMATION

ITEM 1.     
 FINANCIAL STATEMENTS (unaudited)

APRIA HEALTHCARE GROUP INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)

|                                                                            | September 30, |  | December 31,
|--------------------------------------------------------------------------- | ------------- |  | ------------
|
|
|ASSETS                                                                      |               |  |             
|CURRENT ASSETS                                                              |               |  |             
|Cash and cash equivalents                                                   |               |  | $           
|Accounts receivable, less allowance
for doubtful accounts of $48,677        |               | 
|and $45,064 at September 30, 2005 and
December 31, 2004, respectively       |               |  |             
|Inventories, net                                                            |               |  |             
|Deferred income taxes                                                       |               |  |             
|Refundable and prepaid income taxes                                         |               |  |             
|Prepaid expenses and other current assets                                   |               |  |             
|                                                                            |               |  |             
|TOTAL CURRENT ASSETS                                                        |               |  |             
|                                                                            |               | 
|PATIENT SERVICE EQUIPMENT, less accumulated depreciation of
$442,340        |               | 
|and $420,714 at September 30, 2005 and December 31, 2004, respectively      |               |  |             
|PROPERTY, EQUIPMENT AND IMPROVEMENTS, net                                   |               |  |             
|DEFERRED INCOME TAXES                                                       |               |  |             
|GOODWILL                                                                    |               |  |             
|INTANGIBLE ASSETS, less accumulated amortization of
$7,982  and             |               | 
|$6,425 at September 30, 2005 and December 31, 2004, respectively            |               |  |             
|DEFERRED DEBT ISSUANCE COSTS, net                                           |               |  |             
|OTHER ASSETS                                                                |               |  |             
|                                                                            |               |  |             
|                                                                            |               |  | $           
|                                                                            |               |  |             
|LIABILITIES AND STOCKHOLDERS EQUITY                                        |               | 
|CURRENT LIABILITIES                                                         |               | 
|Accounts payable                                                            |               |  | $           
|Accrued payroll and related taxes and benefits                              |               |  |             
|Accrued insurance                                                           |               |  |             
|Income taxes payable                                                        |               |  |             
|Other accrued liabilities                                                   |               |  |             
|Current portion of long-term debt                                           |               |  |             
|                                                                            |               |  |             
|TOTAL CURRENT LIABILITIES                                                   |               |  |             
|                                                                            |               | 
|LONG-TERM DEBT, exclusive of current portion                                |               |  |             
|DEFERRED INCOME TAXES                                                       |               |  |             
|OTHER NON-CURRENT LIABILITIES                                               |               |  |             
|COMMITMENTS AND CONTINGENCIES (Note G)                                      |               | 
|                                                                            |               | 
|STOCKHOLDERS EQUITY                                                        |               | 
|Preferred stock, $.001 par value: 10,000,000
shares authorized, none issued |               |  |             
|Common stock, $.001 par value: 150,000,000 shares authorized;               |               | 
|59,182,649 and 58,236,364 shares issued at
September 30, 2005 and           |               | 
|December 31, 2004, respectively;
49,554,990 and 48,608,705 shares           |               | 
|outstanding at September 30, 2005 and December 31, 2004, respectively       |               |  |             
|Additional paid-in capital                                                  |               |  |             
|Treasury stock, at cost; 9,627,659 shares
at September 30, 2005             |               | 
|and December 31, 2004                                                       |               |  |             
|Retained earnings                                                           |               |  |             
|Accumulated other comprehensive income (loss)                               |               |  |             
|                                                                            |               |  |             
|                                                                            |               |  |             
|                                                                            |               |  |             
|                                                                            |               |  | $           
|                                                                            |               |  |             

See notes to condensed
consolidated financial statements.

---

APRIA HEALTHCARE GROUP INC.

CONDENSED CONSOLIDATED INCOME STATEMENTS 
(unaudited)

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

|                                                                                   | Nine Months EndedSeptember 30,
|---------------------------------------------------------------------------------- | ------------------------------
|
|
|
|OPERATING ACTIVITIES                                                               |                               
|Net income                                                                         |                               
|Items included in net income not requiring cash:                                   |                               
|Provision for doubtful accounts                                                    |                               
|Depreciation and amortization                                                      |                               
|Amortization of deferred debt issuance costs                                       |                               
|Deferred income taxes                                                              |                               
|Stock-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 term loans                                                             |                               
|Payments on other long-term debt                                                   |                               
|Outstanding checks included in accounts payable                                    |                               
|Capitalized debt issuance costs                                                    |                               
|Repurchases of common stock                                                        |                               
|Issuances of common stock                                                          |                               
|                                                                                   |                               
|NET CASH
PROVIDED BY (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 for the fiscal year
ended December 31, 2004.

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

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

Revenue Recognition and Concentration of Credit
Risk: Revenues are recognized on the date services and related products are provided
to patients and are recorded at amounts expected to be received under reimbursement
arrangements with third-party payors, including private insurers, prepaid health plans,
Medicare and Medicaid. Approximately 39% of the companys revenues are reimbursed
under arrangements with Medicare and Medicaid. No other third-party payor group represents
more than 8% 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 10% or less 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.

Distribution Expenses: Distribution expenses,
totaling $43,004,000 and $127,912,000 for the three and nine-month periods ended September
30, 2005, are included in selling, distribution and administrative expenses. For the
corresponding periods in 2004, distribution expenses were $40,720,000 and 115,840,000,
respectively.

