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

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**FORM 10-Q**

**(MARK ONE)**

| x | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE   SECURITIES EXCHANGE ACT OF 1934** |
|---|-----------------------------------------------------------------------------------------------|

**For The Quarterly Period Ended March 31, 2004**

**OR**

| o | **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE   SECURITIES ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________ TO ________** |
|---|-------------------------------------------------------------------------------------------------------------------------------------------|

**Commission File Number 0-19946**

**LINCARE HOLDINGS INC.(Exact name of registrant as specified in its charter)**

| **Delaware**                                                         |   | **51-0331330**                             |
|----------------------------------------------------------------------|--------|--------------------------------------------|
| **(State or   other jurisdiction of incorporation or organization)** |   | **(I.R.S.   Employer Identification No.)** |
|                                                                 |   |                                       |
| **19387 US 19 North Clearwater, FL**                                 |   | **33764**                                  |
| **(Address   of principal executive offices)**                       |   | **(Zip Code)**                             |

**Registrant’s telephone number, including area code: (727) 530-7700**

          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 o

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

          Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. 

| **Class**                     | ** ** | **Outstanding   at   April 30, 2004** |
|-------------------------------|------------|---------------------------------------|
| Common Stock, $0.01 par value | ** ** | 99,436,241 shares                     |

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**LINCARE HOLDINGS INC. AND SUBSIDIARIES****FORM 10-Q****For The Quarterly Period Ended March 31, 2004****INDEX**

|                          |                                                                                         | **Page** |
|-------------------------------|----------------------------------------------------------------------------------------------|----------|
|                          |                                                                                         |          |
| PART I. FINANCIAL INFORMATION |                                                                                         |
| Item 1.                       | Financial Statements (unaudited)                                                             | 3        |
|                          | Condensed consolidated balance   sheets                                                      | 3        |
|                          | Condensed consolidated statements   of operations                                            | 4        |
|                          | Condensed consolidated statements   of cash flows                                            | 5        |
|                          | Notes to condensed consolidated   financial statements                                       | 6        |
| Item 2.                       | Management’s Discussion and   Analysis of Financial Condition and Results of Operations | 9        |
| Item 3.                       | Quantitative and Qualitative   Disclosures About Market Risk                                 | 19       |
| Item 4.                       | Controls and Procedures                                                                      | 19       |
|                          |                                                                                         |     |
| PART II. OTHER INFORMATION    |                                                                                         |
| Item 1.                       | Legal Proceedings                                                                            | 20       |
| Item 2.                       | Changes in Securities, Use of   Proceeds and Issuer Purchases of Equity Securities           | 20       |
| Item 3.                       | Defaults Upon Senior Securities                                                              | 20       |
| Item 4.                       | Submission of Matters to a Vote of   the Security Holders                                    | 20       |
| Item 5.                       | Other Information                                                                            | 20       |
| Item 6.                       | Exhibits and Reports on Form 8-K                                                             | 20       |
| SIGNATURE                     | 21                                                                                           |
| INDEX OF EXHIBITS             | S-1                                                                                          |

2

**PART I. FINANCIAL INFORMATION**

**Item 1. *Financial Statements (Unaudited)***

**LINCARE HOLDINGS INC. AND SUBSIDIARIES****CONDENSED CONSOLIDATED BALANCE SHEETS****(In thousands)****(Unaudited)**

|                                                  |   | **March 31,   2004** |      | **December   31,   2003** |   |
|-------------------------------------------------------|--------|----------------------|-----------|---------------------------|--------|
|                                                  |   |                      |      |                           |   |
| Current assets:                                       |   |                 |      |                      |   |   |   |
| Cash and cash   equivalents                           |   | $                    | 92,263    |                      | $      | 9,815 |   |
| Restricted cash                                       |   |                 | 8,341     |                      |   | 7,909 |   |
| Accounts and notes   receivable                       |   |                 | 153,991   |                      |   | 151,194 |   |
| Income tax receivable                                 |   |                 | 0         |                      |   | 11,117 |   |
| Inventories                                           |   |                 | 2,440     |                      |   | 2,503 |   |
| Prepaid and other   current assets                    |   |                 | 3,367     |                      |   | 4,552 |   |
|                                                  |   |                      |           |                      |        |  |   |
| Total current assets                                  |   |                 | 260,402   |                      |   | 187,090 |   |
|                                                  |   |                      |           |                      |        |  |   |
| Property and equipment                                |   |                 | 642,378   |                      |   | 622,274 |   |
| Less: accumulated depreciation                        |   |                 | (349,514  | )                         |   | (334,150 | ) |
|                                                  |   |                      |           |                      |        |  |   |
| Net property and   equipment                          |   |                 | 292,864   |                      |   | 288,124 |   |
|                                                  |   |                      |           |                      |        |  |   |
| Other assets:                                         |   |                 |      |                      |   |   |   |
| Goodwill                                              |   |                 | 951,749   |                      |   | 941,937 |   |
| Covenants   not-to-compete                            |   |                 | 3,892     |                      |   | 4,224 |   |
| Other                                                 |   |                 | 8,969     |                      |   | 10,285 |   |
|                                                  |   |                      |           |                      |        |  |   |
| Total other assets                                    |   |                 | 964,610   |                      |   | 956,446 |   |
|                                                  |   |                      |           |                      |        |  |   |
| Total assets                                          |   | $                    | 1,517,876 |                      | $      | 1,431,660 |   |
|                                                  |   |                      |           |                      |        |  |   |
| Current liabilities:                                  |   |                 |      |                      |   |   |   |
| Current installments of   long-term obligations       |   | $                    | 63,062    |                      | $      | 65,936 |   |
| Accounts payable                                      |   |                 | 31,120    |                      |   | 35,033 |   |
| Accrued expenses:                                     |   |                 |      |                      |   |   |   |
| Compensation and   benefits                           |   |                 | 21,766    |                      |   | 30,415 |   |
| Liability insurance                                   |   |                 | 12,027    |                      |   | 8,891 |   |
| Other current   liabilities                           |   |                 | 7,311     |                      |   | 6,882 |   |
| Income taxes payable                                  |   |                 | 20,324    |                      |   | 0 |   |
|                                                  |   |                      |           |                      |        |  |   |
| Total current   liabilities                           |   |                 | 155,610   |                      |   | 147,157 |   |
|                                                  |   |                      |           |                      |        |  |   |
| Long-term obligations, excluding current installments |   |                 | 320,476   |                      |   | 320,817 |   |
| Deferred income taxes                                 |   |                 | 124,137   |                      |   | 114,689 |   |
| Minority interest                                     |   |                 | 683       |                      |   | 750 |   |
|                                                  |   |                      |           |                      |        |  |   |
| Total liabilities                                     |   |                 | 600,906   |                      |   | 583,413 |   |
|                                                  |   |                      |           |                      |        |  |   |
| Stockholders’ equity:                            |   |                 |      |                      |   |   |   |
| Common stock                                          |   |                 | 1,231     |                      |   | 1,229 |   |
| Additional paid-in capital                            |   |                 | 234,511   |                      |   | 229,111 |   |
| Retained earnings                                     |   |                 | 1,205,109 |                      |   | 1,142,176 |   |
| Less: treasury stock                                  |   |                 | (523,881  | )                         |   | (524,269 | ) |
|                                                  |   |                      |           |                      |        |  |   |
| Total stockholders’   equity                     |   |                 | 916,970   |                      |   | 848,247 |   |
|                                                  |   |                      |           |                      |        |  |   |
| Total liabilities and   stockholders’ equity     |   | $                    | 1,517,876 |                      | $      | 1,431,660 |   |
|                                                  |   |                      |           |                      |        |  |   |

See accompanying notes to unaudited condensed consolidated financial statements.

