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

                                    FORM 10-K



[X]               ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                   For the Fiscal Year Ended December 31, 2002

                                       OR

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

                           Commission File No. 1-14316

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

             DELAWARE                                33-0488566
      (State of incorporation)           (I.R.S. Employer Identification Number)

26220 ENTERPRISE COURT, LAKE FOREST, CA              92630-8405
(Address of principal executive offices)             (Zip Code)


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

           Securities registered pursuant to Section 12(b) of the Act:

                    COMMON STOCK, $0.001 PAR VALUE PER SHARE
                                (Title of class)

        Securities registered pursuant to Section 12(g) of the Act: None

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 if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of  Registrant's  knowledge in definitive  proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
          ---

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

As  of  June  28,  2002,  there  were  outstanding   54,876,118  shares  of  the
Registrant's  common stock, par value $0.001,  which is the only class of common
stock of the Registrant (not including 1,090,900 shares held in treasury). As of
June 28, 2002 the  aggregate  market value of the shares of common stock held by
non-affiliates  of the  Registrant,  computed based on the closing sale price of
$22.40 per share as reported by the New York Stock Exchange,  was  approximately
$1,098,440,291.

                    DOCUMENTS INCORPORATED BY REFERENCE: None
<PAGE>
                                     PART I

ITEM 1.  BUSINESS

     Apria  Healthcare  Group  Inc.  provides a broad  range of home  healthcare
services through  approximately 410 branch locations which serve patients in all
50 states. Apria has three major service lines: home respiratory  therapy,  home
infusion  therapy and home  medical  equipment.  The  following  table  provides
examples of the services and products in each:

    SERVICE LINE                  EXAMPLES OF SERVICES AND PRODUCTS
    ------------                  --------------------------------
    Home respiratory therapy      Provision of oxygen systems, home ventilators,
                                  sleep   apnea    equipment,   nebulizers   and
                                  respiratory medications and related  services

    Home infusion  therapy        Intravenous administration of anti-infectives,
                                  pain management, chemotherapy, nutrients (also
                                  administered through a feeding tube) and other
                                  medications and related services

    Home medical equipment        Provision   of   patient   safety  items,  and
                                  ambulatory  and  in-home  equipment,  such  as
                                  wheelchairs  and  hospital  beds

STRATEGY

     Apria is pursuing an  operating  strategy to increase  its market share and
improve its profitability. Key elements of this strategy are as follows:

     MAINTAIN FOCUS ON EXISTING SERVICE  OFFERINGS.  Apria continues to focus on
growth in its core businesses of home respiratory therapy, home infusion therapy
and  home  medical  equipment.   Offering  all  three  services  gives  Apria  a
competitive  advantage  with its managed  care,  hospital and certain  physician
customers and enables it to maintain a diversified revenue base. Apria continues
its emphasis on growth in the home respiratory  therapy line, which historically
has produced higher gross margins than the other service lines.

     SUPPLEMENT INTERNAL GROWTH WITH SELECTIVE ACQUISITIONS.  Apria continues to
pursue  strategically  complementary  acquisition  opportunities,  also  with an
emphasis on home  respiratory  therapy  businesses.  Apria  operates in a highly
fragmented  market,  which  provides an attractive  opportunity  to drive growth
through  acquisitions.  During 2002,  Apria completed 17 acquisitions  comprised
largely of  respiratory  therapy  businesses for an aggregate  consideration  of
$78.3 million.

     REDUCE COSTS AND INCREASE MARGINS AND CASH FLOWS.  Apria's  management team
continues to develop and apply "best  practices"  and  productivity  improvement
programs   throughout   the   company   with  the  aim  of   achieving   greater
standardization  and  enhanced  productivity.  Success  with such  programs  has
resulted  in  reduced  costs and  increased  margins  and cash  flow.  Apria has
implemented  standardized  clinical and delivery models,  billing and collection
practices  and  common  operating  procedures  in its  field  locations  and has
centralized  purchasing for inventory,  patient service  equipment and supplies.
Apria  continues to focus  resources on  identifying  opportunities  for further
productivity improvements.
<PAGE>

SERVICE LINES

     In each of its three service lines,  Apria provides patients with a variety
of clinical and ancillary  services,  as well as related  products and supplies,
most of which  are  prescribed  by a  physician  as part of a care  plan.  These
services include:

     -  providing in-home  respiratory care,  infusion and respiratory  pharmacy
        management and high-tech infusion nursing;
     -  educating  patients and their caregivers about illnesses and instructing
        them on self-care and the proper use of products in the home;
     -  monitoring patients' individualized treatment plans;
     -  reporting  patient  progress and status to the physician  and/or managed
        care organization;
     -  maintaining and repairing equipment; and
     -  processing claims to third-party payors.

     The  following  table sets forth a summary of net revenues by service line,
expressed as percentages of total net revenues:

                                                    YEAR ENDED DECEMBER 31,
                                                -------------------------------
                                                2002          2001         2000
-------------------------------------------------------------------------------

     Home respiratory therapy..............      67%           66%          65%
     Home infusion therapy.................      18%           19%          19%
     Home medical equipment/other..........      15%           15%          16%
                                                ----          ----         ----
           Total net revenues..............     100%          100%         100%
                                                ====          ====         ====

     HOME RESPIRATORY THERAPY.  Apria provides home respiratory therapy services
to patients with a variety of conditions, including:

     -  chronic  obstructive  pulmonary  diseases  such  as  emphysema,  chronic
        bronchitis and asthma;
     -  nervous  system-related  respiratory  conditions  such  as Lou  Gehrig's
        disease and quadriplegia;
     -  obstructive sleep apnea;
     -  congestive heart failure; and
     -  lung cancer.

Apria employs a nationwide  clinical staff of respiratory care  professionals to
provide   support   to   its   home    respiratory    therapy   patients   under
physician-directed treatment plans and Apria's proprietary acuity program.

     Apria derives  approximately  70% of its respiratory  therapy revenues from
the provision of oxygen systems, home ventilators, nebulizers and home-delivered
respiratory  medications.  The company derives most of its remaining respiratory
revenues from the provision of:

     -  infant apnea monitors;
     -  continuous positive airway pressure devices; and
     -  noninvasive positive pressure ventilation.

     HOME INFUSION THERAPY. Home infusion therapy involves the administration of
a drug or nutrient  directly into the body  intravenously  through a needle or a
catheter. Examples of such therapies include:

     -  total parenteral (intravenous) nutrition;
     -  anti-infective and anti-fungal medications;
     -  chemotherapy; and
     -  pain management.

The home infusion therapy service line also includes enteral nutrition, which is
the administration of nutrients directly into the gastrointestinal tract through
a feeding tube.

     Depending on the therapy,  a broad range of venous access  devices and pump
technologies may be used to facilitate homecare and patient independence.  Apria
employs licensed  pharmacists and registered  high-tech infusion nurses who have
specialized skills in the delivery of home infusion therapy.  They are available
to  respond  to  emergencies  and  questions  regarding  therapy  and to provide
training and  education to the patient and  caregiver.  Other  support  services
include patient  service,  supply  replenishment,  pump  management,  preventive
maintenance,  direct billing of Medicare,  Medicaid and other payors, assistance
with insurance  questions and outcome  reporting.  Apria  currently  operates 31
internal pharmacy locations to serve its home infusion patients.

     HOME MEDICAL EQUIPMENT/OTHER.  Apria's primary emphasis in the home medical
equipment  service line is on the provision of patient safety items,  ambulatory
devices and in-home equipment.  The company is also expanding its rehabilitation
product offering in selective markets in the United States.  Apria's  integrated
service  approach allows patients,  hospital and physician  referral sources and
managed care systems  accessing either  respiratory or infusion therapy services
to also access needed home medical equipment through a single source.

     As  Apria's  managed  care  organization  customer  base has  grown,  Apria
management has recognized the need to expand its ability to provide  value-added
services to these  customers.  Rather than  provide  certain  non-core  services
directly, Apria sometimes aligns itself with other segment leaders, such as home
health nursing  organizations  and providers of  home-delivered  routine medical
supplies, through formal relationships or ancillary networks. Such networks must
be credentialed and qualified by Apria's clinical services department.


ORGANIZATION AND OPERATIONS

     ORGANIZATION. Apria's approximately 410 branch locations are organized into
four geographic divisions, which are further divided into 16 geographic regions.
Each of the regions is operated as a separate  business  unit and  consists of a
number of branches and a regional  office.  The regional office provides each of
its branches with key support  services such as billing,  purchasing,  equipment
maintenance,  repair  and  warehousing.  The  branch  delivers  home  healthcare
products  and  services to patients in their homes and other care sites  through
the company's  delivery fleet,  qualified  delivery  professionals  and clinical
employees.   This  structure  is  designed  to  create  operating   efficiencies
associated with  centralized  services while promoting  responsiveness  to local
market needs.

     Even though  Apria  generally  operates  its  regions as separate  business
units,  the company's  sales and business  operations  functions are  vertically
integrated.  The  operations  function  is then  further  divided  into  revenue
management,  clinical services, logistics, regulatory compliance and acquisition
integration.  Through this structure,  all functions are performed at the region
level and have direct reporting and  accountability  to corporate  headquarters.
Apria believes that this structure  provides control over and consistency  among
its  regions  and  branches  thereby  enabling  implementation  of  standardized
policies and procedures  and  eliminating  many of the problems  inherent with a
decentralized network.

     CORPORATE  COMPLIANCE.  As a leader in the home healthcare industry,  Apria
has  implemented  a compliance  program to further the  company's  commitment to
providing  quality home healthcare  services and products while maintaining high
standards  of ethical and legal  conduct.  Apria  believes  that  operating  its
business with honesty and integrity is essential.  Apria's Corporate  Compliance
Program  includes a written  Code of Ethical  Business  Conduct  that  employees
receive as part of their initial orientation process. The program is designed to
accomplish the goals described above through employee education,  a confidential
disclosure  program,  written  policy  guidelines,  periodic  reviews,  frequent
reinforcement,  compliance  audits,  a formal  disciplinary  component and other
programs.  Compliance  oversight is provided by a Corporate Compliance Committee
of the company's Board of Directors  which meets  quarterly in conjunction  with
Apria's  internal  Corporate  Compliance  Committee  consisting  of  senior  and
mid-level  management  personnel  from  various  functional   disciplines.   See
"Business - Risk Factors - Federal Investigation."

     OPERATING  SYSTEMS  AND  CONTROLS.  Apria's  business  is  dependent,  to a
substantial  degree,  upon the quality of its  operating  and field  information
systems for proper  contract  administration,  accurate order entry and pricing,
billing and  collections,  as well as inventory  and patient  service  equipment
management.   These  systems  provide  reporting  that  enables   management  to
effectively  monitor and evaluate contract  profitability.  Apria's  information
services  department  works  closely with all of the  corporate  departments  to
ensure that Apria's systems are compliant with government  regulations and payor
requirements  and  to  support  their  business  improvement   initiatives  with
technological solutions. The following are some of the more significant projects
currently underway:

     -  Apria has developed the functionality  that enables the infusion therapy
        business  to  operate  on  the  same  computer   information  system  or
        "platform" as the respiratory  therapy/home  medical equipment business.
        Previously,  the  infusion  therapy  application  operated on a separate
        platform  which had  limited  support.  The new  functionality  has been
        integrated in four regions;  the company-wide  rollout is expected to be
        complete by the end of 2003.

     -  Apria  completed  the  implementation  and  integration  of supply chain
        management  software  during  2002.  Apria is  currently  working on the
        second phase of this project,  which is the implementation of production
        and distribution  planning software to gain further  efficiencies in the
        delivery of products to patients.  Implementation  of the production and
        distribution planning software is expected to begin mid-year 2003.

     -  Over the last few years  Apria has been  consolidating  the  respiratory
        therapy/home   medical  equipment  system  processing  from  field-based
        servers to  centralized  processors.  Thus far, this process has reduced
        the number of IBM AS400 data servers at field  locations from 175 to 12.
        To mitigate the risks associated with such a  centralization,  Apria has
        implemented  a "hot  site" that  mirrors  the  corporate  data site at a
        separate  location that would serve as a backup in case of a disaster or
        other equipment failure.

     -  The  Health  Insurance   Portability  and  Accountability  Act  of  1996
        ("HIPAA")  contains  standardization  provisions  that  apply to  health
        information created or maintained by healthcare  providers who engage in
        certain  electronic  transactions.   Electronically-performed  functions
        common to  healthcare  businesses  such as  billing,  reimbursement  and
        insurance   eligibility   verification   are   subject   to  the   HIPAA
        standardization  rules. The standardization  rules require,  among other
        things,  the use of  specific  file  formats and  transaction  codes for
        electronic transmissions between healthcare business affiliates. Apria's
        management has committed  substantial resources to the implementation of
        the  standardization  rules and  expects to  complete  the process on or
        before the October 16, 2003 government-imposed deadline. See "Business -
        Government Regulation - HIPAA."

     Management  believes that the  implementation of these changes will improve
its systems. Nonetheless, such implementations could have a disruptive effect on
related transaction processing. See "Business - Risk Factors - Operating Systems
and Controls."

     Apria  has  established  performance  indicators  which  measure  operating
results  against  expected  thresholds for the purpose of allowing all levels of
management  to identify and modify areas  requiring  improvement  and to monitor
progress.  Operating  models with strategic  targets have been developed to move
Apria toward more effectively  managing the sales,  customer  service,  accounts
receivable,  clinical and distribution areas of its business. Apria's management
team is  compensated  using  performance-based  incentives  focused  on  quality
revenue growth and improvement in operating income.

     PAYORS.  Apria  derives  substantially  all its revenues  from  third-party
payors,  including private insurers,  managed care  organizations,  Medicare and
Medicaid. For 2002,  approximately 27% of Apria's net revenues were derived from
Medicare and 7% from Medicaid.  Generally,  each third-party  payor has specific
claims  requirements.  Apria has policies and  procedures in place to manage the
claims  submission  process,  including  verification  procedures  to facilitate
complete and accurate documentation.

     RECEIVABLES  MANAGEMENT.  Apria  operates in an  environment  with  complex
requirements  governing billing and reimbursement for its products and services.
Initiatives  focused  specifically  on  receivables  management  such as  system
enhancements,  process  refinements and organizational  changes have resulted in
improvement and consistency in key accounts receivable indicators.

     Apria  is  utilizing  its   information   systems   expertise  to  increase
utilization of technology  such as electronic  claims  submission and electronic
funds  transfer  with  managed  care  organizations.  This can  expedite  claims
processing and reduce the administrative  cost associated with this activity for
both Apria and its  customer/payors.  Management is also  focusing  resources on
certain large third-party  payors to develop internal expertise with the payors'
unique  reimbursement  requirements,  thereby  reducing  subsequent  denials and
shortening the related collection periods. See "Legal Proceedings."
<PAGE>

MARKETING

     Through its field sales  force,  Apria  markets its  services  primarily to
managed care organizations,  physicians,  hospitals, medical groups, home health
agencies and case  managers.  Apria has developed and put into practice  several
marketing initiatives, including but not limited to:

     AUTOMATED CALL ROUTING THROUGH A SINGLE  TOLL-FREE  NUMBER.  This marketing
initiative  allows  select  managed care  organizations  to reach any of Apria's
locations  and to  access  the full  range of Apria  services  through  a single
central telephone number: 1-800-APRIA-88.

     ACCREDITATION  BY THE  JOINT  COMMISSION  ON  ACCREDITATION  OF  HEALTHCARE
ORGANIZATIONS ("JCAHO"). JCAHO  is  a  nationally  recognized organization which
develops  standards  for  various  healthcare  industry  segments  and  monitors
compliance  with those  standards  through  voluntary  surveys of  participating
providers.  As the home  healthcare  industry has grown,  the need for objective
quality  measurements  has increased.  Accreditation  by JCAHO entails a lengthy
review  process that is conducted  every three  years.  Accreditation  is widely
considered  a  prerequisite  for  entering  into  contracts  with  managed  care
organizations  at every  level.  Because  accreditation  is  expensive  and time
consuming,  not  all  providers  choose  to  undergo  the  process.  Due  to its
leadership  role in establishing  quality  standards for home healthcare and its
active and early  participation in this process,  Apria management  believes the
company is generally viewed favorably by referring healthcare professionals. All
of Apria's branch locations,  including acquired locations, are accredited by or
in the  process of  receiving  accreditation  from  JCAHO.  Apria's  most recent
triennial survey cycle began in January 2003 with a successful  corporate survey
outcome and is anticipated to be concluded by mid-year 2004.

     ESSENTIAL  CARE MODEL  ("ECM").  Apria has developed the ECM, a proprietary
model that defines the services,  supplies and products delivered in conjunction
with prescribed  homecare equipment and therapies.  The ECM is used to establish
consistent and clear expectations for referral sources, payors and patients.

     PHYSICIAN  RELATIONS.  Apria's physician relations group places phone calls
to  physician  offices  in an effort  to  educate  them  about  homecare  and to
stimulate interest in Apria.  Physician relations  representatives  work closely
with sales  professionals  throughout  the  country  to  identify,  develop  and
maintain quality relationships.

     PATIENT  SATISFACTION.  Apria has a centralized patient satisfaction survey
function that periodically conducts targeted member satisfaction studies for key
managed care organizations as specified by the various contractual arrangements.

     APRIA  GREAT  ESCAPES(TM) TRAVEL  PROGRAM.   Apria's   410-branch   network
facilitates  travel for  patients  who require  oxygen,  home  infusion or other
products,  services and therapies. Apria coordinates equipment and service needs
for thousands of traveling patients annually,  which enhances their mobility and
quality of life.
<PAGE>

SALES

     Apria employs over 500 sales professionals whose primary  responsibility is
to target key customers for all of its service lines. Key customers  include but
are not limited to hospital-based healthcare professionals, physicians and their
staffs and managed care  organizations.  Apria provides its sales  professionals
with the necessary  clinical and technical  training to represent  Apria's major
service  offerings of home respiratory  therapy,  home infusion therapy and home
medical  equipment.  As larger segments of the marketplace  become involved with
managed  care,  specific  portions of the sales  force's  working  knowledge  of
pricing, contracting and negotiating, and specialty-care management programs are
being enhanced as well.

     An integral  component  of Apria's  overall  sales  strategy is to increase
volume through managed care organizations and traditional referral channels.  As
the markets that Apria serves continue to evolve,  the ultimate  decision makers
for   healthcare   services  vary  greatly,   from  closed  model  managed  care
organizations  to  preferred  provider  networks  which are  controlled  by more
traditional  means.  Apria's selling structure and strategies are driven largely
by these changing  market factors and will continue to adjust as further changes
in the  industry  occur.  Managed  care  organizations  continue to  represent a
significant  portion of Apria's business in several of its primary  metropolitan
markets. No single account, however,  represented more than 10% of Apria's total
net revenues for 2002. Among its more significant managed care agreements, Apria
has contracts with Aetna,  Gentiva's  CareCentrix group, Kaiser Health Plans and
United  HealthCare  Group.  Apria also offers  discount  agreements  and various
fee-for-service  arrangements  to hospitals or hospital  systems whose  patients
have home healthcare needs. See "Business - Risk Factors - Pricing Pressures."


COMPETITION

     The  segment of the  healthcare  market in which  Apria  operates is highly
competitive. In each of its service lines there are a limited number of national
providers and numerous  regional and local  providers.  The competitive  factors
most important in the regional and local markets are:

     -  reputation  with  referral  sources,   including  local  physicians  and
        hospital-based professionals;
     -  access and responsiveness;
     -  price of services;
     -  overall ease of doing business;
     -  quality of patient care and associated services; and
     -  range of home healthcare services.

The competitive  factors most important in the larger,  national markets are the
foregoing factors and:

     -  ability to service a wide geographic area;
     -  ability to develop and maintain  contractual  relationships with managed
        care organizations;
     -  access to capital; and
     -  accreditation by JCAHO.

     It is increasingly  important to be able to integrate a broad range of home
healthcare  services to provide customers access through a single source.  Apria
believes that it competes  effectively in each of its service lines with respect
to all of the above factors and that it has an  established  record as a quality
provider of home respiratory  therapy,  home medical equipment and home infusion
therapy as reflected by JCAHO accreditation of Apria's branches.

     Other   types   of   healthcare   providers,   including   industrial   gas
manufacturers,  individual hospitals and hospital systems,  home health agencies
and health maintenance organizations have entered, and may continue to enter the
market to  compete  with  Apria's  various  service  lines.  Depending  on their
individual situations,  it is possible that Apria's competitors may have, or may
obtain,  significantly greater financial and marketing resources than Apria. See
"Business - Risk Factors - Pricing Pressures."


GOVERNMENT REGULATION

     Apria is subject to extensive  government  regulation,  including  numerous
laws directed at preventing  fraud and abuse and laws  regulating  reimbursement
under  various  governmental  programs,  as more fully  described  below.  Apria
maintains  several  programs  designed to minimize the likelihood  that it would
engage in conduct or enter into  contracts  in  violation of the fraud and abuse
laws.  Contracts of the types subject to these laws are reviewed and approved by
the corporate  contract services and/or legal department  personnel.  Apria also
maintains various educational programs designed to keep its managers updated and
informed on developments  with respect to the fraud and abuse laws and to remind
all employees of Apria's policy of strict  compliance in this area.  While Apria
believes its discount agreements,  billing contracts and various fee-for-service
arrangements  with other  healthcare  providers  comply with applicable laws and
regulations, Apria cannot provide any assurance  that further  administrative or
judicial  interpretations of existing laws or legislative  enactment of new laws
will not have a material adverse effect on Apria's business.

     MEDICARE  AND  MEDICAID  REIMBURSEMENT.  As  part  of the  Social  Security
Amendments of 1965,  Congress  enacted the Medicare  program which  provides for
hospital,  physician and other statutorily-defined health benefits for qualified
individuals such as persons over 65 and the disabled. The Medicaid program, also
established  by Congress in 1965,  is a joint  federal  and state  program  that
provides  certain  statutorily-defined  health  benefits  to  financially  needy
individuals who are blind, disabled,  aged or members of families with dependent
children.  In addition,  Medicaid  generally covers  financially needy children,
refugees  and  pregnant  women.  A  substantial  portion of  Apria's  revenue is
attributable  to  payments  received  from  third-party  payors,  including  the
Medicare  and  Medicaid  programs.  In 2002,  approximately  27% of Apria's  net
revenue was derived from Medicare and 7% from Medicaid.

     Medicare  Legislation.  The Balanced  Budget Act of 1997 contained  several
provisions that have affected Apria's Medicare reimbursement levels.  Subsequent
legislation  - the  Medicare  Balanced  Budget  Refinement  Act of 1999  and the
Medicare,  Medicaid and SCHIP Benefits  Improvement and Protection Act of 2000 -
mitigated some of the effects of the original  legislation.  However,  there are
some pending issues that may further impact Medicare  reimbursement  to Apria in
the future.

     The  Balanced  Budget  Act of 1997  granted  streamlined  authority  to the
Secretary  of the U.S.  Department  of Health  and  Human  Services  ("HHS")  to
increase  or reduce the  reimbursement  for home  medical  equipment,  including
oxygen, by up to 15% each year under an inherent  reasonableness  authority.  In
December 2002, the Centers for Medicare and Medicaid  Services ("CMS") issued an
interim final rule that  establishes a process by which such  adjustments may be
made.  The rule applies to virtually  all Medicare  Part B services  provided by
Apria.

     Further,  the Balanced  Budget Act of 1997  mandated that CMS conduct up to
five competitive bidding market demonstrations for Medicare Part B-covered items
and services.  CMS conducted  demonstration projects in Polk County, Florida and
San Antonio,  Texas.  These  demonstration  projects  have been  completed.  The
demonstrations  could  provide CMS and  Congress  with a model for  implementing
competitive  pricing in all Medicare  programs.  Initial reports from government
agencies  allege cost savings that vary by product line,  but the reports do not
include costs incurred by the  government to administer  the program.  If such a
competitive   bidding  system  were  implemented,   it  could  result  in  lower
reimbursement  rates, exclude certain items and services from coverage or impose
limits on  increases  in  reimbursement  rates.  Although  not  included  in the
President's   budget,   the  administration  may  seek  authority  to  implement
nationwide  competitive  bidding for all  Medicare  Part B products and services
other than  physicians'  services.  There are  members of  Congress  who support
legislation to create a national  competitive bidding system for durable medical
equipment.  The homecare  industry is currently working with members of Congress
and the administration to ensure that the negative impact of competitive bidding
on patient  choice,  small  businesses,  the economy and other aspects are fully
understood. The industry is also working with the same groups to ensure that the
total costs for the government to establish an infrastructure to administer such
a complicated program as has been proposed are studied and quantified in detail.
It is not clear under what timeframe the government  will conduct such analyses,
or whether such initiatives will move ahead.

     During 2000,  the Secretary of HHS wrote to the durable  medical  equipment
regional  carriers  and  recommended,  but did not  mandate,  that  Medicare and
Medicaid claims processors base their payments for covered  outpatient drugs and
biologicals  on pricing  schedules  other than the normally  calculated  Average
Wholesale  Prices,  which  historically  has been the industry's  basis for drug
reimbursement.  The suggested  alternative pricing methodology was offered in an
effort  to  reduce  reimbursement  levels  for  certain  drugs  to more  closely
approximate  a provider's  acquisition  cost,  but it would not have covered the
costs that homecare pharmacies incur to prepare, deliver or administer the drugs
to patients.  Clinical  services,  billing,  collection and other overhead costs
also would not have been  considered.  Under  current  government  reimbursement
schedules, these costs are not clearly defined but are implicitly covered within
the  reimbursement  for the drug. The  healthcare  industry has taken issue with
HHS's approach for several reasons,  but primarily  because it fails to consider
the  accompanying  costs of  delivering  and  administering  these types of drug
therapies  to  patients  in  their  homes.   Further,  if  providers  choose  to
discontinue  providing  these  drugs due to  inadequate  reimbursement,  patient
access to homecare may be jeopardized. The Medicare, Medicaid and SCHIP Benefits
Improvement  and  Protection Act of 2000 provided for a moratorium on decreasing
the  payment  rates in effect as of January 1, 2001,  for drugs and  biologicals
under the current Medicare payment  methodology.  This legislation also required
the General  Accounting Office ("GAO") to conduct a thorough study, by September
2001,  of the  adequacy  of  current  payments.  The GAO was  also  directed  to
recommend revised payment methodologies and report to Congress and the Secretary
of HHS. The study was completed but the authors acknowledged that 1) the limited
scope and  deadline  associated  with the  study  did not  allow for a  thorough
analysis of the homecare  pharmacy  aspects of covered  services,  2) legitimate
service  components  and related  costs do exist,  and 3)  different  methods of
determining  drug  delivery and  administration  payments  may be necessary  for
different  types of drugs.  Currently,  the timing  and  impact of such  pricing
methodology   revisions  are  not  known.  There  is  interest  in  Congress  in
legislation that would replace Average Wholesale Price as the basis for Medicare
drug  reimbursement,  but to date there has been no agreement within Congress as
to what the alternative should be.

     Some states have already adopted, or are contemplating  adopting, some form
of the proposed alternate pricing  methodology for certain drugs and biologicals
under the Medicaid  program.  In at least 20 states,  these changes have reduced
the level of reimbursement  received by Apria to an unacceptable level without a
corresponding  offset or increase to compensate for the service costs  incurred.
In several of those  states,  Apria has elected to stop  accepting  new Medicaid
patient  referrals for the affected drugs.  The company is continuing to provide
services  to  patients  already  on  service,  and for those who  receive  other
Medicaid-covered respiratory, home medical equipment or infusion therapies. As a
percentage of total  business,  Medicaid  represents a very small  percentage of
Apria's home infusion and home-delivered respiratory medication revenues.

     Claims Audits.  Durable  medical  equipment  regional  carriers are private
organizations that contract to serve as the federal  government's agents for the
processing  of claims  for  items  and  services  provided  under  Part B of the
Medicare program. These carriers and Medicaid agencies also periodically conduct
pre-payment  and  post-payment  reviews  and other  audits of claims  submitted.
Medicare  and  Medicaid  agents  are under  increasing  pressure  to  scrutinize
healthcare  claims more closely.  In addition,  the home healthcare  industry is
generally characterized by long collection cycles for accounts receivable due to
complex and time-consuming requirements for obtaining reimbursement from private
and  governmental  third-party  payors.  Such long collection  cycles or reviews
and/or  similar  audits  or   investigations   of  Apria's  claims  and  related
documentation  could result in denials of claims for payment submitted by Apria.
Further,  the  government  could demand  significant  refunds or  recoupments of
amounts paid by the government for claims which, upon subsequent  investigation,
are  determined by the government to be  inadequately  supported by the required
documentation.  See  "Business  - Risk  Factors  -  Federal  Investigation"  and
"Business - Risk Factors - Medicare Reimbursement Rates."

     HIPAA.  The Health  Insurance  Portability and  Accountability  Act of 1996
("HIPAA")  is  comprised  of a  number  of  components,  several  of  which  are
applicable to Apria.  Pursuant to the administrative  simplification  section of
HIPAA,  HHS has issued three sets of regulations  governing the  following:  (i)
standard  electronic  transaction  and code sets;  (ii) privacy of  individually
identifiable health  information;  and (iii) electronic security of individually
identifiable  health  information.  Each  of  these  sets of  regulations  has a
separate compliance date and requires health care providers, including Apria, in
addition to health plans and  clearinghouses,  to develop and  maintain  certain
policies  and  procedures  with  respect  to  individually  identifiable  health
information,  also known as protected health information that is used, disclosed
or requested by covered entities subject to HIPAA regulations.