Stock-based Compensation:The company accounts
for its stock-based compensation plans under the recognition and measurement principles of
Accounting Principles Board (APB) Opinion No. 25,and related
interpretations. Apria has adopted the disclosure provisions of Statement of Financial
Accounting Standards (SFAS) No. 123, as amended by SFAS No. 148,
Accounting for Stock-Based Compensation  Transition and Disclosure  an
amendment of FASB Statement No. 123. For the nine-month period ended September 30,
2005, net income reflects compensation expense for restricted stock awards and restricted
stock purchase rights accounted for in accordance with APB Opinion No. 25. Had
compensation expense for all of the companys stock-based compensation awards been
recognized based on the fair value recognition provisions of SFAS No. 123, Aprias
net income and per share amounts would have been adjusted to the pro forma amounts
indicated below.

---

|                                                                                                                                     | Three Months EndedSeptember 30, |  |   | Nine Months EndedSeptember 30,
|------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------- |  | - | ------------------------------
|
|
|
|Net income as reported                                                                                                               |                                 |  | $ | 19,255                        
|Add:  stock-based compensation expense included
  in reported net income, net of related tax effects                                 |                                 |  |   | 247                           
|Deduct: total stock-based
compensation expense  determined for all awards under fair
value-based  method, net of related tax effects |                                 |  |   | (1,627                        
|                                                                                                                                     |                                 |  |   |                               
|Pro forma net income                                                                                                                 |                                 |  | $ | 17,875                        
|                                                                                                                                     |                                 |  |   |                               
|                                                                                                                                     |                                 | 
|Basic net income per share:                                                                                                          |                                 | 
|As reported                                                                                                                          |                                 |  | $ | 0.39                          
|Pro forma                                                                                                                            |                                 |  | $ | 0.36                          
|                                                                                                                                     |                                 | 
|Diluted income per share:                                                                                                            |                                 | 
|As reported                                                                                                                          |                                 |  | $ | 0.38                          
|Pro forma                                                                                                                            |                                 |  | $ | 0.35                          

For purposes of the pro forma disclosure, the fair value of
each option grant is estimated on the date of grant using the Black-Scholes option-pricing
model and employing the following weighted-average assumptions for grants in the
nine-month periods ended September 30, 2005 and 2004: risk-free interest rates of 3.78%
and 3.02%, respectively; dividend yield of 0% for all periods; expected lives of 4.13 and
4.83 years, respectively; and volatility of 32% and 47%, respectively.

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

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

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

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 estimate effected
by a change in accounting principle and redefines restatement as a revision to reflect the
correction of an error. The statement is effective for accounting changes and error
corrections made in fiscal years beginning after December 15, 2005. Accordingly, Apria
will adopt the statement January 1, 2006.

---

NOTE B  BUSINESS COMBINATIONS

Apria periodically makes acquisitions of complementary
businesses in specific geographic markets. The results of operations of the acquired
companies are included in the accompanying consolidated income statements from the dates
of acquisition. During the nine-month period ended September 30, 2005, cash paid for
acquisitions was $101,907,000, which included deferred payments of $8,501,000 that were
related to acquisitions completed prior to 2005. At September 30, 2005, deferred
consideration payable totaled $5,795,000 and is included on the consolidated balance sheet
in other accrued liabilities.

During the nine-month period ended September 30, 2005,
Apria acquired 19 companies, each with revenues that are primarily attributable to the
respiratory therapy line of business. Pending receipt of additional valuation information,
amounts preliminarily allocated to goodwill, other intangible assets and patient service
equipment were $83,332,000, $7,435,000 and $6,958,000, respectively. This allocation is
inclusive of amounts not yet paid.

The following supplemental unaudited pro forma
information presents the combined operating results of Apria and the businesses that were
acquired by Apria during the nine-month period ended September 30, 2005, as if the
acquisitions had occurred at the beginning of the earliest period presented. The pro forma
information is based on the historical financial statements of Apria and the acquired
businesses. Amounts are not necessarily indicative of the results that may have been
achieved had the acquired businesses been integrated at the beginning of the earliest
period presented or that may be achieved in the future.

|                                    | Nine Months EndedSeptember 30,
|----------------------------------- | ------------------------------
|
|
|
|Net revenues                        |                               
|Net income                          |                               
|                                   
|Basic net income per common share   |                               
|Diluted net income per common share |                               

NOTE C  GOODWILL AND INTANGIBLE ASSETS

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

The net change in the carrying amount of goodwill of
$82,573,000 for the nine months ended September 30, 2005, is the result of business
combinations. Substantially all of the goodwill recorded in conjunction with the business
combinations completed during the periods presented is expected to be deductible for tax
purposes.

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

|(dollars in thousands)   |  |  | September 30, 2005 |     | December 31, 2004
|------------------------ |  |  | ------------------ | --- | -----------------
|
|
|
|Covenants not to compete |  |  |                    | 4.9 |                  
|Trade names              |  |  |                    | 2.0 |                  
|Customer lists           |  |  |                    | < 1 |                  
|                         |  |  |                    |     |                  
|                         |  |  |                    |     |                  
|                         |  |  |                    |     |                  

---

Amortization expense was $5,176,000 for the nine-month
period ended September 30, 2005. Estimated amortization expense for the current year and
each of the next five fiscal years ending December 31 is presented below:

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

NOTE D  LONG-TERM DEBT

Revolving Credit Facility: At September 30, 2005,
Aprias borrowings under its revolving credit facility were $255,000,000; outstanding
letters of credit totaled $3,855,000; and credit available under the revolving facility
was $241,145,000. Apria was in compliance with all of the financial covenants required by
the related credit agreement.

Convertible Senior Notes: At September 30, 2005,
the fair value of the $250,000,000 in convertible senior notes was $263,750,000, 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 currently has two interest rate swap
agreements in effect that have terms of three and four years and a notional amount of
$25,000,000 each. The interest rate swap agreements fix an equivalent amount of the
companys variable rate debt at interest rates of 3.04% and 3.42%. During the second
quarter of 2005, Apria entered into two new interest rate swap agreements. The
forward-starting contracts, each with a notional amount of $25,000,000, become effective
in January 2006. Both agreements have a three-year term with fixed rates of 4.38% and
4.44%.