3

**LINCARE HOLDINGS INC. AND SUBSIDIARIES****CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS****(In thousands, except share and per share data)****(Unaudited)**

|                                                                                |   | **For The   Three Months Ended** |        |
|-------------------------------------------------------------------------------------|--------|----------------------------------|-------------|
|                                                                                |   |                                  |        |
|                                                                                |   | **March 31,   2004**             |        | **March 31,   2003** |   |
|                                                                                |   |                                  |        |  |   |
| Net revenues                                                                        |   | $                                | 306,871     |   | $ | 265,173 |   |
|                                                                                |   |                                  |             |   |  |  |   |
| Costs and expenses:                                                                 |   |                             |        |   |   |   |   |
| Cost of goods and   services                                                        |   |                             | 45,852      |   |   | 39,936 |   |
| Operating expenses                                                                  |   |                             | 64,805      |   |   | 59,479 |   |
| Selling, general and   administrative expenses                                      |   |                             | 64,536      |   |   | 56,085 |   |
| Bad debt expense                                                                    |   |                             | 4,603       |   |   | 3,978 |   |
| Depreciation expense                                                                |   |                             | 21,285      |   |   | 17,275 |   |
| Amortization expense                                                                |   |                             | 377         |   |   | 415 |   |
|                                                                                |   |                                  |             |   |  |  |   |
|                                                                                |   |                             | 201,458     |   |   | 177,168 |   |
|                                                                                |   |                                  |             |   |  |  |   |
| Operating income                                                                    |   |                             | 105,413     |   |   | 88,005 |   |
|                                                                                |   |                                  |             |   |  |  |   |
| Other income (expense):                                                             |   |                             |        |   |   |   |   |
| Interest income                                                                     |   |                             | 154         |   |   | 31 |   |
| Interest expense                                                                    |   |                             | (4,550      | ) |   | (3,495 | ) |
| Net loss on disposal of   property and equipment                                    |   |                             | (2          | ) |   | (2 | ) |
|                                                                                |   |                                  |             |   |  |  |   |
|                                                                                |   |                             | (4,398      | ) |   | (3,466 | ) |
|                                                                                |   |                                  |             |   |  |  |   |
| Income before income   taxes                                                        |   |                             | 101,015     |   |   | 84,539 |   |
| Income tax expense                                                                  |   |                             | 38,082      |   |   | 31,617 |   |
|                                                                                |   |                                  |             |   |  |  |   |
| Net income                                                                          |   | $                                | 62,933      |   | $ | 52,922 |   |
|                                                                                |   |                                  |             |   |  |  |   |
| Basic earnings per   common share                                                   |   | $                                | 0.64        |   | $ | 0.50 |   |
|                                                                                |   |                                  |             |   |  |  |   |
| Diluted earnings per   common share                                                 |   | $                                | 0.62        |   | $ | 0.49 |   |
|                                                                                |   |                                  |             |   |  |  |   |
| Weighted average number of common shares   outstanding                              |   |                             | 99,037,298  |   |   | 104,808,097 |   |
|                                                                                |   |                                  |             |   |  |  |   |
| Weighted average number of common shares and common   share equivalents outstanding |   |                             | 101,299,317 |   |   | 107,463,380 |   |
|                                                                                |   |                                  |             |   |  |  |   |

See accompanying notes to unaudited condensed consolidated financial statements.

4

**LINCARE HOLDINGS INC. AND SUBSIDIARIES****CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS****(In thousands)****(Unaudited)**

|                                                                                |   | **For The   Three Months Ended** |    |
|-------------------------------------------------------------------------------------|--------|----------------------------------|---------|
|                                                                                |   |                                  |    |
|                                                                                |   | **March 31,   2004**             |    | **March 31,   2003** |   |
|                                                                                |   |                                  |    |  |   |
| Cash flows from operating   activities:                                             |   |                             |    |   |   |   |   |
| Net   income                                                                        |   | $                                | 62,933  |   | $ | 52,922 |   |
| Adjustments   to reconcile net income to net cash provided by operating activities: |   |                             |    |   |   |   |   |
| Provision   for losses on accounts and notes receivable                             |   |                             | 4,603   |   |   | 3,978 |   |
| Depreciation   expense                                                              |   |                             | 21,285  |   |   | 17,275 |   |
| Loss   on disposal of property and equipment                                        |   |                             | 2       |   |   | 2 |   |
| Amortization   expense                                                              |   |                             | 377     |   |   | 415 |   |
| Amortization   of interest swap contracts                                           |   |                             | (147    | ) |   | (196 | ) |
| Deferred   income tax benefit                                                       |   |                             | 9,448   |   |   | 2,130 |   |
| Minority   interest in net earnings of subsidiary                                   |   |                             | 21      |   |   | 19 |   |
| Change   in assets and liabilities net of effects of acquired businesses:           |   |                             |    |   |   |   |   |
| Increase   in accounts and notes receivable                                         |   |                             | (7,387  | ) |   | (12,863 | ) |
| Decrease   in inventories                                                           |   |                             | 69      |   |   | 356 |   |
| Decrease   in prepaid and other current assets                                      |   |                             | 1,185   |   |   | 1,243 |   |
| Increase   (decrease) in accounts payable                                           |   |                             | (4,057  | ) |   | 1,305 |   |
| Decrease   in accrued expenses                                                      |   |                             | (5,136  | ) |   | (5,598 | ) |
| Increase   in income taxes payable                                                  |   |                             | 33,326  |   |   | 27,492 |   |
|                                                                                |   |                                  |         |   |  |  |   |
| Net   cash provided by operating activities                                         |   |                             | 116,522 |   |   | 88,480 |   |
|                                                                                |   |                                  |         |   |  |  |   |
| Cash flows from investing   activities:                                             |   |                             |    |   |   |   |   |
| Proceeds   from sale of property and equipment                                      |   |                             | 6       |   |   | 26 |   |
| Capital   expenditures                                                              |   |                             | (25,315 | ) |   | (23,066 | ) |
| Decrease   in other assets                                                          |   |                             | 87      |   |   | 483 |   |
| Business   acquisitions, net of cash acquired                                       |   |                             | (8,089  | ) |   | (22,985 | ) |
| Cash   restricted for future payments                                               |   |                             | (561    | ) |   | 0 |   |
|                                                                                |   |                                  |         |   |  |  |   |
| Net   cash used by investing activities                                             |   |                             | (33,872 | ) |   | (45,542 | ) |
|                                                                                |   |                                  |         |   |  |  |   |
| Cash flows from financing   activities:                                             |   |                             |    |   |   |   |   |
| Proceeds   from issuance of debt                                                    |   |                             | 90      |   |   | 55,134 |   |
| Payments of debt                                                                    |   |                             | (4,109  | ) |   | (58,069 | ) |
| Payments to minority interests                                                      |   |                             | (89     | ) |   | 0 |   |
| Proceeds   from issuance of common stock                                            |   |                             | 3,517   |   |   | 1,758 |   |
| Proceeds   from issuance of treasury stock                                          |   |                             | 389     |   |   | 340 |   |
| Payments   to acquire treasury stock                                                |   |                             | 0       |   |   | (39,270 | ) |
|                                                                                |   |                                  |         |   |  |  |   |
| Net   cash used by financing activities                                             |   |                             | (202    | ) |   | (40,107 | ) |
|                                                                                |   |                                  |         |   |  |  |   |
| Net   increase in cash                                                              |   |                             | 82,448  |   |   | 2,831 |   |
| Cash and cash equivalents,   beginning of period                                    |   |                             | 9,815   |   |   | 1,581 |   |
|                                                                                |   |                                  |         |   |  |  |   |
| Cash and cash equivalents, end   of period                                          |   | $                                | 92,263  |   | $ | 4,412 |   |
|                                                                                |   |                                  |         |   |  |  |   |

See accompanying notes to unaudited condensed consolidated financial statements.

5

**LINCARE HOLDINGS INC. AND SUBSIDIARIES****NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS****(Unaudited)**

**Note 1.  Basis of Presentation**

          The accompanying condensed consolidated financial statements are unaudited and have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q.  They should be read in conjunction with the consolidated financial statements and related notes to the financial statements of Lincare Holdings Inc. and Subsidiaries (the “Company”) on Form 10-K for the fiscal year ended December 31, 2003. In the opinion of management, all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the results of operations for the interim periods presented have been reflected herein.The results of operations for interim periods are not necessarily indicative of the results to be expected for the entire year.

**Note 2.  Business Combinations**

          Lincareroutinely acquires the business and related assets of local and regionalcompanies as an ongoing strategy to increase sales within its respectivemarkets. Lincare arrives at a negotiated purchase price taking into account suchfactors including, but not limited to, the acquired company’s historicaland projected revenue growth, operating cash flow, product mix, payor mix,service reputation and geographical location. 

