UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549



FORM 10-K



FOR
ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934




(Mark one)


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



For the fiscal year ended
December 31, 2004




OR


|[  ] |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE 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 jurisdictionof incorporation or organization) |  |  |  | (I.R.S. Employer Identification Number)
|19387 US 19
North Clearwater, Florida                         |  |  |  | 33764                                  
|(Address of
principal executive office)                       |  |  |  | (Zip Code)                             



Registrants telephone number, including area code: (727) 530-7700 Securities registered pursuant to Section 12(b) of the
Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value per share




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




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




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




The aggregate market value of the registrants
common stock, $.01 par value, held by non-affiliates of the registrant, based on a $32.86 closing sale price of the common stock on June 30, 2004, as
reported on the NASDAQ National Market System, was approximately $3,265,917,907.




As of February 28, 2005, there were 101,376,115
outstanding shares of the registrants common stock, par value $.01, which is the only class of capital stock of the registrant
outstanding.


DOCUMENTS INCORPORATED BY REFERENCE



Certain information called for by Part III of this
Form 10-K is incorporated by reference to the definitive Proxy Statement for the 2005 Annual Meeting of Stockholders of Lincare Holdings Inc. which
will be filed with the Securities and Exchange Commission not later than 120 days after December 31, 2004.







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Table of Contents

LINCARE HOLDINGS INC. AND SUBSIDIARIES FORM 10-K For The Year Ended
December 31, 2004 INDEX






|                  |  |     |  |                                                                                                              |  | Page
|----------------- |  | --- |  | ------------------------------------------------------------------------------------------------------------ |  | ----
|PART I.          
|Item
1.           |  |     |  | Business                                                                                                     |  |     
|Item
2.           |  |     |  | Properties                                                                                                   |  |     
|Item
3.           |  |     |  | Legal Proceedings                                                                                            |  |     
|Item
4.           |  |     |  | Submission of Matters to a Vote of Security Holders                                                          |  |     
|PART II.         
|Item
5.           |  |     |  | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  |     
|Item
6.           |  |     |  | Selected Financial Data                                                                                      |  |     
|Item
7.           |  |     |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                        |  |     
|Item
7A.          |  |     |  | Quantitative and Qualitative Disclosures About Market Risk                                                   |  |     
|Item
8.           |  |     |  | Financial Statements and Supplementary Data                                                                  |  |     
|Item
9.           |  |     |  | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure                         |  |     
|Item
9A.          |  |     |  | Controls and Procedures                                                                                      |  |     
|PART III.        
|Item
10.          |  |     |  | Directors and Executive Officers of the Registrant                                                           |  |     
|Item
11.          |  |     |  | Executive Compensation                                                                                       |  |     
|Item
12.          |  |     |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters               |  |     
|Item
13.          |  |     |  | Certain Relationships and Related Transactions                                                               |  |     
|Item
14.          |  |     |  | Principal Accountant Fees and Services                                                                       |  |     
|PART IV.         
|Item
15.          |  |     |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K                                              |  |     
|Signatures        |  |     |  |                                                                                                              |  |     
|Index
of Exhibits |  | S-2 | 

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PART I

|Item 1. |  | Business
|------- |  | --------

General



Lincare Holdings Inc., together with its
subsidiaries (Lincare, the Company, we or our), is one of the nations largest providers of oxygen
and other respiratory therapy services to patients in the home. Our customers typically suffer from chronic obstructive pulmonary disease
(COPD), such as emphysema, chronic bronchitis or asthma, and require supplemental oxygen or other respiratory therapy services in order to
alleviate the symptoms and discomfort of respiratory dysfunction. Lincare currently serves over 530,000 customers in 47 states through 804 operating
centers. Lincare Holdings Inc. is a Delaware corporation.


The Home Respiratory Market



We estimate that the home respiratory market
(including home oxygen equipment and respiratory therapy services) represents in excess of $5.0 billion in annual sales, with growth estimated at
approximately 6% per year over the last five years. This growth reflects the significant increase in the number of persons afflicted with COPD, which
is largely attributable to the increasing proportion of the U.S. population over the age of 65 years. Growth in the home respiratory market is further
driven by the continued trend toward treatment of patients in the home as a lower cost alternative to the acute care setting.


Business Strategy



Our strategy is to increase our market share through
internal growth and strategic acquisitions. Lincare achieves internal growth in existing geographic markets through the addition of new customers and
referral sources to our network of local operating centers. In addition, we expand into new geographic markets on a selective basis, either through
acquisitions or by opening new operating centers, when we believe such expansion will enhance our business. In 2004, Lincare acquired 26 local and
regional companies with operations in 15 states. These acquisitions expanded our presence in states where we had existing locations.




Revenue growth is dependent upon the overall growth
rate of the home respiratory market and on our ability to increase market share through effective marketing efforts and selective acquisitions.
Continued cost containment efforts by government and private insurance reimbursement programs have created an increasingly competitive environment,
accelerating consolidation trends within the home health care industry.




We will continue our focus on providing 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 primary business. In 2004, oxygen and other respiratory therapy services accounted for approximately 91% of Lincares
revenue.


Products and Services of Lincare



Lincare primarily provides oxygen and other
respiratory therapy services to patients in the home. We also provide a variety of durable medical equipment (DME) and home infusion
therapies in certain geographic markets. When a physician, hospital discharge planner, or other source refers a patient to one of our operating centers,
our customer representative obtains the necessary medical and insurance coverage information, assignment of benefits to Lincare, and coordinates the
delivery of patient care. The prescribed therapy is delivered by one of our service representatives or clinicians at the customers home, where
instruction and training are provided to the customer and the customers family regarding appropriate equipment use and maintenance and compliance
with the prescribed therapy. Following the initial setup, our service representatives and/or clinicians make periodic visits to the customers
home, the frequency of which is dictated by the type of therapy and physician orders. All services and equipment provided by Lincare are coordinated
with the customers physician. During the period that we provide services and equipment for a customer, the customer remains under the
physicians care and medical supervision. We employ respiratory therapists, nurses and other qualified clinicians to perform certain training and
other functions in connection with our services. Clinicians are licensed where required by applicable law.


1

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The principal products and services provided by
Lincare are:




Home Oxygen
Equipment.    The major types of oxygen delivery equipment are oxygen concentrators and liquid oxygen systems. Each method of
delivery has different characteristics that make it more or less suitable to specific customer applications.


| |  | Oxygen concentrators are stationary units that provide a
continuous flow of oxygen by filtering ordinary room air. Customers most commonly use concentrators as their primary source of stationary oxygen. These
systems are often supplemented with portable gaseous oxygen cylinders or liquid oxygen systems to meet the ambulatory or emergency needs of the
customer.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Liquid oxygen systems are thermally insulated containers
of liquid oxygen, generally consisting of a stationary unit and a portable unit, which are most commonly used by customers with significant ambulatory
requirements.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Other Respiratory
Therapy.    Other respiratory therapy services offered by Lincare include the following:


| |  | Nebulizers and associated respiratory medications provide
aerosol therapy for customers suffering from COPD and asthma.
|- |  | -----------------------------------------------------------------------------------------------------------------------

| |  | Non-invasive ventilation provides nocturnal ventilatory
support for customers with neuromuscular disease and COPD. This therapy improves daytime function and decreases incidence of acute illness.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Ventilators support respiratory function in severe cases
of respiratory failure where the customer can no longer sustain the mechanics of breathing without the assistance of a machine.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Continuous positive airway pressure devices maintain open
airways in customers suffering from obstructive sleep apnea by providing airflow at prescribed pressures during sleep.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Home Infusion
Therapy.    In certain geographic markets, Lincare provides a variety of home infusion therapies including parenteral
nutrition, intravenous antibiotic therapy, enteral nutrition, chemotherapy, dobutamine infusions, immunoglobulin (IVIG) therapy, continuous pain
management and central catheter management.




Lincare also supplies home medical equipment, such
as hospital beds, wheelchairs and other supplies that may be required by our customers.


Company Operations



Management.    We
maintain a decentralized approach to management of our local business operations. Decentralization of managerial decision-making enables our operating
centers to respond promptly and effectively to local market demands and opportunities. We believe that the personalized nature of customer requirements
and referral relationships characteristic of the home health care business mandate that we maintain a localized operating structure.




Each of our 804 operating centers is managed by a
center manager who is responsible and accountable for the operating and financial performance of the center. Service and marketing functions are
performed at the local operating level, while strategic development, financial control and operating policies are administered at the corporate level.
Reporting mechanisms are in place at the operating center level to monitor performance and ensure field accountability.




A team of area managers directly supervises
individual operating center managers, serving as an additional mechanism for assessing and improving performance of our operations. Lincares
operating centers are served by regional billing centers, which control all of our billing and reimbursement functions.




MIS Systems.    We
believe that our proprietary management information system is one of our key competitive advantages. The system provides management with critical
information on a timely basis to measure and evaluate performance levels company-wide. Management reviews monthly reports including revenues and
profitability by individual center, accounts receivable and cash collection performance, equipment controls and utilization, customer activity and
manpower trends. We have an in-house staff of computer programmers, which enables us


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to continually enhance our computer system in
order to provide timely financial and operational information and to respond promptly to changes in reimbursement regulations and
policies.




Our billing system has both manual and computerized
functions and processes that are designed to maintain the integrity of revenue and accounts receivable. Third-party payors, such as Medicare, that can
accommodate electronic claims submission are billed electronically on a daily basis from our central computer system. Paper claims and invoices are
generated and billed to various state Medicaid agencies, commercial payors and individual customers when electronic billing is unavailable. Electronic
billing expedites the billing process and generally allows us to receive payment more quickly. The medical billing process requires the collection of
various paper documents from customers and referral sources. Information such as customer demographics, insurance coverage and verification,
prescriptions from physicians, delivery receipts, billing authorizations and assignments of benefits to Lincare, is gathered at the local operating
centers and forwarded to our regional billing offices for review and manual input into our billing system. Item codes within the system representing
specific products supplied to customers are matched against the Healthcare Common Procedure Coding System (HCPCS) for verification and
accuracy of billing codes. Price tables within the system containing expected allowable payment amounts are manually maintained and updated by the
regional billing offices based on published Medicare and Medicaid fee schedules and bulletins as well as contracts and supplier notifications from
private insurance companies.




Accounts Receivable
Management.    We derive a substantial majority of our revenue 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. The following table sets forth, for the periods indicated, the percentage of our
revenue derived from different types of payors.


|                               |  |  |  | Year Ended December 31, |    
|------------------------------ |  |  |  | ----------------------- | ---
|
|Medicare and
Medicaid programs |  |  |  |                         | 67 
|Private
insurance              |  |  |  |                         | 26 
|Direct
payment                 |  |  |  |                         | 7  
|                               |  |  |  |                         | 100



Third-party reimbursement is a complicated process
that involves submission of claims to multiple payors, each having its own specific claim requirements. To operate effectively in this environment, we
have designed and implemented a proprietary computer system to decrease the time required for the submission and processing of third-party claims. Our
systems are capable of tailoring the submission of claims to the specifications of individual payors. Our in-house management information system
capabilities also enable us to adjust quickly to regulatory or reimbursement changes. These features serve to decrease the processing time of claims by
payors, resulting in more rapid collection of accounts receivable.




It is our policy to verify insurance benefits with
the responsible third-party payor before or within 48 hours of delivery of products to customers. Medicare beneficiaries provide our service
representatives with a Medicare identification card containing the beneficiarys Health Identification Control Number (HICN) at the
time of customer setup and delivery. The existence of an HICN indicates the beneficiarys eligibility to receive benefits under the Medicare
program for covered services. Medicare benefits are not separately verified with the applicable Medicare intermediaries.




Medicare and most other government and commercial
payors that provide coverage to Lincares customers include a 20 percent co-payment provision in addition to a nominal deductible. Co-payments are
generally not collected at the time of service and are invoiced to the customer or applicable secondary payor (supplemental providers of insurance
coverage) on a monthly billing cycle as products are provided. A majority of our customers maintain, or are entitled to, secondary or supplemental
insurance benefits providing gap coverage of this co-payment amount. In the event coverage is denied by the third-party payor, the customer
is ultimately responsible for all services rendered by Lincare.


Sales and Marketing



Favorable trends affecting the U.S. population and
home health care have created an environment that has produced increasing demand for the services provided by Lincare. The average age of the American
population


3

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is increasing and, as a person ages, more health
care services are generally required. Further, well-documented changes occurring in the health care industry show a trend toward home care rather than
institutional care as a matter of patient preference and cost containment.




Sales activities are generally carried out by our
full-time sales representatives located at our local operating centers with assistance from our center managers. In addition to promoting the
high-quality of our equipment and services, the sales representatives are trained to provide information concerning the benefits of home respiratory
care. Sales representatives are often licensed respiratory therapists who are highly knowledgeable in the provision of supplemental oxygen and other
respiratory therapies.




Lincare primarily acquires new customers through
referrals. Our principal sources of referrals are physicians, hospital discharge planners, prepaid health plans, clinical case managers and nursing
agencies. Our sales representatives maintain continual contact with these medical professionals.




Lincares referral sources recognize our
reputation for providing high-quality equipment and service and have historically provided a steady flow of customers. While we view our referral
sources as fundamental to our business, no single referral source accounts for more than one percent of our revenues. Lincare has more than 530,000
active customers, and the loss of any single referral source, customer or group of customers would not materially impact our business.




Lincare has received accreditation from the
Community Health Accreditation Program. Accreditation by a national accrediting body represents a marketing benefit to our operating centers and
provides for a recognized quality assurance program. The recently enacted Medicare Prescription Drug, Improvement, and Modernization Act of 2003 will,
once implemented, require health care providers to be accredited or licensed by independent agencies in order to participate in Medicare. Many private
payors already require such accreditation.


Acquisitions



In 2004, we acquired, in unrelated acquisitions,
certain operating assets of 26 local and regional companies with operations in 15 states and also purchased the remaining equity interests in two
companies in which we had previously acquired partial ownership. These acquisitions resulted in the addition of 25 new operating
centers.




In 2003, we acquired, in unrelated acquisitions,
certain operating assets of 13 local and regional companies with operations in 19 states and interests in three joint ventures. These acquisitions
resulted in the addition of 33 new operating centers.


Quality Control



We are committed to providing consistently
high-quality products and services. Our quality control procedures and training programs are designed to promote greater responsiveness and sensitivity
to individual customer needs and to assure the highest level of quality and convenience to the customer and the referring physician. Licensed
respiratory therapists, registered nurses and other clinicians provide professional health care support to our customers and assist in our sales and
marketing efforts.


Suppliers



We purchase oxygen and equipment from a variety of
suppliers. We are not dependent upon any single supplier and believe that our product needs can be met by an adequate number of various
manufacturers.


Competition



The home respiratory market is a fragmented and
highly competitive industry that is served by Lincare, other national providers, and by our estimates, over 2,000 regional and local
providers.




Quality of service is the single most important
competitive factor within the home respiratory market. The relationships between a home respiratory company and its customers and referral sources are
highly personal. There is no compelling incentive for either physicians or the patients to alter the relationship so long as the home respiratory
company is providing responsive, professional and high-quality service. Other key competitive factors are efficiency of reimbursement and accounts
receivable management systems.


4

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Home respiratory companies compete primarily on the
basis of service, since reimbursement levels are established by fee schedules promulgated by Medicare, Medicaid or by the individual determinations of
private insurance companies. Furthermore, marketing efforts by home respiratory companies are typically directed toward referral sources, which
generally do not share financial responsibility for the payment of services provided to customers.