     Regulations concerning the enforcement of the above-referenced  regulations
have not yet been issued.  However,  penalties included in the HIPAA statute for
violations  of the  privacy  regulations  range from $100 per  violation  of the
privacy regulations for unintentional  disclosures (with a maximum of $25,000 in
penalties  for the same type of  violation),  to $250,000 in fines and 10 years'
imprisonment  for  intentional  disclosures  designed for personal or commercial
gain. The Office for Civil Rights has stated publicly that it intends to enforce
the privacy  regulations,  at least initially,  based on complaints filed by the
public as opposed to conducting random audits and reviews.

     The  standard  electronic   transaction  and  code  sets  regulations  will
standardize how health claims and eligibility information is collected, recorded
and processed, and provide for an October 16, 2003 compliance date if a one-year
extension of time was formally  requested on or prior to October 15, 2002. Apria
timely filed for and has  obtained  such an  extension.  Apria's  management  is
currently  working to ensure  that the  systems,  procedures,  policies  and the
methods by which the  company  communicates  with health  plans and  others,  as
applicable,  will be materially  compliant with these regulations by October 16,
2003.

     The standard electronic  transaction and code sets regulations also mandate
that standardized codes be used for electronic billing purposes by all payors in
the  United  States,   including  both  government  and  private  health  plans.
Historically, certain billing codes used in the homecare industry have varied by
state  Medicaid  program and certain  health plans.  Under HIPAA,  authority for
approving,  modifying, adding or deleting codes lies solely with the Health Care
Procedure Coding System ("HCPCS") panel, operating under the auspices of CMS. It
is primarily the responsibility of healthcare equipment and supply manufacturers
and state  Medicaid  programs  to seek and  obtain  codes  for their  respective
products.  It is currently  unknown  whether every  existing  local code used by
certain Medicaid and private health plans for products  provided in the homecare
setting will have a corresponding HCPCS code by October 16, 2003. The absence of
standardized  codes for products or services  provided by Apria may preclude the
company from  submitting  electronic  billings (or "claims") to certain  payors.
Such an outcome would require  submitting  paper claims,  which could ultimately
result in delays and difficulties in collecting these claims. Apria is currently
supporting  industry  representatives  and manufacturers to obtain the necessary
HCPCS codes.

     The privacy  regulations  will  provide  patients  for whom Apria  provides
services with greater  information and control  regarding the company's  request
for, and receipt,  use and disclosure of patients' protected health information.
The privacy  regulations  require the development and implementation of detailed
policies,  procedures,  contracts  and  forms  for  this  purpose.  The  privacy
regulations  also  require   entities  subject  to  the  HIPAA   regulations  to
contractually  obligate certain of their contractors,  who may receive protected
health  information  during the course of  rendering  services on behalf of that
entity, to abide by certain privacy  requirements.  Apria's privacy policies and
practices must also comply with any state law privacy  protections that are more
stringent than the privacy afforded by the privacy  regulations.  The compliance
date for the privacy  regulations is April 14, 2003, and Apria's  management has
been  working  diligently  to  develop  and  implement  the  required  policies,
procedures  and  forms   necessary  to  comply   materially  with  such  privacy
regulations and applicable laws.

     The final  security  regulations  were  recently  published  in the Federal
Register on February 20, 2003, and have a compliance  date of April 20, 2005. In
general,   the  security  regulations  require  covered  entities  to  implement
reasonable technical, physical and administrative security measures to safeguard
protected health information maintained,  used and disclosed in electronic form.
While the compliance  date for the security  regulations is over two years away,
Apria has begun to evaluate its  systems,  procedures  and policies  relative to
protected health information  security,  and expects to modify them as necessary
to comply materially with the security regulations by the applicable  compliance
date.  The privacy  regulations,  which become  effective  April 14, 2003,  also
impose on the company a general  reasonable  security  requirement for protected
health information.  In planning to implement policies and procedures  necessary
to materially comply with the privacy  regulations by the applicable  compliance
date, Apria has developed plans to meet that security standard.

     At this time, Apria  anticipates that it will be able to materially  comply
with  all of the  foregoing  HIPAA  regulations  by their  respective  mandatory
compliance dates, and believes that the cost of its compliance  efforts will not
have a material adverse effect on its business,  financial  condition or results
of operations.

     ANTI-KICKBACK  STATUTE.  As a provider of services  under the  Medicare and
Medicaid programs, Apria is subject to the Medicare and Medicaid fraud and abuse
laws,  commonly known as the "anti-kickback  statute." At the federal level, the
anti-kickback  statute prohibits any bribe, kickback or rebate in return for the
referral  of  patients,  products  or  services  covered by  federal  healthcare
programs.  Federal  healthcare  programs  have been defined to include plans and
programs that provide health  benefits  funded by the United States  Government,
including Medicare, Medicaid, and TRICARE (formerly known as the Civilian Health
and Medical Program of the Uniformed Services),  among others. Violations of the
anti-kickback  statute may result in civil and criminal  penalties and exclusion
from participation in the federal healthcare programs.  In addition, a number of
states  in which  Apria  operates  have  laws that  prohibit  certain  direct or
indirect  payments  (similar  to the  anti-kickback  statute)  or  fee-splitting
arrangements between healthcare providers,  if such arrangements are designed to
induce or encourage the referral of patients to a particular provider.  Possible
sanctions  for  violation  of  these   restrictions   include   exclusion   from
state-funded  healthcare  programs,  loss of  licensure  and civil and  criminal
penalties.  Such  statutes  vary from state to state,  are often  vague and have
seldom been interpreted by the courts or regulatory agencies.

     PHYSICIAN   SELF-REFERRALS.   Certain  provisions  of  the  Omnibus  Budget
Reconciliation  Act of 1993,  commonly  known as  "Stark  II,"  prohibit  Apria,
subject  to certain  exceptions,  from  submitting  claims to the  Medicare  and
Medicaid  programs  for  "designated  health  services" if Apria has a financial
relationship  with the physician making the referral for such services or with a
member  of such  physician's  immediate  family.  The  term  "designated  health
services"  includes  several services  commonly  performed or supplied by Apria,
including  durable  medical  equipment  and home health  services.  In addition,
"financial  relationship"  is  broadly  defined  to  include  any  ownership  or
investment  interest or compensation  arrangement  pursuant to which a physician
receives  remuneration  from the provider at issue.  Violations  of Stark II may
result in loss of Medicare  and  Medicaid  reimbursement,  civil  penalties  and
exclusion from participation in the Medicare and Medicaid  programs.  In January
2001,  CMS issued the first of two phases of final  regulations  to clarify  the
meaning and application of Stark II.  Officials of  CMS  have  stated  that they
expect  Phase II to be issued  by July  2003,  however,  Phase I  addresses  the
primary  substantive  aspects of the  prohibition  and several  key  exceptions.
Significantly,  the final  regulations  define  previously  undefined key terms,
clarify  prior  definitions,  and create  several  new  exceptions  for  certain
"indirect   compensation   arrangements,"   "fair  market  value"  transactions,
arrangements  involving  non-monetary  compensation up to $300, and risk-sharing
arrangements,  among  others.  The  regulations  also  create a new  "knowledge"
exception that permits  providers to bill for items provided in connection  with
an otherwise  prohibited  referral,  if the provider does not know, and does not
act in  reckless  disregard  or  deliberate  ignorance  of, the  identity of the
referring  physician.  The  effective  date for the bulk of Phase I of the final
regulations  was January 4, 2002.  In addition,  a number of the states in which
Apria operates have similar prohibitions on physician  self-referrals.  Finally,
recent  enforcement  activity and resulting case law developments have increased
the legal risks of physician  compensation  arrangements that do not satisfy the
terms of an  exception  to Stark  II,  especially  in the area of joint  venture
arrangements with physicians.

     FALSE CLAIMS.  The False Claims Act imposes civil and criminal liability on
individuals  or entities that submit false or  fraudulent  claims for payment to
the government. Violations of the False Claims Act may result in treble damages,
civil monetary penalties and exclusion from the Medicare and Medicaid programs.

     The False  Claims Act also allows a private  individual  to bring a qui tam
suit on behalf of the government against a healthcare provider for violations of
the  False  Claims  Act.  A qui tam  suit may be  brought  by,  with  only a few
exceptions,  any private  citizen who has material  information of a false claim
that has not yet been  previously  disclosed.  Even if  disclosed,  the original
source of the information leading to the public disclosure may still pursue such
a suit.  Although a corporate insider is often the plaintiff in such actions, an
increasing number of outsiders are pursuing such suits.

     In a qui tam suit, the private  plaintiff is  responsible  for initiating a
lawsuit that may eventually lead to the government  recovering money of which it
was  defrauded.  After the private  plaintiff  has  initiated  the lawsuit,  the
government  must  decide  whether to  intervene  in the  lawsuit  and become the
primary  prosecutor.  In the event the government  declines to join the lawsuit,
the private  plaintiff  may choose to pursue the case  alone,  in which case the
private  plaintiff's  counsel  will have primary  control  over the  prosecution
(although  the  government  must be kept apprised of the progress of the lawsuit
and will still  receive at least 70% of any  recovered  amounts).  In return for
bringing the suit on the  government's  behalf,  the statute  provides  that the
private  plaintiff is entitled to receive up to 30% of the recovered amount from
the litigation proceeds if the litigation is successful. Recently, the number of
qui tam suits brought against healthcare  providers has increased  dramatically.
In addition, at least five states - California, Illinois, Florida, Tennessee and
Texas - have enacted  laws  modeled  after the False Claims Act that allow those
states to recover money which was fraudulently obtained by a healthcare provider
from the state (e.g.,  Medicaid  funds  provided by the state).  See "Business -
Risk Factors - Federal Investigation" and "Legal Proceedings."

     OTHER FRAUD AND ABUSE LAWS. HIPAA created, in part, two new federal crimes:
"Health Care Fraud" and "False Statements  Relating to Health Care Matters." The
Health Care Fraud statute prohibits  knowingly and willfully  executing a scheme
or artifice to defraud  any  healthcare  benefit  program.  A violation  of this
statute  is a felony  and may  result in fines  and/or  imprisonment.  The False
Statements statute prohibits knowingly and willfully  falsifying,  concealing or
covering  up a  material  fact by any  trick,  scheme or  device  or making  any
materially  false,  fictitious  or fraudulent  statement in connection  with the
delivery of or payment for healthcare  benefits,  items or services. A violation
of this statute is a felony and may result in fines and/or imprisonment.

     In recent  years,  the  federal  government  has made a policy  decision to
significantly  increase the  financial  resources  allocated  to  enforcing  the
healthcare fraud and abuse laws. In addition, private insurers and various state
enforcement agencies have increased their level of scrutiny of healthcare claims
in an effort to identify and prosecute  fraudulent and abusive  practices in the
healthcare area.

     HEALTHCARE   REFORM   LEGISLATION.   Economic,   political  and  regulatory
influences  are  subjecting  the  healthcare  industry  in the United  States to
fundamental  change.  Various  healthcare  reform  proposals are  formulated and
proposed  by  the  legislative  and  administrative   branches  of  the  federal
government on a regular  basis.  In addition,  some of the states in which Apria
operates  periodically  consider  various  healthcare  reform  proposals.  Apria
anticipates that federal and state  governmental  bodies will continue to review
and assess alternative healthcare delivery systems and payment methodologies and
public debate of these issues will continue in the future.  Due to uncertainties
regarding the ultimate  features of reform  initiatives  and their enactment and
implementation,  Apria cannot  predict which,  if any, of such reform  proposals
will be adopted,  or when they may be adopted, or that any such reforms will not
have a material adverse effect on Apria's business and results of operations.

     Healthcare is an area of extensive and dynamic regulatory  change.  Changes
in the law or new interpretations of existing laws can have a dramatic effect on
permissible  activities,  the relative costs  associated with doing business and
the  amount  of  reimbursement  by  government  and  other  third-party  payors.
Recommendations  for changes may result from an ongoing study of patient  access
by the General Accounting Office and from the potential findings of the National
Bipartisan Commission on the Future of Medicare.  See "Business - Risk Factors -
Government Regulation; Healthcare Reform."
<PAGE>
EMPLOYEES

     As of February 28, 2003,  Apria had 10,553  employees,  of which 9,534 were
full-time and 1,019 were  part-time.  The company's  employees are not currently
represented  by  a  labor  union  or  other  labor   organization,   except  for
approximately 18 employees in New York and 31 employees in California.

     In February 2003, Apria's full-time  equivalents in the functional areas of
sales, operations and administration totaled 512, 8,248 and 1,123, respectively.
Full-time equivalents are computed by dividing the actual number of hours worked
in a given  period by the  typical  number of hours for that  period  based on a
40-hour week.


WEBSITE ACCESS TO REPORTS

     Apria's  annual  reports  on Form  10-K,  quarterly  reports  on Form 10-Q,
current reports on Form 8-K and all amendments thereto are made available,  free
of charge, on the company's website as soon as reasonably practicable after such
reports are filed with or furnished to the Securities  and Exchange  Commission.
Apria's website can be found at www.apria.com.


EXECUTIVE OFFICERS

     Set forth below are the names, ages, titles with Apria and past and present
positions of the persons serving as Apria's  executive  officers as of March 14,
2003:
<TABLE>
<CAPTION>
         NAME AND AGE                                        OFFICE AND EXPERIENCE
-----------------------------------------------------------------------------------------------------------
<S>                                 <C>
Lawrence M. Higby, 57............   President,   Chief  Executive  Officer  and  Director.  Mr.  Higby  was
                                    appointed  Chief  Executive  Officer and Director in February  2002. He
                                    joined  Apria  in  November  1997  as  President  and  Chief  Operating
                                    Officer.

Lawrence A. Mastrovich, 41 ......   Chief  Operating   Officer.   Mr.  Mastrovich  joined  Apria  as  Chief
                                    Operating  Officer in April 2002.  From August 2001 to April 2002,  Mr.
                                    Mastrovich  served as President and Chief Operating  Officer of TechRx,
                                    a pharmacy  technology  company.  From April 2001 to August  2001,  Mr.
                                    Mastrovich  served as Apria's  Executive Vice  President,  Sales.  From
                                    October 1998 to April 2001,  Mr.  Mastrovich  served as Executive  Vice
                                    President,  Revenue  Management.  He served as Division Vice President,
                                    Operations  for the  Northeast  Division  from December 1997 to October
                                    1998.

James E. Baker, 51 ..............   Chief  Financial  Officer.  Mr. Baker was  promoted to Chief  Financial
                                    Officer in October  2001.  He served as Vice  President,  Controller of
                                    Homedco and, subsequently, Apria, since August 1991.

Anthony S. Domenico, 45..........   Executive  Vice  President,   Sales.   Mr.  Domenico  joined  Apria  as
                                    Executive  Vice  President,  Sales in August  2001.  From 1998 to 2001,
                                    Mr.  Domenico  served  as  Chief  Operating  Officer  and  Senior  Vice
                                    President  of Sales and  Operations  of Perigon  Medical  Distribution,
                                    Inc.
</TABLE>
<PAGE>


RISK FACTORS

     This  report  contains  forward-looking  statements,  which are  subject to
numerous  factors (many of which are beyond the company's  control)  which could
cause  actual  results to differ  materially  from those in the  forward-looking
statements.  Readers of this report can identify these  statements by the use of
words like "may," "will," "could," "should," "project," "believe," "anticipate,"
"expect," "plan," "estimate," "forecast,"  "potential," "intend," "continue" and
variations of these words or comparable words. Such  forward-looking  statements
include,  but are not limited to,  statements as to anticipated  future results,
developments and occurrences set forth or implied herein.

     Apria has  identified  below  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.

COLLECTIBILITY  OF  ACCOUNTS  RECEIVABLE  --  APRIA'S  FAILURE TO  MAINTAIN  ITS
CONTROLS AND PROCESSES OVER BILLING AND COLLECTING OR THE  DETERIORATION  OF THE
FINANCIAL CONDITION OF ITS PAYORS COULD REDUCE ITS CASH COLLECTIONS AND INCREASE
ITS ACCOUNTS RECEIVABLE WRITE-OFFS.

     The  collection of accounts  receivable is one of Apria's most  significant
challenges  and requires  constant  focus and  involvement  by  management,  and
ongoing  enhancements  to  information  systems  and  billing  center  operating
procedures.   Further,   some  of  Apria's  payors  may   experience   financial
difficulties,  or may otherwise not pay accounts  receivable when due, resulting
in increased write-offs.  Apria can provide no assurance that it will be able to
maintain its current  levels of  collectibility  and days sales  outstanding  in
future  periods.  If Apria is unable to properly  bill and collect its  accounts
receivable,  its results and financial condition will be adversely affected. See
"Business  -  Organization   and  Operations  -  Receivables   Management"   and
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations."

OPERATING SYSTEMS AND CONTROLS -- APRIA'S  IMPLEMENTATION OF SIGNIFICANT  SYSTEM
MODIFICATIONS COULD HAVE A DISRUPTIVE EFFECT ON RELATED TRANSACTION PROCESSING.

     Apria has developed  the  functionality  that enables the infusion  therapy
business to operate on the same computer information system or "platform" as the
respiratory  therapy/home medical equipment business.  Previously,  the infusion
therapy  application  operated on a separate platform which had limited support.
The  new  system   functionality  has  been  introduced  in  four  regions;  the
company-wide rollout is expected to continue into late 2003. Additionally, Apria
completed the  implementation  of supply chain management  software during 2002.
Apria  is  working  on  the  second  phase  of  this   project,   which  is  the
implementation of production and distribution planning software.  Implementation
is expected to begin mid-year 2003. Finally,  Apria is effecting certain changes
to its systems in order to comply with the standard  electronic  transaction and
code sets  provisions of HIPAA by the October 2003 due date. The  implementation
of these system  changes could have a disruptive  effect on related  transaction
processing.  See "Business - Organization and Operations - Operating Systems and
Controls" and "Business - Government Regulations - HIPAA."

FEDERAL  INVESTIGATION -- THE OUTCOME OF THE FEDERAL GOVERNMENT'S  INVESTIGATION
OF APRIA'S  MEDICARE AND OTHER BILLING  PRACTICES COULD RESULT IN THE IMPOSITION
OF MATERIAL  LIABILITIES OR PENALTIES AND COULD RESULT IN APRIA'S EXCLUSION FROM
PARTICIPATION IN FEDERAL HEALTHCARE PROGRAMS.

     The  U.S.  Attorney's  office  in Los  Angeles  and HHS are  conducting  an
investigation of Apria's billing  documentation.  The U.S. Attorney's office has
informed Apria that this investigation is the result of qui tam litigation,  one
or more private  lawsuits filed by individuals on behalf of the government,  but
has not yet  informed  Apria  whether it will  intervene in the qui tam actions;
however,  it could reach a decision with respect to intervention at any time. If
a judge, jury or administrative  agency were to determine that false claims were
submitted  to  federal  healthcare  programs  or  that  there  were  significant
overpayments by the government, Apria could face civil and administrative claims
for refunds,  sanctions and penalties for amounts that would be highly  material
to its business,  results of operations and financial  condition,  including the
exclusion of Apria from participation in federal healthcare  programs.  Although
Apria  believes that the  assertions in those  actions are  unwarranted,  and is
prepared to vigorously defend against any attempt to impose material liabilities
or  penalties,  Apria  can  provide  no  assurance  as to the  outcome  of these
proceedings. See "Legal Proceedings."
<PAGE>

GOVERNMENT  REGULATION;  HEALTHCARE  REFORM -- APRIA  COULD BE SUBJECT TO SEVERE
FINES,  FACILITY  SHUTDOWNS AND POSSIBLE EXCLUSION FROM PARTICIPATION IN FEDERAL
HEALTHCARE  PROGRAMS  IF IT FAILS  TO  COMPLY  WITH  THE  LAWS  AND  REGULATIONS
APPLICABLE TO ITS BUSINESS OR IF THOSE LAWS AND REGULATIONS CHANGE.

     Apria is subject to stringent laws and  regulations at both the federal and
state  levels,   requiring  compliance  with  burdensome  and  complex  billing,
substantiation and record-keeping requirements.  Financial relationships between
Apria and  physicians  and other  referral  sources  are  subject  to strict and
ambiguous limitations.  In addition, the provision of services,  pharmaceuticals
and equipment is subject to strict licensing and safety  requirements.  If Apria
is deemed to have violated these laws and regulations, Apria could be subject to
severe fines,  facility  shutdowns and possible  exclusion from participation in
federal healthcare programs such as Medicare and Medicaid.

     Government  officials  and the public will  continue  to debate  healthcare
reform.  Changes in healthcare  law, new  interpretations  of existing  laws, or
changes in payment  methodology may have a dramatic  effect on Apria's  business
and results of operations. See "Business - Government Regulation."

MEDICARE  REIMBURSEMENT RATES -- CONTINUED REDUCTIONS IN MEDICARE  REIMBURSEMENT
RATES COULD RESULT IN REDUCED REVENUES, EARNINGS AND CASH FLOWS.

     The Balanced  Budget Act of 1997  contained  several  provisions  that have
affected Apria's Medicare  reimbursement  levels.  Subsequent  legislation - the
Medicare Balanced Budget  Refinement Act of 1999 and the Medicare,  Medicaid and
SCHIP  Benefits  Improvement  and Protection Act of 2000 - mitigated some of the
effects of the original legislation. However, there are some pending issues that
may  further  impact  Medicare  reimbursement  to Apria in the  future,  such as
potential reimbursement  reductions under an inherent  reasonableness  authority
and competitive bidding for Medicare Part B-covered services and products.  Also
currently  at  issue  is  the  potential  adoption  of  an  alternative  pricing
methodology for certain drugs and biologicals. Apria can provide no assurance to
prospective  investors that further  reimbursement  reductions will not be made.
Since Medicare  accounted for  approximately 27% of Apria's net revenues for the
fiscal year 2002, any further  reduction in reimbursement  rates could result in
lower revenues, earnings and cash flows. See "Business - Government Regulation -
Medicare and Medicaid Reimbursement."

     In addition,  the terrorist  attacks of September 11, 2001 and the military
and security activities which followed,  including in particular the conflict in
Iraq, have and could continue to have  significant  impacts on the United States
economy and  government  spending  priorities.  The effects of any further  such
developments,  including  but not  limited to a  prolonged  war with Iraq,  pose
significant  risks and  uncertainties to Apria's  business.  Among other things,
deficit spending by the government as the result of adverse  developments in the
economy  and costs of the  government's  response to the  terrorist  attacks and
efforts in Iraq,  North Korea and elsewhere could lead to increased  pressure to
reduce government expenditures for other purposes,  including  government-funded
programs such as Medicare and Medicaid.  See "Business - Government Regulation -
Medicare and Medicaid Reimbursement."

PRICING PRESSURES -- CONTINUED  PRESSURE TO REDUCE HEALTHCARE COSTS COULD REDUCE
APRIA'S  MARGINS AND LIMIT  APRIA'S  ABILITY TO MAINTAIN OR INCREASE  ITS MARKET
SHARE.

     The current market  continues to exert pressure on healthcare  companies to
reduce  healthcare  costs,  resulting  in reduced  margins  for home  healthcare
providers  such as Apria.  Large  buyer and  supplier  groups  exert  additional
pricing  pressure on home  healthcare  providers.  These  include  managed  care
organizations,  which control an increasing  portion of the healthcare  economy.
Apria has a number of contractual  arrangements with managed care organizations,
although no  individual  arrangement  accounted for more than 10% of Apria's net
revenues  in  2002.  Certain  competitors  of  Apria  may  have  or  may  obtain
significantly greater financial and marketing resources than Apria. In addition,
relatively few barriers to entry exist in local home  healthcare  markets.  As a
result,  Apria  could  encounter  increased  competition  in the future that may
increase  pricing  pressure  and limit its ability to  maintain or increase  its
market share. See "Business - Sales" and "Business - Competition."

ACQUISITION STRATEGY -- APRIA MAY NOT BE ABLE TO SUCCESSFULLY INTEGRATE ACQUIRED
BUSINESSES,  WHICH COULD RESULT IN A SLOWDOWN IN CASH COLLECTIONS AND ULTIMATELY
LEAD TO INCREASES IN APRIA'S ACCOUNTS RECEIVABLE WRITE-OFFS.

     In   connection   with  past   acquisitions,   Apria  has  found  that  the
labor-intensive  patient  qualification  process and conversion of patient files
onto  Apria's  billing  systems  can  shift  focus  away  from  Apria's  routine
processes.  These  activities and the time required to obtain  provider  numbers
from government payors often delay billing of the newly acquired business, which
may delay cash  collections.  Moreover,  excessive delays may make certain items
uncollectible.  The  successful  integration  of an  acquired  business  is also
dependent on the size of the acquired business,  condition of the patient files,
complexity  of  system  conversions  and  local  management's  execution  of the
integration plan. If Apria is not successful in integrating acquired businesses,
its results will be adversely affected. See "Business - Strategy."


ITEM 2.  PROPERTIES

     Apria's headquarters are located in Lake Forest,  California and consist of
approximately 100,000 square feet of office space. The lease expires in 2011.

     Apria has  approximately  410 branch  facilities that are organized into 16
regions.  The region  facilities  usually  house a branch and  various  regional
support  functions  such as  warehousing,  repair,  billing and pharmacy.  These
facilities are typically  located in light  industrial areas and generally range
from 20,000 to 85,000 square feet. The typical branch facility, other than those
that share a building with a region, is a combination warehouse and office, with
approximately  50% of the square footage  consisting of warehouse  space.  These
branch facilities,  also located in light industrial areas, can range from 1,000
square feet for a satellite  location up to 50,000  square  feet.  Apria  leases
substantially all of its facilities with lease terms of ten years or less.


ITEM 3.  LEGAL PROCEEDINGS

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

     Apria has been informed that the  investigation  is the result of civil qui
tam litigation  filed on behalf of the government  against Apria. The complaints
in the litigation are under seal,  however,  and the government has not informed
Apria of either the identities of the plaintiffs,  the court or courts where the
proceedings  are  pending,  the date or dates  instituted  or the factual  bases
alleged to underlie the proceedings. To date, the U.S. Attorney's office has not
informed Apria of any decision to intervene in the qui tam actions;  however, it
could reach a decision with respect to intervention at any time.

     Government  representatives  and counsel for the  plaintiffs in the qui tam
actions asserted in July 2001 that, by a process of extrapolation  from a sample
of 300 patient files to all of Apria's billings to the federal government during
the  three-and-one-half  year  sample  period,  Apria  could  be  liable  to the
government  under the False Claims Act for more than $9 billion,  consisting  of
extrapolated  overpayment  liability,  treble  damages  and  penalties  of up to
$10,000 for each allegedly false claim derived from the extrapolation.

     Apria has acknowledged that there may be errors and omissions in supporting
documentation  affecting a portion of its  billings.  However,  it considers the
assertions  and amounts  described in the preceding  paragraph to be unsupported
both legally and factually  and believes that most of the alleged  documentation
errors and  omissions  should not give rise to any  liability,  for  overpayment
refunds or otherwise.  Accordingly,  Apria believes that the claims asserted are
unwarranted  and  that  it is  in a  position  to  assert  numerous  meritorious
defenses.

     Apria  has  been  exchanging   information  and  having   discussions  with
government  representatives in an attempt to explore whether it will be possible
to resolve this matter on a basis that would be considered  fair and  reasonable
by all parties.  Apria cannot  provide any assurances as to the outcome of these
discussions,  however,  or as to the  outcome of the qui tam  litigation  in the
absence of a settlement.  Management  cannot estimate the possible loss or range
of loss that may result from these  proceedings  and  therefore has not recorded
any related accruals.

     If a judge,  jury or  administrative  agency were to  determine  that false
claims  were  submitted  to  federal  healthcare  programs  or that  there  were
significant  overpayments  by  the  government,   Apria  could  face  civil  and
administrative  claims for refunds,  sanctions  and  penalties  for amounts that
would be highly  material to its business,  results of operations  and financial
condition,  including  the  exclusion  of Apria  from  participation  in federal
healthcare programs.

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


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

     No matters  were  submitted  to a vote of Apria's  stockholders  during the
fourth quarter of the fiscal year covered by this report.



