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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549





FORM 10-Q





(MARK ONE)

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

For The Quarterly Period Ended March 31, 2008

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





LINCARE HOLDINGS INC.

(Exact name of registrant as specified in its charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 51-0331330                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



|                                         |  |           
|---------------------------------------- |  | ----------
|19387 US 19 North Clearwater, FL         |  | 33764     
|(Address of principal executive offices) |  | (Zip Code)

Registrants telephone number, including area code:

(727) 530-7700





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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or non-accelerated filer, or a smaller reporting
company. See definitions of large accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):



|                                              |  |                              
|--------------------------------------------- |  | -----------------------------
|Large accelerated filer   x                   |  | Accelerated filer    ̈        
|                                              | 
|Non-accelerated filer    ̈                     |  | Smaller reporting company    ̈
|(Do not check if a smaller reporting company) |  |                              

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 April 30, 2008
|Common Stock, $0.01 par value |  | 73,201,176                   









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LINCARE HOLDINGS INC. AND SUBSIDIARIES

FORM 10-Q

For The Quarterly Period Ended March 31, 2008

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                            |  | 28
|Item 4.           |  | Controls and Procedures                                                               |  | 28
|                  |  |                                                                                      
|PART II.          |  | OTHER INFORMATION                                                                     |  |   
|Item 1.           |  | Legal Proceedings                                                                     |  | 29
|Item 2.           |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 30
|Item 3.           |  | Defaults Upon Senior Securities                                                       |  | 30
|Item 4.           |  | Submission of Matters to a Vote of the Security Holders                               |  | 30
|Item 5.           |  | Other Information                                                                     |  | 30
|Item 6.           |  | Exhibits                                                                              |  | 30
|SIGNATURE         |  | 31                                                                                   
|INDEX OF EXHIBITS |  | S-1                                                                                  



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PART I. FINANCIAL INFORMATION



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

LINCARE HOLDINGS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)



|                                                      |  |               |           |                  |   |          
|----------------------------------------------------- |  | ------------- | --------- | ---------------- | - | ---------
|                                                      |  | March 31,2008 |           | December 31,2007
|ASSETS                                                |  |               |           |                  |   |          
|Current assets:                                       |  |               |           |                  |   |          
|Cash and cash equivalents                             |  | $             | 104,196   |                  | $ | 51,707   
|Short-term investments                                |  |               | 0         |                  |   | 98,250   
|Accounts receivable, net                              |  |               | 212,887   |                  |   | 198,918  
|Income tax receivable                                 |  |               | 0         |                  |   | 3,399    
|Inventories                                           |  |               | 8,940     |                  |   | 8,971    
|Prepaid and other current assets                      |  |               | 2,699     |                  |   | 4,359    
|Deferred income taxes                                 |  |               | 0         |                  |   | 607      
|                                                      |  |               |           |                  |   |          
|Total current assets                                  |  |               | 328,722   |                  |   | 366,211  
|                                                      |  |               |           |                  |   |          
|Property and equipment, net                           |  |               | 342,962   |                  |   | 340,151  
|Long-term investments                                 |  |               | 98,075    |                  |   | 0        
|Goodwill                                              |  |               | 1,208,370 |                  |   | 1,208,370
|Other                                                 |  |               | 12,751    |                  |   | 13,632   
|                                                      |  |               |           |                  |   |          
|Total assets                                          |  | $             | 1,990,880 |                  | $ | 1,928,364
|                                                      |  |               |           |                  |   |          
|LIABILITIES AND STOCKHOLDERS EQUITY                  |  |               |           |                  |   |          
|Current liabilities:                                  |  |               |           |                  |   |          
|Current installments of long-term obligations         |  | $             | 278,045   |                  | $ | 288,044  
|Accounts payable                                      |  |               | 55,830    |                  |   | 60,245   
|Accrued expenses:                                     |  |               |           |                  |   |          
|Compensation and benefits                             |  |               | 29,092    |                  |   | 22,134   
|Liability insurance                                   |  |               | 17,630    |                  |   | 15,806   
|Other current liabilities                             |  |               | 58,466    |                  |   | 52,245   
|Income taxes payable                                  |  |               | 20,019    |                  |   | 0        
|Deferred income taxes - current                       |  |               | 493       |                  |   | 0        
|                                                      |  |               |           |                  |   |          
|Total current liabilities                             |  |               | 459,575   |                  |   | 438,474  
|                                                      |  |               |           |                  |   |          
|Long-term obligations, excluding current installments |  |               | 550,126   |                  |   | 550,163  
|Deferred income taxes and other taxes                 |  |               | 217,287   |                  |   | 205,939  
|                                                      |  |               |           |                  |   |          
|Total liabilities                                     |  |               | 1,226,988 |                  |   | 1,194,576
|                                                      |  |               |           |                  |   |          
|Commitments and contingencies:                        |  |               |           |                  |   |          
|Stockholders equity:                                 |  |               |           |                  |   |          
|Common stock                                          |  |               | 732       |                  |   | 742      
|Additional paid-in capital                            |  |               | 461,039   |                  |   | 456,437  
|Retained earnings                                     |  |               | 302,121   |                  |   | 276,609  
|                                                      |  |               |           |                  |   |          
|Total stockholders equity                            |  |               | 763,892   |                  |   | 733,788  
|                                                      |  |               |           |                  |   |          
|Total liabilities and stockholders equity            |  | $             | 1,990,880 |                  | $ | 1,928,364
|                                                      |  |               |           |                  |   |          