Medicare Reimbursement



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




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




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


|(1) |  | Significantly reduces reimbursement for inhalation drug
therapies.    Historically, prescription drug coverage under Medicare has been limited to drugs furnished incident to a
physicians services and certain self-administered drugs, including inhalation drug therapies. Prior to MMA, Medicare reimbursement for covered
drugs, including the inhalation drugs that we provide, had been limited to 95 percent of the published average wholesale price (AWP) for
the drug. MMA establishes new payment limits and procedures for drugs reimbursed under Medicare Part B. Payments for inhalation drugs furnished during
2004 declined to 80 percent of the AWP in effect as of April 1, 2003, a reduction of approximately 15.8%. This reduction in Medicare payment rates for
inhalation drugs reduced the Companys revenues and operating income by approximately $54.2 million in 2004. Beginning in 2005, inhalation drugs
furnished to Medicare beneficiaries will be reimbursed at 106 percent of the volume-weighted average selling price (ASP) of the drug, as
determined from data to be provided by drug manufacturers under a specific formula described in MMA.On November 3, 2004, the Centers for Medicare
and Medicaid Services (CMS) issued its final rule, CMS-1429-FC, which establishes a monthly dispensing fee of $57.00 per customer for
inhalation drug therapy in addition to the ASP-based payment rate for the drugs dispensed. The rule also establishes an alternative dispensing fee of
$80.00 per customer when dispensed in 90-day increments. Payment rates for inhalation drugs will be updated quarterly based on the manufacturer ASP
calculated for the most recent calendar quarter for which data are available. Manufacturer ASP submissions are due to CMS not later than 30 days after
the last day of each calendar quarter. Inhalation drug payment rates in the first quarter of 2005 will therefore be based on ASP data from the third
quarter of 2004. ASP payment rates in effect for the first quarter of 2005 have been published by CMS and indicate substantially reduced payment rates
for inhalation drugs. For example, the payment rates for the two most prevalent inhalation drugs, albuterol sulfate and ipratropium bromide, would be
reduced from $0.39 and $2.82 per milligram to $0.07 and $0.29, respectively, representing reductions of 82% to 90%. The combination of the new ASP
payment rates for inhalation drugs established for the first quarter of 2005 and the monthly dispensing fee of $57.00 is expected to reduce total
reimbursement for inhalation drug therapies provided by the Company by approximately 60% in fiscal 2005. Medicare-reimbursed inhalation drug therapies
provided by the Company in 2004 accounted for approximately 23% of total revenues. While Lincare continues to evaluate the impact of the final rule
on its business, we expect to be able to continue to provide inhalation drugs to Medicare beneficiaries in 2005. The final rule states that
CMS
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  | intends to revisit the payment amount for the dispensing fee
during 2005 and proceed through notice and comment rulemaking in order to establish an appropriate dispensing fee for 2006. Lincare can not determine
the outcome of any future rulemaking by CMS nor the impact that such rulemaking might have on our ability to continue to provide inhalation drugs
beyond 2005. Further, we can not determine whether quarterly updates in ASP pricing data submitted by drug manufacturers and adopted by CMS will result
in further reductions in payment rates for inhalation drugs, and what impact such payment reductions will have on Lincare in 2005 and
beyond.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Reduces payment amounts for five categories of DME, including
oxygen, beginning in 2005 and freezes payment amounts for other covered DME items from 2004 to 2007.    MMA contains provisions
that will reduce Medicare payment amounts in 2005 for oxygen equipment, standard wheelchairs (including standard power wheelchairs), nebulizers,
diabetic supplies consisting of lancets and testing strips, hospital beds and air mattresses to the median prices paid under the Federal Employee
Health Plan (FEHP). Reductions in payment rates for 2005 established by CMS for the non-oxygen items subject to the FEHP provisions range
between 2% and 14% and are expected to reduce average reimbursement for these types of items provided by the Company by approximately 12%. The
non-oxygen DME items subject to the 2005 Medicare price cuts accounted for approximately 2.5% of total revenues for the Company in 2004. MMA also
freezes payment amounts for other covered DME items from 2004 to 2007.On September 13, 2004, the Office of Inspector General (OIG)
released a report entitled, Medicare Payment Rates for Home Oxygen Equipment, which will serve as the basis for establishing
Medicare payment rates for oxygen in 2005. In its report, the OIG determined that Medicare allowances are approximately 15.5% higher for stationary
oxygen systems and approximately 11.3% higher for portable oxygen systems when compared with surveyed FEHP plans, representing a weighted average
difference of approximately 15.1%. The CMS Administrator, in his August 19, 2004 comment letter to the OIG report, agreed with the OIGs
recommendation to use the pricing information contained in the OIG report to reduce the rates Medicare pays for home oxygen equipment in 2005. CMS also
concurred with the OIGs recommendation to consider alternative methods for determining future Medicare oxygen payment rates, such as competitive
bidding, contracts with local or national providers, and capped rental arrangements.On February 4, 2005, CMS published notice CMS-1299-N announcing
a delay in the implementation of the 2005 Medicare oxygen payment rates. The notice states that CMS was informed by the OIG that it will need to
collect additional information before the FEHP median prices for oxygen are finalized. Until such prices are established, Medicare claims for oxygen
equipment furnished on or after January 1, 2005 will be paid based on the 2004 monthly payment amounts. CMS is expected to calculate and implement the
lower 2005 payment amounts upon receipt of the additional information from the OIG. We can not determine the outcome of the 2005 Medicare oxygen
payment rates nor the date on which the new payment amounts will become effective. Oxygen and oxygen equipment reimbursed by Medicare accounted for
approximately 46% of total revenues for the Company in 2004.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | Establishes a competitive acquisition program for DME
beginning in 2007. MMA instructs the Secretary of the Department of Health and Human Services (the Secretary) to establish and
implement programs under which competitive acquisition areas are established throughout the United States for contract award purposes for the
furnishing of competitively priced items of DME, including oxygen equipment. The program would be implemented in phases such that competition under the
program occurs in 10 of the largest metropolitan statistical areas (MSAs) in 2007, 80 of the largest MSAs in 2009, and additional areas
after 2009. Items selected for competitive acquisition may be phased in first among the highest cost and highest volume items and services or those
items and services that the Secretary determines have the largest savings potential. In carrying out such programs, the Secretary may exempt rural
areas and areas with low-population density within urban areas that are not competitive, unless there is a significant national market through mail
order for a particular item or service.For each competitive acquisition area, the Secretary would conduct a competition under which providers
would submit bids to supply certain covered items of DME. Successful bidders would be expected to meet certain program quality standards in order to be
awarded a contract and only successful bidders
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  | could supply the covered items to Medicare beneficiaries in the
acquisition area. The applicable contract award prices are expected to be less than would be paid under current Medicare fee schedules and contracts
would be re-bid at least every three years. The Secretary will be required to award contracts to multiple entities submitting bids in each area for an
item or service, but would have the authority to limit the number of contractors in a competitive acquisition area to the number needed to meet
projected demand. The Secretary may use competitive bid pricing information to adjust the payment amount otherwise in effect for an area that is not a
competitive acquisition area. We can not predict the effect of the competitive acquisition program or the Medicare payment rates that will be in effect
in 2007 and beyond for the items ultimately subjected to competitive bidding.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) |  | Implements quality standards and accreditation requirements
for DME suppliers.    MMA instructs the Secretary to establish and implement quality standards for DME suppliers to be
monitored by recognized independent accreditation organizations. Suppliers will be required to comply with these standards in order to receive payment
for furnishing any covered item of DME to a Medicare beneficiary and to receive or retain a supplier number used to submit claims for reimbursement. We
can not predict the nature or extent of the quality standards or the effect such standards would have on our ability to continue to provide products to
Medicare beneficiaries.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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




The effectiveness of the IR rule itself does not
trigger payment adjustments for any items or services. Nevertheless, the IR rule puts in place a process that eventually could have a significant
impact on Medicare payments for such Part B services as home oxygen, DME and Part B covered prescription drugs. We can not predict whether, especially
in light of MMAs enactment, CMS will exercise its IR authority with respect to certain products and services that we provide to Medicare
beneficiaries, or the effect such payment adjustments would have on our financial position or operating results.




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


Government Regulation



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




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




Numerous federal and state laws and regulations,
including the Health Insurance Portability and Accountability Act of 1996 (HIPAA), govern the collection, dissemination, use and
confidentiality of patient-identifiable health


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information. As part of Lincares provision
of, and billing for, health care equipment and services, we are required to collect and maintain patient-identifiable health information. New health
information standards, whether implemented pursuant to HIPAA, congressional action or otherwise, could have a significant effect on the manner in which
we handle health care related data and communicate with payors, and the cost of complying with these standards could be significant. If we do not
comply with existing or new laws and regulations related to patient health information we could be subject to criminal or civil
sanctions.




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


Employees



As of January 31, 2005, we had 7,857 employees. None
of our employees are covered by collective bargaining agreements. We believe that the relations between our management and employees are
good.


Environmental Matters



We believe that we are currently in compliance, in
all material respects, with applicable federal, state and local statutes and ordinances regulating the discharge of hazardous materials into the
environment. We do not believe we will be required to expend any material amounts in order to remain in compliance with these laws and regulations or
that such compliance will materially affect our capital expenditures, earnings or competitive position.


Available Information



We maintain an Internet website at
http://www.lincare.com. Information contained therein is not incorporated by reference into this annual report, and information contained in the
website should not be considered part of this annual report. We make available free of charge through our website our annual report on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed pursuant to Sections 13(a) or 15(d) of the Securities
Exchange Act of 1934, as amended. We make these reports available on our website as soon as reasonably practicable after such reports are filed with,
or furnished to, the Securities and Exchange Commission (the SEC).




Materials filed by us with the SEC are also
available to the public to read and copy at the SECs Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. The public may obtain
information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. We are an electronic filer with the SEC. The SEC
maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically
with the SEC, including us, at http://www.sec.gov.


|Item 2. |  | Properties
|------- |  | ----------



Lincare owns its headquarters facility located in
Clearwater, Florida and one of our 804 operating center locations. Lincares other 803 operating center locations are leased from unrelated third
parties. Each operating center is a combination warehouse and office, with warehouse space generally comprising approximately 50 percent of the
facility. Warehouse space is used for storage of adequate supplies of equipment necessary to conduct our business. We also lease 27 separate billing
centers from unrelated third parties.


|Item 3. |  | 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.


8

---



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. There are several pending government inquiries, but the government has not instituted any proceedings or served us with any
complaints as a result of these inquiries. 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 in all unsealed qui tam actions of which we are aware and we are vigorously defending these suits.




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 expected to have a material adverse
impact on our financial position, results of operations or liquidity.


|Item 4. |  | Submission of Matters to a Vote of Security
Holders
|------- |  | ---------------------------------------------------



No matters were submitted to a vote of our
stockholders during the fourth quarter of 2004.


9

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PART II

|Item 5. |  | Market for Registrants Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities
|------- |  | ------------------------------------------------------------------------------------------------------------



Our common stock is traded on the NASDAQ National
Market System under the symbol LNCR. The following table sets forth the high and low sales prices as reported by NASDAQ for the periods
indicated.


|               |  |  |  | High |       | Low
|-------------- |  |  |  | ---- | ----- | ---
|2004           |  |  |  |      |       |    
|First
quarter  |  |  |  | $    | 32.85 |    
|Second
quarter |  |  |  |      | 35.52 |    
|Third
quarter  |  |  |  |      | 34.20 |    
|Fourth
quarter |  |  |  |      | 43.33 |    
|2003           |  |  |  |      |       |    
|First
quarter  |  |  |  | $    | 33.31 |    
|Second
quarter |  |  |  |      | 33.75 |    
|Third
quarter  |  |  |  |      | 38.70 |    
|Fourth
quarter |  |  |  |      | 43.98 |    



As of February 28, 2005, there were approximately
206 holders of record of the 101,376,115 outstanding shares of Lincare common stock (excluding 23,791,737 shares held in treasury). The closing price
of Lincare common stock on February 28, 2005, was $40.58 per share, as reported on the NASDAQ National Market System.




We have not paid any cash dividends on our capital
stock and do not anticipate paying cash dividends in the foreseeable future. It is the present intention of our Board of Directors to retain all
earnings in order to support the future growth of our business and, from time to time, when authorized by our Board of Directors, to repurchase our
common stock on the open market. We did not repurchase any of our common stock during the fourth quarter of 2004.




The following table sets forth information as of
fiscal 2004 year-end with respect to compensation plans under which equity securities are authorized for issuance.


Securities Authorized for Issuance Under Equity Compensation
Plans






|Plan Category                                              |  |  |  | Number of securities to be issued upon exercise of
outstanding options, warrants and rights |            | Weighted-average exercise price of outstanding options,
warrants and rights |  | Number of securities remaining available for future
issuance under equity compensation plans (excluding securities reflected in column (a))
|---------------------------------------------------------- |  |  |  | ------------------------------------------------------------------------------------------- | ---------- | --------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------
|
|Equity
compensation plans approved by security holders     |  |  |  |                                                                                             | 10,238,100 | (1)                                                                         |  | $                                                                                                                                          
|Equity
compensation plans not approved by security holders |  |  |  |                                                                                             | None       |                                                                             |  |                                                                                                                                            
|Total                                                      |  |  |  |                                                                                             | 10,238,100 | (1)                                                                         |  | $                                                                                                                                          

|(1) |  | Includes 9.9 million shares which are reserved for issuance
under various stock option plans and 260,000 shares which were issued under the Companys restricted stock program.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

10

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|Item 6. |  | Selected Financial Data
|------- |  | -----------------------



The selected consolidated financial data presented
on the following page under the caption Statements of Operations Data for the years ended December 31, 2004, 2003, 2002, 2001, and 2000,
are derived from our consolidated financial statements audited by KPMG LLP, an independent registered public accounting firm.




The data set forth on the following page are
qualified by reference to, and should be read in conjunction with, the consolidated financial statements and accompanying notes, Managements
Discussion and Analysis of Financial Condition and Results of Operations and Certain Risk Factors Relating to the Companys Business included in
this report.







|                                                                                      |  |  |  | Year Ended December 31, |          
|------------------------------------------------------------------------------------- |  |  |  | ----------------------- | ---------
|
|
|Statements
of Operations Data:                                                        |  |  |  |                         |          
|Net
revenues                                                                          |  |  |  | $                       | 1,268,531
|Cost of goods
and services                                                            |  |  |  |                         | 184,398  
|Operating
expenses                                                                    |  |  |  |                         | 264,447  
|Selling,
general and administrative expenses                                          |  |  |  |                         | 257,019  
|Bad debt
expense                                                                      |  |  |  |                         | 19,028   
|Depreciation
expense                                                                  |  |  |  |                         | 86,615   
|Amortization
expense                                                                  |  |  |  |                         | 1,537    
|Other charges
(1)                                                                     |  |  |  |                         |         
|Operating
income                                                                      |  |  |  |                         | 455,487  
|Interest
income                                                                       |  |  |  |                         | 2,151    
|Interest
expense                                                                      |  |  |  |                         | 17,055   
|Net (loss)
gain on disposal of property and equipment                                 |  |  |  |                         | (180     
|Realized loss
on derivative financial instrument                                      |  |  |  |                         |         
|Income before
income taxes                                                            |  |  |  |                         | 440,403  
|Income tax
expense                                                                    |  |  |  |                         | 166,975  
|Net
income                                                                            |  |  |  | $                       | 273,428  
|Income per
common share:                                                              |  |  |  |                         |          
|Basic                                                                                 |  |  |  | $                       | 2.74     
|Diluted
(2)                                                                           |  |  |  | $                       | 2.60     
|Weighted
average number of common shares outstanding                                  |  |  |  |                         | 99,681   
|Weighted
average number of common shares and common share equivalents outstanding (2) |  |  |  |                         | 107,223  

|(1) |  | In 2001, we recorded other charges of $10,650,000 of which
$4,150,000 was related to the settlement of an investigation by the U.S. Attorneys Office in Sacramento, California, without any admission by us
of wrongdoing, including a $1,000,000 reserve for related legal expenses. The remaining $6,500,000 of other charges related to the execution of
employment agreements with 16 mid-level management employees as well as the modification and extension of certain executive officer employment
agreements.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Figures in 2004 reflect the application of the if
converted method of accounting for our outstanding convertible debentures in accordance with EITF Issue No. 04-8, effective for reporting periods
ending after December 15, 2004. Figures in 2003 have been restated for comparative purposes in accordance with the requirements of EITF No. 04-8.
Restatement of periods prior to 2003 was not necessary since no applicable convertible securities were outstanding in those periods.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

11

---



|                                                      |  |  |  | At December 31, |          
|----------------------------------------------------- |  |  |  | --------------- | ---------
|
|
|Balance
Sheet Data:                                   |  |  |  |                 |          
|Working
capital                                       |  |  |  | $               | 245,440  
|Total
assets                                          |  |  |  |                 | 1,721,064
|Long-term
obligations, including current installments |  |  |  |                 | 343,230  
|Stockholders equity                                  |  |  |  |                 | 1,166,325

|Item 7. |  | Managements Discussion and Analysis of Financial
Condition and Results of Operations
|------- |  | -------------------------------------------------------------------------------------

General



We continue to pursue a strategy of increasing
market share in existing and surrounding geographic markets through internal growth and selective acquisition of local and regional companies. In
addition, we will continue to expand into new geographic markets on a selective basis, either through acquisition or by opening new operating centers,
when we believe it will enhance our business. Our focus remains primarily on oxygen and other respiratory therapy services, which represent
approximately 91% of our revenues.


Critical Accounting Policies



The consolidated financial statements include
accounts of all majority-owned subsidiaries. We have made a number of estimates and assumptions relating to the reporting of assets and liabilities and
the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting
principles.


Revenue Recognition



Our 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. Insurance benefits are assigned to the Company and, accordingly, the Company bills on behalf of its customers. 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. If the payment amount received differs from the
net realizable amount, an adjustment is made to the net realizable amount in the period that these payment differences are determined. We report
revenues in our financial statements net of such estimated adjustments.




