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, 2005
|--- |  | --------------------------------------------------------------------------------------------------------------------------------



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 jurisdiction of 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) 530-7700Securities 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 if the
Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act.  Yes [X] No [  ]




Indicate by check mark if the
Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act.  Yes [  ] No [X]




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 a large accelerated filer, an accelerated filer, or non-accelerated filer (as defined in Exchange Act Rule 12b-2).




Large
accelerated filer    [X]        Accelerated
filer    [  ]        Nonaccelerated
filer    [  ]




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




The aggregate market value of the
registrants common stock, $.01 par value, held by non-affiliates of the registrant, based on a $40.90 closing sale price of the common stock on
June 30, 2005, as reported on the NASDAQ National Market System, was approximately $4,066,257,795.




As of February 28, 2006, there
were 95,599,998 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 2006 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, 2005.







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Table of Contents




LINCARE HOLDINGS INC. AND SUBSIDIARIES FORM 10-K
For The Year Ended December 31, 2005 INDEX







|                  |  |  |     |                                                                                                              |  | Page
|----------------- |  |  | --- | ------------------------------------------------------------------------------------------------------------ |  | ----
|PART I.          
|Item
1.           |  |  |     | Business                                                                                                     |  |     
|Item
1A.          |  |  |     | Risk Factors                                                                                                 |  |     
|Item
1B.          |  |  |     | Unresolved Staff Comments                                                                                    |  |     
|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                                                                                      |  |     
|Item
9B.          |  |  |     | Other Information                                                                                            |  |     
|                 
|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 approximately 625,000 customers in 47 states through 883
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 business 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 2005,
Lincare acquired 15 local and regional companies with operations in multiple 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 2005, oxygen and other respiratory therapy services accounted for approximately 91% of
Lincares net revenues.




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 prescribed 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 883 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 systems are one of our key competitive advantages. The
systems provide 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




2


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enables us to continually
enhance our computer systems 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 reimbursement or regulatory changes to be adjusted quickly. These features serve to decrease the processing
time of claims for payment 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
approximately 625,000 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 home medical equipment providers to be accredited or licensed by independent agencies in
order to participate in Medicare. Many private payors already require such accreditation.




Acquisitions




In 2005, we acquired, in
unrelated acquisitions, certain operating assets of 15 local and regional companies with operations in multiple states and also purchased the remaining
equity interest in two companies in which we had previously acquired partial ownership. These acquisitions resulted in the addition of 34 new operating
centers.




In 2004, we acquired, in
unrelated acquisitions, certain operating assets of 26 local and regional companies with operations in multiple 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.




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




On February 1, 2006, Congress
passed the Deficit Reduction Act of 2005 (DRA). DRA contains provisions that will impact reimbursement for oxygen equipment and DME in 2007
and beyond. DRA changes the reimbursement methodology for oxygen equipment from continuous monthly payment for as long as the equipment is in use by a
Medicare beneficiary, which includes payment for oxygen contents and maintenance of equipment, to a capped rental arrangement whereby payment for
oxygen equipment (including portable oxygen equipment) may not extend over a period of continuous use of longer than 36 months. On the first day that
begins after the 36th continuous month during which payment is made for the oxygen
equipment, the supplier would transfer title of the equipment to the beneficiary. Separate payments for oxygen contents would continue to be made for
the period of medical need beyond the 36th month. Additional payments for maintenance and
service of the oxygen equipment would be made if the Secretary of the Department of Health and Human Services (the Secretary) determines
that such payments are reasonable and necessary in an amount determined to be appropriate by the Secretary. The oxygen provisions contained in DRA
became effective on January 1, 2006. In the case of beneficiaries receiving oxygen equipment prior to the effective date, the 36-month period of
continuous use begins on January 1, 2006. We are unable to determine at this time the impact that the oxygen provisions contained in DRA will have on
our financial condition or results of operations.




DRA also changes the
reimbursement methodology for items of DME in the capped rental payment category, including but not limited to such items as continuous positive airway
pressure (CPAP) devices, certain respiratory assist devices, nebulizers, hospital beds and wheelchairs. For such items of DME, payment may
not extend over a period of continuous use of longer than 13 months. The option for a supplier to retain ownership of the item after a 15-month rental
period and receive semi-annual maintenance and service payments would be eliminated. On the first day that begins after the 13th continuous month during which payment is made for the item, the supplier would transfer title of the item to
the beneficiary. Additional payments for maintenance and service of the item would be made if the Secretary determines that such payments are
reasonable and necessary in an amount determined to be appropriate by the Secretary. The DME capped rental provisions contained in DRA apply to items
furnished for which the first rental month occurs on or after January 1, 2006. We can not predict at this time the impact that the DME provisions
contained in DRA will have on our financial condition or results of operations.




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




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


|(1) |  | Significantly reduced reimbursement for inhalation drug
therapies.    Historically, prescription drug coverage under Medicare has been limited to drugs furnished incident to a
physicians services and certain self-administered drugs, including inhalation drug therapies. Prior to MMA, Medicare reimbursement for covered
drugs, including the inhalation drugs that we provide, was limited to 95 percent of the
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



5


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published average wholesale price (AWP) for the
drug. MMA established 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%. Beginning in 2005, inhalation drugs furnished to
Medicare beneficiaries are reimbursed at 106 percent of the volume-weighted average selling price (ASP) of the drug, as determined from
data provided each quarter by drug manufacturers under a specific formula described in MMA.




On November 3, 2004, the Centers
for Medicare and Medicaid Services (CMS) issued rule CMS-1429-FC, which established 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. Payment rates for inhalation drugs are updated quarterly
based on the manufacturer ASP calculated for the most recent calendar quarter for which data are available. The new ASP-based payment formula in effect
for 2005 resulted in substantially reduced payment rates for inhalation drugs. The combination of the new ASP payment rates for inhalation drugs
commencing in 2005 and the monthly dispensing fee of $57.00 is estimated by the Company to have reduced our net revenues by approximately $137.2
million in 2005.




On November 2, 2005, CMS issued
rule CMS-1502-FC, establishing the dispensing fee amount for inhalation drugs for 2006. The final rule establishes a dispensing fee of $57.00 for the
first 30-day period in which a Medicare beneficiary uses inhalation drugs and a reduced fee of $33.00 for a 30-day supply of inhalation drugs for all
other months. We estimate that the reduction in the dispensing fee to $33.00 will reduce net revenues by approximately $46.0 million in 2006.
Additionally, we estimate that the inhalation drug payment rates established by CMS for the first quarter of 2006 (based on available manufacturer ASP
data) will result in annualized reductions in our net revenues of at least $8.6 million in 2006.




We continue to evaluate the
impact of the reduced Medicare payment rates on our business. We 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 to Medicare beneficiaries. 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 could have on us in 2006 and beyond.


|(2) |  | Reduced payment amounts for five categories of DME, including
oxygen, beginning in 2005 and froze payment amounts for other Medicare-covered DME items through 2007.    MMA contains
provisions that reduced payment amounts, beginning in 2005, for oxygen equipment, standard wheelchairs (including standard power wheelchairs),
nebulizers, diabetic supplies consisting of lancets and testing strips, hospital beds and air mattresses to the median prices paid under the Federal
Employee Health Plan (FEHP). Reductions in payment rates for 2005 established by CMS for the non-oxygen items subject to the FEHP
provisions went into effect as of January 1, 2005, and are estimated by the Company to have reduced our net revenues by approximately $3.6 million in
2005. MMA also froze payment amounts for other Medicare-covered DME items through 2007.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



On March 30, 2005, CMS released
the new Medicare fee schedule amounts for oxygen equipment. The new payment rates were made effective for claims for oxygen equipment furnished after
January 1, 2005, that were received by Medicare on or after April 1, 2005. We estimate that the new fee schedule resulted in a net price reduction of
8.7% for oxygen equipment provided by the Company to Medicare beneficiaries beginning in the second fiscal quarter of 2005. We estimate that these
changes reduced our net revenues in 2005 by approximately $47.5 million.


|(3) |  | Establishes a competitive acquisition program for DME
beginning in 2007.    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 will 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
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



6


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| |  | 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 will conduct a competition under which providers will submit bids to supply certain covered items of DME. Successful bidders will
be expected to meet certain program quality standards in order to be awarded a contract and only successful bidders can supply the covered items to
Medicare beneficiaries in the acquisition area. The applicable contract award prices are expected to be less than would be paid under current Medicare
fee schedules and contracts will be re-bid at least every three years. The Secretary will be required to award contracts to multiple entities
submitting bids in each area for an item or service, but will have the authority to limit the number of contractors in a competitive acquisition area
to the number needed to meet projected demand. 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 final quality standards to be implemented by CMS or the effect such standards would have on our ability to
continue to provide products to Medicare beneficiaries.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



On January 26, 2006, CMS
announced a final rule revising the payment classification of certain respiratory assist devices (RADs). RADs with a backup rate feature
will be reclassified as capped rental DME items effective April 1, 2006, whereby payments to providers of such devices will cease after the 13th continuous month of rental. Prior to the rule, providers were paid a continuous monthly
rental amount over the entire period of medical necessity. The rule will apply to claims received on or after April 1, 2006. In cases where Medicare
beneficiaries received the item prior to April 1, 2006, only the rental payments for months after the effective date will count toward the 13-month
cap. In 2005, RADs with a backup rate feature accounted for approximately $18.6 million of our net revenues.




On February 13, 2006, a final
rule governing CMSs Inherent Reasonableness (IR) authority became effective. The IR rule establishes a process for adjusting payments
for Medicare Part B services when existing payment amounts are determined to be either grossly excessive or deficient. The 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. To
date, no payment adjustments have occurred or been proposed as a result of the IR rule.