          During the three months ended March 31, 2004, the Company acquired certain assets of three companies in separate transactions. In addition, Lincare acquired the remaining equity interests of two companies in which it had previously acquired partial ownership through a prior acquisition.  Each acquisition was accounted for as a purchase. The results of the acquired companies are included in the accompanying condensed consolidated statements of operations since the respective dates of acquisition. 

| The aggregate cost of the acquisitions described   above was as follows: |   |                 |   |   |
|--------------------------------------------------------------------------|--------|----------------------|--------|--------|
|                                                                     |   |                 |   |   |
|                                                                     |   | **(In   thousands)** |   |
|                                                                     |   |                      |   |
| Cash                                                                     |   | $                    | 8,089  |   |
| Deferred acquisition obligations                                         |   |                 | 1,045  |   |
| Assumption of liabilities                                                |   |                 | 789    |   |
|                                                                     |   |                      |        |   |
|                                                                     |   | $                    | 9,923  |   |
|                                                                     |   |                      |        |   |
|                                                                     |   |                 |   |   |
| The aggregate purchase price was allocated as   follows:                 |   |                 |   |   |
|                                                                     |   |                 |   |   |
| Current assets                                                           |   | $                    | 262    |   |
| Property and equipment                                                   |   |                 | 684    |   |
| Intangible assets                                                        |   |                 | 45     |   |
| Goodwill                                                                 |   |                 | 8,932  |   |
|                                                                     |   |                      |        |   |
|                                                                     |   | $                    | 9,923  |   |
|                                                                     |   |                      |        |   |

          Unaudited pro forma supplemental information on the results of operations for the three months ended March 31, 2004 and March 31, 2003, is provided below and reflects the acquisitions as if they had been combined at the beginning of each respective period. 

6

**LINCARE HOLDINGS INC. AND SUBSIDIARIES****NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)**

|                     |   | **For The   Three Months   Ended March 31,**  |    |
|--------------------------|--------|-----------------------------------------------|---------|
|                     |   |                                               |    |
|                     |   | **2004**                                      |    | **2003** |   |
|                     |   |                                               |    |  |   |
|                     |   | **(In thousands,   except   per share data)** |    |
| Net revenues             |   | $                                             | 308,371 |   | $ | 267,512 |   |
|                     |   |                                               |         |   |  |  |   |
| Net income               |   | $                                             | 63,265  |   | $ | 53,438 |   |
|                     |   |                                               |         |   |  |  |   |
| Income per common share: |   |                                          |    |   |   |   |   |
| Basic                    |   | $                                             | 0.64    |   | $ | 0.51 |   |
|                     |   |                                               |         |   |  |  |   |
| Diluted                  |   | $                                             | 0.62    |   | $ | 0.50 |   |
|                     |   |                                               |         |   |  |  |   |

          The unaudited pro forma financial information is not necessarily indicative of either the results of operations that would have occurred had the transactions been effected at the beginning of the respective preceding periods or of future results of operations of the combined companies. 

**Note 3.  Income Per Common Share**

          Basic income per common share is computed by dividing earnings available to common stockholders by the weighted average number of common shares outstanding for the period. Except when the effect would be anti-dilutive, the income per common share reflects the potential dilution of securities, including securities that may be issued on exercise of outstanding stock options, that could share in the Company’s earnings. Stock options with prices that exceeded theaverage market price for the three-month periods were excluded from theearnings per share computations.  For the three-month periods ended March31, 2004 and 2003, the number of shares excluded was 9,346 and 0,respectively.

          The effect of approximately 5.2 million common shares issuable upon conversion of the Company’s 3.0% Convertible Senior Debentures due 2033 (the “Debentures”) was not included in the computation of diluted earnings per share for the quarter ended March 31, 2004, since none of the conditions that would permit conversion of the Debentures had been satisfied during the period.  The Company intends to settle the principal amount of Debentures in cash.

          A reconciliation of the numerators and the denominators of the basic and diluted income per common share computations is as follows: 

|                                                                                   |   | **For The   Three Months   Ended March 31,**  |    |
|----------------------------------------------------------------------------------------|--------|-----------------------------------------------|---------|
|                                                                                   |   |                                               |    |
|                                                                                   |   | **2004**                                      |    | **2003** |   |
|                                                                                   |   |                                               |    |  |   |
|                                                                                   |   | **(In   thousands, except   per share data)** |    |
| **Numerator:**                                                                         |   |                                          |    |   |   |   |   |
| Basic - Income   available to common stockholders                                      |   | $                                             | 62,933  |   | $ | 52,922 |   |
| Effect of dilutive   securities - Stock options                                        |   |                                          | 0       |   |   | 0 |   |
|                                                                                   |   |                                               |         |   |  |  |   |
| Diluted - Income   available to common stockholders and holders of dilutive securities |   | $                                             | 62,933  |   | $ | 52,922 |   |
|                                                                                   |   |                                               |         |   |  |  |   |
| **Denominator:**                                                                       |   |                                          |    |   |   |   |   |
| Weighted average shares                                                                |   |                                          | 99,037  |   |   | 104,808 |   |
| Effect of dilutive securities   - Stock options                                        |   |                                          | 2,262   |   |   | 2,655 |   |
|                                                                                   |   |                                               |         |   |  |  |   |
| Adjusted weighted   average shares                                                     |   |                                          | 101,299 |   |   | 107,463 |   |
|                                                                                   |   |                                               |         |   |  |  |   |
| **Per   share amount:**                                                                |   |                                          |    |   |   |   |   |
| Basic                                                                                  |   | $                                             | 0.64    |   | $ | 0.50 |   |
|                                                                                   |   |                                               |         |   |  |  |   |
| Diluted                                                                                |   | $                                             | 0.62    |   | $ | 0.49 |   |
|                                                                                   |   |                                               |         |   |  |  |   |

7

**LINCARE HOLDINGS INC. AND SUBSIDIARIES****NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)**

**Note 4.  Stock Options**

          Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” establishes financial accounting and reporting standards for stock-based compensation plans. SFAS No. 123 allows two alternative accounting methods: (1) a fair-value-based method, or (2) an intrinsic-value-based method which is prescribed by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (APB No. 25) and related interpretations. The Company has elected to account for its stock-based incentive plans and awards under APB No. 25, and has adopted the disclosure requirements of SFAS No. 123, as amended by SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure.” Had the Company determined compensation cost based on the fair value at the grant date for stock options under SFAS No. 123, theCompany’s net income would have been reduced to the pro forma amounts indicated below:

|                     |   | **For The   Three Months   Ended March 31,**  |   |
|--------------------------|--------|-----------------------------------------------|--------|
|                     |   |                                               |   |
|                     |   | **2004**                                      |   | **2003** |   |
|                     |   |                                               |   |  |   |
|                     |   | **(In   thousands, except   per share data)** |   |
| Net income:              |   |                                          |   |   |   |   |   |
| As reported              |   | $                                             | 62,933 |   | $ | 52,922 |   |
|                     |   |                                               |        |   |  |  |   |
| Pro forma                |   | $                                             | 59,783 |   | $ | 49,440 |   |
|                     |   |                                               |        |   |  |  |   |
| Income per common share: |   |                                          |   |   |   |   |   |
| Basic—as reported   |   | $                                             | 0.64   |   | $ | 0.50 |   |
|                     |   |                                               |        |   |  |  |   |
| Diluted—as reported |   | $                                             | 0.62   |   | $ | 0.49 |   |
|                     |   |                                               |        |   |  |  |   |
| Basic—pro forma     |   | $                                             | 0.60   |   | $ | 0.47 |   |
|                     |   |                                               |        |   |  |  |   |
| Diluted—pro forma   |   | $                                             | 0.59   |   | $ | 0.46 |   |
|                     |   |                                               |        |   |  |  |   |

8

**LINCARE HOLDINGS INC. AND SUBSIDIARIES**

**Item 2. *Management’s Discussion and Analysis of Results of Operations and Financial Condition***

**Medicare Reimbursement**

          As a supplier of home oxygen and other respiratory therapy services for the home health care market, we participate in Medicare Part B, the Supplementary Medical Insurance Program, which was established by the Social Security Act of 1965. Providers of home oxygen and other respiratory therapy services have historically been heavily dependent on Medicare reimbursement due to the high proportion of elderly suffering from respiratory disease. Durable medical equipment (“DME”), including oxygen equipment, is traditionally reimbursed by Medicare based on fixed fee schedules.  