The interest rate swap agreements are being accounted
for as cash flow hedges under SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities. Accordingly, the difference between the interest received
and interest paid is reflected as an adjustment to interest expense. For the nine months
ended September 30, 2005 and 2004, Apria paid net settlement amounts of $68,000 and
$1,175,000, respectively. At September 30, 2005, the aggregate fair value of the swap
agreements was an asset of $506,000, which is reflected in the accompanying consolidated
balance sheet in other assets.

Unrealized gains and losses on the fair value of the
swap agreements are reflected, net of taxes, in accumulated other comprehensive income.
(See Note E  Stockholders Equity.) In the event of counterparty
non-performance, Aprias exposure to credit loss under the swap agreements is limited
to the interest rate spread.

---

NOTE E  STOCKHOLDERS EQUITY

For the nine months ended September 30, 2005, changes to
stockholders equity are comprised of the following amounts:

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

Net income and total comprehensive income differ by
unrealized gains or losses related to interest rate swap agreements, net of taxes. For the
nine months ended September 30, 2005 and 2004, total comprehensive income was $47,767,000
and $87,392,000, respectively.

NOTE F  INCOME TAXES

Income taxes for the nine months ended September 30,
2005 have been provided at a higher effective rate than is expected to be applicable for
the entire year. The higher rate is due to a permanent difference resulting from the
portion of the settlement of two qui tam lawsuits that is non-deductible for tax
purposes. (See Note G  Commitments and Contingencies.) This higher rate
was partially offset by a decrease in the valuation allowance and corresponding reduction
of the tax provision that was recorded in the first quarter of 2005. Such adjustment
resulted from state net operating loss carryforwards that became realizable based on a
change in estimate of expected future earnings.

Income taxes for the nine-month period ended September
30, 2004 were provided at the effective tax rate that was expected to be applicable for
that year.

At September 30, 2005, the company had various
apportioned state net operating loss carryforwards which resulted in a deferred tax asset
of $9,670,000, net of federal tax benefit.

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

NOTE G  COMMITMENTS AND CONTINGENCIES

Disposition of Federal Investigation and Qui Tam
Lawsuits. As previously reported, Apria was the subject of an investigation commenced
in mid-1998 by the U.S. Attorneys office in Los Angeles and the U.S. Department of
Health and Human Services. The investigation concerned the documentation supporting
Aprias billing for services provided to patients whose healthcare costs were paid by
Medicare and other federal programs. The investigation related to two civil qui tam
lawsuits against Apria filed by individuals suing on behalf of the government. These
lawsuits, both pending in the United States District Court for the Central District of
California, are United States of America ex rel. Cynthia Costa and Ken Kostanecki
v. Apria Healthcare Group, Inc., Case No. SACV-98-230-MMM(RCx) and United States
of America ex rel. Catherine Wickern v. Apria Healthcare Group, Inc., Case No.
SACV-001263-MMM(RCx).

As previously reported, Apria and representatives of the
government and the individual plaintiffs reached a preliminary agreement in early August
2005 to settle these lawsuits for the aggregate sum of $17.6 million, without any
admission of wrongdoing by Apria. The settlement was finalized in a definitive agreement
that was fully executed and became effective on September 30, 2005, and Apria paid the
settlement amount on that date.

The government informed Apria on October 4, 2005 that a
third civil qui tam lawsuit (of which the government apprised Apria in July 2005)
had been dismissed at the governments request by the district court in which the
action was pending. That lawsuit, which is still under seal, alleged improper billing
similar to that alleged in the above-described actions, but was limited to several
specific locations during 2002-2004. The time period in which the plaintiff could appeal
the district courts decision has not yet elapsed.

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

---

NOTE H  PER SHARE AMOUNTS

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

|                                                    | Three Months EndedSeptember 30, |  |   | Nine Months EndedSeptember 30,
|--------------------------------------------------- | ------------------------------- |  | - | ------------------------------
|
|
|
|Numerator:                                          |                                 |  |   |                               
|Net income                                          |                                 |  | $ | 19,255                        
|Numerator for basic and diluted per share amounts  |                                 | 
|income available to common stockholders             |                                 |  | $ | 19,255                        
|                                                   
|Denominator:                                        |                                 | 
|Denominator for basic per share                     |                                 | 
|amounts  weighted average shares                   |                                 |  |   | 49,495                        
|                                                   
|Effect of dilutive securities:                      |                                 | 
|Employee stock options                             |                                 | 
|dilutive potential common shares                    |                                 |  |   | 970                           
|                                                    |                                 |  |   |                               
|Denominator for diluted per share amounts          |                                 | 
|adjusted weighted average shares                    |                                 |  |   | 50,465                        
|                                                    |                                 |  |   |                               
|                                                   
|Basic net income per common share                   |                                 |  | $ | 0.39                          
|                                                    |                                 |  |   |                               
|Diluted net income per common share                 |                                 |  | $ | 0.38                          
|                                                    |                                 |  |   |                               
|                                                   
|Employee stock options excluded from the            |                                 | 
|computation of diluted per share amounts:           |                                 | 
|                                                   
|Shares for which exercise price exceeds             |                                 | 
|average market price of common stock                |                                 |  |   | 15                            
|                                                   
|Average exercise price per share that exceeds       |                                 | 
|average market price of common stock                |                                 |  | $ | 34.59                         
|                                                    |                                 |  |   |                               

---

---

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

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

In addition, the military and national security
activities in which the United States is currently engaged, 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 services and related products
and supplies, most of which are prescribed by a physician as part of a care plan. Apria
provides these services to patients in the home throughout the United States through
approximately 500 branch locations.