Our 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. We recognize 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 we operate, certain estimates are required to record net revenues and accounts receivable at their net realizable
values at the time products and/or services are delivered. Inherent in these estimates is the risk that they will have to be revised or updated as
additional information becomes available. Specifically, the complexity of many third-party billing arrangements and the uncertainty of reimbursement
amounts for certain services from certain payors may result in adjustments to amounts originally recorded. Such adjustments are typically identified
and recorded at the point of cash application, claim denial or account review by either the Company or a third-party intermediary. Included in accounts
receivable are earned but unbilled receivables. Unbilled accounts receivable represent charges for equipment and supplies


12

---

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, we perform certain certification
and approval procedures  to ensure collection is probable and that unbilled accounts
receivable are recorded at net realizable amounts (expected to be paid) by customers and
third-party payors. Billing delays, ranging from several days to several weeks, can occur
due to delays in obtaining certain required payor-specific  documentation from internal
and external sources, 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
the third-party does  not accept the claim for payment, the customer is ultimately
responsible.



We perform analyses to evaluate the net realizable
value of accounts receivable. Specifically, we consider 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 our
estimates could change, which could have an impact on operations and cash flows.


Bad Debt Expense and Allowance for Uncollectible Accounts
Receivable



Accounts receivable are reported net of allowances
for uncollectible accounts receivable. The majority of our accounts receivable are due from Medicare, Medicaid and private insurance carriers, as well
as from customers under co-insurance provisions. Third-party reimbursement is a complicated process that involves submission of claims to multiple
payors, each having its own claims requirements. In some cases, the ultimate collection of accounts receivable subsequent to the service dates 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 including current and historical cash
collections, bad debt write-offs, and aging of accounts receivable. Our proprietary management information systems are utilized to provide this data in
order to assess bad debts. In the event that collection results of existing accounts receivable are not consistent with historical experience, there
may be a need to establish an additional allowance for doubtful accounts, which may materially impact our financial position or results of
operations.


Business Acquisition Accounting and Amortization Expense



The Financial Accounting Standards Boards
Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations and SFAS No. 142, Goodwill and Other
Intangible Assets, provide guidance on the application of generally accepted accounting principles for business acquisitions. We apply the
purchase method of accounting for business acquisitions, and use available cash from operations, borrowings under our revolving credit agreement and
the assumption of certain liabilities as the consideration for business acquisitions. We allocate the purchase price of our business acquisitions based
on the fair market value of identifiable tangible and intangible assets. The difference between the total cost of the acquisition and the sum of the
fair values of acquired tangible and identifiable intangible assets less liabilities is recorded as goodwill. Until the end of 2001, goodwill was
amortized over a period of 40 years. The assignment of a 40-year life was based on each acquisitions ability to generate sufficient operating
results to support the recorded goodwill balance. On January 1, 2002, we adopted SFAS No. 142 which required that goodwill and certain intangible
assets with indefinite lives no longer be amortized and instead be tested annually for impairment. Accordingly, no amortization expense related to
goodwill was recorded in the financial statements since 2001.




We assess the impairment of intangibles and
long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors considered important
that could trigger an impairment review include, without limitation, (i) significant under-performance of acquired assets relative to expected
historical or projected future operating results; (ii) significant changes in the manner or use of the acquired assets or the strategy for the overall
business; (iii) significant negative industry or economic trends; (iv) increased competitive pressures; (v) a significant decline in our stock price
for a sustained period; and (vi) technological and regulatory changes.




When we determine that the carrying value of
intangibles and long-lived assets may be impaired, we evaluate the ability to recover those assets. If those assets are determined to be impaired, the
impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.


13

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Contingencies



We are involved in certain claims and legal matters
arising in the ordinary course of business. The Financial Accounting Standards Boards Statement of Financial Accounting Standards
(SFAS) No. 5, Accounting for Contingencies, provides guidance on the application of generally accepted accounting principles
related to contingencies. We evaluate and record liabilities for contingencies based on known claims and legal actions when it is probable a liability
has been incurred and the liability can be reasonably estimated. We have concluded that accrued liabilities related to contingencies are appropriate
and in accordance with generally accepted accounting principles.


Net Revenues



The following table sets forth for the periods
indicated a summary of our net revenues by product category:







|                                     |  |  |  | Year Ended December 31, |          
|------------------------------------ |  |  |  | ----------------------- | ---------
|
|
|Oxygen and
other respiratory therapy |  |  |  | $                       | 1,156,676
|Home medical
equipment and other     |  |  |  |                         | 111,855  
|Total                                |  |  |  | $                       | 1,268,531



Net revenues for the year ended December 31, 2004
increased by $121.2 million, an increase of 10.6% over 2003. The 10.6% increase in net revenues in 2004 was comprised of 7.0% internal growth and 3.6%
acquisition growth. The Medicare reimbursement reductions for respiratory medications that were effective on January 1, 2004 reduced total revenues in
the year by $54.2 million (see Medicare Reimbursement). Net revenues for the year ended December 31, 2003 increased by $186.5 million, an
increase of 19.4% over 2002. The 19.4% increase in net revenues in 2003 was comprised of 10.5% internal growth and 8.9% acquisition growth. The
internal growth in net revenues is attributable to underlying growth in the market for our products (estimated at 6.0% annually) and increased market
share 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 estimated based on the contribution to net revenues
for the twelve months following such acquisitions. During 2004 and 2003, we completed the acquisition of 26 businesses with annual revenues of
approximately $49.0 million and 13 businesses with annual revenues of approximately $81.0 million, respectively.




The contribution of oxygen and other respiratory
therapy products to our net revenues was 91.2%, 90.8% and 90.4%, respectively, for the years ended December 31, 2004, 2003 and 2002. 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



Cost of goods and services includes the cost of
equipment (excluding depreciation), drugs and supplies sold to patients and certain operating costs related to the Companys respiratory pharmacy
operations. These costs include an estimate of customer service, distribution and administrative costs relating to the respiratory pharmacy operations
amounting to approximately $48.7 million, $41.6 million and $33.6 million in 2004, 2003 and 2002, respectively.




Cost of goods and services expressed as a percentage
of net revenues was 14.5% for the year ended December 31, 2004 and 15.0% for each of the years ended December 31, 2003 and 2002. This improvement is
attributable primarily to the achievement of more favorable pricing terms with our vendors and growth in our respiratory product lines, which generally
carry a higher gross margin percentage than other products and services we provide. Excluding the $54.2 million reduction to revenues resulting from
the Medicare price reductions in inhalation drugs in 2004, cost of goods and services expressed as a percentage of net revenues would have declined to
13.9%.


Operating and Other Expenses



We continue to maintain a cost structure that, with
increased net revenues, has permitted us to spread our fixed operating expenses and overhead over a larger base of revenues, resulting in improvement
in operating income. Operating expenses expressed as a percentage of net revenues for the years ended December 31, 2004, 2003 and 2002 were 20.8%,
22.1% and 22.5%, respectively. This improvement in operating and other expenses was due


14

---



primarily to our ability to successfully offset the reduction
in Medicare payment rates for inhalation drugs in 2004 with gains in productivity and control over fixed costs during the period. Growth in salary and
related expenses and rent expense, which comprised approximately 66% of operating and other expenses in 2004, was held to 4.8% during fiscal 2004. Excluding the $54.2 million
reduction in Medicare payment rates for inhalation drugs in 2004, operating expenses expressed as a percentage of net revenues would have been
20.0%.




Selling, general and administrative expenses
(SG&A) expressed as a percentage of net revenues for the years ended December 31, 2004, 2003 and 2002, were 20.3%, 20.9%, and 21.0%
respectively. The improvements in SG&A expenses during the periods resulted from cost controls and productivity gains at our overhead locations.
Growth in salary and related expenses, advertising and liability insurance costs, which comprised approximately 76% of SG&A expenses in 2004, was
held to 6.6% during fiscal 2004. Excluding the $54.2 million reduction in Medicare payment rates for inhalation drugs in 2004, SG&A expenses
expressed as a percentage of net revenues would have declined to 19.4%.




Bad debt expense as a percentage of net revenues was
1.5% for the years ended December 31, 2004, 2003 and 2002. We have achieved improved results in accounts receivable collections over the past three
years and overall days sales outstanding have decreased to 38 days at December 31, 2004, down from 45 days and 51 days at December 31, 2003 and 2002,
respectively. While we have achieved consistent results in managing bad debt expense over the past three years, continued growth in the pace of our
acquisition program may contribute to an increase in our bad debt expense in the future. The integration of acquired companies into our regional
billing and collections offices may temporarily disrupt collections, increasing the amount of accounts receivable written off as
uncollectible.




Depreciation expense as a percentage of net revenues
was 6.8% for the year ended December 31, 2004 compared with 6.5% and 6.6% for the years ended December 31, 2003 and 2002,
respectively.


Amortization Expense



In January 2002, we adopted SFAS No. 142,
Goodwill and Other Intangible Assets. In accordance with SFAS 142, goodwill resulting from business acquisitions completed after June 30,
2001 has not been amortized. Goodwill and other intangible assets resulting from business acquisitions before July 1, 2001 have been amortized through
December 31, 2001. Goodwill and certain intangible assets with indefinite lives are tested annually for impairment. The provisions of SFAS No. 142
apply to all business combinations completed after June 30, 2001.




During 2004, we amortized $1.5 million of intangible
assets compared with $1.6 million in 2003 and $1.7 million in 2002. Our net intangible assets were $1,039.2 million as of December 31, 2004. Of this
total, $3.3 million (consisting of various covenants not-to-compete) is being amortized over periods of one to five years.


Operating Income



As shown in the table below, operating income for
the years ended December 31, 2004 and 2003 increased by $66.6 million and $69.1 million, respectively, over the prior year. The increases in operating
income are attributed primarily to the factors identified above, which include continued growth in our net revenues through a combination of internal
growth and acquisitions, favorable product acquisition costs resulting from negotiations with our vendors, gains in labor productivity which limited
the growth in our salary and related expenses and control over operating costs.







|                           |  |  |  | Year Ended December 31, |        
|-------------------------- |  |  |  | ----------------------- | -------
|
|
|Operating
income           |  |  |  | $                       | 455,487
|Percentage of
net revenues |  |  |  |                         | 35.9   

Interest Expense



Interest expense for the year ended December 31,
2004 was $17.1 million, compared to $17.4 million and $14.2 million for the years ended December 31, 2003 and 2002, respectively. Interest expense in
2003 was impacted by the issuance in June, 2003 of $275.0 million of 3.0% Convertible Senior Debentures due 2033 and the pay down of $30.0 million of
8.91% Senior Secured Notes in September, 2003. Interest expense in 2004 was impacted by


15

---



the full year effect of the convertible debentures and the pay
down of $50.0 million of 9.01% Senior Secured Notes in September 2004 (see Liquidity and Capital Resources).


Income Taxes



Our effective income tax rate was 37.9% for the year
ended December 31, 2004 compared with 37.5% and 37.7% for the years ended December 31, 2003 and 2002, respectively.


Acquisitions



In 2004, the Company acquired, in unrelated
acquisitions, certain operating assets of 26 local and regional companies resulting in the addition of 25 new operating centers. Additionally, the
Company purchased the remaining equity interests in two companies in which we had previously acquired partial ownership. The aggregate cost of these
acquisitions was $104.1 million and was allocated to acquired assets as follows: $2.5 million to current assets, $4.8 million to property and
equipment, $0.3 million to separately identifiable intangible assets, and $96.5 million to goodwill.




In 2003, the Company acquired, in unrelated
acquisitions, certain operating assets of 13 local and regional companies and interests in three joint ventures, resulting in the addition of 33 new
operating centers. The aggregate cost of these acquisitions was $154.0 million and was allocated to acquired assets as follows: $4.5 million to current
assets, $6.5 million to property and equipment, $0.5 million to separately identifiable intangible assets, $1.1 million to other assets and
$141.4 million to goodwill.


Liquidity and Capital Resources



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




At December 31, 2004, our working capital was $245.4
million, as compared to $39.9 million, at December 31, 2003.




Net cash provided by operating activities was $419.3
million for the year ended December 31, 2004, compared with $371.0 million for the year ended December 31, 2003 and $287.6 million for the year ended
December 31, 2002. A significant portion of our assets consists of accounts receivable from third party payors that are responsible for payment for the
equipment and services we provide. Contributing to the increase in net cash from operating activities was a decrease in net accounts receivable days
sales outstanding (DSO) resulting from improved collection performance. Our DSO was 38 days as of December 31, 2004 and 45 days as of
December 31, 2003.




Net cash used in investing and financing activities
was $203.3 million, $362.7 million and $286.1 million for the years ended December 31, 2004, 2003 and 2002, respectively. Activity in the year ended
December 31, 2004 included our investment of $83.0 million in business acquisitions, investment in capital equipment of $89.7 million, proceeds of $0.3
million from our issuance of debt and $57.2 million related to our payment of debt.




As of December 31, 2004, our principal sources of
liquidity consisted of $225.8 million of cash and cash equivalents and $186.0 million available under our revolving credit agreement. The revolving
credit agreement, dated April 25, 2002, makes available to us up to $200.0 million over a five-year period, subject to certain terms and conditions set
forth in the agreement. We believe that internally generated funds, together with funds that may be borrowed under our revolving credit agreement, will
be sufficient to meet our anticipated capital requirements and financial obligations. We believe that our credit standing provides us with adequate
access to financial markets.




On December 9, 2004, the Board of Directors
authorized a plan to repurchase up to $250.0 million of the Companys common stock. Purchases will be made through open market or privately
negotiated transactions, subject to market conditions and trading restrictions. As of December 31, 2004, no purchases had been made under this plan and
the total common stock held in treasury, at cost, was $523.2 million.




On June 11, 2003, we completed the sale of $250.0
million aggregate principal amount of 3.0% Convertible Senior Debentures due 2033 (the Debentures) in a private placement. The Debentures
are convertible into shares of our common stock based on a conversion rate of 18.7515 shares for each $1,000 principal amount of Debentures. This is
equivalent to a conversion price of approximately $53.33 per share of common stock. On June 23, 2003,


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we sold an additional $25.0 million principal
amount of Debentures pursuant to the exercise in full of an over-allotment option granted to the initial purchasers of the Debentures. The Debentures
are convertible into common stock in any calendar quarter if, among other
circumstances, the last reported sale price of our common stock for at least 20 trading days during the period of 30 consecutive trading days ending on
the last trading day of our previous calendar quarter is greater than or equal to 120% of the applicable conversion price per share ($64.00 per share)
of our common stock on such last trading day. Interest on the Debentures is payable at the rate of 3.0% per annum on June 15 and December 15 of each
year. The Debentures are senior unsecured obligations and will mature on June 15, 2033. The Debentures are redeemable by us on or after June 15, 2008
and may be put to us for repurchase on June 15, 2008, 2010, 2013, or 2018.




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. In addition to our contractual obligations
described below, we plan to invest in excess of $100.0 million in acquisitions and repurchase up to $250.0 million of our common stock during
2005.


Off-Balance Sheet Arrangements



We do not have any off-balance sheet arrangements
that have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures or capital
resources.


Future Minimum Obligations



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


|                          |  |  |  | Fiscal Years |         |  |  |   |        |  | 
|------------------------- |  |  |  | ------------ | ------- |  |  | - | ------ |  | 
|
|Short-term
debt           |  |  |  | $            | 67,657  |  |  | $ |       |  | 
|Capital lease
commitments |  |  |  |              | 280     |  |  |   |       |  | 
|Long-term
debt            |  |  |  |              |        |  |  |   | 293    |  | 
|Interest
expense          |  |  |  |              | 12,289  |  |  |   | 8,673  |  | 
|Operating
leases          |  |  |  |              | 30,167  |  |  |   | 19,575 |  | 
|Employment
Agreements     |  |  |  |              | 1,761   |  |  |   | 1,761  |  | 
|Total                     |  |  |  | $            | 112,154 |  |  | $ | 30,302 |  | 

New Accounting Standards



In December 2004, the Financial Accounting Standards
Board (FASB) issued SFAS 123(R), Share-Based Payment. SFAS No. 123(R) revises SFAS 123, Accounting for Stock-Based
Compensation, and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees. SFAS 123(R) will require compensation costs related to
share-based payment transactions to be recognized in the financial statements (with limited exceptions). The amount of compensation cost will be
measured based on the grant-date fair value of the equity or liability instruments issued. Compensation cost will be recognized over the period that an
employee provides service in exchange for the award. This statement is effective as of the beginning of the first interim or annual reporting period
that begins after June 15, 2005. The Company is currently evaluating the impact of this standard on its future results of operations and financial
position.




In November 2004, the FASB issued SFAS No. 151,
Inventory Costs, which clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material.
SFAS No. 151 will be effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The adoption of SFAS No. 151 is not
expected to have a material impact on the Companys consolidated financial statements.


