UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, 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, 2007                                                                                                                     
|      
|**OR**
|       |  |                                                                                                                                                                 
|**o**  |  | 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*                  | *(I.R.S. Employer*      
|*of incorporation or
    organization)*         | *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:NoneSecurities 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 o

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
oNo 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
xNo
o

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

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

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


Indicate
by check mark whether the registrant is a shell company (as defined in Exchange
Act Rule 12b-2).  Yeso   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 $39.85 closing sale price of the common stock on June 29,
2007, as reported on the NASDAQ National Market System, was approximately
$3,362,221,132.

As of
January 31, 2008, there were 73,189,060 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 2008 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,
2007.

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Table of
Contents

LINCARE HOLDINGS INC. AND
SUBSIDIARIESFORM 10-KFor The Year
Ended December 31, 2007INDEX

|                        |     |                                                                                                                    | Page
|----------------------- | --- | ------------------------------------------------------------------------------------------------------------------ | ----
|PART I.                
|Item 1.                 |     | Business                                                                                                           | 1   
|Item 1A.                |     | Risk Factors                                                                                                       | 9   
|Item 1B.                |     | Unresolved Staff
      Comments                                                                                    | 15  
|Item 2.                 |     | Properties                                                                                                         | 15  
|Item 3.                 |     | Legal
      Proceedings                                                                                            | 15  
|Item 4.                 |     | Submission of Matters to a Vote of Security Holders                                                                | 15  
|PART
      II.         
|Item 5.                 |     | Market for Registrants Common Equity, Related Stockholder Matters
      and Issuer Purchases of Equity Securities | 16  
|Item 6.                 |     | Selected
      Financial Data                                                                                      | 18  
|Item 7.                 |     | Managements Discussion and Analysis of Financial Condition and
      Results of Operations                        | 19  
|Item 7A.                |     | Quantitative and
      Qualitative Disclosures About Market Risk                                                   | 29  
|Item 8.                 |     | Financial Statements and Supplementary Data                                                                        | 29  
|Item 9.                 |     | Changes in and
      Disagreements With Accountants on Accounting and Financial
      Disclosure                   | 29  
|Item 9A.                |     | Controls and Procedures                                                                                            | 29  
|Item 9B.                |     | Other
      Information                                                                                            | 31  
|PART III.              
|Item 10.                |     | Directors,
      Executive Officers and Corporate Governance                                                       | 32  
|Item 11.                |     | Executive Compensation                                                                                             | 32  
|Item 12.                |     | Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters         | 32  
|Item 13.                |     | Certain Relationships and Related Transactions, and Director
      Independence                                    | 32  
|Item 14.                |     | Principal
      Accountant Fees and Services                                                                       | 32  
|PART IV.               
|Item 15.                |     | Exhibits and
      Financial Statement Schedules                                                                   | 33  
|Signatures              | 34 
|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 nearly 700,000 customers in 47
states through 1,019 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 $6.0 billion in annual
sales, with growth estimated at approximately 6% per year. 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
2007, Lincare acquired three 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 delivery of high
quality equipment and services and selective business 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 2007,
oxygen and other respiratory therapy services accounted for approximately 92.1%
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 prescribing
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.

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.

1

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· 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.

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

· 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.

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 1,019 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 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 input into the system 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.

2

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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 revenues derived from
different types of payors.

Year Ended December
  31,Payors
    
    
    2007
    
    2006
    
    2005Medicare and Medicaid programs
    
    64
    %
    
    67
    %
    
    67
    %Private insurance
    
    29
    
    
    26
    
    
    26Direct payment
    
    7
    
    
    7
    
    
    7100
    %
    
    100
    %
    
    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 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 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 communicating the high quality of our equipment and services, our
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 nearly
700,000 active customers, and the loss of any single referral source, customer
or group of customers would not materially impact our business.

3

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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. Provisions contained in the
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 2007,
we acquired certain operating assets of three companies with operations in
multiple states, resulting in the addition of one new operating
center.

In 2006,
we acquired certain operating assets of 10 companies with operations in multiple
states, resulting in the addition of 48 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 other respiratory 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.

