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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-Q



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(MARK ONE)

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

For The Quarterly Period Ended September 30, 2007

OR



| ̈ | 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



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LINCARE HOLDINGS INC.

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|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



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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or non-accelerated filer (as defined in Exchange Act
Rule 12b-2).

Large accelerated filer  x    Accelerated filer ̈Non-accelerated filer ̈

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



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 October 31, 2007
|Common Stock, $0.01 par value |  | 80,170,443                     



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##### Table of Contents

LINCARE HOLDINGS INC. AND SUBSIDIARIES

FORM 10-Q

For The Quarterly Period Ended September 30, 2007

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 (unaudited)                      |  | 6   
|Item 2.                       |  | Managements Discussion and Analysis of Results of Operations and Financial Condition |  | 13  
|Item 3.                       |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 29  
|Item 4.                       |  | Controls and Procedures                                                               |  | 29  
|                              | 
|PART II. OTHER INFORMATION    |  |                                                                                      
|Item 1.                       |  | Legal Proceedings                                                                     |  | 30  
|Item 2.                       |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 31  
|Item 3.                       |  | Defaults Upon Senior Securities                                                       |  | 31  
|Item 4.                       |  | Submission of Matters to a Vote of the Security Holders                               |  | 31  
|Item 5.                       |  | Other Information                                                                     |  | 31  
|Item 6.                       |  | Exhibits                                                                              |  | 31  
|SIGNATURE                     |  | 32                                                                                   
|INDEX OF EXHIBITS             |  | S-1                                                                                  



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##### Table of Contents

PART I. FINANCIAL INFORMATION



|Item 1. | Financial Statements (Unaudited)
|------- | --------------------------------

LINCARE HOLDINGS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)



|                                                      |  |                    |           |   |                  |   |           |  
|----------------------------------------------------- |  | ------------------ | --------- | - | ---------------- | - | --------- | -
|                                                      |  | September 30, 2007 |           |   | December 31,2006 |  
|ASSETS                                                |  |                    |           |   |                  |   |           |  
|Current assets:                                       |  |                    |           |   |                  |   |           |  
|Cash and cash equivalents                             |  | $                  | 20,239    |   |                  | $ | 25,075    |  
|Short-term investments                                |  |                    | 15,825    |   |                  |   | 0         |  
|Accounts receivable, net                              |  |                    | 201,031   |   |                  |   | 170,533   |  
|Income tax receivable                                 |  |                    | 5,564     |   |                  |   | 13,474    |  
|Inventories                                           |  |                    | 9,570     |   |                  |   | 8,354     |  
|Prepaid and other current assets                      |  |                    | 2,614     |   |                  |   | 5,239     |  
|Deferred income taxes                                 |  |                    | 0         |   |                  |   | 19,604    |  
|                                                      |  |                    |           |   |                  |   |           |  
|Total current assets                                  |  |                    | 254,843   |   |                  |   | 242,279   |  
|                                                      |  |                    |           |   |                  |   |           |  
|Property and equipment                                |  |                    | 870,575   |   |                  |   | 793,007   |  
|Accumulated depreciation                              |  |                    | (536,895  | ) |                  |   | (471,682  | )
|                                                      |  |                    |           |   |                  |   |           |  
|Net property and equipment                            |  |                    | 333,680   |   |                  |   | 321,325   |  
|                                                      |  |                    |           |   |                  |   |           |  
|Other assets:                                         |  |                    |           |   |                  |   |           |  
|Goodwill                                              |  |                    | 1,202,579 |   |                  |   | 1,203,012 |  
|Covenants not-to-compete, net                         |  |                    | 410       |   |                  |   | 607       |  
|Other                                                 |  |                    | 7,827     |   |                  |   | 8,087     |  
|                                                      |  |                    |           |   |                  |   |           |  
|Total other assets                                    |  |                    | 1,210,816 |   |                  |   | 1,211,706 |  
|                                                      |  |                    |           |   |                  |   |           |  
|Total assets                                          |  | $                  | 1,799,339 |   |                  | $ | 1,775,310 |  
|                                                      |  |                    |           |   |                  |   |           |  
|                                                      |  |                   
|LIABILITIES AND STOCKHOLDERS EQUITY                  |  |                    |           |   |                  |   |           |  
|Current liabilities:                                  |  |                    |           |   |                  |   |           |  
|Current installments of long-term obligations         |  | $                  | 407,813   |   |                  | $ | 71,047    |  
|Accounts payable                                      |  |                    | 57,340    |   |                  |   | 44,166    |  
|Accrued expenses:                                     |  |                    |           |   |                  |   |           |  
|Compensation and benefits                             |  |                    | 29,554    |   |                  |   | 20,638    |  
|Liability insurance                                   |  |                    | 14,949    |   |                  |   | 12,757    |  
|Other current liabilities                             |  |                    | 53,049    |   |                  |   | 40,856    |  
|Deferred income taxes  current                       |  |                    | 3,173     |   |                  |   | 0         |  
|                                                      |  |                    |           |   |                  |   |           |  
|Total current liabilities                             |  |                    | 565,878   |   |                  |   | 189,464   |  
|                                                      |  |                    |           |   |                  |   |           |  
|Long-term obligations, excluding current installments |  |                    | 199       |   |                  |   | 275,000   |  
|Deferred income taxes and other taxes                 |  |                    | 196,978   |   |                  |   | 200,269   |  
|                                                      |  |                    |           |   |                  |   |           |  
|Total liabilities                                     |  |                    | 763,055   |   |                  |   | 664,733   |  
|                                                      |  |                    |           |   |                  |   |           |  
|Commitments and contingencies:                        |  |                    |           |   |                  |   |           |  
|Stockholders equity:                                 |  |                    |           |   |                  |   |           |  
|Common stock                                          |  |                    | 843       |   |                  |   | 903       |  
|Additional paid-in capital                            |  |                    | 443,682   |   |                  |   | 386,201   |  
|Retained earnings                                     |  |                    | 591,759   |   |                  |   | 723,473   |  
|                                                      |  |                    |           |   |                  |   |           |  
|Total stockholders equity                            |  |                    | 1,036,284 |   |                  |   | 1,110,577 |  
|                                                      |  |                    |           |   |                  |   |           |  
|Total liabilities and stockholders equity            |  | $                  | 1,799,339 |   |                  | $ | 1,775,310 |  
|                                                      |  |                    |           |   |                  |   |           |  

See accompanying notes to condensed consolidated financial statements (unaudited).



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LINCARE HOLDINGS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)



|                                                                                  |  |                            |         |   |                           |   |         |                   |  |   |                    |   |  |   |           |  
|--------------------------------------------------------------------------------- |  | -------------------------- | ------- | - | ------------------------- | - | ------- | ----------------- |  | - | ------------------ | - |  | - | --------- | -
|                                                                                  |  | For The Three Months Ended |         |   | For The Nine Months Ended |  
|                                                                                  |  | September 30, 2007         |         |   | September 30,2006         |   |         | September 30,2007 |  |   | September 30, 2006 |  
|Net revenues                                                                      |  | $                          | 408,152 |   |                           | $ | 358,013 |                   |  | $ | 1,183,694          |   |  | $ | 1,041,731 |  
|                                                                                  |  |                            |         |   |                           |   |         |                   |  |   |                    |   |  |   |           |  
|Costs and expenses:                                                               |  |                            |         |   |                           |   |         |                   |  |   |                    |   |  |   |           |  
|Cost of goods and services                                                        |  |                            | 101,398 |   |                           |   | 80,648  |                   |  |   | 289,494            |   |  |   | 232,941   |  
|Operating expenses                                                                |  |                            | 91,458  |   |                           |   | 84,398  |                   |  |   | 272,939            |   |  |   | 245,273   |  
|Selling, general and administrative expenses                                      |  |                            | 80,128  |   |                           |   | 73,301  |                   |  |   | 236,190            |   |  |   | 217,354   |  
|Bad debt expense                                                                  |  |                            | 6,122   |   |                           |   | 5,370   |                   |  |   | 17,755             |   |  |   | 15,626    |  
|Depreciation expense                                                              |  |                            | 29,893  |   |                           |   | 24,736  |                   |  |   | 83,497             |   |  |   | 73,899    |  
|Amortization expense                                                              |  |                            | 64      |   |                           |   | 422     |                   |  |   | 197                |   |  |   | 1,263     |  
|                                                                                  |  |                            |         |   |                           |   |         |                   |  |   |                    |   |  |   |           |  
|                                                                                  |  |                            | 309,063 |   |                           |   | 268,875 |                   |  |   | 900,072            |   |  |   | 786,356   |  
|                                                                                  |  |                            |         |   |                           |   |         |                   |  |   |                    |   |  |   |           |  
|Operating income                                                                  |  |                            | 99,089  |   |                           |   | 89,138  |                   |  |   | 283,622            |   |  |   | 255,375   |  
|                                                                                  |  |                            |         |   |                           |   |         |                   |  |   |                    |   |  |   |           |  
|Other income (expense):                                                           |  |                            |         |   |                           |   |         |                   |  |   |                    |   |  |   |           |  
|Interest income                                                                   |  |                            | 525     |   |                           |   | 707     |                   |  |   | 1,650              |   |  |   | 1,965     |  
|Interest expense                                                                  |  |                            | (4,864  | ) |                           |   | (2,381  | )                 |  |   | (15,595            | ) |  |   | (7,185    | )
|                                                                                  |  |                            |         |   |                           |   |         |                   |  |   |                    |   |  |   |           |  
|                                                                                  |  |                            | (4,339  | ) |                           |   | (1,674  | )                 |  |   | (13,945            | ) |  |   | (5,220    | )
|                                                                                  |  |                            |         |   |                           |   |         |                   |  |   |                    |   |  |   |           |  
|Income before income taxes                                                        |  |                            | 94,750  |   |                           |   | 87,464  |                   |  |   | 269,677            |   |  |   | 250,155   |  
|Income tax expense                                                                |  |                            | 36,111  |   |                           |   | 31,242  |                   |  |   | 101,188            |   |  |   | 94,142    |  
|                                                                                  |  |                            |         |   |                           |   |         |                   |  |   |                    |   |  |   |           |  
|Net income                                                                        |  | $                          | 58,639  |   |                           | $ | 56,222  |                   |  | $ | 168,489            |   |  | $ | 156,013   |  
|                                                                                  |  |                            |         |   |                           |   |         |                   |  |   |                    |   |  |   |           |  
|Basic earnings per common share                                                   |  | $                          | 0.69    |   |                           | $ | 0.60    |                   |  | $ | 1.98               |   |  | $ | 1.64      |  
|                                                                                  |  |                            |         |   |                           |   |         |                   |  |   |                    |   |  |   |           |  
|Diluted earnings per common share                                                 |  | $                          | 0.66    |   |                           | $ | 0.57    |                   |  | $ | 1.89               |   |  | $ | 1.57      |  
|                                                                                  |  |                            |         |   |                           |   |         |                   |  |   |                    |   |  |   |           |  
|Weighted average number of common shares outstanding                              |  |                            | 84,562  |   |                           |   | 93,795  |                   |  |   | 85,034             |   |  |   | 94,867    |  
|                                                                                  |  |                            |         |   |                           |   |         |                   |  |   |                    |   |  |   |           |  
|Weighted average number of common shares and common share equivalents outstanding |  |                            | 90,551  |   |                           |   | 100,258 |                   |  |   | 91,392             |   |  |   | 101,756   |  
|                                                                                  |  |                            |         |   |                           |   |         |                   |  |   |                    |   |  |   |           |  

See accompanying notes to condensed consolidated financial statements (unaudited).