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In October 2004, the Emerging Issues Task Force
(EITF) reached a consensus on EITF Issue No. 04-8, Accounting Issues Related to Certain Features of Contingently Convertible Debt and
the Effect on Diluted EarningsPer Share (EITF 04-8). EITF 04-8 requires
contingently convertible securities to be included in the diluted earnings per share calculation, if dilutive, regardless of whether the contingency
has been met. EITF 04-8 is effective for reporting periods ending after December 15, 2004 and requires prior periods to be restated for comparative
purposes. With the adoption of EITF 04-8 we have included our $275.0 million 3.00% Senior Convertible Debentures due 2033, which were issued in June
2003, in our calculation of diluted earnings per share. In accordance with the provisions of EITF 04-8, we have restated the 2003 diluted earnings per
share amounts presented in our consolidated financial statements for comparative purposes (See Note 10 to the Consolidated Financial
Statements).




In April 2004, the FASB issued FASB Staff Position
(FSP) No. 129-1, Disclosure Requirements under FASB Statement No. 129, Disclosure of Information about Capital Structure, Relating to
Contingently Convertible Securities (FSP 129-1). FSP 129-1 requires disclosure of the significant terms or conditions under which contingently
convertible securities are convertible. The required disclosures are reflected in the notes to the consolidated financial statements.




In December 2003, the FASB issued FASB
Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities (FIN 46R). FIN 46R requires unconsolidated
variable interest entities to be consolidated by their primary beneficiaries. FIN 46R was effective for periods ending after December 15, 2003 for
public companies. As of December 31, 2004 and 2003, we had no variable interest entities requiring consolidation under FIN 46R.


Inflation



We have not experienced material increases in either
the cost of supplies or operating expenses due to inflation. With reductions in reimbursement by government and private medical insurance programs and
pressure to contain the costs of such programs, we bear the risk that reimbursement rates set by such programs will not keep pace with
inflation.


Segment Information



We follow Financial Accounting Standards Board
Statement of Financial Accounting Standards (SFAS) No. 131, Disclosures about Segments of an Enterprise and Related
Information. SFAS No. 131 utilizes the management approach for determining reportable segments. The management approach designates
the internal organization that is used by management for making operating decisions and assessing performance as the source of our reportable segments.
We maintain a decentralized approach to management of our local business operations. Decentralization of managerial decision-making enables our
operating centers to respond promptly and effectively to local market demands and opportunities. We provide home health care equipment and services
through 804 operating centers in 47 states. We view each operating center as a distinct part of a single operating segment, as each
operating center generally provides the same products to customers. Management reporting and analysis occurs at an individual operating center level
and senior management reviews statements of operation for each of our operating centers on a monthly basis. As a result, all of our operating centers
are aggregated into one reportable segment.


Forward-Looking Statements



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


18

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




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


Certain Risk Factors Relating to the Companys Business



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


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



As a provider of home oxygen and other respiratory
therapy services for the home health care market, we have historically depended heavily on Medicare reimbursement as a result of the high proportion of
elderly persons suffering from respiratory disease. Medicare Part B, the Supplementary Medical Insurance Program, provides coverage to eligible
beneficiaries for DME, such as oxygen equipment, respiratory assistance devices, continuous positive airway pressure devices, nebulizers and associated
respiratory medications, hospital beds and wheelchairs for the home setting. Approximately 75 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.




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




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


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



MMA contains provisions that would reduce payment
amounts, beginning in 2005, for oxygen equipment, standard wheelchairs (including standard power wheelchairs), nebulizers, diabetic supplies consisting
of lancets


19

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and testing strips, hospital beds and air mattresses to the median prices paid under the Federal Employee Health
Plan (FEHP). Reductions in payment rates for 2005 established by CMS
for the non-oxygen items subject to the FEHP provisions range between 2% and 14%
and are expected to reduce average reimbursement for these types of items
provided by the Company by approximately 12%. The non-oxygen DME items subject
to the 2005 Medicare price cuts accounted for approximately 2.5% of total
revenues for the Company in 2004. MMA also freezes payment amounts for other
covered DME items from 2004 to 2007.




On September 13, 2004, the OIG released a report
entitled, Medicare Payment Rates for Home Oxygen Equipment, which will serve as the basis for establishing Medicare payment rates
for oxygen in 2005. In its report, the OIG determined that Medicare allowances are approximately 15.5% higher for stationary oxygen systems and
approximately 11.3% higher for portable oxygen systems when compared with surveyed FEHP plans, representing a weighted average difference of
approximately 15.1%. The CMS Administrator, in a letter to the OIG dated August 19, 2004, agreed with the OIGs recommendation to use the pricing
information contained in the OIG report to reduce the rates Medicare pays for home oxygen equipment in 2005. CMS also concurred with the OIGs
recommendation to consider alternative methods for determining future Medicare oxygen payment rates, such as competitive bidding, contracts with local
or national providers, and capped rental arrangements.




On February 4, 2005, DMS published notice CMS-1299-N
announcing a delay in the implementation of the 2005 Medicare oxygen payment rates. The notice states that CMS was informed by the OIG that it would
need to collect additional information before the FEHP median prices for oxygen are finalized. Until such prices are established, Medicare claims for
oxygen equipment furnished on or after January 1, 2005 will be paid based on the 2004 monthly payment amounts. CMS is expected to calculate and
implement the lower 2005 payment amounts upon receipt of the additional information from the OIG. We can not determine the outcome of the 2005 Medicare
oxygen payment rates nor the date on which the new payment amounts will become effective. Oxygen and oxygen equipment reimbursed by Medicare accounted
for approximately 46% of total revenues for the Company in 2004. Such payment reductions, when implemented in 2005, could have a material adverse
effect on our financial position and operating results.


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



Historically, prescription drug coverage under
Medicare has been limited to drugs furnished incident to a physicians services and certain self-administered drugs, including inhalation drug
therapies. Prior to MMA, Medicare reimbursement for covered Part B drugs, including inhalation drugs that we provide, had been limited to 95 percent of
the published average wholesale price (AWP) for the drug. MMA establishes new payment limits and procedures for drugs reimbursed under
Medicare Part B. Payments for inhalation drugs furnished during 2004 declined to 80 percent of the AWP in effect as of April 1, 2003, a reduction of
approximately 15.8%. This reduction in Medicare payment rates for inhalation drugs reduced our revenues and operating income by approximately $54.2
million in 2004. Beginning in 2005, inhalation drugs furnished to Medicare beneficiaries would be reimbursed at 106 percent of the volume-weighted
average selling price (ASP) of the drug, as determined from data to be provided by drug manufacturers under a specific formula described in
MMA.




On November 3, 2004, CMS issued its final rule,
CMS-1429-FC, which establishes a monthly dispensing fee of $57.00 per customer for inhalation drug therapy in addition to the ASP-based payment rate
for the drugs dispensed. The rule also establishes an alternative dispensing fee of $80.00 per customer when dispensed in 90-day increments. Payment
rates for inhalation drugs will be updated quarterly based on the manufacturer ASP calculated for the most recent calendar quarter for which data are
available. Manufacturer ASP submissions are due to CMS not later than 30 days after the last day of each calendar quarter. Inhalation drug payment
rates in the first quarter of 2005 will therefore be based on ASP data from the third quarter of 2004. ASP payment rates in effect for the first
quarter of 2005 have been published by CMS and indicate substantially reduced payment rates for inhalation drugs. For example, the payment rates for
the two most prevalent inhalation drugs, albuterol sulfate and ipratropium bromide, would be reduced from $0.39 and $2.82 per milligram to $0.07 and
$0.29, respectively, representing reductions of 82% to 90%. The combination of the new ASP payment rates for inhalation drugs established for the first
quarter of 2005 and the monthly dispensing fee of $57.00 is expected to reduce total reimbursement for


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inhalation drug therapies provided by the
Company by approximately 60%. Medicare-reimbursed inhalation drug therapies provided by the Company in 2004 accounted for approximately 23% of total
revenues.




While Lincare continues to evaluate the impact of
the final rule on its business, we expect to be able to continue to provide inhalation drugs to Medicare beneficiaries in 2005. The final rule states
that CMS intends to revisit the payment amount for the dispensing fee during 2005 and proceed through notice and comment rulemaking in order to
establish an appropriate dispensing fee for 2006. Lincare can not determine the outcome of any future rulemaking by CMS nor the impact that such
rulemaking might have on our ability to continue to provide inhalation drugs beyond 2005. Such payment adjustments could have a material adverse effect
on our financial position and operating results.


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



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




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


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



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




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


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



Due to budgetary shortfalls, many states are
considering, or have enacted, cuts to their Medicaid programs, including funding for our equipment and services. These cuts have included, or may
include, elimination or reduction of coverage for some or all of our
equipment and services, amounts eligible for payment under co-insurance arrangements, or payment rates for covered items. Approximately 5% of our
customers are eligible for primary Medicaid benefits, and State Medicaid programs fund, approximately 10% 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 17% of our customers and approximately 26% of our primary and secondary payments are
derived from private payors. Continued financial pressures on these entities could lead to further reimbursement reductions for our equipment and
services that could have a material adverse effect on our financial condition and operating results.


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



We derive a significant majority of our revenues
from reimbursement by third-party payors. We accept assignment of insurance benefits from customers and, in most instances, invoice and collect
payments directly from Medicare, Medicaid and private insurance carriers, as well as from customers under co-insurance provisions. In 2004,
approximately 57% of our revenues were derived from Medicare, 26% from private insurance carriers, 10% from Medicaid and the balance directly from
individual customers and commercial entities.




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


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



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




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


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Violations of federal and state regulations can result in severe criminal, civil and administrative penalties and sanctions, including
disqualification from Medicare and other reimbursement programs, which could have a material adverse effect on our business.




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


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



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




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




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


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



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




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


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



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




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


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



Cost containment in the health care industry,
fueled, in part, by federal and state government budgetary shortfalls, is likely to result in constant or decreasing reimbursement amounts for our
equipment and services. As a result, we must control our operating cost levels, particularly labor and related costs, which account for approximately
44% of our operating costs and expenditures. We compete with other health care providers to attract and retain qualified or skilled personnel. We also
compete with various industries for lower-wage administrative and service employees. Since reimbursement rates are established by fee schedules
mandated by Medicare, Medicaid and private payors, we are not able to offset the effects of general inflation in labor and related cost components, if
any, through increases in prices for our equipment and services. Consequently, such cost increases could erode our profit margins and reduce our net
income.


|Item 7A. |  | Quantitative and Qualitative Disclosures About Market
Risk
|-------- |  | ----------------------------------------------------------



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




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


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Market Risk Sensitive Instruments  Interest Rate
Sensitivity






|                               |  |  |  |   |         |  |  |   |         | (Assuming 10% Decrease in Interest Rates) | 
|------------------------------ |  |  |  | - | ------- |  |  | - | ------- | ----------------------------------------- | 
|
|As of
December 31, 2004:       |  |  |  |   |         |  |  |   |         |                                           | 
|Senior
secured notes           |  |  |  | $ | 45,000  |  |  | $ | 45,000  |                                           | 
|Convertible
debt               |  |  |  |   | 275,000 |  |  |   | 275,000 |                                           | 
|Deferred
obligations           |  |  |  |   | 23,230  |  |  |   | 23,230  |                                           | 
|Revolving
bank credit facility |  |  |  |   |        |  |  |   |        |                                           | 
|As of
December 31, 2003:       |  |  |  |   |         |  |  |   |         |                                           | 
|Senior
secured notes           |  |  |  | $ | 95,000  |  |  | $ | 95,000  |                                           | 
|Convertible
debt               |  |  |  |   | 275,000 |  |  |   | 275,000 |                                           | 
|Deferred
obligations           |  |  |  |   | 16,753  |  |  |   | 16,753  |                                           | 
|Revolving
bank credit facility |  |  |  |   |        |  |  |   |        |                                           | 

|Item 8. |  | Financial Statements and Supplementary
Data
|------- |  | -------------------------------------------



The financial statements required by this item are
listed in Item 15(a)(1) and are submitted at the end of this Annual Report on Form 10-K. The supplementary data required by this item is included on
page S-1. The financial statements and supplementary data are herein incorporated by reference.


|Item 9. |  | Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
|------- |  | ------------------------------------------------------------------------------------



None.


|Item 9A. |  | Controls and Procedures
|-------- |  | -----------------------

Evaluation of Disclosure Controls and Procedures.



Lincares management, including Lincares
Chief Executive Officer (CEO) and Chief Financial Officer (CFO), conducted an evaluation of the effectiveness of the design and operation of the
Companys disclosure controls and procedures as of the end of the period covered by this report pursuant to Securities Exchange Act Rule
13a-15(b). Based on that evaluation, the CEO and CFO concluded that Lincares disclosure controls and procedures are effective in ensuring that
all material information required to be filed in this annual report has been made known to them in a timely manner. It should be noted that the design
of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any
design will succeed in achieving its stated goals under all potential future conditions, regardless of how routine.


Managements Annual Report on Internal Control Over Financial
Reporting



Lincares management is responsible for
establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f). The
Companys internal control system was designed to provide reasonable assurance to management and the board of directors regarding the preparation
and fair presentation of published financial statements. All internal control systems, no matter how well designed, have inherent limitations.
Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and
presentation. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of
any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the underlying policies or procedures may deteriorate. Under the supervision and with the participation of management,
including Lincares principal executive officer and principal financial officer, Lincare conducted an evaluation of the effectiveness of internal
control over financial reporting based on the framework in Internal Control  Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).


25

---



In conducting Lincares evaluation of the
effectiveness of its internal control over financial reporting, Lincare has excluded the following acquisitions completed by Lincare in 2004:
Respiratory Care Services, Inc., Empire Homecare Equipment, Bane Medical Services, Inc., Medical Resources of Kansas City, Inc., Respiratory Solutions,
Inc., Plaza Respiratory & Oxygen Services, Inc. and Banner Health. Collectively, these acquisitions constituted less than 3.0% of total assets as
of December 31, 2004 and less than 1.0% of total revenues and net earnings for the year then ended.




Based on Lincares evaluation under the
framework in Internal Control  Integrated Framework, management concluded that internal control over financial reporting was effective as
of December 31, 2004. Managements assessment of the effectiveness of internal control over financial reporting as of December 31, 2004 has been
audited by KPMG LLP, an independent registered public accounting firm, as stated in their report which is included below.


Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders Lincare Holdings Inc.:



We have audited managements assessment,
included in the accompanying Managements Annual Report on Internal Control Over Financial Reporting, that Lincare Holdings Inc. and subsidiaries
(the Company) maintained effective internal control over financial reporting as of December 31, 2004, based on criteria established in
Internal Control  Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The
Companys management is responsible for maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on managements assessment and an opinion
on the effectiveness of the Companys internal control over financial reporting based on our audit.




We conducted our audit in accordance with the
standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included
obtaining an understanding of internal control over financial reporting, evaluating managements assessment, testing and evaluating the design and
operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.




A companys internal control over financial
reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A companys internal control over financial
reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Companys assets that could have a material
effect on the financial statements.




Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.




In our opinion, managements assessment that
the Company maintained effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based
on criteria established in Internal Control  Integrated Framework issued by the COSO. Also, in our opinion, the Company maintained, in all
material respects, effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control
 Integrated Framework issued by the COSO.




As indicated in the accompanying Managements
Annual Report on Internal Control Over Financial Reporting, managements assessment of and conclusion on the effectiveness of internal control
over financial reporting


26

---



excluded the internal controls of Respiratory
Care Services, Inc., Empire Homecare Equipment, Bane Medical Services, Inc., Medical Resources of Kansas City, Inc., Respiratory Solutions, Inc., Plaza
Respiratory & Oxygen Services, Inc. and Banner Health, which are included in the 2004 consolidated financial statements of the Company and
constituted less than 3.0% of total assets as of December 31, 2004 and less than 1.0% of total revenues and net earnings for the year then ended. Our
audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of the
entities referred to above.




We also have audited, in accordance with the
standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of the Company as of December 31, 2004 and
2003 and the related consolidated statements of operations, stockholders equity, and cash flows for each of the years in the three-year period
ended December 31, 2004, and our report dated March 16, 2005 expressed an unqualified opinion on those consolidated financial
statements.




/s/ KPMG LLPKPMG LLP


Tampa, Florida March 16, 2005

Changes in Internal Control Over Financial Reporting.



There has been no change in Lincares internal
control over financial reporting during the fourth fiscal quarter ended December 31, 2004 that has materially affected, or is reasonably likely to
materially affect, Lincares internal control over financial reporting.


27

---

PART III

|Item 10. |  | Directors and Executive Officers of the
Registrant
|-------- |  | --------------------------------------------------

Directors and Executive Officers



Information regarding the directors of the Company
will be included in the definitive proxy statement for the Annual Meeting of Stockholders to be held on May 9, 2005, under Information Regarding
the Board of Directors and Executive Officers, and is herein incorporated by reference.


Audit Committee



The Company has a standing Audit Committee
established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (the Exchange Act). Additional
information regarding the Audit Committee will be included in the definitive proxy statement for the Annual Meeting of Stockholders to be held on May
9, 2005, under Committees and Meetings of the Board of Directors and Audit Committee Report, and is herein incorporated by
reference.