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

Medicare
Reimbursement

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

Recent
legislation, including the Medicare, Medicaid and SCHIP Extension Act of 2007
(SCHIP Extension Act), the Deficit Reduction Act of 2005 (DRA) and the
Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA),
contain provisions that directly impact reimbursement for the primary
respiratory and other DME products provided by Lincare. The SCHIP Extension Act
will reduce Medicare reimbursement amounts for covered Part B drugs, including
inhalation drugs that we provide, beginning April 1, 2008. DRA contains
provisions that will negatively impact reimbursement for oxygen equipment
beginning in 2009 and negatively impacted reimbursement for DME items subject to
capped rental payments beginning in 2007. MMA significantly reduced
reimbursement for inhalation drug therapies beginning in 2005, reduced payment
amounts for five categories of DME, including oxygen, beginning in 2005, froze
payment amounts for other covered DME items through 2007, established a
competitive acquisition program for DME beginning in 2008, and implemented
quality standards and accreditation requirements for DME suppliers. The SCHIP
Extension Act, DRA and MMA provisions, when fully implemented, could materially
and adversely affect our business, financial condition, operating results and
cash flows.

On
December 29, 2007, the SCHIP Extension Act became law. The SCHIP Extension Act
further reduces Medicare reimbursement amounts for covered Part B drugs,
including inhalation drugs that we provide, beginning April 1, 2008. The SCHIP
Extension Act requires the Centers for Medicare and Medicaid Services (CMS) to
adjust the methodology used to determine Medicare payment amounts for inhalation
drugs by using volume-weighted average selling prices (ASP) based on actual
sales volumes rather than average sales prices. When

4

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implemented on April 1, 2008, the new
calculation methodology is expected to result in lower reimbursement amounts for
inhalation drugs. The SCHIP Extension Act also specifically lowers reimbursement
for the inhalation drug albuterol sulfate. The Congressional Budget Office
(CBO) estimates that the provisions of the SCHIP Extension Act affecting Part
B drug reimbursement will result in reductions in aggregate Medicare outlays for
such drugs of $1.0 billion over five years and $2.6 billion over 10 years. CMS
is expected to announce in March 2008 the payment rates to be in effect for the
second quarter of 2008 under the new methodology. We can not determine the
impact of such payment reductions on the Companys business until CMS publishes
the new quarterly reimbursement amounts for each specific inhalation drug
provided by the Company. We can also not determine whether quarterly updates in
ASP pricing data will continue to result in ongoing reductions in payment rates
for inhalation drugs, and what impact such payment reductions could have on our
business in the future.

On
February 1, 2006, Congress passed the DRA legislation. 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. According to the
legislation, additional payments for maintenance and service of the oxygen
equipment would be made for parts and labor not covered by a suppliers or
manufacturers warranty. The oxygen provisions contained in DRA became effective
on January 1, 2006. In the case of beneficiaries receiving oxygen equipment
prior to the effective date, the 36-month period of continuous use began on
January 1, 2006. Accordingly, the first month in which the new payment
methodology will impact our net revenues is January 2009.

Throughout the second half of 2007, Congress was considering legislation
that would have included further reductions in payment amounts for certain
classes of oxygen equipment. The resulting legislation, the SCHIP Extension Act,
temporarily addressed a number of Medicare program issues. However, the SCHIP
Extension Act did not contain any provisions affecting Medicare reimbursement
for oxygen equipment. The SCHIP Extension Act prevents a 10.1 percent reduction
in Medicare physician payments that was scheduled for 2008 and gives physicians
a 0.5 percent increase through June 30, 2008. The 10.1 percent reduction in
Medicare physician payments is driven by the statutory sustainable growth rate
(SGR) formula, which is intended to control the growth in aggregate Medicare
expenditures for physician services. The 109th session of Congress
previously passed similar legislation to avert a reduction in Medicare physician
payments in 2007. It is anticipated that Congress will revisit the issue of
physician payment rates and other Medicare program issues in 2008 in an effort
to extend SGR relief beyond June 30, 2008. It is possible that reimbursement
changes for oxygen equipment could be reconsidered at that time. Additionally,
the Presidents 2008 fiscal year budget proposes a reduction in the maximum
continuous oxygen equipment rental period from 36 months to 13 months. No
further information on this proposal is available at this time and we cannot
predict whether or not the proposal will be included in the final budget
approved by Congress. Further reductions in Medicare reimbursement for oxygen
equipment could have a material adverse effect on the Companys net revenues,
operating income, cash flows and financial position.