                                     PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
         MATTERS

     Apria's  common  stock is traded on the New York Stock  Exchange  under the
symbol AHG. The table below sets forth, for the calendar periods indicated,  the
high and low sales prices per share of Apria common stock:

                                                 HIGH            LOW
                                              ----------      ----------
Year ended December 31, 2002
----------------------------
  First quarter                                 $24.95          $20.79
  Second quarter                                 28.50           20.25
  Third quarter                                  25.30           18.90
  Fourth quarter                                 25.68           20.75


Year ended December 31, 2001
----------------------------
  First quarter                                 $30.00          $20.40
  Second quarter                                 29.49           23.80
  Third quarter                                  29.85           21.00
  Fourth quarter                                 25.75           19.50

     As of March 14,  2003,  there were 623  holders  of record of Apria  common
stock.  Apria has not paid any dividends since its inception and does not intend
to pay any dividends on its common stock in the foreseeable future.
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

     The following table presents Apria's  selected  financial data for the five
years ended  December 31, 2002.  The data set forth below have been derived from
Apria's audited Consolidated Financial Statements and are qualified by reference
to,  and  should  be  read  in  conjunction  with,  the  Consolidated  Financial
Statements and related notes thereto and  "Management's  Discussion and Analysis
of Financial Condition and Results of Operations" included in this report.
<TABLE>
<CAPTION>
                                                                        YEAR ENDED DECEMBER 31,
                                                   ----------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)                2002(1)        2001        2000        1999(2)      1998(3,4)
-------------------------------------------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS DATA:
<S>                                                <C>          <C>          <C>          <C>           <C>
Net revenues....................................   $1,252,196   $1,131,915   $1,014,201   $  940,024    $  933,793
Income (loss) before extraordinary charge.......      115,595       73,445       57,006      204,135      (207,938)
Net income (loss)...............................      115,595       71,917       57,006      204,135      (207,938)

Basic income (loss) per common share:
    Income (loss) before extraordinary charge...       $ 2.12       $ 1.36       $ 1.09       $ 3.93        $(4.02)
    Extraordinary charge on debt refinancing,
      net of taxes..............................            -         0.03            -            -             -
                                                       ------       ------       ------       ------        ------
            Net income (loss)...................       $ 2.12       $ 1.33       $ 1.09       $ 3.93        $(4.02)
                                                       ======       ======       ======       ======        ======

Diluted income (loss) per common share:
    Income (loss) before extraordinary charge...       $ 2.08       $ 1.32       $ 1.06       $ 3.81        $(4.02)
    Extraordinary charge on debt refinancing,
      net of taxes..............................            -         0.03            -            -             -
                                                       ------       ------       ------       ------        ------
            Net income (loss)...................       $ 2.08       $ 1.29       $ 1.06       $ 3.81        $(4.02)
                                                       ======       ======       ======       ======        ======

BALANCE SHEET DATA:
Total assets....................................   $  795,656   $  695,782    $  620,332  $  637,361    $  504,208
Long-term obligations, including
   current maturities...........................      269,368      293,689       343,478     423,094       496,196
Stockholders' equity (deficit)..................      351,309      242,798       146,242      75,469      (131,657)

(1)  Net income for 2002  reflects the positive  impact of prior year income tax
     examinations  that  were  settled  in  the  fourth  quarter  of  2002.  The
     components  of this impact  include:  income tax benefit of $11.1  million,
     interest income of $4 million and related  professional fee expense of $1.7
     million.  Effective  January 1, 2002, Apria adopted  Statement of Financial
     Accounting Standards No. 142 and accordingly ceased to amortize goodwill.

(2)  Net income for 1999 reflects an income tax benefit of $131 million that was
     attributable  to the release of the company's  deferred tax asset valuation
     allowance in the fourth quarter of 1999.

(3)  Apria  recorded a charge of $22.7 million in 1998 to increase the allowance
     for doubtful accounts for changes in collection policies and in conjunction
     with Apria's exit from certain portions of its existing business.

(4)  Included in 1998 are impairment  charges of $76.2 million to write-down the
     carrying  values of  intangible  assets  and  $22.2  million  to  write-off
     information  systems  hardware,  internally-developed  software  and assets
     associated  with  Apria's  exit  from  certain  portions  of  its  existing
     business.
</TABLE>
Apria did not pay any cash  dividends  on its  common  stock  during  any of the
periods set forth in the table above.
<PAGE>


ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

     Apria operates in the home  healthcare  segment of the healthcare  industry
and provides services in the home respiratory therapy, home infusion therapy and
home medical equipment areas. In all three lines, Apria provides patients with a
variety of clinical  services and related  products and supplies,  most of which
are  prescribed  by a physician  as part of a care plan.  Apria  provides  these
services  to  patients  in  the  home   throughout  the  United  States  through
approximately 410 branch locations.

     STRATEGY.  Apria is pursuing an operating strategy to increase market share
and improve profitability. Key elements of the strategy are as follows:

     -  Focus on growth in its core businesses of home respiratory therapy, home
        infusion therapy and home medical  equipment.  By offering a broad range
        of services  Apria  achieves a  competitive  advantage  with its managed
        care, hospital and certain physician customers,  enabling it to maintain
        a diversified revenue base.  In particular, Apria continues its emphasis
        on growth in  the home  respiratory  therapy  line,  which  historically
        has produced higher  gross  margins than its home  infusion  therapy and
        home medical equipment service lines.

     -  Supplement internal growth with strategic  acquisitions.  Apria operates
        in a highly fragmented market, which provides an attractive  opportunity
        to drive growth through acquisition of complementary businesses.

     -  Develop  and  apply  "best  practices"  and   productivity   improvement
        programs  throughout  the  company  with  the aim of  achieving  greater
        standardization  and enhanced  productivity.  Success with such programs
        results in reduced costs and increased margins and cash flows. Apria has
        developed and  implemented  standardized  clinical and delivery  models,
        billing and collection  practices and common operating procedures in its
        field  locations and has centralized  purchasing for inventory,  patient
        service  equipment and supplies.  Apria  continues to focus resources on
        identifying opportunities for further productivity improvements.

     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 and long-lived assets require significant judgment.

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

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

     Because of the  reimbursement  environment  in which Apria operates and the
level of  subjectivity  that is  required in  recording  revenues  and  accounts
receivable,  it is possible that management's estimates could change in the near
term, which could have an impact on the consolidated financial statements.

     Goodwill and Long-lived Assets. Goodwill arising from business combinations
represents the excess of the purchase price over the estimated fair value of the
net  assets  of the  acquired  business.  Pursuant  to  Statement  of  Financial
Accounting  Standards ("SFAS") No. 142, "Goodwill and Other Intangible  Assets,"
goodwill is tested annually for impairment or more  frequently if  circumstances
indicate potential  impairment.  Also,  management reviews for impairment of its
intangible  assets and long-lived assets on an ongoing basis and whenever events
or changes in  circumstances  indicate that the carrying  amount of an asset may
not be recoverable.  Based on its tests and reviews, management does not believe
any impairment of its goodwill,  intangible  assets or other  long-lived  assets
existed at  December  31,  2002.  However,  future  events or changes in current
circumstances  could affect the recoverability of the carrying value of goodwill
and long-lived  assets.  Should an asset be deemed impaired,  an impairment loss
would be recognized,  to the extent the carrying value of the asset exceeded its
estimated  fair market value.  Such an  impairment  charge could have an adverse
impact on Apria's consolidated financial statements.

     SEGMENT  REPORTING.  Apria's branch locations are organized into geographic
regions.  Each region  consists of a number of  branches  and a regional  office
which  provides  key support  services  such as billing,  purchasing,  equipment
maintenance, repair and warehousing. Management evaluates operating results on a
geographic basis and, therefore,  views each region as an operating segment. All
regions provide the same products and services,  including  respiratory therapy,
infusion  therapy  and  home  medical  equipment  and  supplies.  For  financial
reporting purposes, all the company's operating segments are aggregated into one
reportable segment in accordance with the aggregation  criteria of SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information."

     CHANGE IN ACCOUNTING  PRINCIPLES.  Effective January 1, 2002, Apria adopted
SFAS No. 142 which addresses the financial accounting and reporting for goodwill
and other  intangible  assets.  The  statement  provides  that goodwill or other
intangible  assets with indefinite lives will no longer be amortized,  but shall
be tested for impairment annually, or more frequently if circumstances  indicate
the  possibility of  impairment.  See  "Amortization  of Goodwill and Intangible
Assets."

     Effective January 1, 2002, Apria adopted SFAS No. 144,  "Accounting for the
Impairment or Disposal of Long-Lived Assets." This statement superseded SFAS No.
121, "Accounting  for the  Impairment  of Long-Lived  Assets and for  Long-Lived
Assets to be Disposed Of," and amended other guidance  related to the accounting
and reporting of long-lived  assets.  SFAS No. 144 requires that one  accounting
model be used for  long-lived  assets to be  disposed  of by sale.  Discontinued
operations are to be measured similarly to other long-lived assets classified as
held for sale at the lower of its  carrying  amount or fair  value  less cost to
sell.  Future operating  losses will no longer be recognized  before they occur.
SFAS No. 144 also  broadened  the  presentation  of  discontinued  operations to
include a component of an entity when  operations  and cash flows can be clearly
distinguished,  and established criteria to determine when a long-lived asset is
held for sale.  Adoption  of this  statement  did not have a material  effect on
Apria's consolidated financial statements.

     RECENT ACCOUNTING  PRONOUNCEMENTS.  In April 2002, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 145, "Rescission of FASB Statement Nos.
4, 44, and 64,  Amendment of FASB Statement No. 13, and Technical  Corrections."
SFAS No. 145 updates and clarifies existing accounting pronouncements related to
gains and losses from the extinguishment of debt and requires that certain lease
modifications   be   accounted   for  in  the  same  manner  as   sale-leaseback
transactions.  Apria adopted the  provisions of SFAS No. 145 for its fiscal year
beginning  January 1, 2003.  Adoption of this statement will not have a material
effect on the company's consolidated financial statements.

     In July 2002, SFAS No. 146,  "Accounting for Costs  Associated With Exit or
Disposal  Activities,"  was  issued.  This  statement  addresses  the  financial
accounting and reporting for costs  associated with exit or disposal  activities
and requires that a liability for such costs be recognized when the liability is
incurred rather than at the date of an entity's commitment to an exit plan. SFAS
No. 146 also  establishes  that the liability should be measured and recorded at
fair  value.  Apria  will  adopt  the  provisions  of SFAS No.  146 for exit and
disposal activities that are initiated after December 31, 2002, as required.

     In December 2002, SFAS No. 148, "Accounting for Stock-Based  Compensation -
Transition and Disclosure - an amendment of FASB Statement No. 123," was issued.
This statement amends SFAS No. 123,  "Accounting for Stock-Based  Compensation,"
to provide alternative methods of transition and guidance for a voluntary change
to  the  fair  value  based  method  of  accounting  for  stock-based   employee
compensation.  SFAS No. 148 also amends the disclosure  requirements of SFAS No.
123 to  require  prominent  disclosures  in both  annual and  interim  financial
statements about the method of accounting for stock-based employee  compensation
and the effect of the method used on reported results.  The company has complied
with  the  expanded   financial   statement   disclosure   requirements  in  its
consolidated financial statements.

     In  November  2002,  the FASB issued  FASB  Interpretation  ("FIN") No. 45,
"Guarantor's  Accounting and Disclosure  Requirements for Guarantees,  Including
Indirect  Guarantees and Indebtedness of Others," an interpretation of SFAS Nos.
5, 57 and 107 and rescission of FIN No. 34,  "Disclosure of Indirect  Guarantees
of Indebtedness of Others." FIN No. 45 elaborates on the disclosure requirements
for the  interim  and annual  financial  statements  of the  guarantor.  It also
requires  that  a  guarantor  recognize  a  liability  at the  inception  of the
guarantee for the fair value of the obligation undertaken. Apria was required to
adopt the recognition  provisions of FIN No. 45 beginning January 1, 2003, while
the disclosure  provisions  became  effective at December 31, 2002.  Adoption of
this   interpretation   will  not  have  a  material  effect  on  the  company's
consolidated financial statements.

     In January 2003, FIN No. 46, "Consolidation of Variable Interest Entities,"
an interpretation of Accounting Research Bulletin No. 51, was issued. FIN No. 46
requires that a company  consolidate  variable interest entities if that company
is subject to a majority of the risk of loss from the entity's activities or the
company receives a majority of the entity's  residual  returns.  FIN No. 46 also
requires certain disclosures about variable interest entities in which a company
has a significant  interest,  regardless of whether  consolidation  is required.
Apria will begin to adopt the  consolidation  provisions of FIN No. 46 beginning
January 1, 2003, while certain disclosure requirements will become effective for
all financial  statements issued after January 31, 2003,  regardless of when the
variable  interest  entities  were  established.  The company  currently  has no
variable interest entities, therefore the adoption of this interpretation is not
expected  to have a  material  effect on the  company's  consolidated  financial
statements.


RESULTS OF OPERATIONS

     NET REVENUES.  Approximately  34% of Apria's 2002  revenues are  reimbursed
under  arrangements  with Medicare and Medicaid.  In 2002, no other  third-party
payor  represented  10% or more of the company's  revenues.  The majority of the
company's  revenues  are  derived  from fees  charged  for  patient  care  under
fee-for-service  arrangements.  Revenues  derived from  capitation  arrangements
represented less than 10% of total net revenues for 2002.  Because of continuing
changes in the healthcare industry and third-party  reimbursement,  there can be
no assurance that Apria's current revenue levels can be maintained,  which could
have an impact on operations and cash flows.

     Net  revenues  increased to $1,252  million in 2002 from $1,132  million in
2001 and $1,014  million in 2000.  Growth rates were 10.6% and 11.6% in 2002 and
2001, respectively. The increases in both years are due to volume increases, new
contracts with regional and national  payors,  the acquisition of  complementary
businesses and price increases in certain managed care agreements.

     Apria's acquisition strategy provides for the rapid integration of acquired
businesses into existing operating  locations.  This limits management's ability
to  separately  track the amount of revenue  generated by an acquired  business.
Estimating the revenue contribution from acquisitions therefore requires certain
assumptions.   Based  on  its  analyses,   Apria   management   estimates   that
approximately  one-third  of  the  revenue  growth  in  2002  was  derived  from
acquisitions.

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

                                                    YEAR ENDED DECEMBER 31,
                                              ----------------------------------
     (IN THOUSANDS)                              2002        2001        2000
     ---------------------------------------------------------------------------

     Home respiratory therapy.............    $  830,972  $  742,805  $  656,089
     Home infusion therapy................       229,190     216,436     194,508
     Home medical equipment/other.........       192,034     172,674     163,604
                                              ----------  ----------  ----------
           Total net revenues.............    $1,252,196  $1,131,915  $1,014,201
                                              ==========  ==========  ==========

     Home  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.  The
respiratory  therapy  service line  increased in 2002 by 11.9% when  compared to
2001 and increased by 13.2% in 2001 when compared to 2000.  Apria's  strategy to
target acquisitions of respiratory therapy businesses  contributed to the growth
in both years.

     Home  Infusion  Therapy.  The infusion  therapy  service line  involves the
administration  of a drug or  nutrient  directly  into  the  body  intravenously
through  a  needle  or  catheter.   Examples  include:   parenteral   nutrition,
anti-infectives, pain management, chemotherapy and other medications and related
services.  The  infusion  line  also  includes  enteral  nutrition  which is the
administration of nutrients directly into the  gastrointestinal  tract through a
feeding tube.  Infusion therapy revenues  increased 5.9% in 2002 versus 2001 and
11.3% in 2001  versus  2000.  The growth in both years is largely  due to volume
increases.  Much  of the  increase  in  2001  was  concentrated  in the  enteral
nutrition  line  reflecting  renewed focus from a program that  centralized  the
related  intake,  clinical  oversight and  distribution  functions at the region
level.

     Home Medical  Equipment/Other.  Home medical  equipment/other  revenues are
derived  from the  provision of patient  safety  items,  ambulatory  and in-home
equipment. Home medical equipment/other revenues increased by 11.2% in 2002 from
its level in 2001 and 5.5% in 2001 from 2000. Although the company's strategy is
to target acquisitions of respiratory therapy businesses, the growth in the home
medical equipment/other line also includes the effects of acquisitions completed
in late 2001 and in 2002.

     Medicare  and  Medicaid  Reimbursement.  The  Balanced  Budget  Act of 1997
contained several  provisions that have affected Apria's Medicare  reimbursement
levels.  Subsequent legislation - the Medicare Balanced Budget Refinement Act of
1999 and the Medicare Medicaid and SCHIP Benefits Improvement and Protection Act
of 2000 - mitigated  some of the effects of the original  legislation.  However,
there are some pending issues that may further impact Medicare  reimbursement to
Apria in the future.

     The  Balanced  Budget  Act of 1997  granted  streamlined  authority  to the
Secretary  of the U.S.  Department  of Health  and  Human  Services  ("HHS")  to
increase  or reduce the  reimbursement  for home  medical  equipment,  including
oxygen, by up to 15% each year under an inherent  reasonableness  authority.  In
December 2002, the Centers for Medicare and Medicaid  Services ("CMS") issued an
interim final rule that  establishes a process by which such  adjustments may be
made. The rule applies to all Medicare Part B services except those paid under a
physician fee schedule or a prospective payment system.

     Further,  the Balanced  Budget Act of 1997  mandated that CMS conduct up to
five competitive bidding market demonstrations for Medicare Part B-covered items
and services.  CMS conducted  demonstration projects in Polk County, Florida and
San Antonio,  Texas.  These  demonstration  projects  have been  completed.  The
demonstrations  could  provide CMS and  Congress  with a model for  implementing
competitive  pricing in all Medicare  programs.  Initial reports from government
agencies  allege cost savings that vary by product line,  but the reports do not
include costs incurred by the  government to administer  the program.  If such a
competitive   bidding  system  were  implemented,   it  could  result  in  lower
reimbursement  rates, exclude certain items and services from coverage or impose
limits on  increases  in  reimbursement  rates.  Although  not  included  in the
President's   budget,   the  administration  may  seek  authority  to  implement
nationwide  competitive  bidding for all  Medicare  Part B products and services
other than  physicians'  services.  There are  members of  Congress  who support
legislation to create a national  competitive bidding system for durable medical
equipment.  The homecare  industry is currently working with members of Congress
and the administration to ensure that the negative impact of competitive bidding
on patient  choice,  small  businesses,  the economy and other aspects are fully
understood. The industry is also working with the same groups to ensure that the
total costs for the government to establish an infrastructure to administer such
a complicated program as has been proposed are studied and quantified in detail.
It is not clear under what timeframe the government  will conduct such analyses,
or whether such initiatives will move ahead.

     During 2000,  the Secretary of HHS wrote to the durable  medical  equipment
regional  carriers  and  recommended,  but did not  mandate,  that  Medicare and
Medicaid claims processors base their payments for covered  outpatient drugs and
biologicals  on pricing  schedules  other than the normally  calculated  Average
Wholesale  Prices,  which  historically  has been the industry's  basis for drug
reimbursement.  The suggested  alternative pricing methodology was offered in an
effort  to  reduce  reimbursement  levels  for  certain  drugs  to more  closely
approximate  a provider's  acquisition  cost,  but it would not have covered the
costs that homecare pharmacies incur to prepare, deliver or administer the drugs
to patients.  Clinical  services,  billing,  collection and other overhead costs
also would not have been  considered.  Under  current  government  reimbursement
schedules, these costs are not clearly defined but are implicitly covered within
the  reimbursement  for the drug. The  healthcare  industry has taken issue with
HHS's approach for several reasons,  primarily  because it fails to consider the
accompanying costs of delivering and administering these types of drug therapies
to  patients  in their  homes.  Further,  if  providers  choose  to  discontinue
providing  these  drugs  due to  inadequate  reimbursement,  patient  access  to
homecare  may  be  jeopardized.   The  Medicare,  Medicaid  and  SCHIP  Benefits
Improvement  and  Protection Act of 2000 provided for a moratorium on decreasing
the  payment  rates in effect as of January 1, 2001,  for drugs and  biologicals
under the current Medicare payment  methodology.  This legislation also required
the General  Accounting Office ("GAO") to conduct a thorough study, by September
2001,  of the  adequacy  of  current  payments.  The GAO was  also  directed  to
recommend revised payment methodologies and report to Congress and the Secretary
of HHS. The study was completed but the authors acknowledged that 1) the limited
scope and  deadline  associated  with the  study  did not  allow for a  thorough
analysis of the homecare  pharmacy  aspects of covered  services,  2) legitimate
service  components  and related  costs do exist,  and 3)  different  methods of
determining  drug  delivery and  administration  payments  may be necessary  for
different  types of drugs.  Currently,  the timing  and  impact of such  pricing
methodology   revisions  are  not  known.  There  is  interest  in  Congress  in
legislation that would replace Average Wholesale Price as the basis for Medicare
drug  reimbursement,  but to date there has been no agreement within Congress as
to what the alternative should be.

     Some states have already adopted, or are contemplating  adopting, some form
of the proposed alternate pricing  methodology for certain drugs and biologicals
under the Medicaid  program.  In at least 20 states,  these changes have reduced
the level of reimbursement  received by Apria to an unacceptable level without a
corresponding  offset or increase to compensate for the service costs  incurred.
In several of those  states,  Apria has elected to stop  accepting  new Medicaid
patient  referrals for the affected drugs.  The company is continuing to provide
services  to  patients  already  on  service,  and for those who  receive  other
Medicaid-covered respiratory, home medical equipment or infusion therapies. As a
percentage of total  business,  Medicaid  represents a very small  percentage of
Apria's home infusion and home-delivered respiratory medication revenues.

     GROSS PROFIT.  Gross margins were 72.8% in 2002 and 2001 and 72.5% in 2000.
Gross margins have remained  consistent  due to negligible  reimbursement  price
increases and consistent  pricing for the products Apria  purchases to serve its
patients.  Also,  the  proportion of business  among Apria's three major service
lines has remained fairly steady.

     PROVISION FOR DOUBTFUL ACCOUNTS.  As described in the "Critical  Accounting
Policies" section above,  accounts receivable  estimated to be uncollectible are
provided  for  through  the   application  of  specified   percentages  to  each
receivables aging category.  For 2002, 2001 and 2000, the provision for doubtful
accounts as a percentage of net revenues was 3.6%, 3.3% and 3.2%,  respectively.
The increase in the  percentage  in 2002 is largely  attributable  to the year's
acquisition  activity.  The time-consuming  processes of converting the acquired
patient  files  onto  Apria's  systems  and  obtaining   provider  numbers  from
government  payors delay  billing of the  newly-acquired  business.  During this
time, a provision  for doubtful  accounts is recorded on the earned but unbilled
receivables  as they pass  through the aging  categories.  When the billings are
finally submitted and, subsequently, cash is received, the provision requirement
decreases. Because the majority of the acquired business in 2002 was effected in
the last half of the year,  there was not sufficient time for completion of this
cycle on a number of the acquisitions.  See "Critical  Accounting  Policies" and
"Accounts Receivable."

     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,   clinical,  intake,  reimbursement,
warehousing and repair. Many of these operating costs are directly variable with
revenue growth  patterns.  Some are also very sensitive to  market-driven  price
fluctuations such as facility lease and fuel costs. The administrative  expenses
include overhead costs incurred by the operating locations and corporate support
functions.  These  expenses do not vary as closely with revenue growth as do the
operating costs. Selling, distribution and administrative expenses, expressed as
percentages  of net  revenues,  were 54.7% in 2002,  55.8% in 2001 and 54.7% for
2000. The decrease in 2002 reflects the benefit of various  standardization  and
productivity  initiatives  that have been  implemented.  Delivery  expenses as a
percentage of net revenues  decreased by nearly 1%. Also, bonus expense was high
in 2001 as the bonus  plans  were  extended  to all  employees  and the  payment
provisions  of these  plans were  enriched,  thereby  resulting  in the  expense
increase.  The 2002  plans  did not  include  such  provisions.  Offsetting  the
decreases  in 2002 were $3.8  million in costs  related to the  departure of the
former chief executive  officer and $1.7 million in professional fees associated
with the settlement of prior year tax examinations. See "Income Tax Expense."

     AMORTIZATION OF GOODWILL AND INTANGIBLE ASSETS.  Amortization of intangible
assets was $2.7 million in 2002.  Amortization of goodwill and intangible assets
was  $12.3  million  and $10.2  million  in 2001 and  2000,  respectively.  Upon
adoption  of SFAS No.  142 on January 1,  2002,  goodwill  amortization  ceased.
Amortization  of goodwill  was $9.8  million and $7.8  million in 2001 and 2000,
respectively.   The  effect  of  adding   these   amounts  back  as  though  the
nonamortization provisions of SFAS No. 142 were adopted at the beginning of 2000
would have resulted in net income and diluted income per share increases of $6.1
million and $0.11 in 2001 and $4.5  million and $0.08 in 2000.  The  increase in
amortization in 2001 when compared to 2000 was due to the acquisitions that were
consummated   during   2001  and  the  latter  part  of  2000.   See   "Business
Combinations."

     INTEREST  EXPENSE AND INCOME.  Interest  expense was $15.0 million in 2002,
$27.6  million  in 2001 and $42.3  million  in 2000.  Interest  income  was $4.2
million,  $1.9  million and $2.2 million in 2002,  2001 and 2000,  respectively.
Analyzed  on a net basis,  the  decrease  in 2002 when  compared  to 2001 can be
attributed  to a number of factors.  The  dramatic  decreases  in  market-driven
interest  rates that took place over the course of 2001 are fully  reflected  in
2002.  Interest  expense in 2002 reflects a full year's benefit of the July 2001
refinancing that replaced the $200 million 9 1/2% senior subordinated notes with
debt at significantly  more favorable  interest rates and lowered the applicable
interest  margin  on the  bank  loans.  The  refinancing  also  resulted  in the
write-off of debt issuance costs related to the notes and old bank debt that, in
turn, lowered the related amortization  expense. In June 2002, Apria executed an
amendment  to  the  credit  agreement  that,  among  other  items,  lowered  the
applicable  interest  margin on the $175 million term loan.  Also  impacting net
interest  expense is a $24.3  million  reduction in long-term  debt during 2002.
Finally, the settlement of prior year tax examinations during 2002 resulted in a
$4 million interest refund.

     The  decrease in net  interest  expense in 2001 when  compared to 2000 also
reflects the market-driven  interest rate decreases and the lower interest rates
and amortization resulting from the July 2001 refinancing.  Also, long-term debt
decreased by $49.8 million during 2001. See "Long-term Debt."

     INCOME  TAX  EXPENSE.  Income  taxes  for 2002 are $52.4  million  and were
provided at the effective  tax rate  expected to be  applicable  for the year as
reduced  by a  benefit  of $11.1  million  that  resulted  from  prior  year tax
examinations that were settled in the fourth quarter.  Income taxes for 2001 and
2000 were $44.1 million and $41.1  million,  respectively,  and were provided at
the effective tax rate expected to be applicable for the respective year.

     At December 31, 2002, Apria had federal net operating loss carryforwards of
approximately  $15.3  million  expiring  in  varying  amounts  in the years 2003
through  2018,  and various state  operating  loss  carryforwards  that began to
expire in 1997. Additionally,  the company has an alternative minimum tax credit
carryforward of approximately $9.6 million.

     As a result of settling  the prior year tax  examinations,  Apria  utilized
approximately  $34.2 million of its previously limited $57 million net operating
loss  carryforward  during 2002 which  reduced its effective tax rate to 31% for
the year ended  December 31, 2002.  Such net  operating  loss  carryforward  was
generated  prior to 1992 and utilization had been limited to $5 million per year
in accordance  with Internal  Revenue Code Section 382.  Prior to 2002,  the $57
million  net  operating  loss  carryforward  was not  recognized  for  financial
statement  reporting purposes as management believed it unlikely that they would
be used before  expiration.  The remaining net operating  loss  carryforward  of
approximately $22.8 million is excluded from the related deferred tax assets and
will expire unused.


LIQUIDITY AND CAPITAL RESOURCES

     Apria's  principal source of liquidity is its operating cash flow, which is
supplemented by a $100 million  revolving  credit  facility.  Apria's ability to
generate  operating cash flows in excess of its operating  needs has afforded it
the ability,  among other things,  to pursue its  acquisition  strategy and fund
patient  service  equipment   expenditures  to  support  revenue  growth,  while
continuing  to reduce  long-term  debt.  Apria's  management  believes  that its
operating cash flow and revolving  credit line will continue to be sufficient to
fund its operations and growth strategies.  However, sustaining the current cash
flow levels is dependent on many factors,  some of which are not within  Apria's
control, such as government reimbursement levels and the financial health of its
payors.

     CASH FLOW.  Cash provided by operating  activities in 2002 was $262 million
compared  to $241.4  million  in 2001 and $188  million  in 2000.  The cash flow
increase in 2002 was primarily attributable to the increase in net income before
items not requiring  cash.  Also  contributing to the increase was an income tax
refund,  including  interest,  related  to the  settlement  of  prior  year  tax
examinations.  The cash flow  increase  was offset by an  increase  in  accounts
receivable and the timing of disbursements  processed  through accounts payable.
Also  offsetting  the net  income  increase  in 2002 was a  decrease  in accrued
expenses.  The cash flow  increase  in 2001 was  primarily  attributable  to the
increase in net income before items not requiring cash and increases in accounts
payable  and  accrued  expenses.  Partially  offsetting  this was an increase in
accounts receivable due to the revenue increases.

     Cash used in investing  activities  decreased in 2002 when compared to 2001
due to reduced levels of patient service  equipment  expenditures and a decrease
in  acquisition  activity.  Cash  used in 2001  increased  from  2000  due to an
increase in  acquisition  activity and  increases in patient  service  equipment
purchases.