The effectiveness of the IR rule
itself does not trigger payment adjustments for any items or services. Nevertheless, the IR rule puts in place a process that eventually could have a
significant impact on Medicare payments for such Part B services as home oxygen, DME and Part B covered prescription drugs. We can not predict whether
CMS will exercise its IR authority with respect to reimbursement or payment of 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,




7


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distribution of medical
equipment and certain types of home health activities and apply to those locations involved in such activities. Certain of our employees are subject to
state laws and regulations governing the ethics and professional practice of respiratory therapy, pharmacy and nursing.




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




Numerous federal and state laws
and regulations, including the Health Insurance Portability and Accountability Act of 1996 (HIPAA), govern the collection, dissemination,
use and confidentiality of patient-identifiable health information. As part of Lincares provision of, and billing for, health care equipment and
services, we are required to collect and maintain patient-identifiable health information. New health information standards, whether implemented
pursuant to HIPAA, congressional action or otherwise, could have a significant effect on the manner in which we handle health care related data and
communicate with payors, and the cost of complying with these standards could be significant. If we do not comply with existing or new laws and
regulations related to patient health information, we could be subject to criminal or civil sanctions.




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




Employees




As of January 31, 2006, we had
8,258 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.




8


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|Item
1A. |  | Risk Factors
|-------- |  | ------------



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.




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 78 percent of our customers have primary
coverage under Medicare Part B. There are increasing pressures on Medicare to control health care costs and to reduce or limit reimbursement rates for
home medical equipment and services. Medicare reimbursement is subject to statutory and regulatory changes, retroactive rate adjustments,
administrative and executive orders and governmental funding restrictions, all of which could materially decrease payments to us for the services and
equipment we provide.




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




9


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and MMA provisions, when
fully implemented, could materially and adversely affect our business, financial condition, operating results and cash flows. See MEDICARE
REIMBURSEMENT for a full discussion of the DRA and MMA provisions.




A SIGNIFICANT PERCENTAGE OF OUR BUSINESS IS DERIVED FROM
THE SALE AND RENTAL OF MEDICARE-COVERED OXYGEN AND DME ITEMS, AND RECENT LEGISLATIVE ACTS IMPOSE SUBSTANTIAL CHANGES IN THE MEDICARE PAYMENT
METHODOLOGIES AND REDUCTIONS IN THE MEDICARE PAYMENT AMOUNTS FOR THESE ITEMS.




DRA changes the reimbursement
methodology for oxygen equipment from continuous monthly payment for as long as the equipment is in use by a Medicare beneficiary, which includes
payment for oxygen contents and maintenance of equipment, to a capped rental arrangement whereby payment for oxygen equipment (including portable
oxygen equipment) may not extend over a period of continuous use of longer than 36 months. On the first day that begins after the 36th continuous month during which payment is made for the oxygen equipment, the supplier would
transfer title of the equipment to the beneficiary. Separate payments for oxygen contents would continue to be made for the period of medical need
beyond the 36th month. Additional payments for maintenance and service of the oxygen
equipment would be made if the Secretary of the Department of Health and Human Services (the Secretary) determines that such payments are
reasonable and necessary in an amount determined to be appropriate by the Secretary. The oxygen provisions contained in DRA became effective on January
1, 2006. In the case of beneficiaries receiving oxygen equipment prior to the effective date, the 36-month period of continuous use begins on January
1, 2006. We are unable to determine at this time the impact that the oxygen provisions contained in DRA will have on our financial condition or results
of operations.




DRA also changes the
reimbursement methodology for items of DME in the capped rental payment category, including but not limited to such items as continuous positive airway
pressure (CPAP) devices, certain respiratory assist devices, nebulizers, hospital beds and wheelchairs. For such items of DME, payment may not extend
over a period of continuous use of longer than 13 months. The option for a supplier to retain ownership of the item after a 15-month rental period and
receive semi-annual maintenance and service payments would be eliminated. On the first day that begins after the 13th continuous month during which payment is made for the item, the supplier would transfer title of the item to the
beneficiary. Additional payments for maintenance and service of the item would be made if the Secretary determines that such payments are reasonable
and necessary in an amount determined to be appropriate by the Secretary. The DME capped rental provisions contained in DRA apply to items furnished
for which the first rental month occurs on or after January 1, 2006. We can not predict at this time the impact that the DME provisions contained in
DRA will have on our financial condition or results of operations.




MMA contains provisions that
reduced payment amounts, beginning in 2005, for oxygen equipment, standard wheelchairs (including standard power wheelchairs), nebulizers, diabetic
supplies consisting of lancets and testing strips, hospital beds and air mattresses to the median prices paid under the Federal Employee Health Plan
(FEHP) (See MEDICARE REIMBURSEMENT). Reductions in payment rates for 2005 established by CMS for the non-oxygen items subject
to the FEHP provisions went into effect as of January 1, 2005, and are estimated to have reduced our net revenues by approximately $3.6 million in
2005. MMA also freezes payment amounts for other covered DME items through 2007.




On March 30, 2005, CMS released
the new Medicare fee schedule amounts for oxygen equipment. The new payment rates were made effective for claims for oxygen equipment furnished after
January 1, 2005, that were received by Medicare on or after April 1, 2005. We estimate that the new fee schedule resulted in a net price reduction of
8.7% for oxygen equipment provided by the Company to Medicare beneficiaries beginning in the second fiscal quarter of 2005. We estimate that these
changes reduced net revenues in 2005 by approximately $47.5 million.




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




Historically, prescription drug
coverage under Medicare has been limited to drugs furnished incident to a physicians services and certain self-administered drugs, including
inhalation drug therapies. Prior to MMA, Medicare reimbursement for covered Part B drugs, including inhalation drugs that we provide, was limited
to




10


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95 percent of the published
average wholesale price (AWP) for the drug. MMA established new payment limits and procedures for drugs reimbursed under Medicare Part B
(See MEDICARE REIMBURSEMENT). 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%. Beginning in 2005, inhalation drugs furnished to Medicare beneficiaries are reimbursed at 106 percent of
the volume-weighted average selling price (ASP) of the drug, as determined from data provided each quarter by drug manufacturers under a
specific formula described in MMA.




On November 3, 2004, CMS issued
rule CMS-1429-FC, which established 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. Payment rates for inhalation drugs are updated quarterly based on the manufacturer ASP calculated for the most recent
calendar quarter for which data are available. The new ASP-based payment formula in effect for 2005 resulted in substantially reduced payment rates for
inhalation drugs. The combination of the new ASP payment rates for inhalation drugs commencing in 2005 and the monthly dispensing fee of $57.00 is
estimated to have reduced our net revenues by approximately $137.2 million in 2005.




On November 2, 2005, CMS issued
rule CMS-1502-FC, establishing the dispensing fee amount for inhalation drugs for 2006. The final rule establishes a dispensing fee of $57.00 for the
first 30-day period in which a Medicare beneficiary uses inhalation drugs and a reduced fee of $33.00 for a 30-day supply of inhalation drugs for all
other months. We estimate that the reduction in the dispensing fee to $33.00 will reduce net revenues by approximately $46.0 million in 2006.
Additionally, we estimate that the inhalation drug payment rates established by CMS for the first quarter of 2006 (based on available manufacturer ASP
data) will result in annualized reductions in our net revenues of at least $8.6 million in 2006.




We continue to evaluate the
impact of the reduced Medicare payment rates on our business. We 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 to Medicare beneficiaries. Further, we can not determine whether quarterly
updates in ASP pricing data submitted by drug manufacturers and adopted by CMS will continue to result in further reductions in payment rates for
inhalation drugs, and what impact such payment reductions could have on Lincare in 2006 and beyond. 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 ADDITIONAL REDUCTIONS AND TO POTENTIAL DISCRETIONARY ADJUSTMENT BY CMS, WHICH COULD REDUCE OUR
REVENUES, NET INCOME AND CASH FLOWS.




On January 26, 2006, CMS
announced a final rule revising the payment classification of certain respiratory assist devices (RADs). RADs with a backup rate feature
will be reclassified as capped rental DME items effective April 1, 2006, whereby payments to providers of such devices will cease after the 13th continuous month of rental. Prior to the rule, providers were paid a continuous monthly
rental amount over the entire period of medical necessity. The rule will apply to claims received on or after April 1, 2006. In cases where Medicare
beneficiaries received the item prior to April 1, 2006, only the rental payments for months after the effective date will count toward the 13-month
cap. In 2005, RADs with a backup rate feature accounted for approximately $18.6 million of our net revenues.




In February 2006, a final rule
governing CMS Inherent Reasonableness, or IR, authority became effective. The IR rule establishes a process for adjusting fee schedule amounts
for Medicare Part B services when existing payment amounts are determined to be either grossly excessive or deficient. The rule describes the factors
that CMS or its contractors will consider in making such determinations and the procedures that will be followed in establishing new payment amounts.
To date, no payment adjustments have occurred or been proposed as a result of the IR rule.




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




11


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




Recent legislation (See
MEDICARE REIMBURSEMENT) 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.




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 11% 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 15% 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.
Approximately 56% of our revenues are derived from Medicare, 26% from private insurance carriers, 11% from Medicaid and the balance directly from
individual customers and commercial entities.




12


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




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




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




13


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




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




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




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




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




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




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




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


|Item
1B. |  | Unresolved Staff Comments
|-------- |  | -------------------------



None.




Item
2.    Properties




Lincare owns its headquarters
facility located in Clearwater, Florida and one of our 883 operating center locations. Lincares other 882 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 31
separate billing centers from unrelated third parties.




14


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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.




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 2005.




15


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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
|-------------- |  |  |  | ---- | ----- | ---
|2005           |  |  |  |      |       |    
|First
quarter  |  |  |  | $    | 44.55 |    
|Second
quarter |  |  |  |      | 46.00 |    
|Third
quarter  |  |  |  |      | 44.16 |    
|Fourth
quarter |  |  |  |      | 44.76 |    
|2004           |  |  |  |      |       |    
|First
quarter  |  |  |  | $    | 32.85 |    
|Second
quarter |  |  |  |      | 35.52 |    
|Third
quarter  |  |  |  |      | 34.20 |    
|Fourth
quarter |  |  |  |      | 43.33 |    



As of February 28, 2006, there
were approximately 177 holders of record of the 95,599,998 outstanding shares of Lincare common stock (excluding 32,280,293 shares held in treasury).
The closing price of Lincare common stock on February 28, 2006, was $40.90 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.