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

Included
in rule CMS-1304-F are changes to the Medicare payment rates for oxygen and
oxygen equipment that took effect on January 1, 2007. CMS is exercising its
authority under the Balanced Budget Act of 1997 (BBA) to establish separate
classes and monthly payment rates for oxygen. The rule establishes a new class
and monthly payment amount for oxygen-generating portable equipment (OGPE),
which includes oxygen transfilling equipment and portable oxygen concentrators.
An OGPE add-on payment, applicable during the 36-month rental period, will be
made for these systems in the amount of $51.63. Payments for the new OGPE add-on
began on January 1, 2007 for new and existing oxygen users. CMS also increased
the monthly payment amounts for portable oxygen contents for beneficiary-owned
liquid or gaseous oxygen equipment from approximately $20.77 to $77.45. The
increase in payments for portable oxygen contents became effective on January 1,
2007 for new and existing oxygen users. The BBA requires these changes to be
budget neutral, and, accordingly, CMS reduced other

5

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Medicare oxygen payment rates beginning
in 2007. As a result, the monthly payment amount for stationary oxygen equipment
is expected to change each year in order to offset the impact from changes in
beneficiary utilization of OGPE equipment. For 2008, the payment rate for
stationary oxygen equipment will increase from $198.40 to $199.28, which is
expected to increase our net revenues and operating income by approximately $3.0
million in 2008. CMS previously published projected rates for 2008, 2009 and
2010 of $198.40, $193.21 and $189.39, respectively. CMS will revise payment
rates in future years under the methodology specified in the rule based on
actual OGPE use and updated data on the distribution of beneficiaries using
oxygen equipment. To the extent that the Companys distribution of oxygen
equipment and oxygen contents in future years differs from that of the overall
Medicare market, these future payment rate revisions may have a significant
effect on the overall level of reimbursement for the Companys oxygen
business.

DRA also
changes the reimbursement methodology for items of DME in the capped rental
payment category, including but not limited to such items as continuous positive
airway pressure (CPAP) devices, certain respiratory assist devices,
nebulizers, hospital beds and wheelchairs. For such items of DME, payment may
not extend over a period of continuous use of longer than 13 months. The option
for a supplier to retain ownership of the item after a 15-month rental period
and receive semi-annual maintenance and service payments is eliminated. On the
first day that begins after the 13th continuous month during which
payment is made for the item, the supplier will transfer title of the item to
the beneficiary. Additional payments for maintenance and service of the item
will be made for parts and labor not covered by a suppliers or manufacturers
warranty. The DME capped rental provisions contained in DRA applied to items
furnished for which the first rental month occurred on or after January 1, 2006.
Accordingly, the first month in which the new payment methodology impacted our
net revenues was February 2007.

Included
in rule CMS-1304-F is a discussion of the Medicare regulations, as interpreted
by CMS, necessary to implement the DME capped rental changes contained in the
DRA. In addition, on January 26, 2006, CMS announced a final rule revising the
payment classification of certain respiratory assist devices (RADs). RADs with
a backup rate feature were reclassified as capped rental DME items effective
April 1, 2006, whereby payments to providers of such devices 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. In cases where Medicare beneficiaries received the item prior to
April 1, 2006, only the rental payments for months after the effective date
count toward the 13-month cap. Accordingly, the first month in which the new
payment methodology impacted our net revenues was May 2007. The Company
estimates that the capped rental changes to DME and RADs reduced the Companys
net revenues and operating income by approximately $11.4 million in 2007 and
will reduce net revenues and operating income in 2008 by approximately $22.1
million. In addition, the transfer of ownership provisions affecting Medicare
capped rental equipment resulted in a reduction in the estimated useful lives of
such equipment beginning in 2006 and a corresponding increase in depreciation
expense. The Company will continue to evaluate its estimates of useful lives
based on its experience with ownership transfers of capped rental equipment in
future periods, which may result in further increases in depreciation expense in
the future.