          On December 8, 2003, the President of the United States signed into law the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, codified at Public Law 108-173 (“MMA”). The legislation, among other things, provides expanded Medicare prescription drug coverage, modifies payments to Medicare providers and institutes administrative reforms intended to improve Medicare program operations. MMA includes sweeping changes that will impact a broad spectrum of health care industry participants, including physicians, pharmacies, manufacturers, pharmacy benefit managers, as well as other Medicare suppliers and providers including Lincare. 

          MMA contains provisions that directly impact reimbursement for the primary respiratory and other DME products provided by Lincare. Among other things, MMA: 

| (1)    | *Significantly   reduces reimbursement for inhalation drug therapies.*   Historically, prescription drug coverage under Medicare has been limited to   drugs furnished incident to a physician’s services and certain   self-administered drugs, including inhalation drug therapies. Prior to MMA,   Medicare reimbursement for covered drugs, including the inhalation drugs that   we provide, has been limited to 95 percent of the published average wholesale   price (“AWP”) for the drug. MMA establishes new payment limits and procedures   for drugs reimbursed under Medicare Part B. Payments for inhalation drugs   furnished during 2004 declined to 80 percent of the AWP in effect as of April   1, 2003, a reduction of approximately 15 percent. If the provisions of MMA   are fully implemented, beginning in 2005, inhalation drugs furnished to   Medicare beneficiaries would be reimbursed at 106 percent of the   volume-weighted average selling price(“ASP”) of the drug, as determined from   data to be provided by drug manufacturers under a specific formula described   in the legislative text. While the net payment amounts for inhalation drugs   under the ASP methodology have not yet been determined, we believe that the   ASP provision, if implemented, could result in payment amounts in 2005 of up   to 80 percent lower than 2004.                                                                                                                                                                     |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   | We do not believe that the ASP provisions contained   in MMA will adequately compensate home care providers for inhalation drug   therapies and, if implemented, would completely eliminate the supply of these   critical respiratory medications by home care providers, such as Lincare,   adversely affecting more than one million patients across the United States.   The General Accounting Office (“GAO”) is directed under MMA to conduct a   study to examine the adequacy of reimbursement for inhalation drug therapy   under the Medicare program and submit the results of the study in a report to   Congress no later than December 8, 2004. We can not predict the outcome of   the GAO study or its potential impact on the implementation of the ASP   provisions in 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| (2)    | *Reduces payment amounts for fivecategories of DME, including oxygen, beginning in 2005 and freezes paymentamounts for other covered DME items from 2004 to 2007.* MMA containsprovisions that will reduce payment amounts for oxygen equipment, standardwheelchairs (including standard power wheelchairs), nebulizers, diabeticsupplies consisting of lancets and testing strips, hospital beds and airmattresses to the median prices paid under the Federal Employee Health Plan(“FEHP”). The legislative text of MMA references comparative pricingdata included in testimony of the Office of Inspector General (“OIG”)as the source data for FEHP pricing. However, the referenced table does notinclude applicable payment amounts for oxygen. It is expected that the OIG willissue a subsequent report during 2004 that will establish pricing for oxygenbased on the median FEHP payment amount. Until the report is issued, theMedicare payment amount for oxygen furnished in 2005 will not be known. MedianFEHP prices for the items included on the table referenced in the OIG testimonyrange between 4 percent and 22 percent below comparable Medicare fee scheduleamounts. The OIG may also undertake to revise the FEHP pricing data andcorresponding Medicare reimbursement rates for these items in its subsequentreport. We can not predict the outcome of the OIG report or the Medicare paymentrates that will be in effect in 2005 for these items. MMA also freezes paymentamounts for other covered DME items from 2004 to 2007. |

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| (3)    | *Establishes   a competitive acquisition program for DME beginning in 2007.*   MMA instructs the Secretary of the Department of Health and Human Services   (the “Secretary”) to establish and implement programs under which competitive   acquisition areas are established throughout the United States for contract   award purposes for the furnishing of competitively priced items of DME,   including oxygen equipment. The program would be implemented in phases such   that competition under the program occurs in 10 of the largest metropolitan   statistical areas (“MSAs”) in 2007, 80 of the largest MSAs in 2009, and   additional areas after 2009. Items selected for competitive acquisition may   be phased in first among the highest cost and highest volume items and   services or those items and services that the Secretary determines have the   largest savings potential. In carrying out such programs, the Secretary may   exempt rural areas and areaswith low-population density within urban areas   that are not competitive, unless there is a significant national market   through mail order for a particular item or service.                                                                        |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   | For each competitive acquisition area, the Secretary   would conduct a competition under which providers would submit bids to supply   certain covered items of DME. Successful bidders would be expected to meet   certain program quality standards in order to be awarded a contract and only   successful bidders could supply the covered items to Medicare beneficiaries   in the acquisition area. The applicable contract award prices are expected to   be less than would be paid under current Medicare fee schedules and contracts   would be re-bid at least every three years. The Secretary will be required to   award contracts to multiple entities submitting bids in each area for an item   or service, but would have the authority to limit the number of contractors   in a competitive acquisition area to the number needed to meet projected   demand. The Secretary may use competitive bid pricing information to adjust   the payment amount otherwise in effect for an area that isnot a competitive   acquisition area. We can not predict the effect of the competitive   acquisition program or the Medicare payment rates that will be in effect in   2007 and beyond for the items ultimately subjected to competitive bidding. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| (4)    | *Implements   quality standards and accreditation requirements for DME suppliers.*   MMA instructs the Secretary to establish and implement quality standards for   DME suppliers to be monitored by recognized independent accreditation   organizations. Suppliers will be required to comply with these standards in   order to receive payment for furnishing any covered item of DME to a Medicare   beneficiary and to receive or retain a supplier number used to submit claims   for reimbursement. We can not predict the nature or extent of the quality   standards or the effect such standards would have on our ability to continue   to provide products to Medicare beneficiaries.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |

          Until the many issues affecting implementation of the MMA provisions discussed above are addressed, we can not determine the ultimate impact of MMA on our financial position or operating results. 

          On December 13, 2002, the Centers for Medicare & Medicaid Services (“CMS”) issued an interim final rule establishing a process for adjusting payments for Medicare Part B services (other than physician services), pursuant to the agency’s Inherent Reasonableness (“IR”) authority, when existing payment amounts are determined to be either grossly excessive or deficient. The interim final rule describes the factors CMS or its contractors will consider in making such determinations and the procedures that will be followed in establishing new payment amounts. The interim rule became effective on February 11, 2003, but to date, no payment adjustments have occurred as a result of the IR authority. 

          Theeffectiveness of the IR rule itself does not trigger payment adjustments for anyitems or services. Nevertheless, the IR rule puts in place a process thateventually could have a significant impact on Medicare payments for such Part Bservices as home oxygen, DME and Part B covered prescription drugs. We can notpredict whether, especially in light of MMA’s enactment, CMS will exerciseits IR authority with respect to certain products and services that we provideto Medicare beneficiaries, or the effect such payment adjustments would have onour financial position or operating results.

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          Federal and state budgetary and other cost-containment pressures will continue to impact the home respiratory care industry. We can not predict whether new federal and state budgetary proposals will be adopted or the effect, if any, such proposals would have on our business. 

**Operating Results**

          The following table sets forth for the periods indicated a summary of the Company’s net revenues by source: 

|                                 |   | **For The   Three Months   Ended March 31,** |    |
|--------------------------------------|--------|----------------------------------------------|---------|
|                                 |   |                                              |    |
|                                 |   | **2004**                                     |    | **2003** |   |
|                                 |   |                                              |    |  |   |
|                                 |   | **(In   thousands)**                         |    |
| Oxygen and other respiratory therapy |   | $                                            | 278,570 |   | $ | 238,232 |   |
| Home medical equipment and other     |   |                                         | 28,301  |   |   | 26,941 |   |
|                                 |   |                                              |         |   |  |  |   |
| Total                                |   | $                                            | 306,871 |   | $ | 265,173 |   |
|                                 |   |                                              |         |   |  |  |   |

          Net revenues for the three months ended March 31, 2004, increased by $41.7 million, an increase of 15.7% over the three months ended March 31, 2003.  The 15.7% increase in net revenues was comprised of 9.5% internal growth and 6.2% acquisition growth.  The internal growth in net revenues is attributed to underlying growth in the market for our products and increased market share resulting primarily from our sales and marketing efforts that emphasize high-quality equipment and customer service.  Net revenues in the three months ended March 31, 2004 were negatively impacted $12.3 million, or 4.6%, as a result of Medicare reimbursement reductions for respiratory medications that took effect in 2004 (see “Medicare Reimbursement”).  Growth in net revenues from acquisitions is attributed to the effects of acquisitions of local and regional companies and is estimated based on thecontribution to net revenues for the four quarters following such acquisitions.  During the first quarter ended March 31, 2004, we completed the acquisition of three companies with aggregate annual revenues of approximately $3.0 million and we acquired the remaining equity interests of two companies in which we had previously acquired partial ownership through a prior acquisition.