During the year ended December
31, 2005, the Company repurchased approximately 7.8 million shares of its common stock in the open market at a cost of approximately $321.9 million
under two publicly announced repurchase programs approved by its Board of Directors. The following table sets forth the purchases of our common stock
during the fourth quarter of 2005.




ISSUER PURCHASES OF EQUITY SECURITIES







|Period                                |  |  |  | Total Number of Shares Purchased |           | Average Price Paid Per Share |  | Total Number of Shares Purchased as Part of the
Repurchase Programs |       | Approximate Dollar Value of Shares that May Yet Be
Purchased Under the Repurchase Programs
|------------------------------------- |  |  |  | -------------------------------- | --------- | ---------------------------- |  | ------------------------------------------------------------------- | ----- | ------------------------------------------------------------------------------------------
|Balance
forward (1)                   |  |  |  |                                  |           |                              |  |                                                                     |       |                                                                                           
|October 1,
2005 to October 31, 2005   |  |  |  |                                  | 1,195,883 |                              |  | $                                                                   | 40.36 |                                                                                           
|November 1,
2005 to November 30, 2005 |  |  |  |                                  | 796,296   |                              |  | $                                                                   | 42.90 |                                                                                           
|December 1,
2005 to December 31, 2005 |  |  |  |                                  | 449,184   |                              |  | $                                                                   | 41.51 |                                                                                           
|Total                                 |  |  |  |                                  | 2,441,363 |                              |  | $                                                                   | 41.45 |                                                                                           

|(1) |  | Balance forward includes amounts remaining under the
$250,000,000 repurchase program approved December 13, 2004 and the $100,000,000 repurchase program approved on October 24, 2005.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



16


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The following table sets forth
information as of fiscal 2005 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     |  |  |  |                                                                                             | 9,706,685 | (1)                                                                         |  | $                                                                                                                                          
|Equity
compensation plans not approved by security holders |  |  |  |                                                                                             | None      |                                                                             |  |                                                                                                                                            
|Total                                                      |  |  |  |                                                                                             | 9,706,685 | (1)                                                                         |  | $                                                                                                                                          

|(1) |  | Includes 9.4 million shares that are reserved for issuance under
various stock option plans and 260,000 shares that were issued under the Companys restricted stock program.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



17


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Item 6.    Selected Financial
Data




The selected consolidated
financial data presented below the caption Statements of Operations Data for the years ended December 31, 2005, 2004, 2003, 2002, and 2001,
and the caption Balance Sheet Data as of December 31, 2005, 2004, 2003, 2002 and 2001 are derived from our consolidated financial
statements audited by KPMG LLP, an independent registered public accounting firm.




The data set forth below is
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                                                                          |  |  |  | $                       | 1,266,627
|Cost of goods
and services                                                            |  |  |  |                         | 253,260  
|Operating
expenses                                                                    |  |  |  |                         | 295,420  
|Selling,
general and administrative expenses                                          |  |  |  |                         | 251,839  
|Bad debt
expense                                                                      |  |  |  |                         | 18,999   
|Depreciation
expense                                                                  |  |  |  |                         | 93,260   
|Amortization
expense                                                                  |  |  |  |                         | 1,682    
|Other charges
(1)                                                                     |  |  |  |                         |         
|Operating
income                                                                      |  |  |  |                         | 352,167  
|Interest
income                                                                       |  |  |  |                         | 3,718    
|Interest
expense                                                                      |  |  |  |                         | 12,432   
|Net loss on
disposal of property and equipment                                        |  |  |  |                         | 387      
|Realized loss
on derivative financial instrument                                      |  |  |  |                         |         
|Income before
income taxes                                                            |  |  |  |                         | 343,066  
|Income tax
expense                                                                    |  |  |  |                         | 129,370  
|Net
income                                                                            |  |  |  | $                       | 213,696  
|Income per
common share:                                                              |  |  |  |                         |          
|Basic                                                                                 |  |  |  | $                       | 2.16     
|Diluted
(2)                                                                           |  |  |  | $                       | 2.06     
|Weighted
average number of common shares outstanding                                  |  |  |  |                         | 98,913   
|Weighted
average number of common shares and common share equivalents outstanding (2) |  |  |  |                         | 106,306  

|(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 2005 and 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.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



18


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|                                                      |  |  |  | At December 31, |          
|----------------------------------------------------- |  |  |  | --------------- | ---------
|
|
|Balance
Sheet Data:                                   |  |  |  |                 |          
|Working
capital                                       |  |  |  | $               | 104,870  
|Total
assets                                          |  |  |  |                 | 1,666,873
|Long-term
obligations, including current installments |  |  |  |                 | 289,141  
|Stockholders equity                                  |  |  |  |                 | 1,137,876

|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 the accounts of Lincare Holdings Inc. and its 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 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 delivered to
customers for which invoices have not yet been generated by the billing system. Prior to the delivery




19


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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 weeks to several months, 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 a material impact on our 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.




20


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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 |  |  |  | $                       | 1,154,268
|Home medical
equipment and other     |  |  |  |                         | 112,359  
|Total                                |  |  |  | $                       | 1,266,627



Net revenues for the year ended
December 31, 2005 decreased by $1.9 million, a decrease of 0.2% below net revenues for 2004. The 0.2% decrease in net revenues in 2005 was comprised of
10.0% internal growth and 4.7% acquisition growth offset by reductions in Medicare reimbursement of 14.8%. The Medicare reimbursement reductions for
inhalation drugs, oxygen equipment and DME that were effective in 2005 reduced net revenues in the year by $188.2 million (see Medicare
Reimbursement). 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 11.7% internal growth and 3.6% acquisition growth offset by reductions in Medicare reimbursement of 4.7%.
Medicare reimbursement reductions for inhalation drugs in 2004 reduced net revenues in the year by $54.2 million. 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 four quarters following
such acquisitions. During 2005 and 2004, we completed the acquisition of 15 businesses with annual revenues of approximately $68.0 million and 26
businesses with annual revenues of approximately $49.0 million, respectively.




The contribution of oxygen and
other respiratory therapy products to our net revenues was 91.1%, 91.2% and 90.8%, respectively, for the years ended December 31, 2005, 2004 and 2003.
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 allocation of customer service, distribution and administrative costs relating to the
respiratory pharmacy operations of approximately $50.0 million, $48.7 million and $41.6 million in 2005, 2004 and 2003, respectively.




Cost of goods and services
expressed as a percentage of net revenues was 20.0% for the year ended December 31, 2005, 14.5% for the year ended December 31, 2004 and 15.0% for the
year ended December 31, 2003. The relationships of costs to net revenues during the periods were impacted by the Medicare price reductions discussed
above (see Net Revenues). The increase in cost of goods and services in 2005 is attributable primarily to increased patient and drug
shipment volumes and an increase in drug purchasing costs due to a product mix shift to higher cost branded products in our inhalation drug business.
The improvement in 2004 over 2003 is attributable primarily to the achievement of more favorable pricing terms with our vendors and growth in higher
gross margin respiratory product lines.




21


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Operating and Other Expenses




Operating expenses expressed as a
percentage of net revenues for the years ended December 31, 2005, 2004 and 2003 were 23.3%, 20.8% and 22.1%, respectively. The relationships of
expenses to net revenues during the periods were impacted by the Medicare price reductions discussed above (see Net Revenues). Improvements
in productivity and control of fixed costs enabled us to offset the negative impact of higher fuel costs associated with our delivery
vehicles.




Selling, general and
administrative expenses (SG&A) expressed as a percentage of net revenues for the years ended December 31, 2005, 2004 and 2003, were
19.9%, 20.3%, and 20.9% respectively. The relationships of expenses to net revenues during the periods were impacted by the Medicare price reductions
discussed above (see Net Revenues). The improvements in SG&A resulted from cost controls and productivity gains at our overhead
locations and lower advertising expenses, which partially offset the impact of the Medicare price cuts.




Bad debt expense as a percentage
of net revenues was 1.5% for the years ended December 31, 2005, 2004 and 2003. We have achieved favorable results in accounts receivable collections
over the past three years and overall days sales outstanding (DSO) were 40 days at December 31, 2005, up from 38 days at December 31, 2004
and down from 51 days at December 31, 2003. 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 7.4% for the year ended December 31, 2005 compared with 6.8% and 6.5% for the years ended December 31, 2004 and 2003,
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 2005, we amortized $1.7
million of intangible assets compared with $1.5 million in 2004 and $1.6 million in 2003. Our net intangible assets were $1.2 billion as of December
31, 2005. Of this total, $1.9 million (consisting of various covenants not-to-compete) is being amortized over periods of one to seven
years.




Operating Income




As shown in the table below,
operating income for the year ended December 31, 2005 decreased $103.3 million when compared to the prior year. The decrease in operating income in
2005 is attributable primarily to the reduction of Medicare reimbursement rates for inhalation drugs and certain items of DME effective January 1,
2005, decreased reimbursement rates for oxygen equipment that took effect on April 1, 2005 and increased costs of purchased inhalation drugs, partially
offset by customer volume growth, gains in labor productivity and control over operating costs. The increase in operating income in 2004 was a result
of growth in our net revenues through a combination of internal growth and acquisitions, favorable product purchasing costs resulting from negotiations
with our vendors, and gains in labor productivity which limited the growth in our salary and related expenses. We estimate that the reductions in
Medicare reimbursement rates reduced net revenues and operating income in 2005 and 2004 by approximately $188.2 million and $54.2 million,
respectively.







|                           |  |  |  | Year Ended December 31, |        
|-------------------------- |  |  |  | ----------------------- | -------
|
|
|Operating
income           |  |  |  | $                       | 352,167
|Percentage of
net revenues |  |  |  |                         | 27.8   



22


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Interest Expense




Interest expense for the year
ended December 31, 2005 was $12.4 million, compared to $17.1 million and $17.4 million for the years ended December 31, 2004 and 2003, 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 repayment
of $30.0 million of 8.91% Senior Secured Notes in September, 2003. Interest expense in 2004 was impacted by the full year effect of the convertible
debentures and the repayment of $50.0 million of 9.01% Senior Secured Notes in September 2004. Interest expense in 2005 was impacted by the convertible
debentures being outstanding for a full year and the repayment of $45.0 million of 9.11% Senior Secured Notes in September 2005 (see Liquidity
and Capital Resources).