On
December 8, 2003, MMA was signed into law. The MMA legislation contains
provisions that directly impact reimbursement for the primary respiratory and
other DME products provided by Lincare. Among other things, MMA:

|(1) |  | Significantly reduced reimbursement for inhalation drug
      therapies. Historically, prescription
      drug coverage under Medicare has been limited to drugs furnished incident
      to a physicians services and certain self-administered drugs, including
      inhalation drug therapies. Prior to MMA, Medicare reimbursement for
      covered drugs, including the inhalation drugs that we provide, was limited
      to 95 percent of the published average wholesale price (AWP) for the
      drug. MMA established new payment limits and procedures for drugs
      reimbursed under Medicare Part B. Beginning in 2005, inhalation drugs
      furnished to Medicare beneficiaries are reimbursed at 106 percent of the
      volume-weighted average selling price (ASP) of the drug, as determined
      from data provided each quarter by drug manufacturers under a specific
      formula described in MMA. Implementation of the ASP-based reimbursement
      formula resulted in a dramatic reduction in payment rates for inhalation
      drugs. We can not determine whether quarterly updates in ASP pricing data
      submitted by drug manufacturers and adopted by CMS will continue to result
      in ongoing reductions in payment rates for inhalation drugs, and what
      impact such payment reductions could have on our business in the future.
      We can also not predict the impact on our business of changes to the ASP
      pricing methodology as required by the SCHIP Extension Act that would
      result in further reductions to inhalation drug payment rates. Such
      payment adjustments could have a material adverse effect on our financial
      position and operating results.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|(2) |  | Establishes a competitive acquisition program for DME beginning in
      2008. MMA instructs CMS to establish
      and implement programs under which competitive acquisition areas will be
      established throughout the United States for contract award purposes for
      the furnishing of competitively priced items of DME, including oxygen
      equipment. The program will be implemented in phases such that competition
      under the program will occur in ten of the largest metropolitan
      statistical areas (MSAs) in 2008, 80 of the largest MSAs in 2009, and
      additional areas after 2009. Items selected for competitive acquisition
      will be phased in first among the highest cost and highest volume items
      and services or those items and services that CMS determines have the
      largest savings potential. In carrying out such programs, CMS may exempt
      rural areas and areas with low-population density within urban areas that
      are not competitive, unless there is a significant national market through
      mail order for a particular item or service.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |  | For each competitive acquisition
      area, CMS will conduct a competition under which providers will submit
      bids to supply certain covered items of DME. Successful bidders will be
      expected to meet certain program quality standards in order to be awarded
      a contract and only successful bidders can supply the covered items to
      Medicare beneficiaries in the acquisition area. The applicable contract
      award prices are expected to be less than would be paid under current
      Medicare fee schedules and contracts will be re-bid at least every three
      years. CMS will be required to award contracts to multiple entities
      submitting bids in each area for an item or service, but will have the
      authority to limit the number of contractors in a competitive acquisition
      area to the number needed to meet projected demand. CMS may use
      competitive bid pricing information to adjust the payment amount otherwise
      in effect for an area that is not a competitive acquisition
      area.                                                          
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |  | On April 2, 2007, CMS issued rule
      CMS-1270-F implementing the competitive bidding program in ten of the
      largest MSAs across the country, applying initially to ten categories of
      DME and medical supplies. CMS concluded the bidding process for the first
      round of MSAs in September 2007, and expects to announce winning suppliers
      early this year and to have payments under the program go into effect in
      July 2008. CMS expects to begin soliciting bids for the second round of 70
      MSAs in the summer of 2008. We can not predict the outcome of the
      competitive bidding program on our business nor the Medicare payment rates
      that will be in effect in 2008 and beyond for the items subjected to
      competitive bidding.                                                                                                                                                                                                                                                                                                                                           

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

On
February 13, 2006, a final rule governing CMSs Inherent Reasonableness (IR)
authority became effective. The IR rule establishes a process for adjusting fee
schedule amounts for Medicare Part B services when existing payment amounts are
determined to be either grossly excessive or deficient. The rule describes the
factors that CMS or its contractors will consider in making such determinations
and the procedures that will be followed in establishing new payment amounts. To
date, no payment adjustments have occurred or been proposed as a result of the
IR rule.

The
effectiveness of the IR rule itself does not trigger payment adjustments for any
items or services. Nevertheless, the IR rule puts in place a process that
eventually could have a significant impact on Medicare payments for our
equipment and services. We can not predict whether CMS will exercise its IR
authority with respect to payment for our equipment and services, or the effect
that such payment adjustments would have on our financial position or operating
results.

