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

Form 10-Q

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

For the quarterly period ended
 March 31, 2007

OR

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

Commission File Number:
1-14316

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

|                                                                                                                                                                 |                                                                       
|---------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------
|Delaware(State or Other
      Jurisdiction ofIncorporation or Organization)26220 Enterprise
      Court, Lake Forest, CA(Address of Principal Executive Offices) | 33-0488566(I.R.S. Employer
      Identification Number)92630(Zip Code)

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

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

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

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

As of May 7, 2007 there were outstanding 43,645,375
 shares of the Registrants common stock,  par
value $.001 per share, which is the only class of common stock of the Registrant (not
including 16,999,072 shares held in treasury).

---

APRIA HEALTHCARE GROUP INC.

FORM 10-Q

For the period ended March 31, 2007

|                                          |  |                                                                                                                                                                                                                                                       | 
|----------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|PART I.    
        FINANCIAL INFORMATION | 
|                                          |  |                                                                                                                                                                                                                                                       | 
|Item 1.                                   |  | Financial Statements (unaudited).
       Condensed Consolidated Balance Sheets
       Condensed Consolidated Income Statements
       Condensed Consolidated Statements of Cash Flows
       Notes to Condensed Consolidated Financial Statements | 
|                                          |  |                                                                                                                                                                                                                                                       | 
|Item 2.                                   |  | Managements Discussion and Analysis ofFinancial
Condition and Results of Operations.                                                                                                                                                                 | 
|                                          |  |                                                                                                                                                                                                                                                       | 
|Item 3.                                   |  | Quantitative and Qualitative Disclosures About Market Risk.                                                                                                                                                                                           | 
|                                          |  |                                                                                                                                                                                                                                                       | 
|Item 4.                                   |  | Controls and Procedures.                                                                                                                                                                                                                              | 
|                                          |  |                                                                                                                                                                                                                                                       | 
|                                          |  |                                                                                                                                                                                                                                                       | 
|PART II.   
         OTHER INFORMATION    | 
|                                          |  |                                                                                                                                                                                                                                                       | 
|Item 1.                                   |  | Legal Proceedings.                                                                                                                                                                                                                                    | 
|                                          |  |                                                                                                                                                                                                                                                       | 
|Item 1A.                                  |  | Risk Factors.                                                                                                                                                                                                                                         | 
|                                          |  |                                                                                                                                                                                                                                                       | 
|Item 2.                                   |  | Unregistered Sale of Equity Securities and Use of Proceeds.                                                                                                                                                                                           | 
|                                          |  |                                                                                                                                                                                                                                                       | 
|Item 3.                                   |  | Defaults Upon Senior Securities.                                                                                                                                                                                                                      | 
|                                          |  |                                                                                                                                                                                                                                                       | 
|Item 4.                                   |  | Submission of Matters to a Vote of Security Holders.                                                                                                                                                                                                  | 
|                                          |  |                                                                                                                                                                                                                                                       | 
|Item 5.                                   |  | Other Information.                                                                                                                                                                                                                                    | 
|                                          |  |                                                                                                                                                                                                                                                       | 
|Item 6.                                   |  | Exhibits.                                                                                                                                                                                                                                             | 
|                                          |  |                                                                                                                                                                                                                                                       | 
|SIGNATURES                                |  |                                                                                                                                                                                                                                                       | 
|                                          |  |                                                                                                                                                                                                                                                       | 
|EXHIBITS                                  |  |                                                                                                                                                                                                                                                       | 

---

---

Cautionary statement for purposes of the Safe
Harbor provisions of the Private Securities Litigation Reform Act of 1995:
Aprias business is subject to a number of risks which are partly or entirely beyond
the companys control. The company has described certain of those risks in its Annual
Report on Form 10-K for the fiscal year ended December 31, 2006, as filed with the
Securities and Exchange Commission on March 1, 2007. That report may be used for purposes
of the Private Securities Litigation Reform Act of 1995 as a readily available document
containing meaningful cautionary statements identifying important factors that could cause
actual results to differ materially from those projected in any forward-looking statements
the company may make from time to time. Key factors that may have an impact on Apria
include the following:

| |  | trends
 and developments affecting the collectibility of accounts receivable;                      
|- |  | ---------------------------------------------------------------------------------------------------
| |  | government legislative
 and budget developments that could continue to affect reimbursement levels;
| |  | potential reductions in reimbursement rates by government and third-party payors;                  
| |  | the effectiveness of Aprias operating systems and controls;                                       
| |  | healthcare reform and the effect of federal and state healthcare regulations;                      
| |  | economic and political events, international conflicts and natural disasters;                      
| |  | acquisition-related risks; and                                                                     
| |  | other factors described in Aprias filings with the Securities and Exchange Commission.            