Audit Committee Financial Expert



The Board of Directors has designated William F.
Miller, III as the Audit Committee Financial Expert as defined by Item 401(h) of Regulation S-K of the Exchange Act and has determined that
he is independent within the meaning of Item 7(d)(3)(iv) of Schedule 14A of the Exchange Act.


Section 16(a) Beneficial Ownership Reporting Compliance



Information regarding Section 16(a) Beneficial
Ownership Reporting Compliance will be included in the definitive proxy statement for the Annual Meeting of Stockholders to be held on May 9, 2005,
under Compliance with Section 16(a) of the Securities Exchange Act of 1934, and is herein incorporated by reference.


Code of Ethics



The Company has adopted a code of business conduct
and ethics that applies to its directors and officers (including its principal executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions) as well as its employees. Copies of the Companys code of ethics are available
without charge upon written request directed to Corporate Secretary, Lincare Holdings Inc., 19387 U.S. 19 North, Clearwater, Florida
33764.


|Item 11. |  | Executive Compensation
|-------- |  | ----------------------



Information regarding executive compensation will be
included in the definitive proxy statement for the Annual Meeting of Stockholders to be held on May 9, 2005, under Executive Compensation,
and is herein incorporated by reference.


|Item 12. |  | Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
|-------- |  | ----------------------------------------------------------------------------------------------



The response to this item will be included in the
definitive proxy statement for the Annual Meeting of Stockholders to be held on May 9, 2005, under Security Ownership of Certain Beneficial
Owners and Management and Securities Authorized for Issuance Under Equity Compensation Plans, and is herein incorporated by
reference.


|Item 13. |  | Certain Relationships and Related
Transactions
|-------- |  | ----------------------------------------------



None.


|Item 14. |  | Principal Accountant Fees and Services
|-------- |  | --------------------------------------



The response to this item will be included in the
definitive proxy statement for the Annual Meeting of Stockholders to be held on May 9, 2005, under Audit Committee Report and
Information Regarding the Independent Auditors of the Company, and is herein incorporated by reference.


28

---

PART IV

|Item 15. |  | Exhibits, Financial Statement Schedule and Reports on Form
8-K
|-------- |  | --------------------------------------------------------------



(a)  (1) The following consolidated
financial statements of Lincare Holdings Inc. and subsidiaries are filed as part of this Form 10-K starting at page F-1:




Report of Independent Registered Public Accounting
Firm




Consolidated Balance Sheets  December 31, 2004
and 2003




Consolidated Statements of Operations  Years
ended December 31, 2004, 2003 and 2002




Consolidated Statements of Stockholders Equity
 Years ended December 31, 2004, 2003 and 2002




Consolidated Statements of Cash Flows  Years
ended December 31, 2004, 2003 and 2002




Notes to Consolidated Financial
Statements




(2)  The following
consolidated financial statement schedule of Lincare Holdings Inc. and subsidiaries is included in this Form 10-K at page S-1:




Schedule  Valuation and Qualifying
Accounts




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




(3)  Exhibits included
or incorporated herein:




See Exhibit Index.


|(b) |  | Reports on Form 8-K Furnished October 18, 2004: Announcement
of the financial results for the quarter ended September 30, 2004. Filed November 18, 2004: Announcement of the execution of new five-year
Executive employment contracts. Filed December 16, 2004: Announcement of entry into a Material Definitive Agreement and repurchase of up to $250
million of the Companys common stock.Filed February 7, 2005: Announcement of the financial results for the year ended December 31, 2004 and
update on Other Events.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

29

---

SIGNATURES



Pursuant to the requirements of Section 13 or 15(d)
of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed effective March 16, 2005 on its behalf by the
undersigned, thereunto duly authorized.




LINCARE HOLDINGS INC.




/s/ PAUL G. GABOSPaul G. GabosSecretary, Chief Financial and Principal Accounting Officer




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


|Signature                        |  |  |  | Position                                                          |  | Date          
|-------------------------------- |  |  |  | ----------------------------------------------------------------- |  | --------------
|/s/ JOHN P.
BYRNESJohn P. Byrnes |  |  |  | Director, Chief Executive Officer and Principal Executive Officer |  | March 16, 2005
|                                 |  |  |  |                                                                   |  |               
|/s/ PAUL G.
GABOSPaul G. Gabos   |  |  |  | Secretary, Chief Financial and Principal Accounting Officer       |  | March 16, 2005
|                                 |  |  |  |                                                                   |  |               
|*Chester B. Black                |  |  |  | Director                                                          |  | March 16, 2005
|                                 |  |  |  |                                                                   |  |               
|*Frank T. Cary                   |  |  |  | Director                                                          |  | March 16, 2005
|                                 |  |  |  |                                                                   |  |               
|*William F. Miller, III          |  |  |  | Director                                                          |  | March 16, 2005
|                                 |  |  |  |                                                                   |  |               
|*Frank D. Byrne, M.D.            |  |  |  | Director                                                          |  | March 16, 2005
|                                 |  |  |  |                                                                   |  |               
|*Stuart H. Altman, Ph.D.         |  |  |  | Director                                                          |  | March 16, 2005

|*By: |  | /s/ JOHN P. BYRNES Attorney in fact
|---- |  | -----------------------------------

30

---



[This Page Intentionally Left Blank.]

---



Report of Independent Registered Public Accounting Firm



The Board of
Directors and Stockholders Lincare Holdings Inc.:




We have audited the accompanying consolidated
balance sheets of Lincare Holdings Inc. and subsidiaries (the Company) as of December 31, 2004 and 2003 and the related consolidated
statements of operations, stockholders equity and cash flows for each of the years in the three-year period ended December 31, 2004. We have also
audited the financial statement schedule on page S-1. These consolidated financial statements and financial statement schedule are the responsibility
of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement
schedule based on our audits.




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




In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2004 and 2003 and the
results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2004, in conformity with U.S.
generally accepted accounting principles.




We also have audited, in accordance with the
standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Companys internal control over financial
reporting as of December 31, 2004, based on criteria established in Internal Control  Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 16, 2005, expressed an unqualified opinion on managements
assessment of, and the effective operation of, internal control over financial reporting.




/s/ KPMG LLPKPMG LLP


Tampa, Florida March 16, 2005

F-1

---

LINCARE HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS December 31, 2004 and 2003






|                                                                                                              |  |  |  | 2004 |           | 2003
|------------------------------------------------------------------------------------------------------------- |  |  |  | ---- | --------- | ----
|
|ASSETS                                                                                                       
|Current
assets:                                                                                               |  |  |  |      |           |     
|Cash and cash
equivalents                                                                                     |  |  |  | $    | 225,789   |     
|Restricted
cash                                                                                               |  |  |  |      | 2,365     |     
|Accounts
receivable, net (note 2)                                                                             |  |  |  |      | 137,891   |     
|Income taxes
receivable                                                                                       |  |  |  |      | 4,106     |     
|Inventories                                                                                                   |  |  |  |      | 2,354     |     
|Prepaid and
other current assets                                                                              |  |  |  |      | 5,350     |     
|Total current
assets                                                                                          |  |  |  |      | 377,855   |     
|Property and
equipment (note 3)                                                                               |  |  |  |      | 678,377   |     
|Accumulated
depreciation                                                                                      |  |  |  |      | (382,686  | )   
|Net property
and equipment                                                                                    |  |  |  |      | 295,691   |     
|Other
assets:                                                                                                 |  |  |  |      |           |     
|Goodwill                                                                                                      |  |  |  |      | 1,035,865 |     
|Covenants
not-to-compete, less accumulated amortization of $18,134 in 2004 and $16,597 in 2003                |  |  |  |      | 3,292     |     
|Other                                                                                                         |  |  |  |      | 8,361     |     
|Total other
assets                                                                                            |  |  |  |      | 1,047,518 |     
|Total
assets                                                                                                  |  |  |  | $    | 1,721,064 |     
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                         
|Current
liabilities:                                                                                          |  |  |  |      |           |     
|Current
installments of long-term obligations (note 5)                                                        |  |  |  | $    | 67,937    |     
|Accounts
payable                                                                                              |  |  |  |      | 26,786    |     
|Accrued
expenses:                                                                                             |  |  |  |      |           |     
|Compensation
and benefits                                                                                     |  |  |  |      | 20,639    |     
|Liability
insurance                                                                                           |  |  |  |      | 12,516    |     
|Other current
liabilities                                                                                     |  |  |  |      | 4,537     |     
|Total current
liabilities                                                                                     |  |  |  |      | 132,415   |     
|Long-term
obligations, excluding current installments (note 5)                                                |  |  |  |      | 275,293   |     
|Deferred
income taxes (note 6)                                                                                |  |  |  |      | 146,327   |     
|Minority
interest                                                                                             |  |  |  |      | 704       |     
|Total
liabilities                                                                                             |  |  |  |      | 554,739   |     
|Stockholders equity (notes 5, 6, 7, and 8):                                                                  |  |  |  |      |           |     
|Common stock,
$.01 par value. Authorized 200,000,000 shares; issued: 125,033,264 in 2004, 122,842,964 in 2003 |  |  |  |      | 1,250     |     
|Additional
paid-in capital                                                                                    |  |  |  |      | 278,884   |     
|Unearned
compensation                                                                                         |  |  |  |      | (6,184    | )   
|Retained
earnings                                                                                             |  |  |  |      | 1,415,604 |     
|Less treasury
stock, at cost: 23,791,737 shares in 2004 and 23,830,798 shares in 2003                         |  |  |  |      | (523,229  | )   
|Total
stockholders equity                                                                                    |  |  |  |      | 1,166,325 |     
|Commitments
and contingencies (notes 4, 5 and 12)                                                             |  |  |  |      |          |     
|Total
liabilities and stockholders equity                                                                    |  |  |  | $    | 1,721,064 |     

See accompanying notes to consolidated financial statements.

F-2

---

LINCARE HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS Years Ended December 31, 2004, 2003
and 2002






|                                                                                  |  |  |  | 2004 |           | 2003 |  | 2002
|--------------------------------------------------------------------------------- |  |  |  | ---- | --------- | ---- |  | ----
|
|Net revenues
(note 9)                                                             |  |  |  | $    | 1,268,531 |      |  | $   
|Costs and
expenses:                                                               |  |  |  |      |           |      |  |     
|Cost of goods
and services                                                        |  |  |  |      | 184,398   |      |  |     
|Operating
expenses                                                                |  |  |  |      | 264,447   |      |  |     
|Selling,
general and administrative expenses                                      |  |  |  |      | 257,019   |      |  |     
|Bad debt
expense                                                                  |  |  |  |      | 19,028    |      |  |     
|Depreciation
expense                                                              |  |  |  |      | 86,615    |      |  |     
|Amortization
expense                                                              |  |  |  |      | 1,537     |      |  |     
|                                                                                  |  |  |  |      | 813,044   |      |  |     
|Operating
income                                                                  |  |  |  |      | 455,487   |      |  |     
|Other income
(expenses):                                                          |  |  |  |      |           |      |  |     
|Interest
income                                                                   |  |  |  |      | 2,151     |      |  |     
|Interest
expense                                                                  |  |  |  |      | (17,055   | )    |  |     
|Net loss on
disposal of property and equipment                                    |  |  |  |      | (180      | )    |  |     
|                                                                                  |  |  |  |      | (15,084   | )    |  |     
|Income before
income taxes                                                        |  |  |  |      | 440,403   |      |  |     
|Income tax
expense (note 6)                                                       |  |  |  |      | 166,975   |      |  |     
|Net
income                                                                        |  |  |  | $    | 273,428   |      |  | $   
|Income per
common share (note 10):                                                |  |  |  |      |           |      |  |     
|Basic                                                                             |  |  |  | $    | 2.74      |      |  | $   
|Diluted                                                                           |  |  |  | $    | 2.60      |      |  | $   
|Weighted
average number of common shares outstanding                              |  |  |  |      | 99,681    |      |  |     
|Weighted
average number of common shares and common share equivalents outstanding |  |  |  |      | 107,223   |      |  |     

See accompanying notes to consolidated financial statements.

F-3

---

LINCARE HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY Years Ended December
31, 2004, 2003 and 2002

|                                                                   |  |  |  | Shares of Common Stock Issued |         | Common Stock |  | Additional Paid-in Capital |       | Unearned Compensation |  | Retained Earnings |         | Treasury Stock |  | Total Stockholders Equity
|------------------------------------------------------------------ |  |  |  | ----------------------------- | ------- | ------------ |  | -------------------------- | ----- | --------------------- |  | ----------------- | ------- | -------------- |  | --------------------------
|
|Balances at
December 31, 2001                                      |  |  |  |                               | 121,039 |              |  | $                          | 1,210 |                       |  | $                 | 194,164 |                |  | $                         
|Exercise of
stock options (note 8)                                 |  |  |  |                               | 676     |              |  |                            | 7     |                       |  |                   | 7,260   |                |  |                           
|Tax benefit for
exercise of employee stock options (notes 6 and 8) |  |  |  |                               |        |              |  |                            |      |                       |  |                   | 5,101   |                |  |                           
|Net
income                                                         |  |  |  |                               |        |              |  |                            |      |                       |  |                   |        |                |  |                           
|Treasury stock
issued                                              |  |  |  |                               |        |              |  |                            |      |                       |  |                   |        |                |  |                           
|Treasury stock
acquired                                            |  |  |  |                               |        |              |  |                            |      |                       |  |                   |        |                |  |                           
|Balances at
December 31, 2002                                      |  |  |  |                               | 121,715 |              |  |                            | 1,217 |                       |  |                   | 206,525 |                |  |                           
|Exercise of
stock options (note 8)                                 |  |  |  |                               | 1,127   |              |  |                            | 12    |                       |  |                   | 13,459  |                |  |                           
|Tax benefit for
exercise of employee stock options (notes 6 and 8) |  |  |  |                               |        |              |  |                            |      |                       |  |                   | 9,127   |                |  |                           
|Net
income                                                         |  |  |  |                               |        |              |  |                            |      |                       |  |                   |        |                |  |                           
|Treasury stock
issued                                              |  |  |  |                               |        |              |  |                            |      |                       |  |                   |        |                |  |                           
|Treasury stock
acquired                                            |  |  |  |                               |        |              |  |                            |      |                       |  |                   |        |                |  |                           
|Balances at
December 31, 2003                                      |  |  |  |                               | 122,842 |              |  |                            | 1,229 |                       |  |                   | 229,111 |                |  |                           
|Exercise of
stock options (note 8)                                 |  |  |  |                               | 1,931   |              |  |                            | 20    |                       |  |                   | 25,816  |                |  |                           
|Issuance of
restricted stock                                       |  |  |  |                               | 260     |              |  |                            | 1     |                       |  |                   | 8,246   |                |  |                           
|Vesting of
restricted stock                                        |  |  |  |                               |        |              |  |                            |      |                       |  |                   |        |                |  |                           
|Tax benefit for
exercise of employee stock options (notes 6 and 8) |  |  |  |                               |        |              |  |                            |      |                       |  |                   | 15,711  |                |  |                           
|Net
income                                                         |  |  |  |                               |        |              |  |                            |      |                       |  |                   |        |                |  |                           
|Treasury stock
issued                                              |  |  |  |                               |        |              |  |                            |      |                       |  |                   |        |                |  |                           
|Balances at
December 31, 2004                                      |  |  |  |                               | 125,033 |              |  | $                          | 1,250 |                       |  | $                 | 278,884 |                |  | $                         

See accompanying notes to consolidated financial statements.