Income Taxes




Our effective income tax rate was
37.7% for the year ended December 31, 2005 compared with 37.9% and 37.5% for the years ended December 31, 2004 and 2003, respectively.




Acquisitions




In 2005, the Company acquired, in
unrelated acquisitions, certain operating assets of 15 local and regional companies resulting in the addition of 34 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 $121.8 million and was allocated to acquired assets as follows: $4.3 million to current assets, $3.3 million
to property and equipment, $0.2 million to separately identifiable intangible assets, and $114.0 million to goodwill.




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.




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, 2005, our working
capital was $104.9 million, as compared to $245.4 million at December 31, 2004. The decline in working capital is primarily attributable to our use of
$321.9 million to repurchase shares of our common stock in 2005.




Net cash provided by operating
activities was $370.0 million for the year ended December 31, 2005, compared with $419.3 million for the year ended December 31, 2004 and $371.0
million for the year ended December 31, 2003. 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. Our DSO was 40 days as of December 31, 2005 and 38 days as of December 31, 2004. We
measure our DSO by dividing our net accounts receivable at the balance sheet date by the product of our latest quarterly net revenues times four,
multiplied by 360 days.




Net cash used in investing and
financing activities was $395.0 million, $395.5 million and $362.7 million for the years ended December 31, 2005, 2004 and 2003, respectively. Activity
in the year ended December 31, 2005 included our investment of $93.3 million in business acquisitions, net investment in capital equipment of $103.9
million, net payments of debt of $78.9 million, proceeds of $50.4 million from issuance of common stock and $321.9 million in payments to acquire
treasury stock.




As of December 31, 2005, our
principal sources of liquidity consisted of approximately $47.0 million of cash and cash equivalents and $200.0 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




23


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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 October 24, 2005, the Board of
Directors authorized a plan to repurchase up to $100.0 million of the Companys common stock. As of December 31, 2005, the Company had repurchased
$71.9 million of its common stock pursuant to the plan. Total common stock held in treasury (at cost) was $846.9 million at December 31, 2005. On
February 14, 2006, the Board authorized a new share repurchase plan whereby the Company may repurchase, from time to time, on the open market or in
privately negotiated transactions, shares of the Companys common stock in amounts determined pursuant to a formula that takes into account both
the ratio of the Companys net debt to cash flow and its available cash resources and borrowing availability.




On June 11, 2003, we completed
the sale of $250.0 million aggregate principal amount of 3.0% Convertible Senior Debentures due 2033 (the Debentures) in a private
placement. The Debentures are convertible into shares of our common stock based on a conversion rate of 18.7515 shares for each $1,000 principal amount
of Debentures. This is equivalent to a conversion price of approximately $53.33 per share of common stock. On June 23, 2003, we sold an additional
$25.0 million principal amount of Debentures pursuant to the exercise in full of an over-allotment option granted to the initial purchasers of the
Debentures. The Debentures are convertible into common stock in any calendar quarter if, among other circumstances, the last reported sale price of our
common stock for at least 20 trading days during the period of 30 consecutive trading days ending on the last trading day of our previous 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.




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 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           |  |  |  | $            | 13,357
|Capital lease
commitments |  |  |  |              | 348   
|Long-term
debt            |  |  |  |              |      
|Interest
expense          |  |  |  |              | 8,769 
|Operating
leases          |  |  |  |              | 30,900
|Employment
Agreements     |  |  |  |              | 1,821 
|Total                     |  |  |  | $            | 55,195



24


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New Accounting Standards




In December 2004, the FASB issued
Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004) (SFAS No. 123R), Share-Based Payment, which replaces SFAS No.
123, Accounting for Share-Based Compensation, and supersedes APB Opinion No. 25 (APB No. 25), Accounting for Stock Issued to
Employees, and amends SFAS No. 95, Statement of Cash Flows. SFAS No. 123R requires all share-based payments to employees, including
grants of employee stock options, to be recognized in the financial statements based on their fair values. The pro forma disclosures previously
permitted under SFAS No. 123 no longer will be an alternative to financial statement recognition. SFAS No. 123R also requires the benefits of tax
deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as required under
current literature. Under the regulations promulgated by the Securities and Exchange Commission, we are required to apply SFAS No. 123R as of January
1, 2006. Under SFAS No. 123R, we must determine the appropriate fair value model to be used for valuing share-based payments, the amortization method
for compensation cost and the transition method to be used at date of adoption. The transition methods include modified prospective and modified
retrospective adoption options. The modified prospective method requires compensation cost to be recognized beginning January 1, 2006 based on the
requirements of SFAS No. 123R for all share-based payments granted after December 31, 2005 and based on the requirements of SFAS No. 123 for all awards
granted to employees prior to January 1, 2006 that remain unvested on January 1, 2006. The modified retrospective method includes the requirements of
the modified prospective method described above, but also permits companies to restate, based on the amounts previously recognized under SFAS No. 123
for purposes of pro forma disclosures. We have adopted SFAS No. 123R using the modified prospective method.




As permitted by SFAS No. 123,
prior to January 1, 2006 we accounted for share-based payments to employees using the intrinsic value method of APB No. 25 and, as such, generally
recognized no compensation cost for employee stock options and stock purchase plans. Accordingly, the adoption of the fair value method from SFAS No.
123R will have a significant impact on our results of operations, although it will have no impact on our overall financial position. The impact of the
adoption of SFAS No. 123R depends on levels of share-based payments granted in the future. However, had we adopted SFAS No. 123R in prior periods, the
impact of SFAS No. 123R would have approximated the impact of SFAS No. 123 as described in the disclosure of pro forma net earnings and earnings per
share. The adoption of SFAS No. 123R will reduce net operating cash flows and increase net financing cash flows in periods of adoption as a result of
the classification requirements of the benefits of tax deductions in excess of recognized compensation cost. While we cannot estimate what those
amounts will be in the future (because they depend on, among other things, when employees exercise stock options), the amount of operating cash flows
recognized in prior periods for such excess tax deductions were $26.5 million, $15.7 million and $9.1 million in 2005, 2004 and 2003,
respectively.




Inflation




We have not experienced material
increases in either the cost of supplies or operating expenses due to inflation, however, we estimate that increases in gasoline prices resulted in
higher fuel costs of approximately $2.0 million in 2005. 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 883 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. As a result, all of our operating centers are aggregated into one reportable
segment.




25


---



Item 7A.    Quantitative and
Qualitative Disclosures About Market Risk




The fair values of our debt
instruments 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.




Market Risk Sensitive Instruments  Interest Rate
Sensitivity







|                                 |  |  |  |   |         |  |  |   |         | (Assuming 10% Decrease in Interest Rates) | 
|-------------------------------- |  |  |  | - | ------- |  |  | - | ------- | ----------------------------------------- | 
|
|As of
December 31, 2005:         |  |  |  |   |         |  |  |   |         |                                           | 
|Convertible
debt                 |  |  |  | $ | 275,000 |  |  | $ | 275,000 |                                           | 
|Deferred
acquisition obligations |  |  |  |   | 13,357  |  |  |   | 13,357  |                                           | 
|Capital lease
obligations        |  |  |  |   | 784     |  |  |   | 784     |                                           | 
|Senior
secured notes             |  |  |  |   |        |  |  |   |        |                                           | 
|Revolving
bank credit facility   |  |  |  |   |        |  |  |   |        |                                           | 
|                                
|As of
December 31, 2004:         |  |  |  |   |         |  |  |   |         |                                           | 
|Convertible
debt                 |  |  |  | $ | 275,000 |  |  | $ | 275,000 |                                           | 
|Deferred
acquisition obligations |  |  |  |   | 22,857  |  |  |   | 22,857  |                                           | 
|Capital lease
obligations        |  |  |  |   | 280     |  |  |   | 280     |                                           | 
|Senior
secured notes             |  |  |  |   | 45,000  |  |  |   | 45,000  |                                           | 
|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.




26


---



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).




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 2005: ORyan Health Care Group dba Physicians Preferred Home Healthcare and Best Buy Homecare of Louisiana, Inc. Collectively, these
acquisitions constituted less than 1.0% of total assets as of December 31, 2005 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, 2005. Managements assessment of the effectiveness of internal control over financial reporting as of
December 31, 2005 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 maintained effective internal control over financial reporting as of December 31, 2005, 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.




27


---



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 Lincare Holdings Inc. and subsidiaries maintained effective internal control over financial reporting as of December 31, 2005, is
fairly stated, in all material respects, based on criteria established in Internal Control  Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO). Also, in our opinion, Lincare Holdings Inc. and subsidiaries maintained, in all material
respects, effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control 
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (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 excluded the internal controls of ORyan Health Care Group dba Physicians Home Healthcare and Best Buy
Homecare of Louisiana, Inc., which are included in the 2005 consolidated financial statements of the Company and collectively constituted less than
1.0% of total assets as of December 31, 2005 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 Lincare Holdings
Inc. and subsidiaries as of December 31, 2005 and 2004, 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, 2005, and our report dated March 8, 2006 expressed an unqualified opinion on
those consolidated financial statements.




