UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended
 June 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 August 10,
2005 there were outstanding 49,509,124
 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 June 30, 2005

|PART I.    
        FINANCIAL INFORMATION | 
|----------------------------------------- | 
|                                          | 
|Item 1.                                   | 
|                                          | 
|Item 2.                                   | 
|                                          | 
|Item 3.                                   | 
|                                          | 
|Item 4.                                   | 
|                                          | 
|                                          | 
|PART II.   
         OTHER INFORMATION    | 
|                                          | 
|Item 1.                                   | 
|                                          | 
|Item 4.                                   | 
|                                          | 
|Item 6.                                   | 
|                                          | 
|SIGNATURES                                | 
|                                          | 
|EXHIBITS                                  | 

---

PART I  FINANCIAL INFORMATION

ITEM 1.     FINANCIAL STATEMENTS (unaudited)

APRIA HEALTHCARE GROUP INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)

|                                                                             | June 30, |  | December 31,
|---------------------------------------------------------------------------- | -------- |  | ------------
|
|
|ASSETS                                                                       |          |  |             
|CURRENT ASSETS                                                               |          |  |             
|Cash and cash equivalents                                                    |          |  | $           
|Accounts receivable, less allowance
for doubtful accounts of $51,844         |          | 
|and $45,064 at June 30, 2005 and
December 31, 2004, respectively             |          |  |             
|Inventories, net                                                             |          |  |             
|Deferred income taxes                                                        |          |  |             
|Prepaid expenses and other current assets                                    |          |  |             
|                                                                             |          |  |             
|TOTAL CURRENT ASSETS                                                         |          |  |             
|                                                                             |          | 
|PATIENT SERVICE EQUIPMENT, less accumulated depreciation of
$435,587         |          | 
|and $420,714 at June 30, 2005 and December 31, 2004, respectively            |          |  |             
|PROPERTY, EQUIPMENT AND IMPROVEMENTS, net                                    |          |  |             
|DEFERRED INCOME TAXES                                                        |          |  |             
|GOODWILL                                                                     |          |  |             
|INTANGIBLE ASSETS, less accumulated amortization of
$7,041  and              |          | 
|$6,425 at June 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;                |          | 
|59,040,251 and 58,236,364 shares issued at
June 30, 2005 and                 |          | 
|December 31, 2004, respectively;
49,412,592 and 48,608,705 shares            |          | 
|outstanding at June 30, 2005 and December 31, 2004, respectively             |          |  |             
|Additional paid-in capital                                                   |          |  |             
|Treasury stock, at cost; 9,627,659 shares
at June 30, 2005                   |          | 
|and December 31, 2004                                                        |          |  |             
|Retained earnings                                                            |          |  |             
|Accumulated other comprehensive loss                                         |          |  |             
|                                                                             |          |  |             
|                                                                             |          |  |             
|                                                                             |          |  |             
|                                                                             |          |  | $           
|                                                                             |          |  |             

See notes to condensed
consolidated financial statements.

---

APRIA HEALTHCARE GROUP INC.

CONDENSED CONSOLIDATED INCOME STATEMENTS 
(unaudited)

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

|                                                                                   | Six Months EndedJune 30,
|---------------------------------------------------------------------------------- | ------------------------
|
|
|
|OPERATING ACTIVITIES                                                               |                         
|Net income                                                                         |                         
|Items included in net income not requiring cash:                                   |                         
|Provision for doubtful accounts                                                    |                         
|Depreciation and amortization                                                      |                         
|Amortization of deferred debt issuance costs                                       |                         
|Deferred income taxes                                                              |                         
|Stock-based compensation                                                           |                         
|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.