          The contribution of oxygen and other respiratory therapy products to our net revenues was 90.8% during the three months ended March 31, 2004.  Our strategy is to focus on the provision of oxygen and other respiratory therapy services to patients in the home and to provide home medical equipment and other services where we believe such services will enhance our core respiratory business.

          Cost of goods and services as a percentage of net revenues decreased to 14.9% for the three months ended March 31, 2004 from 15.1% for the three months ended March 31, 2003. This improvement is attributed primarily to growth in our respiratory product lines, which generally carry a higher gross margin percentage than other products and services we provide, and achievement of more favorable product pricing terms with our vendors. 

          Operating expenses expressed as a percentage of net revenues declined to 21.1% for the three months ended March 31, 2004 from 22.4% for the three months ended March 31, 2003.  This improvement was due primarily to our ability to successfully offset wage and fuel price inflation with gains in productivity and control over fixed costs during the quarter. 

          Selling, general and administrative (“SG&A”) expenses as a percentage of net revenues were 21.0% for the three months ended March 31, 2004 compared with 21.2% for the three months ended March 31, 2003. The reduction in SG&A expenses expressed as a percentage of net revenues during the period resulted from cost controls and productivity gains at our overhead locations, which offset increases in selling expenses and insurance costs.

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          Operating income for the three months ended March 31, 2004 increased to $105.4 million, or 34.4% of net revenues compared with $88.0 million, or 33.2% of net revenues, for the three months ended March 31, 2003. The increase in operating income is attributed primarily to the continued growth in net revenues, the contribution to net revenues from higher margin products and control over operating costs. 

**Liquidity And Capital Resources**

          Net cash provided by operating activities increased by 31.7% to $116.5 million for the three months ended March 31, 2004 compared with $88.5 million for the three months ended March 31, 2003.  Contributing to the increase in net cash from operating activities was a decrease in net accounts receivable days sales outstanding (“DSO”) resulting from improved collection performance.  At March 31, 2004, our DSO was 45 days compared to 52 days at March 31, 2003. 

          Net cash used in investing and financing activities was $34.1 million for the three months ended March 31, 2004. Activity during the three-month period ended March 31, 2004 included our investment of $8.6 million in business acquisition expenditures, investment in capital equipment of $25.3 million and payments of $4.1 million related to long-term obligations. 

          As of March 31, 2004, our principal sources of liquidity consisted of $104.8 million of working capital and up to $200.0 million available under our revolving bank credit facility. We believe that internally generated funds, together with funds that may be borrowed under our revolving credit facility, will be sufficient to meet our anticipated capital requirements and financial obligations. 

          On June 4, 2003, the Board of Directors increased the size of our previously authorized share repurchase program, adopted as of February 25, 2003, from $100.0 million to $225.0 million. The $225.0 million repurchase program has been completed, with a total of 6,706,000 shares of common stock repurchased under the program. No shares of our common stock were repurchased during the three months ended March 31, 2004.  As of March 31, 2004, the total common stock held in treasury, at cost, was $523.9 million. 

          On June 11, 2003, we completed the sale of $250.0 million aggregate principal amount of 3.0% Convertible Senior Debentures due 2033 (the “Debentures”) in a private placement. The Debentures are convertible into shares of our common stock based on a conversion rate of 18.7515 shares for each $1,000 principal amount of Debentures. This is equivalent to a conversion price of approximately $53.33 per share of common stock. On June 23, 2003, we sold an additional $25.0 million principal amount of Debentures pursuant to the exercise in full of an over-allotment option granted to the initial purchasers of the Debentures. The Debentures are convertible into common stock in any calendar quarter if, among other circumstances, the last reported sale price of our common stock for at least 20 trading days during the period of 30 consecutive trading days ending on the last trading day of our previous calendarquarter is greater than or equal to $64.00 (120% of the applicable conversion price per share of our common stock) on such last trading day. Interest on the Debentures is payable at the rate of 3.0% per annum on June 15 and December 15 of each year, beginning on December 15, 2003. The Debentures are senior unsecured obligations and will mature on June 15, 2033. The Debentures are redeemable by us on or after June 15, 2008 and may be put to us for repurchase on June 15, 2008, 2010, 2013, or 2018. 

**Future Minimum Obligations**

          In the normal course of business, we enter into obligations and commitments that require future contractual payments. The commitments primarily result from repayment obligations for borrowings under our senior secured notes, revolving bank credit facility, and Debentures, as well as contractual lease payments for facility, vehicle, and equipment leases and deferred acquisition obligations. The following table presents, in aggregate, scheduled payments under our contractual obligations (in thousands): 

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|                      |   | **Fiscal Years**                   |   |     |   |     |   |     |   |
|---------------------------|--------|------------------------------------|--------|----------|--------|----------|--------|----------|--------|
|                      |   |                                    |   |     |   |     |   |     |   |
|                      |   | **(remaining****9 months   2004)** |   | **2005** |   | **2006** |   | **2007** |   | **2008** |   | **Thereafter** |   | **Total** |   |
|                      |   |                                    |   |          |   |          |   |          |   |  |   |  |   |  |   |
| Short-term debt           |   | $                                  | 61,384 |     | $      | 313      |   | $        | 0      |   | $ | 0 |   | $ | 0 |   | $ | 0 |   | $ | 61,697 |   |
| Capital lease commitments |   |                               | 1,365  |     |   | 49       |   |     | 0      |   |   | 0 |   |   | 0 |   |   | 0 |   |   | 1,414 |   |
| Long-term debt            |   |                               | 135    |     |   | 45,192   |   |     | 100    |   |   | 0 |   |   | 0 |   |   | 275,000 |   |   | 320,427 |   |
| Operating leases          |   |                               | 21,337 |     |   | 20,642   |   |     | 12,034 |   |   | 5,898 |   |   | 1,703 |   |   | 0 |   |   | 61,614 |   |
|                      |   |                                    |        |     |        |          |   |          |        |   |  |  |   |  |  |   |  |  |   |  |  |   |
| Total                     |   | $                                  | 84,221 |     | $      | 66,196   |   | $        | 12,134 |   | $ | 5,898 |   | $ | 1,703 |   | $ | 275,000 |   | $ | 445,152 |   |
|                      |   |                                    |        |     |        |          |   |          |        |   |  |  |   |  |  |   |  |  |   |  |  |   |

**Forward Looking Statements**

          Statements in this report concerning future results, performance or expectations are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. All forward-looking statements included in this document are based upon information available to Lincare as of the date hereof and Lincare assumes no obligation to update any such forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause Lincare’s actual results, levels of activity, performance or achievements to be materially different from any results, levels of activity, performance or achievements expressed or implied by any forward-looking statements. In some cases, forward-looking statements that involve risks and uncertainties contain terminology such as “may,” “will,” “should,” “could,”“expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or variations of these terms or other comparable terminology. 

          Key factors that have an impact on Lincare’s ability to attain these estimates include potential reductions in reimbursement rates by government and third-party payors, changes in reimbursement policies, the demand for Lincare’s products and services, the availability of appropriate acquisition candidates and Lincare’s ability to successfully complete and integrate acquisitions, efficient operations of Lincare’s existing and future operating facilities, regulation and/or regulatory action affecting Lincare or its business, economic and competitive conditions, access to borrowed and/or equity capital on favorable terms and other risks described below. 

          In developing our forward-looking statements, we have made certain assumptions relating to reimbursement rates and policies, internal growth and acquisitions and the outcome of various legal and regulatory proceedings. If the assumptions we use differ materially from what actually occurs, then actual results could vary significantly from the performance projected in the forward-looking statements. We are under no duty to update any of the forward-looking statements after the date of this report.

**Certain Risk Factors Relating to the Company’s Business**

          We operate in a rapidly changing environment that involves a number of risks. The following discussion highlights some of these risks and others are discussed elsewhere in this report. These and other risks could materially and adversely affect our business, financial condition, operating results and cash flows. 