     Cash used in financing  activities  increased  between 2002 and 2001 due to
the repurchase of Apria's  common stock in the amount of $35 million,  which was
partially  offset by a decrease in payments  against  long-term  debt due to the
voluntary  prepayments  effected in 2001.  Cash used in 2001 decreased from 2000
primarily due to large voluntary  prepayments made against long-term debt in the
latter  part of 2000 and an  increase  in  proceeds  from the  exercise of stock
options in 2001. See "Long-term Debt."
<PAGE>

     CONTRACTUAL  CASH  OBLIGATIONS.  The  following  table  summarizes  Apria's
long-term cash payment obligations to which the company is contractually bound:
<TABLE>
<CAPTION>
                                                           FOR THE YEAR ENDING DECEMBER 31,
                                                    -------------------------------------------
     (IN MILLIONS)                                  2003   2004    2005    2006   2007    2008+   TOTAL
     --------------------------------------------------------------------------------------------------
<S>                                                <C>     <C>     <C>     <C>    <C>     <C>     <C>
     Term loans..............................      $ 19    $ 27    $ 29    $ 23   $ 42    $123    $263
     Capitalized lease obligations...........         3       2       1       -      -       -       6
     Operating leases........................        56      48      43      32     20      25     224
     Deferred acquisition payments...........         7       -       -       -      -       -       7
                                                   ----    ----    ----    ----   ----    ----    ----
          Total contractual cash obligations.      $ 85    $ 77    $ 73    $ 55   $ 62    $148    $500
                                                   ====    ====    ====    ====   ====    ====    ====
</TABLE>

     ACCOUNTS  RECEIVABLE.  Accounts  receivable  before  allowance for doubtful
accounts  increased by $23.3 million during 2002 which is directly  attributable
to the revenue  increase.  Accounts  aged in excess of 180 days  decreased  from
19.8% at December 31, 2001 to 18% at December 31, 2002.  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 51 at December 31, 2002 compared to 50 at December 31, 2001.  See "Critical
Accounting Policies."

     Unbilled  Receivables.  Included  in  accounts  receivable  are  earned but
unbilled receivables of $29.2 million and $26.9 million at December 31, 2002 and
2001, respectively.  Delays, ranging from a day up to several weeks, between the
date of  service  and  billing  can occur due to  delays  in  obtaining  certain
required payor-specific documentation from internal and external sources. Earned
but unbilled  receivables  are aged from date of service and are  considered  in
Apria's analysis of historical  performance and collectibility.  The increase in
2002 from the end of 2001 is largely due to  acquisitions  effected during 2002.
The  time-consuming  processes of converting  patient files onto Apria's systems
and obtaining provider numbers from government payors routinely delay billing of
the newly acquired business.

     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
and subsequently returned to Apria for reuse.

     The branch locations serve as the primary point from which  inventories and
patient  service  equipment  are  delivered  to the  patient.  The  branches are
supplied with  inventory and equipment from the regional  warehouses,  where the
purchasing responsibility lies. The regions are also responsible for repairs and
scheduled  maintenance of patient service equipment,  which adds to the frequent
movement of equipment between the region and branch locations.  Further,  at any
given time, approximately 80% of Apria's patient service equipment is located in
patients' homes. Inherent in this asset flow is the fact that losses will occur.
Management has  successfully  instituted a number of controls over the company's
inventories  and patient  service  equipment to minimize  such losses.  However,
there can be no assurance  that Apria will be able to maintain its current level
of control over inventories and patient service equipment.

     Continued  revenue growth is directly  dependent on Apria's ability to fund
its inventory and patient service equipment requirements.

     DEFERRED  INCOME  TAXES.  The  decrease  in deferred  tax assets  (combined
current  and  non-current)  from  December  31,  2001 to  December  31,  2002 is
primarily due to the  utilization  of the net operating loss  carryforwards.  At
December 31, 2002,  Apria had a net  non-current  deferred tax  liability of $13
million that resulted primarily from changes in goodwill amortization expense in
accordance with SFAS No. 142 and additional tax depreciation expense as a result
of a 2002 federal statute change. See "Income Tax Expense."

     LONG-TERM  DEBT.  Apria has a $400 million senior secured credit  agreement
with a syndicate of lenders led by Bank of America,  N.A.  The credit  agreement
consists of a $100 million  revolving credit facility,  a $125 million term loan
and a $175 million term loan.  Effective  June 7, 2002 the credit  agreement was
amended to extend the maturity date, reduce the applicable interest rate margins
and modify the repayment schedule for the $175 million term loan.

     The final maturity date for the revolving credit facility is July 20, 2006.
The  remaining  payment  schedule  on the $125  million  term loan  requires  14
consecutive  quarterly  payments  ranging from $6 million to $7 million with the
final payment of $7 million due on July 20, 2006. The remaining payment schedule
on the $175  million term loan  requires 18  consecutive  quarterly  payments of
$437,500 followed by three consecutive  quarterly payments of $41.1 million with
the final payment of $41.1 million due on July 20, 2008. These remaining payment
schedules reflect voluntary  prepayments made in December 2002 of $6 million and
$437,500 on the $125 million and $175 million term loans, respectively.

     The senior  secured  credit  agreement  permits  Apria to select one of two
variable  interest rates. One option is the base rate, which is expressed as the
higher of (a) the Federal Funds rate plus 0.50% or (b) the Prime Rate. The other
option is the Eurodollar rate,  which is based on the London  Interbank  Offered
Rate ("LIBOR"). Interest on outstanding balances under the senior secured credit
agreement are determined by adding a margin to the Eurodollar  rate or base rate
in effect at each interest  calculation  date.  The  applicable  margins for the
revolving  credit  facility  and the $125 million term loan are based on Apria's
leverage ratio,  which is the ratio of its funded debt to its last four quarters
of  earnings  before  interest,  taxes,   depreciation  and  amortization.   The
applicable margin ranges from 1.50% to 2.25% for Eurodollar loans and from 0.50%
to 1.25% for base rate loans.  For the $175 million  term loan,  the margins are
fixed at 2.00%  for  Eurodollar  loans and at 1.00%  for base  rate  loans.  The
effective  interest  rate at December 31, 2002 was 4.21% on total  borrowings of
$263.4 million.  The senior credit agreement also requires payment of commitment
fees ranging from 0.25% to 0.50% (also based on Apria's  leverage  ratio) on the
unused portion of the revolving credit facility.

     Borrowings under the senior secured credit facilities are collateralized by
substantially all of the assets of Apria. The credit agreement contains numerous
restrictions,  including but not limited to, covenants requiring the maintenance
of certain  financial  ratios,  limitations  on additional  borrowings,  capital
expenditures,  mergers,  acquisitions and investments, and  restrictions on cash
dividends,  loans and other  distributions.  The agreement also permits Apria to
expend a maximum of $100 million per year on acquisitions. At December 31, 2002,
the company was in compliance  with all of the financial  covenants  required by
the credit agreement.

     On December  31,  2002  outstanding  borrowings  on the two term loans were
$263.4 million and there were no borrowings under the revolving credit facility.
Outstanding  letters of credit totaled $5.2 million and credit  available  under
the revolving facility was $94.8 million.

     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 December 31, 2002, Apria had six interest rate swap agreements in effect
to fix its  LIBOR-based  variable  rate  debt.  Two of the  interest  rate  swap
agreements with an aggregate notional amount of $100 million and a fixed rate of
2.58%  terminate on March 31, 2003.  In December  2002,  Apria entered into four
additional swap agreements with terms as follows:  two two-year  agreements with
an  aggregate  notional  amount of $50  million  and a fixed  rate of  2.43%;  a
three-year  agreement with a notional  amount of $25 million and a fixed rate of
3.04%;  and a four-year  agreement  with a notional  amount of $25 million and a
fixed rate of 3.42%.  All rates are stated  before  application  of the interest
margins described above.

     The swap  agreements are being accounted for as cash flow hedges under SFAS
No. 133, "Accounting  for Derivative and Hedging  Activities."  Accordingly, the
difference  between the interest  received and interest  paid is reflected as an
adjustment to interest expense.  For 2002, Apria paid a net settlement amount of
$780,000.  Unrealized  gains and losses on the fair value of the swap agreements
are reflected,  net of taxes,  in other  comprehensive  income.  At December 31,
2002,  the  aggregate  fair  value of the swap  agreements  was a deficit  of $2
million and,  accordingly,  is reflected in the  accompanying  balance  sheet in
other accrued liabilities.  Apria does not anticipate losses due to counterparty
nonperformance  as  its  counterparties  to  the  various  swap  agreements  are
nationally-recognized financial institutions with strong credit ratings.

     TREASURY STOCK.  During 2002,  Apria  repurchased 1.6 million shares of its
common  stock  for $35  million  in open  market  transactions.  In 2000,  Apria
repurchased 86,000 shares for $958,000.  All repurchased common shares are being
held in treasury.  Apria's credit agreement  limits common stock  repurchases to
$35 million in any fiscal year and $100 million in the  aggregate  over the term
of the agreement.

     In March 2003,  Apria  announced that it would resume its stock  repurchase
program, depending on market conditions and other considerations.  Purchases may
be made through open market or privately negotiated transactions.  Through March
24,  2003,  Apria  repurchased   50,700  shares  for  $1.1  million.

     BUSINESS  COMBINATIONS.  Pursuant to one of its primary growth  strategies,
Apria  periodically  acquires  complementary  businesses in specific  geographic
markets.  These  transactions  are accounted for as purchases and the results of
operations of the acquired companies are included in the accompanying statements
of operations  from the dates of  acquisition.  In accordance with SFAS No. 142,
goodwill  is no longer  being  amortized.  Covenants  not to  compete  are being
amortized over the life of the respective agreements.

     The aggregate  consideration  for acquisitions  that closed during 2002 was
$78.3 million.  Allocation of this amount includes $55.4 million to goodwill and
$4 million to intangible  assets.  During 2001, the aggregate  consideration for
acquisitions  was $81.7  million.  Cash paid for  acquisitions,  which  includes
amounts  deferred  from prior year  acquisitions,  totaled  $74  million,  $80.3
million and $26.2 million in 2002, 2001 and 2000, respectively.

     The  success of Apria's  acquisition  strategy  is  directly  dependent  on
Apria's ability to maintain and/or  generate  sufficient  liquidity to fund such
purchases.

     FEDERAL  INVESTIGATION.  As previously  reported,  since mid-1998 Apria has
been the subject of an investigation  conducted by the U.S. Attorney's office in
Los  Angeles  and  the  U.S.  Department  of  Health  and  Human  Services.  The
investigation concerns the documentation supporting Apria's billing for services
provided  to patients  whose  healthcare  costs are paid by  Medicare  and other
federal programs.  Apria is cooperating with the government and has responded to
various document requests and subpoenas.

     Apria has been informed that the  investigation  is the result of civil qui
tam litigation  filed on behalf of the government  against Apria. The complaints
in the litigation are under seal,  however,  and the government has not informed
Apria of either the identities of the plaintiffs,  the court or courts where the
proceedings  are  pending,  the date or dates  instituted  or the factual  bases
alleged to underlie the proceedings. To date, the U.S. Attorney's office has not
informed Apria of any decision to intervene in the qui tam actions;  however, it
could reach a decision with respect to intervention at any time.

     Government  representatives  and counsel for the  plaintiffs in the qui tam
actions asserted in July 2001 that, by a process of extrapolation  from a sample
of 300 patient files to all of Apria's billings to the federal government during
the  three-and-one-half  year  sample  period,  Apria  could  be  liable  to the
government  under the False Claims Act for more than $9 billion,  consisting  of
extrapolated  overpayment  liability,  treble  damages  and  penalties  of up to
$10,000 for each allegedly false claim derived from the extrapolation.

     Apria has acknowledged that there may be errors and omissions in supporting
documentation  affecting a portion of its  billings.  However,  it considers the
assertions  and amounts  described in the preceding  paragraph to be unsupported
both legally and factually  and believes that most of the alleged  documentation
errors and  omissions  should not give rise to any  liability,  for  overpayment
refunds or otherwise.  Accordingly,  Apria believes that the claims asserted are
unwarranted  and  that  it is  in a  position  to  assert  numerous  meritorious
defenses.

     Apria  has  been  exchanging   information  and  having   discussions  with
government  representatives in an attempt to explore whether it will be possible
to resolve this matter on a basis that would be considered  fair and  reasonable
by all parties.  Apria cannot  provide any assurances as to the outcome of these
discussions,  however,  or as to the  outcome of the qui tam  litigation  in the
absence of a settlement.  Management  cannot estimate the possible loss or range
of loss that may result from these  proceedings  and  therefore has not recorded
any related accruals.

     If a judge,  jury or  administrative  agency were to  determine  that false
claims  were  submitted  to  federal  healthcare  programs  or that  there  were
significant  overpayments  by  the  government,   Apria  could  face  civil  and
administrative  claims for refunds,  sanctions  and  penalties  for amounts that
would be highly  material to its business,  results of operations  and financial
condition,  including  the  exclusion  of Apria  from  participation  in federal
healthcare programs.
<PAGE>

OFF-BALANCE SHEET ARRANGEMENTS

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

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


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

     At December 31, 2002,  Apria's term loan borrowings totaled $263.4 million.
The bank  credit  agreement  governing  the term loans  provides  interest  rate
options based on the following indices: Federal Funds Rate, Prime 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 December 31, 2002, all of
Apria's outstanding term debt was tied to LIBOR.

     In October 2001,  Apria entered into two interest rate swap agreements with
a total  notional  amount of $100  million to pay a fixed rate of 2.58%  (before
application of interest margin). These swap agreements expire March 31, 2003. In
December 2002, Apria entered into four additional  interest rate swap agreements
with a total  notional  amount of $100  million to pay fixed rates  ranging from
2.43% to 3.42% (before  application  of interest  margin).  The terms of the new
swap agreements range from two to four years.

     Based on the term  debt  outstanding  and the swap  agreements  in place at
December 31, 2002, a 100 basis point  change in the  applicable  interest  rates
would  increase or  decrease  Apria's  annual  cash flow and pretax  earnings by
approximately  $630,000. See "Management's  Discussion and Analysis of Financial
Condition and Results of Operations - Long-term Debt - Hedging Activities."


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The Independent  Auditors'  Report and  Consolidated  Financial  Statements
listed  in  the  "Index  to  Consolidated  Financial  Statements  and  Financial
Statement Schedule" are filed as part of this report.


ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

     None.
<PAGE>

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

EXECUTIVE OFFICERS

     Information  regarding  Apria's  executive  officers is set forth under the
caption "Executive Officers" in Item 1 hereof.

DIRECTORS

     Set  forth in the  table  below are the  names,  ages and past and  present
positions of the persons serving as Apria's  Directors as of March 14, 2003. The
term of each Director expires in 2003.
<TABLE>
<CAPTION>
                                                      BUSINESS EXPERIENCE DURING LAST                      DIRECTOR
  NAME AND AGE                                          FIVE YEARS AND DIRECTORSHIPS                        SINCE
  ------------                                          ----------------------------                        -----
<S>                                   <C>                                                                   <C>
  Ralph V. Whitworth, 47              Chairman of the Board of  Directors  of Apria  since 1998.  Mr.       1998
                                      Whitworth is  a principal and  Managing  Member  of  Relational
                                      Investors LLC, a  private  investment  company. He  is   also a
                                      principal in  Relational  Advisors  LLC,  a  financial advisory
                                      and  investment-banking firm  based  in  San Diego, California,
                                      which is  registered  as  a  broker-dealer  under Section 15(b)
                                      of the  Securities  Exchange  Act of 1934 and a  member  of the
                                      National Association of Securities Dealers, Inc.  Mr. Whitworth
                                      is also a Director  of Mattel, Inc.  and  Waste Management, Inc.

  Vicente Anido, Jr., 50              President,  Chief  Executive  Officer and  a Director  of  ISTA       2002
                                      Pharmaceuticals,  Inc.,  an ophthalmic  pharmaceutical  company
                                      located  in  Irvine,  California,   since  December  2001.   He
                                      previously  served  as  General  Partner  of  Windamere Venture
                                      Partners,  a  medical  communications  company,  from  2000  to
                                      2002.  From  1996 to 1999 he  served  as  President  and  Chief
                                      Executive Officer of CombiChem, Inc., a drug discovery company.

  I.T. Corley, 57                     Chairman  of  the  Board   of  Directors,  President and  Chief       2003
                                      Executive  Officer  of  Strategic  Materials,  Inc. since 1995.
                                      Strategic  Materials,  Inc. is  a  large, privately-owned glass
                                      recycler.

  David L. Goldsmith, 54              Managing  Director of RS Investment  Management,  an investment       1987*
                                      management  firm,  since  February  1999. He served as Managing
                                      Director  of  Robertson,  Stephens  Investment  Management,  an
                                      investment  management  firm,  in 1998 and  1999.

  Lawrence M. Higby, 57               President  and  Chief  Executive  Officer  and  a  Director  of       2002
                                      Apria.  From 1997  until  his  appointment  as Chief  Executive
                                      Officer,  Mr.  Higby  served  as  Apria's  President  and Chief
                                      Operating  Officer.  Mr.  Higby also  served as  Apria's  Chief
                                      Executive  Officer on an interim basis from January through May
                                      1998.

-----------------------------------
* Director of Homedco  Group  Inc., from 1987 until the June 1995 merger  with Abbey Healthcare
  Group Inc. which formed Apria. Director of Apria from the date of the merger until the present.
</TABLE>
<page>
<TABLE>
<CAPTION>
                                                       BUSINESS EXPERIENCE DURING LAST                     DIRECTOR
  NAME AND AGE                                          FIVE YEARS AND DIRECTORSHIPS                        SINCE
  ------------                                          ----------------------------                        -----
<S>                                   <C>                                                                   <C>
Richard H. Koppes, 56                 Of Counsel to Jones,  Day,  Reavis & Pogue,  a law firm,  and a       1998
                                      Co-Director  of  Education  Programs  at  Stanford   University
                                      School  of Law.  He is a member of the  Board of  Directors  of
                                      ICN   Pharmaceuticals,   Inc.  He  served  as  a  principal  of
                                      American   Partners   Capital  Group,  a  venture  capital  and
                                      consulting firm, from 1996 to 1998.

Philip R. Lochner, Jr., 60            Senior Vice  President - Chief  Administrative  Officer of Time       1998
                                      Warner Inc. (now AOL Time Warner Inc.) from 1991 to 1998. He is
                                      a  member  of  the  Advisory  Council   of  Republic  New  York
                                      Corporation  and is also a  Director  of Clarcor,  Inc.,  GTech
                                      Holdings Corp. and Solutia Inc.

Jeri L. Lose, 45                      Vice President,  Information  Technology and Chief  Information       2002
                                      Officer of St. Jude Medical,  Inc., a  manufacturer  of cardiac
                                      medical  devices  since  1999.  Previously,  she served as Vice
                                      President, Systems  Development  at U.S. Bancorp  in St.  Paul,
                                      Minnesota from 1993 to 1999.

Beverly Benedict Thomas, 60           Managing  Partner  of Thomas  Consulting  Group  (formerly  BBT       1998
                                      Strategies),  a consulting firm  specializing in public affairs
                                      and strategic planning.

</TABLE>

COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT BY CERTAIN COMPANY AFFILIATES

     Section 16(a) of the Exchange Act requires Apria's  Directors and executive
officers,  and  persons who own more than 10% of a  registered  class of Apria's
equity  securities,  to file reports of ownership and changes in ownership  with
the Securities and Exchange  Commission  and The New York Stock  Exchange,  Inc.
Directors,  executive officers and greater than 10% stockholders are required by
the Securities and Exchange Commission to furnish the company with copies of the
reports they file.

     Based  solely on its  review  of the  copies of such  reports  and  written
representations  from certain  reporting  persons that certain  reports were not
required  to be filed by such  persons,  the  company  believes  that all of its
Directors,  executive  officers and greater than 10% beneficial  owners complied
with all filing  requirements  applicable  to them with respect to  transactions
during the 2002 fiscal year.
<PAGE>

ITEM 11. EXECUTIVE COMPENSATION

SUMMARY OF EXECUTIVE COMPENSATION

     The following  table sets forth all  compensation  for the 2002,  2001, and
2000 fiscal years paid to or earned by Apria's Chief  Executive  Officer and the
three other executive  officers of the company who were serving in such capacity
as of December 31, 2002, as well as George J. Suda, Michael J. Keenan and Philip
L. Carter.
<TABLE>
<CAPTION>


                                               SUMMARY COMPENSATION TABLE
-------------------------------------------------------------------------------------------------------------------

                                               ---------------------     -------------------------
                                               ANNUAL COMPENSATION       LONG-TERM COMPENSATION(1)
                                               ---------------------     -------------------------
                                                                           OPTIONS        LTIP         ALL OTHER
                                               SALARY(2)     BONUS         GRANTED      PAYOUTS(3)    COMPENSATION
NAME                                 YEAR         ($)         ($)            (#)           ($)             ($)
-----------------------------------  ----      ---------   ---------     ------------   ----------   --------------
<S>                                  <C>        <C>         <C>           <C>           <C>          <C>
Lawrence M. Higby.................   2002       593,716     600,000       100,000           --         2,831,619 (6)
  President and Chief Executive      2001       463,010     460,000       300,000(5)        --             3,313 (7)
  Officer (4)                        2000       443,553     285,224        40,000(5)      440,000          3,330 (7)

Lawrence A. Mastrovich............   2002       250,686     375,000       200,000           --           144,764(10)
  Chief Operating Officer (8)        2001       184,003       --           75,000(5)(9)     --         1,952,782(11)
                                     2000       196,675     123,165        30,000(5)      190,000        115,685(12)

James E. Baker....................   2002       228,340     225,000        15,000(5)        --             5,500 (7)
  Chief Financial Officer            2001       164,191     111,563        50,000           --           229,874(13)
                                     2000       150,243      29,847        10,000(5)        --           452,391(14)

Anthony S. Domenico...............   2002       225,646     225,000        20,000(5)        --            11,158(16)
  Executive Vice President,          2001        57,425       --           75,000           --              --
  Sales (15)                         2000         --          --             --             --              --

Michael J. Keenan.................   2002       227,893     209,700        20,000(5)        --           751,226(18)
  Executive Vice President,          2001       205,725     163,795        40,000(5)        --             3,313 (7)
  Business Operations (17)           2000       184,880       --           15,000(5)      178,880        442,892(19)

George J. Suda....................   2002       252,504     250,000        20,000(5)        --           750,519(21)
  Executive Vice President,          2001       233,024     230,000        75,000(5)        --             3,313 (7)
  Information Services (20)          2000       218,186     136,130        20,000(5)      210,061          3,330 (7)

Philip L. Carter..................   2002       253,170       --             --             --        16,550,470(23)
  Chief Executive Officer (22)       2001       691,916     680,000       500,000(5)        --             3,313 (7)
                                     2000       661,538     421,354        75,000(5)      680,000          3,330 (7)


(1)   Apria has not issued stock appreciation rights or restricted stock awards.

(2)   These  amounts  include an automobile  allowance  which is paid as salary.
      Salary is paid on the basis of  bi-weekly  pay  periods,  with payment for
      each period being made during the week following its  termination.  Due to
      the fact that some years contain payment dates for pay periods which begin
      or end in other  years,  amounts  reported as salary paid for a particular
      year may vary  slightly  from the actual  amounts of the  salaries  of the
      executive officers listed above.

(3)   Payments under a two-year incentive plan adopted by the Board of Directors
      in December  1998.  Includes  payments  made in 2001 but  allocable to the
      1999-2000 period covered by the plan.

(4)   Mr. Higby was appointed  Chief  Executive  Officer upon the resignation of
      Philip L. Carter on February 12, 2002. Prior to that time he had served as
      the company's Chief Operating Officer since 1997.

(5)   Option  grant for 2000  approved by the  company's  Board of  Directors in
      October 1999 but not  effective and not fixed as to price until January 3,
      2000.  Option grant for 2001 approved by the company's  Board of Directors
      in October 2000 but not  effective and not fixed as to price until January
      2,  2001.  Option  grant  for  2002  approved  by the  company's  Board of
      Directors in October  2001,  but not  effective  and not fixed as to price
      until January 2, 2002.

(6)   $5,500 annual  contribution by Apria to the company's  401(k) Savings Plan
      in the name of the  individual  and  $2,826,119  in net proceeds  from the
      exercise of employee stock options.

(7)   Annual  contribution by Apria to the company's  401(k) Savings Plan in the
      name of the  individual.

(8)   Mr.  Mastrovich  served as an  Executive  Vice  President  for the company
      during 2000 and 2001 until his resignation on August 8, 2001.  Thereafter,
      he was hired as the company's Chief Operating  Officer  effective April 4,
      2002.

(9)   Options  cancelled  prior to  vesting  when Mr.  Mastrovich  left Apria in
      August 2001.

(10)  $2,134 annual  contribution by Apria to the company's  401(k) Savings Plan
      in the name of the individual and $142,630 relocation assistance payment.

(11)  $1,952,782 in value realized from the exercise of employee stock options.

(12)  $4,285 annual  contribution by Apria to the company's  401(k) Savings Plan
      in the  name of the  individual  and  $111,400  in net  proceeds  from the
      exercise of employee stock options.

(13)  $4,182 annual  contribution by Apria to the company's  401(k) Savings Plan
      in the name of the  individual  and  $225,692 in value  realized  from the
      exercise of employee stock options.

(14)  $3,330 annual  contribution by Apria to the company's  401(k) Savings Plan
      in the name of the  individual  and  $449,061 in value  realized  from the
      exercise of employee stock options.

(15)  Mr. Domenico was hired as the company's  Executive Vice President,  Sales,
      in August, 2001.

(16)  $5,500 annual contribution  by Apria  to the company's 401(k) Savings Plan
      the name of the individual and $5,658 relocation assistance payment.

(17)  Effective July 18, 2002, Mr.  Keenan's  position was  reclassified  by the
      Board of  Directors  so that he is no longer  deemed  to be an  "executive
      officer" for Securities and Exchange Commission reporting purposes.

(18)  $5,500 annual  contribution by Apria to the company's  401(k) Savings Plan
      in the  name of the  individual  and  $745,726  in net  proceeds  from the
      exercise of employee stock options.

(19)  $3,330 annual  contribution by Apria to the company's  401(k) Savings Plan
      in the name of the  individual  and  $439,562 in value  realized  from the
      exercise of employee stock options.

(20)  Effective July 18, 2002, Mr. Suda's position was reclassified by the Board
      of Directors so that he is no longer deemed to be an  "executive  officer"
      for Securities and Exchange Commission reporting purposes.

(21)  $5,500 annual  contribution by Apria to the company's  401(k) Savings Plan
      in the  name of the  individual  and  $745,019  in net  proceeds  from the
      exercise of employee stock options.

(22)  Mr. Carter resigned from the company on February 12, 2002.

(23)  $12,729,973  in net proceeds  from the exercise of employee  stock options
      and  $2,667,687  in payments  under an  Employment  Agreement  between Mr.
      Carter and the company and $1,152,810 in payments under a  Non-competition
      Agreement between Mr. Carter and the company.
</TABLE>
<PAGE>


SUMMARY OF OPTION GRANTS

     The following table provides  information with respect to grants of options
in 2002 to  Apria's  Chief  Executive  Officer  and the  three  other  executive
officers  of the company who were  serving in such  capacity as of December  31,
2002, as well as Michael J. Keenan,  George J. Suda and Philip L. Carter.  These
amounts and  calculations  include options approved in 2001 which did not become
effective  until January 1, 2002,  but do not include  options  approved in 2002
which did not become effective until 2003.
<TABLE>
<CAPTION>
                                                    OPTION GRANTS TABLE
------------------------------------------------------------------------------------------------------------------
                                                                                           POTENTIAL REALIZABLE
                              NUMBER OF                                                    VALUE AT ACCRUAL RATE
                              SECURITIES      % OF TOTAL                    EXPIRATION     OF STOCK APPRECIATION
                              UNDERLYING    OPTIONS GRANTED                   DATE OF       FOR OPTION TERM ($)
                               OPTIONS      TO EMPLOYEES IN    EXERCISE       OPTIONS     ------------------------
NAME                           GRANTED        FISCAL YEAR      PRICE ($)      GRANTED         5%           10%
---------------------------  -----------    ---------------   -----------   -----------   -----------  -----------
<S>                            <C>                <C>            <C>          <C>          <C>          <C>
Lawrence M. Higby              100,000            7.1%           22.70        3/08/12      1,427,591    3,617,795
Lawrence A. Mastrovich         200,000           14.1%           24.18        4/03/12      3,041,334    7,707,339
James E. Baker                  15,000            1.1%           24.01        1/02/12        226,496      573,986
Anthony S. Domenico             20,000            1.4%           24.01        1/02/12        301,995      765,315
Michael J. Keenan               20,000            1.4%           24.01        1/02/12        301,995      765,315
George J. Suda                  20,000            1.4%           24.01        1/02/12        301,995      765,315
Philip L. Carter                   --              --              --           --             --            --
</TABLE>


SUMMARY OF OPTIONS EXERCISED

     The following  table provides  information  with respect to the exercise of
stock options during the 2002 fiscal year by Apria's Chief Executive Officer and
the three other  executive  officers  of the  company  who were  serving in such
capacity as of December  31, 2002,  as well as by Michael J.  Keenan,  George J.
Suda  and  Philip  L.  Carter,  together  with  the  fiscal  year-end  value  of
unexercised options.
<TABLE>
<CAPTION>

                   AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUE
-------------------------------------------------------------------------------------------------------------
                                                          NUMBER OF SECURITIES
                                                         UNDERLYING UNEXERCISED      VALUE OF UNEXERCISED IN-
                                                              OPTIONS AT               THE-MONEY OPTIONS AT
                               SHARES                       FISCAL YEAR-END             FISCAL YEAR-END(1)
                            ACQUIRED ON     VALUE       -------------------------   -------------------------
                              EXERCISE     REALIZED     EXERCISABLE/UNEXERCISABLE   EXERCISABLE/UNEXERCISABLE
                            -----------   -----------   -------------------------   -------------------------
NAME                            (#)            ($)             (#)  /  (#)                ($)  /  ($)
------------------------    -----------   -----------   -------------------------   -------------------------
<S>                           <C>          <C>               <C>     <C>              <C>       <C>
Lawrence M. Higby             190,000      2,826,119         331,666/368,334          1,956,596/372,279
Lawrence A. Mastrovich           --           --                --  /200,000               --  /  --
James E. Baker                   --           --              25,799/51,668             123,931/65,013
Anthony S. Domenico              --           --              25,000/70,000                --  /  --
Michael J. Keenan              45,000        745,726          26,633/51,667              69,080/26,512
George J. Suda                 53,333        745,019          25,000/76,667                --  /35,352
Philip L. Carter              800,000     12,729,973            --  /  --                  --  /  --
------------------------
(1) Market value of the securities underlying the options at year-end, minus the
    exercise or  base price  of "in-the-money" options. The  market  value of  a
    share of Apria's  common  stock at the close of  trading on the last trading
    day of 2002 (December 31) was $22.24.
</TABLE>
<PAGE>

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     During 2002, no member of the Compensation  Committee was either an officer
or an employee of the company.