---

---

PART I  FINANCIAL INFORMATION

ITEM 1.     FINANCIAL STATEMENTS

APRIA HEALTHCARE GROUP INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

|                                                                            | March 31, |  | December 31,
|--------------------------------------------------------------------------- | --------- |  | ------------
|
|
|ASSETS                                                                      |           |  |             
|CURRENT ASSETS                                                              |           |  |             
|Cash and cash equivalents                                                   |           |  | $           
|Accounts receivable, less allowance
for doubtful accounts of $26,066        |           | 
|and $27,342 at March 31, 2007 and
December 31, 2006, respectively           |           |  |             
|Inventories, net                                                            |           |  |             
|Deferred income taxes                                                       |           |  |             
|Deferred expenses                                                           |           |  |             
|Prepaid expenses and other current assets                                   |           |  |             
|                                                                            |           |  |             
|TOTAL CURRENT ASSETS                                                        |           |  |             
|                                                                            |           | 
|PATIENT SERVICE EQUIPMENT, less accumulated depreciation of $443,764        |           | 
|and $445,608 at March 31, 2007 and December 31, 2006, respectively          |           |  |             
|PROPERTY, EQUIPMENT AND IMPROVEMENTS, net                                   |           |  |             
|GOODWILL                                                                    |           |  |             
|INTANGIBLE ASSETS, less accumulated amortization of $7,793 and              |           | 
|$8,238 at March 31, 2007 and December 31, 2006, respectively                |           |  |             
|DEFERRED DEBT ISSUANCE COSTS, net                                           |           |  |             
|OTHER ASSETS                                                                |           |  |             
|                                                                            |           |  |             
|                                                                            |           |  | $           
|                                                                            |           |  |             
|LIABILITIES AND STOCKHOLDERS EQUITY                                        |           | 
|CURRENT LIABILITIES                                                         |           | 
|Accounts payable                                                            |           |  | $           
|Accrued payroll and related taxes and benefits                              |           |  |             
|Accrued insurance                                                           |           |  |             
|Income taxes payable                                                        |           |  |             
|Other accrued liabilities                                                   |           |  |             
|Deferred revenue                                                            |           |  |             
|Current portion of long-term debt                                           |           |  |             
|                                                                            |           |  |             
|TOTAL CURRENT LIABILITIES                                                   |           |  |             
|                                                                            |           | 
|LONG-TERM DEBT, net of current portion                                      |           |  |             
|DEFERRED INCOME TAXES                                                       |           |  |             
|INCOME TAXES PAYABLE AND
OTHER NON-CURRENT LIABILITIES                      |           |  |             
|                                                                            |           |  |             
|TOTAL LIABILITIES                                                           |           |  |             
|COMMITMENTS AND CONTINGENCIES (Note J)                                      |           | 
|                                                                            |           | 
|STOCKHOLDERS EQUITY                                                        |           | 
|Preferred stock, $.001 par value: 10,000,000 shares authorized;             |           | 
|none issued                                                                 |           |  |             
|Common stock, $.001 par value: 150,000,000 shares authorized;               |           | 
|60,516,782 and 59,762,307 shares issued at
March 31, 2007 and               |           | 
|December 31, 2006, respectively;
43,517,710 and 42,789,450 shares           |           | 
|outstanding at March 31, 2007 and December 31, 2006, respectively           |           |  |             
|Additional paid-in capital                                                  |           |  |             
|Treasury stock, at cost; 16,999,072 and 16,972,857 shares
at March 31, 2007 |           | 
|and December 31, 2006, respectively                                         |           |  |             
|Retained earnings                                                           |           |  |             
|Accumulated other comprehensive income                                      |           |  |             
|                                                                            |           |  |             
|TOTAL STOCKHOLDERS EQUITY                                                  |           |  |             
|                                                                            |           |  |             
|                                                                            |           |  | $           
|                                                                            |           |  |             

See notes to condensed
consolidated financial statements.

---

APRIA HEALTHCARE GROUP INC.

CONDENSED CONSOLIDATED INCOME STATEMENTS 
(unaudited)

|                                                                           | Three Months EndedMarch 31,
|-------------------------------------------------------------------------- | ---------------------------
|
|
|
|Net revenues:                                                              |                            
|Fee for service/product
arrangements                                       |                            
|Capitation
arrangements                                                    |                            
|                                                                           |                            
|TOTAL NET REVENUES                                                         |                            
|                                                                           |                            
|Costs and expenses:   
Cost of net revenues:      Product and supply costs |                            
|Patient service equipment depreciation                                     |                            
|Respiratory therapy services                                               |                            
|Nursing services                                                           |                            
|Other                                                                      |                            
|                                                                           |                            
|TOTAL COST OF NET REVENUES                                                 |                            
|                                                                           |                            
|Provision for doubtful accounts                                            |                            
|Selling, distribution and administrative                                   |                            
|Amortization of intangible assets                                          |                            
|                                                                           |                            
|TOTAL COSTS AND EXPENSES                                                   |                            
|                                                                           |                            
|                                                                           |                            
|OPERATING INCOME                                                           |                            
|Interest expense                                                           |                            
|Interest income                                                            |                            
|                                                                           |                            
|INCOME BEFORE TAXES                                                        |                            
|Income tax expense                                                         |                            
|                                                                           |                            
|NET INCOME                                                                 |                            
|                                                                           |                            
|Basic net income per common share                                          |                            
|                                                                           |                            
|Diluted net income per common share                                        |                            
|                                                                           |                            

See notes to condensed consolidated
financial statements.

---

APRIA HEALTHCARE GROUP INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

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

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

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

Purchases of patient service equipment and property, equipment and improvements
exclude purchases that remain unpaid at the end of the respective quarter.  Such amounts are
then included in the following periods purchases.  Unpaid purchases were $4,868 and
$8,152 at March 31, 2007 and December 31, 2006, respectively.

See notes to condensed
consolidated financial statements.

---

APRIA HEALTHCARE GROUP
INC.NOTES TO UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

# NOTE A  CERTAIN
SIGNIFICANT ACCOUNTING POLICIES

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

All adjustments, consisting of normal
recurring accruals necessary for a fair presentation of the results of operations for the
interim periods presented, have been reflected herein. The unaudited results of operations
for interim periods are not necessarily indicative of the results to be expected for the
entire year. For further information, refer to the consolidated financial statements and
footnotes thereto included in the companys Annual Report on Form 10-K for the fiscal
year ended December 31, 2006.

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

Revenue Recognition and
Concentration of Credit Risk: Revenues are recognized on the date services and related
products are provided to patients and are recorded at amounts expected to be received
under reimbursement arrangements with third-party payors, including private insurers,
prepaid health plans, Medicare and Medicaid. For the three-month periods ended March 31,
2007 and 2006, approximately 35% and 38% of the companys revenues were reimbursed
under arrangements with Medicare and Medicaid. No other third-party payor group
represented more than 9% of the companys revenues for either period presented. The
majority of the companys revenues are derived from fees charged for patient care
under fee-for-service/product arrangements.

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

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

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

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

Clinical Expenses: Respiratory
therapy and infusion therapy nursing expenses included in selling, distribution and
administrative expenses totaled $5,887,000 and $4,952,000 for the three-month periods
ended March 31, 2007 and 2006, respectively.

Distribution Expenses:
Distribution expenses, totaling $43,717,000 and $44,080,000 for the three-month periods
ended March 31, 2007 and 2006, respectively, are included in selling, distribution and
administrative expenses.