---

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 $42,880,000 and $84,909,000 for the three and six-month periods ended June 30,
2005, are included in selling, distribution and administrative expenses. For the
corresponding periods in 2004, distribution expenses were $38,459,000 and $75,120,000,
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 six-month period ended June 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 EndedJune 30, |  |   | Six Months EndedJune 30,
|---------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- |  | - | ------------------------
|
|
|
|Net income as reported                                                                                                                   |                            |  | $ | 3,016                   
|Add:  stock-based compensation expense included
    in reported net income, net of related tax effects                                   |                            |  |   | 678                     
|Deduct: total stock-based
compensation expense    determined for all awards under fair
value-based    method, net of related tax effects |                            |  |   | 2,116                   
|                                                                                                                                         |                            |  |   |                         
|Pro forma net income                                                                                                                     |                            |  | $ | 1,578                   
|                                                                                                                                         |                            |  |   |                         
|                                                                                                                                         |                            | 
|Basic net income per share:                                                                                                              |                            | 
|As reported                                                                                                                              |                            |  | $ | 0.06                    
|Pro forma                                                                                                                                |                            |  | $ | 0.03                    
|                                                                                                                                         |                            | 
|Diluted net income per share:                                                                                                            |                            | 
|As reported                                                                                                                              |                            |  | $ | 0.06                    
|Pro forma                                                                                                                                |                            |  | $ | 0.03                    

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 six-month periods ended June 30, 2005 and 2004: risk-free interest rates of 3.70%
and 3.02%, respectively; dividend yield of 0% for all periods; expected lives of 4.29 and
4.83 years, respectively; and volatility of 33% 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 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 six-month period ended June 30, 2005, cash paid for
acquisitions was $96,229,000, which included deferred payments of $7,518,000 that were
related to acquisitions completed prior to 2005. At June 30, 2005, deferred consideration
payable totaled $7,420,000 and is included on the consolidated balance sheet in other
accrued liabilities.

During the six-month period ended June 30, 2005, Apria
acquired 14 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 $79,774,000, $7,026,000 and $5,814,000, 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 six-month period ended June 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.

|                                    | Six Months EndedJune 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
$78,732,000 for the six months ended June 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)   |  |  | June 30, 2005 |     | December 31, 2004
|------------------------ |  |  | ------------- | --- | -----------------
|
|
|
|Covenants not to compete |  |  |               | 4.9 |                  
|Trade names              |  |  |               | 2.0 |                  
|Customer lists           |  |  |               | < 1 |                  
|                         |  |  |               |     |                  
|                         |  |  |               |     |                  
|                         |  |  |               |     |                  

Amortization expense was $3,129,000 for the six-month
period ended June 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 June 30, 2005,
Aprias borrowings under its revolving credit facility were $250,000,000; outstanding
letters of credit totaled $3,855,000; and credit available under the revolving facility
was $246,145,000. Apria was in compliance with all of the financial covenants required by
the related credit agreement.

Convertible Senior Notes: At June 30, 2005, the
fair value of the $250,000,000 in convertible senior notes was $271,408,000, 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 six months
ended June 30, 2005 and 2004, Apria paid net settlement amounts of $101,000 and $857,000,
respectively. At June 30, 2005, the aggregate fair value of the two pre-existing swap
agreements was an asset of $227,000, which is reflected in the accompanying consolidated
balance sheet in other assets, and the aggregate fair value of the two forward-starting
swap agreements was a liability of $498,000, which is reflected in the accompanying
consolidated balance sheet in other accrued liabilities.

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 six months ended June 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 loss, net of taxes              
|                                                    
|                                                    
|                                                    

Net income and total comprehensive income differ by
unrealized gains or losses related to interest rate swap agreements, net of taxes. For the
six months ended June 30, 2005 and 2004, total comprehensive income was $28,028,000 and
$57,624,000, respectively.

NOTE F    INCOME TAXES

Income taxes for the six months ended June 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 non-deductible permanent difference that is expected to
result from a portion of the accrual recorded to reflect the preliminary settlement of two
previously disclosed qui tam lawsuits. (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 six-month period ended June 30,
2004 were provided at the effective tax rate that was expected to be applicable for that
year.

At June 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

As previously reported, since mid-1998 Apria has been
the subject of an investigation conducted by the U.S. Attorneys office in Los
Angeles and the U.S. Department of Health and Human Services. The investigation concerns
the documentation supporting Aprias billing for services provided to patients whose
healthcare costs are paid by Medicare and other federal programs.