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

Government Regulation

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

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

7

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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
December 31, 2007, we had 9,450 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 inhalation medications, hospital beds and
wheelchairs for the home setting. Approximately 70 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 the Medicare, Medicaid and SCHIP Extension Act of 2007
(SCHIP Extension Act), the Deficit Reduction Act of 2005 (DRA) and the
Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA),
contain provisions that directly impact reimbursement for the primary
respiratory and other DME products provided by Lincare. The SCHIP Extension Act
will reduce Medicare reimbursement amounts for covered Part B drugs, including
inhalation drugs that we provide, beginning April 1, 2008. DRA contains
provisions that will negatively impact reimbursement for oxygen equipment
beginning in 2009 and negatively impacted reimbursement for DME items subject to
capped rental payments beginning in 2007. MMA significantly reduced
reimbursement for inhalation drug therapies beginning in 2005, reduced payment
amounts for five categories of DME, including oxygen, beginning in 2005, froze
payment amounts for other covered DME items through 2007, established a
competitive acquisition program for DME beginning in 2008, and implemented
quality standards and accreditation requirements for DME suppliers. The SCHIP
Extension Act, DRA and MMA provisions, when fully implemented, could materially
and adversely affect our business, financial condition, operating results and
cash flows. See MEDICARE REIMBURSEMENT for a full discussion of the SCHIP
Extension Act, DRA and MMA provisions.

9

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

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

Throughout the second half of 2007, Congress was considering legislation
that would have included further reductions in payment amounts for certain
classes of oxygen equipment. The resulting legislation, the SCHIP Extension Act,
was signed into law by the President of the United States on December 29, 2007,
and temporarily addressed a number of Medicare program issues. However, the
SCHIP Extension Act did not contain any provisions affecting Medicare
reimbursement for oxygen equipment. The SCHIP Extension Act suspended a 10.1%
reduction in Medicare physician payments that was scheduled for 2008 and gave
physicians a 0.5% increase through June 30, 2008. The 10.1% reduction in
Medicare physician payments was driven by the statutory sustainable growth rate
(SGR) formula, which is intended to control the growth in aggregate Medicare
expenditures for physician services. The 109th session of Congress
previously passed similar legislation to avert a reduction in Medicare physician
payments in 2007. It is anticipated that Congress will revisit the issue of
physician payment rates and other Medicare program issues in 2008 and consider
whether to extend SGR relief beyond June 30, 2008. It is possible that
reimbursement changes for oxygen equipment could be considered at that time.
Additionally, the Presidents 2008 fiscal year budget proposes a reduction in
the maximum continuous oxygen equipment rental period from 36 months to 13
months. No further information on this proposal is available at this time and we
cannot predict whether or not the proposal will be included in the final budget
approved by Congress. Further reductions in Medicare reimbursement for oxygen
equipment could have a material adverse effect on the Companys net revenues,
operating income, cash flows and financial position.

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

Included
in rule CMS-1304-F are changes to the Medicare payment rates for oxygen and
oxygen equipment that took effect on January 1, 2007. CMS is exercising its
authority under the Balanced Budget Act of 1997 (BBA) to establish separate
classes and monthly payment rates for oxygen. The rule establishes a new class
and monthly payment amount for oxygen-generating portable equipment (OGPE),
which includes oxygen transfilling equipment and portable oxygen concentrators.
An OGPE add-on payment, applicable during the 36-month rental period, will be
made for these systems in the amount of $51.63. Payments for the new OGPE add-on
began on January 1, 2007 for new and existing oxygen users. CMS also increased
the monthly payment amounts for portable oxygen contents for beneficiary-owned
liquid or gaseous oxygen equipment from approximately $20.77 to $77.45. The
increase in payments for portable oxygen contents became effective on January 1,
2007 for new and existing oxygen users. The BBA requires these changes to be
budget neutral, and, accordingly, CMS reduced

10

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other Medicare oxygen payment rates
beginning in 2007. As a result, the monthly payment amount for stationary oxygen
equipment is expected to change each year in order to offset the impact from
changes in beneficiary utilization of OGPE equipment. For 2008, the payment rate
for stationary oxygen equipment will increase from $198.40 to $199.28, which is
expected to increase our net revenues and operating income by approximately $3.0
million in 2008. CMS previously published projected rates for 2008, 2009 and
2010 of $198.40, $193.21 and $189.39, respectively. CMS will revise payment
rates in future years under the methodology specified in the rule based on
actual OGPE use and updated data on the distribution of beneficiaries using
oxygen equipment. To the extent that the Companys distribution of oxygen
equipment and oxygen contents in future years differs from that of the overall
Medicare market, these future payment rate revisions may have a significant
effect on the overall level of reimbursement for the Companys oxygen
business.