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 |        
|                                                                                  |  | March 31,2008              |         |   | March 31,2007 |  
|Net revenues                                                                      |  | $                          | 415,420 |   |               | $ | 378,459 |  
|                                                                                  |  |                            |         |   |               |   |         |  
|Costs and expenses:                                                               |  |                            |         |   |               |   |         |  
|Cost of goods and services                                                        |  |                            | 97,587  |   |               |   | 88,134  |  
|Operating expenses                                                                |  |                            | 96,278  |   |               |   | 91,884  |  
|Selling, general and administrative expenses                                      |  |                            | 82,195  |   |               |   | 76,367  |  
|Bad debt expense                                                                  |  |                            | 6,231   |   |               |   | 5,677   |  
|Depreciation expense                                                              |  |                            | 29,509  |   |               |   | 25,901  |  
|Amortization expense                                                              |  |                            | 55      |   |               |   | 67      |  
|                                                                                  |  |                            |         |   |               |   |         |  
|                                                                                  |  |                            | 311,855 |   |               |   | 288,030 |  
|                                                                                  |  |                            |         |   |               |   |         |  
|Operating income                                                                  |  |                            | 103,565 |   |               |   | 90,429  |  
|                                                                                  |  |                            |         |   |               |   |         |  
|Other income (expense):                                                           |  |                            |         |   |               |   |         |  
|Interest income                                                                   |  |                            | 2,058   |   |               |   | 573     |  
|Interest expense                                                                  |  |                            | (6,882  | ) |               |   | (4,949  | )
|                                                                                  |  |                            |         |   |               |   |         |  
|                                                                                  |  |                            | (4,824  | ) |               |   | (4,376  | )
|                                                                                  |  |                            |         |   |               |   |         |  
|Income before income taxes                                                        |  |                            | 98,741  |   |               |   | 86,053  |  
|Income tax expense                                                                |  |                            | 38,081  |   |               |   | 32,158  |  
|                                                                                  |  |                            |         |   |               |   |         |  
|Net income                                                                        |  | $                          | 60,660  |   |               | $ | 53,895  |  
|                                                                                  |  |                            |         |   |               |   |         |  
|Basic earnings per common share                                                   |  | $                          | 0.83    |   |               | $ | 0.62    |  
|                                                                                  |  |                            |         |   |               |   |         |  
|Diluted earnings per common share                                                 |  | $                          | 0.79    |   |               | $ | 0.59    |  
|                                                                                  |  |                            |         |   |               |   |         |  
|Weighted average number of common shares outstanding                              |  |                            | 72,860  |   |               |   | 86,401  |  
|                                                                                  |  |                            |         |   |               |   |         |  
|Weighted average number of common shares and common share equivalents outstanding |  |                            | 78,304  |   |               |   | 93,180  |  
|                                                                                  |  |                            |         |   |               |   |         |  

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 Three Months Ended |        
|                                                                                  |  | March 31,2008              |         |   | March 31,2007 |  
|Cash flows from operating activities:                                             |  |                            |         |   |               |   |          |  
|Net income                                                                        |  | $                          | 60,660  |   |               | $ | 53,895   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                            |         |   |               |   |          |  
|Bad debt expense                                                                  |  |                            | 6,231   |   |               |   | 5,677    |  
|Depreciation and amortization expense                                             |  |                            | 29,564  |   |               |   | 25,968   |  
|Net (gain) loss on disposal of property and equipment                             |  |                            | (6      | ) |               |   | 4        |  
|Amortization of debt issuance costs                                               |  |                            | 843     |   |               |   | 107      |  
|Stock-based compensation expense                                                  |  |                            | 4,015   |   |               |   | 3,289    |  
|Deferred income taxes                                                             |  |                            | 12,209  |   |               |   | 8,933    |  
|Excess tax benefit from stock-based compensation                                  |  |                            | (19     | ) |               |   | (512     | )
|Change in assets and liabilities net of effects of acquired businesses:           |  |                            |         |   |               |   |          |  
|Increase in accounts receivable                                                   |  |                            | (20,200 | ) |               |   | (25,173  | )
|Decrease in inventories                                                           |  |                            | 31      |   |               |   | 1,316    |  
|Decrease in prepaid and other assets                                              |  |                            | 1,646   |   |               |   | 2,174    |  
|Decrease in accounts payable                                                      |  |                            | (7,262  | ) |               |   | (965     | )
|Increase in accrued expenses                                                      |  |                            | 15,243  |   |               |   | 9,922    |  
|Increase in income taxes payable                                                  |  |                            | 23,452  |   |               |   | 22,091   |  
|                                                                                  |  |                            |         |   |               |   |          |  
|Net cash provided by operating activities                                         |  |                            | 126,407 |   |               |   | 106,726  |  
|                                                                                  |  |                            |         |   |               |   |          |  
|Cash flows from investing activities:                                             |  |                            |         |   |               |   |          |  
|Proceeds from sale of property and equipment                                      |  |                            | 14      |   |               |   | 26       |  
|Capital expenditures                                                              |  |                            | (29,481 | ) |               |   | (29,853  | )
|Purchases of investments                                                          |  |                            | (31,450 | ) |               |   | 0        |  
|Sales and maturities of investments                                               |  |                            | 31,625  |   |               |   | 0        |  
|                                                                                  |  |                            |         |   |               |   |          |  
|Net cash used in investing activities                                             |  |                            | (29,292 | ) |               |   | (29,827  | )
|                                                                                  |  |                            |         |   |               |   |          |  
|Cash flows from financing activities:                                             |  |                            |         |   |               |   |          |  
|Proceeds from issuance of debt                                                    |  |                            | 0       |   |               |   | 205,435  |  
|Payments of principal on debt                                                     |  |                            | (10,036 | ) |               |   | (1,360   | )
|Payments of debt issuance costs                                                   |  |                            | (4      | ) |               |   | 0        |  
|Proceeds from exercise of stock options and issuance of common shares             |  |                            | 606     |   |               |   | 3,646    |  
|Excess tax benefit from stock-based compensation                                  |  |                            | 19      |   |               |   | 512      |  
|Payments to acquire treasury stock                                                |  |                            | (35,211 | ) |               |   | (275,022 | )
|                                                                                  |  |                            |         |   |               |   |          |  
|Net cash used in financing activities                                             |  |                            | (44,626 | ) |               |   | (66,789  | )
|                                                                                  |  |                            |         |   |               |   |          |  
|Net increase in cash and cash equivalents                                         |  |                            | 52,489  |   |               |   | 10,110   |  
|Cash and cash equivalents, beginning of period                                    |  |                            | 51,707  |   |               |   | 25,075   |  
|                                                                                  |  |                            |         |   |               |   |          |  
|Cash and cash equivalents, end of period                                          |  | $                          | 104,196 |   |               | $ | 35,185   |  
|                                                                                  |  |                            |         |   |               |   |          |  
|Supplemental disclosure of cash flow information:                                 |  |                            |         |   |               |   |          |  
|Cash paid for interest                                                            |  | $                          | 149     |   |               | $ | 705      |  
|                                                                                  |  |                            |         |   |               |   |          |  
|Cash paid for income taxes                                                        |  | $                          | 2,207   |   |               | $ | 1,863    |  
|                                                                                  |  |                            |         |   |               |   |          |  
|Supplemental disclosure of non-cash financing activities:                         |  |                            |         |   |               |   |          |  
|Assets acquired under capital lease                                               |  | $                          | 0       |   |               | $ | 435      |  
|                                                                                  |  |                            |         |   |               |   |          |  

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 accepted in the United States 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, 2007. 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.

Investments: The Company classifies its
investments in marketable securities with readily determinable fair values as investments available-for-sale in accordance with Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in
Debt and Equity Securities. Available-for-sale securities consist of auction rate securities not classified as trading securities or as securities to be held to maturity. The Company has classified all investments as available-for-sale. There
were no unrealized holding gains or losses on available-for-sale securities in the periods presented.