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LINCARE HOLDINGS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



|                                                                                  |  |                           |          |   |                    |   |          |  
|--------------------------------------------------------------------------------- |  | ------------------------- | -------- | - | ------------------ | - | -------- | -
|                                                                                  |  | For The Nine Months Ended |         
|                                                                                  |  | September 30,2007         |          |   | September 30, 2006 |  
|Cash flows from operating activities:                                             |  |                           |          |   |                    |   |          |  
|Net income                                                                        |  | $                         | 168,489  |   |                    | $ | 156,013  |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                           |          |   |                    |   |          |  
|Bad debt expense                                                                  |  |                           | 17,755   |   |                    |   | 15,626   |  
|Depreciation expense                                                              |  |                           | 83,497   |   |                    |   | 73,899   |  
|Net gain on disposal of property and equipment                                    |  |                           | (27      | ) |                    |   | (54      | )
|Amortization expense                                                              |  |                           | 197      |   |                    |   | 1,263    |  
|Amortization of debt issuance costs                                               |  |                           | 321      |   |                    |   | 570      |  
|Stock-based compensation expense                                                  |  |                           | 12,892   |   |                    |   | 15,124   |  
|Deferred income tax and other tax liabilities                                     |  |                           | 18,844   |   |                    |   | 14,430   |  
|Excess tax benefit from stock-based compensation                                  |  |                           | (4,133   | ) |                    |   | (392     | )
|Change in assets and liabilities net of effects of acquired businesses:           |  |                           |          |   |                    |   |          |  
|Increase in accounts receivable                                                   |  |                           | (48,253  | ) |                    |   | (55,856  | )
|Increase in inventories                                                           |  |                           | (1,216   | ) |                    |   | (2,381   | )
|Decrease in prepaid and other assets                                              |  |                           | 2,569    |   |                    |   | 353      |  
|Increase (decrease) in accounts payable                                           |  |                           | 13,174   |   |                    |   | (812     | )
|Increase in accrued expenses                                                      |  |                           | 23,301   |   |                    |   | 11,906   |  
|Increase (decrease) in income taxes payable                                       |  |                           | 17,814   |   |                    |   | (3,651   | )
|                                                                                  |  |                           |          |   |                    |   |          |  
|Net cash provided by operating activities                                         |  |                           | 305,224  |   |                    |   | 226,038  |  
|                                                                                  |  |                           |          |   |                    |   |          |  
|Cash flows from investing activities:                                             |  |                           |          |   |                    |   |          |  
|Proceeds from sale of property and equipment                                      |  |                           | 93       |   |                    |   | 112      |  
|Purchases of property and equipment                                               |  |                           | (95,917  | ) |                    |   | (79,143  | )
|Purchases of short-term investments                                               |  |                           | (96,375  | ) |                    |   | (177,780 | )
|Sales and maturities of short-term investments                                    |  |                           | 80,550   |   |                    |   | 206,205  |  
|Cash restricted for future payments                                               |  |                           | 0        |   |                    |   | 23       |  
|Business acquisitions, net of cash acquired and purchase price adjustments        |  |                           | 0        |   |                    |   | (26,878  | )
|                                                                                  |  |                           |          |   |                    |   |          |  
|Net cash used in investing activities                                             |  |                           | (111,649 | ) |                    |   | (77,461  | )
|                                                                                  |  |                           |          |   |                    |   |          |  
|Cash flows from financing activities:                                             |  |                           |          |   |                    |   |          |  
|Proceeds from issuance of debt                                                    |  |                           | 205,435  |   |                    |   | 1,000    |  
|Payments of principal on debt                                                     |  |                           | (143,036 | ) |                    |   | (9,520   | )
|Payments of debt issuance costs                                                   |  |                           | (7       | ) |                    |   | (7       | )
|Proceeds from exercise of stock options and issuance of common shares             |  |                           | 35,103   |   |                    |   | 4,812    |  
|Excess tax benefit from stock-based compensation                                  |  |                           | 4,133    |   |                    |   | 392      |  
|Payments to repurchase common stock                                               |  |                           | (300,039 | ) |                    |   | (115,021 | )
|                                                                                  |  |                           |          |   |                    |   |          |  
|Net cash used in financing activities                                             |  |                           | (198,411 | ) |                    |   | (118,344 | )
|                                                                                  |  |                           |          |   |                    |   |          |  
|Net (decrease) increase in cash and cash equivalents                              |  |                           | (4,836   | ) |                    |   | 30,233   |  
|Cash and cash equivalents, beginning of period                                    |  |                           | 25,075   |   |                    |   | 8,544    |  
|                                                                                  |  |                           |          |   |                    |   |          |  
|Cash and cash equivalents, end of period                                          |  | $                         | 20,239   |   |                    | $ | 38,777   |  
|                                                                                  |  |                           |          |   |                    |   |          |  
|Supplemental disclosure of cash flow information:                                 |  |                           |          |   |                    |   |          |  
|Cash paid for interest                                                            |  | $                         | 12,378   |   |                    | $ | 4,567    |  
|                                                                                  |  |                           |          |   |                    |   |          |  
|Cash paid for income taxes                                                        |  | $                         | 67,344   |   |                    | $ | 83,363   |  
|                                                                                  |  |                           |          |   |                    |   |          |  
|Supplemental disclosure of non-cash investing and financing activities:           |  |                           |          |   |                    |   |          |  
|Assets acquired under capital lease                                               |  | $                         | 435      |   |                    | $ | 0        |  
|                                                                                  |  |                           |          |   |                    |   |          |  

See accompanying notes to condensed consolidated financial statements (unaudited).



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LINCARE HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Basis of Presentation
and Summary of Significant Accounting Policies

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, 2006. 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. Certain amounts in the prior years financial statements have been reclassified to conform to the current year
presentation. The results of operations for interim periods are not necessarily indicative of the results to be expected for the entire year.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from those estimates. It is at least reasonably
possible that a change in those estimates will occur in the near term.

Concentration of Credit Risk: The Companys revenues
are generated through locations in 47 states. The Company generally does not require collateral or other security in extending credit to customers; however, the Company routinely obtains assignment of (or is otherwise entitled to receive) benefits
receivable under the health insurance programs, plans or policies of its customers. Included in the Companys net revenues is reimbursement from government sources under Medicare, Medicaid and other federally funded programs, which aggregated
approximately 64% and 66% of net revenues for the nine months ended September 30, 2007 and 2006, respectively. The exclusion of the Company from participating in federally funded programs would have a material adverse effect on the
Companys business, financial condition, operating results and cash flows.

Revenue Recognition: The Companys revenues
are recognized on an accrual basis in the period in which services and related products are provided to customers and are recorded at net realizable amounts estimated to be paid by customers and third-party payors. The Companys billing system
contains payor-specific price tables that reflect the fee schedule amounts in effect or contractually agreed upon by various government and commercial payors for each item of equipment or supply provided to a customer. The Company has established an
allowance to account for sales adjustments that result from differences between the payment amount received and the expected realizable amount. Actual adjustments that result from differences between the payment amount received and the expected
realizable amount are recorded against the allowance for sales adjustments and are typically identified and ultimately recorded at the point of cash application or when otherwise determined pursuant to the Companys collection procedures. The
Company reports revenues in its financial statements net of such adjustments.

Certain items provided by the Company are reimbursed under
rental arrangements that generally provide for fixed monthly payments established by fee schedules for as long as the patient is using the equipment and medical necessity continues (subject to capped rental arrangements which limit the rental
payment periods in some instances and which may result in a transfer of title to the equipment at the end of the rental payment period). Once initial delivery of rental equipment is made to the patient, a monthly billing cycle is established based
on the initial date of delivery. The Company recognizes rental arrangement revenues ratably over the monthly service period and defers revenue for the portion of the monthly bill that is unearned. No separate payment is earned from the initial
equipment delivery and setup process. During the rental period, the Company is responsible for servicing the equipment and providing routine maintenance, if necessary.

The Companys revenue recognition policy is consistent with the criteria set forth in Staff Accounting Bulletin 104, Revenue Recognition (SAB 104) for determining when revenue is realized
or realizable and earned. The Company recognizes revenue in accordance with the requirements of SAB 104 that:



| |  |  | persuasive evidence of an arrangement exists;
| | - |  | ---------------------------------------------



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##### Table of Contents

LINCARE HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



| |  |  | delivery has occurred;
| | - |  | ----------------------



| |  |  | the sellers price to the buyer is fixed or determinable; and
| | - |  | -------------------------------------------------------------



| |  |  | collectibility is reasonably assured.
| | - |  | -------------------------------------

Due to the nature of the industry and the reimbursement environment in which the Company operates, certain estimates are required to record net revenues and accounts receivable at their net realizable values at the time products are
provided. Inherent in these estimates is the risk that they will have to be revised or updated as additional information becomes available. Specifically, the complexity of many third-party billing arrangements and the uncertainty of reimbursement
amounts for certain services from certain payors may result in adjustments to amounts originally recorded. Such adjustments are typically identified and recorded by the Company at the point of cash application, claim denial or account review.
Included in accounts receivable are earned but unbilled accounts receivable from earned revenues. Unbilled accounts receivable represent charges for equipment and supplies delivered to customers for which invoices have not yet been generated by the
billing system. Prior to the delivery of equipment and supplies to customers, the Company performs certain certification and approval procedures to ensure collection is reasonably assured. Once the items are delivered, unbilled accounts receivable
are recorded at net amounts expected to be paid by customers and third-party payors. Billing delays, ranging from several weeks to several months, can occur due to delays in obtaining certain required payor-specific documentation from internal and
external sources as well as interim transactions occurring between cycle billing dates established for each customer within the billing system, and business acquisitions awaiting assignment of new provider enrollment identification numbers. In the
event that a third-party payor does not accept the claim, the customer is ultimately responsible. Accounts receivable are reported net of allowances for sales adjustments and uncollectible accounts. Sales adjustments are recorded against revenues
and result from differences between the payment amount received and the expected realizable amount. Bad debt is recorded as an operating expense and consists of billed charges that are ultimately deemed uncollectible due to the customers or
third-party payors inability or refusal to pay.

The Company performs analyses to evaluate the net realizable value of accounts
receivable. Specifically, the Company considers historical realization data, accounts receivable aging trends, other operating trends and relevant business conditions. Because of continuing changes in the health care industry and third-party
reimbursement, it is possible that the Companys estimates could change, which could have a material impact on the Companys results of operations and cash flows.

Cost of Goods and Services: Cost of goods and services includes the cost of equipment (excluding depreciation of $20.6 million and $58.9 million
for the three and nine-month periods in 2007 and $17.2 million and $50.4 million for the three and nine-month periods in 2006, respectively), drugs and supplies sold to patients and certain costs related to the Companys respiratory drug
product line. These costs include an allocation of customer service, distribution and administrative costs relating to the respiratory drug product line of approximately $11.7 million and $36.3 million for the three and nine-month periods of 2007.
For the three and nine-month periods of 2006, such costs amounted to $12.0 million and $37.2 million. Included in cost of goods and services in the three and nine months ended September 30, 2007 are salary and related expenses of pharmacists
and pharmacy technicians of $2.5 million and $7.7 million, respectively. Such salary and related expenses for the three and nine months ended September 30, 2006, were $2.5 million and $7.3 million, respectively.

Operating Expenses:The Company manages over 1,000 operating centers from which customers are provided equipment, supplies and services. An
operating center averages approximately seven to eight employees and is typically comprised of a center manager, two customer service representatives (referred to as CSRs  telephone intake, scheduling, documentation), two or
three service representatives (referred to as Service Reps  delivery, maintenance and retrieval of equipment and delivery of disposables), a respiratory therapist (non-reimbursable and discretionary clinical follow-up with the
customer and communication to the prescribing physician) and a sales representative (marketing calls to local physicians and other referral sources).

The Company includes in operating expenses the costs incurred at the Companys operating centers for certain service personnel (center manager, CSRs and Service Reps), facilities (rent, utilities,
communications, property taxes, etc.), vehicles (vehicle leases, gasoline, repair and maintenance), and general business supplies and miscellaneous expenses. Operating expenses for the interim periods of 2007 and 2006 within these major categories
were as follows:



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LINCARE HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



|                                  |      |                                 |        |                                |      |        |      |   |         |  |   |        
|--------------------------------- | ---- | ------------------------------- | ------ | ------------------------------ | ---- | ------ | ---- | - | ------- |  | - | -------
|Operating Expenses (in thousands) |      | Three Months EndedSeptember 30, |        | Nine Months EndedSeptember 30,
|                                  | 2007 |                                 | 2006   |                                | 2007 |        | 2006
|Salary and related                |      | $                               | 57,655 |                                | $    | 52,803 |      | $ | 173,822 |  | $ | 153,204
|Facilities                        |      |                                 | 14,191 |                                |      | 12,806 |      |   | 41,553  |  |   | 38,457 
|Vehicles                          |      |                                 | 11,514 |                                |      | 11,017 |      |   | 33,466  |  |   | 30,621 
|General supplies/miscellaneous    |      |                                 | 8,098  |                                |      | 7,772  |      |   | 24,098  |  |   | 22,991 
|                                  |      |                                 |        |                                |      |        |      |   |         |  |   |        
|Total                             |      | $                               | 91,458 |                                | $    | 84,398 |      | $ | 272,939 |  | $ | 245,273
|                                  |      |                                 |        |                                |      |        |      |   |         |  |   |        

Included in operating expenses during the three and nine months ended September 30, 2007 are
salary and related expenses for Service Reps in the amount of $25.0 million and $74.5 million, respectively. Such salary and related expenses for the three and nine months ended September 30, 2006 were $22.6 million and $66.2 million,
respectively.