DIRECTORS' FEES

     All  Directors of Apria are  reimbursed  for their  out-of-pocket  expenses
incurred in connection  with  attending  Board and related  Committee  meetings.
During  2002,  all  non-employee  Directors  received:  (i)  $1,000 per Board or
Committee  meeting  attended  in person  ($2,000 per  Committee  meeting for the
Director  who is the  Committee's  chairperson)  and  (ii)  $500  per  Board  or
Committee  meeting attended via telephone.  In addition,  for services  rendered
during  2002,  the  non-employee  Chairman of the Board was granted an option to
purchase  25,000  shares  of  the  company's   common  stock,   and  each  other
non-employee  Director  was granted an option to  purchase  15,000  shares.  The
options are  granted at a purchase  or  exercise  price equal to the fair market
value on the date of grant.


EMPLOYMENT AND SEVERANCE AGREEMENTS

     Apria has employment  agreements,  nondisclosure/noncompetition  agreements
and/or  severance  agreements  with the following  executive  officers and other
persons listed in the Summary Compensation Table.

     LAWRENCE M. HIGBY. Pursuant to an Amended and Restated Employment Agreement
which became effective  February 12, 2002, Mr. Higby serves as Apria's President
and Chief Executive Officer. The Agreement provides that Mr. Higby is to receive
an annual  salary of $600,000,  subject to increases  at the  discretion  of the
company's Board of Directors or its Compensation  Committee.  Mr. Higby's annual
salary is being  increased  to $700,000 as of April 1, 2003.  Mr.  Higby is also
entitled to  participate in Apria's  annual bonus,  incentive,  401(k) and other
benefit programs generally  available to executive officers of the company.  The
agreement  also provides for (i) reasonable  access to accountants  for personal
financial planning, (ii) an automobile allowance, (iii) reimbursement of certain
other expenses and (iv) an indemnification of Mr. Higby on an after-tax basis in
the event he incurs an excise tax under  Section  4999 of the  Internal  Revenue
Code.

     The  company  also has  entered  into a  Nondisclosure  and  Noncompetition
Agreement  with Mr.  Higby  pursuant  to which,  if the company  terminates  Mr.
Higby's  employment  without cause, or if he terminates his employment with good
reason  (including  upon a change in  control),  Mr.  Higby shall be entitled to
receive cash  payments in exchange  for the  performance  of certain  agreements
pertaining  to  nondisclosure  and  noncompetition  following  the  termination.
Payments under the Nondisclosure and Noncompetition Agreement are required to be
made in 52 equal weekly installments following the termination, and shall equal,
in the aggregate, three times the sum of (i) his annual salary, (ii) the average
of his two most recent annual bonuses, (iii) his annual car allowance,  and (iv)
an additional  amount equal to the average annual cost for company  employees of
obtaining  certain  post-employment  medical  insurance.  The  company  shall be
required  to provide an office and  secretarial  support at a cost not to exceed
$50,000 during the year following such a termination.  In addition,  the 150,000
share  stock  option  grant  issued to Mr.  Higby in  January  1998 will  remain
exercisable for a period of three years following such termination.

     LAWRENCE A. MASTROVICH.  Pursuant to an Employment Agreement dated April 4,
2002,  Mr.  Mastrovich  serves as the company's  Chief  Operating  Officer.  The
Agreement initially has a two-year term that is extended one day for each day of
Mr. Mastrovich's  employment during its term. The Agreement may be terminated at
any time by the company or by Mr.  Mastrovich.  The Agreement  provides that Mr.
Mastrovich's  salary shall be at least $375,000.  Mr. Mastrovich's annual salary
is being  increased to $450,000 as of April 1, 2003. Mr.  Mastrovich is entitled
to  participate  in Apria's  annual bonus,  incentive,  401(k) and other benefit
programs generally  available to executive  officers of the company.  He is also
entitled to receive  reimbursement  of certain  other  expenses at the company's
discretion. If the company terminates Mr. Mastrovich's employment without cause,
or if he  terminates  his  employment  with good reason,  Mr.  Mastrovich  shall
receive a lump sum payment  equal to his annual  salary and car  allowance  that
would have been payable  through the remaining  two-year term of the  agreement,
plus two times the sum of (i) the average of his two most recent annual  bonuses
and (ii) the average  annual cost for company  employees  of  obtaining  certain
post-employment  medical  insurance.  The  Agreement  also  contains  provisions
designed to  indemnify  Mr.  Mastrovich  on an  after-tax  basis in the event he
incurs an excise tax under Section 4999 of the Internal Revenue Code.

     JAMES E. BAKER. In June 1997, Mr. Baker entered into an executive severance
agreement with the company.  Pursuant to that  agreement,  Mr. Baker serves in a
position  and  undertakes  duties at Apria's  discretion.  Currently,  Mr. Baker
serves as Apria's  Chief  Financial  Officer.  The  agreement  provides that Mr.
Baker's  salary  shall be at the  company's  discretion.  His  annual  salary is
currently  $225,000 and will increase to $239,000 as of April 1, 2003. Mr. Baker
is entitled to  participate  in Apria's stock option plans and all other benefit
programs  generally  available  to  executive  officers  of the  company  at the
company's  discretion.  He is also  entitled to bonuses in  accordance  with the
bonus plans from time to time in effect for Apria's executives and reimbursement
of certain expenses at the company's  discretion.  If the company terminates his
employment  without cause,  or if he terminates his employment with good reason,
Mr.  Baker is  entitled  to  receive  severance  pay equal to the sum of (i) his
annual salary, (ii) the average of his two most recent annual bonuses, (iii) his
annual car allowance and (iv) an additional  amount equal to the average  annual
cost  for  company  employees  of  obtaining  certain   post-employment  medical
insurance.  However,  in the  event  that such  termination  occurs  during  the
two-year period following a change in control,  Mr. Baker is entitled to receive
severance pay equal to two times that amount.  Such payments shall be payable in
periodic installments over one or two years, as applicable.

     ANTHONY S. DOMENICO.  In May 2002, Mr.  Domenico  entered into an executive
severance  agreement  with the company.  A recent  amendment  to that  agreement
became effective March 18, 2003. Pursuant to that agreement, Mr. Domenico serves
in a position  and  undertakes  duties at  Apria's  discretion.  Currently,  Mr.
Domenico  serves as Apria's  Executive  Vice  President,  Sales.  The  agreement
provides that Mr.  Domenico's salary shall be at the company's  discretion.  His
annual salary is currently $225,000 and will increase to $250,000 as of April 1,
2003. Mr.  Domenico is entitled to participate in Apria's stock option plans and
all other  benefit  programs  generally  available to executive  officers of the
company  at  the  company's  discretion.  He is  also  entitled  to  bonuses  in
accordance  with  the  bonus  plans  from  time to time in  effect  for  Apria's
executives and reimbursement of certain expenses at the company's discretion. If
the company  terminates  his employment  without cause,  or if he terminates his
employment with good reason,  Mr. Domenico is entitled to receive  severance pay
equal to two times the sum of (i) his annual salary, (ii) the average of his two
most  recent  annual  bonuses,  (iii)  his  annual  car  allowance  and  (iv) an
additional  amount  equal to the average  annual cost for company  employees  of
obtaining  certain  post-employment  medical  insurance.  Such payments shall be
payable in periodic installments over two years.

     MICHAEL J.  KEENAN.  In June 1997,  Mr.  Keenan  entered  into an executive
severance  agreement with the company.  Pursuant to that  agreement,  Mr. Keenan
serves in a position and undertakes duties at Apria's discretion. Currently, Mr.
Keenan serves as Apria's  Executive Vice  President,  Business  Operations.  The
agreement   provides  that  Mr.  Keenan's  salary  shall  be  at  the  company's
discretion.  His  annual  salary is  currently  $225,000  and will  increase  to
$235,000 as of April 1, 2003.  Mr. Keenan is entitled to  participate in Apria's
stock  option  plans and all  other  benefit  programs  generally  available  to
executive  officers  of the  company  at the  company's  discretion.  He is also
entitled  to bonuses  in  accordance  with the bonus  plans from time to time in
effect for  Apria's  executives  and  reimbursement  of certain  expenses at the
company's discretion. If the company terminates his employment without cause, or
if he  terminates  his  employment  with good reason,  Mr. Keenan is entitled to
receive  severance  pay  equal  to the sum of (i) his  annual  salary,  (ii) the
average of his two most recent  annual  bonuses,  (iii) his annual car allowance
and (iv) an  additional  amount  equal to the  average  annual  cost for company
employees of obtaining certain post-employment medical insurance.  Such payments
shall be payable in periodic installments over one year.

     GEORGE J. SUDA. In March 2000, Mr. Suda entered into an executive severance
agreement  with the company.  Pursuant to that  agreement,  Mr. Suda serves in a
position and undertakes duties at the company's discretion.  Currently, Mr. Suda
serves as Apria's Executive Vice President,  Information Services. The agreement
provides that Mr. Suda's salary shall be at the company's discretion. His annual
salary is currently  $250,000 and will increase to $280,000 as of April 1, 2003.
Mr. Suda is entitled to  participate in Apria's stock option plans and all other
benefit programs generally available to executive officers of the company at the
company's discretion.  He is also entitled to receive bonuses in accordance with
the  bonus  plans  from  time to time  in  effect  for  Apria's  executives  and
reimbursement  of  certain  expenses  at  the  company's  discretion.  If  Apria
terminates his employment without cause, or if he terminates his employment with
good reason (including upon a change in control), Mr. Suda is entitled to a lump
sum  payment  equal to two  times  the sum of (i) his  annual  salary,  (ii) the
average of his two most recent  annual  bonuses,  (iii) his annual car allowance
and (iv) an  additional  amount  equal to the  average  annual  cost for company
employees of obtaining certain post-employment medical insurance.  The Agreement
also contains provisions designed to indemnify Mr. Suda on an after-tax basis in
the event he incurs an excise tax under  Section  4999 of the  Internal  Revenue
Code.

     PHILIP L. CARTER.  Mr.  Carter served as Apria's  Chief  Executive  Officer
during 2001,  but resigned on February 12, 2002.  Pursuant to a Resignation  and
General Release  Agreement which became effective  February 12, 2002, Mr. Carter
received two payments during  February in the respective  amounts of $61,333 and
$2,606,354.  Mr.  Carter  has also  received  $1,303,177  under  the  terms of a
Nondisclosure  and  Noncompetition  Agreement  pursuant to which Mr.  Carter was
entitled to receive  cash  payments in exchange for the  performance  of certain
agreements   pertaining  to  nondisclosure  and  noncompetition   following  his
resignation.  The  relevant  agreements  also  contain  provisions  designed  to
indemnify Mr. Carter on an after-tax  basis in the event he incurs an excise tax
under Section 4999 of the Internal Revenue Code.
<PAGE>

                      REPORT OF THE COMPENSATION COMMITTEE
--------------------------------------------------------------------------------
TO:  THE BOARD OF DIRECTORS

     The Compensation  Committee oversees Apria's overall  compensation  program
for its senior and mid-level management. In addition, the Compensation Committee
evaluates the performance and  specifically  establishes the compensation of the
Chief Executive  Officer.  The Compensation  Committee is comprised  entirely of
independent Directors who are not officers or employees of Apria.

COMPENSATION PHILOSOPHY AND PROGRAM FOR SENIOR MANAGEMENT

     During  2002,  Apria's  compensation  program for  executive  officers  was
designed to:

     -  reward  each  member  of  senior  management   commensurately  with  the
        company's overall growth and financial performance;
     -  attract and retain individuals who are capable of leading the company in
        achieving  its  business  objectives  in an  industry  characterized  by
        competitiveness, growth and change; and
     -  encourage ownership of Apria's stock by executive officers.

     The company  believes a substantial  portion of the annual  compensation of
each  member of senior  management  should  relate to, and should be  contingent
upon,  the financial  success of the company.  As discussed  below,  the program
consists of, and is intended to strike a balance among, three elements:

     -  Salaries. Salary for the Chief Executive Officer is based principally on
        the  Committee's   evaluation  of  individual  job  performance  and  an
        assessment  of the  salaries  and total  compensation  mix paid by other
        similar companies to executive  officers holding  equivalent  positions.
        The  salaries  for all other  executive  officers  are  approved  by the
        Compensation  Committee  pursuant to  recommendations  made by the Chief
        Executive Officer on the basis of similar criteria.

     -  Executive   Bonuses.   Executive  bonuses  are  primarily  based  on  an
        evaluation of company  performance  against qualitative and quantitative
        measures.

     -  Long-term  Incentive  Compensation.  Long-term  incentive awards such as
        stock options or grants of restricted  stock are also designed to insure
        that incentive  compensation  is linked to the long-term  performance of
        Apria and its common stock.

     In recent years,  the Committee's  overall  compensation  strategy has been
adjusted so that one-half of the total cash  compensation  earnable by executive
officers  consists of bonuses based on the achievement of company  financial and
operating  objectives and individual  performance  objectives.  Stock options or
restricted  stock will also  continue  to  represent  a  significant  portion of
executive  compensation  if managerial  efforts result in continued  stock price
increases.

     In 2003, the Compensation  Committee and the Board of Directors established
new Stock Ownership Requirements for all members of senior management. Under the
Requirements,  each senior officer must, within the next five years, acquire and
hold shares of Apria  common stock with a total value at least  equivalent  to a
target level of  ownership.  The targets  range from  one-and-one-half  to three
times base  salary,  depending  on the  officer's  position.  All stock  options
granted in 2003 and the future will  require a one-year  holding  period for the
"net" shares received upon exercise (after deduction of shares sold to pay taxes
and the option exercise price),  even if the officer has achieved the applicable
target level of ownership. For officers not yet in compliance with their target,
only  one-half of the net  after-tax  shares may be sold  following the one-year
holding period. The remaining option shares,  together with at least one-half of
all Apria shares  presently  held by such senior  officers,  must continue to be
held as an investment in the company.

FACTORS AFFECTING THE EVALUATION OF EXECUTIVE PERFORMANCE FOR 2002

     During  2002,  the  company  continued  to  pursue  a  plan  for  achieving
profitable operating results through the following principal elements:

     -  maintaining focus on existing service offerings  and increasing emphasis
        on home respiratory therapy;
     -  supplementing internal growth with selective acquisitions; and
     -  reducing costs and enhancing margins and cash flows.

     As those  objectives  have been and  continue  to be  achieved,  management
continues  to place  emphasis  on sales  and  operations  as well as  compliance
issues.  Members of senior  management have been asked to adapt their activities
so as to achieve the benefits sought by the foregoing  strategies.  Accordingly,
members of senior management were and continue to be evaluated in light of their
contributions toward achievement of the objectives  established by the new Chief
Executive Officer and the Board.  Future compensation for senior management will
continue  to be based in large  part on the  company's  ability  to  effectively
develop and implement  strategies that enable Apria to achieve those  objectives
and enhance stockholder value.

2002 TOTAL COMPENSATION FOR THE CHIEF EXECUTIVE OFFICER

     Lawrence M. Higby.  When Mr. Higby  became the  company's  Chief  Executive
Officer,  the Committee  designed a compensation  plan which was consistent with
that provided to the company's other  executive  officers.  However,  although a
significant  portion of Mr. Higby's 2002 compensation  consisted of a bonus plan
based  largely on company  performance,  the  Committee did not rely entirely on
predetermined  formulas  or a limited  set of  criteria  when it  evaluated  the
performance of the company's Chief Executive Officer. The Committee considered:

     -  management's overall accomplishments;
     -  Mr. Higby's individual accomplishments;
     -  the company's financial performance; and
     -  other criteria discussed below.

     The Committee designed a compensation  package for Mr. Higby which provided
a competitive  salary with the potential of significant  bonus plan compensation
in the event the company  performed  well under his  leadership.  For 2002,  Mr.
Higby's  annual  salary  level as Chief  Executive  Officer was $600,000 and his
total bonus  compensation was $600,000.  This bonus award was the maximum amount
payable  under the bonus  plan.  Of the  award,  80% was based on the  company's
achievement of certain financial objectives related to earnings before interest,
taxes,  depreciation  and  amortization  ("EBITDA"),  earnings per share and net
revenue,  with a lesser element (20%) paid on recommendation of the Compensation
Committee based on the  implementation  of certain  strategic  initiatives.  All
performance  targets and goals concerning the implementation of initiatives were
met or exceeded. Mr. Higby's long-term compensation package was also designed to
couple his interests with those of Apria's  stockholders,  including  options to
purchase up to 100,000  shares of Apria's  common stock at an exercise  price of
$22.70 per share  granted to Mr.  Higby upon his  promotion  to Chief  Executive
Officer.  As an executive  officer,  Mr.  Higby is subject to the newly  enacted
Stock Ownership  Requirements with a target ownership level equal to three times
his base salary.

     Philip L.  Carter.  Philip L.  Carter was  replaced by Lawrence M. Higby as
Apria's Chief  Executive  Officer on February 12, 2002. The bulk of Mr. Carter's
2002  compensation was paid to him pursuant to a Resignation and General Release
Agreement.

EXECUTIVE OFFICER SALARIES

     In  setting  salaries,  the first  element  of the  executive  compensation
program,  the Committee did not use a predetermined  formula.  Instead, the 2002
salaries of the Chief Executive  Officer and the other  executive  officers were
based on:

     -  the Committee's evaluation of individual job performance;
     -  an assessment of the company's performance; and
     -  a  consideration  of salaries  paid by similar  companies  to  executive
        officers holding equivalent positions.

     Lawrence M. Higby. During 2002 Mr. Higby's salary was increased to $600,000
upon his promotion to Chief Executive Officer.

     Philip L. Carter.  The amount  received by Mr.  Carter as salary in 2002 is
shown in the "Salary" column of the Summary  Compensation  Table.  The Committee
felt the salary was justified  due to the fact that the company's  profitability
had continued to improve.

     Other Executive Officers. The 2002 salaries of the other executive officers
are shown in the "Salary" column of the Summary Compensation Table.
<PAGE>

EXECUTIVE OFFICER BONUSES

     Bonuses for all executive  officers  were awarded under the 2002  Executive
Officer Incentive  Compensation  Plan, a plan adopted to provide certain members
of senior management with significant bonus  compensation (up to the full amount
of each  officer's 2002 salary) upon the  achievement of improved  financial and
operating performance levels for the 2002 fiscal year and the achievement of key
individual performance objectives by the executives.

     The  target  levels of  performance  as well as the  individual  objectives
established  in the 2002  Executive  Officer  Incentive  Compensation  Plan were
achieved,  and the resulting 2002 bonus payments to Mr. Higby and the other most
highly  compensated  executive officers of the company are listed in the "Bonus"
column of the Summary  Compensation Table.  Because publication of sensitive and
proprietary  quantifiable  targets and other  specific goals for the company and
its executive officers could place the company at a competitive disadvantage, it
has  not  been  the  company's  practice  to  disclose  the  specific  financial
performance  target  levels  set  forth  in its  incentive  compensation  plans.
However,  the actual  results for each of the  quantifiable  target  factors are
publicly available and reflect an increase in 2002 net revenues of approximately
10.6% ($120,281,000) over the 2001 level. In addition, EBITDA (after adjustments
for unusual events and changes in accounting  rules)  increased by approximately
14.3%  ($37,497,000)  and  similarly  adjusted  earnings per share  increased by
approximately 30% ($0.43 per share) over 2001 levels.

EXECUTIVE OFFICER LONG-TERM INCENTIVE COMPENSATION

     As noted above,  the company  provided  long-term  compensation  to certain
members of senior and mid-level  management under various stock incentive plans.
The stock  incentive  plans provide the company with the ability to periodically
reward key employees,  including  executive  officers,  with options to purchase
shares of the company's common stock.

     The  value  of  stock  options  is tied to the  future  performance  of the
company's  common stock and provides  value to the recipient only when the price
of the company's common stock increases above the option grant price.

     Mr. Higby and some of the other  executive  officers  received stock option
grants  as a part of their  2002  compensation,  which  grants  are shown in the
"Options Granted" column of the Summary Compensation Table.

TAX TREATMENT OF STOCK OPTIONS

     The Compensation  Committee has considered the anticipated tax treatment to
the company  regarding  the  compensation  and  benefits  paid to the  executive
officers  of the  company in light of the  enactment  of  Section  162(m) of the
United States Internal  Revenue Code. The basic  philosophy of the  Compensation
Committee is to strive to provide the  executive  officers of the company with a
compensation  package which will preserve the deductibility of such payments for
the  company  to  the  greatest  extent  possible.  However,  certain  types  of
compensation  payments and their deductibility  (e.g., the spread on exercise of
non-qualified  options) depend upon the timing of an executive officer's vesting
or exercise of  previously  granted  rights.  Moreover,  interpretations  of and
changes in the tax laws and other factors  beyond the  Compensation  Committee's
control  may  affect the  deductibility  of certain  compensation  payments.  In
addition, in order to attract and retain qualified management personnel,  it has
sometimes proven necessary to grant certain long-term incentives that may not be
deductible under Section 162(m) of the Code.


Date:  March 21, 2003


THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
Philip R. Lochner, Jr. (Chairman)
Vicente Anido, Jr.
Beverly Benedict Thomas
Ralph V. Whitworth
<PAGE>

                                PERFORMANCE GRAPH
--------------------------------------------------------------------------------

     The following graph shows the changes over the last five-year period in the
value of $100 invested in (i) the common stock of Apria,  (ii) the S&P 500 Stock
Index, and (iii) the Peer Group Index (1). The value of each investment is based
on share price appreciation, with reinvestment of all dividends. The investments
are assumed to have occurred at the beginning of the period presented.



                 COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
                       AMONG APRIA HEALTHCARE GROUP INC.,
                   THE S&P 500 INDEX AND THE PEER GROUP INDEX


   [OBJECT OMITTED, graphically depicts the data presented in the table below]


                              12/97   12/98    12/99    12/00    12/01    12/02
---------------------------   -----  ------   ------   ------   ------   ------
Apria Healthcare Group Inc.    100    66.51   133.49   221.40   185.97   165.51
S & P 500                      100   128.58   155.64   141.46   124.65    97.10
Peer Group                     100   113.36    95.72   154.71   164.19   171.71

   (1)  The Peer Group  Index is based on the  cumulative  total  returns of the
        following  companies:  Coram Healthcare  Corporation,  Lincare Holdings,
        Inc., Optioncare, Inc., and American Homepatient, Inc.  In 1997,  Rotech
        Medical Corporation was also included in the Peer Group Index.

     It should be noted  that  this  graph  represents  historical  stock  price
performance  and  is  not  necessarily  indicative  of any  future  stock  price
performance.

     The  foregoing  report  of  the  Compensation  Committee  of the  Board  of
Directors  regarding   compensation  and  the  performance  graph  that  appears
immediately  after such report shall not be deemed to be soliciting  material or
to be filed with the Securities and Exchange Commission under the Securities Act
of 1933, as amended,  or the Exchange Act, or  incorporated  by reference in any
document so filed.
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The  following  table sets forth  information  as of March 14,  2003,  with
respect to the  beneficial  ownership of Apria's common stock by each person who
is known by the  company  to  beneficially  own more than 5% of  Apria's  common
stock,  each Director of the company,  all past and present  executive  officers
listed  in the  summary  compensation  table  and all  Directors  and  executive
officers  as a  group.  Except  as  otherwise  indicated,  beneficial  ownership
includes both voting and investment power with respect to the shares shown.
<TABLE>
<CAPTION>
                                        SECURITY OWNERSHIP TABLE
-----------------------------------------------------------------------------------------------------------
                                                                 AMOUNT AND NATURE OF         PERCENT OF
NAME OF BENEFICIAL OWNER                                         BENEFICIAL OWNERSHIP           CLASS
------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>                        <C>
Barclays Global Investors, LTD.(1)                                    2,777,011                  5.05
Lawrence M. Higby(2)                                                    494,333                    *
David L. Goldsmith(3)                                                   406,902                    *
Ralph V. Whitworth(4)                                                   121,666                    *
James E. Baker(5)                                                        88,027                    *
Richard H. Koppes(6)                                                     83,000                    *
Philip R. Lochner, Jr.(6)                                                82,000                    *
Lawrence A. Mastrovich(7)                                                66,666                    *
George J. Suda(8)                                                        65,933                    *
Beverly Benedict Thomas(9)                                               58,000                    *
Michael J. Keenan(10)                                                    51,632                    *
Anthony S. Domenico(11)                                                  31,666                    *
Vicente Anido, Jr.(12)                                                   15,000                    *
I. T. Corley(12)                                                         15,000                    *
Jeri L. Lose(12)                                                         15,000                    *
Philip L. Carter                                                              0                    *
All current directors and executive officers as a group               1,477,260                   2.69
(12 persons)(13)
------------------
*     Less than 1%

(1)  According  to a  Schedule  13G,  dated  February  8,  2002,  filed with the
     Securities  and  Exchange  Commission,   Barclays  Global  Investors,  Ltd.
     ("BGLTD"),  a bank as defined in Section 3(a)(6) of the Securities Exchange
     Act of 1934,  has sole  dispositive  power as to 2,777,011  shares and sole
     voting  power as to  2,707,799  shares.  BGLTD  holds  4,230 of the  shares
     directly and has sole dispositive and voting power as to those shares.  The
     balance of the shares is held by two related  banks:  Barclays  Global Fund
     Advisors ("BGF"), which has sole voting and dispositive power as to 343,304
     shares, and Barclays Global Investors, N.A. ("BGNA"), which has sole voting
     power as to 2,360,265  shares and sole  dispositive  power as to 2,429,477.
     The  mailing  address  for BGLTD,  BGF and BGNA is 45 Fremont  Street,  San
     Francisco, California 94105.

(2)  Includes 483,333 shares subject to options that are currently exercisable.

(3)  Includes  300,236 shares held in a shared trust with Mr.  Goldsmith's  wife
     and 106,666 shares subject to options that are currently exercisable.

(4)  Includes 121,666 shares subject to options that are currently exercisable.

(5)  Includes 34,133 shares subject to options that are currently exercisable.

(6)  Includes 80,000 shares subject to options that are currently exercisable.

(7)  Includes 66,666 shares subject to options which will become  exercisable on
     April 3, 2003.

(8)  Includes 63,333 shares subject to options that are currently exercisable.

(9)  Includes 55,000 shares subject to options that are currently exercisable.

(10) Includes 51,632 shares subject to options that are currently exercisable.

(11) Includes 31,666 shares subject to options that are currently exercisable.

(12) Includes 15,000 shares subject to options that are currently exercisable.

(13) Includes shares owned by certain  trusts.  Also includes  1,037,464  shares
     subject to options that are currently exercisable and 66,666 shares subject
     to options that will become exercisable on April 3, 2003.
</TABLE>
<PAGE>
EQUITY COMPENSATION PLANS

     The  following  table sets forth  information  as of December  31, 2002 for
equity compensation plans:
<TABLE>
<CAPTION>
                                             NUMBER OF SECURITIES                                   NUMBER OF
                                              TO BE ISSUED UPON        WEIGHTED AVERAGE       SECURITIES REMAINING
                                                 EXERCISE OF           EXERCISE PRICE OF          AVAILABLE FOR
PLAN CATEGORY                                OUTSTANDING OPTIONS      OUTSTANDING OPTIONS        FUTURE ISSUANCE
------------------------------------------------------------------------------------------------------------------
<S>                                                <C>                      <C>                     <C>
Equity compensation plans
  approved by shareholders.............            3,883,333                $ 21.16                 1,603,900

Equity compensation plans not
  approved by shareholders.............              684,301                $ 20.28                 1,509,981
                                                   ---------                                        ---------
    Totals.............................            4,567,634                $ 21.03                 3,113,881
                                                   =========                                        =========
</TABLE>
     Apria's  1998  Nonqualified   Stock  Incentive  Plan  is  the  only  equity
compensation  plan  that has not been  approved  by  shareholders.  The plan was
approved by the Board of Directors on December 15, 1998 and became  effective as
of that date. The 1998 Nonqualified Stock Incentive Plan authorizes the issuance
of 1,000,000 shares of common stock plus, in each year commencing in 2000, 1% of
the number of shares of common stock  outstanding  as of the preceding  December
31. The 1998  Nonqualified  Stock  Incentive Plan also provides for the grant of
restricted stock awards, performance share awards, stock appreciation rights and
stock  bonuses.  The  maximum  number of shares  subject  to  options  and stock
appreciation  rights that are granted during any calendar year to any individual
shall be limited  to 200,000  shares  and for  non-employee  directors  shall be
limited to 30,000  shares.  Persons  eligible to receive  awards  under the 1998
Nonqualified  Stock Incentive Plan include  directors,  key employees and others
who provide valuable bona fide services to the company or its subsidiaries.  The
Compensation  Committee  administers the 1998 Nonqualified  Stock Incentive Plan
and  establishes  the option  exercise  price with  respect to  options.  Unless
previously  terminated by the Board of Directors,  the 1998  Nonqualified  Stock
Incentive Plan will terminate on December 14, 2008.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

CERTAIN TRANSACTIONS

     None.