**A MAJORITY OF OUR CUSTOMERS HAVE PRIMARY HEALTH COVERAGE UNDER MEDICARE PART B AND RECENTLY ENACTED AND FUTURE CHANGES IN THE REIMBURSEMENT RATES OR PAYMENT METHODOLOGIES UNDER THE MEDICARE PROGRAM COULD MATERIALLY AND ADVERSELY AFFECT OUR BUSINESS.**

          As a provider of home oxygen and other respiratory therapy services for the home health care market, we have historically depended heavily on Medicare reimbursement as a result of the high proportion of elderly persons suffering from respiratory disease. Medicare Part B, the Supplementary Medical Insurance Program, provides coverage to eligible beneficiaries for DME, such as oxygen equipment, respiratory assistance devices, continuous

13

positive airway pressure devices, nebulizers and associated respiratory medications, hospital beds and wheelchairs for the home setting. Approximately 75% of our customers have primary coverage under Medicare Part B. There are increasing pressures on Medicare to control health care costs and to reduce or limit reimbursement rates for home medical equipment and services. Medicare reimbursement is subject to statutory and regulatory changes, retroactive rate adjustments, administrative and executive orders and governmental funding restrictions, all of which could materially decrease payments to us for the services and equipment we provide.

          As discussed above, on December 8, 2003, the President signed MMA into law. This legislation, among other things, provides expanded Medicare prescription drug coverage, modifies payments to Medicare providers and institutes administrative reforms intended to improve Medicare program operations. MMA includes sweeping changes which will impact a broad spectrum of health care industry participants, including physicians, pharmacies, manufacturers, pharmacy benefit managers, as well as other Medicare suppliers and providers, including Lincare.  

          The MMA legislation contains provisions that directly impact reimbursement for the primary respiratory and other DME products provided by Lincare. Among other things, MMA significantly reduces reimbursement for inhalation drug therapies in 2004 and even more so in 2005, reduces payment amounts for five categories of DME, including oxygen, beginning in 2005, freezes payment amounts for other covered DME items from 2004 to 2007, establishes a competitive acquisition program for DME beginning in 2007, and implements quality standards and accreditation requirements for DME suppliers. The MMA provisions, if fully implemented, could materially and adversely affect our business, financial condition, operating results and cash flows. See “MEDICARE REIMBURSEMENT” for a full discussion of the MMA provisions.

**A SIGNIFICANT PERCENTAGE OF OUR BUSINESS IS DERIVED FROM THE SALE OF MEDICARE-COVERED DME ITEMS, INCLUDING OXYGEN, AND RECENT LEGISLATION REDUCES PAYMENT AMOUNTS FOR FIVE CATEGORIES OF DME, INCLUDING OXYGEN, BEGINNING IN 2005 AND IMPOSES A PAYMENT FREEZE FOR OTHER DME FROM 2004 TO 2007.**

          MMA contains provisions that would reduce payment amounts, beginning in 2005, for oxygen equipment, standard wheelchairs (including standard power wheelchairs), nebulizers, diabetic supplies consisting of lancets and testing strips, hospital beds and air mattresses to the median prices paid under the Federal Employee Health Plan (“FEHP”). The legislative text of MMA references comparative pricing data included in testimony of the Office of Inspector General (“OIG”) as the source data for FEHP pricing. However, the referenced table does not include applicable payment amounts for oxygen. It is expected that the OIG will issue a subsequent report during 2004 that will establish pricing for oxygen based on the median FEHP payment amount. Until the report is issued, the Medicare payment amount for oxygen furnished in 2005 will not be known. Median FEHP prices for the items included on thetable referenced in the OIG testimony range between 4 percent and 22 percent below comparable Medicare fee schedule amounts. The OIG may also undertake to revise the FEHP pricing data and corresponding Medicare reimbursement rates for these items in its subsequent report. We can not predict the outcome of the OIG report or the Medicare payment rates that will be in effect in 2005 for these items. MMA also freezes payment amounts for other covered DME items from 2004 to 2007. Such payment reductions, when implemented in 2005, could have a material adverse effect on our financial position and operating results. 

**A SIGNIFICANT PERCENTAGE OF OUR BUSINESS IS DERIVED FROM THE SALE OF MEDICARE-COVERED RESPIRATORY MEDICATIONS, AND RECENT LEGISLATION IMPOSES SIGNIFICANT REDUCTIONS IN MEDICARE REIMBURSEMENT FOR SUCH INHALATION DRUGS.**

          Historically,prescription drug coverage under Medicare has been limited to drugs furnishedincident to a physician’s services and certain self-administered drugs,including inhalation drug therapies. Prior to MMA, Medicare reimbursement forcovered Part B drugs, including inhalation drugs that we provide, has beenlimited to 95 percent of the published average wholesale price (“AWP”)for the drug. MMA establishes new payment limits and procedures for drugsreimbursed under Medicare Part B. Payments for inhalation drugs furnished during2004 declined to 80 percent of the AWP in effect as of April 1, 2003, areduction of approximately 15 percent. If the provisions of MMA are fullyimplemented, beginning in 2005, inhalation drugs furnished to Medicarebeneficiaries would be reimbursed at 106 percent of the volume-weighted averageselling price (“ASP”) of the drug, as determined from data to beprovided by drug manufacturers under a specific formula described in thelegislative text. While the net payment amounts for inhalation drugs under theASP methodology have not yet been determined, we believe that the ASP provision,if implemented, could result in payment amounts in 2005 of up to 80 percentlower than 2004. 

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          We do not believe that the ASP provisions contained in MMA will adequately compensate home care providers for inhalation drug therapies and, if implemented, would completely eliminate the supply of these critical respiratory medications by home care providers, such as Lincare, adversely affecting more than one million patients across the United States. The General Accounting Office (“GAO”) is directed under MMA to conduct a study to examine the adequacy of reimbursement for inhalation drug therapy under the Medicare program and submit the results of the study in a report to Congress no later than December 8, 2004. We can not predict the outcome of the GAO study or its potential impact on the implementation of the ASP provisions in 2005. Medicare-covered inhalation drugs account for approximately one quarter of our net revenues. Such payment adjustments could have a material and adverse effect onour financial position and operating results. 

**RECENT REGULATORY CHANGES SUBJECT THE MEDICARE REIMBURSEMENT RATES FOR OUR EQUIPMENT AND SERVICES TO POTENTIAL DISCRETIONARY ADJUSTMENT BY THE CENTERS FOR MEDICARE AND MEDICAID SERVICES (“CMS”), WHICH COULD REDUCE OUR REVENUES, NET INCOME AND CASH FLOWS.**

          In February 2003, a final rule governing CMS’ Inherent Reasonableness, or IR, authority became effective. The IR rule establishes a process for adjusting fee schedule amounts for Medicare Part B services when existing payment amounts are determined to be either grossly excessive or deficient. The rule describes the factors that CMS or its contractors will consider in making such determinations and the procedures that will be followed in establishing new payment amounts. To date, no payment adjustments have occurred or been proposed as a result of the IR rule. 

          The effectiveness of the IR rule itself does not trigger payment adjustments for any items or services. Nevertheless, the IR rule puts in place a process that could eventually have a significant impact on Medicare payments for our equipment and services. We can not predict whether or when CMS will exercise its IR authority with respect to our equipment and services. Such payment adjustments, if implemented, could reduce our revenues, net income and cash flows. 

**RECENT LEGISLATION ESTABLISHING A COMPETITIVE BIDDING PROCESS UNDER MEDICARE COULD REDUCE OUR REVENUES, NET INCOME AND CASH FLOWS.**

          MMA instructs the Secretary to establish and implement programs under which competitive acquisition areas are established throughout the United States for contract award purposes for the furnishing of competitively priced items of DME, including oxygen equipment. The program would be implemented in phases such that competition under the program occurs in 10 of the largest MSAs in 2007, 80 of the largest MSAs in 2009, and additional areas after 2009. Items selected for competitive acquisition may be phased in first among the highest cost and highest volume items and services or those items and services that the Secretary determines have the largest savings potential. In carrying out such programs, the Secretary may exempt rural areas and areas with low-population density within urban areas that are not competitive, unless there is a significant national market through mail order for a particular item orservice. 