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

Results of Operations

Net Revenues.Net revenues were $367.6 million in the third quarter of 2005, compared to
$364.6 million for the corresponding period in 2004. For the nine-month period ended
September 30, 2005, net revenues were $1,114 million, up 3.7% from $1,075 million in the
same period of 2004. Respiratory medication revenues for the first nine months of 2004,
were reduced by $11.5 million due to Medicare reimbursement reductions that went into
effect January 1, 2004. Additional Medicare pricing reductions became effective January 1,
2005, for respiratory medications and certain equipment items, which further eroded
revenue growth. Expected Medicare reimbursement reductions on oxygen and oxygen equipment
were delayed until April 8, 2005, when the revised 2005 fee schedule was implemented.
Management estimates that the 2005 Medicare reimbursement reductions resulted in
approximately $8.9 million and $21.9 million of net revenue reductions for the three and
nine months ended September 30, 2005, respectively.

Apria chose not to renew
its contract with Gentiva CareCentrix (Gentiva) upon its expiration on January
1, 2004. The company continued to service Gentiva patients as usual for the first few
months in 2004 and then began the transition to other providers. Such transition was
effectively complete by the end of the second quarter in 2004. When comparing the
nine-month periods in 2005 and 2004, the revenue reduction in 2005 related to this
contract exit represented 1.5% of prior year revenues. The impact to the third quarter was
less than one percent.

Revenue growth, after
consideration of the Medicare and Gentiva revenue reductions, was due almost entirely to
acquisitions of complementary businesses. Aprias acquisition strategy generally
results in the rapid integration of acquired businesses into existing operating locations.
This rapid integration limits Aprias ability to separately track the amount of
revenue generated by an acquired business. Therefore, estimating the net revenue
contribution from acquisitions requires certain assumptions. Apria estimates that
approximately $56 million of the net revenue growth between the nine-month periods in 2004
and 2005 was derived from acquisitions.

After adjusting for
Medicare reimbursement cuts, the loss of Gentiva business and acquisition activity,
organic revenue declined 0.7% for the third quarter of 2005 compared to 2004 and grew 2.1%
for the nine-month period in 2005 as compared to 2004.

The company is
experiencing increased pricing pressure from its managed care customers as these
organizations seek to lower costs by obtaining more favorable pricing from providers such
as Apria. Managed care organizations are also evaluating alternative delivery models for
certain products and services, which include those provided by Apria. This trend may cause
Apria to provide reduced levels of certain products and services in the future, resulting
in a corresponding reduction in revenue. The company recently signed a new three-year
contract with CIGNA HealthCare, effective February 2006, which is expected to accelerate
the companys revenue growth. Apria had previously serviced CIGNA members under a
subcontracting arrangement with Gentiva prior to 2004.

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

|                             | Three Months Ended September 30, |  | Nine Months Ended September 30,
|---------------------------- | -------------------------------- |  | -------------------------------
|
|
|
|
|
|Respiratory therapy          |                                  |  | $                              
|Infusion therapy             |                                  |  |                                
|Home medical equipment/other |                                  |  |                                
|                             |                                  |  |                                
|Total net revenues           |                                  |  | $                              
|                             |                                  |  |                                

Respiratory
Therapy.Respiratory therapy revenues are derived primarily from the provision of
oxygen systems, home ventilators, sleep apnea equipment, nebulizers, respiratory
medications and related services. Net revenues in the respiratory therapy service line
increased 1.6% in the third quarter of 2005 and 3.8% in the nine months ended September
30, 2005, as compared to the corresponding periods in 2004. This growth was primarily
attributable to acquisitions of respiratory therapy businesses. The Medicare reimbursement
reductions caused a decline of 3.3% and 2.7% in revenue growth for the three and
nine-month periods ended September 30, 2005. The year over year growth in the respiratory
service line was also reduced by the exit from the Gentiva contract, representing
approximately 1.8% of 2004 respiratory revenues. Additionally, third quarter revenues for
oxygen and oxygen-related products decreased 1.6% when compared to the same period in
2004. Declines in respiratory medications had the greatest impact on the respiratory
revenue line with a 15.9% decrease in the third quarter and a 13.6% decrease in the
nine-month period ended September 30, 2005, as compared to the corresponding periods in
2004. Conversely, the positive air pressure device product line exhibited strong growth of
16.6% quarter to quarter and 15.0% year to year, when comparing 2005 to 2004.

Infusion
Therapy.The infusion therapy service line involves the administration of a drug
or nutrient directly into the body intravenously through a needle or catheter. Infusion
therapy services also include administering enteral nutrients directly into the
gastrointestinal tract through a feeding tube. Infusion therapy revenues increased 3.5%
and 5.1% in the three and nine months ended September 30, 2005, respectively. Enteral
nutrition, which makes up approximately 43% of the revenue in the infusion service line,
was the main driver of the infusion growth with increases of 6.5% and 8.0% in the third
quarter and nine months ended September 30, 2005, respectively, when compared to the
corresponding periods in 2004. Excluding enteral nutrition, infusion growth rates were
1.5% quarter to quarter and 3.1% year to year, when comparing 2005 to 2004.