/s/ KPMG LLP




March 8, 2006 Tampa, Florida Certified Public
Accountants




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, 2005 that has materially affected, or is
reasonably likely to materially affect, Lincares internal control over financial reporting.


|Item
9B. |  | Other Information
|-------- |  | -----------------



None.




28


---



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 15, 2006, 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 15, 2006, 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 15, 2006, 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 15, 2006, 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 15, 2006, under Security Ownership of Certain
Beneficial Owners and Management 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 15, 2006, under Audit Committee Report
and Information Regarding the Independent Auditors of the Company, and is herein incorporated by reference.




29


---



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, 2005 and 2004




Consolidated Statements of
Operations  Years ended December 31, 2005, 2004 and 2003




Consolidated Statements of
Stockholders Equity  Years ended December 31, 2005, 2004 and 2003




Consolidated Statements of Cash
Flows  Years ended December 31, 2005, 2004 and 2003




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-KFurnished October 25, 2005: Announcement
of the financial results for the quarter ended September 30, 2005.Filed January 5, 2006: Announcement of the passing of Frank T. Cary,
Director.Furnished February 14, 2006: Announcement of the financial results for the quarter and year ended December 31, 2005.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



30


---



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 8, 2006 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 8, 2006
|                                
|/s/ PAUL G.
GABOSPaul G. Gabos   |  |  |  | Secretary, Chief Financial Officer and Principal Accounting Officer |  | March 8, 2006
|                                
|*Chester B. Black                |  |  |  | Director                                                            |  | March 8, 2006
|                                
|*William F. Miller, III          |  |  |  | Director                                                            |  | March 8, 2006
|                                
|*Frank D. Byrne, M.D.            |  |  |  | Director                                                            |  | March 8, 2006
|                                
|*Stuart H. Altman, Ph.D.         |  |  |  | Director                                                            |  | March 8, 2006

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



31


---





[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 as of December 31, 2005 and 2004, 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, 2005. In connection with our
audits of the consolidated financial statements, 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 Lincare Holdings Inc. and subsidiaries as of
December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31,
2005, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth
therein.




We also have audited, in
accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Lincare Holdings Inc. and
subsidiaries internal control over financial reporting as of December 31, 2005, 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 8, 2006,
expressed an unqualified opinion on managements assessment of, and the effective operation of, internal control over financial
reporting.




/s/ KPMG LLP




March 8, 2006 Tampa, Florida Certified Public
Accountants




F-1


---



LINCARE HOLDINGS INC. AND
SUBSIDIARIES




CONSOLIDATED BALANCE SHEETS December 31, 2005 and
2004







|                                                                                                              |  |  |  | 2005 |           | 2004
|------------------------------------------------------------------------------------------------------------- |  |  |  | ---- | --------- | ----
|
|ASSETS                                                                                                       
|Current
assets:                                                                                               |  |  |  |      |           |     
|Cash and cash
equivalents                                                                                     |  |  |  | $    | 8,544     |     
|Short-term
investments                                                                                        |  |  |  |      | 38,425    |     
|Restricted
cash                                                                                               |  |  |  |      | 49        |     
|Accounts
receivable, net (note 2)                                                                             |  |  |  |      | 144,130   |     
|Income taxes
receivable                                                                                       |  |  |  |      |          |     
|Inventories                                                                                                   |  |  |  |      | 4,613     |     
|Prepaid and
other current assets                                                                              |  |  |  |      | 2,920     |     
|Total current
assets                                                                                          |  |  |  |      | 198,681   |     
|Property and
equipment (note 3)                                                                               |  |  |  |      | 732,775   |     
|Accumulated
depreciation                                                                                      |  |  |  |      | (422,639  | )   
|Net property
and equipment                                                                                    |  |  |  |      | 310,136   |     
|Other
assets:                                                                                                 |  |  |  |      |           |     
|Goodwill                                                                                                      |  |  |  |      | 1,148,292 |     
|Covenants
not-to-compete, less accumulated amortization of $19,816 in 2005 and $18,134 in 2004                |  |  |  |      | 1,885     |     
|Other                                                                                                         |  |  |  |      | 7,879     |     
|Total other
assets                                                                                            |  |  |  |      | 1,158,056 |     
|Total
assets                                                                                                  |  |  |  | $    | 1,666,873 |     
|                                                                                                             
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                         
|Current
liabilities:                                                                                          |  |  |  |      |           |     
|Current
installments of long-term obligations (note 5)                                                        |  |  |  | $    | 13,705    |     
|Accounts
payable                                                                                              |  |  |  |      | 40,957    |     
|Accrued
expenses:                                                                                             |  |  |  |      |           |     
|Compensation
and benefits                                                                                     |  |  |  |      | 16,609    |     
|Liability
insurance                                                                                           |  |  |  |      | 11,886    |     
|Other current
liabilities                                                                                     |  |  |  |      | 3,843     |     
|Income taxes
payable                                                                                          |  |  |  |      | 6,811     |     
|Total current
liabilities                                                                                     |  |  |  |      | 93,811    |     
|Long-term
obligations, excluding current installments (note 5)                                                |  |  |  |      | 275,436   |     
|Deferred
income taxes (note 6)                                                                                |  |  |  |      | 159,750   |     
|Minority
interest                                                                                             |  |  |  |      |          |     
|Total
liabilities                                                                                             |  |  |  |      | 528,997   |     
|Stockholders equity (notes 5, 6, 7, and 8):                                                                  |  |  |  |      |           |     
|Common stock,
$.01 par value. Authorized 200,000,000 shares; issued: 127,714,596 in 2005, 124,899,702 in 2004 |  |  |  |      | 1,277     |     
|Additional
paid-in capital                                                                                    |  |  |  |      | 357,511   |     
|Unearned
compensation                                                                                         |  |  |  |      | (3,322    | )   
|Retained
earnings                                                                                             |  |  |  |      | 1,629,300 |     
|Less treasury
stock, at cost: 31,596,545 shares in 2005 and 23,791,737 shares in 2004                         |  |  |  |      | (846,890  | )   
|Total
stockholders equity                                                                                    |  |  |  |      | 1,137,876 |     
|Commitments
and contingencies (notes 4, 5 and 12)                                                             |  |  |  |      |          |     
|Total
liabilities and stockholders equity                                                                    |  |  |  | $    | 1,666,873 |     



See accompanying notes to consolidated financial
statements.




F-2


---



LINCARE HOLDINGS INC. AND
SUBSIDIARIES




CONSOLIDATED STATEMENTS OF OPERATIONS Years Ended
December 31, 2005, 2004 and 2003







|                                                                                  |  |  |  | 2005 |           | 2004 |  | 2003
|--------------------------------------------------------------------------------- |  |  |  | ---- | --------- | ---- |  | ----
|
|Net revenues
(note 9)                                                             |  |  |  | $    | 1,266,627 |      |  | $   
|Costs and
expenses:                                                               |  |  |  |      |           |      |  |     
|Cost of goods
and services                                                        |  |  |  |      | 253,260   |      |  |     
|Operating
expenses                                                                |  |  |  |      | 295,420   |      |  |     
|Selling,
general and administrative expenses                                      |  |  |  |      | 251,839   |      |  |     
|Bad debt
expense                                                                  |  |  |  |      | 18,999    |      |  |     
|Depreciation
expense                                                              |  |  |  |      | 93,260    |      |  |     
|Amortization
expense                                                              |  |  |  |      | 1,682     |      |  |     
|                                                                                  |  |  |  |      | 914,460   |      |  |     
|Operating
income                                                                  |  |  |  |      | 352,167   |      |  |     
|Other income
(expenses):                                                          |  |  |  |      |           |      |  |     
|Interest
income                                                                   |  |  |  |      | 3,718     |      |  |     
|Interest
expense                                                                  |  |  |  |      | (12,432   | )    |  |     
|Net loss on
disposal of property and equipment                                    |  |  |  |      | (387      | )    |  |     
|                                                                                  |  |  |  |      | (9,101    | )    |  |     
|Income before
income taxes                                                        |  |  |  |      | 343,066   |      |  |     
|Income tax
expense (note 6)                                                       |  |  |  |      | 129,370   |      |  |     
|Net
income                                                                        |  |  |  | $    | 213,696   |      |  | $   
|Income per
common share (note 10):                                                |  |  |  |      |           |      |  |     
|Basic                                                                             |  |  |  | $    | 2.16      |      |  | $   
|Diluted                                                                           |  |  |  | $    | 2.06      |      |  | $   
|Weighted
average number of common shares outstanding                              |  |  |  |      | 98,913    |      |  |     
|Weighted
average number of common shares and common share equivalents outstanding |  |  |  |      | 106,306   |      |  |     



See accompanying notes to consolidated financial
statements.




F-3


---



LINCARE HOLDINGS INC. AND
SUBSIDIARIES




CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
Years Ended December 31, 2005, 2004 and 2003







|                                                                   |  |  |  | Shares of Common Stock Issued |         | Common Stock |  | Additional Paid-in Capital |       | Unearned Compensation |  | Retained Earnings |         | Treasury Stock |  | Total Stockholders Equity
|------------------------------------------------------------------ |  |  |  | ----------------------------- | ------- | ------------ |  | -------------------------- | ----- | --------------------- |  | ----------------- | ------- | -------------- |  | --------------------------
|
|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                                       |  |  |  |                               | 127     |              |  |                            | 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                                      |  |  |  |                               | 124,900 |              |  |                            | 1,250 |                       |  |                   | 278,884 |                |  |                           
|Exercise
of stock options (note 8)                                 |  |  |  |                               | 2,741   |              |  |                            | 27    |                       |  |                   | 48,633  |                |  |                           
|Shares
issued through ESPP                                         |  |  |  |                               | 52      |              |  |                            |      |                       |  |                   | 1,723   |                |  |                           
|Vesting
of restricted stock                                        |  |  |  |                               | 22      |              |  |                            |      |                       |  |                   |        |                |  |                           
|Treasury
stock adjustment                                          |  |  |  |                               |        |              |  |                            |      |                       |  |                   | 1,751   |                |  |                           
|Treasury
stock acquired                                            |  |  |  |                               |        |              |  |                            |      |                       |  |                   |        |                |  |                           
|Tax
benefit for exercise of employee stock options (notes 6 and 8) |  |  |  |                               |        |              |  |                            |      |                       |  |                   | 26,520  |                |  |                           
|Net
income                                                         |  |  |  |                               |        |              |  |                            |      |                       |  |                   |        |                |  |                           
|Balances
at December 31, 2005                                      |  |  |  |                               | 127,715 |              |  | $                          | 1,277 |                       |  | $                 | 357,511 |                |  | $                         



See accompanying notes to consolidated financial
statements.