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

---

# NOTE B  RECENT
ACCOUNTING PRONOUNCEMENTS

In February 2006, the Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 155, Accounting for Certain Hybrid Financial
Instruments. The statement amends SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities and SFAS No. 140, Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities. The statement
is effective for all financial instruments acquired or issued after the beginning of an
entitys first fiscal year that begins after September 15, 2006. Accordingly, the
company adopted SFAS No. 155 on January 1, 2007. Such adoption did not have a material
effect on the companys consolidated financial statements.

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

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

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

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

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

---

# NOTE C  BUSINESS
COMBINATIONS

Apria periodically makes acquisitions
of complementary businesses in specific geographic markets. The results of operations of
the acquired companies are included in the accompanying condensed consolidated income
statements from the dates of acquisition. No acquisitions were effected during the three
months ended March 31, 2007. For the three months ended March 31, 2006 cash paid for
acquisitions was $4,063,000, which included deferred payments of $3,001,000 related to
prior periods. For the periods ended March 31, 2007 and 2006 deferred consideration
payable totaled $108,000 and $2,625,000, respectively, and is included in the condensed
consolidated balance sheets in other accrued liabilities.

# NOTE D  GOODWILL
AND INTANGIBLE ASSETS

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

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

|(dollars in thousands)   |  |  | March 31, 2007 |     | December 31, 2006
|------------------------ |  |  | -------------- | --- | -----------------
|
|
|
|Covenants not to compete |  |  |                | 5.0 |                  
|Customer lists           |  |  |                | 0.8 |                  
|                         |  |  |                |     |                  
|                         |  |  |                | 4.6 |                  
|                         |  |  |                |     |                  

Estimated future amortization expense
is presented below:

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

# NOTE E  LONG-TERM
DEBT

Revolving Credit Facility:
At March 31, 2007, borrowings under
the revolving credit facility were $210,000,000; outstanding letters of credit totaled
$3,855,000; credit available under the revolving facility was $286,145,000; and Apria was
in compliance with all covenants required by the credit agreement.

Convertible Senior Notes: At
March 31, 2007, the fair value of the $250,000,000 in convertible senior notes was
$275,000,000, as determined by reference to quoted market prices.

Hedging Activities: Apria
utilizes interest rate swap agreements to moderate its exposure to interest rate
fluctuations on its underlying variable rate long-term debt. Apria does not use derivative
financial instruments for trading or other speculative purposes. At March 31, 2007, Apria
had one interest rate swap agreement in effect which will expire in January 2009 and has a
notional amount of $25,000,000 with a fixed rate of 4.44%. Apria also had an interest swap
agreement which expired in December 2006 that had a notional amount of $25,000,000 with a
fixed rate of 3.42%.

The swap agreements are being
accounted for under SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities. The difference between the interest received and interest paid is
reflected as an adjustment to interest expense. Apria paid a net settlement amount of
$58,000 for the three-month period ended March 31, 2007 and $84,000 for the same
three-month period in 2006. The aggregate fair value of the swap agreement was an asset of
$264,000 and $356,000 at March 31, 2007 and December 31, 2006, respectively, and is
reflected in the accompanying condensed consolidated balance sheets in other assets.
Unrealized gains and losses on the fair value of the swap agreements are reflected, net of
taxes, in operating income, as the transactions no longer qualify for hedge accounting.
Aprias exposure to credit loss under the swap agreement is limited to the interest
rate spread in the event of counterparty nonperformance. Apria does not anticipate losses
due to counterparty nonperformance as its counterparties to the swap agreement are
nationally recognized financial institutions with strong credit ratings.

Total interest paid on debt totaled
$7,700,000 and $9,270,000 for the three-month periods ended March 31, 2007 and 2006,
respectively.

# NOTE F 
STOCKHOLDERS EQUITY

For the three months ended March 31,
2007, changes to stockholders equity were comprised of the following amounts:

|(dollars in thousands)                              
|----------------------------------------------------
|
|Net income                                          
|Issuances of common stock                           
|Tax benefit related to share-based compensation     
|Tax effect of canceled options                      
|Restricted stock retained in treasury upon vesting  
|Stock-based compensation                            
|Cumulative effect adjustment for FIN No. 48 adoption
|Other comprehensive loss, net of taxes              
|                                                    
|                                                    
|                                                    

Net income and total comprehensive
income differ by other comprehensive loss, net of taxes. Such loss represents the
amortization of a balance in accumulated other comprehensive income that was previously
recorded in connection with certain interest rate swap agreements. For the three months
ended March 31, 2007 and 2006, total comprehensive income was $19,099,000 and $16,123,000
respectively.

# NOTE G 
SHARE-BASED COMPENSATION

For the three month periods ended
March 31, 2007 and 2006, the company recorded share-based compensation expense of
$1,436,000 and $1,069,000, respectively. All such compensation is reflected in the
accompanying condensed consolidated income statement within the selling, distribution and
administrative expense line item. The related awards were granted to administrative
personnel or members of the companys Board of Directors and therefore no portion of
the share-based compensation has been classified within cost of net revenues. Share-based
compensation expense recognized in the periods presented is based on awards ultimately
expected to vest; therefore, it has been reduced for estimated forfeitures.

For the three months ended March 31,
2007 and 2006, cash received from the exercise of options totaled $13,297,000 and
$2,802,000, respectively.

The company estimates the fair value
of stock options using the Black-Scholes valuation model. Key input assumptions used to
estimate the fair value of stock options include the exercise price of the award, the
expected option term, the expected volatility of the companys stock over the
options expected term, the risk-free interest rate over the options term, and
the companys expected annual dividend yield. Aprias management believes that
the valuation technique and the approach utilized to develop the underlying assumptions
are appropriate in calculating the fair values of the companys stock options granted
in the three-month periods ended March 31, 2007 and 2006. Estimates of fair value are not
intended to predict actual future events or the value ultimately realized by persons who
receive equity awards. The key input assumptions that were utilized in the valuation of
the stock options granted during the three months ended March 31, 2007 and 2006, are
summarized in the table below.