F-4

---

LINCARE HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, 2004, 2003
and 2002






|                                                                                  |  |  |  | 2004 |          | 2003 |  | 2002
|--------------------------------------------------------------------------------- |  |  |  | ---- | -------- | ---- |  | ----
|
|Cash flows
from operating activities:                                             |  |  |  |      |          |      |  |     
|Net
income                                                                        |  |  |  | $    | 273,428  |      |  | $   
|Adjustments
to reconcile net income to net cash provided by operating activities: |  |  |  |      |          |      |  |     
|Bad debt
expense                                                                  |  |  |  |      | 19,028   |      |  |     
|Depreciation
expense                                                              |  |  |  |      | 86,615   |      |  |     
|Net loss on
disposal of property and equipment                                    |  |  |  |      | 180      |      |  |     
|Amortization
expense                                                              |  |  |  |      | 1,537    |      |  |     
|Amortization
of debt issuance costs                                               |  |  |  |      | 419      |      |  |     
|Vesting of
restricted stock                                                       |  |  |  |      | 2,063    |      |  |     
|Deferred
income taxes                                                             |  |  |  |      | 35,095   |      |  |     
|Minority
interest in net earnings of subsidiary                                   |  |  |  |      | 79       |      |  |     
|Change in
assets and liabilities net of effects of acquired businesses:           |  |  |  |      |          |      |  |     
|Increase in
accounts receivable                                                   |  |  |  |      | (3,613   | )    |  |     
|Decrease in
inventories                                                           |  |  |  |      | 264      |      |  |     
|(Increase)
decrease in prepaid and other assets                                   |  |  |  |      | (798     | )    |  |     
|Increase
(decrease) in accounts payable                                           |  |  |  |      | (8,517   | )    |  |     
|Increase
(decrease) in accrued expenses                                           |  |  |  |      | (9,218   | )    |  |     
|Increase
(decrease) in income taxes payable                                       |  |  |  |      | 22,722   |      |  |     
|Net cash
provided by operating activities                                         |  |  |  |      | 419,284  |      |  |     
|Cash flows
from investing activities:                                             |  |  |  |      |          |      |  |     
|Proceeds from
sale of property and equipment                                      |  |  |  |      | 146      |      |  |     
|Capital
expenditures                                                              |  |  |  |      | (89,673  | )    |  |     
|Business
acquisitions, net of cash acquired (note 11)                             |  |  |  |      | (83,022  | )    |  |     
|Cash
restricted for future payments                                               |  |  |  |      | (582     | )    |  |     
|Net cash used
by investing activities                                             |  |  |  |      | (173,131 | )    |  |     
|Cash flows
from financing activities:                                             |  |  |  |      |          |      |  |     
|Proceeds from
issuance of debt                                                    |  |  |  |      | 292      |      |  |     
|Payments of
principal on debt                                                     |  |  |  |      | (57,222  | )    |  |     
|Decrease in
minority interest                                                     |  |  |  |      | (125     | )    |  |     
|Payments of
debt issuance costs                                                   |  |  |  |      |         |      |  |     
|Proceeds from
issuance of common stock                                            |  |  |  |      | 25,836   |      |  |     
|Proceeds from
issuance of treasury stock                                          |  |  |  |      | 1,040    |      |  |     
|Payments to
acquire treasury stock                                                |  |  |  |      |         |      |  |     
|Net cash used
by financing activities                                             |  |  |  |      | (30,179  | )    |  |     
|Net increase
in cash and cash equivalents                                         |  |  |  |      | 215,974  |      |  |     
|Cash and cash
equivalents, beginning of period                                    |  |  |  |      | 9,815    |      |  |     
|Cash and cash
equivalents, end of period                                          |  |  |  | $    | 225,789  |      |  | $   
|Supplemental
disclosure of cash flow information:                                 |  |  |  |      |          |      |  |     
|Cash paid for
interest                                                            |  |  |  | $    | 15,732   |      |  | $   
|Cash paid for
income taxes                                                        |  |  |  | $    | 114,030  |      |  | $   

See accompanying notes to consolidated financial statements.

F-5

---

LINCARE HOLDINGS INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL
STATEMENTSDecember 31, 2004, 2003 and 2002



|(1) |  | Description of Business and Summary of Significant Accounting
Policies
|--- |  | ----------------------------------------------------------------------

|(a) |  | Description of Business
|--- |  | -----------------------



Lincare Holdings Inc. and subsidiaries (the
Company) provides oxygen, respiratory therapy services, infusion therapy services and home medical equipment such as hospital beds,
wheelchairs and other medical supplies to the home health care market. The Companys customers are located in 47 states. The Companys
equipment and supplies are readily available and the Company is not dependent on a single supplier or even a few suppliers.


|(b) |  | Use of Estimates
|--- |  | ----------------



Management of the Company has made a number of
estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these
financial statements in conformity with U.S. generally accepted accounting principles. Actual results could differ from those
estimates.


|(c) |  | Principles of Consolidation
|--- |  | ---------------------------



The consolidated financial statements include the
accounts of Lincare Holdings Inc. and its majority-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in
consolidation. Certain amounts in the prior years financial statements have been reclassified to conform to the current year
presentation.


|(d) |  | 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. If the
payment amount received differs from the net realizable amount, an adjustment to revenue is made to the net realizable amount in the period that these
payment differences are determined. The Company reports revenues in its financial statements net of such estimated adjustments.




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 delivered. Inherent in these estimates is the risk that they will have to be revised or updated as
additional information becomes available. Specifically, the complexity of many third-party billing arrangements and the uncertainty of reimbursement
amounts for certain services from certain payors may result in adjustments to amounts originally recorded. Such adjustments are typically identified
and recorded at the point of cash application, claim denial or account review by either the Company or a third-party intermediary. Included in accounts
receivable are earned but unbilled accounts receivables 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


F-6

---

LINCARE HOLDINGS INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)December 31, 2004, 2003 and 2002

(1)    Description of Business and Summary of Significant
Accounting Policies (Continued)



approval procedures to ensure collection is probable. Once the
items are delivered, unbilled accounts receivable are recorded at net realizable amounts expected to be paid by customers and third-party payors.
Billing delays, ranging from several days to several weeks, 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 the third party payor does not
accept the claim, the customer is ultimately responsible. Amounts due from customers which are determined to be uncollectable are recognized as bad
debt expense.




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 healthcare industry and third-party reimbursement, it is
possible that the Companys estimates could change, which could have an impact on the Companys results of operations and cash
flows.


|(e) |  | Cash and Cash Equivalents
|--- |  | -------------------------



For purposes of the statements of cash flows, the
Company considers all short-term investments with a purchased maturity of less than three months to be cash equivalents.


|(f) |  | Restricted Cash
|--- |  | ---------------



Restricted cash was held in an interest-bearing
investment account for the purposes of complying with and performing certain contractual payment obligations in connection with the May 2, 2003,
purchase of health care related assets of Healthcare Solutions, Inc.


|(g) |  | Financial Instruments
|--- |  | ---------------------



The Company believes the book value of its cash
equivalents, accounts receivable, income taxes receivable, accounts payable and accrued expenses approximate fair value due to their short-term nature.
The book value of the Companys revolving credit agreement and deferred acquisition obligations approximate their fair value as the applicable
interest rates approximate rates at which similar types of borrowing arrangements could be currently obtained by the Company. The fair value of the
Companys Senior Secured Notes is estimated based on the discounted value of the future cash flows expected to be paid over the maturity period of
the notes. The estimated fair value of the senior secured notes at December 31, 2004 and 2003 was $46,591,000 and $98,875,000, respectively. The fair
value of the Companys 3.0% Convertible Senior Debentures due June 15, 2033, is estimated based on several standard market variables including the
Companys stock price, yield to put/call through conversion and yield to maturity. The estimated fair value of the debentures at December 31, 2004
and 2003 was $295,625,000 and $277,750,000, respectively.


|(h) |  | Inventories
|--- |  | -----------



Inventories, consisting of equipment, supplies and
replacement parts, are stated at the lower of cost or market value. Cost is determined using the first-in, first-out (FIFO) method. Inventories are
charged to cost of goods and services in the period in which products and related services are provided.


F-7

---

LINCARE HOLDINGS INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)December 31, 2004, 2003 and 2002

(1)    Description of Business and Summary of Significant
Accounting Policies (Continued)

|(i) |  | Property and Equipment
|--- |  | ----------------------



Property and equipment is stated at cost.
Depreciation on property and equipment is calculated using the straight-line method over the estimated useful lives of the assets as set forth in the
table below.


|Building and
improvements |  |  |  | 5
to 40 years
|------------------------- |  |  |  | -------------
|Equipment and
furniture   |  |  |  | 2
to 20 years



Leasehold improvements are amortized using the
straight-line method over the lesser of the lease term or estimated useful life of the asset. Amortization of leasehold improvements is included with
depreciation expense.


|(j) |  | Goodwill and Covenants Not-to-Compete
|--- |  | -------------------------------------



Goodwill results from the excess of cost over
identifiable net assets of acquired businesses. Covenants not-to-compete are amortized on a straight-line basis over the life of the respective
covenants, or one to five years.




On January 1, 2002, the Company adopted SFAS 142,
Goodwill and Other Intangible Assets. SFAS 142 requires that goodwill and intangible assets with indefinite lives no longer be amortized
but instead be measured for impairment at least annually, or when events indicate that an impairment may exist. As of the adoption date, amortization
of outstanding goodwill and other indefinite-lived intangible assets ceased. As required by SFAS 142, the Company performs impairment tests annually.
The Company has determined that it has one reporting unit under SFAS 142. The estimate of the fair value of the reporting unit is based on the fair
value of the Companys outstanding common stock and exceeds the book value of the goodwill at December 31, 2004.




(k)    Other
Assets




Other assets principally include capitalized costs
of borrowing which are being amortized over the term of the respective debt.


|(l) |  | Impairment or Disposal of Long-Lived Assets
|--- |  | -------------------------------------------



Intangible assets with estimable useful lives are
amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with FASB
Statement No. 144, Accounting for Impairment or Disposal of Long-Lived Assets. In accordance with Statement 144, long-lived assets, such as property,
plant, and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the
carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset
exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair
value of the asset. Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or
fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposal group classified as held for sale would be
presented separately in the appropriate asset and liability sections of the balance sheet.


|(m) |  | Income Taxes
|--- |  | ------------



Deferred income taxes are recognized for the future
tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to be recovered or settled. The effect on deferred taxes
of a change in tax rate is recognized in income in the period that includes the enactment date.


F-8

---

LINCARE HOLDINGS INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)December 31, 2004, 2003 and 2002

(1)    Description of Business and Summary of Significant
Accounting Policies (Continued)

|(n) |  | Advertising Costs
|--- |  | -----------------



Advertising costs are charged to expense as
incurred.


|(o) |  | Cost of Goods and Services
|--- |  | --------------------------



Cost of goods and services includes the cost of
equipment (excluding depreciation), drugs and supplies sold to patients and certain operating costs related to the Companys respiratory pharmacy
operations. These costs include an estimate of customer service, distribution and administrative costs relating to the respiratory pharmacy operations
amounting to approximately $48.7 million, $41.6 million and $33.6 million in 2004, 2003 and 2002, respectively.


|(p) |  | Employee Benefit Plans
|--- |  | ----------------------



The Company has a defined contribution plan covering
substantially all employees subject to specific plan requirements. The Company also sponsors an employee stock purchase plan that enables eligible
employees to purchase shares of the Companys common stock at the lower of 85 percent of the fair market value of the Companys stock price
on: (i) the last day of the offering period; or (ii) the last day of the prior offering period. Employees may elect to have up to 10% of their base
salary withheld on an after-tax basis. Under the employee stock purchase plan, 1.2 million shares have been authorized for issuance. To date, 348,956
shares have been issued under this authorization. During 2004, the Company issued 39,061 shares at an average price of $26.63; during 2003, the Company
issued 47,989 shares at an average price of $25.55; and during 2002, the Company issued 39,458 shares at an average price of $23.69 per share. See Note
8 to the Consolidated Financial Statements for pro forma results assuming compensation expense had been recognized based on fair value as of the grant
dates as prescribed by SFAS123.


|(q) |  | Stock Plans
|--- |  | -----------



The Company issues stock options and other
stock-based awards to key employees and directors under stock-based compensation plans. The Company accounts for its stock-based compensation under APB
25, using the intrinsic-value method. The Companys stock-based compensation is described more fully in Note 8 to the Consolidated Financial
Statements.




Under the 2004 Stock Plan, certain key employees may
be granted restricted stock at nominal cost to them. Restricted stock is measured at fair value on the date of the grant, based on the number of shares
granted and the quoted price of the Companys common stock. Such value will be recognized as compensation expense ratably over the corresponding
employees specified service period. Restricted stock vests upon fulfillment of specified performance and service-based conditions. On July 1,
2004, the Company granted 260,000 shares of restricted stock to certain key employees and $2,063,000 was recognized as compensation expense for the
year ended December 31, 2004.


|(r) |  | Segment Information
|--- |  | -------------------



The Company follows Financial Accounting Standards
Board Statement of Financial Accounting Standards (SFAS) No. 131, Disclosures about Segments of an Enterprise and Related
Information. SFAS No. 131 utilizes the management approach for determining reportable segments. The management approach designates
the internal organization that is used by management for making operating decisions and assessing performance as the source of the Companys
reportable segments. The Company maintains a decentralized approach to management of its local business operations. Decentralization of managerial
decision-making enables the Companys operating centers to respond promptly and effectively to local market demands and opportunities. The Company
provides home health care equipment and services through 804 operating centers in 47 states. The Company views each operating center as a distinct part
of a single operating segment, as each operating center provides essentially the same products to customers. Management reporting and
analysis occurs at an individual operating center level


F-9

---

LINCARE HOLDINGS INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)December 31, 2004, 2003 and 2002

(1)    Description of Business and Summary of Significant
Accounting Policies (Continued)



and senior management reviews statements of
operation for each of the Companys operating centers on a monthly basis. As a result, all of the Companys operating centers are aggregated
into one reportable segment.


|(s) |  | New Accounting Standards
|--- |  | ------------------------



In December 2004, the Financial Accounting Standards
Board (FASB) issued SFAS 123(R), Share-Based Payment. SFAS No. 123(R) revises SFAS 123, Accounting for Stock-Based
Compensation, and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees. SFAS 123(R) will require compensation costs related to
share-based payment transactions to be recognized in the financial statements (with limited exceptions). The amount of compensation cost will be
measured based on the grant-date fair value of the equity or liability instruments issued. Compensation cost will be recognized over the period that an
employee provides service in exchange for the award. This statement is effective as of the beginning of the Companys first interim or annual
reporting period that begins after June 15, 2005. The Company is currently evaluating the impact of this standard on its future results of operations
and financial position.




In November 2004, the FASB issued SFAS No. 151,
Inventory Costs, which clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material.
SFAS No. 151 will be effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The adoption of SFAS No. 151 is not
expected to have a material impact on the Companys consolidated financial statements.




In October 2004, the Emerging Issues Task Force
(EITF) reached a consensus on EITF Issue No. 04-8, Accounting Issues Related to Certain Features of Contingently Convertible Debt and
the Effect on Diluted Earnings Per Share (EITF 04-8). EITF 04-8 requires contingently convertible securities to be included in the diluted
earnings per share calculation, if dilutive, regardless of whether the contingency has been met. EITF 04-8 is effective for reporting periods ending
after December 15, 2004 and requires prior periods to be restated for comparative purposes. With the adoption of EITF 04-8 the Company has included our
$275 million 3.00% Senior Convertible Debentures due 2033, which were issued in June 2003, in the calculation of diluted earnings per share. In
accordance with the provisions of EITF 04-8 the Company has restated the 2003 diluted earnings per share amounts presented in its consolidated
financial statements for comparative purposes (See Note 10).




In April 2004, the FASB issued FASB Staff Position
(FSP) No. 129-1, Disclosure Requirements under FASB Statement No. 129, Disclosure of Information about Capital Structure, Relating to
Contingently Convertible Securities (FSP 129-1). FSP 129-1 requires disclosure of the significant terms or conditions under which contingently
convertible securities are convertible. The required disclosures are reflected in the notes to the consolidated financial statements.




In December 2003, the FASB issued FASB
Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities (FIN 46R). FIN 46R requires unconsolidated
variable interest entities to be consolidated by their primary beneficiaries. FIN 46R was effective for periods ending after December 15, 2003 for
public companies. As of December 31, 2004 and 2003, the Company had no variable interest entities requiring consolidation under FIN
46R.


|(t) |  | Contingencies
|--- |  | -------------



The Company is involved in certain claims and legal
matters arising in the ordinary course of its business. The Company uses Statement of Financial Accounting Standards No. 5, Accounting for
Contingencies, as guidance on the application of generally accepted accounting principles related to contingencies. The Company evaluates and
records liabilities for contingencies based on known claims and legal actions when it is probable a liability has been incurred and the liability can
be reasonably estimated.