F-4


---



LINCARE HOLDINGS INC. AND
SUBSIDIARIES




CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended
December 31, 2005, 2004 and 2003







|                                                                                  |  |  |  | 2005 |          | 2004 |  | 2003
|--------------------------------------------------------------------------------- |  |  |  | ---- | -------- | ---- |  | ----
|
|Cash flows
from operating activities:                                             |  |  |  |      |          |      |  |     
|Net
income                                                                        |  |  |  | $    | 213,696  |      |  | $   
|Adjustments
to reconcile net income to net cash provided by operating activities: |  |  |  |      |          |      |  |     
|Bad debt
expense                                                                  |  |  |  |      | 18,999   |      |  |     
|Depreciation
expense                                                              |  |  |  |      | 93,260   |      |  |     
|Net loss on
disposal of property and equipment                                    |  |  |  |      | 387      |      |  |     
|Amortization
expense                                                              |  |  |  |      | 1,682    |      |  |     
|Amortization
of debt issuance costs                                               |  |  |  |      | 738      |      |  |     
|Tax benefit
of stock options                                                      |  |  |  |      | 26,520   |      |  |     
|Vesting of
restricted stock                                                       |  |  |  |      | 2,862    |      |  |     
|Deferred
income taxes                                                             |  |  |  |      | 15,701   |      |  |     
|Minority
interest in net earnings of subsidiary                                   |  |  |  |      | 79       |      |  |     
|Change in
assets and liabilities net of effects of acquired businesses:           |  |  |  |      |          |      |  |     
|Increase in
accounts receivable                                                   |  |  |  |      | (21,276  | )    |  |     
|(Increase)
decrease in inventories                                                |  |  |  |      | (1,809   | )    |  |     
|Increase in
prepaid and other assets                                              |  |  |  |      | (33      | )    |  |     
|Increase
(decrease) in accounts payable                                           |  |  |  |      | 14,161   |      |  |     
|(Decrease)
increase in accrued expenses                                           |  |  |  |      | (5,933   | )    |  |     
|Increase
(decrease) in income taxes payable                                       |  |  |  |      | 10,917   |      |  |     
|Net cash
provided by operating activities                                         |  |  |  |      | 369,951  |      |  |     
|Cash flows
from investing activities:                                             |  |  |  |      |          |      |  |     
|Proceeds from
sale of property and equipment                                      |  |  |  |      | 7,052    |      |  |     
|Capital
expenditures                                                              |  |  |  |      | (110,997 | )    |  |     
|Purchase of
short-term investments                                                |  |  |  |      | (360,950 | )    |  |     
|Sales and
maturities of short-term investments                                    |  |  |  |      | 514,700  |      |  |     
|Business
acquisitions, net of cash acquired (note 11)                             |  |  |  |      | (93,326  | )    |  |     
|Changes in
cash restricted for future payments                                    |  |  |  |      | 10       |      |  |     
|Net cash used
by investing activities                                             |  |  |  |      | (43,511  | )    |  |     
|Cash flows
from financing activities:                                             |  |  |  |      |          |      |  |     
|Proceeds from
issuance of debt                                                    |  |  |  |      | 112      |      |  |     
|Payments of
principal on debt                                                     |  |  |  |      | (79,046  | )    |  |     
|Decrease in
minority interest                                                     |  |  |  |      | (783     | )    |  |     
|Payments of
debt issuance costs                                                   |  |  |  |      | (266     | )    |  |     
|Proceeds from
issuance of common stock                                            |  |  |  |      | 50,383   |      |  |     
|Proceeds from
issuance of treasury stock                                          |  |  |  |      |         |      |  |     
|Payments to
acquire treasury stock                                                |  |  |  |      | (321,910 | )    |  |     
|Net cash used
by financing activities                                             |  |  |  |      | (351,510 | )    |  |     
|Net
(decrease) increase in cash and cash equivalents                              |  |  |  |      | (25,070  | )    |  |     
|Cash and cash
equivalents, beginning of period                                    |  |  |  |      | 33,614   |      |  |     
|Cash and cash
equivalents, end of period                                          |  |  |  | $    | 8,544    |      |  | $   
|Supplemental
disclosure of cash flow information:                                 |  |  |  |      |          |      |  |     
|Cash paid for
interest                                                            |  |  |  | $    | 13,004   |      |  | $   
|Cash paid for
income taxes                                                        |  |  |  | $    | 75,914   |      |  | $   
|Supplemental
disclosure of non-cash investing and financing activities:           |  |  |  |      |          |      |  |     
|Assets
acquired under capital lease                                               |  |  |  | $    | 815      |      |  | $   



See accompanying notes to consolidated financial
statements.




F-5


---



LINCARE HOLDINGS INC. AND SUBSIDIARIESNOTES TO
CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2005, 2004 and 2003







|(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 serviced from locations 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
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 receivable from earned revenues. Unbilled accounts receivable represent charges for equipment and supplies
delivered to customers for which invoices have not yet been generated by the billing system. Prior to the delivery of equipment and supplies to
customers, the Company performs certain certification and




F-6


---



LINCARE HOLDINGS INC. AND SUBSIDIARIESNOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)December 31, 2005, 2004 and 2003




(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 weeks to several months, can occur due to delays in obtaining certain required
payor-specific documentation from internal and external sources as well as interim transactions occurring between cycle billing dates established for
each customer within the billing system, and business acquisitions awaiting assignment of new provider enrollment identification numbers. In the event
the third party payor does not accept the claim, the customer is ultimately responsible. Amounts due from customers that are determined to be
uncollectible 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 health care industry and third-party
reimbursement, it is possible that the Companys estimates could change, which could have a material impact on the Companys results of
operations and cash flows.


|(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 is 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., an unrelated party. Payments and related interest to Healthcare
Solutions, Inc. are included on the Statement of Cash Flows as payments of principal on debt and changes in cash restricted for future payments,
respectively.


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



The Company believes the book
value of its cash equivalents, short-term investments, 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 3.0% Convertible Senior Debentures due June 15, 2003, 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, 2005 and 2004 was $276,375,000 and $295,625,000, respectively. There were no amounts outstanding on the
Companys Senior Secured Notes as of December 31, 2005. The fair value of the Senior Secured Notes as of December 31, 2004 was 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 was $46,591,000.


|(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 to
customers.




F-7


---



LINCARE HOLDINGS INC. AND SUBSIDIARIESNOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)December 31, 2005, 2004 and 2003




(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 seven 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,
2005.


|(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
|--- |  | ------------



Income taxes are accounted for
under the asset and liability method. 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 apply to taxable income in the years in which those temporary differences are 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, 2005, 2004 and 2003




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


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



Advertising costs are charged to
expense as incurred and are included in selling expenses.


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



Costs 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 allocation of customer service, distribution and administrative costs relating to the
respiratory pharmacy operations amounting to approximately $50.0 million, $48.7 million and $41.6 million in 2005, 2004 and 2003,
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, 400,895 shares have been issued under this authorization. During 2005, the Company issued 51,939 shares at an average price of
$33.18; during 2004, the Company issued 39,061 shares at an average price of $26.63; and during 2003, the Company issued 47,989 shares at an average
price of $25.55 per share. In years prior to 2005, the Company funded their employee stock purchase plan using treasury shares. In 2005, the Company
began funding their employee stock purchase plan by issuing new common shares. 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 SFAS No. 123.


|(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. The amount of compensation
expense recognized for restricted stock in 2005 and 2004, was $2,862,000 and $2,061,800, respectively.


|(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 883 operating centers in 47 states. The Company views each




F-9


---



LINCARE HOLDINGS INC. AND SUBSIDIARIESNOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)December 31, 2005, 2004 and 2003




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




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 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 FASB issued
Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004) (SFAS No. 123R), Share-Based Payment, which replaces SFAS No.
123, Accounting for Share-Based Compensation, and supersedes APB Opinion No. 25 (APB No. 25), Accounting for Stock Issued to
Employees, and amends SFAS No. 95, Statement of Cash Flows. SFAS No. 123R requires all share-based payments to employees, including
grants of employee stock options, to be recognized in the financial statements based on their fair values. The pro forma disclosures previously
permitted under SFAS No. 123 no longer will be an alternative to financial statement recognition. SFAS No. 123R also requires the benefits of tax
deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as required under
current literature. Under the regulations promulgated by the Securities and Exchange Commission, we are required to apply SFAS No. 123R as of January
1, 2006. Under SFAS No. 123R, we must determine the appropriate fair value model to be used for valuing share-based payments, the amortization method
for compensation cost and the transition method to be used at date of adoption. The transition methods include modified prospective and modified
retrospective adoption options. The modified prospective method requires compensation cost to be recognized beginning January 1, 2006 based on the
requirements of SFAS No. 123R for all share-based payments granted after December 31, 2005 and based on the requirements of SFAS No. 123 for all awards
granted to employees prior to January 1, 2006 that remain unvested on January 1, 2006. The modified retrospective method includes the requirements of
the modified prospective method described above, but also permits companies to restate, based on the amounts previously recognized under SFAS No. 123
for purposes of pro forma disclosures. We have adopted SFAS No. 123R using the modified prospective method.