DRA also
changes the reimbursement methodology for items of DME in the capped rental
payment category, including but not limited to such items as continuous positive
airway pressure (CPAP) devices, certain respiratory assist devices,
nebulizers, hospital beds and wheelchairs. For such items of DME, payment may
not extend over a period of continuous use of longer than 13 months. The option
for a supplier to retain ownership of the item after a 15-month rental period
and receive semi-annual maintenance and service payments is eliminated. On the
first day that begins after the 13th continuous month during which
payment is made for the item, the supplier will transfer title of the item to
the beneficiary. Additional payments for maintenance and service of the item
will be made for parts and labor not covered by a suppliers or manufacturers
warranty. The DME capped rental provisions contained in DRA applied to items
furnished for which the first rental month occurred on or after January 1, 2006.
Accordingly, the first month in which the new payment methodology impacted our
net revenues was February 2007.

Included
in rule CMS-1304-F is a discussion of the Medicare regulations, as interpreted
by CMS, necessary to implement the DME capped rental changes contained in the
DRA. In addition, on January 26, 2006, CMS announced a final rule revising the
payment classification of certain respiratory assist devices (RADs). RADs with
a backup rate feature were reclassified as capped rental DME items effective
April 1, 2006, whereby payments to providers of such devices 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. In cases where Medicare beneficiaries received the item prior to
April 1, 2006, only the rental payments for months after the effective date
count toward the 13-month cap. Accordingly, the first month is which the new
payment methodology impacted our net revenues was May 2007. The Company
estimates that the capped rental changes to DME and RADs reduced the Companys
net revenues and operating income by approximately $11.4 million in 2007 and
will reduce net revenues and operating income in 2008 by approximately $22.1
million. In addition, the transfer of ownership provisions affecting Medicare
capped rental equipment resulted in a reduction in the estimated useful lives of
such equipment beginning in 2006 and a corresponding increase in depreciation
expense. The Company will continue to evaluate its estimates of useful lives
based on its experience with ownership transfers of capped rental equipment in
future periods, which may result in further increases in depreciation expense in
the future.

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

Historically, prescription drug coverage under Medicare has been limited
to drugs furnished incident to a physicians services and certain
self-administered drugs, including inhalation drug therapies. Prior to MMA,
Medicare reimbursement for covered Part B drugs, including inhalation drugs that
we provide, was limited to 95 percent of the published average wholesale price
(AWP) for the drug. MMA established new payment limits and procedures for
drugs reimbursed under Medicare Part B (See MEDICARE REIMBURSEMENT). Beginning
in 2005, inhalation drugs furnished to Medicare beneficiaries were reimbursed at
106 percent of the volume-weighted average selling price (ASP) of the drug, as
determined from data provided each quarter by drug manufacturers under a
specific formula described in MMA. Implementation of the ASP-based formula
resulted in a dramatic reduction in payment rates for inhalation drugs in 2005
and beyond.

Recently
enacted legislation will further affect Medicare reimbursement amounts for
covered Part B drugs, including inhalation drugs that we provide, beginning
April 1, 2008. The SCHIP Extension Act requires CMS to adjust the ASP
calculation methodology used to determine Medicare payment amounts for
inhalation drugs by using volume-weighted ASPs based on actual sales volume
rather than average sales price. When implemented on April 1, 2008, the new
calculation methodology is expected to result in lower reimbursement amounts for
inhalation drugs. The SCHIP Extension Act also specifically lowers reimbursement
for the inhalation drug albuterol sulfate. The Congressional Budget Office
(CBO) estimates that the provisions of the SCHIP Extension Act affecting Part
B drug reimbursement will result in reductions in aggregate Medicare outlays for
such drugs of $1.0 billion over five years and $2.6 billion over 10 years. CMS
is expected to announce in March 2008 the payment rates to be in effect for the
second quarter of 2008 under the new methodology. We can not determine the
impact of such payment reductions on the Companys business until CMS publishes
the new quarterly reimbursement amounts for each specific inhalation drug
provided by the Company. We can also not determine whether quarterly updates in
ASP pricing data will continue to result in ongoing reductions in payment rates
for inhalation drugs, and what impact such payment reductions could have on our
business in the future.

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

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

The
effectiveness of the IR rule itself does not trigger payment adjustments for any
items or services. Nevertheless, the IR rule puts in place a process that could
eventually have a significant impact on Medicare payments for our equipment and
services. We can not predict whether or when CMS will exercise its IR authority
with respect to payment for our equipment and services, or the effect that such
payment adjustments would have on our financial position or operating results.