F-10

---

LINCARE HOLDINGS INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)December 31, 2004, 2003 and 2002

(1)    Description of Business and Summary of Significant
Accounting Policies (Continued)

|(u) |  | 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 patients; however, the Company
routinely obtains assignment of (or is otherwise entitled to receive) benefits receivable under the health insurance programs, plans or policies of
customers. Included in the Companys net revenues is reimbursement from government sources under Medicare, Medicaid and other federally funded
programs, which aggregated approximately 67% of net revenues in 2004, 2003 and 2002.


|(2) |  | Accounts Receivable
|--- |  | -------------------



Accounts receivable at December 31, 2004 and 2003
consist of:







|                                          |  |  |  | 2004 |         | 2003
|----------------------------------------- |  |  |  | ---- | ------- | ----
|
|Trade
Accounts Receivable                 |  |  |  | $    | 153,359 |     
|Less
allowance for uncollectible accounts |  |  |  |      | (15,468 | )   
|                                          |  |  |  | $    | 137,891 |     

|(3) |  | Property and Equipment
|--- |  | ----------------------



Property and equipment at December 31, 2004 and 2003
consist of:







|                          |  |  |  | 2004 |         | 2003
|------------------------- |  |  |  | ---- | ------- | ----
|
|Land and
improvements     |  |  |  | $    | 3,072   |     
|Building and
improvements |  |  |  |      | 19,537  |     
|Equipment and
furniture   |  |  |  |      | 655,768 |     
|                          |  |  |  | $    | 678,377 |     



Rental equipment of approximately $524.8 million in
2004 and $476.5 million in 2003 is included with equipment and furniture.


|(4) |  | Leases
|--- |  | ------



The Company has a computer operating system classified as a
capital lease at December 31, 2004. The amount applicable to these assets and included in equipment and furniture is:







|                                |  |  |  | 2004 |        | 2003
|------------------------------- |  |  |  | ---- | ------ | ----
|
|Equipment
        and furniture |  |  |  | $    | 4,108  |     
|Less
accumulated depreciation   |  |  |  |      | (1,300 | )   
|                                |  |  |  | $    | 2,808  |     

F-11

---

LINCARE HOLDINGS INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)December 31, 2004, 2003 and 2002

(4)    Leases (Continued)



The Company has noncancelable lease obligations,
primarily for buildings, office equipment and vehicles, that expire over the next six years and that provide for renewal options. Operating lease
expense was approximately $39.6 million in 2004, $36.9 million in 2003 and $34.1 million in 2002. Future minimum lease payments under capital leases
and noncancelable operating leases as of December 31, 2004, are as follows:







|                             |  |  |  | Capital leases |     | Operating leases
|---------------------------- |  |  |  | -------------- | --- | ----------------
|
|2005                         |  |  |  | $              | 280 |                 
|2006                         |  |  |  |                |    |                 
|2007                         |  |  |  |                |    |                 
|2008                         |  |  |  |                |    |                 
|2009                         |  |  |  |                |    |                 
|Thereafter                   |  |  |  |                |    |                 
|Total minimum
lease payments |  |  |  | $              | 280 |                 

|(5) |  | Long-Term Obligations
|--- |  | ---------------------



Long-term obligations at December 31, 2004 and 2003
consist of:







|                                                                                                                                                                                                                  |  |  |  | 2004 |         | 2003
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  |  | ---- | ------- | ----
|
|Senior
secured notes bearing fixed interest at 9.11% on $45,000,000 due September 2005 and 9.01% on $50,000,000 due and paid September 2004 and
unamortized gain from termination of interest rate swap agreement |  |  |  | $    | 45,093  |     
|Convertible
debt to mature in 2033, bearing fixed interest of 3.0%, with a callable option in 2008                                                                                                                |  |  |  |      | 275,000 |     
|Capital lease
obligations due 2005                                                                                                                                                                                |  |  |  |      | 280     |     
|Unsecured,
deferred acquisition obligations net of imputed interest, payable in various installments through 2005                                                                                                 |  |  |  |      | 22,857  |     
|Total
long-term obligations                                                                                                                                                                                       |  |  |  |      | 343,230 |     
|Less: current
installments                                                                                                                                                                                        |  |  |  |      | 67,937  |     
|Long-term
debt, excluding current installments                                                                                                                                                                    |  |  |  | $    | 275,293 |     



The Companys current revolving credit
agreement with several lenders and Bank of America N.A. as agent, dated April 25, 2002, as amended, permits the Company to borrow amounts up to $200.0
million on a five-year revolving credit facility. The five-year revolving credit facility contains a $20.0 million letter of credit sub-facility which
reduces the principal amount available under the five-year revolving credit facility by the amount of outstanding letters of credit. As of December 31,
2004, $14.0 million was outstanding under the letter of credit sub-facility. The revolving credit agreement has a termination date of April 24, 2007.
Upon entering into the revolving credit agreement, an origination fee of $1.7 million was paid and is being amortized over five years. (Any remaining
portion of the previous amendment fees were recalculated to be amortized over the new five-year time period.) Commitment fees on the unused portion of
the facility (.300% at December 31, 2004) are based upon the Companys consolidated leverage ratio for the most recent four fiscal quarters.
Interest accrued on the outstanding principal balance that is not termed for repayment is payable monthly. The revolving credit agreement contains
several financial and other covenants and is secured by a pledge of the stock of the wholly-owned subsidiaries of Lincare Holdings
Inc.


F-12

---

LINCARE HOLDINGS INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)December 31, 2004, 2003 and 2002

(5)    Long-Term Obligations (Continued)



The Companys $60.0 million 364-day revolving
credit agreement expired on August 22, 2000 and was replaced on September 6, 2000 by $125.0 million of senior secured notes offered through a private
placement. The senior secured notes have a fixed interest rate and mature over three, four and five years: $30.0 million at 8.91% that was paid
September 15, 2003, $50.0 million at 9.01% that was paid September 15, 2004 and $45.0 million at 9.11% due September 15, 2005. Upon entering into the
senior secured note agreement, a placement fee of $0.9 million was paid and is being amortized over the periods of the notes. The senior secured notes
contain several financial and other covenants and are secured by a pledge of the stock of the wholly-owned subsidiaries of Lincare Holdings Inc. On
September 6, 2000, the Company entered into an interest rate swap agreement whereby the interest rate on its $125.0 million of senior secured notes
were effectively converted to variable interest rates. On December 14, 2000, the Company terminated the interest rate swap agreement prior to its
maturity at a realized gain of $3.0 million. The gain was deferred and is being recognized over the maturity periods of the senior secured notes. The
remaining unamortized gain from the termination of the interest rate swap agreement was $93,000 at December 31, 2004.




On June 11, 2003, the Company 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 Lincare 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, the Company sold an
additional $25.0 million principal amount of Debentures pursuant to the exercise in full of an over-allotment option granted to the initial purchasers
of the Debentures. The Debentures are convertible into common stock in any calendar quarter if, among other circumstances, the last reported sale price
of the Companys common stock for at least 20 trading days during the period of 30 consecutive trading days ending on the last trading day of the
previous calendar quarter is greater than or equal to 120% of the applicable conversion price per share ($64.00 per share) of Lincare common stock on
such last trading day. Interest on the Debentures is payable at the rate of 3.0% per annum on June 15 and December 15 of each year.
The Debentures are senior unsecured obligations and will mature on June 15, 2033. The Debentures are redeemable by the Company on or after
June 15, 2008, and may be put to the Company for repurchase on June 15, 2008, 2010, 2013, or 2018.




Maturities of long-term obligations are $67,937,000
in 2005, $293,000 in 2006 and $275,000,000 thereafter.


F-13

---

LINCARE HOLDINGS INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)December 31, 2004, 2003 and 2002

|(6) |  | Income Taxes
|--- |  | ------------



The tax effects of temporary differences that
account for significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2004 and 2003 are presented
below:







|                                                                                               |  |  |  | 2004 |         | 2003
|---------------------------------------------------------------------------------------------- |  |  |  | ---- | ------- | ----
|
|Deferred tax
assets:                                                                           |  |  |  |      |         |     
|Accrued
expenses, principally due to deferral for income tax reporting purposes                |  |  |  | $    |        |     
|Intangible
assets and covenants not to compete, principally due to differences in amortization |  |  |  |      | (13,014 | )   
|Total gross
deferred tax assets                                                                |  |  |  |      | (13,014 | )   
|Deferred tax
liabilities:                                                                      |  |  |  |      |         |     
|Property and
equipment, principally due to differences in depreciation                         |  |  |  |      | 61,232  |     
|Goodwill,
principally due to differences in amortization                                       |  |  |  |      | 83,413  |     
|Other                                                                                          |  |  |  |      | 12,418  |     
|Total gross
deferred tax liabilities                                                           |  |  |  |      | 157,063 |     
|Net deferred
tax liability                                                                     |  |  |  | $    | 144,049 |     



There is no valuation allowance for deferred tax
assets. The Company expects that the results of future operations will generate sufficient taxable income to allow for the utilization of deferred tax
assets.




Income tax expense attributable to operations
consists of:







|                                                   |  |  |  | Year Ended December 31, |        
|-------------------------------------------------- |  |  |  | ----------------------- | -------
|
|
|Current:                                           |  |  |  |                         |        
|Federal                                            |  |  |  | $                       | 122,029
|State                                              |  |  |  |                         | 10,209 
|Total
current                                      |  |  |  |                         | 132,238
|Deferred:                                          |  |  |  |                         |        
|Federal                                            |  |  |  |                         | 27,060 
|State                                              |  |  |  |                         | 7,677  
|Total
deferred                                     |  |  |  |                         | 34,737 
|Total income
tax expense                           |  |  |  | $                       | 166,975
|Total income
tax expense allocation:               |  |  |  |                         |        
|Income from
operations                             |  |  |  | $                       | 166,975
|Tax benefit
for exercise of employee stock options |  |  |  |                         | (15,711
|                                                   |  |  |  | $                       | 151,264

F-14

---

LINCARE HOLDINGS INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)December 31, 2004, 2003 and 2002

(6)    Income Taxes (Continued)



Total income tax expense differs from the amounts
computed by applying a U.S. federal income tax rate of 35% to income before income taxes as a result of the following:







|                                                      |  |  |  | Year Ended December 31, |        
|----------------------------------------------------- |  |  |  | ----------------------- | -------
|
|
|Computed
expected tax expense                       |  |  |  | $                       | 154,141
|State income
taxes, net of federal income tax benefit |  |  |  |                         | 11,626 
|Other                                                 |  |  |  |                         | 1,208  
|Total income
tax expense                              |  |  |  | $                       | 166,975

|(7) |  | Stockholders Equity
|--- |  | --------------------



The Company has 5,000,000 authorized shares of
preferred stock, all of which are unissued. The Board of Directors has the authority to issue up to such number of shares of preferred stock in one or
more series and to fix the rights, preferences, privileges, qualifications, limitations and restrictions thereof without any further vote or action by
the stockholders but subject to restrictions imposed by the Companys revolving credit agreement and senior secured note
agreement.


|(8) |  | Stock Plans
|--- |  | -----------



The Company has eight stock option plans that
provide for the grant of options and other stock-based awards to directors, officers and employees. To date, stock options have been granted with an
exercise price equal to the stocks fair value at the date of grant. Stock options generally have eight year terms and generally vest over two to
four years.




The Company has reserved a total of 11.9 million
shares of common stock for issuance under its Non-Qualified Stock Option Plan (the Plan). At December 31, 2004, there were no options
outstanding and no options available for issuance under the Plan. The Company has reserved a total of 6.4 million shares of common stock for issuance
under its 1991 Stock Plan (the 1991 Plan). At December 31, 2004, there were options for 13,000 shares outstanding and no options available
for issuance under the 1991 Plan. The Company has reserved a total of 2.0 million shares of common stock for issuance under its 1994 Stock Plan (the
1994 Plan). At December 31, 2004, there were options for .2 million shares outstanding and no options available for issuance under the 1994
Plan. The Company has reserved a total of 4.0 million shares of common stock for issuance under its 1996 Stock Plan (the 1996 Plan). At
December 31, 2004, there were options for 1.1 million shares outstanding and no options available for issue under the 1996 Plan. The Company has
reserved a total of 3.0 million shares of common stock for issuance under its 1998 stock plan (the 1998 Plan). At December 31, 2004, there
were options for 1.7 million shares outstanding and 64,000 shares available for issuance under the 1998 Plan. The Company has reserved a total of 2.0
million shares of common stock for issuance under the 2000 Stock Plan (the 2000 Plan). At December 31, 2004, there were options for 1.1
million shares outstanding and options for 46,500 shares available for issuance under the 2000 Plan. The Company has reserved a total of 6.5 million
shares of common stock for issuance under the 2001 Stock Plan (the 2001 Plan). At December 31, 2004, there were options for 5.1 million
shares outstanding and options for 1.0 million shares available for issuance under the 2001 Plan. The Company has reserved a total of 4.0 million
shares of common stock for issuance under the 2004 Stock Plan (the 2004 Plan). At December 31 2004, there were options for 0.9 million
shares outstanding and options for 3.1 million shares available for issuance under the 2004 Plan.


F-15

---

LINCARE HOLDINGS INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)December 31, 2004, 2003 and 2002

(8)    Stock Plans (Continued)



The per share weighted average fair value of stock
options granted during 2004, 2003 and 2002 was $12.75, $13.28 and $17.56 on the date of grant using the Black Scholes multiple option pricing model
with the following weighted average assumptions: 2004  expected dividend yield 0%, risk-free interest rate of 2.8%, expected life of 3 years, and
volatility of 55.3%; 2003  expected dividend yield 0%, risk-free interest rate of 2.0%, expected life of 4 years, and volatility of 57.7%; 2002
 expected dividend yield 0%, risk-free interest rate of 2.8%, expected life of 8 years, and volatility of 58.8%.




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







|                                                                                                                                      |  |  |  | 2004 |         | 2003 |  | 2002
|------------------------------------------------------------------------------------------------------------------------------------- |  |  |  | ---- | ------- | ---- |  | ----
|
|Net
income:                                                                                                                           |  |  |  |      |         |      |  |     
|As
reported                                                                                                                           |  |  |  | $    | 273,428 |      |  | $   
|Add:
Stock-based employee compensation expense included in income, net of related tax effects                                         |  |  |  |      | 1,275   |      |  |     
|Deduct: Total
stock-based employee compensation expense determined under fair value method for all awards, net of related tax effects |  |  |  |      | (14,208 | )    |  |     
|Pro
forma                                                                                                                             |  |  |  | $    | 260,495 |      |  | $   
|Income per
common share:                                                                                                              |  |  |  |      |         |      |  |     
|Basic 
as reported                                                                                                                   |  |  |  | $    | 2.74    |      |  | $   
|Diluted
 as reported (1)                                                                                                             |  |  |  | $    | 2.60    |      |  | $   
|Basic 
pro forma                                                                                                                     |  |  |  | $    | 2.61    |      |  | $   
|Diluted
 pro forma (1)                                                                                                               |  |  |  | $    | 2.43    |      |  | $   

|(1) |  | Figures in 2004 reflect the application of the if
converted method of accounting for the Companys outstanding convertible debentures in accordance with EITF Issue No. 04-8, effective for
reporting periods ending after December 15, 2004. Figures in 2003 have been restated for comparative purposes in accordance with the requirements of
EITF 04-8. Restatement of periods prior to 2003 was not necessary since no applicable convertible securities were outstanding in those
periods.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-16

---

LINCARE HOLDINGS INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)December 31, 2004, 2003 and 2002

(8)    Stock Plans (Continued)



Information related to the plans is as
follows:







|                                 |  |  |  | Number of Options |            | Weighted Average Exercise Price
|-------------------------------- |  |  |  | ----------------- | ---------- | -------------------------------
|Outstanding
at December 31, 2001 |  |  |  |                   | 9,961,350  |                                
|Exercised in
2002                |  |  |  |                   | (675,650   | )                              
|Canceled in
2002                 |  |  |  |                   | (253,000   | )                              
|Options
issued in 2002           |  |  |  |                   | 1,332,000  |                                
|Outstanding
at December 31, 2002 |  |  |  |                   | 10,364,700 |                                
|Exercised in
2003                |  |  |  |                   | (1,127,100 | )                              
|Canceled in
2003                 |  |  |  |                   | (40,150    | )                              
|Options
issued in 2003           |  |  |  |                   | 1,890,000  |                                
|Outstanding
at December 31, 2003 |  |  |  |                   | 11,087,450 |                                
|Exercised in
2004                |  |  |  |                   | (1,930,500 | )                              
|Canceled in
2004                 |  |  |  |                   | (67,850    | )                              
|Options
issued in 2004           |  |  |  |                   | 889,000    |                                
|Outstanding
at December 31, 2004 |  |  |  |                   | 9,978,100  |                                



The following table summarizes information about
stock options outstanding under the plans at December 31, 2004:







|                |  |  |  | Options Outstanding |  | Options Exercisable | 
|--------------- |  |  |  | ------------------- |  | ------------------- | 
|
|$ 6.25
 $12.25 |  |  |  | 1,199,000           |  | 2.4
years           | 
|$12.31 
$17.81 |  |  |  | 2,159,450           |  | 3.0
years           | 
|$22.06 
$32.00 |  |  |  | 6,619,650           |  | 5.4
years           | 
|$ 6.25
 $32.00 |  |  |  | 9,978,100           |  | 4.5
years           | 



At December 31, 2004, the number of options
exercisable was 7.7 million, and the weighted average exercise price of those options was $21.17. All of the securities to be issued upon exercise of
outstanding options were the result of options granted under equity compensation plans approved by the Companys stockholders.




In connection with the exercise of certain stock
options, the Company receives a tax deduction for the difference between the fair value of the common stock at the date of exercise and the exercise
price. The related income tax benefit of approximately $15.7 million in 2004, $9.1 million in 2003 and $5.1 million in 2002 has been recorded as a
reduction of income taxes payable and an increase to additional paid-in capital.




Under the 2004 Stock Plan, certain key employees may
be granted restricted stock at nominal cost to them. Restricted stock is measured at fair value on the date of the grant, based on the number of shares
granted and the quoted price of the Companys common stock. Such value will be recognized as compensation expense ratably over the corresponding
employees specified service period. Restricted stock vests upon fulfillment of specified performance and service-based conditions. On July 1,
2004, the Company granted 260,000 shares of restricted stock to certain key employees.


|(9) |  | Net Revenues
|--- |  | ------------



Included in the Companys net revenues is
reimbursement from the federal government under Medicare, Medicaid and other federally funded programs, which aggregated approximately 67% of net
revenues in each of years 2004, 2003 and 2002.