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

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

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

The following table summarizes the
activity for stock options for the three months ended March 31, 2007:

|                                                | Options | Weighted-AverageExercise Price | Weighted-AverageRemainingContractual Term
                                 (in Years) | AggregateIntrinsicValue
|----------------------------------------------- | ------- | ------------------------------ | ------------------------------------------------------------------------------------- | -----------------------
|
|Outstanding at January 1, 2007                  |         | 4,056,314                      |                                                                                       | $                      
|Granted                                         |         | 576,830                        |                                                                                       |                        
|Exercised                                       |         | (677,245                       | )                                                                                     |                        
|Forfeited                                       |         | (26,667                        | )                                                                                     |                        
|                                                |         |                                |                                                                                       |                        
|Outstanding at March 31, 2007                   |         | 3,929,232                      |                                                                                       | $                      
|                                                |         |                                |                                                                                       |                        
|Vested or expected to vest as of March 31, 2007 |         | 3,690,921                      |                                                                                       | $                      
|                                                |         |                                |                                                                                       |                        
|Exercisable at March 31, 2007                   |         | 2,679,061                      |                                                                                       | $                      
|                                                |         |                                |                                                                                       |                        

The weighted-average fair value of stock
options granted during the three months ended March 31, 2007 and 2006 was $10.67 and
$7.39, respectively. There were 630,000 stock options granted in the corresponding period
in 2006. The total intrinsic value of options exercised was $8,021,000 and $120,000 for
the three months ended March 31, 2007 and 2006, respectively.

As of March 31, 2007, total
unrecognized stock-based compensation cost related to unvested stock options was
$8,916,000, which is expected to be expensed over a weighted-average period of 2.54 years.

---

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

The following table summarizes the
activity for restricted stock purchase rights for the three months ended March 31, 2007:

|                                                | RestrictedStockPurchaseRights | Weighted-AverageExercise Price | Weighted-AverageRemainingContractual Term
                                 (in Years) | AggregateIntrinsicValue
|----------------------------------------------- | ----------------------------- | ------------------------------ | ------------------------------------------------------------------------------------- | -----------------------
|
|Outstanding at January 1, 2007                  |                               | 300,000                        |                                                                                       | $                      
|Granted                                         |                               | -                              |                                                                                       |                        
|Exercised                                       |                               | (8,000                         | )                                                                                     |                        
|Forfeited                                       |                               | -                              |                                                                                       |                        
|                                                |                               |                                |                                                                                       |                        
|Outstanding at March 31, 2007                   |                               | 292,000                        |                                                                                       | $                      
|                                                |                               |                                |                                                                                       |                        
|Vested or expected to vest as of March 31, 2007 |                               | 226,478                        |                                                                                       | $                      
|                                                |                               |                                |                                                                                       |                        
|Exercisable at March 31, 2007                   |                               | 8,000                          |                                                                                       | $                      
|                                                |                               |                                |                                                                                       |                        

The total intrinsic value of
restricted stock purchase rights exercised was $200,000 and $392,000 for the three months
ended March 31, 2007 and 2006, respectively. No such awards were granted during these two
periods.

As of March 31, 2007, total
unrecognized stock-based compensation cost related to unvested restricted stock purchase
rights was $2,725,000, which is expected to be expensed over a weighted-average period of
3.06 years.

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

The following table summarizes the
activity for restricted stock awards and units for the three months ended March 31, 2007:

|                                                               | SharesorShare Units |  | Weighted-AverageGrant-Date
             Fair Value
|-------------------------------------------------------------- | ------------------- |  | --------------------------------------------------
|
|Nonvested restricted stock awards and
units at January 1, 2007 |                     |  |                                                   
|Granted                                                        |                     |  |                                                   
|Vested and released                                            |                     |  |                                                   
|Forfeited                                                      |                     |  |                                                   
|                                                               |                     |  |                                                   
|Nonvested restricted stock awards and units at March 31, 2007  |                     |  |                                                   
|                                                               |                     |  |                                                   

The weighted-average fair value of restricted
stock awards and units granted during the three months ended March 31, 2007 and 2006 was
$30.33 and $22.75, respectively. There were 255,000 awards granted in the corresponding
period in 2006. Restricted stock awards or units released during the three months ended
March 31, 2007 were 69,230 shares and the total intrinsic value was $2,206,000. No
restricted stock awards or units were released during the three months ended March 31,
2006.

As of March 31, 2007, total
unrecognized stock-based compensation cost related to unvested restricted stock awards and
units was $14,994,000, which is expected to be expensed over a weighted-average period of
2.20 years.

# NOTE H  INCOME
TAXES

The effective income tax rate was
39.0% for the three months ended March 31, 2007 compared with 34.6% for the three months
ended March 31, 2006. The change in the effective tax rate was primarily due to the
recognition of a $1,761,000 favorable adjustment in March 31, 2006 which related to the
settlement of tax issues.

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

As of January 1, 2007, the company
has provided for a liability of $16,948,000 for unrecognized tax benefits, all of which,
if ultimately recognized, could favorably affect the effective tax rate in a future
period.

As of March 31, 2007, the company
believes it is reasonably possible that certain unrecognized tax benefits, related to
state tax uncertainties, could be realized within the succeeding 12 months. The company
estimates that these unrecognized tax benefits could be up to $2,000,000 and ultimate
realization is dependent upon the occurrence of certain events (including the expiration
of the applicable statute of limitations).

The company recognizes interest
expense and penalties related to unrecognized tax benefits as part of its provision for
income taxes. As of January 1, 2007, the company has provided $3,844,000 in accrued
interest and penalties within its liability for unrecognized tax benefits.

The companys calendar 2003
through 2005 tax years remain open to examination by the Internal Revenue Service. The
companys calendar 2001 through 2005 tax years remain open to examination by various
state tax agencies.

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

Net income taxes paid for the
three-month periods ended March 31, 2007 and 2006, were $3,000,000 and $361,000,
respectively.