As permitted by SFAS No. 123,
prior to January 1, 2006 we accounted for share-based payments to employees using the intrinsic value method of APB No. 25 and, as such, generally
recognized no compensation cost for employee stock options and stock purchase plans. Accordingly, the adoption of the fair value method from SFAS No.
123R will have a significant impact on our results of operations, although it will have no impact on our overall financial position. The impact of the
adoption of SFAS No. 123R depends on levels of share-based payments granted in the future. However, had we adopted SFAS No. 123R in prior periods, the
impact of SFAS No. 123R would have approximated the impact of SFAS No. 123 as described in the disclosure of pro forma net earnings and earnings per
share. The adoption of SFAS No. 123R will reduce net operating cash flows and increase net financing cash flows in periods of adoption as a result of
the classification requirements of the benefits of tax deductions in excess of recognized compensation cost. While we cannot estimate what those
amounts will be in the future (because they depend on, among other things, when employees exercise stock options), the amount of operating cash flows
recognized in prior periods for such excess tax deductions were $26.5 million, $15.7 million and $9.1 million in 2005, 2004 and 2003,
respectively.


|(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, 2005, 2004 and 2003




(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 its customers;
however, the Company routinely obtains assignment of (or is otherwise entitled to receive) benefits receivable under the health insurance programs,
plans or policies of 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 2005, 2004 and 2003.


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



Accounts receivable at December
31, 2005 and 2004 consist of:







|                                          |  |  |  | 2005 |         | 2004
|----------------------------------------- |  |  |  | ---- | ------- | ----
|
|Trade
Accounts Receivable                 |  |  |  | $    | 159,808 |     
|Less
allowance for uncollectible accounts |  |  |  |      | (15,678 | )   
|                                          |  |  |  | $    | 144,130 |     

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



Property and equipment at
December 31, 2005 and 2004 consist of:







|                          |  |  |  | 2005 |         | 2004
|------------------------- |  |  |  | ---- | ------- | ----
|
|Land and
improvements     |  |  |  | $    | 3,072   |     
|Building and
improvements |  |  |  |      | 20,397  |     
|Equipment and
furniture   |  |  |  |      | 709,306 |     
|                          |  |  |  | $    | 732,775 |     



Rental equipment of approximately
$566.3 million in 2005 and $524.8 million in 2004 is included with equipment and furniture.


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



The Company has entered into
several capital leases covering computer operating systems with outstanding balances of $0.8 million at December 31, 2005 and $0.3 million at December
31, 2004, respectively. In the table below, the 2005 balance relates to equipment acquired under a 2 year capital lease during 2005 and the 2004
balance relates to equipment acquired in 2003 under a 2 year capital lease.







|                              |  |  |  | 2005 |     | 2004
|----------------------------- |  |  |  | ---- | --- | ----
|
|Equipment and
furniture       |  |  |  | $    | 815 |     
|Less
accumulated depreciation |  |  |  |      | (82 | )   
|                              |  |  |  | $    | 733 |     



Amortization of assets held under
capital leases is included with depreciation expense.




F-11


---



LINCARE HOLDINGS INC. AND SUBSIDIARIESNOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)December 31, 2005, 2004 and 2003




(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 for
periods ranging from one year to five years and require the Company to pay ancillary costs such as maintenance and insurance. Operating lease expense
was approximately $43.2 million in 2005, $39.6 million in 2004 and $36.9 million in 2003. Future minimum lease payments under capital leases and
noncancelable operating leases as of December 31, 2005, are as follows:







|                             |  |  |  | Capital leases |     | Operating leases
|---------------------------- |  |  |  | -------------- | --- | ----------------
|
|2006                         |  |  |  | $              | 348 |                 
|2007                         |  |  |  |                | 436 |                 
|2008                         |  |  |  |                |    |                 
|2009                         |  |  |  |                |    |                 
|2010                         |  |  |  |                |    |                 
|Total minimum
lease payments |  |  |  | $              | 784 |                 

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



Long-term obligations at December
31, 2005 and 2004 consist of:







|                                                                                                                                                                                                                            |  |  |  | 2005 |         | 2004
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  |  | ---- | ------- | ----
|
|Senior
secured notes bearing fixed interest at 9.11% on $45,000,000 due and paid September 2005; and 9.01% on $50,000,000 due and paid September 2004 and
unamortized gain from termination of interest rate swap agreement |  |  |  | $    |        |     
|Convertible
debt to mature in 2033, bearing fixed interest of 3.0%, with a callable option in 2008                                                                                                                          |  |  |  |      | 275,000 |     
|Capital lease
obligations due through 2007                                                                                                                                                                                  |  |  |  |      | 784     |     
|Unsecured,
deferred acquisition obligations net of imputed interest, payable in various installments through 2006                                                                                                           |  |  |  |      | 13,357  |     
|Total
long-term obligations                                                                                                                                                                                                 |  |  |  |      | 289,141 |     
|Less: current
installments                                                                                                                                                                                                  |  |  |  |      | 13,705  |     
|Long-term
debt, excluding current installments                                                                                                                                                                              |  |  |  | $    | 275,436 |     



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, of which $1.0 million was unused as of December 31, 2005, that reduces the principal amount available under the five-year
revolving credit facility by the amount of outstanding letters of credit. 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. Commitment fees on
the unused portion of the facility were eliminated and replaced by a facility fee in the fourth amendment dated June 28, 2005. The facility fee is
based on the Companys consolidated leverage ratio calculated each quarter. Currently, the leverage ratio falls in Level II, less than or equal to
1.0 but greater than 0.5. At this level, the interest is 0.70% per annum on the letter of credit and 0.175% per annum on the facility fee. 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, 2005, 2004 and 2003




(5)    Long-Term Obligations
(Continued)




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.


|(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, 2005 and 2004 are presented
below:







|                                                                                               |  |  |  | 2005 |         | 2004
|---------------------------------------------------------------------------------------------- |  |  |  | ---- | ------- | ----
|
|Deferred tax
assets:                                                                           |  |  |  |      |         |     
|Accrued
expenses, principally due to deferral for income tax reporting purposes                |  |  |  | $    | (5,794  | )   
|Intangible
assets and covenants not to compete, principally due to differences in amortization |  |  |  |      | (2,663  | )   
|Total gross
deferred tax assets                                                                |  |  |  |      | (8,457  | )   
|Deferred tax
liabilities:                                                                      |  |  |  |      |         |     
|Property and
equipment, principally due to differences in depreciation                         |  |  |  |      | 48,717  |     
|Goodwill,
principally due to differences in amortization                                       |  |  |  |      | 107,403 |     
|Other                                                                                          |  |  |  |      | 12,087  |     
|Total gross
deferred tax liabilities                                                           |  |  |  |      | 168,207 |     
|Net deferred
tax liability                                                                     |  |  |  | $    | 159,750 |     



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.




F-13


---



LINCARE HOLDINGS INC. AND SUBSIDIARIESNOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)December 31, 2005, 2004 and 2003




(6)    Income Taxes
(Continued)




Income tax expense attributable
to operations consists of:







|                                                   |  |  |  | Year Ended December 31, |        
|-------------------------------------------------- |  |  |  | ----------------------- | -------
|
|
|Current:                                           |  |  |  |                         |        
|Federal                                            |  |  |  | $                       | 104,002
|State                                              |  |  |  |                         | 9,667  
|Total
current                                      |  |  |  |                         | 113,669
|                                                  
|Deferred:                                          |  |  |  |                         |        
|Federal                                            |  |  |  |                         | 16,060 
|State                                              |  |  |  |                         | (359   
|Total
deferred                                     |  |  |  |                         | 15,701 
|Total income
tax expense                           |  |  |  | $                       | 129,370
|Total income
tax expense allocation:               |  |  |  |                         |        
|Income from
operations                             |  |  |  | $                       | 129,370
|Tax benefit
for exercise of employee stock options |  |  |  |                         | (26,520
|                                                   |  |  |  | $                       | 102,850



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                       |  |  |  | $                       | 120,073
|State income
taxes, net of federal income tax benefit |  |  |  |                         | 6,050  
|Other                                                 |  |  |  |                         | 3,247  
|Total income
tax expense                              |  |  |  | $                       | 129,370

|(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.




F-14


---



LINCARE HOLDINGS INC. AND SUBSIDIARIESNOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)December 31, 2005, 2004 and 2003


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



The Company has seven outstanding
stock option plans that provide for the grant of options and other stock-based awards to officers, employees and directors. 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 ten year expiration terms
and generally vest over one to five years. See table below for summary of individual plans.







|                    |  |  |  | Plan Year |          
|------------------- |  |  |  | --------- | ---------
|
|Reserved            |  |  |  |           | 6,400,000
|Outstanding         |  |  |  |           | 11,000   
|Available for grant |  |  |  |           |         



The per share weighted average
fair value of stock options granted during 2005, 2004 and 2003 was $12.46, $12.75 and $13.28 on the date of grant using the Black Scholes multiple
option pricing model with the following weighted average assumptions: 2005  expected dividend yield 0%, risk-free interest rate of 4.2%, expected
life of 5 years, and volatility of 24.4%; 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%.




The Company believes that the
Black-Scholes valuation model provides a reasonable estimate of the fair value of the Companys stock options, particularly in view of the absence
of any market-based or performance-based vesting conditions attached to those stock options. The Black-Scholes option pricing model requires, among
other things, an estimate of expected share price volatility. The Company considered the use of both historical and implied volatility assumptions in
calculating the fair value of stock options issued in 2005. In years prior to 2005, the Company had used only historical volatility in calculating the
fair value of its stock options. In estimating the fair value of stock options granted during 2005, the Company used implied volatility derived from
its publicly-traded options as the volatility input in the option valuation model. In using implied volatility in 2005, the Company considered
Statement No. 123R and the guidance provided in Staff Accounting Bulletin No. 107, and the Company now believes that using implied volatility provides
the most reliable estimate of expected volatility.