Selling, General and Administrative Expenses:Selling, general and administrative expenses (SG&A)
include costs related to sales and marketing activities, corporate overhead and other business support functions. Included in SG&A during the three and nine months ended September 30, 2007 are salary and related expenses of $56.6 million
and $169.0 million, respectively. These salary and related expenses include the cost of the Companys respiratory therapists for the three and nine months ended September 30, 2007 of $15.6 million and $47.0 million, respectively. Included
in SG&A during the three and nine months ended September 30, 2006 are salary and related expenses of $53.6 million and $153.1 million, respectively. These salary and related expenses include the cost of the Companys respiratory
therapists in the amount of $13.7 million and $40.1 million in the respective periods during 2006. The Companys respiratory therapists generally provide non-reimbursable and discretionary clinical follow-up with the customer and communication,
as appropriate, to the prescribing physician with respect to the customers plan of care. The Company includes the salaries and related expenses of its respiratory therapist personnel (licensed respiratory therapists or, in some cases,
registered nurses) in SG&A because it believes that these personnel enhance the Companys business relative to its competitors who do not employ respiratory therapists.

Note 2. Business Combinations

Lincare acquires the business and related assets of local and
regional companies as an ongoing strategy to increase revenue within its respective markets. Lincare arrives at a negotiated purchase price taking into account such factors including, but not limited to, the acquired companys historical and
projected revenue growth, operating cash flow, product mix, payor mix, service reputation and geographical location.

During the nine
months ended September 30, 2007, the Company did not acquire the business or assets of any companies. During the nine months ended September 30, 2006, the Company acquired certain assets of eight companies in separate transactions. The
aggregate cost of those acquisitions through September 30, 2006 was $33.2 million.

Note 3. Accounts Receivable

Accounts receivable consist of:



|                                                                |  |                   |         |   |                   |   |         |  
|--------------------------------------------------------------- |  | ----------------- | ------- | - | ----------------- | - | ------- | -
|                                                                |  | September 30,2007 |         |   | December 31, 2006 |  
|                                                                |  | (In thousands)    |        
|Trade accounts receivable                                       |  | $                 | 238,056 |   |                   | $ | 204,892 |  
|Less allowance for sales adjustments and uncollectible accounts |  |                   | (37,025 | ) |                   |   | (34,359 | )
|                                                                |  |                   |         |   |                   |   |         |  
|                                                                |  | $                 | 201,031 |   |                   | $ | 170,533 |  
|                                                                |  |                   |         |   |                   |   |         |  



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LINCARE HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



Note 4. Income Taxes

The Company adopted the provisions of Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty in Income Taxes, on January 1, 2007. As a result of
adoption, the Company recognized a charge to stockholders equity of $0.6 million as a cumulative effect adjustment. As of January 1, 2007, the Company had gross unrecognized tax benefits, including interest and penalty, of $17.9 million
of which $12.2 million, net of federal tax benefit, if recognized, would favorably affect the effective tax rate. The Company recognizes accrued interest and penalty related to unrecognized tax benefits as a component of income tax expense. The
gross amount provided for potential interest and penalties at the date of adoption totaled $3.2 million and $1.0 million, respectively. There have been no significant changes to these amounts of unrecognized tax benefits and related interest and
penalties during the quarter and nine months ended September 30, 2007.

The Company conducts business nationally and, as a result,
files U.S. federal income tax returns and returns in various state and local jurisdictions. In the normal course of business the Company is subject to examination by taxing authorities throughout the United States. With few exceptions, the Company
is no longer subject to U.S. federal, state and local, income tax examinations for years before 2002.

The Internal Revenue Service
(IRS) closed its examination of the Companys U.S. income tax returns for the years 2001 through 2003 in the third quarter of 2007. The Company is currently under audit by the IRS for the 2005 tax year. It is likely that the
examination phase of the audit for the year 2005 will conclude in 2007. The Company has been invited to participate in the IRSs Compliance Assurance Program, or CAP, for 2007. The objective of CAP is to reduce taxpayer burden and uncertainty
while assuring the IRS of the tax returns accuracy prior to filing, thereby reducing or eliminating the need for post-filing examination.

Note
5. 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. Diluted income per common share reflects the potential dilution of securities that could share in the Companys earnings, including securities that may be issued upon
conversion of convertible debentures and exercise of outstanding stock options. When the exercise of stock options would be anti-dilutive, they are excluded from the income per common share calculation. For the three and nine months ended
September 30, 2007, the number of excluded shares underlying anti-dilutive stock options was 925,976 and 620,625, respectively. For the three and nine months ended September 30, 2006, the number of excluded shares underlying anti-dilutive
stock options was 194,102 and 31,734, respectively.



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LINCARE HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



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



|                                                                                     |  |                                         |        |                                        |   |         |  |      |         |  |   |        
|------------------------------------------------------------------------------------ |  | --------------------------------------- | ------ | -------------------------------------- | - | ------- |  | ---- | ------- |  | - | -------
|                                                                                     |  | For The Three MonthsEnded September 30, |        | For The Nine MonthsEnded September 30,
|                                                                                     |  | 2007                                    |        | 2006                                   |   | 2007    |  | 2006
|Numerator:                                                                           |  |                                         |        |                                        |   |         |  |      |         |  |   |        
|Basic  Income available to common stockholders                                      |  | $                                       | 58,639 |                                        | $ | 56,222  |  | $    | 168,489 |  | $ | 156,013
|Adjustment for assumed dilution:                                                     |  |                                         |        |                                        |   |         |  |      |         |  |   |        
|Interest on convertible debt, net of tax                                             |  |                                         | 1,277  |                                        |   | 1,326   |  |      | 3,867   |  |   | 3,857  
|                                                                                     |  |                                         |        |                                        |   |         |  |      |         |  |   |        
|Diluted  Income available to common stockholders and holders of dilutive securities |  | $                                       | 59,916 |                                        | $ | 57,548  |  | $    | 172,356 |  | $ | 159,870
|                                                                                     |  |                                         |        |                                        |   |         |  |      |         |  |   |        
|                                                                                     |  |                                         |        |                                       
|Denominator:                                                                         |  |                                         |        |                                        |   |         |  |      |         |  |   |        
|Weighted average shares                                                              |  |                                         | 84,562 |                                        |   | 93,795  |  |      | 85,034  |  |   | 94,867 
|Effect of dilutive securities:                                                       |  |                                         |        |                                        |   |         |  |      |         |  |   |        
|Incremental shares under stock compensation plans.                                   |  |                                         | 832    |                                        |   | 1,306   |  |      | 1,201   |  |   | 1,732  
|Incremental shares from assumed conversion of convertible debt                       |  |                                         | 5,157  |                                        |   | 5,157   |  |      | 5,157   |  |   | 5,157  
|                                                                                     |  |                                         |        |                                        |   |         |  |      |         |  |   |        
|Adjusted weighted average shares                                                     |  |                                         | 90,551 |                                        |   | 100,258 |  |      | 91,392  |  |   | 101,756
|                                                                                     |  |                                         |        |                                        |   |         |  |      |         |  |   |        
|                                                                                     |  |                                         |        |                                       
|Per share amount:                                                                    |  |                                         |        |                                        |   |         |  |      |         |  |   |        
|Basic                                                                                |  | $                                       | 0.69   |                                        | $ | 0.60    |  | $    | 1.98    |  | $ | 1.64   
|                                                                                     |  |                                         |        |                                        |   |         |  |      |         |  |   |        
|Diluted (1)                                                                          |  | $                                       | 0.66   |                                        | $ | 0.57    |  | $    | 1.89    |  | $ | 1.57   
|                                                                                     |  |                                         |        |                                        |   |         |  |      |         |  |   |        

---

|(1) | Figures reflect the application of the if converted method of accounting for the Companys outstanding 3.0% Convertible Senior Debentures due 2033 (see
Liquidity and Capital Resources) in accordance with EITF No. 04-8.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Note 6. Stock-Based Compensation

Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 123R, Share-Based
Payment, using the modified prospective transition method. Under the modified prospective transition method, fair value accounting and recognition provisions of SFAS No. 123R are applied to stock-based awards granted or modified
subsequent to the date of adoption and prior periods presented are not restated. In addition, for awards granted prior to the effective date, the unvested portion of the awards are recognized in periods subsequent to the effective adoption date
based on the grant date fair value determined for pro forma disclosure purposes under SFAS No. 123.

For the three months ended
September 30, 2007 and 2006, the Company recognized total stock-based compensation costs of $5.4 million and $5.7 million, respectively, as well as related tax benefits of $1.9 million in each period. For the nine months ended
September 30, 2007 and 2006, the Company recognized total stock-based compensation costs of $12.9 million and $15.1 million, respectively, as well as related tax benefits of $4.5 million and $5.0 million, respectively. Substantially all
stock-based compensation costs are classified within selling, general and administrative expenses on the accompanying condensed consolidated statements of operations.

Stock Options

The following table sets forth fair value per share information and related
weighted-average assumptions used to determine compensation cost for stock options granted during the periods indicated, consistent with the requirements of SFAS No. 123R:



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LINCARE HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



|                                                                                                                                              |  |                                 |  |                                |  |      |         |   |      |   |         |  
|--------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------- |  | ------------------------------ |  | ---- | ------- | - | ---- | - | ------- | -
|                                                                                                                                              |  | Three MonthsEnded September 30, |  | Nine MonthsEnded September 30, | 
|                                                                                                                                              |  | 2007                            |  | 2006                           |  | 2007 |         |   | 2006 |  
|Weighted average fair value per share of options granted during the period (estimated on grant date using Black-Scholes option pricing model) |  | N/A                             |  | N/A                            |  | $    | 12.23   |   |      | $ | 11.94   |  
|Assumptions:                                                                                                                                  |  |                                 |  |                                |  |      |         |   |      |   |         |  
|Expected dividend yield                                                                                                                       |  | N/A                             |  | N/A                            |  |      | 0.00    | % |      |   | 0.00    | %
|Risk-free interest rate                                                                                                                       |  | N/A                             |  | N/A                            |  |      | 4.69    | % |      |   | 5.03    | %
|Weighted-average expected volatility                                                                                                          |  | N/A                             |  | N/A                            |  |      | 23.28   | % |      |   | 26.21   | %
|Expected life                                                                                                                                 |  | N/A                             |  | N/A                            |  |      | 5 years |   |      |   | 5 years |  

Stock option activity for the nine months ended September 30, 2007 is summarized below:



|                                                    |  |                   |   |  |                              |       |                                                  |      |                          |   |           
|--------------------------------------------------- |  | ----------------- | - |  | ---------------------------- | ----- | ------------------------------------------------ | ---- | ------------------------ | - | ----------
|                                                    |  | Number of Options |   |  | WeightedAverageExercisePrice |       | Weighted AverageRemainingContractual Life(Years) |      | AggregateIntrinsic Value
|Outstanding at December 31, 2006                    |  | 9,656,910         |   |  | $                            | 30.38 |                                                  |      |                          |   |           
|Options granted in 2007                             |  | 1,288,000         |   |  |                              | 39.03 |                                                  |      |                          |   |           
|Exercised in 2007                                   |  | (1,557,438        | ) |  |                              | 21.88 |                                                  |      |                          |   |           
|Forfeited in 2007                                   |  | (54,950           | ) |  |                              | 40.73 |                                                  |      |                          |   |           
|                                                    |  |                   |   |  |                              |       |                                                  |      |                          |   |           
|Outstanding at September 30, 2007                   |  | 9,332,522         |   |  | $                            | 32.93 |                                                  | 4.39 |                          | $ | 50,924,437
|                                                    |  |                   |   |  |                              |       |                                                  |      |                          |   |           
|Exercisable at September 30, 2007                   |  | 5,576,557         |   |  | $                            | 27.95 |                                                  | 2.83 |                          | $ | 50,924,437
|                                                    |  |                   |   |  |                              |       |                                                  |      |                          |   |           
|Vested or expected to vest as of September 30, 2007 |  | 9,042,270         |   |  | $                            | 32.65 |                                                  | 4.33 |                          | $ | 50,924,437
|                                                    |  |                   |   |  |                              |       |                                                  |      |                          |   |           

Of the stock options for 9,332,522 shares outstanding at September 30, 2007, options for
5,576,557 shares are exercisable and options for 3,755,965 shares are unvested. Of the total stock options outstanding at September 30, 2007, 9,042,270 are vested or expected to vest in the future net of expected cancellations and forfeitures
of 290,252. The intrinsic value of options exercised during the nine months ended September 30, 2007 and 2006, amounted to $27.2 million and $2.7 million, respectively.