The investigation relates to two civil qui tamlawsuits against Apria filed under seal by individuals suing on behalf of the
government. In general, both lawsuits allege that for an unspecified period of time
commencing in 1995 Apria knowingly engaged in various schemes to defraud the government by
submitting false claims for payment and by manipulating and falsifying documentation in
support of such claims.

In early August 2005, Apria and representatives of the
government and the individual plaintiffs reached a preliminary agreement for the
settlement of these lawsuits. Under the settlement, Apria will pay the government
$17,600,000 without any admission of wrongdoing. As a result of this preliminary
agreement, the companys financial statements for the period ended June 30, 2005,
reflect a liability accrual of $20,000,000, consisting of the settlement amount, legal
fees and other related costs. Completion of the settlement is subject to formal approval
by the principals, the negotiation and execution of a definitive settlement agreement and
dismissal of the complaints by the court.

In late July 2005, during discussions leading to the
settlement of the two cases referred to above, the government informed Apria of the
existence of a third civil qui tam lawsuit containing similar allegations of
improper billing at several specific locations during 2002-2004. The government also
informed Apria that it has recently filed a request for the dismissal of this action.
Apria cannot, however, provide any assurance that this new litigation will in fact be
dismissed or make any estimate of the liability, if any, that may result from the
litigation in the event the lawsuit is not dismissed.

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 EndedJune 30, |  |   | Six Months EndedJune 30,
|--------------------------------------------------- | -------------------------- |  | - | ------------------------
|
|
|
|Numerator:                                          |                            |  |   |                         
|Net income                                          |                            |  | $ | 3,016                   
|Numerator for basic and diluted per share amounts - |                            | 
|income available to common stockholders             |                            |  | $ | 3,016                   
|                                                   
|Denominator:                                        |                            | 
|Denominator for basic per share                     |                            | 
|amounts - weighted average shares                   |                            |  |   | 49,122                  
|                                                   
|Effect of dilutive securities:                      |                            | 
|Employee stock options -                            |                            | 
|dilutive potential common shares                    |                            |  |   | 960                     
|                                                    |                            |  |   |                         
|Denominator for diluted per share amounts -         |                            | 
|adjusted weighted average shares                    |                            |  |   | 50,082                  
|                                                    |                            |  |   |                         
|                                                   
|Basic net income per common share                   |                            |  | $ | 0.06                    
|                                                    |                            |  |   |                         
|Diluted net income per common share                 |                            |  | $ | 0.06                    
|                                                    |                            |  |   |                         
|                                                   
|Employee stock options excluded from the            |                            | 
|computation of diluted per share amounts:           |                            | 
|                                                   
|Shares for which exercise price exceeds             |                            | 
|average market price of common stock                |                            |  |   | 595                     
|                                                   
|Average exercise price per share that exceeds       |                            | 
|average market price of common stock                |                            |  | $ | 33.40                   
|                                                    |                            |  |   |                         

---

---

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,  have and could continue to
have significant  impacts on the economy and government spending  priorities.  The
effects of any further such  developments,  including  the ongoing occupation  in Iraq,
pose  significant risks and  uncertainties  to Aprias  business.
 Deficit  spending by the  government  as the result of adverse
 developments in the economy and the continuing costs of military and national security activities
 have increased  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 $374.9 million in the second quarter of 2005, compared to $359.6 million
for the corresponding period in 2004, representing an increase of 4.3%. For the
six-month period ended June 30, 2005, net revenues were $746.8 million, up 5.1%
from $710.4 million in the same period of 2004. Respiratory medication revenues for
the first six months in 2004 were reduced by $7.3 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's estimate of
the impact of the 2005 Medicare reimbursement reductions is approximately $8.6 million
and $13.1 million for the three and six months ended June 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
six-month  periods in 2005 and 2004, the revenue  reduction in 2005 related to this
contract exit represented 1.9% of prior year revenues.  The impact to the second quarter
was less than one percent.