At March 31, 2008, the Company
held $98.1 million of investment grade auction rate securities. These securities are variable-rate debt instruments with contractual maturities between the years 2020 and 2041 with interest rates that reset every seven or 35 days pursuant to a
bidding process as determined by the underlying security indentures. Under the provisions of SFAS No. 115, the investments are classified as available-for-sale and are carried at fair value, with any unrealized gains and losses included in
comprehensive income as a separate component of shareholders equity. The book value of available-for-sale investments held at March 31, 2008, approximated fair value. Therefore, the Company had no reported unrealized gains or losses.

During the first quarter of 2008, the Company reclassified all of its investments in auction rate securities from short-term to long-term
investments. Of the auction rate securities held as of March 31, 2008, $60.7 million are secured by pools of student loans guaranteed by state-designated guaranty agencies or monoline insurers or reinsured by the United States government. The
remaining $37.4 million was comprised of securities backed by pools of municipal bonds. All of the auction rate securities held by the Company are senior obligations under the applicable indentures authorizing the issuance of such securities. Recent
turmoil in the credit markets has resulted in widespread failures to attract demand for such securities at the periodic auction dates occurring subsequent to December 31, 2007. As of March 31, 2008, all of the securities held by the
Company continued to experience auction failures, resulting in the Company continuing to hold such securities. The Company received partial redemptions, at par, in the amount of $175,000 in February 2008 and $250,000 in April 2008.

The Company will continue to monitor credit market conditions to assess the liquidity of its investments. Due to its ability to access its cash and cash
equivalents, amounts available under its revolving credit facility, and its expected operating cash flows, the Company believes that it has adequate liquidity available to meet its obligations.

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



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LINCARE HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



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 61% and 65% of net revenues for the three months ended
March 31, 2008 and 2007, 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 that limit the rental payment periods in some instances and that 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;
| | - |  | ---------------------------------------------



| |  |  | 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



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LINCARE HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



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.

The Company accounts for taxes imposed on
revenue producing transactions by government authorities on a net basis.

Cost of Goods and Services: Cost of goods and services
includes the cost of equipment (excluding depreciation of $20.7 million and $18.6 million in 2008 and 2007, respectively), drugs and supplies sold to patients and certain operating 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 $12.8 million and $12.3 million for the three-month periods of 2008 and 2007, respectively.
Included in cost of goods and services in the three months ended March 31, 2008 are salary and related expenses of pharmacists and pharmacy technicians of $2.7 million. Such salary and related expenses for the three months ended March 31,
2007, were $2.6 million.

Operating Expenses:The Company manages 1,029 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 2008 and 2007 within these major categories were as follows:



|                                   |  |                             |        |      |   |       
|---------------------------------- |  | --------------------------- | ------ | ---- | - | ------
|                                   |  | Three Months EndedMarch 31,
|Operating Expenses ( in thousands) |  | 2008                        |        | 2007
|Salary and related                 |  | $                           | 61,750 |      | $ | 58,932
|Facilities                         |  |                             | 14,553 |      |   | 14,271
|Vehicles                           |  |                             | 11,942 |      |   | 10,492
|General supplies/miscellaneous     |  |                             | 8,033  |      |   | 8,189 
|                                   |  |                             |        |      |   |       
|Total                              |  | $                           | 96,278 |      | $ | 91,884
|                                   |  |                             |        |      |   |       

Included in operating expenses during the three months ended March 31, 2008 are salary and
related expenses for Service Reps in the amount of $25.2 million. Such salary and related expenses for the three months ended March 31, 2007 were $24.4 million.

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 months ended March 31, 2008 are salary and related expenses of $59.1 million. These salary and



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LINCARE HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



related expenses include the cost of the Companys respiratory therapists for the three months ended March 31, 2008 of $15.3 million. Included in
SG&A during the three months ended March 31, 2007 are salary and related expenses of $56.0 million. These salary and related expenses include the cost of the Companys respiratory therapists in the amount of $15.5 million during 2007.
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 three month periods ended March 31, 2008 and March 31, 2007, the Company did not acquire the
business or assets of any companies.

Note 3. Accounts Receivable

Accounts receivable at March 31, 2008 and December 31, 2007 consist of:



|                                                                |  |                |   |  |                  |  
|--------------------------------------------------------------- |  | -------------- | - |  | ---------------- | -
|                                                                |  | March 31,2008  |   |  | December 31,2007 |  
|                                                                |  | (In thousands) |  
|Trade accounts receivable                                       |  | $256,514       |   |  | $241,288         |  
|Less allowance for sales adjustments and uncollectible accounts |  | (43,627        | ) |  | (42,370          | )
|                                                                |  |                |   |  |                  |  
|                                                                |  | $212,887       |   |  | $198,918         |  
|                                                                |  |                |   |  |                  |  

Note 4. Property and Equipment, Net

Property and equipment, net at March 31, 2008 and December 31, 2007 consist of:



|                               |  |                |   |  |                  |  
|------------------------------ |  | -------------- | - |  | ---------------- | -
|                               |  | March 31,2008  |   |  | December 31,2007 |  
|                               |  | (In thousands) |  
|Property and equipment at cost |  | $926,784       |   |  | $900,299         |  
|Less accumulated depreciation  |  | (583,822       | ) |  | (560,148         | )
|                               |  |                |   |  |                  |  
|Net property and equipment     |  | $342,962       |   |  | $340,151         |  
|                               |  |                |   |  |                  |  

Note 5. Income Taxes

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 Company does not expect that the total amount of unrecognized tax positions will significantly increase or decrease in the next twelve months. The
Company continues to recognize accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense.

The Internal Revenue Service (IRS) has completed its examination of the Companys U.S. income tax returns through 2006. The U.S. federal statute of limitations remains open for the year 2002 and onward. There are no
material disputes for the open tax years.



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LINCARE HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



The Company is participating in the IRSs Compliance Assurance Program, or CAP, for the years
2007 and 2008. The years 2007 and 2008 are currently under examination under the CAP program. 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 6. 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 months ended March 31, 2008 and 2007, the number of excluded shares
underlying anti-dilutive stock options was 1,233,181 and 78,654, respectively.