ITEM 14. CONTROLS AND PROCEDURES

     (a) Evaluation of disclosure  controls and  procedures.  Within the 90 days
prior to the date of this report,  the company carried out an evaluation,  under
the  supervision  and  with  the  participation  of  the  company's  management,
including the company's Chief Executive Officer and Chief Financial Officer,  of
the  effectiveness  of the  design and  operation  of the  company's  disclosure
controls and procedures. Based upon that evaluation, the Chief Executive Officer
and Chief Financial Officer concluded that the company's disclosure controls and
procedures  are  effective  in  timely  alerting  them to  material  information
relating  to the  company  that is  required  to be  included  in the  company's
periodic Securities and Exchange Commission filings.

     (b) Changes in internal controls.  No significant  changes to the company's
internal  controls,  or in other factors that could  significantly  affect these
controls  subsequent to the date of their evaluation,  have been made during the
periods covered by this report.
<PAGE>

                                     PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K

         (a)  1. The documents described in the "Index to Consolidated Financial
                 Statements and  Financial  Statement Schedule" are  included in
                 this  report starting at page F-1.

              2. The financial  statement schedule  described in the  "Index  to
                 Consolidated   Financial   Statements  and Financial  Statement
                 Schedule"  is included in this report starting on page S-1.

                 All  other  schedules  for  which  provision  is  made  in  the
                 applicable   accounting   regulations  of  the  Securities  and
                 Exchange   Commission   are  not  required  under  the  related
                 instructions  or are  inapplicable,  and  therefore  have  been
                 omitted.

              3. Exhibits included or incorporated herein:

                 See exhibit index.

         (b)  Reports on Form 8-K:

                 No reports on Form 8-K were filed during the fourth  quarter of
                 the fiscal year covered by this report.

<PAGE>

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                        AND FINANCIAL STATEMENT SCHEDULE


                                                                          PAGE
                                                                          ----

CONSOLIDATED FINANCIAL STATEMENTS
  Independent Auditors' Report......................................       F-1
  Consolidated Balance Sheets - December 31, 2002 and 2001..........       F-2
  Consolidated Statements of Income - Years ended
     December 31, 2002, 2001 and 2000...............................       F-3
  Consolidated Statements of Stockholders' Equity and Comprehensive
     Income - Years ended December 31, 2002, 2001 and 2000..........       F-4
  Consolidated Statements of Cash Flows - Years ended
     December 31, 2002, 2001 and 2000...............................       F-5
  Notes to Consolidated Financial Statements........................       F-6

FINANCIAL STATEMENT SCHEDULE
  Schedule II - Valuation and Qualifying Accounts...................       S-1

<PAGE>

                          INDEPENDENT AUDITORS' REPORT



Board of Directors and Stockholders of
Apria Healthcare Group Inc.:

We have audited the accompanying consolidated balance sheets of Apria Healthcare
Group Inc. and  subsidiaries  (the  "Company") as of December 31, 2002 and 2001,
and the related  consolidated  statements  of income,  stockholders'  equity and
comprehensive  income,  and cash flows for each of the three years in the period
ended  December  31, 2002.  Our audits also  included  the  financial  statement
schedule as of and for each of the three years in the period ended  December 31,
2002,  included  in the Index at Item  15(a)(2).  These  consolidated  financial
statements and this financial  statement  schedule are the responsibility of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
consolidated financial statements and this financial statement schedule based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion,  such consolidated  financial  statements present fairly, in all
material  respects,  the financial  position of Apria  Healthcare Group Inc. and
subsidiaries  as of  December  31,  2002  and  2001,  and the  results  of their
operations  and their cash flows for each of the three years in the period ended
December 31, 2002 in conformity with accounting principles generally accepted in
the United States of America.  Also, in our opinion,  such  financial  statement
schedule,  when  considered  in  relation  to the basic  consolidated  financial
statements taken as a whole,  presents  fairly,  in all material  respects,  the
information set forth therein.

As discussed in Note 1 to the  consolidated  financial  statements,  the company
changed its method of accounting for goodwill and other intangible assets during
2002 as a result of adoption of Statement of Financial  Accounting Standards No.
142, "Goodwill and Other Intangible Assets."


/s/ DELOITTE & TOUCHE LLP



Costa Mesa, California
February 18, 2003

<PAGE>
<TABLE>
                                          APRIA HEALTHCARE GROUP INC.
                                          CONSOLIDATED BALANCE SHEETS
<CAPTION>
                                                                                        DECEMBER 31,
                                                                                   ----------------------
(IN THOUSANDS, EXCEPT SHARE DATA)                                                    2002         2001
---------------------------------------------------------------------------------------------------------
                                   ASSETS

CURRENT ASSETS
<S>                                                                                <C>          <C>
  Cash and cash equivalents ....................................................   $  26,383    $   9,359
  Accounts receivable, less allowance for doubtful accounts of $32,206 and
    $32,073 at December 31, 2002 and 2001, respectively ........................     185,298      162,092
  Inventories, net .............................................................      27,067       25,084
  Deferred income taxes ........................................................      37,205       33,017
  Prepaid expenses and other current assets ....................................      14,408       10,271
                                                                                   ---------    ---------
         TOTAL CURRENT ASSETS ..................................................     290,361      239,823

PATIENT SERVICE EQUIPMENT, less accumulated depreciation of
   $368,420 and $342,010 at December 31, 2002 and 2001, respectively ...........     186,210      165,471
PROPERTY, EQUIPMENT AND IMPROVEMENTS, NET ......................................      54,134       47,312
DEFERRED INCOME TAXES ..........................................................       3,446       37,838
GOODWILL .......................................................................     248,863      193,458
INTANGIBLE ASSETS, NET .........................................................       6,142        4,863
OTHER ASSETS ...................................................................       6,500        7,017
                                                                                   ---------    ---------
                                                                                   $ 795,656    $ 695,782
                                                                                   =========    =========


                     LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
  Accounts payable .............................................................   $  65,514    $  71,198
  Accrued payroll and related taxes and benefits ...............................      38,212       33,907
  Accrued insurance ............................................................       8,021       10,376
  Income taxes payable .........................................................      10,285        9,060
  Other accrued liabilities ....................................................      39,968       34,754
  Current portion of long-term debt ............................................      21,713       15,455
                                                                                   ---------    ---------
         TOTAL CURRENT LIABILITIES .............................................     183,713      174,750

LONG-TERM DEBT, net of current portion .........................................     247,655      278,234

DEFERRED INCOME TAXES ..........................................................      12,979            -

COMMITMENTS AND CONTINGENCIES (Notes 9 and 11)

STOCKHOLDERS' EQUITY
  Preferred stock, $.001 par value:
    10,000,000 shares authorized; none issued ..................................           -            -
  Common stock, $.001 par value:
      150,000,000 shares authorized; 56,580,677 and 54,690,267 shares
      issued at December 31, 2002 and 2001, respectively; 54,897,521 and
      54,604,167 outstanding at December 31, 2002 and 2001, respectively .......          56           55
  Additional paid-in capital ...................................................     397,417      368,231
  Treasury stock, at cost; 1,683,156 and 86,100 shares at
         December 31, 2002 and 2001, respectively ..............................     (35,961)        (961)
  Accumulated deficit ..........................................................      (8,959)    (124,554)
  Accumulated other comprehensive (loss) income ................................      (1,244)          27
                                                                                   ---------    ---------
                                                                                     351,309      242,798
                                                                                   ---------    ---------
                                                                                   $ 795,656    $ 695,782
                                                                                   =========    =========


See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>

                                                  APRIA HEALTHCARE GROUP INC.
                                                CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
                                                                               YEAR ENDED DECEMBER 31,
                                                                      -----------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)                                    2002            2001           2000
---------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>            <C>            <C>
Net revenues ......................................................   $ 1,252,196    $ 1,131,915    $ 1,014,201
Costs and expenses:
   Cost of net revenues:
      Product and supply costs ....................................       228,964        204,666        188,581
      Patient service equipment depreciation ......................        98,288         89,985         77,819
      Nursing services ............................................           958          1,223          1,642
      Other .......................................................        12,707         11,773         10,900
                                                                      -----------    -----------    -----------
          TOTAL COST OF NET REVENUES ..............................       340,917        307,647        278,942
   Provision for doubtful accounts ................................        45,115         37,110         32,166
   Selling, distribution and administrative .......................       684,738        631,582        554,691
   Amortization of goodwill and intangible assets .................         2,681         12,349         10,205
                                                                      -----------    -----------    -----------
          TOTAL COSTS AND EXPENSES ................................     1,073,451        988,688        876,004
                                                                      -----------    -----------    -----------
          OPERATING INCOME ........................................       178,745        143,227        138,197
Interest expense ..................................................        15,028         27,612         42,271
Interest income ...................................................        (4,235)        (1,927)        (2,215)
                                                                      -----------    -----------    -----------
          INCOME BEFORE TAXES AND EXTRAORDINARY CHARGE ............       167,952        117,542         98,141
Income tax expense ................................................        52,357         44,097         41,135
                                                                      -----------    -----------    -----------
          INCOME BEFORE EXTRAORDINARY CHARGE ......................       115,595         73,445         57,006
Extraordinary charge on debt refinancing, net of taxes of $914 ....             -          1,528              -
                                                                      -----------    -----------    -----------
          NET INCOME ..............................................   $   115,595    $    71,917    $    57,006
                                                                      ===========    ===========    ===========


Basic income per common share:
   Income before extraordinary charge .............................   $      2.12    $      1.36    $      1.09
   Extraordinary charge on debt refinancing, net of taxes .........             -           0.03              -
                                                                      -----------    -----------    -----------
          Net income ..............................................   $      2.12    $      1.33    $      1.09
                                                                      ===========    ===========    ===========

Diluted income per common share:
   Income before extraordinary charge .............................   $      2.08    $      1.32    $      1.06
   Extraordinary charge on debt refinancing, net of taxes .........             -           0.03              -
                                                                      -----------    -----------    -----------
          Net income ..............................................   $      2.08    $      1.29    $      1.06
                                                                      ===========    ===========    ===========


See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>

                                                   APRIA HEALTHCARE GROUP INC.
                            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
<CAPTION>
                                                                                                         ACCUMULATED
                                         COMMON STOCK     ADDITIONAL    TREASURY STOCK                      OTHER         TOTAL
                                       -----------------   PAID-IN     -----------------   ACCUMULATED  COMPREHENSIVE  STOCKHOLDERS'
(IN THOUSANDS)                         SHARES  PAR VALUE   CAPITAL     SHARES     COST       DEFICIT    INCOME (LOSS)     EQUITY
------------------------------------------------------------------------------------------------------------------------------------
<S>                                     <C>      <C>      <C>         <C>      <C>          <C>           <C>            <C>
Balance at December 31, 1999..........  52,055   $  52    $328,897         -   $      (3)   $(253,477)     $      -      $ 75,469


Exercise of stock options.............   1,099       1      10,735                                                         10,736
Tax benefits related to stock options.                       3,989                                                          3,989
Repurchases of common stock...........                                   (86)       (958)                                    (958)
Net income and total comprehensive
    income............................                                                         57,006                      57,006
                                        ------   -----    --------    ------    --------    ---------      --------      --------
Balance at December 31, 2000..........  53,154   $  53    $343,621       (86)   $   (961)   $(196,471)     $      -      $146,242


Exercise of stock options.............   1,536       2      16,476                                                         16,478
Tax benefits related to stock options.                       8,134                                                          8,134
Unrealized gain on interest rate
  swap agreements, net of taxes.......                                                                           27            27
Net income............................                                                         71,917                      71,917
                                                                                            ---------      --------      --------
     Total comprehensive income.......                                                         71,917            27        71,944
                                        ------   -----    --------    ------    --------    ---------      --------      --------
Balance at December 31, 2001..........  54,690   $  55    $368,231       (86)   $   (961)   $(124,554)     $     27      $242,798


Exercise of stock options.............   1,891       1      18,836                                                         18,837
Tax benefits related to stock options.                      10,350                                                         10,350
Repurchases of common stock...........                                (1,597)    (35,000)                                 (35,000)
Unrealized loss on interest rate
  swap agreements, net of taxes.......                                                                       (1,271)       (1,271)
Net income............................                                                        115,595                     115,595
                                                                                            ---------      --------      --------
     Total comprehensive income.......                                                        115,595        (1,271)      114,324
                                        ------   -----    --------    ------    --------    ---------      --------      --------
Balance at December 31, 2002..........  56,581   $  56    $397,417    (1,683)   $(35,961)   $  (8,959)     $ (1,244)     $351,309
                                        ======   =====    ========    ======    ========    =========      ========      ========



See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>

                                                   APRIA HEALTHCARE GROUP INC.
                                              CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
                                                                                          YEAR ENDED DECEMBER 31,
                                                                                    -----------------------------------
(IN THOUSANDS)                                                                         2002         2001         2000
-----------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
<S>                                                                                 <C>          <C>          <C>
Net income ......................................................................   $ 115,595    $  71,917    $  57,006
Items included in net income not requiring (providing) cash:
    Extraordinary charge on debt refinancing ....................................           -        2,442            -
    Provision for doubtful accounts .............................................      45,115       37,110       32,166
    Depreciation ................................................................     116,043      106,106       95,074
    Amortization of goodwill and intangible assets ..............................       2,681       12,349       10,205
    Amortization of deferred debt issuance costs ................................       1,282        1,880        2,618
    Deferred income taxes .......................................................      54,297       40,747       34,414
    Loss (gain) on disposition of assets ........................................         940           97         (921)
Changes in operating assets and liabilities, exclusive of effects of
acquisitions:
    Accounts receivable .........................................................     (68,815)     (53,822)     (27,105)
    Inventories, net ............................................................        (399)      (2,516)      (3,898)
    Prepaid expenses and other assets ...........................................      (4,461)      (1,718)       1,427
    Accounts payable, exclusive of outstanding checks ...........................      (3,206)      11,979         (156)
    Accrued payroll and related taxes and benefits ..............................       4,306        5,459        1,971
    Income taxes payable ........................................................       1,225          339        4,158
    Accrued expenses ............................................................      (2,559)       9,060      (18,976)
                                                                                    ---------    ---------    ---------
         NET CASH PROVIDED BY OPERATING ACTIVITIES ..............................     262,044      241,429      187,983

INVESTING ACTIVITIES
    Purchases of patient service equipment and property, equipment
      and improvements, exclusive of effects of acquisitions ....................    (121,727)    (133,162)     (96,414)
    Proceeds from disposition of assets .........................................         318          303          637
    Cash paid for acquisitions, including payments of deferred consideration ....     (73,960)     (80,273)     (26,220)
                                                                                    ---------    ---------    ---------
         NET CASH USED IN INVESTING ACTIVITIES ..................................    (195,369)    (213,132)    (121,997)

FINANCING ACTIVITIES
    Proceeds from revolving credit facilities ...................................     150,500       94,900            -
    Payments on revolving credit facilities .....................................    (158,300)     (87,100)           -
    Proceeds from term loans ....................................................           -      300,000            -
    Payments on term loans ......................................................     (19,687)    (156,938)     (79,062)
    Payment on redemption of senior subordinated notes ..........................           -     (200,000)           -
    Payments on other long-term debt ............................................      (2,858)      (2,488)      (3,608)
    Outstanding checks included in accounts payable .............................      (2,477)       4,969        4,259
    Capitalized debt issuance costs, net ........................................        (666)      (5,623)        (982)
    Repurchases of common stock .................................................     (35,000)           -         (958)
    Issuances of common stock ...................................................      18,837       16,478       10,736
                                                                                    ---------    ---------    ---------
         NET CASH USED IN FINANCING ACTIVITIES ..................................     (49,651)     (35,802)     (69,615)
                                                                                    ---------    ---------    ---------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ............................      17,024       (7,505)      (3,629)
Cash and cash equivalents at beginning of year ..................................       9,359       16,864       20,493
                                                                                    ---------    ---------    ---------
         CASH AND CASH EQUIVALENTS AT END OF YEAR ...............................   $  26,383    $   9,359    $  16,864
                                                                                    =========    =========    =========

SUPPLEMENTAL  DISCLOSURES  - See  Notes 5 and 7 for cash paid for  interest  and
income taxes, respectively.

NON-CASH TRANSACTIONS - See Statements of Stockholders' Equity and Comprehensive
Income,  Note  3 and  Note  9 for  tax  benefit  from  stock  option  exercises,
liabilities assumed in acquisitions and purchase of property and equipment under
capital leases, respectively.



See notes to consolidated financial statements.
</TABLE>
<PAGE>

                           APRIA HEALTHCARE GROUP INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Basis of Presentation:  The accompanying  consolidated financial statements
have been prepared in accordance with accounting  principles  generally accepted
in the United States of America.  These statements include the accounts of Apria
Healthcare  Group  Inc.   ("Apria"  or  "the  company")  and  its  subsidiaries.
Intercompany transactions and accounts have been eliminated.

     Company  Background  and  Segment  Reporting:  Apria  operates  in the home
healthcare segment of the healthcare  industry,  providing a variety of clinical
services  and related  products  and  supplies as  prescribed  by a physician or
authorized  by a case manager as part of a care plan.  All products and services
offered  by  the  company  are  provided   through  the  company's   network  of
approximately  410 branch  facilities,  which are located  throughout the United
States and are organized into 16 geographic  regions.  Each region consists of a
number of branches and a regional  office,  which provides key support  services
such as billing, purchasing,  equipment maintenance, repair and warehousing. The
company's  chief  operating  decision  maker  evaluates  operating  results on a
geographic basis and, therefore,  views each region as an operating segment. All
regions provide the same products and services,  including  respiratory therapy,
infusion  therapy  and  home  medical  equipment  and  supplies.  For  financial
reporting purposes,  all of the company's operating segments are aggregated into
one reportable segment in accordance with the aggregation  criteria of Statement
of Financial Accounting Standards ("SFAS") No. 131,  "Disclosures About Segments
of an Enterprise and Related Information."

     Respiratory therapy,  infusion therapy and home medical equipment represent
approximately 67%, 18% and 15% of total 2002 revenues,  respectively.  The gross
margins  for  these  services  and  related  products  were  80%,  57% and  62%,
respectively.

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

     Revenue   Recognition  and  Concentration  of  Credit  Risk:  Revenues  are
recognized  on the date  services and related  products are provided to patients
and are  recorded  at  amounts  estimated  to be  received  under  reimbursement
arrangements with third-party payors, including private insurers, prepaid health
plans,  Medicare and Medicaid.  Approximately 34% of the company's  revenues for
2002,  2001 and 2000  were  reimbursed  under  arrangements  with  Medicare  and
Medicaid.  In 2002, no other  third-party payor group represented 10% or more of
the company's revenues.  The majority of the company's revenues are derived from
fees  charged  for patient  care under  fee-for-service  arrangements.  Revenues
derived  from  capitation  arrangements  represented  less than 10% of total net
revenues for 2002, 2001 and 2000.

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

     Management  performs  periodic  analyses  to evaluate  accounts  receivable
balances to ensure that recorded amounts reflect estimated net realizable value.
Specifically,   management  considers  historical   realization  data,  accounts
receivable  aging  trends,   other  operating   trends  and  relevant   business
conditions. Also, focused reviews of certain large and/or problematic payors are
performed.  Due to continuing changes in the healthcare industry and third-party
reimbursement,  it is possible that  management's  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.

     Cash and Cash  Equivalents:  Apria  maintains  cash with various  financial
institutions.  These financial  institutions  are located  throughout the United
States and the company's  cash  management  practices  limit exposure to any one
institution.  Outstanding checks,  which are reported as a component of accounts
payable,  were  $20,980,000  and  $23,457,000  at  December  31,  2002 and 2001,
respectively.  Management considers all highly liquid instruments purchased with
a maturity of less than three months to be cash equivalents.

     Accounts  Receivable:  Included  in  accounts  receivable  are  earned  but
unbilled  receivables  of $29,207,000  and  $26,925,000 at December 31, 2002 and
2001,  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:  Inventories  are  stated  at the  lower  of  cost  (first-in,
first-out  method)  or market  and  consist  primarily  of  disposables  used in
conjunction with patient service equipment, and pharmaceuticals.

     Patient Service  Equipment:  Patient service equipment  consists of medical
equipment  provided to in-home  patients and is stated at cost.  Depreciation is
provided using the  straight-line  method over the estimated useful lives of the
equipment, which range from one to ten years.

     Property, Equipment and Improvements:  Property, equipment and improvements
are  stated at cost.  Included  in  property  and  equipment  are  assets  under
capitalized leases which consist solely of information systems.  Depreciation is
provided using the  straight-line  method over the estimated useful lives of the
assets.  Estimated  useful lives for each of the categories  presented in Note 2
are as follows:  leasehold  improvements  -- the shorter of the remaining  lease
term or seven years;  equipment  and  furnishings  -- three to fifteen years and
information systems -- three to four years.

     Capitalized Software: Included in property,  equipment and improvements are
costs  related  to   internally-developed   and  purchased   software  that  are
capitalized  and amortized  over periods not exceeding  four years.  Capitalized
costs include  direct costs of materials and services  incurred in developing or
obtaining  internal-use  software  and  payroll  and  payroll-related  costs for
employees directly involved in the development of internal-use software.

     The  carrying  value of  capitalized  software is reviewed if the facts and
circumstances  suggest that it may be impaired.  Indicators  of  impairment  may
include a  subsequent  change in the extent or manner in which the  software  is
used or expected to be used,  a  significant  change to the  software is made or
expected  to be made or the cost to  develop  or  modify  internal-use  software
exceeds that expected amount.  Management does not believe any impairment of its
capitalized software existed at December 31, 2002.

     Goodwill: Goodwill arising from business combinations represents the excess
of the  purchase  price over the  estimated  fair value of the net assets of the
acquired  businesses.  Prior to 2002 and before the  adoption  of SFAS No.  142,
"Goodwill  and Other  Intangible  Assets,"  goodwill  attributable  to  business
combinations  completed on or before June 30, 2001, was being amortized over the
period of expected benefit. The amortization period for substantially all of the
company's goodwill was 20 years. Previously,  management reviewed for impairment
on an ongoing basis and whenever  events or changes in  circumstances  indicated
the  possibility  of impairment.  In accordance  with the provisions of SFAS No.
142, goodwill arising from business combinations  initiated after June 30, 2001,
is no longer  amortized but tested annually for impairment or more frequently if
circumstances indicate impairment.  Upon Apria's adoption of SFAS No. 142 in its
entirety on January 1, 2002, the  amortization of goodwill,  including  goodwill
recorded  in  past  transactions,  ceased  completely.

     Intangible and Other Long-lived Assets: Intangible assets consist primarily
of covenants not to compete  resulting  from business  combinations.  The values
assigned to such intangible  assets are amortized on a straight-line  basis over
their contractual terms, which range from two to five years.

     Management  reviews for  impairment  of  intangible  assets and  long-lived
assets on an ongoing  basis and  whenever  events or  changes  in  circumstances
indicate that the carrying amount of an asset may not be recoverable. Management
does not believe any  impairment of its intangible  assets or long-lived  assets
existed at December 31, 2002.

     Fair Value of Financial  Instruments:  The fair value of long-term debt and
letters of credit is  determined  by  reference  to  borrowing  rates  currently
available  to Apria for loans with  similar  terms and average  maturities.  The
carrying  amounts  of cash and cash  equivalents,  accounts  receivables,  trade
payables  and accrued  expenses  approximate  fair value  because of their short
maturity.

     Advertising:  Advertising  costs  amounting to  $2,804,000,  $3,044,000 and
$2,212,000 for 2002, 2001 and 2000,  respectively,  are expensed as incurred and
included in selling, distribution and administrative expenses.

     Income Taxes: Apria provides for income taxes in accordance with provisions
specified in SFAS No. 109, "Accounting for Income Taxes." Accordingly,  deferred
income tax assets and  liabilities  are  computed  for  differences  between the
financial  statement and tax bases of assets and liabilities.  These differences
will result in taxable or  deductible  amounts in the future,  based on tax laws
and rates  applicable  to the periods in which the  differences  are expected to
affect taxable income.  Valuation  allowances are established  when necessary to
reduce  deferred  tax assets to  amounts  which are more  likely  than not to be
realized.

     Derivative Instruments and Hedging Activities: From time to time Apria uses
derivative financial instruments to limit exposure to interest rate fluctuations
on the  company's  variable  rate  long-term  debt.  The  company  accounts  for
derivative  instruments  pursuant to the provisions of SFAS No. 133, "Accounting
for Derivative  Instruments and Hedging  Activities." The company's  derivatives
are recorded on the balance sheet at their fair value and any  unrealized  gains
or losses on their fair value are included,  net of tax, in other  comprehensive
income.

     Stock-based   Compensation:   The  company  accounts  for  its  stock-based
compensation   plans  under  the  recognition  and  measurement   principles  of
Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued
to  Employees,"  and related  interpretations.  Apria has adopted the disclosure
provisions  of SFAS No.  123,  "Accounting  for  Stock-Based  Compensation,"  as
amended by SFAS No. 148,  "Accounting for Stock-Based  Compensation - Transition
and  Disclosure  - an  amendment  of FASB  Statement  No.  123." No  stock-based
employee  compensation  expense is recognized in net income for any of the years
presented.  Had compensation expense for the company's stock-based  compensation
awards been recognized  based on the fair value  recognition  provisions of SFAS
No. 123,  Apria's net income and per share  amounts  would have been adjusted to
the pro forma amounts indicated below. See "Note 6 - Stockholders' Equity."
<TABLE>
<CAPTION>

                                                                            YEAR ENDED DECEMBER 31,
                                                                     -----------------------------------
    (IN THOUSANDS, EXCEPT PER SHARE DATA)                               2002         2001         2000
    ----------------------------------------------------------------------------------------------------
<S>                                                                  <C>          <C>          <C>
    Net income as reported ......................................    $ 115,595    $  71,917    $  57,006
        Deduct: total stock-based compensation expense
            determined for all awards under fair value-based
            method, net of related tax effects ..................       (9,852)     (10,156)      (9,194)
                                                                     ---------    ---------    ---------
    Pro forma net income ........................................    $ 105,743    $  61,761    $  47,812
                                                                     =========    =========    =========

    Basic net income per share:
        As reported .............................................    $    2.12    $    1.33    $    1.09
        Pro forma ...............................................    $    1.94    $    1.14    $    0.91

    Diluted net income per share:
        As reported .............................................    $    2.08    $    1.29    $    1.06
        Pro forma ...............................................    $    1.90    $    1.11    $    0.89
</TABLE>

     Comprehensive  Income:  For the years ended December 31, 2002 and 2001, the
difference  between  net income and  comprehensive  income is  ($1,271,000)  and
$27,000,  respectively,  net of  taxes,  which  is  attributable  to  unrealized
(losses)/gains  on various  interest  rate swap  agreements.  For the year ended
December 31, 2000 there was no difference between  comprehensive  income and net
income.

     Per Share  Amounts:  Basic net income per share is computed by dividing net
income available to common stockholders by the weighted-average number of common
shares  outstanding.  Diluted  net income per share  includes  the effect of the
potential  shares  outstanding,  including  dilutive stock options and warrants,
using the treasury stock method.

     Change in Accounting  Principles:  Effective January 1, 2002, Apria adopted
SFAS No. 142,  which  addresses  the  financial  accounting  and  reporting  for
goodwill and other intangible  assets.  The statement  provides that goodwill or
other  intangible  assets with indefinite  lives will no longer be amortized but
shall be tested for impairment  annually,  or more  frequently if  circumstances
indicate the  possibility of impairment.  The effect of adoption of SFAS No. 142
on the  consolidated  financial  statements  is shown in "Note 4 - Goodwill  and
Intangible Assets."

     Effective January 1, 2002, Apria adopted SFAS No. 144,  "Accounting for the
Impairment or Disposal of Long-Lived Assets." This statement superseded SFAS No.
121,  "Accounting  for the  Impairment of Long-Lived  Assets and for  Long-Lived
Assets to be Disposed Of," and amended other guidance  related to the accounting
and reporting of long-lived  assets.  SFAS No. 144 requires that one  accounting
model be used for  long-lived  assets to be  disposed  of by sale.  Discontinued
operations are to be measured similarly to other long-lived assets classified as
held for sale at the lower of its  carrying  amount or fair  value  less cost to
sell.  Future operating  losses will no longer be recognized  before they occur.
SFAS No. 144 also  broadened  the  presentation  of  discontinued  operations to
include a component of an entity when  operations  and cash flows can be clearly
distinguished,  and established criteria to determine when a long-lived asset is
held for sale.  Adoption  of this  statement  did not have a material  effect on
Apria's consolidated financial statements.