# NOTE I  PER SHARE
AMOUNTS

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

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

---

# NOTE J 
COMMITMENTS AND CONTINGENCIES

Litigation: Apria is the
defendant in a California class action lawsuit asserting blanket claims of liability under
various California employee protection statutes and regulations relating to payment of
regular and overtime wages, the timeliness of such payments, the maintenance and provision
of access to required payroll records, and the provision of meal and rest periods.
Venegas vs. Apria Healthcare, Inc.,et al., was filed on February 21, 2006
in the California Superior Court for the County of San Francisco (Case No. CGC  06
 449669). No class has been certified at this time but, the complaint seeks
compensatory and punitive damages in an unspecified amount as well as other relief on
behalf of a purported class consisting of certain hourly employees of the company in the
State of California. The company has filed an answer to the complaint denying all material
allegations and asserting a number of affirmative defenses. To date, plaintiff has not
filed a motion for class certification. The court has set the case for trial beginning
November 26, 2007. Based on the companys preliminary investigation of the
allegations, management believes there are meritorious defenses to the claims and the
company intends to vigorously defend the lawsuit. No assurance can be given, however, that
the ultimate disposition of this case will not have a material adverse effect on the
companys financial condition or results of operations.

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

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

Supplier Concentration: Apria
currently purchases approximately 63% of its patient service equipment and supplies from
four vendors. Although there are a limited number of suppliers, management believes that
other vendors could provide similar products on comparable terms. However, a change in
suppliers could cause delays in service delivery and possible losses in revenue, which
could adversely affect operating results.

Guarantees and Indemnities:
From time to time Apria enters into certain types of contracts that contingently require
the company to indemnify parties against third party claims. These contracts primarily
relate to (i) certain asset purchase agreements, under which the company may provide
customary indemnification to the seller of the business being acquired; (ii) certain real
estate leases, under which the company may be required to indemnify property owners for
environmental or other liabilities, and other claims arising from the companys use
of the applicable premises; and (iii) certain agreements with the companys officers,
directors and employees, under which the company may be required to indemnify such persons
for liabilities arising out of their relationship with the company.

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

---

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

Apria
operates in the home healthcare segment of the healthcare industry and provides services
in the home respiratory therapy, home infusion therapy and home medical equipment areas.
In all three lines, Apria provides patients with a variety of clinical and administrative
support services and related products and supplies, most of which are prescribed by a
physician as part of a care plan. Apria provides these services to patients in the home
through approximately 470 branch locations throughout the United States.

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

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

Critical
Accounting Policies.Aprias management considers the accounting
policies that govern revenue recognition and the determination of the net realizable value
of accounts receivable to be the most critical in relation to the companys
consolidated financial statements. These policies require managements most complex
and subjective judgments. Additionally, the accounting policies related to goodwill,
long-lived assets and income taxes require significant judgment. These policies are
presented in detail in the Managements Discussion and Analysis of Financial
Condition and Results of Operations section in Aprias Annual Report on Form
10-K for the year ended December 31, 2006.

Government
Reimbursement Update. On April 10,  2007,  the  Centers  for  Medicare  and  Medicaid  Services,  or CMS,
published  the final rule (Final  Rule)  implementing  the Medicare Part B  competitive  bidding  program for certain
items of Durable Medical  Equipment,  Prosthetics,  Orthotics and Supplies,  or DMEPOS.  By statute,  CMS must phase in
the  program  over time,  with the first  phase  establishing  competitive  bidding in 10 of the  largest  metropolitan
statistical  areas  (MSAs) for 2008,  with 80 additional  markets  added in 2009,  and full  implementation  in 2010.
Competitive  bidding imposes a new and  significant  risk to suppliers of DMEPOS.  If a DMEPOS supplier  operating in a
Competitive  Bidding  Area,  or CBA, is not awarded a contract for that CBA, the supplier  generally  will no longer be
able to bill and collect  from  Medicare  for most DMEPOS  supplied in that CBA. A DMEPOS  supplier  awarded one of the
winning  bids for the CBA is likely  to  receive  lower  Medicare  payment  levels  than  those in  existence  prior to
competitive  bidding.  Finally,  there is a risk that the new  competitive  bidding  prices will become a new benchmark
for reimbursement  from private payors. As competitive  bidding is phased in across the country,  there is likely to be
a substantial reduction in reimbursement earned by all DMEPOS suppliers, including Apria.

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

The deadline for  suppliers to submit bids for  participation  in the program is 60 days after  issuance of the Request
for  Bids  (RFB).  While  CMS and its  Competitive  Bidding  Implementing  Contractor  expect  the  deadline  for bid
submission  to be early July 2007,  the RFB had not been  issued as of May 9, 2007.  CMS has posted on its  website the
following key targeted  dates for  implementation  of the first phase of the program:  December 2007  final  selection
of winning contract  suppliers;  April 1, 2008  new payment levels go into effect for the selected product  categories
in the 10 selected CBAs.

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

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

# Results of Operations

Net
Revenues and Gross Margin. Net revenues were $389.3 million in the first
quarter of 2007, compared to $368.1 million for the same quarter of 2006. This represents
an increase of 5.8% which is primarily volume-based as pricing increases have been
negligible. Net revenue was reduced in the first quarter by approximately $651,000 due to
a change in Medicare reimbursement methodology for certain durable medical equipment items
previously categorized as capped rental. Such equipment previously had a maximum rental
period of 15 months with a patient purchase option, but currently rental payments cease at
the 13th month with transfer of ownership to the patient. The change was
mandated by the Deficit Reduction Act of 2005 and became effective for patients commencing
service on or after January 1, 2006 for
this particular set of items. February 2007 is the first month in which the change
impacted Aprias revenues.

Gross
margins were stable at 65.4% in the first quarter of 2007 compared to 65.5% in the same
period last year.

Apria
expects to continue to face pricing pressures from Medicare as well as from its managed
care customers as these payors seek to lower costs by obtaining more favorable pricing
from providers such as Apria. Managed care organizations are also evaluating alternative
delivery models for certain products and services, which include those provided by Apria.
This potential change may cause Apria to provide reduced levels of certain products and
services in the future, resulting in a corresponding reduction in revenue.