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 March 31,
|                                                                                     |  | 2008                                |        | 2007
|Numerator:                                                                           |  |                                     |        |      |   |       
|Basic  Income available to common stockholders                                      |  | $                                   | 60,660 |      | $ | 53,895
|Adjustment for assumed dilution:                                                     |  |                                     |        |      |   |       
|Interest on convertible debt, net of tax                                             |  |                                     | 1,267  |      |   | 1,292 
|                                                                                     |  |                                     |        |      |   |       
|Diluted  Income available to common stockholders and holders of dilutive securities |  | $                                   | 61,927 |      | $ | 55,187
|                                                                                     |  |                                     |        |      |   |       
|Denominator:                                                                         |  |                                     |        |      |   |       
|Weighted average shares                                                              |  |                                     | 72,860 |      |   | 86,401
|Effect of dilutive securities:                                                       |  |                                     |        |      |   |       
|Incremental shares under stock compensation plans                                    |  |                                     | 287    |      |   | 1,622 
|Incremental shares from assumed conversion of convertible debt                       |  |                                     | 5,157  |      |   | 5,157 
|                                                                                     |  |                                     |        |      |   |       
|Adjusted weighted average shares                                                     |  |                                     | 78,304 |      |   | 93,180
|                                                                                     |  |                                     |        |      |   |       
|Per share amount:                                                                    |  |                                     |        |      |   |       
|Basic                                                                                |  | $                                   | 0.83   |      | $ | 0.62  
|                                                                                     |  |                                     |        |      |   |       
|Diluted (1)                                                                          |  | $                                   | 0.79   |      | $ | 0.59  
|                                                                                     |  |                                     |        |      |   |       



|(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 7. 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.



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LINCARE HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



For the three months ended March 31, 2008 and 2007, the Company recognized total stock-based
compensation costs of $4.0 million and $3.3 million, respectively, as well as related tax benefits of $1.5 million and $1.0 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

Stock option activity for the three months ended March 31, 2008 is summarized below:



|                                                |  |                  |   |  |                              |       |                                                  |      |                          |   |           
|----------------------------------------------- |  | ---------------- | - |  | ---------------------------- | ----- | ------------------------------------------------ | ---- | ------------------------ | - | ----------
|                                                |  | Number ofOptions |   |  | WeightedAverageExercisePrice |       | Weighted AverageRemainingContractual Life(Years) |      | AggregateIntrinsic Value
|Outstanding at December 31, 2007                |  | 8,955,616        |   |  | $                            | 33.46 |                                                  |      |                          |   |           
|Options granted in 2008                         |  | 0                |   |  |                              |      |                                                  |      |                          |   |           
|Exercised in 2008                               |  | (12,000          | ) |  |                              | 23.58 |                                                  |      |                          |   |           
|Forfeited in 2008                               |  | (12,100          | ) |  |                              | 40.48 |                                                  |      |                          |   |           
|                                                |  |                  |   |  |                              |       |                                                  |      |                          |   |           
|Outstanding at March 31, 2008                   |  | 8,931,516        |   |  | $                            | 33.47 |                                                  | 4.01 |                          | $ | 10,361,284
|                                                |  |                  |   |  |                              |       |                                                  |      |                          |   |           
|Exercisable at March 31, 2008                   |  | 5,931,340        |   |  | $                            | 30.06 |                                                  | 2.85 |                          | $ | 10,361,284
|                                                |  |                  |   |  |                              |       |                                                  |      |                          |   |           
|Vested or expected to vest as of March 31, 2008 |  | 8,719,359        |   |  | $                            | 33.27 |                                                  | 3.98 |                          | $ | 10,361,284
|                                                |  |                  |   |  |                              |       |                                                  |      |                          |   |           

Stock options outstanding at March 31, 2008, were 8,931,516. Of the stock options outstanding
at March 31, 2008, options for 5,931,340 shares were exercisable and options for 3,000,176 shares are unvested. Of the total stock options outstanding at March 31, 2008, 8,719,359 were vested or expected to vest in the future, net of
expected cancellations and forfeitures of 212,157. The intrinsic value of options exercised during the three months ended March 31, 2008 and 2007, amounted to $0.1 million and $2.8 million, respectively.

As of March 31, 2008, the total remaining unrecognized compensation cost related to unvested stock options amounted to $19.0 million, which will be
amortized over the weighted-average remaining requisite service period of 1.4 years.

Restricted Stock

The following table summarizes information about restricted stock activity for the three months ended March 31, 2008:



|                            |  |         |   |  |                                               |      
|--------------------------- |  | ------- | - |  | --------------------------------------------- | -----
|                            |  | Shares  |   |  | Weighted-Average GrantDate FairValue PerShare
|Unvested at January 1, 2008 |  | 371,850 |   |  | $                                             | 38.99
|Granted                     |  | 0       |   |  |                                               |     
|Vested                      |  | 0       |   |  |                                               |     
|Forfeited                   |  | (7,100  | ) |  |                                               | 39.03
|                            |  |         |   |  |                                               |      
|Unvested at March 31, 2008  |  | 364,750 |   |  | $                                             | 38.99
|                            |  |         |   |  |                                               |      

As of March 31, 2008, the total remaining unrecognized compensation cost related to
restricted stock amounted to $12.4 million, which will be amortized over the weighted-average remaining requisite service period of 3.2 years.



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LINCARE HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



Note 8. 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-month periods ended March 31, 2008 and
March 31, 2007.



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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 provider 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.

Recent legislation, including the Medicare, Medicaid and
SCHIP Extension Act of 2007 (SCHIP Extension Act), the Deficit Reduction Act of 2005 (DRA) and the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), contain provisions that directly
impact reimbursement for the primary respiratory and other DME products provided by Lincare. In addition, a nebulizer policy revision was recently released by the Durable Medical Equipment Medicare Administrative Contractors (DME MACs)
that will negatively affect reimbursement for certain inhalation drugs dispensed by our pharmacies to our customers effective July 1, 2008. The SCHIP Extension Act reduced Medicare reimbursement amounts for covered Part B drugs, including
inhalation drugs that we provide, beginning April 1, 2008. DRA contains provisions that will negatively impact reimbursement for oxygen equipment beginning in 2009 and negatively impacted reimbursement for 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, froze payment amounts for other covered DME
items through 2007, established a competitive acquisition program for DME beginning in 2008, and implemented quality standards and accreditation requirements for DME suppliers. The SCHIP Extension Act, DRA and MMA provisions and the nebulizer policy
revision, when fully implemented, could materially and adversely affect our business, financial condition, operating results and cash flows.

The SCHIP Extension Act, which became law on December 29, 2007, reduces Medicare reimbursement amounts for covered Part B drugs, including inhalation drugs that we provide, beginning April 1, 2008. The SCHIP Extension Act requires
the Centers for Medicare and Medicaid Services (CMS) to adjust the methodology used to determine Medicare payment amounts for inhalation drugs by using volume-weighted average selling prices (ASP) based on actual sales
volumes rather than average sales prices. The SCHIP Extension Act also specifically lowers reimbursement for the inhalation drug albuterol. The Congressional Budget Office (CBO) estimates that the provisions of the SCHIP Extension Act
affecting Part B drug reimbursement will result in reductions in aggregate Medicare outlays for such drugs of $1.0 billion over five years and $2.6 billion over 10 years. Based on the payment rates published by CMS for the second quarter of 2008, we
estimate that the provisions affecting payment amounts for inhalation drugs will reduce our reimbursement for such drugs by approximately $15.7 million per quarter beginning April 1, 2008. We can not determine whether quarterly updates in ASP
pricing data 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.