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

Recent
legislation instructs CMS to establish and implement programs under which
competitive acquisition areas will be established throughout the United States
for contract award purposes for the furnishing of competitively priced items of
DME, including oxygen equipment (See MEDICARE REIMBURSEMENT). The program will
be implemented in phases such that competition under the program will occur in
ten of the largest MSAs in 2008, 80 of the largest MSAs in 2009, and additional
areas after 2009. Items selected for competitive acquisition will be phased in
first among the highest cost and highest volume items and services or those
items and services that CMS determines have the largest savings potential. In
carrying out such programs, CMS may exempt rural areas and areas with
low-population density within urban areas that are not competitive, unless there
is a significant national market through mail order for a particular item or
service.

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

On April
2, 2007, CMS issued rule CMS-1270-F implementing the competitive bidding program
in ten of the largest MSAs across the country, applying initially to ten
categories of DME and medical supplies. CMS concluded the bidding process for
the first round of MSAs in September 2007, and expects to announce winning
suppliers early this year and to have payments under the program go into effect
in July 2008. CMS expects to begin soliciting bids for the second round of 70
MSAs in the summer of 2008. We can not predict the outcome of the competitive
bidding program on our business nor the Medicare payment rates that will be in
effect in 2008 and beyond for the items subjected to competitive bidding.

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

Due to
budgetary shortfalls, many states are considering, or have enacted, cuts to
their Medicaid programs, including funding for our equipment and services. These
cuts have included, or may include, elimination or reduction of coverage for
some or all of our equipment and services, amounts eligible for payment under
co-insurance arrangements, or payment rates for covered items. Approximately 6%
of our customers are eligible for primary Medicaid benefits, and State Medicaid
programs fund approximately 12% of our payments from primary and secondary
insurance benefits. Continued state budgetary pressures could lead to further
reductions in funding for the reimbursement for our equipment and services
which, in turn, could have a material adverse effect on our financial position
and operating results.

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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 22% of our customers and approximately 29% of our primary
and secondary payments are derived from private payors. Continued financial
pressures on these entities could lead to further reimbursement reductions for
our equipment and services that could have a material adverse effect on our
financial condition and operating results.

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

We derive
a significant majority of our revenues from reimbursement by third-party payors.
We accept assignment of insurance benefits from customers and, in most
instances, invoice and collect payments directly from Medicare, Medicaid and
private insurance carriers, as well as from customers under co-insurance
provisions. Approximately 52% of our revenues are derived from Medicare, 29%
from private insurance carriers, 12% from Medicaid and the balance directly from
individual customers and commercial entities.

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

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

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

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

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

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

We are
subject to a five-year corporate integrity agreement with the Office of
Inspector General that began in May 2006. Violations of the terms of the
corporate integrity agreement could result in severe criminal, civil and
administrative penalties and sanctions, including disqualification from Medicare
and other reimbursement programs.

13

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

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

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

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

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

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

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

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.

14

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Item 1B.Unresolved Staff Comments

None.

Item 2.Properties

Lincare
owns its headquarters facility located in Clearwater, Florida and two of its
1,019 operating center locations. Lincares other 1,017 operating center
locations are leased from unrelated third parties. Each operating center is a
combination warehouse and office, with warehouse space generally comprising
about half of the facility. Warehouse space is used for storage of adequate
supplies of equipment and accessories necessary to conduct our business. We also
lease 31 separate billing centers from unrelated third parties.

Item 3.Legal
Proceedings

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

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

From time
to time, the Company receives inquiries from various government agencies
requesting customer records and other documents. It has been the Companys
policy to cooperate with all such requests for information. However, the Company
can provide no assurances as to the duration or outcome of these inquiries.

Private
litigants may also make claims against health care providers for violations of
health care laws in actions known asqui
tamsuits. In these cases, the government has
the opportunity to intervene in, and take control of, the litigation. We are a
defendant in certainqui tamproceedings. The government has declined to intervene for
purposes other than dismissal in all unsealedqui tamactions of which we are aware
and we are vigorously defending these suits.

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

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

We are
subject to a five-year corporate integrity agreement with the Office of
Inspector General that began in May 2006. Violations of the corporate integrity
agreement can result in severe criminal, civil and administrative penalties and
sanctions, including disqualification from Medicare and other reimbursement
programs.