As of September 30, 2007, the total remaining unrecognized compensation cost related to unvested stock options amounted to $26.5 million, which will
be amortized over the weighted-average remaining requisite service period of two years.

Restricted Stock

The following table summarizes information about restricted stock activity for the nine months ended September 30, 2007:



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LINCARE HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



|                               |  |         |   |  |                                               |      
|------------------------------ |  | ------- | - |  | --------------------------------------------- | -----
|                               |  | Shares  |   |  | Weighted-Average GrantDate FairValue PerShare
|Unvested at January 1, 2007    |  | 94,666  |   |  | $                                             | 32.36
|Granted                        |  | 383,500 |   |  |                                               | 39.03
|Vested                         |  | (89,333 | ) |  |                                               | 31.96
|Forfeited                      |  | (7,383  | ) |  |                                               | 39.15
|                               |  |         |   |  |                                               |      
|Unvested at September 30, 2007 |  | 381,450 |   |  | $                                             | 39.03
|                               |  |         |   |  |                                               |      

As of September 30, 2007, the total remaining unrecognized compensation cost related to
restricted stock amounted to $13.8 million, which will be amortized over the weighted-average remaining requisite service period of 3.7 years.

Note 7.
Comprehensive Income

SFAS No. 130, Reporting Comprehensive Income, establishes standards for the reporting and display
of comprehensive income and its components in the Companys condensed consolidated financial statements. The objective of SFAS No. 130 is to report a measure (comprehensive income (loss)) of all changes in equity of an enterprise that
result from transactions and other economic events in a period other than transactions with owners.

The Companys comprehensive
income is the same as reported net income for the three and nine-month periods ended September 30, 2007 and September 30, 2006.

Note 8.
Subsequent Event

On October 31, 2007, the Company completed the sale of $275.0 million principal amount (including exercise of a
$25.0 million over-allotment option) of convertible senior debentures due 2037  Series A (the Series A Debentures) and $275.0 million principal amount (including exercise of a $25.0 million over-allotment option) of convertible
senior debentures due 2037  Series B (the Series B Debentures and together with the Series A Debentures, the Series Debentures) in a private placement. The Series Debentures will pay interest semi-annually at a rate of
2.75 percent per year. The Series Debentures are unsecured and unsubordinated obligations and will be convertible under specified circumstances based upon a base conversion rate, which, under certain circumstances, will be increased pursuant to a
formula that is subject to a maximum conversion rate. Upon conversion, holders of the Series Debentures will receive cash up to the principal amount, and any excess conversion value will be delivered in shares of the Companys common stock or
in a combination of cash and shares of common stock, at the Companys option. The initial base conversion rate for the Debentures is 19.5044 shares of common stock per $1,000 principal amount of Series Debentures, equivalent to an initial base
conversion price of approximately $51.27 per share. In addition, if at the time of conversion the applicable price of the Companys common stock exceeds the base conversion price, holders of the Series A Debentures and Series B Debentures will
receive an additional number of shares of common stock per $1,000 principal amount of the Debentures, as determined pursuant to a specified formula. The Company will have the right to redeem the Series A Debentures and the Series B Debentures at any
time after November 1, 2012 and November 1, 2014, respectively. Holders of the Series Debentures will have the right to require the Company to repurchase for cash all or some of their Series Debentures upon the occurrence of certain
fundamental change transactions or on certain specified dates.

Concurrently with the sale of the Series Debentures, the Company acquired
4,461,700 shares of its common stock for $150.0 million and may use additional proceeds from the sale of the Series Debentures for further stock repurchases. The Company intends to use any remaining proceeds to fund selective business acquisitions
and for general corporate purposes, including the repayment of debt or other obligations.



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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 to 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 persons suffering from respiratory disease. Durable medical equipment (DME), including oxygen
equipment, is traditionally reimbursed by Medicare based on fixed fee schedules.

On
February 1, 2006, Congress passed the Deficit Reduction Act of 2005 (DRA). DRA contains provisions that will impact reimbursement for oxygen equipment and DME in 2007 and beyond. DRA changes the reimbursement methodology for oxygen
equipment from continuous monthly payment for as long as the equipment is in use by a Medicare beneficiary, which includes payment for oxygen contents and maintenance of equipment, to a capped rental arrangement whereby payment for oxygen equipment
(including portable oxygen equipment) may not extend over a period of continuous use of longer than 36 months. On the first day that begins after the 36thcontinuous month during which payment is made for the oxygen equipment, the supplier would transfer title of the equipment to the beneficiary. Separate payments for oxygen contents would continue to be made for the period of medical need beyond the
36thmonth. According to the legislation, additional payments for maintenance and service of the oxygen equipment would be made for parts and labor not
covered by a suppliers or manufacturers warranty. The oxygen provisions contained in DRA became effective on January 1, 2006. In the case of beneficiaries receiving oxygen equipment prior to the effective date, the 36-month period
of continuous use begins on January 1, 2006. Accordingly, the first month in which the new payment methodology will impact our net revenues is January 2009.

Congress is currently considering legislation that would reduce payments in certain circumstances for continuous use of oxygen equipment by Medicare
beneficiaries. Specifically, on August 1, 2007, the United States House of Representatives (the House) passed H.R. 3162 (entitled Childrens Health and Medicare Protection Act of 2007) which contains a provision
that would reduce the 36-month rental period for stationary oxygen equipment to 18 months. Comparable legislation in the United States Senate, as represented by S.AMDT.2530 (entitled A bill to amend title XXI of the Social Security Act to
reauthorize the State Childrens Health Insurance Program, and for other purposes) and which passed on August 2, 2007, contains no reductions in Medicare payment for oxygen equipment. The final legislation passed by Congress (as
represented by H.R. 976, the Childrens Health Insurance Program Reauthorization Act of 2007) is very similar to the narrower Senate bill in that it does not contain reductions in Medicare payment for oxygen equipment. However, H.R.
976 was vetoed by President George W. Bush on October 3, 2007 and subsequent override votes have subsequently failed in Congress. It is anticipated that future legislation to be considered later this year will include changes to the Medicare
program. It is possible that reimbursement changes for oxygen equipment could be considered at that time. Further reduction in Medicare reimbursement for oxygen equipment could have a material adverse effect on the Companys net revenues,
operating income, cash flows and financial position.

On November 1, 2006, the Centers for Medicare and Medicaid Services
(CMS) published rule CMS-1304-F, describing the Medicare regulations, as interpreted by CMS, required to implement the DRA oxygen provisions. The rule codifies the new payment methodology and related provisions with respect to oxygen,
including, but not limited to, defining the 36-month capped rental period of continuous use, transfer of title, payment for oxygen contents for beneficiary-owned oxygen equipment, payment for maintenance and servicing of oxygen equipment and
procedures for replacement of beneficiary-owned equipment. The DRA oxygen provisions and related regulations represent a fundamental change in the Medicare payment system for oxygen. These provisions are complex, and are expected to result in
profound changes in the provider-customer relationship for oxygen equipment and related services. The Company is evaluating the potential impact of the DRA oxygen provisions on its business and believes that the 36-month rental cap will have a
material adverse impact on the Companys net revenues, operating income, cash flows and financial position when it takes effect in 2009 and beyond.

Included in rule CMS-1304-F are changes to the Medicare payment rates for oxygen and oxygen equipment that took effect on January 1, 2007. CMS is exercising its authority under the Balanced Budget Act of 1997
(BBA) to establish separate classes and monthly payment rates for oxygen. The rule establishes a new class and monthly payment



13



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##### Table of Contents

amount for oxygen-generating portable equipment (OGPE), which includes oxygen transfilling equipment and portable oxygen concentrators. An OGPE
add-on payment, applicable during the 36-month rental period, will be made for these systems in the amount of $51.63. Payments for the new OGPE add-on began on January 1, 2007 for new and existing oxygen users. CMS is also increasing the
monthly payment amounts for portable oxygen contents for beneficiary-owned liquid or gaseous oxygen equipment from approximately $20.77 to $77.45. The increase in payments for portable oxygen contents became effective on January 1, 2007 for new
and existing oxygen users. The BBA requires these changes to be budget neutral, and accordingly, CMS reduced other Medicare oxygen payment rates beginning in 2007. As a result, the monthly payment amount for stationary oxygen equipment will decrease
each year in order to offset the anticipated increase in Medicare spending for OGPE and oxygen contents. For 2007 and 2008, the payment rate for stationary oxygen equipment was reduced to $198.40, which is expected to reduce our net revenues and
operating income by approximately $6.0 million annually. According to CMS, the projected rates for 2009 and 2010 are $193.21 and $189.39, respectively. Budget neutrality requires that Medicares total spending for all modalities of oxygen
equipment, including contents, be the same under the proposed changes as it would be without the changes. CMS budget neutral calculations were based on an assumption that five percent of oxygen users will shift to OGPE equipment. CMS will
revise payment rates in future years under the methodology specified in the rule based on actual OGPE use and updated data on the distribution of beneficiaries using oxygen equipment. To the extent that the Companys distribution of oxygen
equipment and oxygen contents in future years mirrors that of the overall Medicare market, these future payment rate revisions would not be expected to have a significant effect on the overall level of reimbursement for the Companys oxygen
business.

DRA also changes the reimbursement methodology for items of DME in the
capped rental payment category, including but not limited to such items as continuous positive airway pressure (CPAP) devices, certain respiratory assist devices, nebulizers, hospital beds and wheelchairs. For such items of DME, payment
may not extend over a period of continuous use of longer than 13 months. The option for a supplier to retain ownership of the item after a 15-month rental period and receive semi-annual maintenance and service payments will be eliminated. On the
first day that begins after the 13thcontinuous month during which payment is made for the item, the supplier will transfer title of the item to the
beneficiary. Additional payments for maintenance and service of the item will be made for parts and labor not covered by a suppliers or manufacturers warranty. The DME capped rental provisions contained in DRA apply to items furnished
for which the first rental month occurs on or after January 1, 2006. Accordingly, the first month in which the new payment methodology impacted our net revenues was February 2007. Included in rule CMS-1304-F is a discussion of the Medicare
regulations, as interpreted by CMS, necessary to implement the DME capped rental changes contained in the DRA. In addition, on January 26, 2006, CMS announced a final rule revising the payment classification of certain respiratory assist
devices (RADs). RADs with a backup rate feature were reclassified as capped rental DME items effective April 1, 2006, whereby payments to providers of such devices will cease after the 13thcontinuous month of rental. Prior to the rule, providers were paid a continuous monthly rental amount over the entire period of medical necessity. In cases where Medicare
beneficiaries received the item prior to April 1, 2006, only the rental payments for months after the effective date count toward the 13-month cap. Accordingly, the first month in which the new payment methodology impacted our net revenues was
May 2007. The Company estimates that the capped rental changes to DME and RADs will reduce the Companys net revenues and operating income by approximately $12.0 million in 2007 and by approximately $24.0 million in 2008. In addition, the
transfer of ownership provisions affecting Medicare capped rental equipment resulted in a reduction in the estimated useful lives of such equipment beginning in 2006 and a corresponding increase in depreciation expense. The Company will continue to
evaluate its estimates of useful lives based on its experience with ownership transfers of capped rental equipment in future periods, which may result in further increases in depreciation expense in 2007 and beyond.

On December 8, 2003, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) was signed into law. 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
impact a broad spectrum of health care industry participants, including physicians, pharmacies, manufacturers and 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 reduced 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
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



14



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##### Table of Contents

| | inhalation drugs that we provide, was limited to 95 percent of the published average wholesale price (AWP) for the drug. MMA established new
payment limits and procedures for drugs reimbursed under Medicare Part B. Beginning in 2005, inhalation drugs furnished to Medicare beneficiaries are reimbursed at 106 percent of the volume-weighted average selling price (ASP) of the
drug, as determined from data provided each quarter by drug manufacturers under a specific formula described in MMA. Implementation of the ASP-based reimbursement formula resulted in a dramatic reduction in payment rates for inhalation drugs. We can
not determine whether quarterly updates in ASP pricing data submitted by drug manufacturers and adopted by CMS will continue to result in ongoing reductions in payment rates for inhalation drugs, and what impact such payment reductions could have on
our business in the future. We can also not predict whether Congress would adopt changes to the ASP pricing methodology that would result in further reductions to inhalation drug payment rates. Such payment adjustments could have a material adverse
effect on our financial position and operating results.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Establishes a competitive acquisition program for DME beginning in 2007.MMA instructs CMS to establish and implement programs under which competitive acquisition areas will
be established throughout the United States for contract award purposes for the furnishing of competitively priced items of DME, including oxygen equipment. The program will be implemented in phases such that competition under the program will occur
in ten of the largest metropolitan statistical areas (MSAs) in 2008, 80 of the largest MSAs in 2009, and additional areas after 2009. Items selected for competitive acquisition will be phased in first among the highest cost and highest
volume items and services or those items and services that CMS determines have the largest savings potential. In carrying out such programs, CMS 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 or service.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

For each
competitive acquisition area, CMS will conduct a competition under which providers will submit bids to supply certain covered items of DME. Successful bidders will be expected to meet certain program quality standards in order to be awarded a
contract and only successful bidders can 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
will be re-bid at least every three years. CMS will be required to award contracts to multiple entities submitting bids in each area for an item or service, but will have the authority to limit the number of contractors in a competitive acquisition
area to the number needed to meet projected demand. CMS may use competitive bid pricing information to adjust the payment amount otherwise in effect for an area that is not a competitive acquisition area.