On April 10, 2008, the DME MACs issued a revision of the Nebulizer Local Coverage Determination (LCD) that will cause claims for
non-compounded levalbuterol and commercially-available combinations of albuterol and ipratropium to be downcoded and reimbursed based on the allowances for less costly medications. Effective for claims with dates of service on or after July 1,
2008, claims for non-compounded levalbuterol will be paid based on the allowance for albuterol and claims for commercially-available combinations of albuterol and ipratropium will be paid based on the allowances for individual vials of the component
medications. This policy revision is expected to reduce our reimbursement for these drugs by an additional $15.4 million per quarter beginning in the third quarter of 2008.

On February 1, 2006, Congress passed the DRA legislation which contains provisions that
impacted reimbursement for oxygen equipment and DME. 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



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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.

Throughout the second half of 2007, Congress was considering legislation that would have included further reductions in payment amounts for certain
classes of oxygen equipment. It is possible that reimbursement changes for oxygen equipment could be reconsidered in 2008. The Presidents 2008 fiscal year budget proposes a reduction in the maximum continuous oxygen equipment rental period
from 36 months to 13 months. No further information on this proposal is available at this time and we cannot predict whether or not the proposal will be included in the final budget approved by Congress. Further reductions 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, 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 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.

Pursuant to provisions included in rule CMS-1304-F, the monthly
payment rate for stationary oxygen equipment in 2008 was increased from $198.40 to $199.28, which is expected to increase our net revenues by approximately $3.2 million in 2008. CMS will revise payment rates for oxygen equipment in future years
under the methodology specified in the rule based on data on the distribution of beneficiaries using various modalities of oxygen equipment. We are unable to predict the oxygen payment revisions to be determined by CMS in future years.

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 is 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 applied to items furnished for which the first
rental month occurred 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 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. We estimate that the capped
rental changes to DME and RADs reduced our net revenues by approximately $11.4 million in 2007 and will reduce net revenues and operating income in 2008 by approximately $22.3 million.

On December 8, 2003, MMA was signed into law. The MMA legislation 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 inhalation drugs that we provide, was limited to 95
percent of the published average wholesale price (AWP) for the
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | 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.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Established a competitive acquisition program for DME beginning in 2008.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.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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 amounts 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 MSAs across the
country, applying initially to ten categories of DME and medical supplies. CMS concluded the bidding process for the first round of MSAs in September 2007. On March 20, 2008, CMS completed the bid evaluation process and announced the payment
amounts that will be in effect in the ten competitive bidding areas beginning July 1, 2008. As a result of the competitive bidding process, the amounts that Medicare will pay for the items within the product categories included in the bid areas
will average 26% less than Medicares previous payment amounts. CMS expects to complete the contract award process and announce the final winning suppliers in May 2008. The affected product categories contained within the first 10 MSAs
contributed approximately $59.8 million to our revenues in 2007. CMS expects to begin soliciting bids for the second round of 70 MSAs in the summer of 2008. The affected product categories contained within the 70 MSAs contributed approximately
$210.5 million to our revenues in 2007. 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 future years for the items subjected to competitive bidding.

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.



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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 our 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 product category:



|                                     |  |                                     |         |      |   |        
|------------------------------------ |  | ----------------------------------- | ------- | ---- | - | -------
|                                     |  | For The Three MonthsEnded March 31,
|                                     |  | 2008                                |         | 2007
|                                     |  | (In thousands)                     
|Oxygen and other respiratory therapy |  | $                                   | 382,720 |      | $ | 350,014
|Home medical equipment and other     |  |                                     | 32,700  |      |   | 28,445 
|                                     |  |                                     |         |      |   |        
|Total                                |  | $                                   | 415,420 |      | $ | 378,459
|                                     |  |                                     |         |      |   |        

Net revenues for the three months ended March 31, 2008, increased by $37.0 million (or 9.8%)
compared with the three months ended March 31, 2007. The Company estimates that the 9.8% increase in net revenues in the three-month period was comprised of 11.1% internal growth and 0.2% acquisition growth partially offset by Medicare price
changes taking effect in 2008 (see Medicare Reimbursement). 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 three months ended March 31, 2008, and March 31, 2007, we did not acquire the business or assets of any companies.

The contribution of oxygen and other respiratory therapy products to our net revenues was 92.1% and 92.5%, respectively, during the three months ended
March 31, 2008 and 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 23.5% for the three months
ended March 31, 2008, compared with 23.3% for the comparable prior year period. The increase in cost of goods and services in 2008 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. We also experienced significant growth in our
sleep therapy product lines during the first three months of 2008, compared with the first three months of 2007, which generally carry a higher cost of goods sold than other products we provide.

Cost of goods and services for the three month periods include the cost of equipment (excluding depreciation of $20.7 million in 2008 and $18.6 million
in 2007, 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 $12.8 million for the three-month period of 2008 and approximately $12.3 million for the three-month period of 2007, respectively. Included in cost of goods and services in the three months ended
March 31, 2008 are salary and related expenses of pharmacists and pharmacy technicians of $2.7 million. Such salary and related expenses for the three months ended March 31, 2007, were $2.6 million.



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Operating expenses as a percentage of net revenues were 23.2% for the three months ended March 31,
2008, compared with 24.3% for the comparable prior year period. Operating expenses for the three months ended March 31, 2008, increased by $4.4 million, or 4.8%, over the prior year period. Contributing to the decrease in operating expenses as
a percentage of net revenues during the first three months of 2008 were containment of payroll and related expenses and freight costs, partially offset by higher growth in vehicle, fuel and utility costs.

The Company manages 1,029 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 2008 and 2007 within these major categories were as follows:



|                                   |  |                             |        |      |   |       
|---------------------------------- |  | --------------------------- | ------ | ---- | - | ------
|                                   |  | Three MonthsEnded March 31,
|Operating Expenses ( in thousands) |  | 2008                        |        | 2007
|Salary and related                 |  | $                           | 61,750 |      | $ | 58,932
|Facilities                         |  |                             | 14,553 |      |   | 14,271
|Vehicles                           |  |                             | 11,942 |      |   | 10,492
|General supplies/miscellaneous     |  |                             | 8,033  |      |   | 8,189 
|                                   |  |                             |        |      |   |       
|Total                              |  | $                           | 96,278 |      | $ | 91,884
|                                   |  |                             |        |      |   |       

Included in operating expenses during the three months ended March 31, 2008 are salary and
related expenses for Service Reps in the amount of $25.2 million. Such salary and related expenses for the three months ended March 31, 2007 were $24.4 million.