Home Medical
Equipment/Other.Home medical equipment/other revenues are derived from the
provision of equipment to assist patients with ambulation, safety and general care in and
around the home. Home medical equipment/other revenues decreased 5.6% in the third quarter
of 2005 and increased slightly to 1.1% for the nine months ended September 30, 2005 when
compared to the corresponding periods in 2004. Diabetic supplies grew 55.8% in the nine
months ended September 30, 2005 when compared to the same period in 2004. This growth is
directly attributable to the March 2004 acquisition of a company that entered the diabetic
supply market just prior to being acquired by Apria. Excluding the growth in diabetic
supplies, home medical equipment/other revenue experienced a 5.5% decline for the third
quarter and a 1.0% decrease for the nine months ended September 30, 2005, respectively,
when compared to the same periods in 2004. Medicare reimbursement reductions implemented
in 2005 that impact this line of business represent 1.4% of home medical equipment/other
revenues for the third quarter of 2005 and 1.5% for the first nine months of 2005 compared
to the corresponding periods in 2004. Additionally, hospital utilization rates were down
in the third quarter with many of the companys managed care contractors, which
served to further depress growth in home medical equipment/other revenues, as evidenced by
an 11.1% decline in bed-related revenues and a 9.7% decrease in wheelchair revenues for
the current quarter, as compared to 2004.

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

In 2005, approximately 39%
of Aprias revenues are being reimbursed under arrangements with Medicare and
Medicaid. No other third-party payor represents more than 8% 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 10% or less of total net revenues for all periods presented.

---

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

| |  | 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.  Any 2005 claims for oxygen and
  oxygen equipment that had been submitted prior to the  implementation  of the new fee schedule were paid based on 2004
  pricing schedules and were not retroactively adjusted.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | 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
are  $57.00  for a 30-day  supply of  medications  and $80.00 for a 90-day  supply.  In its final 2006  physician  fee
schedule released on November 2, 2005, the Centers for Medicare and Medicaid Services,  or CMS, established an initial
dispensing  fee of $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 will be lowered to $66.00.

Additionally,  the  manufacturer-reported  average  sales price,  which is subject to  adjustment  each  quarter,  was
adjusted  downward in the third  quarter of 2005,  resulting  in a further  decline in revenue of  approximately  $1.1
million in the third quarter when compared to the second quarter.
| |  | Establishment  of a competitive  bidding  program  Such a program would require that suppliers  wishing to provide certain
items to beneficiaries  submit bids to Medicare.  The program,  for as yet unspecified durable medical equipment items
and services, is to be transitioned into (i) 10 of the largest metropolitan  statistical areas in 2007; (ii) 80 of the
largest  metropolitan  statistical  areas in 2009; and (iii)  additional  areas after 2009. The  legislation  contains
special provisions for rural areas.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  | Incentives for expansion of Medicare Part C  The Medicare  Modernization  Act includes  financial  incentives for managed
care plans to expand their  provision of Medicare  Advantage plans in 2006 in a stated effort to attract more Medicare
beneficiaries to managed care models.  The company maintains  contracts to provide  respiratory,  infusion and medical
equipment  and related  services to a  significant  number of managed care plans  nationwide,  and  believes  that the
Medicare Advantage expansion represents a growth opportunity starting in 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | Reimbursement  for home infusion  therapy  under  Medicare Part D   Currently,  a limited  number of infusion  therapies,
 supplies and equipment are covered by Medicare Part B. The Medicare  Modernization  Act provides expanded coverage for
 home infusion drugs.  The industry is currently  working with CMS to further define the coverage and payment  policies
 that will govern the administration of this benefit, which takes effect in 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

Aprias management
estimates that the revision to inhalation drug reimbursement in 2004 resulted in a revenue
reduction of approximately $15 million from 2003 levels. Management further estimates
that 2005 pretax income will be reduced from 2004 levels by nearly $40 million as a result
of the lower Medicare pricing implemented in 2005 and a related product pricing increase.
(See Results of Operations  Gross Profit.) The impact of the competitive
bidding program and the Medicare Part C and D programs cannot be estimated at this time.

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

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

Senate
Reconciliation Bill. The U.S. Senate is currently considering a budget
reconciliation bill that includes savings targeted from both Medicare and Medicaid. The
bill proposes to change  the current capped rental period from 15 months to 13 months
for certain durable medical
equipment items covered by Medicare. This provision would
apply to patients who begin their first rental month in January 2006. The bill also
proposes to eliminate the service and maintenance fee that providers may bill in six-month
intervals after the equipment is considered capped and instead provides for a
repair/maintenance fee that would be billed when patient-owned equipment is serviced.
 If these provisions survive the budget reconciliation process, they would not have
an impact on revenues until early 2007.

Gross Profit.Gross margins were 70.6% and 72.0% for the third quarters of 2005 and 2004,
respectively. For the nine-month periods ended September 30, 2005 and 2004, the margins
were 70.7% and 72.1%, respectively. The decline is primarily due to the Medicare
reimbursement reductions and the effects of the non-renewal of the Gentiva contract in
2004. Further eroding the gross margin is a manufacturers price increase for a
particular respiratory drug, effected concurrently with higher government reimbursement
for that drug in 2005. This price increase is estimated to have a $4.7 million negative
impact on Aprias gross margin for the nine-month period ended September 30, 2005.
Favorably impacting gross profit is a decrease in depreciation expense, which is due to
the decrease in patient service equipment expenditures.

Provision for
Doubtful Accounts.The provision for doubtful accounts results from
managements estimate of the net realizable value of accounts receivable after
considering actual write-offs of specific receivables. The provision was 3.3% of net
revenues for the third quarter of 2005 and 3.4% for the same period last year. For the
year-to-date periods of 2005 and 2004, the provision was 3.5% and 3.6%, respectively. The
improvement in 2005 when compared to 2004 is partially due to strong cash collections and
a focused effort to increase cash applications. (See Liquidity and Capital Resources
 Accounts Receivable.)