     Recent Accounting  Pronouncements:  In April 2002, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 145, "Rescission of FASB Statement Nos.
4, 44, and 64,  Amendment of FASB Statement No. 13, and Technical  Corrections."
SFAS No. 145 updates and clarifies existing accounting pronouncements related to
gains and losses from the extinguishment of debt and requires that certain lease
modifications   be   accounted   for  in  the  same  manner  as   sale-leaseback
transactions.  Apria adopted the  provisions of SFAS No. 145 for its fiscal year
beginning  January 1, 2003.  Adoption of this statement will not have a material
effect on the company's consolidated financial statements.

     In July 2002, SFAS No. 146,  "Accounting for Costs  Associated With Exit or
Disposal  Activities,"  was  issued.  This  statement  addresses  the  financial
accounting and reporting for costs  associated with exit or disposal  activities
and requires that a liability for such costs be recognized when the liability is
incurred rather than at the date of an entity's commitment to an exit plan. SFAS
No. 146 also  establishes  that the liability should be measured and recorded at
fair  value.  Apria  will  adopt  the  provisions  of SFAS No.  146 for exit and
disposal activities that are initiated after December 31, 2002, as required.

     In December 2002, SFAS No. 148 was issued.  This statement  amends SFAS No.
123 to provide  alternative  methods of transition  and guidance for a voluntary
change to the fair value based method of  accounting  for  stock-based  employee
compensation.  SFAS No. 148 also amends the disclosure  requirements of SFAS No.
123 to  require  prominent  disclosures  in both  annual and  interim  financial
statements about the method of accounting for stock-based employee  compensation
and the effect of the method used on reported results.  The company has complied
with the expanded financial statement disclosure requirements herein.

     In  November  2002,  the FASB issued  FASB  Interpretation  ("FIN") No. 45,
"Guarantor's  Accounting and Disclosure  Requirements for Guarantees,  Including
Indirect  Guarantees and Indebtedness of Others," an interpretation of SFAS Nos.
5, 57 and 107 and rescission of FIN No. 34,  "Disclosure of Indirect  Guarantees
of Indebtedness of Others." FIN No. 45 elaborates on the disclosure requirements
for the  interim  and annual  financial  statements  of the  guarantor.  It also
requires  that  a  guarantor  recognize  a  liability  at the  inception  of the
guarantee  for the  fair  value  of the  obligation  undertaken.  Apria  will be
required  to adopt the  recognition  and  measurement  provisions  of FIN No. 45
beginning  January 1, 2003, while the disclosure  provisions became effective at
December  31,  2002.  Adoption of this  interpretation  will not have a material
effect on the company's consolidated financial statements.

     In January 2003, FIN No. 46, "Consolidation of Variable Interest Entities,"
an interpretation of Accounting Research Bulletin No. 51, was issued. FIN No. 46
requires that a company  consolidate  variable interest entities if that company
is subject to a majority of the risk of loss from the entity's activities or the
company receives a majority of the entity's  residual  returns.  FIN No. 46 also
requires certain disclosures about variable interest entities in which a company
has a significant  interest,  regardless of whether  consolidation  is required.
Apria will begin to adopt the  consolidation  provisions of FIN No. 46 beginning
January 1, 2003, while certain disclosure requirements will become effective for
all financial  statements issued after January 31, 2003,  regardless of when the
variable  interest  entities  were  established.  The company  currently  has no
variable interest entities,  therefore,  the adoption of this  interpretation is
not expected to have a material effect on the company's  consolidated  financial
statements.

     Reclassifications: Certain amounts for prior periods have been reclassified
to conform to the current year presentation.
<PAGE>

NOTE 2 -- PROPERTY, EQUIPMENT AND IMPROVEMENTS

   Property, equipment and improvements consist of the following:

                                                          DECEMBER 31,
                                                  ---------------------------
   (IN THOUSANDS)                                    2002             2001
   --------------------------------------------------------------------------

   Leasehold improvements...................      $  19,289         $  17,809
   Equipment and furnishings................         47,413            43,565
   Information systems......................         90,676            73,597
                                                 ----------        ----------
                                                    157,378           134,971
   Less accumulated depreciation............       (103,244)          (87,659)
                                                  ---------         ---------
                                                  $  54,134         $  47,312
                                                  =========         =========

NOTE 3 -- BUSINESS COMBINATIONS

     During  2002,  2001 and 2000,  Apria  acquired  a number  of  complementary
businesses  in specific  geographic  markets.  During  2002,  Apria  acquired 17
companies  comprised  largely of home respiratory  therapy  businesses.  For all
periods presented,  these all-cash  transactions were accounted for as purchases
and,  accordingly,  the results of  operations  of the acquired  businesses  are
included in the  consolidated  income  statements from the dates of acquisition.
The  purchase  prices were  allocated  to the various  underlying  tangible  and
intangible assets and liabilities on the basis of estimated fair value.

     The following  table  summarizes the  allocation of the purchase  prices of
acquisitions  made by the company,  which include  payments  deferred from prior
years.  In 2002,  such  payments  totaled  $2,752,000.  At  December  31,  2002,
outstanding  deferred  consideration  totaled  $6,592,000 and is included on the
balance sheet in other accrued liabilities.

     Cash paid for acquisitions:

                                                    YEAR ENDED DECEMBER 31,
                                               --------------------------------
(IN THOUSANDS)                                    2002       2001        2000
-------------------------------------------------------------------------------

Fair value of tangible assets acquired .....   $ 18,022    $  9,067    $  4,286
Intangible assets ..........................      3,960       1,316       1,322
Goodwill ...................................     55,405      71,426      21,170
                                               --------    --------    --------
     Total assets acquired .................     77,387      81,809      26,778

Liabilities assumed and accrued ............     (3,427)     (1,536)       (558)
                                               --------    --------    --------
     Net assets acquired ...................   $ 73,960    $ 80,273    $ 26,220
                                               ========    ========    ========
<PAGE>
     The following  supplemental  unaudited pro forma  information  presents the
combined  operating  results of Apria and the  businesses  that were acquired by
Apria during 2002, as if the  acquisitions  had occurred at the beginning of the
periods  presented.  The  pro  forma  information  is  based  on the  historical
financial statements of Apria and those of the acquired businesses.  Amounts are
not  necessarily  indicative  of the results that may have been obtained had the
combinations  been in effect at the  beginning of the periods  presented or that
may be achieved in the future.
<TABLE>
<CAPTION>
                                                                           YEAR ENDED DECEMBER 31,
                                                                         --------------------------
     (IN THOUSANDS, EXCEPT PER SHARE DATA)                                   2002           2001
     ---------------------------------------------------------------------------------------------------------------

<S>                                                                      <C>             <C>
     Net revenues....................................................    $1,291,389      $1,231,635
     Income before extraordinary charge..............................    $  117,076      $   75,637
     Net income......................................................    $  117,076      $   74,109

     Diluted income per common share:
        Income before extraordinary charge...........................       $  2.11         $  1.36
        Extraordinary charge on debt refinancing, net of taxes.......             -            0.03
                                                                            -------         -------
               Net income............................................       $  2.11         $  1.33
                                                                            =======         =======
</TABLE>
<PAGE>
NOTE 4 -- GOODWILL AND INTANGIBLE ASSETS

     In July 2001, Apria adopted SFAS No. 141,  "Business  Combinations,"  which
requires  that the  purchase  method of  accounting  be applied to all  business
combinations completed after June 30, 2001 and which also addresses the criteria
for initial recognition of intangible assets and goodwill.  Effective January 1,
2002, the company  adopted SFAS No. 142 in its entirety.  SFAS No. 142 addresses
the financial accounting and reporting for goodwill and other intangible assets.
The statement provides that goodwill and other intangible assets with indefinite
lives is no longer amortized,  but shall be tested for impairment  annually,  or
more frequently if circumstances indicate the possibility of impairment.  If the
carrying  value of goodwill or an intangible  asset  exceeds its fair value,  an
impairment loss shall be recognized.

     In the year of adoption, SFAS No. 142 requires that a transitional goodwill
impairment  test be  performed  and  that  the  results  be  measured  as of the
beginning of the year.  The test is  conducted  at a "reporting  unit" level and
compares each reporting unit's fair value to its carrying value. The company has
determined  that its geographic  regions are reporting units under SFAS No. 142.
The  measurement  of fair value for each  region was based on an  evaluation  of
future discounted cash flows and was further tested using a multiple of earnings
approach.  Apria's  transitional test indicated that no impairment  existed and,
accordingly,  no loss was recognized.  The company recently completed its annual
impairment  test,  which  yielded  similar  results with no goodwill  impairment
indicated at any of Apria's reporting units.

     In  conjunction  with the  transitional  impairment  test and  based on the
criteria  established in SFAS No. 141,  management reviewed the useful lives and
the amounts  previously  recorded for intangible  assets and determined  that no
adjustments were necessary.

     The  following  table  sets  forth the  reconciliation  of net  income  and
earnings per share as adjusted for the  non-amortization  provisions of SFAS No.
142:
<TABLE>
<CAPTION>
                                                                        YEAR ENDED DECEMBER 31,
                                                                        -----------------------
    (IN THOUSANDS, EXCEPT PER SHARE DATA)                                 2001           2000
    -------------------------------------------------------------------------------------------
<S>                                                                     <C>            <C>
     Reported net income .........................................      $ 71,917       $ 57,006
     Add: extraordinary charge, net of taxes .....................         1,528              -
                                                                        --------       --------
             Net income before extraordinary charge ..............        73,445         57,006
     Add: goodwill amortization, net of taxes ....................         6,129          4,545
                                                                        --------       --------
             Adjusted net income before extraordinary charge .....        79,574         61,551
     Extraordinary charge, net of taxes ..........................        (1,528)             -
                                                                        --------       --------
             Adjusted net income .................................      $ 78,046       $ 61,551
                                                                        ========       ========

     Basic income per common share:
        Reported net income ......................................      $   1.33       $   1.09
        Add: extraordinary charge, net of taxes ..................          0.03              -
                                                                        --------       --------
             Net income before extraordinary charge ..............          1.36           1.09
        Add: goodwill amortization, net of taxes .................          0.11           0.09
                                                                        --------       --------
              Adjusted net income before extraordinary charge ....          1.47           1.18
        Extraordinary charge, net of taxes .......................         (0.03)             -
                                                                        --------       --------
              Adjusted net income ................................      $   1.44       $   1.18
                                                                        ========       ========

     Diluted income per common share:
        Reported net income ......................................      $   1.29       $   1.06
        Add: extraordinary charge, net of taxes ..................          0.03              -
                                                                        --------       --------
             Net income before extraordinary charge ..............          1.32           1.06
        Add: goodwill amortization, net of taxes .................          0.11           0.08
                                                                        --------       --------
              Adjusted net income before extraordinary charge ....          1.43           1.14
        Extraordinary charge, net of taxes .......................         (0.03)             -
                                                                        --------       --------
              Adjusted net income ................................      $   1.40       $   1.14
                                                                        ========       ========
</TABLE>
<PAGE>
     For the year ended December 31, 2002, the net change in the carrying amount
of goodwill of  $55,405,000  is the result of  business  combinations.  Goodwill
amortization  expense  for the years  ended  December  31,  2001 and  2000,  was
$9,809,000  and  $7,824,000,  respectively.  All of  the  goodwill  recorded  in
conjunction with business combinations completed after June 30, 2001 is expected
to be deductible for tax purposes.

     Intangible assets, all of which are subject to amortization, consist of the
following:
<TABLE>
<CAPTION>
(IN THOUSANDS)                                             DECEMBER 31, 2002                          DECEMBER 31, 2001
--------------------------------------------------------------------------------------------------------------------------------
                                    AVERAGE          GROSS                                     GROSS
                                    LIFE IN        CARRYING   ACCUMULATED    NET BOOK         CARRYING   ACCUMULATED    NET BOOK
                                     YEARS          AMOUNT    AMORTIZATION    VALUE            AMOUNT    AMORTIZATION     VALUE
                                    -------        --------   ------------   --------         --------   ------------   --------
<S>                                   <C>           <C>         <C>           <C>             <C>         <C>            <C>
  Covenants not to compete....        4.7           $ 9,664     $(4,571)      $5,093          $16,181     $(11,318)      $4,863
  Tradename...................        2.0             1,324        (275)       1,049                -            -            -
                                      ---           -------     -------       ------          -------     --------       ------
                                      4.0           $10,988     $(4,846)      $6,142          $16,181     $(11,318)      $4,863
                                      ===           =======     =======       ======          =======     ========       ======
</TABLE>

     Amortization  expense amounts to $2,681,000 for the year ended December 31,
2002.  Estimated  amortization  expense  for  each of the  fiscal  years  ending
December 31, is presented below:

    (IN THOUSANDS)
    ----------------------------------------------------------------------

    2003............................................         $ 2,573
    2004............................................           1,900
    2005............................................             837
    2006............................................             594
    2007............................................             238


NOTE 5 -- CREDIT FACILITY AND LONG-TERM DEBT

     Long-term debt consists of the following:

                                                              DECEMBER 31,
                                                         ----------------------
    (IN THOUSANDS)                                         2002         2001
    ----------------------------------------------------------------------------

    Term loans payable ...............................   $ 263,375    $ 283,062
    Notes payable relating to revolving
      credit facilities ..............................           -        7,800
    Capital lease obligations (see Note 9) ...........       5,993        2,827
                                                         ---------    ---------
                                                           269,368      293,689
    Less: current maturities .........................     (21,713)     (15,455)
                                                         ---------    ---------
                                                         $ 247,655    $ 278,234
                                                         =========    =========

     Credit Agreement:  Apria currently has a $400,000,000 senior secured credit
agreement  with a syndicate  of lenders led by Bank of America,  N.A. The credit
agreement was amended effective June 7, 2002. Prior to the amendment, the credit
facilities  consisted of a $100,000,000  five-year revolving credit facility,  a
$125,000,000  five-year  term loan and a  $175,000,000  six-year term loan.  The
$125,000,000  term loan, the terms of which remain  unchanged,  had a balance of
$91,000,000  at December 31, 2002 and is currently  repayable in 14  consecutive
quarterly  installments  of $6,000,000 to $7,000,000  each,  beginning  June 30,
2003.  The  $175,000,000  term  loan,  which had a balance  of  $172,375,000  at
December 31, 2002, was amended in June 2002 to extend the maturity date to seven
years,  to reduce  the  applicable  interest  rate  margins  and to  modify  the
repayment schedule. It is now repayable in 18 consecutive quarterly installments
of  $437,500  each,  followed by three  consecutive  quarterly  installments  of
$41,125,000 each, and a final payment of $41,125,000 due on July 20, 2008.

     On December 31, 2002 the company made  voluntary  prepayments of $6,000,000
on the $125,000,000  term loan and $437,500 on the  $175,000,000  term loan. The
voluntary  prepayments were applied against future scheduled quarterly payments,
effectively  eliminating any payment requirements for both term loans until June
2003.

     On December 31, 2002,  there were no borrowings  under the revolving credit
facility,  outstanding letters of credit totaled $5,155,000 and credit available
under the revolving facility was $94,845,000.

     The senior  secured  credit  agreement  permits  Apria to select one of two
variable  interest rates. One option is the base rate, which is expressed as the
higher of (a) the Federal Funds rate plus 0.50% or (b) the Prime Rate. The other
option is the Eurodollar rate,  which is based on the London  Interbank  Offered
Rate ("LIBOR"). Interest on outstanding balances under the senior secured credit
agreement are determined by adding a margin to the Eurodollar  rate or base rate
in effect at each interest  calculation  date.  The  applicable  margins for the
revolving  credit facility and the  $125,000,000  term loan are based on Apria's
leverage ratio,  which is the ratio of its funded debt to its last four quarters
of  earnings  before  interest,  taxes,   depreciation  and  amortization.   The
applicable margin ranges from 1.50% to 2.25% for Eurodollar loans and from 0.50%
to 1.25% for base rate loans. For the  $175,000,000  term loan, the margins were
amended in June 2002 and are currently  fixed at 2.00% for Eurodollar  loans and
1.00% for base rate loans. The effective  interest rate at December 31, 2002 was
4.21% on total  borrowings of  $263,375,000.  The senior credit  agreement  also
requires  payment of commitment  fees ranging from 0.25% to 0.50% (also based on
Apria's leverage ratio) on the unused portion of the revolving credit facility.

     Borrowings under the senior secured credit facilities are collateralized by
substantially all of the assets of Apria. The credit agreement contains numerous
restrictions,  including but not limited to, covenants requiring the maintenance
of certain  financial  ratios,  limitations  on additional  borrowings,  capital
expenditures,  mergers,  acquisitions and investments, and  restrictions on cash
dividends,  loans and other  distributions.  The agreement also permits Apria to
expend a maximum of $100,000,000 per year on acquisitions. At December 31, 2002,
the company was in compliance  with all of the financial  covenants  required by
the credit agreement.

     The  carrying  value of the term loans and the  revolving  credit  facility
approximates  fair value because the underlying  instruments  are variable notes
that reprice frequently.

     Maturities of long-term debt,  exclusive of capital lease obligations,  are
as follows:

                                                        FOR THE YEAR ENDING
     (IN THOUSANDS)                                         DECEMBER 31,
     ----------------------------------------------------------------------
     2003..........................................         $  19,312
     2004..........................................            26,500
     2005..........................................            29,000
     2006..........................................            22,750
     2007..........................................            42,438
     2008..........................................           123,375
                                                            ---------
                                                             $263,375
                                                            =========

     Total  interest  paid in  2002,  2001  and 2000  amounted  to  $13,691,000,
$28,642,000 and $37,119,000, respectively.

     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
derivatives for trading or other speculative purposes.

     Since  October  2001,  Apria  has been a party to two  interest  rate  swap
agreements that fixed  $100,000,000 of the company's  LIBOR-based  variable rate
debt at 2.58% (before the applicable margin).  These agreements are scheduled to
expire on March 31, 2003.  During the fourth quarter of 2002, Apria entered into
four new interest rate swap agreements with two different parties.  The new swap
agreements became effective December 5, 2002, with two agreements of $25,000,000
each expiring in December 2004 and the remaining two  agreements of  $25,000,000
each expiring in December 2005 and 2006,  respectively.  Under these agreements,
with  a  total  notional  amount  of  $100,000,000,  the  interest  rates  on an
equivalent amount of the company's  LIBOR-based  variable rate debt are fixed at
rates ranging from 2.43% to 3.42% (before the applicable margin).  The swaps are
being  accounted  for as cash flow hedges under SFAS No. 133.  Accordingly,  the
difference  between the interest  received and interest  paid is reflected as an
adjustment to interest expense.  For the years ended December 31, 2002 and 2001,
Apria paid net  settlement  amounts of $780,000  and $39,000,  respectively.  At
December 31, 2002, the aggregate fair value of the swap agreements was a deficit
of $1,991,000 and,  accordingly,  is reflected in the accompanying balance sheet
in other accrued  liabilities.  Unrealized gains and losses on the fair value of
the swap agreements are reflected, net of taxes, in other comprehensive income.

<PAGE>
NOTE 6 -- STOCKHOLDERS' EQUITY

     Treasury Stock: In February 2002, Apria implemented a plan to repurchase up
to $35,000,000 of outstanding  common stock.  Depending on market conditions and
other  considerations,  repurchases were made throughout the year in open market
transactions.  During 2002, Apria repurchased  1,597,000 shares for $35,000,000.
In 2000, Apria repurchased  86,000 shares of its common stock for $958,000.  All
repurchased common shares are being held in treasury.

     In March 2003,  Apria  announced that its Board of Directors had authorized
the company to  repurchase up to  $35,000,000  of its  outstanding  common stock
during  fiscal year 2003.  As of March 24,  2003,  the  company has  repurchased
50,700 shares for $1,120,000.

     Stock Compensation Plans: Apria has various stock-based compensation plans,
which  are  described  below.  Management  accounts  for these  plans  under the
recognition   and   measurement   principles   of   APB   No.  25  and   related
interpretations.  No stock-based  employee  compensation expense is reflected in
net income, as all options granted under those plans had an exercise price equal
to the market value of the underlying common stock on the date of grant.

     For  purposes  of the pro forma  disclosure  presented  in Note 1, the fair
value  of each  option  grant  is  estimated  on the  date of  grant  using  the
Black-Scholes   option-pricing   model  with  the   following   weighted-average
assumptions  used for grants in 2002,  2001 and 2000:  risk-free  interest rates
ranging  from 2.80% to 4.71%,  3.83% to 5.03% and 5.99% to 6.72%,  respectively;
dividend yield of 0% for all years;  expected lives of 4.13 years in 2002,  4.25
years for 2001 and 4.89 years for 2000;  and volatility of 59% for 2002, 62% for
2001 and 65% for 2000. See "Note 1 - Summary of Significant  Accounting Policies
- Stock-based Compensation."

     Fixed Stock  Options:  Apria has  various  fixed  stock  option  plans that
provide  for the  granting  of  incentive  or  non-statutory  options to its key
employees and  non-employee  members of the Board of  Directors.  In the case of
incentive stock options, the exercise price may not be less than the fair market
value of the company's stock on the date of the grant,  and may not be less than
110% of the fair market  value of the  company's  stock on the date of the grant
for any individual  possessing 10% or more of the voting power of all classes of
stock of the company.  The dates at which the options become  exercisable range
from the date of grant to five  years  after  the date of grant and  expire  not
later than 10 years after the date of grant. The weighted-average fair values of
fixed stock options granted during 2002,  2001 and 2000 were $11.79,  $14.06 and
$9.85, respectively.

     A summary of the status of Apria's  fixed stock  options as of December 31,
2002,  2001 and 2000, and the activity during the years ending on those dates is
presented below:
<TABLE>
<CAPTION>
                                                       2002                        2001                        2000
                                            --------------------------   -------------------------   ---------------------------
                                                          WEIGHTED-                   WEIGHTED-                    WEIGHTED-
                                                           AVERAGE                     AVERAGE                      AVERAGE
                                              SHARES    EXERCISE PRICE      SHARES  EXERCISE PRICE      SHARES   EXERCISE PRICE
--------------------------------------------------------------------------------------------------------------------------------
<S>                                         <C>            <C>            <C>            <C>          <C>            <C>
Outstanding at beginning of year..........  4,347,019      $20.41         3,268,096      $15.87       2,619,083      $15.73
Granted:
  Exercise price equal to fair value......  1,546,500      $23.59         2,246,000      $26.65       1,136,000      $16.47
Exercised.................................   (703,858)     $13.10          (548,185)     $15.45        (322,432)     $15.87
Forfeited.................................   (831,685)     $25.77          (618,892)     $23.99        (164,555)     $17.69
                                            ---------                     ---------                   ---------
Outstanding at end of year................  4,357,976      $21.69         4,347,019      $20.41       3,268,096      $15.87
                                            =========                     =========                   =========
Exercisable at end of year................  2,057,595      $19.18         1,913,525      $16.02       1,868,339      $15.23
                                            =========                     =========                   =========
</TABLE>
<PAGE>


     The  following  table  summarizes  information  about fixed  stock  options
outstanding at December 31, 2002:
<TABLE>
<CAPTION>
                                                        OPTIONS OUTSTANDING                           OPTIONS EXERCISABLE
                                            ---------------------------------------------        ----------------------------
                                                             WEIGHTED-
                                                              AVERAGE
                                                             REMAINING        WEIGHTED-                           WEIGHTED-
                                              NUMBER        CONTRACTUAL        AVERAGE              NUMBER         AVERAGE
RANGE OF EXERCISE PRICES                    OUTSTANDING   LIFE (IN YEARS)  EXERCISE PRICE         EXERCISABLE  EXERCISE PRICE
-----------------------------------------------------------------------------------------------------------------------------
<S>   <C>      <C>                            <C>              <C>             <C>                  <C>             <C>
      $ 6.69 - $12.19                         256,970          5.21            $ 9.47               226,970         $ 9.11
      $12.25 - $16.63                         376,698          6.00            $14.61               347,196         $14.57
      $16.94 - $16.94                         378,191          7.01            $16.94               199,157         $16.94
      $17.05 - $20.00                         482,011          5.97            $18.38               477,011         $18.37
      $20.50 - $26.45                       1,942,740          7.90            $23.84               514,569         $23.80
      $27.13 - $29.00                         921,366          7.91            $27.14               292,692         $27.18
                                            ---------                                             ---------
      $ 6.69 - $29.00                       4,357,976          7.29            $21.69             2,057,595         $19.18
                                            =========                                             =========
</TABLE>

     Performance-Based   Stock   Options:   Included   in  Apria's   stock-based
compensation  plans are provisions for the granting of  performance-based  stock
options. No such options have been granted since 1999. All options awarded under
the  performance-based  plans  have  vested and expire 10 years from the date of
grant.

     A summary  of the  status of  Apria's  performance-based  stock  options at
December 31, 2002,  2001 and 2000,  and the activity  during the years ending on
those dates is presented below:
<TABLE>
<CAPTION>
                                                      2002                        2001                          2000
                                            -------------------------    ------------------------    --------------------------
                                                         WEIGHTED-                   WEIGHTED-                     WEIGHTED-
                                                          AVERAGE                     AVERAGE                       AVERAGE
                                             SHARES    EXERCISE PRICE      SHARES  EXERCISE PRICE       SHARES   EXERCISE PRICE
-------------------------------------------------------------------------------------------------------------------------------
<S>                                         <C>            <C>            <C>           <C>           <C>           <C>
Outstanding at beginning of year..........  1,396,210      $ 7.91         2,384,402     $ 7.99        3,208,392     $ 7.77
Granted:
  Exercise price equal to fair value......          -      $    -                 -     $    -                -     $    -
Exercised................................. (1,186,552)     $ 8.01          (988,192)    $ 8.09         (776,484)    $ 7.20
Forfeited.................................          -      $    -                 -     $    -          (47,506)    $ 6.50
                                           ----------                     ---------                   ---------
Outstanding at end of year................    209,658      $ 7.34         1,396,210     $ 7.91        2,384,402     $ 7.99
                                           ==========                     =========                   =========
Exercisable at end of year................    209,658      $ 7.34         1,396,210     $ 7.91        1,747,365     $ 8.36
                                           ==========                     =========                   =========

</TABLE>

     The following table summarizes  information about  performance-based  stock
options outstanding at December 31, 2002:
<TABLE>
<CAPTION>
                                                        OPTIONS OUTSTANDING                           OPTIONS EXERCISABLE
                                            ---------------------------------------------        ----------------------------
                                                             WEIGHTED-
                                                              AVERAGE
                                                             REMAINING       WEIGHTED-                           WEIGHTED-
                                              NUMBER        CONTRACTUAL       AVERAGE                NUMBER       AVERAGE
RANGE OF EXERCISE PRICES                    OUTSTANDING   LIFE (IN YEARS)  EXERCISE PRICE         EXERCISABLE  EXERCISE PRICE
-----------------------------------------------------------------------------------------------------------------------------
<S>   <C>      <C>                          <C>               <C>            <C>                    <C>            <C>
      $ 6.50 - $10.75                       186,408           5.57           $ 6.55                 186,408        $ 6.55
      $12.25 - $18.56                        23,250           1.58           $13.61                  23,250        $13.61
                                            -------                                                 -------
      $ 6.50 - $18.56                       209,658           5.13           $ 7.34                 209,658        $ 7.34
                                            =======                                                 =======
</TABLE>
     Approximately  7,682,000  shares of common  stock are  reserved  for future
issuance upon exercise of stock options under all of Apria's active plans.

<PAGE>
NOTE 7 -- INCOME TAXES

     Significant  components of Apria's  deferred tax assets and liabilities are
as follows:

                                                                DECEMBER 31,
                                                           --------------------
     (IN THOUSANDS)                                           2002       2001
     --------------------------------------------------------------------------
     Deferred tax assets:
       Allowance for doubtful accounts .................   $ 12,077    $ 12,028
       Accruals ........................................      9,266       9,309
       Asset valuation reserves ........................      2,076       2,181
       Net operating loss carryforward, limited
          by Section 382 ...............................     10,685      35,623
       AMT credit carryovers ...........................      9,614       9,766
       Intangible assets ...............................      3,102       4,823
       Other, net ......................................      3,592       2,429
                                                           --------    --------
             Total deferred tax assets .................     50,412      76,159
                                                           --------    --------

     Deferred tax liabilities:
       Tax over book depreciation ......................    (16,911)     (4,122)
       Tax over book goodwill amortization .............     (5,829)          -
       Other, net ......................................          -      (1,182)
                                                           --------    --------
             Total deferred tax liabilities ............    (22,740)     (5,304)
                                                            --------    --------

             Net deferred tax assets ...................   $ 27,672    $ 70,855
                                                           ========    ========

     At December 31, 2002, Apria had federal net operating loss carryforwards of
$15,348,000,  expiring in varying  amounts in the years 2003 through  2018,  and
various  state  operating  loss  carryforwards  that  began to  expire  in 1997.
Additionally,  the company has an alternative minimum tax credit carryforward of
$9,614,000.

     As a result  of  settling  prior  year  tax  examinations,  Apria  utilized
approximately  $34,200,000 of its previously  limited  $57,000,000 net operating
loss  carryforward  during  2002.  Such  net  operating  loss  carryforward  was
generated  prior to 1992 and utilization had been limited to $5,000,000 per year
in  accordance  with  Internal  Revenue  Code Section  382.  Prior to 2002,  the
$57,000,000  net operating  loss  carryforward  was not recognized for financial
statement  reporting purposes as management believed it unlikely that they would
be used before  expiration.  The remaining net operating  loss  carryforward  of
approximately  $22,800,000 is excluded from the related  deferred tax assets and
will expire unused.