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

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

Respiratory
Therapy. Respiratory therapy revenues are derived primarily from the provision of
oxygen systems, home ventilators, sleep apnea equipment, nebulizers, respiratory
medications and related services. Revenues from the respiratory therapy service line
increased by 6.0% in the first quarter of 2007 when compared to the corresponding period
in 2006. The largest respiratory categories grew between the three-month periods in 2007
and 2006 as follows: revenues from oxygen and oxygen systems increased by 2.9% and
revenues from respiratory drugs grew by 9.4%. Revenues from the continuous positive and
bi-level airway pressure devices and related supplies, which currently comprise
approximately 28% of total respiratory revenues, grew by 13.6%. Much of this growth is
attributable to a program the company has instituted to provide via mail the necessary
supplies to patients already utilizing the airway pressure devices. Approximately $376,000
of the aforementioned Medicare revenue reduction impacted the respiratory therapy line.

Infusion
Therapy.The infusion therapy service line involves the administration of drugs or
nutrients directly into the body intravenously through a needle or catheter. Infusion
therapy services also include administering enteral nutrients directly into the
gastrointestinal tract through a feeding tube. Infusion therapy revenues increased by 6.5%
in the three months ended March 31, 2007 when compared to the same period last year. The
growth was generated primarily by the enteral nutrition offering, which represents just
under half of the infusion therapy line. Enteral nutrition revenues increased by 14.5% for
the three months ended March 31, 2007.

Home
Medical Equipment/Other. Home medical equipment/other revenues are derived from
the provision of equipment to assist patients with ambulation, safety and general care in
and around the home. Home medical equipment/other revenues increased by 3.8% for the three
months ended March 31, 2007 when compared to the corresponding period in 2006.
Approximately $275,000 of the Medicare revenue reduction noted above impacted the home
medical equipment/other line.

---

Provision
for Doubtful Accounts.The provision for doubtful accounts is based on
managements estimate of the net realizable value of accounts receivable after
considering actual write-offs of specific receivables. Accounts receivable which are not
expected to be collected are estimated and provided for by applying specific percentages
to each receivables aging category, which is determined by the number of days the
receivable is outstanding. The provision for doubtful accounts, expressed as a percentage
of net revenues, was 2.5% and 2.8% for the first quarter of 2007 and 2006, respectively.
The improvement between the periods reflects improvements in cash collections and notably
the success of a credit card program designed to collect patient receivables upon delivery
and automatically on the rental due date thereafter.

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

Selling,
distribution and administrative expenses, expressed as percentages of net revenues, were
53.1% in the first quarter of 2007 and 53.7% in the first quarter of 2006. The comparison
between the reported periods reflects expense leveraging achieved through the successful
implementation of a number of cost saving initiatives. Such initiatives include those in
the revenue management area whereby productivity and efficiencies have been enhanced by
consolidating and centralizing certain functions. Billing and collection activities for
several of the companys larger payors have been centralized as have certain other
related functions. Also, in the logistics area, the routing of deliveries has been
automated which has resulted in decreased miles per delivery stop and increased stops per
driver. The company has been successful in converting these productivity improvements to
cost savings.

Share-based
compensation is reflected within the selling, distribution and administrative expense line
item. For the three-month periods ended March 31, 2007 and 2006, share-based compensation
expense was $1.4 million and $1.1 million, respectively.

Amortization
of Intangible Assets.For the quarters ended March 31, 2007 and 2006,
amortization expense was $1.0 million and $1.3 million, respectively. See Liquidity
and Capital Resources  Business Combinations.

Interest
Expense and Income.Interest expense was $6.3 million for the first quarter
of 2007 as compared to $8.3 million for the comparable period in 2006. The decrease in
interest expense in 2007 is primarily attributable to the decrease in long-term debt as a
result of the continued pay down of the revolving credit line. For the first quarter of
2007 and 2006, interest income was $494,000 and $972,000, respectively. During the first
three months of 2007, interest costs in the amount of $111,000 were capitalized in
conjunction with software development. See Liquidity and Capital Resources 
Long-term Debt.

Income
Tax Expense.The effective income tax rate was 39.0% for the three months
ended March 31, 2007 compared with 34.6% for the three months ended March 31, 2006. The
change in the effective tax rate was primarily due to the recognition of a $1.8 million
favorable adjustment in March 31, 2006 which related to the settlement of tax issues.

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

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

# Liquidity and Capital
Resources

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

Further,
Apria has initiated a project to implement a new enterprise-wide information system. The
overall objective of the project is to deliver the necessary technology and automation
across the organization to enable improvements in service, productivity and access to
information. Development on certain modules commenced in 2006. The overall project plan is
being designed and developed and is expected to be implemented over several years.

Cash
Flow.Cash provided by operating activities was $44.9 million in the first
three months of 2007 compared to $38.2 million in the corresponding period in 2006. The
increase in operating cash flow between the two periods is due primarily to improved
profitability, strong cash collections of receivables and favorable timing for expense
disbursements.

Cash
used in investing activities decreased to $32.6 million for the first three months of 2007
compared to $42.3 million during the same period last year. The decrease in 2007 was due
to an absence of acquisitions and to a reduction in capital expenditures resulting from
better equipment utilization.

Cash
used in financing activities was $10.4 million during the first three months of 2007
compared to $5.2 million for the first three months of 2006. As a result of the strong
operating cash flow and cash proceeds received upon the issuance of common stock, the
company reduced the amount owed on its revolving line of credit by $25 million during the
first quarter of 2007.

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

|(dollars in millions)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | 2008 | 2009 | 2010 | 2011 | 2012 | There-after | Totals
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---- | ---- | ---- | ---- | ---- | ----------- | ------
|
|Revolving loan (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |      |      | $    | -    |      | $           | -     
|Convertible senior notes (3.375%)(2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |      |      |      | -    |      |             | -     
|Interest on convertible senior notes(3)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |      |      |      | 8    |      |             | 8     
|Other debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |      |      |      | 1    |      |             | -     
|Operating leases                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |      |      |      | 54   |      |             | 46    
|Software licenses and related maintenance                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |      |      |      | 1    |      |             | -     
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |      |      |      |      |      |             |       
|Total contractual cash obligations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |      |      | $    | 64   |      | $           | 54    
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |      |      |      |      |      |             |       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |      |      |      |      |      |             |       
|(1) Interest on outstanding borrowings
is payable quarterly.(2) The holders of the convertible senior notes
will first have the option to require Apria to repurchase all or a portion
of their notes in September 2008. (3)Interest on these notes is paid bi-annually in March and
September.  Unless the notes are earlier converted, redeemed or repurchased, such interest payments
will total $8.4 million annually until the notes mature in 2033. Amounts presented above assume notes are not
earlier converted, redeemed or repurchased.