Selling, general and administrative (SG&A) expenses as a percentage of net revenues were 19.8% for the three months ended March 31, 2008, compared with 20.2% for the comparable prior year period.
SG&A expenses for the three months ended March 31, 2008 increased by $5.8 million, or 7.6% over the prior year period. Contributing to the decrease in SG&A expenses as a percentage of net revenues in 2008 were containment of payroll and
related expenses and lower advertising expenses, partially offset by an increase in reserves for auto and workers compensation insurance claims.

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 months ended March 31, 2008 are salary and
related expenses of $59.1 million. These salary and related expenses include the cost of the Companys respiratory therapists in the amount of $15.3 million. Included in SG&A during the three months ended March 31, 2007 are salary and
related expenses of $56.0 million. These salary and related expenses include the cost of the Companys respiratory therapists in the amount of $15.5 million. 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.



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Included in depreciation expense in the three months ended March 31, 2008 is depreciation of patient
service equipment of $20.7 million and depreciation of other property and equipment of $8.8 million. Included in depreciation expense in the three months ended March 31, 2007 is depreciation of patient service equipment of $18.6 million and
depreciation of other property and equipment of $7.3 million. The increase in depreciation expense in the three months ended March 31, 2008 compared with the prior year period is attributable to increased purchases of medical and other
equipment necessary to support the growth in the Companys customer base during 2008.

Operating income for the three months ended
March 31, 2008, was $103.6 million (24.9% of net revenues) compared with $90.4 million (23.9% of net revenues) for the comparable prior year period. The increase in operating income in the three-month period ended March 31, 2008 is
attributable primarily to revenue growth from increases in customer volumes partially 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 operating costs, capital expenditures, acquisitions, debt service and share repurchases.

At March 31, 2008, our current liabilities exceeded our current assets by $130.9 million, resulting in negative working capital. The working capital
deficit is primarily attributable to the reclassification in June 2007 of our $275.0 million principal amount of 3.0% Convertible Debentures due 2033 (the Debentures) to a current liability and the reclassification in March 2008 of $98.1
million of investment grade auction rate securities from short-term to long-term investments.

Net cash provided by operating activities
increased by 18.4% to $126.4 million for the three months ended March 31, 2008, compared with $106.7 million for the three months ended March 31, 2007. Net cash used in investing and financing activities was $73.9 million for the three
months ended March 31, 2008. Activity during the three-month period ended March 31, 2008 included our net investment in property and equipment of $29.5 million, payments of principal on debt of $10.0 million, repurchases of our common
stock of $35.2 million and proceeds from the exercise of stock options and issuance of common shares of $0.6 million.

As of March 31,
2008, our principal sources of liquidity consisted of $104.2 million of cash and equivalents and $366.5 million available under our revolving bank credit facility. At March 31, 2008, the Company held $98.1 million of investment grade auction
rate securities. These securities are variable-rate debt instruments with contractual maturities between the years 2020 and 2041 with interest rates that reset every seven or 35 days pursuant to a bidding process as determined by the underlying
security indentures. Under the provisions of SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, the investments are classified as available-for-sale and are carried at fair value, with any unrealized
gains and losses included in comprehensive income as a separate component of shareholders equity. The book value of available-for-sale investments held at March 31, 2008, approximated fair value. Therefore, the Company had no reported
unrealized gains or losses.

During the first quarter of 2008, the Company reclassified all of its investments in auction rate securities
from short-term to long-term investments. Of the auction rate securities held as of March 31, 2008, $60.7 million are secured by pools of student loans guaranteed by state-designated guaranty agencies or monoline insurers or reinsured by the
United States government. The remaining $37.4 million was comprised of securities backed by pools of municipal bonds. All of the auction rate securities held by the Company are senior obligations under the applicable indentures authorizing the
issuance of such securities. Recent turmoil in the credit markets has resulted in widespread failures to attract demand for such securities at the periodic auction dates occurring subsequent to December 31, 2007. As of March 31, 2008, all
of the securities held by the Company continued to experience auction failures, resulting in our continuing to hold such securities. The Company received partial redemptions, at par, in the amount of $175,000 in February 2008 and $250,000 in April
2008.

We will continue to monitor credit market conditions to assess the liquidity of our investments. Due to our ability to access our
cash and cash equivalents, amounts available under our revolving credit facility, and our expected operating cash flows, we believe that we have adequate liquidity available to meet our obligations.

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



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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 three months ended March 31, 2008, the Company repurchased and retired 1,009,250 shares for $35.2 million pursuant to the repurchase
plan. On January 23, 2007 and October 23, 2007, our Board of Directors approved modifications to the share repurchase formula to increase the ratio of debt to cash flow to allow additional share repurchases. As of March 31, 2008,
$308.3 million of the Companys common stock was eligible for repurchase in accordance with the amended formula.

On October 31, 2007, we 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% per annum. 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 our common stock or in
a combination of cash and shares of common stock, at our 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 our 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. We 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 us to repurchase for cash all or some of their Series Debentures upon the occurrence of certain fundamental change transactions or on
November 1, 2012, 2017, 2022, 2027 and 2032 in the case of the Series A Debentures and November 1, 2014, 2017, 2022, 2027 and 2032 in the case of the Series B Debentures. The terms of our Series Debentures include registration payment
arrangements whereby we would be required to pay additional interest in the event of a registration default. Should the registration statement cease to be effective or fail to be useable, and such failure is not cured, or the prospectus become
suspended, additional interest will accrue on the Series Debentures at an annual rate per year equal to: (i) 0.25% of the principal amount of the Series Debentures to and including the 90thday following such registration default; and (ii) 0.50% of the principal amount of the Series Debentures from and after the 91stday following such registration default. In no event will additional interest accrue after the registration statement termination date as defined in the indenture and in no event
beyond October 31, 2009. The maximum potential amount of additional consideration that we could be required to pay under the registration payment arrangements for the period after March 31, 2008 and until the October 31, 2009
registration statement termination date is $4.0 million. As of March 31, 2008, no registration default exists and no liability has been recorded in our consolidated financial statements.

On June 11, 2003, we completed the sale of $250.0 million aggregate principal amount of 3.0% Convertible Senior Debentures due 2033 (the
Debentures) in a private placement. The Debentures are convertible into shares of our common stock based on a conversion rate of 18.7515 shares for each $1,000 principal amount of Debentures. This is equivalent to a conversion price of
approximately $53.33 per share of common stock. On June 23, 2003, we sold an additional $25.0 million principal amount of Debentures pursuant to the exercise in full of an over-allotment option granted to the initial purchasers of the
Debentures. 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. On April 21, 2008, we announced our intention to redeem the Debentures in full on June 15, 2008. We intend to
fund the redemption with cash on hand and borrowings under our revolving credit facility.