Selling,
Distribution and Administrative.Selling, distribution and administrative
expenses are comprised of expenses incurred in support of operations and those associated
with administrative functions. Expenses incurred by the operating locations include
salaries and other expenses in the following functional areas: selling, distribution,
clinical, intake, reimbursement, warehousing and repair. Many of these operating costs are
variable with revenue growth patterns. Certain expenses, such as facility lease and fuel
costs, are very sensitive to market-driven price fluctuations. Administrative expenses
include overhead costs incurred by the operating locations and corporate support
functions. These expenses do not vary as closely with revenue growth as do the operating
costs.

Selling, distribution and
administrative expenses were 57.7% of net revenues in the third quarter of 2005, up from
55.0% in the third quarter of 2004. For the nine-month period ending September 30, 2005,
selling, distribution and administrative expenses were 58.2% of net revenues compared to 54.2% for the
same period last year. The percentage increase between the quarter and year-to-date
periods is primarily attributable to the lower revenues resulting from Medicare pricing
changes without a corresponding reduction in the companys actual cost of providing
those products and services. Higher fuel prices and vehicle maintenance expenditures,
rising medical benefit costs and outsourced collection fees also factored into the
increases. Advertising costs related to the companys diabetic supply business are
also higher year to year because this business was not acquired until late in the first
quarter of 2004. Other incremental costs include severance charges related to the
departure of two executives and a reduction in workforce at the Corporate office in the
first quarter of 2005.

Qui Tam Settlement
and Related Costs. A $20 million accrual was recorded in the second quarter
in connection with a preliminary agreement to settle the previously disclosed civil qui
tam lawsuits. Such accrual was comprised of a $17.6 million settlement and $2.4
million in legal fees and other related costs. The settlement was paid to the government
in the third quarter subsequent to finalizing the settlement agreement. (See
Liquidity and Capital Resources  Federal Investigation.)

Amortization of
Intangible Assets.For the quarter and nine months ended September 30,
2005, amortization expense was $2.0 million and $5.2 million, respectively. This compares
to $1.9 million and $4.6 million for the similar periods last year. The year over year
increase is due to ongoing acquisition activity and the valuation of certain customer
relationships acquired in business combinations. (See Liquidity and Capital
Resources  Business Combinations.)

Interest Expense.Interest expense was $5.3 million for the third quarter of 2005, as
compared to $5.2 million in the third quarter of 2004. For the year-to-date periods in
2005 and 2004, interest expense was $14.9 million and $15.1 million, respectively. (See
Liquidity and Capital Resources  Long-term Debt.)

Income Taxes.Income taxes for the nine months ended September 30, 2005 have been
provided at a higher effective rate than is expected to be applicable for the entire year.
The higher rate is due to a permanent difference resulting from the portion of the
settlement of two qui tam lawsuits that is non-deductible for tax purposes. (See
Note G  Commitments and Contingencies.) This higher rate was partially
offset by a decrease in the valuation allowance and corresponding reduction of the tax
provision that was recorded in the first quarter of 2005. Such adjustment resulted from
state net operating loss carryforwards that became realizable based on a change in
estimate of expected future earnings.

Income taxes for the
nine-month period ended September 30, 2004 were provided at the effective tax rate that
was expected to be applicable for that year.

At September 30, 2005, the
company had various apportioned state net operating loss carryforwards which resulted in a
deferred tax asset of $9.7 million, net of federal tax benefit.

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

---

Liquidity and Capital Resources

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

Cash
Flow. Cash provided by operating activities was $128.9 million in the first
nine months of 2005 compared with $197.8 million in the corresponding period in 2004. The
decrease in operating cash flow between the two periods can be primarily attributed to the
Medicare reimbursement changes which negatively impacted net income for the first nine
months of 2005. Also reducing operating cash flow was a $21.9 million increase in income
tax payments between the two periods and a $17.6 million payment made to the government in
the third quarter of 2005 related to the qui tam lawsuits.

Cash used in investing
activities decreased to $194.1 million for the first nine months of 2005 compared to
$227.9 million during the same period last year. The decrease is primarily attributable to
lower expenditures for acquisitions in 2005 and a decrease in expenditures for patient
service equipment when compared to the corresponding period in 2004.

Cash provided by financing
activities was $38.2 million during the first nine months of 2005 compared to cash used in
financing activities of $91.6 million for the first nine months of 2004. In 2005, the
$41.3 million in net proceeds from the revolving credit facility was the primary source of
cash. Cash used in 2004 primarily relates to the $100.0 million repurchase of the
companys common stock.

Contractual Cash
Obligations.The following table summarizes Aprias long-term cash
payment obligations to which the company is contractually bound. The years presented below
represent 12-month rolling periods ending September 30.

|(dollars in millions)                                                                                                                                    | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | Year 6+ | Totals
|-------------------------------------------------------------------------------------------------------------------------------------------------------- | ------ | ------ | ------ | ------ | ------ | ------- | ------
|
|Revolving loan                                                                                                                                           |        |        | $      | -      |        | $       | -     
|Convertible senior notes                                                                                                                                 |        |        |        | -      |        |         | -     
|Capital lease obligations                                                                                                                                |        |        |        | 2      |        |         | 1     
|Other debt                                                                                                                                               |        |        |        | 4      |        |         | -     
|Operating leases                                                                                                                                         |        |        |        | 56     |        |         | 43    
|Deferred acquisition payments                                                                                                                            |        |        |        | 6      |        |         | -     
|                                                                                                                                                         |        |        |        |        |        |         |       
|Total contractual cash obligations                                                                                                                       |        |        | $      | 68     |        | $       | 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
$282.3 million at September 30, 2005 from $264.4 million at December 31, 2004, which is
primarily attributable to an increase in unbilled receivables related to acquisitions.
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
57 at September 30, 2005, 55 at September 30, 2004 and 52 at December 31, 2004. The
increase in days sales outstanding at the end of the third quarter of 2005 is primarily
due to an increase in unbilled receivables from acquisitions. The time-consuming processes
of converting patient files onto Aprias systems and obtaining provider numbers from
government payors routinely delay billing of the newly acquired business. Consequently,
the related cash receipts are delayed, causing a temporary increase in accounts receivable
and days sales outstanding. Additionally, a decline in organic revenue adversely impacted
the 90-day rolling average of net revenue, which also factored into the increase in days
sales outstanding.