---

Accounts
Receivable.Accounts receivable before allowance for doubtful accounts was
$238.4 million at March 31, 2007, which was consistent with December 31, 2006. Days sales
outstanding (calculated as of each period-end by dividing accounts receivable, less
allowance for doubtful accounts, by the 90-day rolling average of net revenues) were 49
days at March 31, 2007 and December 31, 2006.

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

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

Unbilled
Receivables.Included in accounts receivable are earned but unbilled receivables
of $28.9 million and $30.0 million at March 31, 2007 and December 31, 2006, respectively.
Delays, ranging from a day up to several weeks, between the date of service and billing
can occur due to delays in obtaining certain required payor-specific documentation from
internal and external sources. Earned but unbilled receivables are aged from date of
service and are considered in Aprias analysis of historical performance and
collectibility.

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

The
branch locations serve as the primary point from which inventories and patient service
equipment are delivered to patients. Certain products and services, such as infusion
therapy and respiratory medications, bypass the branches and are provided directly to
patients from pharmacies or other central locations. The branches are supplied with
inventory and equipment from central warehouses that service specific areas of the
country. Such warehouses are also responsible for repairs and scheduled maintenance of
patient service equipment, which adds to the frequent movement of equipment between
locations. Further, the majority of Aprias patient service equipment is located in
patients homes. While utilization varies widely between equipment types, on the
average, approximately 83% of equipment is on rent at any given time. Inherent in this
asset flow is the fact that losses will occur. Depending on the product type, the company
performs physical inventories on an annual or quarterly basis. Inventory and patient
service equipment balances in the financial records are adjusted to reflect the results of
these physical inventories. Inventory and patient service equipment losses for the three
months ended March 31, 2007 were $248,000 and in the first quarter of 2006, the company
adjusted its related assets upward by $4,000.

---

Long-term
Debt.At March 31, 2007, borrowings under the revolving credit facility were $210
million; outstanding letters of credit totaled $3.9 million; credit available under the
revolving facility was $286.1 million; and Apria was in compliance with all covenants
required by the credit agreement. The effective interest rate at March 31, 2007, after
consideration of the effect of the swap agreement described below, was 6.32%. See
Hedging Activities below.

Convertible
Senior Notes.At March 31, 2007, the fair value of the $250 million in convertible
senior notes was $275.0 million, as determined by reference to quoted market prices.

Hedging
Activities.Apria is exposed to interest rate fluctuations on its underlying
variable rate long-term debt. Aprias policy for managing interest rate risk is to
evaluate and monitor all available relevant information, including but not limited to, the
structure of its interest-bearing assets and liabilities, historical interest rate trends
and interest rate forecasts published by major financial institutions. The tools Apria may
utilize to moderate its exposure to fluctuations in the relevant interest rate indices
include, but are not limited to: (1) strategic determination of repricing periods and
related principal amounts, and (2) derivative financial instruments such as interest rate
swap agreements, caps or collars. Apria does not use derivative financial instruments for
trading or other speculative purposes.

At
March 31, 2007, Apria had one interest rate swap agreement in effect which will expire in
January 2009 and has a notional amount of $25 million with a fixed rate of 4.44%. Apria
also had an interest swap agreement which expired in December 2006 that had a notional
amount of $25 million with a fixed rate of 3.42%.

The
swap agreements are being accounted for under SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. The difference between the interest
received and interest paid is reflected as an adjustment to interest expense. Apria paid a
net settlement amount of $58,000 for the three-month period ended March 31, 2007 and
$84,000 for the same three-month period in 2006. The aggregate fair value of the swap
agreement was an asset of $264,000 and $356,000 at March 31, 2007 and December 31, 2006,
respectively, and is reflected in the accompanying condensed consolidated balance sheets
in other assets. Unrealized gains and losses on the fair value of the swap agreements are
reflected, net of taxes, in operating income, as the transactions no longer qualify for
hedge accounting. Aprias exposure to credit loss under the swap agreement is limited
to the interest rate spread in the event of counterparty nonperformance. Apria does not
anticipate losses due to counterparty nonperformance as its counterparties to the swap
agreement are nationally recognized financial institutions with strong credit ratings.

Treasury
Stock.In the first quarter of 2007, 26,215 shares of employee restricted
stock shares, valued at $835,000 were tendered back to the company to satisfy the related
tax obligation. In 2006 a similar transaction for 7,672 shares of employee restricted
stock shares, valued at $141,000, were also tendered back to the company to satisfy the
related tax obligation.

Business
Combinations.Apria periodically acquires complementary businesses in
specific geographic markets. Given the potential for a higher gross margin, Apria targets
respiratory therapy businesses. These transactions are accounted for as purchases and the
results of operations of the acquired companies are included in the accompanying condensed
consolidated income statements from the dates of acquisition. Covenants not to compete are
being amortized over the life of the respective agreements. Tradenames and customer lists
are being amortized over the period of their expected benefit.

During
the three months ended March 31, 2007 Apria did not effect any acquisitions, nor were
payments made for amounts deferred from prior periods. For the first three months of 2006,
$4.1 million was paid for acquisitions, which includes amounts deferred from prior
periods.

# Off-Balance Sheet
Arrangements

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

---

ITEM 3.
    QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

At
March 31, 2007, Aprias revolving credit facility borrowings totaled $210.0 million.
The bank credit agreement governing the revolver provides interest rate options based on
the following indices: Federal Funds Rate, the Bank of America prime rate or the London
Interbank Offered Rate, or LIBOR. All such interest rate options are subject to the
application of an interest margin as specified in the bank credit agreement. At March 31,
2007 all of Aprias outstanding revolving debt was tied to LIBOR.