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 recent renewal of Aprias
contract with Aetna US Healthcare extends the commitment through June 2008 and provides the
potential for expanded referrals.

The growth in revenues,
 after  consideration  of the Medicare and Gentiva revenue  reductions,  was due to
volume increases from contracted and traditional  sources and the acquisition 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.  Based  on its
analysis,  Apria estimates that  approximately  $38 million of the net revenue growth
between the six-month periods in 2004 and 2005 was derived from acquisitions.

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

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

Respiratory
Therapy.Respiratory therapy revenues are derived primarily from the provision of
oxygen systems, home ventilators, sleep apnea equipment, nebulizers, respiratory
medications and related services. Net revenues in the respiratory therapy service line
increased 3.7% in the second quarter of 2005 and 5.0% in the six months ended June 30,
2005, as compared to the corresponding periods in 2004. This growth was primarily driven
by volume increases and acquisitions of respiratory therapy businesses. The Medicare
reimbursement reductions caused a decline of 3.1% and 2.3% in the revenue growth rate for
the three and six-month periods ended June 30, 2005. The year over year growth in this
service line was also reduced by the exit from the Gentiva contract, representing
approximately 2.3% of 2004 respiratory revenues.

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 6.8%
and 6.0% in the three and six months ended June 30, 2005, respectively. Enteral nutrition,
which makes up approximately 44% of the revenue in the infusion service line, was the main
driver of the infusion growth with increases of 9.8% and 8.7% in the second quarter and
six months ended June 30, 2005, respectively, when compared to the corresponding periods
in 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 increased 3.8% in the second
quarter of 2005 and 4.8% for the six months ended June 30, 2005 when compared to the
corresponding periods in 2004. Diabetic supplies, historically a very small percentage of
the home medical equipment line, grew 55.5% and 123.7% in the three and six months ended
June 30, 2005 when compared to the same periods 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 grew 1.7% and 1.3% for the second quarter and six
months ended June 30, 2005, respectively, when compared to the same periods in 2004.
Medicare reimbursement reductions implemented in 2005 that impact this line of business
represent 1.7% of home medical equipment/other revenues for the second quarter of 2005 and
1.6% for the first six months of 2005 compared to the corresponding periods in 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  Such increases were
instituted from 2004 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 have been established at
              $57.00 for a 30-day  supply of  medications  and $80.00 for a 90-day  supply.  In its  proposed  2006
              physician fee schedule  released on August 1, 2005,  the Centers for Medicare and Medicaid  Services,
              or CMS, indicated that the 2006 dispensing fee will likely be lower than the 2005 level.
| |  | 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 $15.0 million from 2003 levels. Management further estimates
that 2005 pretax income will be reduced from 2004 levels by approximately $40 million as a
result of the lower Medicare pricing implemented in 2005 and a related product pricing
increase discussed above. (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.

Gross Profit.Gross margins were 71.0% and 72.5% for the second quarters of 2005 and
2004, respectively. For the six-month periods ended June 30, 2005 and 2004, the margins
were 70.8% and 72.2%, 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 $2.9 million negative
impact on Aprias gross margin for the six-month period ended June 30, 2005. The
respiratory drug margin has also been experiencing downward pressure from other pricing changes
and shifts in product mix. Depreciation expense has decreased largely 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 3.4% of net
revenues for the second quarter of 2005 and 3.6% for the same period last year. For the
year-to-date periods of 2005 and 2004, the provision was 3.6% and 3.7%, respectively. The
improvement in 2005 when compared to 2004 is partially due to strong cash collections and
a focused effort to increase cash applications. Also, delays in collections due to
Medicare reimbursement changes that negatively impacted the provision during the first
quarter of 2005, have self-corrected during the second quarter. (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 56.1% of net revenues in the second quarter of 2005, up from 54.1% in the
second quarter of 2004. For the six-month period ending June 30, 2005, selling,
distribution and administrative expenses were 55.7% compared to 53.8% for the same period
last year. The percentage increase between the quarters and years 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, 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.