          For eachcompetitive acquisition area, the Secretary would conduct a competition underwhich providers would submit bids to supply certain covered items of DME.Successful bidders would be expected to meet certain program quality standardsin order to be awarded a contract and only successful bidders could supply thecovered items to Medicare beneficiaries in the acquisition area. The applicablecontract award prices are expected to be less than would be paid under currentMedicare fee schedules and contracts would be re-bid at least every three years.The Secretary will be required to award contracts to multiple entitiessubmitting bids in each area for an item or service, but would have theauthority to limit the number of contractors in a competitive acquisition areato the number needed to meet projected demand. The Secretary may use competitivebid pricing information to adjust the payment amount otherwise in effect for anarea that is not a competitive acquisition area. We can not predict the outcomeof the competitive acquisition program or the Medicare payment rates that willbe in effect in 2007 and beyond for the items subject to competitive bidding.Competitive bidding, when implemented, could have a material adverse effect onour financial position and operating results. 

15

**FUTURE REDUCTIONS IN REIMBURSEMENT RATES UNDER MEDICAID COULD REDUCE OUR REVENUES, NET INCOME AND CASH FLOWS.**

          Due to budgetary shortfalls, many states are considering, or have enacted, cuts to their Medicaid programs, including funding for our equipment and services. These cuts have included, or may include, elimination or reduction of coverage for some or all of our equipment and services, amounts eligible for payment under co-insurance arrangements, or payment rates for covered items. Approximately 5 percent of our customers are eligible for primary Medicaid benefits, and approximately 8 percent of our payments from primary and secondary insurance benefits are funded by state Medicaid programs. Continued state budgetary pressures could lead to further reductions in funding for the reimbursement for our equipment and services which, in turn, could have a material adverse effect on our financial position and operating results. 

**FUTURE REDUCTIONS IN REIMBURSEMENT RATES FROM PRIVATE PAYORS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR FINANCIAL CONDITION AND OPERATING RESULTS.**

          Payors such as private insurance companies and employers are under pressure to increase profitability and reduce costs. In response, certain payors are limiting coverage or reducing reimbursement rates for the equipment and services we provide. Approximately 17 percent of our customers and approximately 26 percent of our primary and secondary payments are derived from private payors. Continued financial pressures on these entities could lead to further reimbursement reductions for our equipment and services that could have a material adverse effect on our financial condition and operating results. 

**WE DEPEND UPON REIMBURSEMENT FROM THIRD-PARTY PAYORS FOR A SIGNIFICANT MAJORITY OF OUR REVENUES, AND IF WE FAIL TO MANAGE THE COMPLEX AND LENGTHY REIMBURSEMENT PROCESS, OUR BUSINESS AND OPERATING RESULTS COULD SUFFER.**

          We derive a significant majority of our revenues from reimbursement by third-party payors. We accept assignment of insurance benefits from customers and, in most instances, invoice and collect payments directly from Medicare, Medicaid and private insurance carriers, as well as from customers under co-insurance provisions. In 2003, approximately 60 percent of our revenues were derived from Medicare, 26 percent from private insurance carriers, 7 percent from Medicaid and the balance directly from individual customers and commercial entities. 

          Our financial condition and results of operations may be affected by the reimbursement process, which in the health care industry is complex and can involve lengthy delays between the time that services are rendered and the time that the reimbursement amounts are settled. Depending on the payor, we may be required to obtain certain payor-specific documentation from physicians and other health care providers before submitting claims for reimbursement. Certain payors have filing deadlines and they will not pay claims submitted after such time. We can not assure you that we will be able to continue to effectively manage the reimbursement process and collect payments for our equipment and services promptly. 

**WE ARE SUBJECT TO EXTENSIVE FEDERAL AND STATE REGULATION, AND IF WE FAIL TO COMPLY WITH APPLICABLE REGULATIONS, WE COULD SUFFER SEVERE CRIMINAL OR CIVIL SANCTIONS OR BE REQUIRED TO MAKE SIGNIFICANT CHANGES TO OUR OPERATIONS THAT COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR RESULTS OF OPERATIONS.**

16

          The federal government and all states in which we operate regulate many aspects of our business. In particular, our operating centers are subject to federal laws that regulate the repackaging of drugs (including oxygen) and interstate motor-carrier transportation. Our operations also are subject to state laws governing, among other things, pharmacies, nursing services, distribution of medical equipment and certain types of home health activities. Certain of our employees are subject to state laws and regulations governing the ethics and professional practices of respiratory therapy, pharmacy and nursing. 

          As a health care supplier, we are subject to extensive government regulation, including numerous laws directed at preventing fraud and abuse and laws regulating reimbursement under various government programs. The marketing, billing, documenting and other practices of health care companies are all subject to government scrutiny. To ensure compliance with Medicare and other regulations, regional carriers often conduct audits and request customer records and other documents to support our claims for payment. Similarly, government agencies periodically open investigations and obtain information from health care providers pursuant to the legal process. Violations of federal and state regulations can result in severe criminal, civil and administrative penalties and sanctions, including disqualification from Medicare and other reimbursement programs, which could have a material adverse effect on our business.

          Health care is an area of rapid regulatory change. Changes in the law and new interpretations of existing laws may affect permissible activities, the costs associated with doing business, and reimbursement amounts paid by federal, state and other third-party payors. We can not predict the future of federal, state and local regulation or legislation, including Medicare and Medicaid statutes and regulations, or possible changes in national health care policies. Future legislation and regulatory changes could have a material adverse effect on our business. 

**COMPLIANCE WITH NEW REGULATIONS UNDER THE FEDERAL HEALTH INSURANCE PORTABILITY AND ACCOUNTABILITY ACT OF 1996 AND RELATED RULES, OR HIPAA, RELATING TO THE TRANSMISSION AND PRIVACY OF HEALTH INFORMATION COULD IMPOSE ADDITIONAL SIGNIFICANT COSTS ON OUR OPERATIONS.**

          Numerous federal and state laws and regulations, including HIPAA, govern the collection, dissemination, use and confidentiality of patient-identifiable health information.  HIPAA requires us to comply with standards for the use and disclosure of health information within our company and with third parties. HIPAA also includes standards for common health care electronic transactions and code sets, such as claims information, plan eligibility, payment information and the use of electronic signatures, and privacy and electronic security of individually identifiable health information. Each set of HIPAA regulations has a specified compliance date and requires health care providers, including us, in addition to health plans and clearinghouses, to develop and maintain policies and procedures with respect to protected health information that is used or disclosed. 

          The HIPAA regulations mandate that standardized transaction and code sets be developed and used for electronic billing purposes by all payors in the United States, including both government and private health plans. While the Medicare program has historically used a uniform set of transaction codes for electronic claim submission and payment, certain billing codes have varied among the different state Medicaid programs and certain health plans. It is currently unknown whether every existing billing code used by Medicare, Medicaid and private health plans for products provided in the home care setting will have a corresponding code in the final HIPAA transaction sets. The absence of certain standardized codes for our equipment and services or the inability of certain payors to accept such electronic codes may preclude us from submitting electronic claims for payment to those payors. Such an outcome wouldrequire the submission of paper claims, which could ultimately result in delays and difficulties in collecting these claims, and could have a material adverse effect on our financial position and operating results. 

          If we do not comply with existing or new laws and regulations related to patient health information, we could be subject to criminal or civil sanctions. New health information standards, whether implemented pursuant to HIPAA or otherwise, could have a significant effect on the manner in which we handle health care related data and communicate with payors, and the cost of complying with these standards could be significant. 

17

**WE MAY UNDERTAKE ACQUISITIONS THAT COULD SUBJECT US TO UNANTICIPATED LIABILITIES AND THAT COULD FAIL TO ACHIEVE EXPECTED BENEFITS.**

          Our strategy is to increase our market share through internal growth and strategic acquisitions. Consideration for the acquisitions has generally consisted of cash, unsecured non-interest bearing obligations and the assumption of certain liabilities. 

          The implementation of an acquisition strategy entails certain risks, including inaccurate assessment of disclosed liabilities, the existence of undisclosed liabilities, entry into markets in which we may have limited or no experience, diversion of management’s attention and human resources from our underlying business, difficulties in integrating the operations of an acquired business or in realizing anticipated efficiencies and cost savings, failure to retain key management or operating personnel of the acquired business, and an increase in indebtedness and a limitation in the ability to access additional capital on favorable terms. The successful integration of an acquired business may be dependent on the size of the acquired business, condition of the customer billing records, complexity of system conversions and execution of the integration plan by local management. If we do not successfullyintegrate the acquired business, the acquisition could fail to achieve its expected revenue contribution or there could be delays in the billing and collection of claims for services rendered to customers, which could have a material adverse effect on our financial position and operating results. 