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

Based
on the revolving debt outstanding and the swap agreements in place at March 31, 2007, a
100 basis point change in the applicable interest rates would increase or decrease
Aprias annual cash flow and pretax earnings by approximately $1.85 million. See
Managements Discussion and Analysis of Financial Condition and Results of
Operations  Long-term Debt  Hedging Activities.

ITEM 4.
    CONTROLS AND
PROCEDURES

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

Changes
in Internal Control Over Financial Reporting. During the period covered by
this report, there have been no significant changes to the companys internal control
over financial reporting that have materially affected, or are reasonably likely to
materially affect, the companys internal control over financial reporting.

---

# PART II  OTHER
INFORMATION

ITEM 1.
    LEGAL PROCEEDINGS

Apria
is the defendant in a California class action lawsuit asserting blanket claims of
liability under various California employee protection statutes and regulations relating
to payment of regular and overtime wages, the timeliness of such payments, the maintenance
and provision of access to required payroll records, and the provision of meal and rest
periods. Venegas vs. Apria Healthcare, Inc.,et al., was filed on February
21, 2006 in the California Superior Court for the County of San Francisco (Case No. CGC
 06  449669). No class has been certified at this time but the complaint seeks
compensatory and punitive damages in an unspecified amount as well as other relief on
behalf of a purported class consisting of certain hourly employees of the company in the
State of California. The company has filed an answer to the complaint denying all material
allegations and asserting a number of affirmative defenses. To date, plaintiff has not
filed a motion for class certification. The court has set the case for trial beginning
November 26, 2007. Based on the companys preliminary investigation of the
allegations, management believes there are meritorious defenses to the claims and the
company intends to vigorously defend the lawsuit. No assurance can be given, however, that
the ultimate disposition of this case will not have a material adverse effect on the
companys financial condition or results of operations.

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

ITEM 1A.
    RISK FACTORS

The
risk factors presented in Aprias Annual Report on Form 10­K, as filed with the
Securities and Exchange Commission on March 1, 2007, are incorporated herein by reference
with the exception of the risk factor titled Medicare/Medicaid Reimbursement
Rates which is presented below in its entirety. For further information, see Part I
 Item 2, Managements Discussion and Analysis of Financial Condition and
Results of Operations, Government Reimbursement Update in this Quarterly
Report on this Form 10-Q.

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

Medicare
Reimbursement Reductions. There are a number of provisions contained within recent
legislation and proposed regulations that adversely affect or may adversely affect
reimbursement for products and services provided by Apria. For example, in December 2003,
the Medicare Prescription Drug, Improvement and Modernization Act of 2003, also referred
to as the Medicare Modernization Act, or MMA, became law. The MMA and related rules issued
by the Centers for Medicare and Medicaid Services, or CMS, implemented reimbursement
reductions for a number of products and services provided by Apria and established a
proposed competitive bidding program for Medicare Part B. Further, the Deficit Reduction
Act of 2005, or DRA, was signed into law in February 2006. Once fully implemented, the DRA
and related rules issued by CMS will result in reduced reimbursement rates for certain
durable medical equipment, including home oxygen equipment and services provided by Apria,
a reduced period for rental revenue, and potential increased costs associated with
replacement of certain patient-owned equipment.

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

Medicaid
Reimbursement Reductions.For a number of years, some states began adopting
alternative pricing methodologies for certain drugs and biologicals under the Medicaid
program. In a number of states, the changes reduced the level of reimbursement received by
Apria without a corresponding offset or increase to compensate for the service costs
incurred. In several of those states, Apria elected to stop accepting new Medicaid patient
referrals for the affected drugs and biologicals. Further, some states are considering
other reductions in Medicaid reimbursement as they work through their respective budget
processes.

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

---

PART II  OTHER INFORMATION

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

None.

ITEM 3.     DEFAULTS UPON SENIOR
 SECURITIES

None.

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

None.

ITEM 5.     OTHER INFORMATION

None.

ITEM 6.     EXHIBITS

| |                       |  |                                                                                                                 
| | --------------------- |  | ----------------------------------------------------------------------------------------------------------------
| | Exhibits:             |  |                                                                                                                 
| | ExhibitNumber10.1   # |  | ReferenceApria Healthcare Group Inc. 2007
Executive Bonus Plan.                                                 
| | 10.2   #              |  | Form of Restricted Stock Unit Award Agreement as granted
under the Registrants 2003 Performance Incentive Plan.
| | 10.3   #              |  | Form of Employee Stock Option Agreement as granted
under the Registrants 2003 Performance Incentive Plan.      
| | 10.4   #              |  | Noncompetition and Nonsolicitation Agreement as dated March 7,
2007, between Registrant and Lawrence M. Higby.  
| | 10.5   #              |  | Noncompetition and Nonsolicitation Agreement as dated March 7,
2007, between Registrant and Lawrence Mastrovich.
| | 10.6   #              |  | Amended and Restated Noncompetition Agreement as dated
March 7, 2007, between Registrant and Chris A. Karkenny. 
| | 10.7   #              |  | Amended and Restated Noncompetition Agreement as dated
March 7, 2007, between Registrant and William J. Ingram. 
| | 31.1                  |  | Certification of Chief Executive
Officer pursuant to Securities Exchange Act Rule 13a-14(a).                    
| | 31.2                  |  | Certification of Chief Financial Officer pursuant
to Securities Exchange Act Rule 13a-14(a).                    
| | 32.1                  |  | Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350.                                    
| | 32.2                  |  | Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350.                                    
| | #                     |  | Management contract or compensatory plan or arrangement.                                                        

---

SIGNATURES

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

|             |                                                                                                                          
|------------ | -------------------------------------------------------------------------------------------------------------------------
|             | APRIA HEALTHCARE GROUP INC.
Registrant                                                                                   
|May 10, 2007 | /s/ CHRIS A. KARKENNY
Chris A. KarkennyExecutive Vice President and Chief Financial Officer
(Principal Financial Officer)