On April 2, 2007, CMS issued rule CMS-1270-F implementing the competitive bidding program in ten of the largest MSAs across the country,
applying initially to ten categories of DME and medical supplies. CMS began the bidding process in late April, and expects to announce winning suppliers early next year and to have payments under the program go into effect in July 2008. We can not
predict the outcome of the competitive bidding program on our business nor the Medicare payment rates that will be in effect in 2008 and beyond for the items subjected to competitive bidding.

In January 2006, pursuant to the contracting reform provisions of MMA, CMS announced the selection of four specialty carriers, or DME Medicare
Administrative Contractors (the DME MACs), to be responsible for the processing and payment of claims for DME items provided to Medicare Part B beneficiaries. The DME MACs replaced the four Durable Medical Equipment Regional Carriers
(the DMERCs) pursuant to a transition schedule that began on July 1, 2006, with the final DME MAC transitioning on June 1, 2007. The transition of claims processing from the DMERCs to the DME MACs has caused disruptions in the
payment of DME claims and is having a negative impact on the timing of collections of our accounts receivable.

On December 20, 2006, CMS initiated a national coverage determination process for certain nebulized inhalation drugs used in the treatment of lung diseases. National coverage determinations are determinations by
CMS with respect to whether or not a particular item or service is covered nationally by the Medicare program. Included in the coverage review process were two commonly prescribed inhalation drugs, Xopenex®1and DuoNeb®2. On June 20, 2007, CMS announced that, after examining the available medical evidence, no national coverage determination for these inhalation drugs is appropriate at this time. CMS concluded that
the current medical literature does not provide sufficient evidence on which to base a national coverage determination. CMS indicated that any coverage decisions with respect to these medications should be made by local contractors through local
coverage determination processes or case-by-case adjudication. The Company can not predict whether the local carriers, or DME MACs, will undertake a separate process



---

|1 | Xopenex® is a
registered trademark of Sepracor, Inc.
|- | ----------------------------------------------------

|2 | DuoNeb® is a
registered trademark of Dey L.P.
|- | ---------------------------------------------



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that would affect coverage for these drugs, either in aggregate or with respect to individual beneficiaries. Elimination of, or a significant reduction in,
coverage by Medicare for either of these inhalation drugs could have a material adverse effect on our financial position and results of operations.

On February 13, 2006, a final rule governing CMSs Inherent Reasonableness (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 eventually could have a significant impact on Medicare payments for our equipment and services. We can not predict
whether CMS will exercise its IR authority with respect to payment for our equipment and services, or the effect that such payment adjustments would have on our financial position or operating results.

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.

Government Regulation

The federal government and all states in which we currently operate regulate various aspects of our business. In particular, our operating
centers are subject to federal laws regulating interstate motor-carrier transportation and covering the repackaging of oxygen. State laws also govern, among other things, pharmacies, nursing services, distribution of medical equipment and certain
types of home health activities and apply to those locations involved in such activities. Certain of our employees are subject to state laws and regulations governing the ethics and professional practice of respiratory therapy, pharmacy and nursing.

As a health care supplier, 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 health insurance carriers often conduct audits and request customer records and other documents to support claims submitted for payment of services rendered to customers. 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.

Numerous federal and state laws and regulations, including the Health Insurance
Portability and Accountability Act of 1996 (HIPAA), govern the collection, dissemination, use and confidentiality of patient-identifiable health information. As part of Lincares provision of, and billing for, health care equipment
and services, we are required to collect and maintain patient-identifiable health information. New health information standards, whether implemented pursuant to HIPAA, congressional action 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. 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.

Health care is an area of rapid regulatory change. Changes in the laws and regulations
and new interpretations of existing laws and regulations may affect permissible activities, the relative 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. Future legislative and regulatory changes could have a material adverse impact on us.

Operating Results

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



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|                                     |  |                                         |         |                                        |   |         |  |      |           |  |   |          
|------------------------------------ |  | --------------------------------------- | ------- | -------------------------------------- | - | ------- |  | ---- | --------- |  | - | ---------
|                                     |  | For The Three MonthsEnded September 30, |         | For The Nine Months EndedSeptember 30,
|                                     |  | 2007                                    |         | 2006                                   |   | 2007    |  | 2006
|                                     |  | (In thousands)                          |         | (In thousands)                        
|Oxygen and other respiratory therapy |  | $                                       | 375,561 |                                        | $ | 329,730 |  | $    | 1,090,568 |  | $ | 957,316  
|Home medical equipment and other     |  |                                         | 32,591  |                                        |   | 28,283  |  |      | 93,126    |  |   | 84,415   
|                                     |  |                                         |         |                                        |   |         |  |      |           |  |   |          
|Total                                |  | $                                       | 408,152 |                                        | $ | 358,013 |  | $    | 1,183,694 |  | $ | 1,041,731
|                                     |  |                                         |         |                                        |   |         |  |      |           |  |   |          

Net revenues for the three months ended September 30, 2007, increased by $50.1 million (or
14.0%) compared with the three months ended September 30, 2006, and for the nine months ended September 30, 2007, increased $142.0 million (or 13.6%) compared with the nine months ended September 30, 2006. The 14.0% increase in net
revenues in the three-month period was comprised of 12.1% internal growth and 3.0% acquisition growth partially offset by Medicare price changes taking effect in 2007 (see Medicare Reimbursement). The 13.6% increase in net revenues in
the nine-month period was comprised of 10.8% internal growth and 4.0% acquisition growth partially offset by Medicare price changes taking effect in 2007. The internal growth in net revenues is attributable to underlying demographic growth in the
markets for our products and gains in customer counts resulting primarily from our sales and marketing efforts that emphasize high-quality equipment and customer service. Growth in net revenues from acquisitions is attributable to the effects
of acquisitions of local and regional companies and is based on the estimated contribution to net revenues for the four quarters following such acquisitions. During the nine months ended September 30, 2007, the Company did not acquire the
business or assets of any companies. During the nine months ended September 30, 2006, the Company acquired certain assets of eight companies with aggregate annual revenues of approximately $19.7 million. The aggregate cost of those acquisitions
was $33.2 million.

The contribution of oxygen and other respiratory therapy products to our net revenues was 92.0% and 92.1%,
respectively, during the three and nine months ended September 30, 2007. 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 increased to 24.8% and 24.5%, respectively, for the three and nine months ended September 30, 2007, compared with 22.5% and 22.4% for the comparable prior year periods. The increase in cost of goods and services in 2007 is attributable
primarily to an increase in drug purchasing costs due to a product mix shift away from compounded to higher cost commercially-available products in our inhalation drug business as a result of a determination by CMS to eliminate Medicare coverage of
compounded medications as of July 1, 2007. Also contributing to higher cost of goods and services were increased sales of medical supplies and nutritional products to pediatric customers of a pediatric respiratory provider acquired in the
fourth quarter of 2006. We also experienced significant growth in our sleep therapy product lines during the first nine months of 2007 compared with the first nine months of 2006, which generally carry a lower gross margin than other products we
provide.

Cost of goods and services for the three and nine-month periods includes the cost of equipment (excluding depreciation of $20.6
million and $58.9 million in 2007 and $17.2 million and $50.4 million in 2006, respectively), drugs and supplies sold to patients and certain costs related to the Companys respiratory drug product line. These costs include an allocation of
customer service, distribution and administrative costs relating to the respiratory drug product line of approximately $11.7 million and $36.3 million for the three and nine-month periods of 2007 and approximately $12.0 million and $37.2 million for
the three and nine-month periods of 2006, respectively. Included in cost of goods and services in the three and nine months ended September 30, 2007 are salary and related expenses of pharmacists and pharmacy technicians of $2.5 million and
$7.7 million, respectively. Such salary and related expenses for the three and nine months ended September 30, 2006, were $2.5 million and $7.3 million, respectively.

Operating expenses as a percentage of net revenues were 22.4% and 23.1%, respectively, for the three and nine months ended September 30, 2007,
compared with 23.6% and 23.5%, respectively, for the comparable prior year periods. Operating expenses for the three and nine months ended September 30, 2007, increased by $7.1 million, or 8.4%, and $27.7 million, or 11.3%, respectively, over
the prior year periods. Contributing to the increase in operating expenses during the first nine months of 2007 were higher payroll and related costs, increased freight charges as a result of gains in customer shipment volumes in our drug and sleep
accessory product lines and higher vehicle related expenses.



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The Company manages over 1,000 operating centers from which customers are provided equipment, supplies
and services. An operating center averages approximately seven to eight employees and is typically comprised of a center manager, two customer service representatives (referred to as CSRs  telephone intake, scheduling,
documentation), two or three service representatives (referred to as Service Reps  delivery, maintenance and retrieval of equipment and delivery of disposables), a respiratory therapist (non-reimbursable and discretionary clinical
follow-up with the customer and communication to the prescribing physician) and a sales representative (marketing calls to local physicians and other referral sources).

The Company includes in operating expenses the costs incurred at the Companys operating centers for certain service personnel (branch manager, CSRs and Service Reps), facilities (rent, utilities,
communications, property taxes, etc.), vehicles (vehicle leases, gasoline, repair and maintenance), and general business supplies and miscellaneous expenses. Operating expenses for the interim periods of 2007 and 2006 within these major categories
were as follows:



|                                  |  |                                 |        |                           |   |        |  |      |         |  |   |        
|--------------------------------- |  | ------------------------------- | ------ | ------------------------- | - | ------ |  | ---- | ------- |  | - | -------
|Operating Expenses (in thousands) |  | Three MonthsEnded September 30, |        | Nine MonthsEnded June 30,
|                                  |  | 2007                            |        | 2006                      |   | 2007   |  | 2006
|Salary and related                |  | $                               | 57,655 |                           | $ | 52,803 |  | $    | 173,822 |  | $ | 153,204
|Facilities                        |  |                                 | 14,191 |                           |   | 12,806 |  |      | 41,553  |  |   | 38,457 
|Vehicles                          |  |                                 | 11,514 |                           |   | 11,017 |  |      | 33,466  |  |   | 30,621 
|General supplies/miscellaneous    |  |                                 | 8,098  |                           |   | 7,772  |  |      | 24,098  |  |   | 22,991 
|                                  |  |                                 |        |                           |   |        |  |      |         |  |   |        
|Total                             |  | $                               | 91,458 |                           | $ | 84,398 |  | $    | 272,939 |  | $ | 245,273
|                                  |  |                                 |        |                           |   |        |  |      |         |  |   |        

Included in operating expenses during the three and nine months ended September 30, 2007 are
salary and related expenses for Service Reps in the amount of $25.0 million and $74.5 million, respectively. Such salary and related expenses for the three and nine months ended September 30, 2006 were $22.6 million and $66.2 million,
respectively.

Selling, general and administrative (SG&A) expenses as a percentage of net revenues were 19.6% and 20.0%,
respectively, for the three and nine months ended September 30, 2007, compared with 20.5% and 20.9%, respectively, for the comparable prior year periods. SG&A expenses for the three and nine months ended September 30, 2007 increased by
$6.8 million, or 9.3%, and $18.8 million, or 8.7%, respectively, over the prior year periods. Contributing to the increase in SG&A expenses in 2007 were higher payroll costs included in selling expenses and higher liability insurance expenses,
partially offset by cost controls at our administrative, field overhead and billing office locations and lower stock-based compensation expense.

SG&A expenses include costs related to sales and marketing activities, corporate overhead and other business support functions. Included in SG&A during the three and nine months ended September 30, 2007 are salary and related
expenses of $56.6 million and $169.0 million, respectively. These salary and related expenses include the cost of the Companys respiratory therapists in the amount of $15.6 million and $47.0 million during the respective periods. Included in
SG&A during the three and nine months ended September 30, 2006 are salary and related expenses of $53.6 million and $153.1 million, respectively. These salary and related expenses include the cost of the Companys respiratory
therapists in the amount of $13.7 million and $40.1 million during the respective periods. The Companys respiratory therapists generally provide non-reimbursable and discretionary clinical follow-up with the customer and communication, as
appropriate, to the prescribing physician with respect to the customers plan of care. The Company includes the salaries and related expenses of its respiratory therapist personnel (licensed respiratory therapists or, in some cases, registered
nurses) in SG&A because it believes that these personnel enhance the Companys business relative to its competitors who do not employ respiratory therapists.