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



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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. 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. The Companys proprietary billing system has features that allow the Company 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 the Companys experience, it is unlikely that a change in estimate of
unsettled amounts from third party payors would have a material adverse impact on its financial position or results of operations.

Accounts receivable balance concentrations by major payor category as of March 31, 2008 and December 31, 2007 were as follows:



|                                               |  |               |   |  |                  |  
|---------------------------------------------- |  | ------------- | - |  | ---------------- | -
|                                               |  |               |   |  |                  |  
|Percentage of Accounts Receivable Outstanding: |  | March 31,2008 |   |  | December 31,2007 |  
|Medicare                                       |  | 35.2          | % |  | 36.8             | %
|Medicaid/Other Government                      |  | 16.4          | % |  | 17.8             | %
|Private Insurance                              |  | 37.8          | % |  | 37.4             | %
|Self-Pay                                       |  | 10.6          | % |  | 8.0              | %
|                                               |  |               |   |  |                  |  
|Total                                          |  | 100.0         | % |  | 100.0            | %
|                                               |  |               |   |  |                  |  

Aged accounts receivable balances by major payor category as of March 31, 2008 and
December 31, 2007 were as follows:



|                                     |  |                |   |  |        |   |  |          |  
|------------------------------------ |  | -------------- | - |  | ------ | - |  | -------- | -
|                                     |  | March 31, 2008 |  
|Percentage of Accounts Aged in Days: |  | 0-60           |   |  | 61-120 |   |  | Over 120 |  
|Medicare                             |  | 78.4           | % |  | 10.2   | % |  | 11.4     | %
|Medicaid/Other Government            |  | 51.1           | % |  | 18.8   | % |  | 30.1     | %
|Private Insurance                    |  | 59.7           | % |  | 16.1   | % |  | 24.2     | %
|Self-Pay                             |  | 63.7           | % |  | 19.8   | % |  | 16.5     | %
|All Payors                           |  | 65.3           | % |  | 14.8   | % |  | 19.9     | %



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|                                     |  |                   |   |  |        |   |  |          |  
|------------------------------------ |  | ----------------- | - |  | ------ | - |  | -------- | -
|                                     |  | December 31, 2007 |  
|Percentage of Accounts Aged in Days: |  | 0-60              |   |  | 61-120 |   |  | Over 120 |  
|Medicare                             |  | 77.0              | % |  | 10.5   | % |  | 12.5     | %
|Medicaid/Other Government            |  | 50.1              | % |  | 20.7   | % |  | 29.2     | %
|Private Insurance                    |  | 60.8              | % |  | 15.0   | % |  | 24.2     | %
|Self-Pay                             |  | 51.4              | % |  | 26.6   | % |  | 22.0     | %
|All Payors                           |  | 64.1              | % |  | 15.3   | % |  | 20.6     | %

We operate 33 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 March 31, 2008, there were 1,315 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 66.5% 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 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 three months ended March 31, 2008, the $10.0 million outstanding balance of the Companys revolving credit facility was repaid. On April 21, 2008, the Company announced its intention to
redeem its $275.0 million Debentures in full on June 15, 2008. The Company intends to fund the redemption with cash on hand and borrowings under its credit facility.

New Accounting Standards

In December 2007, the FASB issued SFAS No. 141(R), Business
Combinations, which replaces SFAS No. 141. SFAS No. 141(R) requires an acquirer in a business combination, including business combinations achieved in stages (step acquisition), to recognize the assets acquired, liabilities assumed,
and any noncontrolling interest in the acquiree at the acquisition date, measured at their fair values as of that date, with limited



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exceptions. It also requires the recognition of assets acquired and liabilities assumed arising from certain contractual contingencies as of the acquisition
date, measured at their acquisition-date fair values. The provisions of SFAS No. 141(R) are effective as of the beginning of the 2009 calendar year. The Company is currently evaluating the potential future impact of this standard on its
financial condition, results of operations and cash flows.

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 were effective as of the beginning of the 2008 calendar year. The adoption of SFAS No. 157 did not have a material impact on our financial condition, results of operations or cash flows.

In February 2008, the FASB issued FSP FAS 157-2, Effective Date of FASB Statement No. 157, which delays the effective
date of FASB Statement No. 157, Fair Value Measurements, to calendar years beginning January 1, 2009. The scope of the proposed deferral applies to all nonfinancial assets and nonfinancial liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). This delay is intended to allow the Board and various constituents additional time to consider the effects of various implementation issues
that have arisen, or that may arise, from the application of Statement 157. We do not expect the adoption of FSP FAS 157-2 to have a material impact on our financial condition, results of operations or cash flows.

In February 2008, the FASB issued FSP FAS 157-1, Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting
Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13, amending SFAS No. 157, Fair Value Measurements, to exclude SFAS No. 13, Accounting for
Leases, and other accounting pronouncements that address fair value measurements for purposes of lease classification or measurement under SFAS No. 13 (but the exception does not apply to assets acquired and liabilities assumed in a
business combination that are required to be measured at fair value under SFAS No. 141, Business Combinations, or SFAS No. 141(R), Business Combinations, regardless of whether those assets and liabilities are
related to leases). The standard is effective upon the initial adoption of SFAS No. 157. The adoption of FSP FAS 157-1 did not 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 No. 159 were effective as of the beginning of the 2008 calendar year. The adoption of SFAS No. 159 did not 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 inhalation
medications, hospital beds and wheelchairs for the home setting. Approximately 69 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 and coverage policy revisions,
including the Medicare, Medicaid and SCHIP Extension Act of 2007 (SCHIP Extension Act), the Deficit Reduction Act of 2005 (DRA), the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) and
the Nebulizer Local Coverage Determination (LCD), contain provisions that directly impact reimbursement for the primary respiratory and other DME products provided by Lincare. The SCHIP Extension Act reduced Medicare reimbursement
amounts for covered Part B drugs, including inhalation drugs that we provide, beginning April 1, 2008. DRA contains provisions that will negatively impact reimbursement for oxygen equipment beginning in 2009 and negatively impacted
reimbursement for 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, froze payment amounts for other covered DME items through 2007, established a competitive acquisition program for DME beginning in 2008, and implemented quality standards and accreditation requirements for DME suppliers. The LCD will
negatively affect reimbursement for certain inhalation drugs that we dispense beginning July 1, 2008. The SCHIP Extension Act, DRA, MMA and LCD 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 SCHIP Extension Act, DRA, MMA and LCD 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



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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.