Qui Tam Settlement and Related
Costs. A $20 million accrual has been recorded in connection with a
preliminary agreement to settle the previously disclosed civil qui tam lawsuits.
Such accrual is comprised of $17.6 million that Apria will pay the government and $2.4
million in legal fees and other related costs. (See Liquidity and Capital Resources
 Federal Investigation.)

Amortization of
Intangible Assets.For the quarter and six months ended June 30, 2005,
amortization expense was $1.5 million and $3.1 million, respectively. This compares to
$1.5 million and $2.8 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 $4.9 million for the second quarter of 2005, as
compared to $5.0 million in the second quarter of 2004. For the year-to-date periods in
2005 and 2004, interest expense was $9.6 million and $9.9 million, respectively. The year
to year decrease is primarily due to reduced settlements on the interest rate swaps. (See
Liquidity and Capital Resources  Long-term Debt.)

Income Taxes.Income taxes for the six months ended June 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 non-deductible permanent difference that is expected to result from a
portion of the accrual recorded to reflect the preliminary settlement of two previously
disclosed qui tam lawsuits. (See Liquidity and Capital Resources 
Federal Investigation.) 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
six-month period ended June 30, 2004 were provided at the effective tax rate that was
expected to be applicable for that year.

At June 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 $97.8 million in the first
six months of 2005 compared with $137.8 million in the corresponding period in 2004. The
decrease in operating cash flow between the two periods can be attributed to several
factors, including the Medicare reimbursement changes and the exit from the Gentiva
contract, which negatively impacted net income for the first six months of 2005. Also
reducing operating cash flow was a $14.8 million increase in income tax payments between
the two periods.

Cash used in investing
activities decreased to $159.3 million for the first six months of 2005 compared to $177.8
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 $35.2 million during the first six months of 2005 compared to cash used in
financing activities of $62.6 million for the first six months of 2004. In 2005, the $25.2
million in net proceeds from the revolving credit facility was the primary source of cash.
Cash used in 2004 primarily relates to the $53.0 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 June 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     
|Operating leases                                                                                                                                         |        |        |        | 64     |        |         | 50    
|Deferred acquisition payments                                                                                                                            |        |        |        | 7      |        |         | -     
|                                                                                                                                                         |        |        |        |        |        |         |       
|Total contractual cash obligations                                                                                                                       |        |        | $      | 73     |        | $       | 51    
|                                                                                                                                                         |        |        |        |        |        |         |       
|                                                                                                                                                         |        |        |        |        |        |         |       
|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
$286.7 million at June 30, 2005 from $264.4 million at December 31, 2004, which is
primarily attributable to increases in revenues, particularly from 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 56 at
June 30, 2005, 53 at June 30, 2004 and 52 at December 31, 2004. The increase in days sales
outstanding at the end of the second quarter of 2005 is primarily due to the acquisition
activity in the first and second quarters. 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.

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

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

---

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 $44.5 million and $36.3 million at June 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 June 30, 2005 is largely due
to acquisitions completed during the first two quarters of 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 six months ended June 30, 2005 and 2004 were $1.3 million and
$151,000, respectively. The increase in 2005 resulted from a change in the schedule for
performing physical inventories. There can be no assurance that Apria will be able to
maintain its current level of control over inventories and patient service equipment.
Continued revenue growth is directly dependent on the companys ability to fund its
equipment and inventory requirements. The increase in patient service equipment balances
between December 31, 2004 and June 30, 2005 reflects purchases to support increased
business levels and the addition of patient items recorded in conjunction with
acquisitions that closed in 2005.

Long-Term
Debt. Revolving Credit Facility. At June 30, 2005,
borrowings under Aprias revolving credit facility were $250.0 million; outstanding
letters of credit totaled $3.9 million; and credit available under the revolving facility
was $246.1 million. The company continues to be in compliance with all of the financial
covenants required by the credit agreement.