Included in depreciation expense in the three and nine months ended September 30, 2007 is depreciation of patient service equipment of $20.6 million and $58.9 million, respectively, and depreciation of other
property and equipment of $9.3 million and $24.6 million, respectively. Included in depreciation expense in the three and nine months ended September 30, 2006 is depreciation of patient service equipment of $17.2 million and $50.4 million,
respectively, and depreciation of other property and equipment of $7.5 million and $23.5 million, respectively. The increase in depreciation expense in the three and nine months ended September 30, 2007 compared with the prior year periods is
attributed to a



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reduction in the estimated useful lives of certain DME equipment subject to new Medicare capped rental arrangements (see Medicare Reimbursement)
and increased purchases of medical and other equipment necessary to support the growth in the Companys customer base during 2007.

Operating income for the three and nine months ended September 30, 2007, was $99.1 million (24.3% of net revenues) and $283.6 million (24.0% of net revenues), respectively, compared with $89.1 million (24.9% of net revenues) and $255.4
million (24.5% of net revenues), respectively, for the comparable prior year periods. The increase in operating income in the three and nine-month periods ended September 30, 2007 is attributable primarily to revenue growth from increases in
customer volumes offset by higher costs and expenses as noted above.

Liquidity and Capital Resources

Our primary sources of liquidity have been internally generated funds from operations, borrowings under credit facilities and proceeds from equity and
debt transactions. We have used these funds to meet our capital requirements, which consist primarily of operational needs, capital expenditures, acquisitions, debt service and share repurchases.

Net cash provided by operating activities increased by 35.0% to $305.2 million for the nine months ended September 30, 2007, compared with $226.0
million for the nine months ended September 30, 2006. The increase in net cash from operating activities was due primarily to an increase in net income and increases in depreciation, accrued expenses, accounts payable and income taxes
payable.

Net cash used in investing and financing activities was $310.1 million for the nine months ended September 30, 2007.
Activity during the nine-month period ended September 30, 2007 included our net investment in capital equipment of $95.8 million, payments of principal on debt of $143.0 million and repurchases of our common stock of $300.0 million offset by
proceeds from issuance of debt of $205.4 million and proceeds from the exercise of stock options and issuance of common shares of $35.1 million.

As of September 30, 2007, our principal sources of liquidity consisted of $20.2 million of cash and equivalents, $15.8 million of short-term investments and $238.5 million available under our revolving bank credit facility.

On February 14, 2006, our Board of Directors authorized a share repurchase plan whereby the Company may repurchase from time to time, on the open
market or in privately negotiated transactions, shares of the Companys common stock in amounts determined pursuant to a formula (the share repurchase formula) that takes into account both the ratio of the Companys net debt to
cash flow and its available cash resources and borrowing availability. During the nine months ended September 30, 2007, the Company repurchased and retired 7,658,255 shares for $300.0 million pursuant to the repurchase plan. The share
repurchases were all made during the first and third quarters of this year and were funded from the Companys revolving credit facility and cash provided by operating activities. On October 23, 2007, our Board of Directors amended the
share repurchase formula as of such date. Had the new formula been effective as of September 30, 2007 and assuming completion of the sale of $550.0 million of convertible debentures (see below), $572.9 million of the Companys common stock
would have been eligible for repurchase in accordance with the amended formula.

On October 31, 2007, the Company completed the sale
of $275.0 million principal amount (including exercise of a $25.0 million over-allotment option) of convertible senior debentures due 2037  Series A (the Series A Debentures) and $275.0 million principal amount (including exercise
of a $25.0 million over-allotment option) of convertible senior debentures due 2037  Series B (the Series B Debentures and together with the Series A Debentures, the Series Debentures) in a private placement. The Series
Debentures will pay interest semi-annually at a rate of 2.75 percent per year. The Series Debentures are unsecured and unsubordinated obligations and will be convertible under specified circumstances based upon a base conversion rate, which, under
certain circumstances, will be increased pursuant to a formula that is subject to a maximum conversion rate. Upon conversion, holders of the Series Debentures will receive cash up to the principal amount, and any excess conversion value will be
delivered in shares of the Companys common stock or in a combination of cash and shares of common stock, at the Companys option. The initial base conversion rate for the Debentures is 19.5044 shares of common stock per $1,000 principal
amount of Series Debentures, equivalent to an initial base conversion price of approximately $51.27 per share. In addition, if at the time of conversion the applicable price of the Companys common stock exceeds the base conversion price,
holders of the Series A Debentures and Series B Debentures will receive an additional number of shares of common stock per $1,000 principal amount of the Debentures, as determined pursuant to a specified formula. The Company will have the right to
redeem the Series A Debentures and the Series B Debentures at any time after November 1, 2012 and November 1, 2014, respectively. Holders of the Series Debentures will have the right to require the Company to repurchase for cash all or
some of their Series Debentures upon the occurrence of certain fundamental change transactions or on certain specified dates.



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Concurrently with the sale of the Series Debentures, the Company acquired 4,461,700 shares of its common
stock for $150.0 million and may use additional proceeds from the sale of the Series Debentures for further stock repurchases. The Company intends to use any remaining proceeds to fund selective business acquisitions and for general corporate
purposes, including the repayment of debt or other obligations.

In June 2003, we completed the sale of $275.0 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. The conversion rate is equivalent to a conversion price of approximately $53.33 per share of common stock. 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 calendar quarter 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. 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. Due to the right of the holders of the Debentures to put the securities to
us for cash within one year of the September 30, 2007 balance sheet date, the Company reclassified the Debentures from a long-term obligation to a current liability on the balance sheet.

Our future liquidity will continue to be dependent upon our operating cash flow and management of accounts receivable. We anticipate that funds generated
from operations, together with our current cash on hand and funds available under our revolving credit facility will be sufficient to finance our working capital requirements, fund anticipated acquisitions and capital expenditures, and meet our
contractual obligations for at least the next 12 months.

Accounts Receivable:The Company maintains payor-specific
price tables in its billing system that reflect the fee schedule amounts statutorily in effect or contractually agreed upon by various government and commercial payors for each item of equipment or supply provided to a customer. Due to the nature of
the health care industry and the reimbursement environment in which Lincare operates, situations can occur where expected payment amounts are not established by fee schedules or contracted rates, and estimates are required to record revenues and
accounts receivable at their net realizable values. Inherent in these estimates is the risk that revenues and accounts receivable will have to be revised or updated as additional information becomes available. Contractual adjustments to revenues and
accounts receivable can result from price differences between allowed charges and amounts initially recognized as revenue due to incorrect price tables or subsequently negotiated payment rates. Actual adjustments that result from differences between
the payment amount received and the expected realizable amount are recorded against the allowance for sales adjustments and are typically identified and ultimately recorded at the point of cash application or account review. Historically, such
contractual adjustments have not been significant and we report revenues in our financial statements net of such adjustments. Accounts receivable are reported net of allowances for sales adjustments and uncollectible accounts. Bad debt is recorded
as an operating expense and consists of billed charges that are ultimately deemed uncollectible due to the customers or third-party payors inability or refusal to pay.

The Companys payor mix is highly concentrated among Medicare, Medicaid and other government third-party payors and contracted private insurance or
commercial payors. Government payment rates are determined according to published fee schedules established pursuant to statute, law or other regulatory processes and commercial payment rates are based on contractual line item pricing as reflected
in the respective contracts. Fee schedule updates have historically occurred on a prospective basis and have been made available to the Company in advance of the effective date of a change in reimbursement rates. Our proprietary billing system has
features that allow us to timely update payor price tables within the system as changes occur in order to accurately record revenues and accounts receivable at their expected realizable values. Additional systems and manual controls and processes
are used by management to evaluate the accuracy of these recorded amounts. Based on our experience, it is unlikely that a change in estimate of unsettled amounts from third party payors would have a material adverse impact on our financial position
or results of operations.

Accounts receivable balance concentrations by major payor category as of September 30, 2007 and
December 31, 2006 were as follows:



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|                                               |  |                    |   |  |                  |  
|---------------------------------------------- |  | ------------------ | - |  | ---------------- | -
|Percentage of Accounts Receivable Outstanding: |  |                    |   |  |                  |  
|                                               |  | September 30, 2007 |   |  | December 31,2006 |  
|Medicare                                       |  | 37.0               | % |  | 40.1             | %
|Medicaid/Other Government                      |  | 17.2               | % |  | 12.5             | %
|Private Insurance                              |  | 36.2               | % |  | 38.1             | %
|Self-Pay                                       |  | 9.6                | % |  | 9.3              | %
|                                               |  |                    |   |  |                  |  
|Total                                          |  | 100.0              | % |  | 100.0            | %
|                                               |  |                    |   |  |                  |  

Aged accounts receivable balances by major payor category as of September 30, 2007 and
December 31, 2006 were as follows:



|                                     |  |                    |   |  |        |   |  |          |  
|------------------------------------ |  | ------------------ | - |  | ------ | - |  | -------- | -
|Percentage of Accounts Aged in Days: |  | September 30, 2007 |  
|                                     |  | 0-60               |   |  | 61-120 |   |  | Over 120 |  
|Medicare                             |  | 80.1               | % |  | 9.6    | % |  | 10.3     | %
|Medicaid/Other Government            |  | 55.0               | % |  | 20.9   | % |  | 24.1     | %
|Private Insurance                    |  | 60.5               | % |  | 14.6   | % |  | 24.9     | %
|Self-Pay                             |  | 48.4               | % |  | 24.2   | % |  | 27.4     | %
|All Payors                           |  | 65.6               | % |  | 14.8   | % |  | 19.6     | %



|                                     |  |                   |   |  |        |   |  |          |  
|------------------------------------ |  | ----------------- | - |  | ------ | - |  | -------- | -
|Percentage of Accounts Aged in Days: |  | December 31, 2006 |  
|                                     |  | 0-60              |   |  | 61-120 |   |  | Over 120 |  
|Medicare                             |  | 80.3              | % |  | 10.1   | % |  | 9.6      | %
|Medicaid/Other Government            |  | 65.6              | % |  | 18.3   | % |  | 16.1     | %
|Private Insurance                    |  | 61.6              | % |  | 15.0   | % |  | 23.4     | %
|Self-Pay                             |  | 53.8              | % |  | 21.5   | % |  | 24.7     | %
|All Payors                           |  | 68.9              | % |  | 14.0   | % |  | 17.1     | %

We operate 36 regional billing and collection offices (RBCOs) that are responsible for
the billing and collection of accounts receivable. The RBCOs are aligned geographically to support the accounts receivable activity of the operating centers within their assigned territories. As of September 30, 2007, there were 1,293 full-time
employees in the RBCOs. Accounts receivable collections are performed by designated collectors within each of the RBCOs. The collectors use various reporting tools available within our proprietary billing system to identify claims that have been
denied or partially paid by the responsible party and claims that have not been processed by the third-party payor in a timely manner. Collections of accounts receivable are typically pursued using direct phone contact to determine the reason for
non-payment and, if necessary, corrected claims are prepared for resubmission and further follow-up with the responsible party. In some cases, third-party payors have developed electronic inquiry methods that we can access to determine the status of
individual claims. We have benefited from the increasing availability of electronic funds transfers from payors, which now account for approximately 68% of all payments received. We believe that our collection procedures contribute to our accounts
receivable days sales outstanding (DSO) and bad debt expense being among the lowest in the industry, according to published industry data and public filings of some of our competitors.

The ultimate collection of accounts receivable may not be known for several months. We record bad debt expense based on a percentage of revenue using
historical Company-specific data. The percentage and amounts used to record bad debt expense and the allowance for doubtful accounts are supported by various methods and analyses including current and historical cash collections, bad debt
write-offs, aged accounts receivable and consideration of any payor-specific



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concerns. The ultimate write-off of an accounts receivable occurs once collection procedures are determined to have been exhausted by the collector and after
appropriate review of the specific account and approval by supervisory and/or management employees within the RBCOs. Management and RBCO supervisory and management employees also review accounts receivable write-off reports, correspondence from
payors and individual account information to evaluate and correct processes that might have contributed to an unsuccessful collection effort.

We do not use an aging threshold for account receivable write-offs. However, the age of an account balance may provide an indication that collection procedures have been exhausted, and would be considered in the review and approval of an
account balance write-off.