**WE FACE INTENSE NATIONAL, REGIONAL AND LOCAL COMPETITION AND IF WE ARE UNABLE TO COMPETE SUCCESSFULLY, WE WILL LOSE REVENUES AND OUR BUSINESS WILL SUFFER.**

          The home respiratory market is a fragmented and highly competitive industry. We compete against other national providers and, by our estimate, more than 2,000 local and regional providers. Home respiratory companies compete primarily on the basis of service rather than price since reimbursement levels are established by Medicare and Medicaid or by the individual determinations of private health plans. 

          Our ability to compete successfully and to increase our referrals of new customers are highly dependent upon our reputation within each local health care market for providing responsive, professional and high-quality service and achieving strong customer satisfaction. Given the relatively low barriers to entry in the home respiratory market, we expect that the industry will become increasingly competitive in the future. Increased competition in the future could limit our ability to attract and retain key operating personnel and achieve continued growth in our core business. 

**INCREASES IN OUR COSTS COULD ERODE OUR PROFIT MARGINS AND SUBSTANTIALLY REDUCE OUR NET INCOME AND CASH FLOWS.**

          Cost containment in the health care industry, fueled, in part, by federal and state government budgetary shortfalls, is likely to result in constant or decreasing reimbursement amounts for our equipment and services. As a result, we must control our operating cost levels, particularly labor and related costs, which account for approximately 43 percent of our operating costs and expenses. We compete with other health care providers to attract and retain qualified or skilled personnel. We also compete with various industries for lower-wage administrative and service employees. Since reimbursement rates are established by fee schedules mandated by Medicare, Medicaid and private payors, we are not able to offset the effects of general inflation in labor and related cost components, if any, through increases in prices for our equipment and services. Consequently, such cost increases could erode our profitmargins and reduce our net income.

18

**Item 3.  *Quantitative and Qualitative Disclosures About Market Risk***

          We had no derivative securities as of March 31, 2004. We are exposed to changes in interest rates as a result of our revolving bank credit facility which is based on the London Interbank Offered Rate. A 10% increase in interest rates related to our revolving bank credit facility would not alone have a material adverse effect on our earnings over the next fiscal year or the fair value of our revolving bank credit facility.

          The fair value of our debt securities is subject to change as a result of changes in interest rates.  We estimate potential changes in the fair value of interest rate sensitive financial instruments based on a hypothetical decrease (or increase) in interest rates. Our use of this methodology to quantify the market risk of such instruments should not be construed as an endorsement of its accuracy or the accuracy of the related assumptions. The quantitative information about market risk is necessarily limited because it does not take into account anticipated operating and financial transactions. 

          The following table sets forth the estimated fair value of our long-term obligations and our estimate of the impact from a 10% decrease in interest rates on the fair value of our long-term obligations and the associated change in annual interest expense. 

          Market Risk Sensitive Instruments – Interest Rate Sensitivity:

|                             |   |              |    |                  |   |             |   |                                   |    |                                                    | **(Assuming   10%   Decrease in Interest Rates)** |   |
|----------------------------------|--------|-------------------|---------|-----------------------|--------|------------------|--------|----------------------------------------|---------|---------------------------------------------------------|---------------------------------------------------|--------|
|                             |   |              |    |                  |   |             |   |                                   |    |                                                    |                                                   |   |
| **(dollars   in thousands)**     |   | **Face   Amount** |    | **Carrying   Amount** |   | **Fair   Value** |   | **Estimated   Change in   Fair Value** |    | **Estimated   Change in   Annual   Interest   Expense** |                                              |
|                                  |   |                   |    |                       |   |                  |   |                                        |    |                                                         |                                              |
| As of March 31, 2004:            |   |              |    |                  |   |             |   |                                   |    |                                                    |                                              |   |   |   |   |   |
| Revolving bank credit   facility |   | $                 | 0       |                  | $      | 0                |   | $                                      | 0       |                                                    | $                                                 | 0      |   | $ | 0 |   |
| Senior secured notes             |   |              | 95,000  |                  |   | 95,000           |   |                                   | 99,035  |                                                    |                                              | 100    |   |   | 0 |   |
| Convertible debt                 |   |              | 275,000 |                  |   | 275,000          |   |                                   | 278,094 |                                                    |                                              | 2,370  |   |   | 0 |   |
| Deferred obligations             |   |              | 13,538  |                  |   | 13,538           |   |                                   | 13,538  |                                                    |                                              | 0      |   |   | 0 |   |
| As of December 31, 2003:         |   |              |    |                  |   |             |   |                                   |    |                                                    |                                              |   |   |   |   |   |
| Revolving bank credit   facility |   | $                 | 0       |                  | $      | 0                |   | $                                      | 0       |                                                    | $                                                 | 0      |   | $ | 0 |   |
| Senior secured notes             |   |              | 95,000  |                  |   | 95,000           |   |                                   | 98,875  |                                                    |                                              | 117    |   |   | 0 |   |
| Convertible debt                 |   |              | 275,000 |                  |   | 275,000          |   |                                   | 277,750 |                                                    |                                              | 2,993  |   |   | 0 |   |
| Deferred obligations             |   |              | 16,753  |                  |   | 16,753           |   |                                   | 16,753  |                                                    |                                              | 0      |   |   | 0 |   |

 

**Item 4.  *Controls and Procedures***

          The Company has conducted an evaluation of its disclosure controls and procedures, as such term is defined under Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report (the “Evaluation Date”). Based on its evaluation, the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company is recorded, processed, summarized and reported within the required time periods. 

          No change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d – 15(f) under the Securities and Exchange Act of 1934) occurred during the fiscal quarter ended March 31, 2004, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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**PART II. OTHER INFORMATION**

**Item 1. *Legal Proceedings***

          As a health care provider, Lincare is subject to extensive government regulation, including numerous laws directed at preventing fraud and abuse and laws regulating reimbursement under various government programs. The marketing, billing, documenting and other practices of health care companies are all subject to government scrutiny. To ensure compliance with Medicare and other regulations, regional carriers often conduct audits and request patient records and other documents to support claims submitted by the Company for payment of services rendered to customers. Similarly, government agencies periodically open investigations and obtain information from health care providers pursuant to legal process. 

          Violations of federal and state regulations can result in severe criminal, civil and administrative penalties and sanctions, including disqualification from Medicare and other reimbursement programs. 

          From time to time, the Company receives inquiries from various government agencies requesting customer records and other documents. It has been Lincare’s policy to cooperate with all such requests for information. The government has not instituted any proceedings or served Lincare with any complaints as a result of these inquiries.

          Private litigants may also make claims against the Company for violations of health care laws in actions known as *qui tam* suits. In these cases, the government has the opportunity to intervene in, and take control of, the litigation. The Company is a defendant in certain *qui tam* proceedings. The government has declined to intervene in all unsealed *qui tam* actions of which the Company is aware. Lincare is vigorously defending these suits. 

**Item 2.  *Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities -*Not Applicable**

**Item 3.  *Defaults Upon Senior Securities -*Not Applicable**

**Item 4.  *Submission of Matters to a Vote of the Security Holders -*Not Applicable**

**Item 5.  *Other Information -*Not Applicable**

| **Item   6.  *Exhibits   and Reports on Form 8-K*** |
|----------------------------------------------------------|
|                                                     | (a) | Exhibits included or incorporated herein: See   Exhibit Index. |
|                                                     |   |   |
|                                                     | (b) | Furnished February 10, 2004: Announcement of the   financial results for the quarter and year ended December 31, 2003. |

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**SIGNATURE**

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

|   | LINCARE HOLDINGS INC.                                                                       |
|--------|---------------------------------------------------------------------------------------------|
|   |                                                                                             |
|   | Registrant                                                                                  |
|   |                                                                                        |
|   | /s/ PAUL G. GABOS                                                                           |
|   |                                                                                             |
|   | **Paul G.   Gabos   Secretary, Chief Financial Officer   and Principal Accounting Officer** |

May 7, 2004

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**INDEX OF EXHIBITS**

| **Exhibit** |
|-------------|