Convertible Senior
Notes. At June 30, 2005, the fair value of the $250.0 million in
convertible senior notes was $271.4 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 June 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 six months ended June 30, 2005 and 2004, Apria paid net settlements
amounts of $101,000 and $857,000, respectively. Unrealized gains and losses on the fair
value of the swap agreements are reflected, net of taxes, in other comprehensive income.
At June 30, 2005, the aggregate fair value of the two pre-existing swap agreements was an
asset of $227,000 and the aggregate fair value of the two forward-starting swap agreements
was a liability of $498,000. In the event of counterparty non-performance, Aprias
exposure to credit loss under the swap agreements is limited to the interest rate spread.

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 six months of 2005 was $95.4
million. Pending receipt of additional valuation information, the preliminary allocation
of this amount includes $79.8 million to goodwill, $7.0 million to other intangible assets
and $5.8 million to patient service equipment.

Cash paid for
acquisitions, which includes amounts deferred from prior year acquisitions, totaled $96.2
million and $100.1 million in the first six 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. Regulations under HIPAA that may have a material effect
          on Apria govern the following:

| |  | privacy of individually identifiable health information - compliance date: April 14, 2003 - Apria was
materially compliant by this date;                                                                                                                
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | standard electronic transaction and code sets - compliance date: October 16, 2003 - Apria was materially
compliant by this date;                                                                                                                        
| |  | electronic security of individually identifiable health information - compliance date: April 20, 2005 -
Apria was materially compliant by this date;                                                                                                    
| |  | 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.

---

Federal
Investigation. As previously reported, since mid-1998 Apria has been the subject
of an investigation conducted by the U.S. Attorneys office in Los Angeles and the
U.S. Department of Health and Human Services. The investigation concerns the documentation
supporting Aprias billing for services provided to patients whose healthcare costs
are paid by Medicare and other federal programs.

The investigation relates
to two civil qui tamlawsuits against Apria filed under seal by individuals suing
on behalf of the government. In general, both lawsuits allege that for an unspecified
period of time commencing in 1995 Apria knowingly engaged in various schemes to defraud
the government by submitting false claims for payment and by manipulating and falsifying
documentation in support of such claims.

In early August 2005,
Apria and representatives of the government and the individual plaintiffs reached a
preliminary agreement for the settlement of these lawsuits. Under the settlement, Apria
will pay the government $17.6 million without any admission of wrongdoing. As a result of
this preliminary agreement, the companys financial statements for the period ended
June 30, 2005, reflect a liability accrual of $20 million, consisting of the settlement
amount, legal fees and other related costs. Completion of the settlement is subject to
formal approval by the principals, the negotiation and execution of a definitive
settlement agreement and dismissal of the complaints by the court.

In late July 2005, during
discussions leading to the settlement of the two cases referred to above, the government
informed Apria of the existence of a third civil qui tam lawsuit containing similar
allegations of improper billing at several specific locations during 2002-2004. The
government also informed Apria that it has recently filed a request for the dismissal of
this action. Apria cannot, however, provide any assurance that this new litigation will in
fact be dismissed or make any estimate of the liability, if any, that may result from the
litigation in the event the lawsuit is not dismissed.

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 June 30, 2005,
Aprias revolving credit facility borrowings totaled $250.0 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 June 30, 2005, all of Aprias outstanding revolving
debt was tied to LIBOR.

At June 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 June 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 $2.0 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,
since mid-1998 Apria has been the subject of an investigation conducted by the U.S.
Attorneys office in Los Angeles and the U.S. Department of Health and Human
Services. The investigation concerns the documentation supporting Aprias billing for
services provided to patients whose healthcare costs are paid by Medicare and other
federal programs.

The investigation relates
to two civil qui tamlawsuits against Apria filed under seal by individuals suing
on behalf of the government. In general, both lawsuits allege that for an unspecified
period of time commencing in 1995 Apria knowingly engaged in various schemes to defraud
the government by submitting false claims for payment and by manipulating and falsifying
documentation in support of such claims.