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 revolving
credit facility, Debentures, and Series Debentures as well as contractual lease payments for facility, vehicle, and equipment leases, deferred taxes and deferred acquisition obligations.

During the nine months ended September 30, 2007, the outstanding balance of the Companys revolving credit facility increased $68.0 million,
from $60.0 million to $128.0 million. The primary uses of these funds were the repurchase of the Companys common stock as described in Liquidity and Capital Resources and other general corporate purposes.

New Accounting Standards

In September 2006, the FASB
issued SFAS No. 157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This
Statement applies under other accounting pronouncements that require or permit fair value measurements, the FASB having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this
Statement does not require any new fair value measurements. The provisions of SFAS No. 157 are effective as of the beginning of the 2008 calendar year. We do not expect the adoption of SFAS No. 157 to have a material impact on our
financial condition, results of operations or cash flows.

In February 2007, the FASB issued SFAS No. 159, The Fair Value
Option for Financial Assets and Financial Liabilities  Including an Amendment of FASB Statement No. 115, which permits an entity to choose to measure certain financial instruments and other items at fair value at specified election
dates. A company will report unrealized gains and losses in earnings on items for which the fair value option has been elected after adoption. The provisions of SFAS 159 are effective as of the beginning of the 2008 calendar year. We do not expect
the adoption of SFAS No. 159 to have a material impact on our financial condition, results of operations or cash flows.

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 us as of the date hereof and we assume no obligation to update any such
forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our 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 our ability to attain these estimates
include potential reductions in reimbursement rates by government and other third-party payors, changes in reimbursement policies, the demand for our products and services, the availability of appropriate acquisition candidates and our ability to
successfully complete and integrate acquisitions, efficient operations of our existing and future operating facilities, regulation and/or regulatory action affecting us or our business, economic and competitive conditions, access to borrowed and/or
equity capital on favorable terms and other risks described below.



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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 positive airway pressure devices, nebulizers and associated respiratory
medications, hospital beds and wheelchairs for the home setting. Approximately 71 percent 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.

Recent legislation, including DRA and MMA, contain
provisions that directly impact reimbursement for the primary respiratory and other DME products provided by Lincare. DRA contains provisions that will negatively impact reimbursement for oxygen equipment beginning in 2009 and DME items subject to
capped rental payments beginning in 2007. MMA significantly reduced reimbursement for inhalation drug therapies beginning in 2005, reduced payment amounts for five categories of DME, including oxygen, beginning in 2005, freezes payment amounts for
other covered DME items through 2007, establishes a competitive acquisition program for DME beginning in 2008, and implements quality standards and accreditation requirements for DME suppliers. The DRA and MMA provisions, when 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 DRA and MMA provisions.

A SIGNIFICANT PERCENTAGE OF OUR BUSINESS IS DERIVED FROM THE SALE AND RENTAL OF MEDICARE-COVERED OXYGEN AND DME ITEMS, AND RECENT LEGISLATIVE ACTS IMPOSE SUBSTANTIAL
CHANGES IN THE MEDICARE PAYMENT METHODOLOGIES AND REDUCTIONS IN THE MEDICARE PAYMENT AMOUNTS FOR THESE ITEMS. FURTHERMORE, LEGISLATIVE PROPOSALS CURRENTLY UNDER CONSIDERATION BY THE U.S. CONGRESS COULD IMPOSE EVEN DEEPER PAYMENT REDUCTIONS FOR
MEDICARE-COVERED OXYGEN EQUIPMENT WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR NET REVENUES, OPERATING INCOME, CASH FLOWS AND FINANCIAL POSITION.

DRA changes the reimbursement methodology for oxygen equipment from continuous monthly payment for
as long as the equipment is in use by a Medicare beneficiary, which includes payment for oxygen contents and maintenance of equipment, to a capped rental arrangement whereby payment for oxygen equipment (including portable oxygen equipment) may not
extend over a period of continuous use of longer than 36 months. On the first day that begins after the 36thcontinuous month during which payment is made
for the oxygen equipment, the supplier would transfer title of the equipment to the beneficiary. Separate payments for oxygen contents would continue to be made for the period of medical need beyond the 36thmonth. According to the legislation, additional payments for maintenance and service of the oxygen equipment would be made for parts and labor not covered by a suppliers or
manufacturers warranty. The oxygen provisions contained in DRA became effective on January 1, 2006. In the case of beneficiaries receiving oxygen equipment prior to the effective date, the 36-month period of continuous use began on
January 1, 2006. Accordingly, the first month in which the new payment methodology will impact our net revenues is January 2009.



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Congress is currently considering legislation that would reduce payments in certain circumstances for
continuous use of oxygen equipment by Medicare beneficiaries. Specifically, on August 1, 2007, the United States House of Representatives (the House) passed H.R. 3162 (entitled Childrens Health and Medicare Protection
Act of 2007) which contains a provision that would reduce the 36-month rental period for stationary oxygen equipment to 18 months. Comparable legislation in the United States Senate, as represented by S.AMDT.2530 (entitled A bill to
amend title XXI of the Social Security Act to reauthorize the State Childrens Health Insurance Program, and for other purposes) and which passed on August 2, 2007, contains no reductions in Medicare payment for oxygen equipment. The
final legislation passed by Congress (as represented by H.R. 976, the Childrens Health Insurance Program Reauthorization Act of 2007) is very similar to the narrower Senate bill in that it does not contain reductions in Medicare
payment for oxygen equipment. However, H.R. 976 was vetoed by President George W. Bush on October 3, 2007 and subsequent override votes have subsequently failed in Congress. It is anticipated that future legislation to be considered later this
year will include changes to the Medicare program. It is possible that reimbursement changes for oxygen equipment could be considered at that time. Further reduction in Medicare reimbursement for oxygen equipment could have a material adverse effect
on the Companys net revenues, operating income, cash flows and financial position.

On November 1, 2006, the Centers for
Medicare and Medicaid Services (CMS) published rule CMS-1304-F, describing the Medicare regulations, as interpreted by CMS, required to implement the DRA oxygen provisions. The rule codifies the new payment methodology and related
provisions with respect to oxygen, including, but not limited to, defining the 36-month capped rental period of continuous use, transfer of title, payment for oxygen contents for beneficiary-owned oxygen equipment, payment for maintenance and
servicing of oxygen equipment and procedures for replacement of beneficiary-owned equipment. The DRA oxygen provisions and related regulations represent a fundamental change in the Medicare payment system for oxygen. These provisions are complex,
and are expected to result in profound changes in the provider-customer relationship for oxygen equipment and related services. The Company is evaluating the potential impact of the DRA oxygen provisions on its business and believes that the
36-month rental cap will have a material adverse impact on the Companys net revenues, operating income, cash flows and financial position when it takes effect in 2009 and beyond.

Included in rule CMS-1304-F are changes to the Medicare payment rates for oxygen and oxygen equipment that took effect on January 1, 2007. CMS is
exercising its authority under the Balanced Budget Act of 1997 (BBA) to establish separate classes and monthly payment rates for oxygen. The rule establishes a new class and monthly payment amount for oxygen-generating portable equipment
(OGPE), which includes oxygen transfilling equipment and portable oxygen concentrators. An OGPE add-on payment, applicable during the 36-month rental period, will be made for these systems in the amount of $51.63. Payments for the new
OGPE add-on began on January 1, 2007 for new and existing oxygen users. CMS is also increasing the monthly payment amounts for portable oxygen contents for beneficiary-owned liquid or gaseous oxygen equipment from approximately $20.77 to
$77.45. The increase in payments for portable oxygen contents became effective on January 1, 2007 for new and existing oxygen users. The BBA requires these changes to be budget neutral, and accordingly, CMS reduced other Medicare oxygen payment
rates beginning in 2007. As a result, the monthly payment amount for stationary oxygen equipment will decrease each year in order to offset the anticipated increase in Medicare spending for OGPE and oxygen contents. For 2007 and 2008, the payment
rate for stationary oxygen equipment was reduced to $198.40, which is expected to reduce our net revenues and operating income by approximately $6.0 million annually. According to CMS, the projected rates for 2009 and 2010 are $193.21 and $189.39,
respectively. Budget neutrality requires that Medicares total spending for all modalities of oxygen equipment, including contents, be the same under the proposed changes as it would be without the changes. CMS budget neutral calculations
were based on an assumption that five percent of oxygen users will shift to OGPE equipment. CMS will revise payment rates in future years under the methodology specified in the rule based on actual OGPE use and updated data on the distribution of
beneficiaries using oxygen equipment. To the extent that the Companys distribution of oxygen equipment and oxygen contents in future years mirrors that of the overall Medicare market, these future payment rate revisions would not be expected
to have a significant effect on the overall level of reimbursement for our oxygen business.

DRA also changes the reimbursement methodology for items of DME in the capped rental payment category, including but not limited to such items as continuous positive airway pressure (CPAP) devices, certain respiratory assist
devices, nebulizers, hospital beds and wheelchairs. For such items of DME, payment may not extend over a period of continuous use of longer than 13 months. The option for a supplier to retain ownership of the item after a 15-month rental period and
receive semi-annual maintenance and service payments will be eliminated. On the first day that begins after the 13thcontinuous month during which payment
is made for the item, the supplier will transfer title of the item to the beneficiary. Additional payments for maintenance and service of the item will be made for parts and labor not covered by a suppliers or manufacturers warranty. The
DME capped rental provisions contained in DRA apply to items furnished for which the first rental month occurs on or after January 1, 2006. Accordingly, the first month in which the new



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payment methodology impacted our net revenues was February 2007. Included in rule CMS-1304-F is a discussion of the Medicare regulations, as interpreted by
CMS, necessary to implement the DME capped rental changes contained in the DRA. In addition, on January 26, 2006, CMS announced a final rule revising the payment classification of certain respiratory assist devices (RADs). RADs with
a backup rate feature were reclassified as capped rental DME items effective April 1, 2006, whereby payments to providers of such devices will cease after the 13thcontinuous month of rental. Prior to the rule, providers were paid a continuous monthly rental amount over the entire period of medical necessity. In cases where Medicare beneficiaries received the item prior to
April 1, 2006, only the rental payments for months after the effective date count toward the 13-month cap. Accordingly, the first month is which the new payment methodology impacted our net revenues was May 2007. The Company estimates that the
capped rental changes to DME and RADs will reduce the Companys net revenues and operating income by approximately $12.0 million in 2007 and by approximately $24.0 million in 2008. In addition, the transfer of ownership provisions affecting
Medicare capped rental equipment resulted in a reduction in the estimated useful lives of such equipment beginning in 2006 and a corresponding increase in depreciation expense. The Company will continue to evaluate its estimates of useful lives
based on its experience with ownership transfers of capped rental equipment in future periods, which may result in further increases in depreciation expense in 2007 and beyond.

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

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 Part B drugs, including inhalation drugs that we provide, was limited to 95 percent of the published average
wholesale price (AWP) for the drug. MMA established new payment limits and procedures for drugs reimbursed under Medicare Part B (See MEDICARE REIMBURSEMENT). Beginning in 2005, inhalation drugs furnished to Medicare
beneficiaries are reimbursed at 106 percent of the volume-weighted average selling price (ASP) of the drug, as determined from data provided each quarter by drug manufacturers under a specific formula described in MMA. Implementation of
the ASP-based formula resulted in a dramatic reduction in payment rates for inhalation drugs. We can not determine whether quarterly updates in ASP pricing data submitted by drug manufacturers and adopted by CMS will continue to result in ongoing
reductions in payment rates for inhalation drugs, and what impact such payment reductions could have on our business in the future. We can also not predict whether Congress would adopt changes to the ASP pricing methodology that would result in
further reductions to inhalation drug payment rates. Such payment adjustments could have a material adverse effect on our financial position and operating results.

On December 20, 2006, CMS initiated a national coverage determination process for certain
nebulized inhalation drugs used in the treatment of lung diseases. National coverage determinations are determinations by CMS with respect to whether or not a particular item or service is covered nationally by the Medicare program. Included in the
coverage review process were two commonly prescribed inhalation drugs, Xopenex®3and
DuoNeb®4. On June 20, 2007, CMS announced that, after examining the available medical
evidence, no national coverage determination for these inhalation drugs is appropriate at this time. CMS concluded that the current medical literature does not provide sufficient evidence on which to base a national coverage determination. CMS
indicated that any coverage decisions with respect to these medications should be made by local contractors through local coverage determination processes or case-by-case adjudication. The Company can not predict whether the local carriers, or DME
MACs, will undertake a separate process that would affect coverage for these drugs, either in aggregate or with respect to individual beneficiaries. Elimination of, or a significant reduction in, coverage by Medicare for either of these inhalation
drugs could have a material adverse effect on our financial position and results of operations.