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

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

---

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

Unbilled
Receivables.Included in accounts receivable are earned but unbilled receivables
of $49.1 million and $36.3 million at September 30, 2005 and at December 31, 2004,
respectively. Delays ranging from one day up to several weeks between the dates 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 increase in unbilled receivables at September 30, 2005 is largely
due to acquisitions completed during 2005, as discussed above.

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

The branch locations serve
as the primary point from which inventories and patient service equipment are delivered to
the patient. The branches are supplied with inventory and equipment from the regional
warehouses, which coordinate purchasing with the corporate office. The regions are also
responsible for repairs and scheduled maintenance of patient service equipment, which adds
to the frequent movement of equipment between the region and branch locations. Further,
the majority of Aprias patient service equipment is located in patients homes.
While the utilization varies widely between equipment types, on the average, approximately
80% of the equipment is on rent at any given time. Inherent in this asset flow is the fact
that losses will occur. Management has successfully instituted a number of controls over
the companys inventories and patient service equipment to minimize such losses. The
company performs physical inventories on an annual or quarterly basis, depending on the
product type, and adjusts the related balances accordingly. Inventory and patient service
equipment losses for the nine months ended September 30, 2005 and 2004 were $1.4 million
and $2.0 million, respectively.

Long-Term
Debt. Revolving Credit Facility. At September 30,
2005, borrowings under Aprias revolving credit facility were $255.0 million;
outstanding letters of credit totaled $3.9 million; and credit available under the
revolving facility was $241.1 million. The company continues to be in compliance with all
of the financial covenants required by the credit agreement.

Convertible Senior
Notes. At September 30, 2005, the fair value of the $250.0 million in
convertible senior notes was $263.8 million, as determined by reference to quoted market
prices.

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

At September 30, 2005,
Apria had two interest rate swap agreements in effect to fix its LIBOR-based variable rate
debt. The terms of such agreements are as follows: a three-year agreement with a notional
amount of $25.0 million and a fixed rate of 3.04%, expiring December 2005; and a four-year
agreement with a notional amount of $25.0 million and a fixed rate of 3.42%, expiring
December 2006.

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

The interest rate swap
agreements are being accounted for as cash flow hedges under SFAS No. 133,
Accounting for Derivative and Hedging Activities. Accordingly, the difference
between the interest received and interest paid is reflected as an adjustment to interest
expense. For the nine months ended September 30, 2005 and 2004, Apria paid net settlement
amounts of $68,000 and $1.2 million, respectively. Unrealized gains and losses on the fair
value of the swap agreements are reflected, net of taxes, in other comprehensive income.
At September 30, 2005, the aggregate fair value of the swap agreements was an asset of
$506,000. In the event of counterparty non-performance, Aprias exposure to credit
loss under the swap agreements is limited to the interest rate spread.

Treasury
Stock. In October 2005, Aprias Board of Directors authorized the
company to repurchase up to $250 million worth of its outstanding common stock. On November 7,
2005, Apria purchased 7,337,526 shares of its common stock at an
initial share price of $23.83 through an accelerated share repurchase program.
The price of the shares is subject to a future adjustment based on the volume weighted average price of the
companys common stock over a period of up to five months.  The adjustment can be paid
in cash or shares, at Aprias election. Depending on
market and other considerations, the company plans to purchase the remaining $75 million
 worth of its common stock
in open market or privately negotiated transactions over the next five fiscal quarters.

---

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

The aggregate
consideration for acquisitions that closed during the first nine months of 2005 was $99.5
million. Pending receipt of additional valuation information, the preliminary allocation
of this amount includes $83.3 million to goodwill, $7.4 million to other intangible assets
and $7.0 million to patient service equipment.

Cash paid for
acquisitions, which includes amounts deferred from prior year acquisitions, totaled $101.9
million and $116.1 million in the first nine months of 2005 and 2004, respectively.

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

HIPAA. 
          The Health Insurance Portability and Accountability Act of 1996, or
          HIPAA, is comprised of a number of components. Pursuant to the administrative
          simplification section of
          HIPAA, HHS has issued multiple regulations, each with its own compliance
          date.  For those regulations with a compliance date that has already passed, Apria
was materially compliant by the date required.  Remaining regulation under HIPAA that may
have a material effect on Apria govern  the following:

| |  | standards for unique national health identifier for healthcare providers for use in connection
with standard transactions  compliance date: May 23, 2007  Apria expects to be
 materially compliant with these regulations by the compliance date; and
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the first installment of an interim enforcement rule, when issued in full, will address
both substantive and procedural requirements for the imposition of civil monetary penalties.                                                                    

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

Disposition of
Federal Investigation and Qui Tam Lawsuits. As previously reported, Apria
was the subject of an investigation commenced in mid-1998 by the U.S. Attorneys
office in Los Angeles and the U.S. Department of Health and Human Services. The
investigation concerned the documentation supporting Aprias billing for services
provided to patients whose healthcare costs were paid by Medicare and other federal
programs. The investigation related to two civil qui tam lawsuits against Apria
filed by individuals suing on behalf of the government. These lawsuits, both pending in
the United States District Court for the Central District of California, are United
States of America ex rel. Cynthia Costa and Ken Kostanecki v. Apria Healthcare
Group, Inc., Case No. SACV-98-230-MMM(RCx) and United States of America ex rel.
Catherine Wickern v. Apria Healthcare Group, Inc., Case No. SACV-001263-MMM(RCx).