F-17

---

LINCARE HOLDINGS INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)December 31, 2004, 2003 and 2002

(9)    Net Revenues (Continued)



The following table sets forth a summary of the
Companys net revenues by product category:







|                                     |  |  |  | Year Ended December 31, |          
|------------------------------------ |  |  |  | ----------------------- | ---------
|
|
|Oxygen and
other respiratory therapy |  |  |  | $                       | 1,156,676
|Home medical
equipment and other     |  |  |  |                         | 111,855  
|Total                                |  |  |  | $                       | 1,268,531

|(10) |  | 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 earnings, including stock options. When the exercise of stock options is
anti-dilutive, they are excluded from the calculation. There were no anti-dilutive stock options excluded from the calculation for the years ended
December 31, 2004, 2003 and 2002.




In October 2004, the Emerging Issues Task Force
(EITF) ratified the consensus on EITF Issue 04-8, The Effect of Contingently Convertible Instruments on Diluted Earnings per
Share, that the impact of contingently convertible debt should be included in diluted earnings per share computations regardless of whether the
market price conversion condition has been met. This provision is effective for reporting periods ending after December 15, 2004 with the requirement
to restate all prior period earnings per share amounts to conform to the provisions of the final EITF.




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







|                                                                                     |  |  |  | Year Ended December 31, |        
|------------------------------------------------------------------------------------ |  |  |  | ----------------------- | -------
|
|
|Numerator:                                                                           |  |  |  |                         |        
|Basic 
Income available to common stockholders                                      |  |  |  | $                       | 273,428
|Adjustment
for assumed dilution:                                                     |  |  |  |                         |        
|Interest on
convertible debt, net of tax                                             |  |  |  |                         | 5,124  
|Diluted
 Income available to common stockholders and holders of dilutive securities |  |  |  | $                       | 278,552
|Denominator:                                                                         |  |  |  |                         |        
|Weighted
average shares                                                              |  |  |  |                         | 99,681 
|Effect of
dilutive securities:                                                       |  |  |  |                         |        
|Stock
options                                                                        |  |  |  |                         | 2,385  
|Convertible
debt                                                                     |  |  |  |                         | 5,157  
|Adjusted
weighted average shares                                                     |  |  |  |                         | 107,223
|Per share
amount:                                                                    |  |  |  |                         |        
|Basic                                                                                |  |  |  | $                       | 2.74   
|Diluted
(1)                                                                          |  |  |  | $                       | 2.60   

F-18

---

LINCARE HOLDINGS INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)December 31, 2004, 2003 and 2002

(10)    Income Per Common Share
(Continued)

|(1) |  | Figures in 2004 reflect the application of the if
converted method of accounting for the Companys outstanding convertible debentures in accordance with EITF No. 04-8, effective for
reporting periods ending after December 15, 2004. Figures in 2003 have been restated for comparative purposes in accordance with the requirements of
EITF No. 04-8. Restatement of periods prior to 2003 was not necessary since no applicable convertible securities were outstanding in those
periods.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(11) |  | Business Combinations
|---- |  | ---------------------



The Companys strategy is to increase its
market share through internal growth and strategic acquisitions. Lincare achieves internal growth in existing geographic markets through the addition
of new customers and referral sources to its network of local operating centers. In addition, the Company expands into new geographic markets on a
selective basis, either through acquisitions or by opening new operating centers, when it believes such expansion will enhance its
business.




During 2004, the Company acquired certain assets of
26 businesses in separate transactions and purchased the remaining equity interest in two companies in which we had previously acquired partial
ownership. During 2003, the Company acquired certain assets of 13 businesses and interests in three joint ventures. Consideration for the acquisitions
generally included cash, unsecured non-interest bearing obligations and the assumption of certain liabilities.




Each acquisition during 2004 and 2003 was accounted
for as a purchase. The results of operations of the acquired companies are included in the accompanying consolidated statements of operations since the
respective dates of acquisition. Each of the acquired companies conducted operations similar to that of the Company. Pending receipt of additional
valuation information, amounts preliminarily allocated to goodwill, other intangible assets and patient service equipment were $96,535,000, $330,000 and
$4,835,000, respectively in 2004. Amounts allocated in 2003 included $141,421,000 to goodwill, $465,000 to other intangible assets, $6,474,000 to patient
service equipment and $1,149,000 to other assets. These allocations are inclusive of amounts not yet
paid.




The aggregate cost of the acquisitions described
above was as follows:







|                                 |  |  |  | 2004 |         | 2003
|-------------------------------- |  |  |  | ---- | ------- | ----
|
|Cash                             |  |  |  | $    | 83,022  |     
|Deferred
acquisition obligations |  |  |  |      | 20,012  |     
|Assumption of
liabilities        |  |  |  |      | 1,103   |     
|                                 |  |  |  | $    | 104,137 |     



The aggregate purchase price of the acquisitions
described above was allocated as follows:







|                               |  |  |  | 2004 |         | 2003
|------------------------------ |  |  |  | ---- | ------- | ----
|
|Current
        assets         |  |  |  | $    | 2,437   |     
|Property
        and equipment |  |  |  |      | 4,835   |     
|Intangible
        assets      |  |  |  |      | 330     |     
|Goodwill                       |  |  |  |      | 96,535  |     
|Other
        Assets           |  |  |  |      |        |     
|                               |  |  |  | $    | 104,137 |     



In June 2001, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations and SFAS No. 142, Goodwill
and Other Intangible Assets. The Company adopted SFAS No. 141 on July 1, 2001 and adopted SFAS No. 142 in the first quarter of 2002 (see previous
discussion in note (1)(j)).


F-19

---

LINCARE HOLDINGS INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)December 31, 2004, 2003 and 2002

(11)    Business Combinations (Continued)



The following unaudited pro forma supplemental
information on the results of operations for the years ended December 31, 2004 and 2003 includes the 2004 acquisitions as if they had been combined at
the beginning of 2003.







|                                  |  |  |  | 2004 |           | 2003
|--------------------------------- |  |  |  | ---- | --------- | ----
|
|Net
revenues                      |  |  |  | $    | 1,297,436 |     
|Net
income                        |  |  |  | $    | 284,891   |     
|Basic 
income per common share   |  |  |  | $    | 2.81      |     
|Diluted
 income per common share |  |  |  | $    | 2.66      |     



This unaudited pro forma financial information is
not necessarily indicative of either the results of operations that would have occurred had the transactions been effected at the beginning of 2003 or
of future results of operations of the combined companies.


|(12) |  | Contingencies
|---- |  | -------------



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. There are several pending government inquiries, but the government has not instituted any proceedings or served us with any
complaints as a result of these inquiries. However, the Company can give 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 in all unsealed qui tam actions of which we are aware and we are vigorously defending these suits.




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


F-20

---

LINCARE HOLDINGS INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)December 31, 2004, 2003 and 2002

|(13) |  | Quarterly Financial Data (Unaudited)
|---- |  | ------------------------------------



The following is a summary of quarterly financial
results for the years ended December 31, 2004 and 2003:







|                         |  |  |  | First Quarter |         | Second Quarter |  | Third Quarter |         | Fourth Quarter
|------------------------ |  |  |  | ------------- | ------- | -------------- |  | ------------- | ------- | --------------
|
|2004:                    |  |  |  |               |         |                |  |               |         |               
|Net
revenues             |  |  |  | $             | 306,871 |                |  | $             | 315,409 |               
|Operating
income         |  |  |  | $             | 105,413 |                |  | $             | 112,256 |               
|Net
income               |  |  |  | $             | 62,933  |                |  | $             | 67,379  |               
|Income per
common share: |  |  |  |               |         |                |  |               |         |               
|Basic                    |  |  |  | $             | 0.64    |                |  | $             | 0.68    |               
|Diluted                  |  |  |  | $             | 0.60    |                |  | $             | 0.64    |               
|2003:                    |  |  |  |               |         |                |  |               |         |               
|Net
revenues             |  |  |  | $             | 265,173 |                |  | $             | 283,132 |               
|Operating
income         |  |  |  | $             | 88,005  |                |  | $             | 94,779  |               
|Net
income               |  |  |  | $             | 52,922  |                |  | $             | 56,810  |               
|Income per
common share: |  |  |  |               |         |                |  |               |         |               
|Basic                    |  |  |  | $             | 0.50    |                |  | $             | 0.55    |               
|Diluted                  |  |  |  | $             | 0.49    |                |  | $             | 0.53    |               

F-21

---



[This Page Intentionally Left Blank.]

---



SCHEDULE

LINCARE HOLDINGS INC. AND SUBSIDIARIES

FINANCIAL STATEMENT SCHEDULE

VALUATION AND QUALIFYING ACCOUNTS






|Description                          |  |  |  | Balance at Beginning of Period |        | Charged to Costs and Expenses |  | Charged to Other Accounts |        | Deductions |  | Balance at End of Period
|------------------------------------ |  |  |  | ------------------------------ | ------ | ----------------------------- |  | ------------------------- | ------ | ---------- |  | ------------------------
|
|Year Ended
December 31, 2004         |  |  |  |                                |        |                               |  |                           |        |            |  |                         
|Deducted from
asset accounts:        |  |  |  |                                |        |                               |  |                           |        |            |  |                         
|Allowance for
uncollectible accounts |  |  |  | $                              | 22,623 |                               |  | $                         | 19,028 |            |  | $                       
|Year Ended
December 31, 2003         |  |  |  |                                |        |                               |  |                           |        |            |  |                         
|Deducted from
asset accounts:        |  |  |  |                                |        |                               |  |                           |        |            |  |                         
|Allowance for
uncollectible accounts |  |  |  | $                              | 11,324 |                               |  | $                         | 17,210 |            |  | $                       
|Year Ended
December 31, 2002         |  |  |  |                                |        |                               |  |                           |        |            |  |                         
|Deducted from
asset accounts:        |  |  |  |                                |        |                               |  |                           |        |            |  |                         
|Allowance for
uncollectible accounts |  |  |  | $                              | 7,444  |                               |  | $                         | 14,414 |            |  | $                       

---

|(1) |  | To record allowance on business combinations.
|--- |  | ---------------------------------------------

|(2) |  | To record write-offs, net of recoveries.
|--- |  | ----------------------------------------

S-1

---

INDEX OF EXHIBITS






|Exhibit Number |  |  |  | Exhibit                                                                                                                                       
|-------------- |  |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------
|3.10(C)        |  |  |  | Amended and Restated Certificate of Incorporation of Lincare Holdings Inc.                                                                    
|3.11(C)        |  |  |  | Certificate of Amendment to the Amended and Restated                                                                                          
|               |  |  |  | Certificate of Incorporation of Lincare Holdings Inc.                                                                                         
|3.20(H)        |  |  |  | Amended and Restated By-Laws of Lincare Holdings Inc.                                                                                         
|4.1(I)         |  |  |  | Lincare Holdings Inc. Indenture dated as of June 11, 2003                                                                                     
|4.2(I)         |  |  |  | Lincare Holdings Inc. Registration Rights Agreement dated as of June 11, 2003                                                                 
|10.20(A)       |  |  |  | Non-Qualified Stock Option Plan of Registrant                                                                                                 
|10.21(A)       |  |  |  | Lincare Holdings Inc. 1991 Stock Plan                                                                                                         
|10.22(E)       |  |  |  | Lincare Holdings Inc. 1994 Stock Plan                                                                                                         
|10.23(E)       |  |  |  | Lincare Holdings Inc. 1996 Stock Plan                                                                                                         
|10.24(E)       |  |  |  | Lincare Holdings Inc. 1998 Stock Plan                                                                                                         
|10.25(E)       |  |  |  | Lincare Holdings Inc. 2000 Stock Plan                                                                                                         
|10.27(J)       |  |  |  | Amended Lincare Holdings Inc. 2001 Stock Plan                                                                                                 
|10.28(K)       |  |  |  | Lincare Holdings Inc. 2004 Stock Plan                                                                                                         
|10.30(G)       |  |  |  | Lincare Inc. 401(k) Plan                                                                                                                      
|10.31(B)       |  |  |  | Employee Stock Purchase Plan                                                                                                                  
|10.34(L)       |  |  |  | Non-Qualified Stock Option Agreement between Lincare Holdings Inc. and John P. Byrnes                                                         
|10.35(L)       |  |  |  | Non-Qualified Stock Option Agreement between Lincare Holdings Inc. and Paul G. Gabos                                                          
|10.36(L)       |  |  |  | Non-Qualified Stock Option Agreement between Lincare Holdings Inc. and Shawn S. Schabel                                                       
|10.37(L)       |  |  |  | Restricted Stock Agreement between Lincare Holdings Inc. and John P. Byrnes                                                                   
|10.38(L)       |  |  |  | Restricted Stock Agreement between Lincare Holdings Inc. and Paul G. Gabos                                                                    
|10.39(L)       |  |  |  | Restricted Stock Agreement between Lincare Holdings Inc. and Shawn S. Schabel                                                                 
|10.40(F)       |  |  |  | Form of Executive Employment Agreement dated December 15, 2001                                                                                
|10.41(M)       |  |  |  | Executive Employment Agreements dated November 15, 2004                                                                                       
|10.50(B)       |  |  |  | Form of Non-employment Director Stock Option Agreement                                                                                        
|10.51(B)       |  |  |  | Form of Non-qualified Stock Option Agreement                                                                                                  
|10.60(G)       |  |  |  | Amended and Restated Credit Agreement dated as of April 25, 2002                                                                              
|10.63(J)       |  |  |  | First Amendment to Amended and Restated Credit Agreement dated June 4, 2003                                                                   
|10.64(N)       |  |  |  | Second Amendment to Amended and Restated Credit Agreement dated December 10, 2004                                                             
|10.65          |  |  |  | First Supplemental Indenture between Lincare Holdings and U.S. Bank Trust National Association dated December 17, 2004                        
|10.70(D)       |  |  |  | Senior Secured Note Purchase Agreement among Lincare Holdings Inc., as Borrower, and several note holders with Bank of America, N.A., as
Agent
|10.71(D)       |  |  |  | Form of Series A Note                                                                                                                         
|10.72(D)       |  |  |  | Form of Series B Note                                                                                                                         
|10.73(D)       |  |  |  | Form of Series C Note                                                                                                                         
|12.1           |  |  |  | Computation of Ratio of Earnings to Fixed Charges                                                                                             
|21.1           |  |  |  | List of Subsidiaries of Lincare Holdings Inc.                                                                                                 

S-2

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|Exhibit Number |  |  |  | Exhibit                                                                                                                                                                                                                      
|-------------- |  |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|24.1           |  |  |  | Special Powers of Attorney                                                                                                                                                                                                   
|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 Corresponding exhibit to the
Registrants Registration Statement on Form S-1 (No. 33-44672).
|- |  | -----------------------------------------------------------------------------------------------------------------------------

|B |  | Incorporated by reference to the Registrants Form 10-K
dated March 26, 1998.
|- |  | -----------------------------------------------------------------------------

|C |  | Incorporated by reference to the Registrants Form 10-Q
dated August 12, 1998.
|- |  | ------------------------------------------------------------------------------

|D |  | Incorporated by reference to the Registrants Form 10-Q
dated November 13, 2000.
|- |  | --------------------------------------------------------------------------------

|E |  | Incorporated by reference to the Registrants Form 10-K
dated March 29, 2001.
|- |  | -----------------------------------------------------------------------------

|F |  | Incorporated by reference to the Registrants Form 10-K
dated March 28, 2002.
|- |  | -----------------------------------------------------------------------------

|G |  | Incorporated by reference to the Registrants Form 10-Q
dated May 13, 2002.
|- |  | ---------------------------------------------------------------------------

|H |  | Incorporated by reference to the Registrants Form 10-Q
dated August 13, 2002.
|- |  | ------------------------------------------------------------------------------

|I |  | Incorporated by reference to the Registrants Form 8-K
dated June 12, 2003.
|- |  | ---------------------------------------------------------------------------

|J |  | Incorporated by reference to the Registrants Form 10-Q
dated August 14, 2003.
|- |  | ------------------------------------------------------------------------------

|K |  | Incorporated by reference to the Registrants Form DEF 14-A
dated April 22, 2004.
|- |  | ---------------------------------------------------------------------------------

|L |  | Incorporated by reference to the Registrants Form 10-Q
dated November 9, 2004.
|- |  | -------------------------------------------------------------------------------

|M |  | Incorporated by reference to the Registrants Form 8-K
dated November 18, 2004.
|- |  | -------------------------------------------------------------------------------

|N |  | Incorporated by reference to the Registrants Form 8-K
dated December 16, 2004.
|- |  | -------------------------------------------------------------------------------

S-3

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