RECENT REGULATORY CHANGES SUBJECT THE
MEDICARE REIMBURSEMENT RATES FOR OUR EQUIPMENT AND SERVICES TO ADDITIONAL REDUCTIONS AND TO POTENTIAL DISCRETIONARY ADJUSTMENT BY CMS, WHICH COULD REDUCE OUR REVENUES, NET INCOME AND CASH FLOWS.

In February 2006, 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

---

|3 | Xopenex® is a
registered trademark of Sepracor, Inc.
|- | ----------------------------------------------------

|4 | DuoNeb® is a
registered trademark of Dey L.P.
|- | ---------------------------------------------



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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 payment for our equipment and services, or the effect that such payment adjustments would have on our financial position or operating results.

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

Recent legislation (See MEDICARE REIMBURSEMENT) instructs CMS to establish and implement programs under which competitive acquisition areas will be established throughout the United States for contract
award purposes for the furnishing of competitively priced items of DME, including oxygen equipment. The program will be implemented in phases such that competition under the program will occur in ten of the largest MSAs in 2008, 80 of the largest
MSAs in 2009, and additional areas after 2009. Items selected for competitive acquisition will be phased in first among the highest cost and highest volume items and services or those items and services that CMS determines have the largest savings
potential. In carrying out such programs, CMS 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 or
service.

For each competitive acquisition area, CMS will conduct a competition under which providers will submit bids to supply certain
covered items of DME. Successful bidders will be expected to meet certain program quality standards in order to be awarded a contract and only successful bidders can 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 will be re-bid at least every three years. CMS will be required to award contracts to multiple entities submitting bids
in each area for an item or service, but will have the authority to limit the number of contractors in a competitive acquisition area to the number needed to meet projected demand. CMS may use competitive bid pricing information to adjust the
payment amount otherwise in effect for an area that is not a competitive acquisition area.

On April 2, 2007, CMS issued rule
CMS-1270-F implementing the competitive bidding program in ten of the largest MSAs across the country, applying initially to ten categories of DME and medical supplies. CMS began the bidding process in late April, and expects to announce
winning suppliers early next year and to have payments under the program go into effect in July 2008. We can not predict the outcome of the competitive bidding program on our business nor the Medicare payment rates that will be in effect in 2008 and
beyond for the items subjected to competitive bidding.

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 7% of our customers are eligible for primary Medicaid benefits, and State Medicaid programs fund approximately 12% of our payments from primary and secondary insurance benefits. 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 21% of our customers and approximately 29% 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.



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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. Approximately 52% of our
revenues are derived from Medicare, 29% from private insurance carriers, 12% 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 ensure 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.

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.

WE ARE SUBJECT TO A CORPORATE INTEGRITY AGREEMENT WITH THE OFFICE OF INSPECTOR GENERAL, AND IF WE FAIL TO COMPLY WITH THE TERMS OF THE CORPORATE INTEGRITY AGREEMENT, WE COULD SUFFER SEVERE CRIMINAL, CIVIL OR ADMINISTRATIVE SANCTIONS.

In May of 2006, we resolved several investigations by the Office of Inspector General and the U.S. Department of Justice. As part of
the resolution, we entered into a five-year corporate integrity agreement with the Office of Inspector General. Violations of the terms of the corporate integrity agreement could result in severe criminal, civil and administrative penalties and
sanctions, including disqualification from Medicare and other reimbursement programs.

COMPLIANCE WITH 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 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.



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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.

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, and complexity of system conversions and execution of the integration plan by local
management. If we do not successfully integrate 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
may 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 a significant component of our operating costs and expenditures. 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 profit margins and reduce our net income.

WE INTEND TO USE A
SIGNIFICANT PORTION OF THE PROCEEDS FROM THE RECENT ISSUANCE OF $550 MILLION PRINCIPAL AMOUNT OF SERIES DEBENTURES (SEE NOTE 8 TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS) TO REPURCHASE SHARES OF OUR COMMON STOCK AND USE THE REMAINING
PROCEEDS TO MAKE SELECTIVE BUSINESS ACQUISITIONS AND FOR GENERAL CORPORATE PURPOSES, INCLUDING THE REPAYMENT OF DEBT OR OTHER OBLIGATIONS, WHICH COULD REDUCE OUR CASH RESERVES AVAILABLE FOR REPAYMENT OF THE SERIES DEBENTURES AND OUR OTHER
OBLIGATIONS. IN ADDITION, OUR REPURCHASE OF COMMON STOCK MAY RAISE OR MAINTAIN THE MARKET PRICE OF OUR COMMON STOCK ABOVE INDEPENDENT MARKET LEVELS OR PREVENT OR RETARD A PERCENTAGE DECLINE IN THE MARKET PRICE OF OUR COMMON STOCK.

We used approximately $150.0 million of the net proceeds from the issuance of the Series Debentures to acquire shares of
our common stock, concurrently with the offering, and we may use additional proceeds of the offering for further stock repurchases. These purchases may raise or maintain the market price of our common stock above independent market levels or prevent
or retard a percentage decline in the market price of our common stock. We intend to use any remaining proceeds from the issuance of the Series Debentures for general corporate purposes, which may include the repayment of debt or other obligations.
Repurchases of our common stock, selective business acquisitions and general corporate purposes, including the repayment of debt or other obligations, could reduce our cash reserves available for repayment of our obligations.



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|Item 3. | Quantitative and Qualitative Disclosures About Market Risk
|------- | ----------------------------------------------------------

There were no material changes to the information provided in Item 7A in our Annual Report on Form 10-K regarding our market risk.

Our revolving credit facility is subject to changing LIBOR-based interest rates. At September 30, 2007 and December 31, 2006, we had $128.0 million and $60.0 million outstanding, respectively, under the
credit facility. Based on the $128.0 million balance outstanding at September 30, 2007, a 100 basis point change in LIBOR would result in an impact to income before income taxes of $1.3 million per year.



|Item 4. | Controls and Procedures
|------- | -----------------------

(a)
Disclosure 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.

(b) Changes in Internal Control Over Financial Reporting

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, as amended) occurred during the fiscal quarter ended September 30, 2007, 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, the Company 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 Lincare 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 the Companys policy to cooperate with all such requests for information. However, the Company can provide no assurances as to the duration or outcome of these inquiries.

Private litigants may also make claims against health care providers 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. We are a defendant in certain qui tam proceedings. The government has declined to intervene for purposes other than dismissal in all
unsealed qui tam actions of which we are aware and we are vigorously defending these suits.

Our operating centers are also subject
to federal and/or state laws regulating, among other things, interstate motor-carrier transportation, repackaging of oxygen, distribution of medical equipment, certain types of home health activities, pharmacy operations, nursing services and
respiratory services and apply to those locations involved in such activities. Certain of our employees are subject to state laws and regulations governing the ethics and professional practice of respiratory therapy, pharmacy and nursing. From time
to time, the Company receives inquiries and complaints from various government agencies related to its operations or personnel. It has been the Companys policy to cooperate with all such inquiries and vigorously defend any administrative
complaints. The Company can provide no assurances as to the duration or outcome of these inquiries and/or complaints.

We are also involved
in certain other claims and legal actions arising in the ordinary course of our business. The ultimate disposition of all such matters is not currently expected to have a material adverse impact on our financial position, results of operations or
liquidity.

In May of 2006, the Company resolved several ongoing investigations by the Office of Inspector General and/or the U.S.
Department of Justice. The periods covered by these investigations varied, ranging from January 1995 through March 2004. As a part of the settlements, the Company entered into a five-year corporate integrity agreement with the Office of Inspector
General. Violations of the corporate integrity agreement can result in severe criminal, civil and administrative penalties and sanctions, including disqualification from Medicare and other reimbursement programs.



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|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds
|------- | -----------------------------------------------------------

During the three months ended September 30, 2007, the Company repurchased approximately 0.7 million shares of its common stock in the open market.



|                                        |  |                                |  |                             |       |                                                               |         |                                                                                    |   |            
|--------------------------------------- |  | ------------------------------ |  | --------------------------- | ----- | ------------------------------------------------------------- | ------- | ---------------------------------------------------------------------------------- | - | -----------
|ISSUER PURCHASES OF EQUITY SECURITIES  
|Period                                  |  | Total Numberof SharesPurchased |  | Average PricePaid Per Share |       | Total Numberof SharesPurchased asPart of theRepurchaseProgram |         | ApproximateDollar Value ofShares that MayYet BePurchasedUnder
theRepurchaseProgram
|July 1, 2007 to July 31, 2007           |  | 0                              |  | $                           | 0.00  |                                                               | 0       |                                                                                    | $ | 135,866,000
|August 1, 2007 to August 31, 2007       |  | 699,855                        |  |                             | 35.75 |                                                               | 699,855 |                                                                                    | $ | 159,655,000
|September 1, 2007 to September 30, 2007 |  | 0                              |  |                             | 0.00  |                                                               | 0       |                                                                                    | $ | 174,564,000
|                                        |  |                                |  |                             |       |                                                               |         |                                                                                    |   |            
|Total                                   |  | 699,855                        |  | $                           | 35.75 |                                                               | 699,855 |                                                                                    |   |            
|                                        |  |                                |  |                             |       |                                                               |         |                                                                                    |   |            

On February 14, 2006, the Board authorized a share repurchase plan whereby the Company may
repurchase shares of the Companys common stock in amounts determined pursuant to a formula (the share repurchase formula) that takes into account both the ratio of the Companys net debt to cash flow and its available cash
resources and borrowing availability. As of September 30, 2007, $174.6 million of common stock was eligible for repurchase in accordance with the formula. On October 23, 2007, the Board amended the share repurchase formula as of such date.
Had the new formula been effective as of September 30, 2007 and assuming completion of the sale of $550.0 million of convertible debentures (see Liquidity and Capital Resources), $572.9 million of the Companys common stock
would have been eligible for repurchase in accordance with the amended formula.



|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
|------- | --------



| | (a) | Exhibits included or incorporated herein: See Exhibit Index.
| | --- | ------------------------------------------------------------



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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. GABOSPaul G. Gabos Secretary, Chief Financial Officer and Principal Accounting Officer


November 9, 2007



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INDEX OF EXHIBITS



|               |  |                                                                                                                                                                                                                              
|-------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Exhibit                                                                                                                                                                                                                      
|3.10 (A)       |  | Amended and Restated Certificate of Incorporation of Lincare Holdings Inc.                                                                                                                                                   
|               | 
|3.11 (A)       |  | Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Lincare Holdings Inc.                                                                                                                   
|               | 
|3.20 (B)       |  | Amended and Restated By-Laws of Lincare Holdings Inc.                                                                                                                                                                        
|               | 
|4.10 (C)       |  | Lincare Holdings Inc. Indenture dated as of June 11, 2003                                                                                                                                                                    
|               | 
|4.20 (C)       |  | Lincare Holdings Inc. Registration Rights Agreement dated as of June 11, 2003                                                                                                                                                
|               | 
|4.30 (D)       |  | Lincare Holdings Inc. Series A Indenture dated as of October 31, 2007                                                                                                                                                        
|               | 
|4.40 (D)       |  | Lincare Holdings Inc. Series B Indenture dated as of October 31, 2007                                                                                                                                                        
|               | 
|4.50 (D)       |  | Lincare Holdings Inc. Registration Rights Agreement dated as of October 31, 2007                                                                                                                                             
|               | 
|4.60 (D)       |  | First Amendment to Credit Agreement with Bank of America, N.A. as Agent and Calyon, New York Branch as Syndication Agent dated as of October 31, 2007                                                                        
|               | 
|31.1           |  | Certification Pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, executed by John P.
Byrnes, Chief Executive Officer
|               | 
|31.2           |  | Certification Pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, executed by Paul G.
Gabos, Chief Financial Officer 
|               | 
|32.1           |  | Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, executed by John P. Byrnes, Chief Executive Officer                                                  
|               | 
|32.2           |  | Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, executed by Paul G. Gabos, Chief Financial Officer                                                   
|               | 
|A              |  | Incorporated by reference to the Registrants Form 10-Q dated August 12, 1998.                                                                                                                                               
|               | 
|B              |  | Incorporated by reference to the Registrants Form 10-Q dated August 13, 2002.                                                                                                                                               
|               | 
|C              |  | Incorporated by reference to the Registrants Form 8-K dated June 12, 2003.                                                                                                                                                  
|               | 
|D              |  | Incorporated by reference to the Registrants Form 8-K dated November 6, 2007.                                                                                                                                               



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