As previously reported, Apria and representatives of the
government and the individual plaintiffs reached a preliminary agreement in early August
2005 to settle these lawsuits for the aggregate sum of $17.6 million, without any
admission of wrongdoing by Apria. The settlement was finalized in a definitive agreement
that was fully executed and became effective on September 30, 2005, and Apria paid the
settlement amount on that date.

The government informed Apria on October 4, 2005 that a
third civil qui tam lawsuit (of which the government apprised Apria in July 2005)
had been dismissed at the governments request by the district court in which the
action was pending. That lawsuit, which is still under seal, alleged improper billing
similar to that alleged in the above-described actions, but was limited to several
specific locations during 2002-2004. The time period in which the plaintiff could appeal
the district courts decision has not yet elapsed.

Off-Balance Sheet Arrangements

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

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

---

ITEM 3.     
 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

At September 30, 2005,
Aprias revolving credit facility borrowings totaled $255.0 million. The bank credit
agreement provides interest rate options based on the following indices: Federal Funds
Rate, Prime Rate or the London Interbank Offered Rate (LIBOR). All such
interest rate options are subject to the application of an interest margin as specified in
the bank credit agreement. At September 30, 2005, all of Aprias outstanding
revolving debt was tied to LIBOR.

At September 30, 2005,
Apria had a three-year interest rate swap agreement with a notional amount of $25.0
million and a fixed rate of 3.04% and a four-year interest rate swap agreement with a
notional amount of $25.0 million and a fixed rate of 3.42%.

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

Based on the revolving
debt outstanding and the swap agreements in effect at September 30, 2005, a 100 basis
point change in the applicable interest rates would increase or decrease Aprias
annual cash flow and pretax earnings by approximately $2.1 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 carried out an evaluation as required by Rules
13a-15(b) and 15d-15(b) of the Securities Exchange Act of 1934, as amended, under the
supervision and with the participation of the companys management, including the
companys principal executive officer and principal financial officer, of the
effectiveness of the design and operation of the companys disclosure controls and
procedures. Based upon that evaluation, the principal executive officer and principal
financial officer concluded that the companys disclosure controls and procedures are
effective in timely alerting them to material information relating to the company that is
required to be included in the companys periodic Securities and Exchange Commission
filings.

As required by Rule
13a-15(d) and 15d-15(d) of the Securities Exchange Act of 1934, as amended, the company
carried out an evaluation of the companys internal control over financial reporting
to determine whether, during the period covered by this report, there have been changes to
the companys internal control over financial reporting or in other factors that have
materially affected, or are reasonably likely to materially affect, the companys
internal control over financial reporting. Based on that evaluation, there have been no
such changes during the period covered by this report.

---

PART II  OTHER
INFORMATION

ITEM 1.      LEGAL PROCEEDINGS

As previously reported,
Apria was the subject of an investigation commenced in mid-1998 by the U.S.
Attorneys office in Los Angeles and the U.S. Department of Health and Human
Services. The investigation concerned the documentation supporting Aprias billing
for services provided to patients whose healthcare costs were paid by Medicare and other
federal programs. The investigation related to two civil qui tam lawsuits against
Apria filed by individuals suing on behalf of the government. These lawsuits, both pending
in the United States District Court for the Central District of California, are United
States of America ex rel. Cynthia Costa and Ken Kostanecki v. Apria Healthcare
Group, Inc., Case No. SACV-98-230-MMM(RCx) and United States of America ex rel.
Catherine Wickern v. Apria Healthcare Group, Inc., Case No. SACV-001263-MMM(RCx).

As previously reported,
Apria and representatives of the government and the individual plaintiffs reached a
preliminary agreement in early August 2005 to settle these lawsuits for the aggregate sum
of $17.6 million, without any admission of wrongdoing by Apria. The settlement was
finalized in a definitive agreement that was fully executed and became effective on
September 30, 2005, and Apria paid the settlement amount on that date.

The government informed
Apria on October 4, 2005 that a third civil qui tam lawsuit (of which the
government apprised Apria in July 2005) had been dismissed at the governments
request by the district court in which the action was pending. That lawsuit, which is
still under seal, alleged improper billing similar to that alleged in the above-described
actions, but was limited to several specific locations during 2002-2004. The time period
in which the plaintiff could appeal the district courts decision has not yet
elapsed.

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

---

ITEM 6.     EXHIBITS

| |                   |  |                                                                                                                                                                                                     
| | ----------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | ExhibitNumber10.1 |  | Reference
Amended and Restated Employment Agreement dated October 20, 2005,
between Registrant and Lawrence A. Mastrovich.                                                                          
| | 10.2              |  | Letter Agreement with respect to the Accelerated Share
Repurchase transaction dated November 7, 2005, between Registrant and Citibank, N.A., acting
through Citigroup Global Markets Inc., as agent.
| | 31.1              |  | Certification of Chief Executive Officer pursuant
to Securities Exchange Act Rule 13a-14(a).                                                                                                        
| | 31.2              |  | Certification of Chief Financial Officer pursuant
to Securities Exchange Act Rule 13a-14(a).                                                                                                        
| | 32.1              |  | Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350.                                                                                                                        
| | 32.2              |  | Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350.                                                                                                                        

---

SIGNATURES

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

|                 |                                                                                                                      
|---------------- | ---------------------------------------------------------------------------------------------------------------------
|                 | APRIA HEALTHCARE GROUP INC.
Registrant                                                                               
|November 9, 2005 | /s/ AMIN I. KHALIFA
Amin I. KhalifaExecutive Vice President and Chief Financial Officer
(Principal Financial Officer)