F-15


---



LINCARE HOLDINGS INC. AND SUBSIDIARIESNOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)December 31, 2005, 2004 and 2003




(8)    Stock Plans
(Continued)




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. For periods through December 31, 2005, the Company elected to account for its stock-based incentive plans and awards under APB No. 25,
and 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:







|                                                                                                                                      |  |  |  | 2005 |         | 2004 |  | 2003
|------------------------------------------------------------------------------------------------------------------------------------- |  |  |  | ---- | ------- | ---- |  | ----
|
|Net
income:                                                                                                                           |  |  |  |      |         |      |  |     
|As
reported                                                                                                                           |  |  |  | $    | 213,696 |      |  | $   
|Add:
Stock-based employee compensation expense included in income, net of related tax effects                                         |  |  |  |      | 1,783   |      |  |     
|Deduct: Total
stock-based employee compensation expense determined under fair value method for all awards, net of related tax effects |  |  |  |      | (10,282 | )    |  |     
|Pro
forma                                                                                                                             |  |  |  | $    | 205,197 |      |  | $   
|Income per
common share:                                                                                                              |  |  |  |      |         |      |  |     
|Basic 
as reported                                                                                                                   |  |  |  | $    | 2.16    |      |  | $   
|Diluted
 as reported (1)                                                                                                             |  |  |  | $    | 2.06    |      |  | $   
|Basic 
pro forma                                                                                                                     |  |  |  | $    | 2.07    |      |  | $   
|Diluted
 pro forma (1)                                                                                                               |  |  |  | $    | 1.98    |      |  | $   

|(1) |  | Figures in 2005 and 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.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-16


---



LINCARE HOLDINGS INC. AND SUBSIDIARIESNOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)December 31, 2005, 2004 and 2003




(8)    Stock Plans
(Continued)




Information related to the plans
is as follows:







|                                 |  |  |  | Number of Options |            | Weighted Average Exercise Price
|-------------------------------- |  |  |  | ----------------- | ---------- | -------------------------------
|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           |  |  |  |                   | 1,219,000  |                                
|Outstanding
at December 31, 2004 |  |  |  |                   | 10,308,100 |                                
|Exercised in
2005                |  |  |  |                   | (2,740,565 | )                              
|Canceled in
2005                 |  |  |  |                   | (36,950    | )                              
|Options
issued in 2005           |  |  |  |                   | 2,176,100  |                                
|Outstanding
at December 31, 2005 |  |  |  |                   | 9,706,685  |                                



The following table summarizes
information about stock-based awards outstanding under the plans at December 31, 2005:







|                        |  |  |  | Stock-based
      Awards Outstanding |  | Stock-based
      Awards Exercisable | 
|----------------------- |  |  |  | ------------------------------------ |  | ------------------------------------ | 
|
|$12.25
         $17.81 |  |  |  | 1,690,985                            |  | 2.2
        years                    | 
|$24.45
         $32.00 |  |  |  | 5,846,000                            |  | 4.8
        years                    | 
|$42.33
         $42.33 |  |  |  | 2,169,700                            |  | 7.7 years                            | 
|$12.25
         $42.33 |  |  |  | 9,706,685                            |  | 5.0
        years                    | 



At December 31, 2005, the number
of options exercisable was 6.3 million, and the weighted average exercise price of those options was $24.58. 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 $26.5 million in 2005, $15.7 million in 2004 and $9.1 million in 2003 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.




F-17


---



LINCARE HOLDINGS INC. AND SUBSIDIARIESNOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)December 31, 2005, 2004 and 2003


|(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 2005, 2004 and 2003.




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 |  |  |  | $                       | 1,154,268
|Home medical
equipment and other     |  |  |  |                         | 112,359  
|Total                                |  |  |  | $                       | 1,266,627

|(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, 2005, 2004 and 2003.




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 was 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.




F-18


---



LINCARE HOLDINGS INC. AND SUBSIDIARIESNOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)December 31, 2005, 2004 and 2003




(10)    Income Per Common Share
(Continued)




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                                      |  |  |  | $                       | 213,696
|Adjustment
for assumed dilution:                                                     |  |  |  |                         |        
|Interest on
convertible debt, net of tax                                             |  |  |  |                         | 5,139  
|Diluted
 Income available to common stockholders and holders of dilutive securities |  |  |  | $                       | 218,835
|Denominator:                                                                         |  |  |  |                         |        
|Weighted
average shares                                                              |  |  |  |                         | 98,913 
|Effect of
dilutive securities:                                                       |  |  |  |                         |        
|Stock
options                                                                        |  |  |  |                         | 2,236  
|Convertible
debt                                                                     |  |  |  |                         | 5,157  
|Adjusted
weighted average shares                                                     |  |  |  |                         | 106,306
|Per share
amount:                                                                    |  |  |  |                         |        
|Basic                                                                                |  |  |  | $                       | 2.16   
|Diluted
(1)                                                                          |  |  |  | $                       | 2.06   

|(1) |  | Figures in 2005 and 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.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(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 2005, the Company acquired
certain assets of 15 businesses in separate transactions and purchased the remaining equity interest in two companies in which we had previously
acquired partial ownership. During 2004, the Company acquired certain assets of 26 businesses in separate transactions and purchased the remaining
equity interests in two companies in which we had previously acquired partial ownership. Consideration for the acquisitions generally included cash,
unsecured non-interest bearing obligations and the assumption of certain liabilities.




Each acquisition during 2005 and
2004 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
$113,982,000, $225,000 and $3,329,000, respectively in 2005. Amounts allocated




F-19


---



LINCARE HOLDINGS INC. AND SUBSIDIARIESNOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)December 31, 2005, 2004 and 2003




(11)    Business Combinations
(Continued)




in 2004 included $96,535,000
to goodwill, $330,000 to other intangible assets and $4,835,000 to patient service equipment. These allocations are inclusive of amounts not yet
paid.




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







|                                 |  |  |  | 2005 |         | 2004
|-------------------------------- |  |  |  | ---- | ------- | ----
|
|Cash                             |  |  |  | $    | 93,326  |     
|Deferred
acquisition obligations |  |  |  |      | 27,994  |     
|Assumption of
liabilities        |  |  |  |      | 479     |     
|                                 |  |  |  | $    | 121,799 |     



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







|                       |  |  |  | 2005 |         | 2004
|---------------------- |  |  |  | ---- | ------- | ----
|
|Current
assets         |  |  |  | $    | 4,263   |     
|Property and
equipment |  |  |  |      | 3,329   |     
|Intangible
assets      |  |  |  |      | 225     |     
|Goodwill               |  |  |  |      | 113,982 |     
|                       |  |  |  | $    | 121,799 |     



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)). As of December 31, 2005, the Company estimates that $730.4 million of goodwill will be tax
deductible in future periods.




The following unaudited pro forma
supplemental information on the results of operations for the years ended December 31, 2005 and 2004 includes the 2005 acquisitions as if they had been
combined at the beginning of 2004.







|                                  |  |  |  | 2005 |           | 2004
|--------------------------------- |  |  |  | ---- | --------- | ----
|
|Net
revenues                      |  |  |  | $    | 1,297,048 |     
|Net
income                        |  |  |  | $    | 220,534   |     
|Basic 
income per common share   |  |  |  | $    | 2.23      |     
|Diluted
 income per common share |  |  |  | $    | 2.12      |     



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 2004 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




F-20


---



LINCARE HOLDINGS INC. AND SUBSIDIARIESNOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)December 31, 2005, 2004 and 2003




(12)    Contingencies
(Continued)




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
the Company 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. The Company is a defendant in certain qui tam proceedings. The government
has declined to intervene in all unsealed qui tam actions of which the Company is aware and it is vigorously defending these
suits.




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


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



The following is a summary of
quarterly financial results for the years ended December 31, 2005 and 2004:







|                         |  |  |  | First Quarter |         | Second Quarter |  | Third Quarter |         | Fourth Quarter
|------------------------ |  |  |  | ------------- | ------- | -------------- |  | ------------- | ------- | --------------
|
|2005:                    |  |  |  |               |         |                |  |               |         |               
|Net
revenues             |  |  |  | $             | 305,177 |                |  | $             | 315,181 |               
|Operating
income         |  |  |  | $             | 89,979  |                |  | $             | 82,835  |               
|Net
income               |  |  |  | $             | 54,618  |                |  | $             | 50,111  |               
|Income per
common share: |  |  |  |               |         |                |  |               |         |               
|Basic                    |  |  |  | $             | 0.54    |                |  | $             | 0.50    |               
|Diluted                  |  |  |  | $             | 0.51    |                |  | $             | 0.48    |               
|                        
|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    |               



F-21


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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, 2005         |  |  |  |                                |        |                               |  |                           |        |            |  |                         
|Deducted from
asset accounts:        |  |  |  |                                |        |                               |  |                           |        |            |  |                         
|Allowance for
uncollectible accounts |  |  |  | $                              | 15,468 |                               |  | $                         | 18,999 |            |  | $                       
|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 |            |  | $                       

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

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



S-1


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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(O)       |  |  |  | Third Amendment to Amended and Restated Credit Agreement dated April 26, 2005                                                                 
|10.66(P)       |  |  |  | Fourth Amendment to Amended and Restated Credit Agreement dated June 28, 2005                                                                 
|10.67          |  |  |  | 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                                                                                                                         



S-2


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|Exhibit Number |  |  |  | Exhibit                                                                                                                                                                                                                      
|-------------- |  |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|12.1           |  |  |  | Computation of Ratio of Earnings to Fixed Charges                                                                                                                                                                            
|21.1           |  |  |  | List of Subsidiaries of Lincare Holdings Inc.                                                                                                                                                                                
|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.
|- |  | -------------------------------------------------------------------------------

|O |  | Incorporated by reference to the Registrants Form 8-K
dated April 26, 2005.
|- |  | ----------------------------------------------------------------------------

|P |  | Incorporated by reference to the Registrants Form 8-K
dated June 28, 2005.
|- |  | ---------------------------------------------------------------------------



S-3


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