     Income tax expense (benefit) consists of the following:

                                               YEAR ENDED DECEMBER 31,
                                        -------------------------------------
     (IN THOUSANDS)                       2002          2001           2000
     ------------------------------------------------------------------------

     Current:
        Federal ...............         $ (8,348)     $  2,150       $  1,622
        State .................            6,408         1,200          5,099
                                        --------      --------       --------
                                          (1,940)        3,350          6,721
     Deferred:
        Federal ...............           53,058        39,049         30,116
        State .................            1,239         1,698          4,298
                                        --------      --------       --------
                                          54,297        40,747         34,414
                                        --------      --------       --------
                                        $ 52,357      $ 44,097       $ 41,135
                                        ========      ========       ========

     During 2002,  the exercise of stock options  granted under Apria's  various
stock option plans gave rise to $27,601,000 in  compensation  that is includable
as taxable  income to the employee and deductible by the company for federal and
state tax  purposes but is not  recognized  as expense for  financial  reporting
purposes. Such tax benefits are included in additional paid-in capital.

     Differences  between  Apria's  income tax expense  (benefit)  and an amount
calculated utilizing the federal statutory rate are as follows:
<TABLE>
<CAPTION>

                                                             YEAR ENDED DECEMBER 31,
                                                         --------------------------------
     (IN THOUSANDS)                                        2002        2001        2000
     ------------------------------------------------------------------------------------
<S>                                                      <C>         <C>         <C>
     Income tax expense at statutory rate ............   $ 58,783    $ 41,140    $ 34,349
     Non-deductible expenses .........................        735       1,693       1,590
     State and foreign taxes, net of federal
       benefit and state loss carryforwards ..........      4,519       2,959       3,942
     Examination settlements .........................    (11,073)          -           -
     Other ...........................................       (607)     (1,695)      1,254
                                                         --------    --------    --------
                                                         $ 52,357    $ 44,097    $ 41,135
                                                         ========    ========    ========
</TABLE>
     Net  income  taxes  (received)  paid in 2002,  2001 and  2000  amounted  to
$(3,165,000), $2,096,000 and $2,575,000, respectively.


NOTE 8 -- PER SHARE AMOUNTS

     The  following  table sets forth the  computation  of basic and diluted per
share amounts:
<TABLE>
<CAPTION>
                                                                                  YEAR ENDED DECEMBER 31,
                                                                              ------------------------------
     (IN THOUSANDS, EXCEPT PER SHARE DATA)                                      2002       2001       2000
     -------------------------------------------------------------------------------------------------------
<S>                                                                           <C>        <C>        <C>
     Numerator:
        Net income ........................................................   $115,595   $ 71,917   $ 57,006
        Numerator for basic and diluted per share amounts - net income
           available to common stockholders ...............................   $115,595   $ 71,917   $ 57,006

     Denominator:
        Denominator for basic per share
           amounts - weighted-average shares ..............................     54,586     53,971     52,375

        Effect of dilutive securities:
           Employee stock options .........................................        869      1,807      1,647
                                                                              --------   --------   --------
           Total dilutive potential common shares .........................        869      1,807      1,647
                                                                              --------   --------   --------
        Denominator for diluted per share amounts - adjusted
            weighted-average shares .......................................     55,455     55,778     54,022
                                                                              ========   ========   ========

     Basic net income per common share ....................................   $   2.12   $   1.33   $   1.09
                                                                              ========   ========   ========
     Diluted net income per common share ..................................   $   2.08   $   1.29   $   1.06
                                                                              ========   ========   ========

     Employee stock  options  excluded from the  computation
       of diluted per share amounts:

           Shares for which exercise price exceeds
              average market price of common stock ........................      2,543      1,853        249
                                                                              ========   ========   ========
      Average exercise price per share that exceeds
        average market price of common stock ..............................   $  25.31   $  26.86   $  25.52
                                                                              ========   ========   ========
</TABLE>


NOTE 9 -- LEASES

     Apria leases  substantially  all of its facilities.  In addition,  delivery
vehicles and office equipment are leased under operating leases. Lease terms are
generally ten years or less with renewal  options for additional  periods.  Many
leases  provide  that the company pay taxes,  maintenance,  insurance  and other
expenses.  Rentals are generally increased annually by the Consumer Price Index,
subject to certain maximum amounts defined within individual agreements.

     Apria  occasionally  subleases unused facility space when a lease buyout is
not a viable option.  Sublease income,  in amounts not considered  material,  is
recognized  monthly  and is offset  against  facility  lease  expense.  Net rent
expense  in  2002,  2001 and  2000  amounted  to  $62,383,000,  $60,618,000  and
$56,243,000, respectively.

     In addition, during 2002, 2001 and 2000, Apria acquired information systems
totaling  $5,937,000,  $1,837,000 and  $3,054,000,  respectively,  under capital
lease  arrangements with lease terms ranging from 24 to 36 months.  Amortization
of the leased information  systems amounted to $1,686,000,  $811,000 and $87,000
in 2002, 2001 and 2000, respectively.

     The  following  amounts for assets  under  capital  lease  obligations  are
included in property, equipment and improvements:

                                                           DECEMBER 31,
                                                    ---------------------------
     (IN THOUSANDS)                                    2002            2001
     --------------------------------------------------------------------------

     Information systems..........................  $   7,773        $   4,458
     Less accumulated depreciation................     (1,686)            (811)
                                                    ---------        ---------
                                                    $   6,087        $   3,647
                                                    =========        =========

     Future  minimum  payments,  by year and in the  aggregate,  required  under
capital lease  obligations  and  noncancelable  operating  leases consist of the
following at December 31, 2002:

                                                        CAPITAL    OPERATING
     (IN THOUSANDS)                                     LEASES      LEASES
     -----------------------------------------------------------------------
     2003...........................................   $  2,661     $ 56,244
     2004...........................................      2,525       48,457
     2005...........................................      1,224       42,724
     2006...........................................          -       32,159
     2007...........................................          -       19,881
     Thereafter.....................................          -       24,776
                                                       --------     --------
                                                          6,410     $224,241
                                                                    ========
     Less interest included in minimum
       lease payments...............................       (417)
                                                       --------
     Present value of minimum lease payments........      5,993
     Less current portion...........................     (2,401)
                                                       --------
                                                       $  3,592
                                                       ========

NOTE 10 -- EMPLOYEE BENEFIT PLANS

     Apria has a 401(k) defined  contribution  plan,  whereby eligible employees
may contribute up to 35% of their annual base earnings.  The company matches 50%
of the first 8% of employee contributions. Total expenses related to the defined
contribution  plan were $4,569,000,  $4,227,000 and $3,792,000 in 2002, 2001 and
2000, respectively.


NOTE 11 -- COMMITMENTS AND CONTINGENCIES

     Regulatory  Environment:  The  healthcare  industry is subject to extensive
government regulation,  including numerous laws directed at preventing fraud and
abuse and laws regulating  reimbursement  under various  governmental  programs.
Many of these  laws are  subject  to  governmental  review,  interpretation  and
reform, all of which complicate compliance.  If Apria is deemed to have violated
these laws and  regulations,  Apria  could be subject  to  significant  fines or
penalties,  facility  shutdowns and possible  exclusion  from  participation  in
federal healthcare programs such as Medicare and Medicaid.

     Litigation:  Apria and certain of its present  and former  officers  and/or
directors  were  defendants in a class action  lawsuit,  In Re Apria  Healthcare
Group Securities  Litigation,  filed in the U.S.  District Court for the Central
District  of  California,  Southern  Division  (Case No.  SACV98-217  GLT).  The
complaint  alleged,  among other things,  that the defendants  made false and/or
misleading  public  statements  regarding  Apria and its financial  condition in
violation  of federal  securities  laws.  Two similar  class  actions were filed
during  July 1998 in the  Superior  Court for the  State of  California  for the
County of Orange,  which were  consolidated  by a court order dated  October 22,
1998 (Master Case No. 797060). Following a series of settlement discussions, the
parties  reached an agreement to settle both the federal and state class actions
for $42 million.  Under the terms of the  settlement,  Apria paid $1 million and
its insurance  carriers paid $41 million.  Pursuant to the  settlement:  (1) the
State Court class actions were concluded on August 20, 2002 by entry of an Order
and Final  Judgment;  and (2) the District  Court class action was  dismissed on
August 21, 2002.

     In August 2001, a purported  class action  lawsuit was filed  against Apria
and its  former  Chief  Executive  Officer  in the U.S.  District  Court for the
Central  District of California,  Southern  Division (Case No.  SACV01-5160 PA),
entitled J.E.B.  Capital Partners,  LP v. Apria Healthcare Group Inc. and Philip
L. Carter.  The complaint alleged that Apria made false and/or misleading public
statements in its public disclosures  concerning the qui tam litigation referred
to below. On October 10, 2002, the District Court entered a judgment in favor of
Apria and dismissed the complaint.  On November 8, 2002, the plaintiff  appealed
that  dismissal.  On  January  22,  2003,  the  Court of  Appeals,  acting  on a
stipulation by the parties,  entered an order  dismissing the appeal and finally
concluding this litigation in favor of Apria.

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

     Apria has been informed that the  investigation  is the result of civil qui
tam litigation  filed on behalf of the government  against Apria. The complaints
in the litigation are under seal,  however,  and the government has not informed
Apria of either the identities of the plaintiffs,  the court or courts where the
proceedings  are  pending,  the date or dates  instituted  or the factual  bases
alleged to underlie the proceedings. To date, the U.S. Attorney's office has not
informed Apria of any decision to intervene in the qui tam actions;  however, it
could reach a decision with respect to intervention at any time.

     Government  representatives  and counsel for the  plaintiffs in the qui tam
actions asserted in July 2001 that, by a process of extrapolation  from a sample
of 300 patient files to all of Apria's billings to the federal government during
the  three-and-one-half  year  sample  period,  Apria  could  be  liable  to the
government  under the False Claims Act for more than $9 billion,  consisting  of
extrapolated  overpayment  liability,  treble  damages  and  penalties  of up to
$10,000 for each allegedly false claim derived from the extrapolation.

     Apria has acknowledged that there may be errors and omissions in supporting
documentation  affecting a portion of its  billings.  However,  it considers the
assertions  and amounts  described in the preceding  paragraph to be unsupported
both legally and factually  and believes that most of the alleged  documentation
errors and  omissions  should not give rise to any  liability,  for  overpayment
refunds or otherwise.  Accordingly,  Apria believes that the claims asserted are
unwarranted  and  that  it is  in a  position  to  assert  numerous  meritorious
defenses.

     Apria  has  been  exchanging   information  and  having   discussions  with
government  representatives in an attempt to explore whether it will be possible
to resolve this matter on a basis that would be considered  fair and  reasonable
by all parties.  Apria cannot  provide any assurances as to the outcome of these
discussions,  however,  or as to the  outcome of the qui tam  litigation  in the
absence of a settlement.  Management  cannot estimate the possible loss or range
of loss that may result from these  proceedings  and  therefore has not recorded
any related accruals.

     If a judge,  jury or  administrative  agency were to  determine  that false
claims  were  submitted  to  federal  healthcare  programs  or that  there  were
significant  overpayments  by  the  government,   Apria  could  face  civil  and
administrative  claims for refunds,  sanctions  and  penalties  for amounts that
would be highly  material to its business,  results of operations  and financial
condition,  including  the  exclusion  of Apria  from  participation  in federal
healthcare programs.

     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 the  company  upon the
resolution  of these  claims and  lawsuits  will not, in the  aggregate,  have a
material  adverse  effect on  Apria's  consolidated  results of  operations  and
financial position.  Management is unable to estimate the range of possible loss
for all other claims and lawsuits.

     Certain  Concentrations:  Approximately  67% of Apria's  2002  revenues are
derived from respiratory  therapy  services,  a significant  portion of which is
reimbursed under the federal Medicare  program.  The Balanced Budget Act of 1997
contained several  provisions that have affected Apria's Medicare  reimbursement
levels.  Subsequent legislation - the Medicare Balanced Budget Refinement Act of
1999 and the Medicare,  Medicaid and SCHIP Benefits  Improvement  and Protection
Act of  2000 -  mitigated  some  of the  effects  of the  original  legislation.
However,  there  are some  pending  issues  that  may  further  impact  Medicare
reimbursement to Apria in the future, such as potential reimbursement reductions
under  an  inherent  reasonableness  authority  and  competitive  bidding.  Also
currently  at  issue  is  the  potential  adoption  of  an  alternative  pricing
methodology  for certain  drugs and  biologicals.  The timing and  magnitude  of
reimbursement  reductions  that may  result  from any of  these  issues  are not
currently known.

     Apria  currently  purchases   approximately  50%  of  its  patient  service
equipment and supplies from four suppliers.  Although there are a limited number
of suppliers,  management  believes that other  suppliers  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
employment relationship.

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

NOTE 12 -- SERVICE/PRODUCT LINE DATA

     The  following  table sets forth a summary of net revenues and gross profit
by service line:
<TABLE>
<CAPTION>
                                                                               YEAR ENDED DECEMBER 31,
                                                                      ---------------------------------------
     (IN THOUSANDS)                                                        2002         2001          2000
     --------------------------------------------------------------------------------------------------------

<S>                                                                   <C>            <C>           <C>
     Net revenues:
       Respiratory therapy........................................    $  830,972     $  742,805    $  656,089
       Infusion therapy...........................................       229,190        216,436       194,508
       Home medical equipment/other...............................       192,034        172,674       163,604
                                                                      ----------     ----------    ----------
               Total net revenues.................................    $1,252,196     $1,131,915    $1,014,201
                                                                      ==========     ==========    ==========

     Gross profit:
       Respiratory therapy........................................    $  661,879     $  588,868    $  521,867
       Infusion therapy...........................................       130,439        126,778       115,352
       Home medical equipment/other...............................       118,961        108,622        98,040
                                                                      ----------     ----------    ----------
               Total gross profit.................................    $  911,279     $  824,268    $  735,259
                                                                      ==========     ==========    ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NOTE 13 -- SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

                                                                            QUARTER
                                                        ------------------------------------------------
     (IN THOUSANDS, EXCEPT PER SHARE DATA)                FIRST       SECOND        THIRD       FOURTH
     ---------------------------------------------------------------------------------------------------
<S>                                                     <C>          <C>          <C>          <C>
     2002
     Net revenues ...................................   $301,345     $310,425     $312,046     $328,380
     Gross profit ...................................   $219,226     $225,942     $227,813     $238,298
     Operating income ...............................   $ 40,936     $ 45,817     $ 45,873     $ 46,119
     Net income .....................................   $ 22,995     $ 26,158     $ 26,465     $ 39,977

     Basic income per common share ..................   $   0.42     $   0.48     $   0.48     $   0.73
     Diluted income per common share ................   $   0.41     $   0.47     $   0.48     $   0.72



     2001
     Net revenues ...................................   $271,354     $283,480     $284,025     $293,056
     Gross profit ...................................   $195,076     $207,905     $207,548     $213,739
     Operating income ...............................   $ 35,696     $ 35,613     $ 35,681     $ 36,237
     Income before extraordinary charge .............   $ 17,076     $ 17,247     $ 19,133     $ 19,989
     Net income .....................................   $ 17,076     $ 17,247     $ 17,605     $ 19,989

     Basic income per common share:
       Income before extraordinary charge ...........   $   0.32     $   0.32     $   0.35     $   0.37
       Extraordinary charge on debt refinancing,
          net of taxes ..............................          -            -         0.03          -
                                                        --------     --------     --------     --------
               Net income ...........................   $   0.32     $   0.32     $   0.32     $   0.37
                                                        ========     ========     ========     ========

     Diluted income per common share:
       Income before extraordinary charge ...........   $   0.31     $   0.31     $   0.34     $   0.36
       Extraordinary charge on debt refinancing,
          net of taxes ..............................          -            -         0.03            -
                                                        --------     --------     --------     --------
              Net income ...........................    $   0.31     $   0.31     $   0.31     $   0.36
                                                        ========     ========     ========     ========
</TABLE>

     Fourth  Quarter - 2002:  Net income for the fourth quarter of 2002 reflects
the positive impact of prior year income tax  examinations  that were settled in
the  period.  The  components  of this are as  follows:  income  tax  benefit of
$11,073,000,  interest income of $4,045,000 and related professional fee expense
of $1,710,000.

     Third Quarter - 2001:  Net income for the third quarter of 2001 includes an
extraordinary charge of $1,528,000, net of tax, attributable to the write-off of
the  unamortized  balance  of  deferred  financing  fees  related  to the  early
retirement  of  Apria's 9 1/2%  senior  subordinated  notes  and the  previously
existing credit agreement.  Both were scheduled to mature in late 2002, but were
repaid in full  concurrently with the closing of the new senior credit agreement
in July 2001.







                                   o o o o o o

<PAGE>
<TABLE>

                                                    APRIA HEALTHCARE GROUP INC.

                                          SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

<CAPTION>

                                                                         ADDITIONS
                                                                   -----------------------
                                                     BALANCE AT    CHARGED TO   CHARGED TO                BALANCE AT
                                                      BEGINNING    COSTS AND      OTHER                     END OF
(IN THOUSANDS)                                        OF PERIOD     EXPENSES     ACCOUNTS    DEDUCTIONS     PERIOD
--------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>           <C>          <C>           <C>          <C>
Year ended December 31, 2002
----------------------------
Deducted from asset accounts:
   Allowance for doubtful accounts..............     $ 32,073      $ 45,115     $      -      $ 44,982     $ 32,206
   Reserve for inventory and patient
      service equipment shortages...............        5,816             -            -           499        5,317
                                                     --------      --------     --------      --------     --------
                  Totals........................     $ 37,889      $ 45,115     $      -      $ 45,481     $ 37,523
                                                     ========      ========     ========      ========     ========


Year ended December 31, 2001
----------------------------
Deducted from asset accounts:
   Allowance for doubtful accounts..............     $ 39,787      $ 37,110     $      -      $ 44,824     $ 32,073
   Reserve for inventory and patient
      service equipment shortages...............        7,790             -            -         1,974        5,816
                                                     --------      --------     --------      --------     --------
                  Totals........................     $ 47,577      $ 37,110     $      -      $ 46,798     $ 37,889
                                                     ========      ========     ========      ========     ========


Year ended December 31, 2000
----------------------------
Deducted from asset accounts:
   Allowance for doubtful accounts..............     $ 44,652     $  32,166     $      -      $ 37,031     $ 39,787
   Reserve for inventory and patient
      service equipment shortages...............       10,359             -            -         2,569        7,790
                                                     --------     ---------     --------      --------     --------
                  Totals........................     $ 55,011     $  32,166     $      -      $ 39,600     $ 47,577
                                                     ========     =========     ========      ========     ========

</TABLE>
<PAGE>
                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) 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.

Dated:  March 31, 2003

                                       APRIA HEALTHCARE GROUP INC.

                                   By: /s/ LAWRENCE M. HIGBY
                                       --------------------------------------
                                       President and Chief Executive Officer

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
registrant and in the capacities and on the dates indicated.

       SIGNATURE                         TITLE                        DATE
--------------------------------------------------------------------------------

/s/ LAWRENCE M. HIGBY
--------------------------
Lawrence M. Higby             President, Chief Executive         March 31, 2003
                              Officer and Director
                              (Principal Executive Officer)


/s/ JAMES E. BAKER
--------------------------
James E. Baker                Chief Financial Officer            March 31, 2003
                              (Principal Financial and
                               Accounting Officer)


/s/ RALPH V. WHITWORTH
--------------------------
Ralph V. Whitworth            Director, Chairman
                              of the Board                       March 31, 2003


/s/ VICENTE ANIDO, JR.
--------------------------
Vicente Anido, Jr.            Director                           March 31, 2003


/s/ I. T. CORLEY
--------------------------
I. T. Corley                  Director                           March 31, 2003


/s/ DAVID L. GOLDSMITH
--------------------------
David L. Goldsmith            Director                           March 31, 2003


/s/ RICHARD H. KOPPES
--------------------------
Richard H. Koppes             Director                           March 31, 2003


/s/ PHILIP R. LOCHNER, JR.
--------------------------
Philip R. Lochner, Jr.        Director                           March 31, 2003


/s/ JERI L. LOSE
--------------------------
Jeri L. Lose                  Director                           March 31, 2003


/s/ BEVERLY B. THOMAS
--------------------------
Beverly B. Thomas             Director                           March 31, 2003

<PAGE>


CERTIFICATION - CHIEF EXECUTIVE OFFICER


I, Lawrence M. Higby, certify that:

1.   I have reviewed this annual report on Form 10-K of Apria  Healthcare  Group
     Inc.;

2.   Based on my  knowledge,  this  annual  report  does not  contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this annual report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information included in this annual report,  fairly present in all material
     respects the financial  condition,  results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

4.   The  registrant's  other  certifying  officer  and  I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

     a)   designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities,  particularly  during the period in which this annual report
          is being prepared;

     b)   evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing date of
          this annual report (the "Evaluation Date"); and

     c)   presented   in  this   annual   report  our   conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date;

5.   The registrant's  other certifying  officer and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of registrant's board of directors:

     a)   all  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  registrant's  auditors any material  weaknesses in
          internal controls; and

     b)   any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and

6.   The  registrant's  other  certifying  officer and I have  indicated in this
     annual  report  whether or not there were  significant  changes in internal
     controls  or in other  factors  that could  significantly  affect  internal
     controls  subsequent to the date of our most recent  evaluation,  including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.

Date:  March 31, 2003




                                       /s/ LAWRENCE M. HIGBY
                                       ------------------------------------
                                       Lawrence M. Higby
                                       Chief Executive Officer

<PAGE>

CERTIFICATION - CHIEF FINANCIAL OFFICER


I, James E. Baker, certify that:

1.   I have reviewed this annual report on Form 10-K of Apria  Healthcare  Group
     Inc.;

2.   Based on my  knowledge,  this  annual  report  does not  contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this annual report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information included in this annual report,  fairly present in all material
     respects the financial  condition,  results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

4.   The  registrant's  other  certifying  officer  and  I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

     a)   designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities,  particularly  during the period in which this annual report
          is being prepared;

     b)   evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing date of
          this annual report (the "Evaluation Date"); and

     c)   presented   in  this   annual   report  our   conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date;

5.   The registrant's  other certifying  officer and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of registrant's board of directors:

     a)   all  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  registrant's  auditors any material  weaknesses in
          internal controls; and

     b)   any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and

6.   The  registrant's  other  certifying  officer and I have  indicated in this
     annual  report  whether or not there were  significant  changes in internal
     controls  or in other  factors  that could  significantly  affect  internal
     controls  subsequent to the date of our most recent  evaluation,  including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.

Date:  March 31, 2003




                                       /s/ JAMES E. BAKER
                                       ------------------------------------
                                       James E. Baker
                                       Chief Financial Officer
<PAGE>
<TABLE>
<CAPTION>

                                  EXHIBIT INDEX

EXHIBIT NO.                        DESCRIPTION                                                                    REFERENCE
--------------------------------------------------------------------------------------------------------------------------------


     <c>                                                                                                          <c>
3.1     Restated Certificate of Incorporation of Registrant.                                                         (c)

3.2     Certificate  of  Ownership and Merger  merging Apria  Healthcare Group Inc. into Abbey and amending
        Abbey's Restated Certificate of Incorporation to change Abbey's name to "Apria Healthcare Group Inc."        (l)

3.3     Amended and Restated Bylaws of Registrant, as amended on May 5, 1998.                                        (f)

3.4     Certificate of Amendment of Certificate of Incorporation of Apria Healthcare Group Inc.                      (h)

3.5     Amended and Restated Bylaws of Registrant, as amended on October 29, 1999.                                   (i)

3.6     Amended and Restated Bylaws of Registrant, as amended on September 3, 2002.                                  (o)

3.7     Amended and Restated Bylaws of Registrant, as amended on November 20, 2002.

4.1     Specimen Stock Certificate of the Registrant.                                                                (l)

4.2     Certificate of Designation of the Registrant.                                                                (c)

10.1    1991 Stock Option Plan.                                                                                      (a)

10.2    Schedule of Registration Procedures and Related Matters.                                                     (b)

10.3    401(k) Savings Plan, restated effective October 1, 1993, amended December 28, 1994.                          (e)

10.4    Amendment Number Two to the 401(k) Savings Plan, dated June 27, 1995.

10.5    Apria/Homedco Stock Incentive Plan, dated June 28, 1995.                                                     (d)

10.6    Amended and Restated 1992 Stock Incentive Plan.                                                              (e)

10.7    Amendment Number Three to the 401(k) Savings Plan, effective January 1, 1996.

10.8    Amendment 1996-1 to the 1991 Stock Option Plan, dated October 28, 1996.                                      (g)

10.9    Amendment 1996-1 to the Amended and Restated 1992 Stock Incentive Plan, dated October 28, 1996.              (g)

10.10   Amended and Restated 1997 Stock Incentive Plan, dated February 27, 1997, as amended through June 30,
        1998.                                                                                                        (g)

10.11   Executive Severance Agreement effective June 28, 1997, between Registrant and James E. Baker.                (g)

10.12   1998 Nonqualified Stock Incentive Plan, dated December 15, 1998.                                             (g)

10.13   Building Lease, dated December 6, 2000 and commencing on December 1, 2001, between MSGW California I,
        LLC and Apria Healthcare, Inc. for two  buildings within the MSGW/Pacific Commercentre Business Park,
        Lake Forest, California.                                                                                     (k)

10.14   Amendment No. 1 to the 1998 Nonqualified Stock Incentive Plan, dated January 31, 2001.                       (j)

10.15   Credit  Agreement  dated July 20, 2001, among  Registrant  and certain  of its subsidiaries, Bank of
        America National Association and other financial institutions party to the Credit Agreement.                 (k)

10.16   Underwriting Agreement dated August 9, 2001, between Registrant and Relational Investors, LLC.               (k)

10.17   Resignation and General Release Agreement effective February 12, 2002, between Registrant and Philip
        L. Carter.                                                                                                   (l)

10.18   Amended and Restated Employment Agreement effective February 12, 2002, between Registrant and Lawrence
        M. Higby.                                                                                                    (o)

10.19   Employment Agreement effective April 4, 2002, between Registrant and Lawrence A. Mastrovich.                 (m)

10.20   Executive Severance Agreement effective May 8, 2002, between Registrant and Anthony S. Domenico.             (n)

10.21   Third Amended and  Restated Credit Agreement dated June 7, 2002, among Registrant and  certain of its
        subsidiaries,  Bank of America  National Association and  other financial institutions party  to the
        Credit Agreement.                                                                                            (n)

10.22   International Swaps and Derivatives Association, Inc. Master Agreement dated December 3, 2002, between
        Registrant and Credit Lyonnais New York Branch.

10.23   Schedule to the Master Agreement dated December 3, 2002, between Registrant and Credit Lyonnais New
        York Branch.

10.24   International Swaps and Derivatives Association, Inc. Master Agreement dated December 3, 2002, between
        Registrant and Bank of Nova Scotia.

10.25   Schedule to the Master Agreement dated December 3, 2002, between Registrant and Bank of Nova Scotia.

10.26   Amendment to Executive  Severance  Agreement dated March 18, 2003, between  Registrant and Anthony S.
        Domenico.

21.1    List of Subsidiaries.

23.1    Consent of Deloitte & Touche LLP, Independent Auditors.

99.1    Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350.

99.2    Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350.



</TABLE>
<TABLE>
<CAPTION>

                               REFERENCES - DOCUMENTS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION

<S>     <C>
(a)     Incorporated by reference to Registration Statement on Form S-1 (Registration No. 33-44690), as filed on
        December 23, 1991.

(b)     Incorporated by reference to Registration Statement on Form S-4 (Registration No. 33-69094), as filed on
        September 17, 1993.

(c)     Incorporated  by reference to  Registration  Statement on Form S-4
        (Registration No. 33-90658), and its appendices, as filed on March
        27, 1995.

(d)     Incorporated by reference to Registration Statement on Form S-8 (Registration No. 33-94026), as filed on
        June 28, 1995.

(e)     Incorporated by reference to Registration Statement on Form S-8 (Registration No. 33-80581), as filed on
        December 19, 1995.

(f)     Incorporated by reference to Quarterly Report on Form 10-Q dated June 30, 1998, as filed on August 14, 1998.

(g)     Incorporated by reference to Annual Report on Form 10-K for the year ended December 31, 1998.

(h)     Incorporated by reference to Quarterly Report on Form 10-Q dated June 30, 1999, as filed on August 12, 1999.

(i)     Incorporated by reference to Quarterly Report on Form 10-Q dated September 30, 1999, as filed on November
        12, 1999.

(j)     Incorporated by reference to Annual Report on Form 10-K for the year ended December 31, 2000.

(k)     Incorporated by reference to Quarterly Report on Form 10-Q dated September 30, 2001, as filed on November
        14, 2001.

(l)     Incorporated by reference to Annual Report on Form 10-K for the year ended December 31, 2001.

(m)     Incorporated by reference to Quarterly Report on Form 10-Q dated March 31, 2002, as filed on May 15, 2002.

(n)     Incorporated by reference to Quarterly Report on Form 10-Q dated June 30, 2002, as filed on August 14, 2002.

(o)     Incorporated by reference to Quarterly Report on Form 10-Q dated September 30, 2002, as filed on November
        14, 2002.

</TABLE>