Throughout the second half of 2007, Congress was considering legislation that would have included further reductions in payment amounts for certain classes of oxygen equipment. It is possible that reimbursement changes for oxygen equipment
could be reconsidered in 2008. The Presidents 2008 fiscal year budget proposes a reduction in the maximum continuous oxygen equipment rental period from 36 months to 13 months. No further information on this proposal is available at this time
and we cannot predict whether or not the proposal will be included in the final budget approved by Congress. Further reductions 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 codified 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 represented 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 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.

Pursuant to provisions contained in CMS-1304-F, the monthly payment rate
for stationary oxygen equipment in 2008 was increased from $198.40 to $199.28, which is expected to increase our net revenues by approximately $3.2 million in 2008. CMS will revise payment rates for oxygen equipment in future years under the
methodology specified in the rule based on data on the distribution of beneficiaries using various modalities of oxygen equipment. We are unable to predict the oxygen payment revisions to be determined by CMS in future years.

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 is 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 applied to items furnished for which the first
rental month occurred 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 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. We estimate that the capped
rental changes to DME and RADs reduced our net revenues by approximately $11.4 million in 2007 and will reduce net revenues in 2008 by approximately $22.3 million.

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



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Recently enacted legislation will negatively affect Medicare reimbursement amounts for covered Part B
drugs, including inhalation drugs that we provide, beginning April 1, 2008 (See MEDICARE REIMBURSEMENT). The SCHIP Extension Act requires CMS to adjust the average sales price (ASP) calculation methodology used to
determine Medicare payment amounts for inhalation drugs by using volume-weighted ASPs based on actual sales volume rather than average sales price. The SCHIP Extension Act also specifically lowers reimbursement for the inhalation drug albuterol. The
Congressional Budget Office (CBO) estimates that the provisions of the SCHIP Extension Act affecting Part B drug reimbursement will result in reductions in aggregate Medicare outlays for such drugs of $1.0 billion over five years and
$2.6 billion over 10 years. Based on the payment rates published by CMS for the second quarter of 2008, we estimate that the provisions affecting payment amounts for inhalation drugs will reduce our reimbursement for such drugs by approximately
$15.7 million per quarter beginning April 1, 2008. We can not determine whether quarterly updates in ASP pricing data 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.

On April 10, 2008, the DME MACs issued a revision of the Nebulizer Local Coverage
Determination (LCD) that will cause claims for non-compounded levalbuterol and commercially-available combinations of albuterol and ipratropium to be downcoded and reimbursed based on the allowances for less costly medications. Effective
for claims with dates of service on or after July 1, 2008, claims for non-compounded levalbuterol will be paid based on the allowance for albuterol and claims for commercially-available combinations of albuterol and ipratropium will be paid
based on the allowances for individual vials of the component medications. This policy revision is expected to reduce our reimbursement for these drugs by an additional $15.4 million per quarter beginning in the third quarter of 2008.

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 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 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 (See
MEDICARE REIMBURSEMENT). 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.

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 amounts 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 MSAs across the country, applying initially to ten categories of DME and medical supplies. CMS concluded the bidding process for the first round of MSAs in September 2007. On March 20, 2008, CMS
completed the bid evaluation process and announced the payment amounts that will be in effect in the ten competitive bidding areas beginning July 1, 2008. As a result of the competitive bidding process, the amounts that Medicare will pay for
the items within the



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product categories included in the bid areas will average 26% less than Medicares previous payment amounts. CMS expects to complete the contract award
process and announce the final winning suppliers in May 2008. The affected product categories contained within the first 10 MSAs contributed approximately $59.8 million to our revenues in 2007. CMS expects to begin soliciting bids for the second
round of 70 MSAs in the summer of 2008. The affected product categories contained within the 70 MSAs contributed approximately $210.5 million to our revenues in 2007. 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 future years 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 6% of our customers are eligible for primary Medicaid benefits, and State Medicaid programs fund approximately 13% 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 23% of our customers and approximately 27% of our primary and secondary payments are derived from
private payors. Continued financial pressures on these entities could lead to further reimbursement reductions for our equipment and services that could have a material adverse effect on our financial condition and operating results.

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

We derive a significant majority of our revenues from reimbursement by
third-party payors. We accept assignment of insurance benefits from customers and, in most instances, invoice and collect payments directly from Medicare, Medicaid and private insurance carriers, as well as from customers under co-insurance
provisions. Approximately 49% of our revenues are derived from Medicare, 27% from private insurance carriers, 13% 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



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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 AGEEMENT 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.

We are subject to a five-year corporate integrity agreement with the Office of Inspector General that began in May 2006. 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.

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, regulatory compliance issues associated with the acquired business, 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.



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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 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.



|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 March 31, 2008, we had no outstanding borrowings under the
credit facility.



|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 March 31, 2008, 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 March 31, 2008, the Company repurchased approximately 1.0 million shares of its common stock in the open market.



|                                      |  |                                |  |                            |       |                                                               |           |                                                                                    |   |            
|------------------------------------- |  | ------------------------------ |  | -------------------------- | ----- | ------------------------------------------------------------- | --------- | ---------------------------------------------------------------------------------- | - | -----------
|ISSUER PURCHASES OF EQUITY SECURITIES
|Period                                |  | Total Numberof SharesPurchased |  | Average PricePaidPer Share |       | Total Numberof SharesPurchased asPart of theRepurchaseProgram |           | ApproximateDollar Value ofShares that MayYet BePurchasedUnder theRepurchaseProgram
|January 1, 2008 to January 31, 2008   |  | 1,009,250                      |  | $                          | 34.89 |                                                               | 1,009,250 |                                                                                    | $ | 315,869,000
|February 1, 2008 to February 29, 2008 |  | 0                              |  |                            | 0.00  |                                                               | 0         |                                                                                    | $ | 375,668,000
|March 1, 2008 to March 31, 2008       |  | 0                              |  |                            | 0.00  |                                                               | 0         |                                                                                    | $ | 308,345,000
|                                      |  |                                |  |                            |       |                                                               |           |                                                                                    |   |            
|Total                                 |  | 1,009,250                      |  | $                          | 34.89 |                                                               | 1,009,250 |                                                                                    |   |            
|                                      |  |                                |  |                            |       |                                                               |           |                                                                                    |   |            

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. On January 23, 2007 and October 23, 2007, the Board approved modifications to the formula to increase the ratio of net debt to cash flow to allow additional share repurchases. As of March 31,
2008, $308.3 million of common stock was eligible for repurchase in accordance with the 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. GabosSecretary, Chief Financial Officerand Principal Accounting Officer


May 7, 2008



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INDEX OF EXHIBITS



|              |  |                                                                                                                                                                                                                              
|------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | 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.                                                                                                                                               



S-1