In early August 2005,
Apria and representatives of the government and the individual plaintiffs reached a
preliminary agreement for the settlement of these lawsuits. Under the settlement, Apria
will pay the government $17.6 million without any admission of wrongdoing. As a result of
this preliminary agreement, the companys financial statements for the period ended
June 30, 2005, reflect a liability accrual of $20 million, consisting of the settlement
amount, legal fees and other related costs. Completion of the settlement is subject to
formal approval by the principals, the negotiation and execution of a definitive
settlement agreement and dismissal of the complaints by the court.

In late July 2005, during
discussions leading to the settlement of the two cases referred to above, the government
informed Apria of the existence of a third civil qui tam lawsuit containing similar
allegations of improper billing at several specific locations during 2002-2004. The
government also informed Apria that it has recently filed a request for the dismissal of
this action. Apria cannot, however, provide any assurance that this new litigation will in
fact be dismissed or make any estimate of the liability, if any, that may result from the
litigation in the event the lawsuit is not dismissed.

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 4.     
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

| |           |                                                                                                                                                                                                                                                                                                                                                
| | --------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a)(b)(c) | The Annual Meeting of Stockholders of the
company was held on April 20, 2005.Directors reelected at the Annual Meeting
for a term of one year:Vicente Anido, Jr.I.T. CorleyDavid L. Goldsmith
Lawrence M. HigbyRichard H. KoppesPhilip R. Lochner, Jr.Jeri L. Lose (1)Matters Voted Upon at Annual Meeting:
Election of Directors              
| |           | As of April 20, 2005, the companys Board of Directors consisted of
 seven members.  Effective with the resignation of Jeri Lose on June 13, 2005,
the  Board currently consists of six members
who will serve for one year or until the election and qualification
of their successors. The results of the stockholder voting were as follows:

| |                                                                                                                      | FOR                                                                           | WITHHOLD/ABSTENTIONS                                                   | BROKERNON-VOTES
| | -------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------- | ---------------------------------------------------------------------- | ---------------
| | Vicente Anido, Jr.I.T. CorleyDavid L. Goldsmith
Lawrence M. HigbyRichard H. KoppesPhilip R. Lochner, Jr.Jeri L. Lose | 43,403,96644,916,645
      44,050,45944,913,99244,916,37843,384,31643,403,513 | 2,337,654 824,975 1,691,161
       827,628 825,242 2,357,304 2,338,107 | 
       

| | (1) | Resigned from Board of Directors on June 13, 2005 to
assume the position of EVP, Chief Information Officer with the Registrant.
| | --- | -------------------------------------------------------------------------------------------------------------------------------

| |  | Ratification of the Companys Independent Registered
Public Accountants                                                                                                                                                                                                 
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Board of Directors appointed Deloitte & Touche LLP
as the companys independent registered public accounting firm for the fiscal year ending year
ending December 31, 2005, subject to shareholder approval.  The results of the stockholder voting
were as follows:

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

ITEM 6.     EXHIBITS

| |                   |  |                                                                                                                                                          
| | ----------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| | Exhibits:         |  |                                                                                                                                                          
| | ExhibitNumber10.1 |  | ReferenceConfirmation dated April 22, 2005,
executed relative to the Master Agreement dated December 3, 2002, between Registrant
and Bank of Nova Scotia.
| | 10.2              |  | Executive Severance Agreement dated June 13, 2005, between Registrant
and Jeri L. Lose.                                                                  
| | 31.1              |  | Certification of Chief Executive Officer pursuant
to Securities Exchange Act Rule 13a-14(a).                                                             
| | 31.2              |  | Certification of Chief Financial Officer pursuant
to Securities Exchange Act Rule 13a-14(a).                                                             
| | 32.1              |  | Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350.                                                                             
| | 32.2              |  | Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350.                                                                             

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SIGNATURES

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

|                |                                                                                                                      
|--------------- | ---------------------------------------------------------------------------------------------------------------------
|                | APRIA HEALTHCARE GROUP INC.
Registrant                                                                               
|August 15, 2005 | /s/ AMIN I. KHALIFA
Amin I. KhalifaExecutive Vice President and Chief Financial Officer
(Principal Financial Officer)