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 2007.

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 Global Market 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
|-------------------- |  | ---- | ----- | ---
|2007                 |  |      |       |    
|First
      quarter  |  | $    | 41.91 |    
|Second quarter       |  |      | 40.91 |    
|Third
      quarter  |  |      | 40.62 |    
|Fourth quarter       |  |      | 37.83 |    
|2006                 |  |      |       |    
|First quarter        |  | $    | 44.08 |    
|Second
      quarter |  |      | 40.74 |    
|Third quarter        |  |      | 39.20 |    
|Fourth
      quarter |  |      | 40.80 |    

As of
January 31, 2008, there were approximately 356 holders of record of the
73,189,060 outstanding shares of Lincare common stock. The closing price of
Lincare common stock on January 31, 2008, was $33.41 per share, as reported on
the NASDAQ Global Market.

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, 2007, the Company repurchased approximately 18.4
million shares of its common stock at a cost of approximately $673.4 million.
The following table sets forth the purchases of our common stock during the
fourth quarter of 2007.

|ISSUER PURCHASES OF EQUITY
      SECURITIES
|-------------------------------------------

|                                            |  |                 |  |                  |  |                    |  | Approximate           
|------------------------------------------- |  | --------------- |  | ---------------- |  | ------------------ |  | ----------------------
|                                            |  |                 |  |                  |  | Total
      Number |  | Dollar Value
      of 
|                                            |  |                 |  |                  |  | of
      Shares    |  | Shares that
      May 
|                                            |  | Total           |  |                  |  | Purchased
      as |  | Yet Be
      Purchased
|                                            |  | Number
      of |  | **Average**      |  | Part of
      the  |  | Under
      the       
|                                            |  | Shares          |  | Price
      Paid |  | Repurchase         |  | Repurchase            
|Period                                      |  | Purchased       |  | Per Share        |  | Programs           |  | Programs              
|October 1, 2007 to October 31, 2007         |  | 5,211,700       |  | $
      33.71    |  | 5,211,700          |  | $ 504,513,000         
|November 1, 2007
      to November 30, 2007 |  | 2,343,842       |  | $ 35.36          |  | 2,343,842          |  | $
      430,165,000   
|December 1, 2007 to December 31, 2007       |  | 3,210,197       |  | $ 35.78          |  | 3,210,197          |  | $ 310,606,000         
|                                            |  |                 |  |                  |  |                    |  |                       
|Total                                       |  | 10,765,739      |  | $ 34.69          |  | 10,765,739         |  |                       

On
February 14, 2006, the Board authorized a share repurchase plan whereby the
Company may repurchase shares of the Companys common stock in amounts
determined pursuant to a formula that takes into account both the ratio of the
Companys net debt to cash flow and its available cash resources and borrowing
availability. On January 23, 2007 and October 23, 2007, the Board approved
modifications to the formula to increase the ratio of net debt to cash flow to
allow additional share repurchases. As of December 31, 2007, $310.6 million of
common stock was eligible for repurchase in accordance with the
formula.

16

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The
following table sets forth information as of the end of fiscal year 2007 with
respect to compensation plans under which equity securities are authorized for
issuance.

Securities Authorized for Issuance
Under Equity Compensation Plans

|                                                                 |  |                     |  |                         |  | Number of
      securities
|---------------------------------------------------------------- |  | ------------------- |  | ----------------------- |  | --------------------------
|                                                                 |  | Number
      of     |  |                         |  | remaining                 
|                                                                 |  | securities
      to |  |                         |  | available
      for       
|                                                                 |  | be
      issued     |  |                         |  | future
      issuance     
|                                                                 |  | upon                |  |                         |  | under
      equity        
|                                                                 |  | exercise
      of   |  | Weighted-average        |  | compensation              
|                                                                 |  | outstanding         |  | exercise
      price of |  | plans                     
|                                                                 |  | options,            |  | outstanding             |  | (excluding                
|                                                                 |  | warrants
      and  |  | options,
      warrants |  | securities
      reflected
|Plan Category                                                    |  | rights              |  | and rights              |  | in column (a))            
|                                                                 |  | (a)                 |  | (b)                     |  | (c)                       
|Equity compensation plans approved by security holders           |  | 8,955,616           |  | $33.46                  |  | 3,452,006                 
|Equity
      compensation plans not approved by security holders |  | None                |  | N/A                     |  | None                      
|Total                                                            |  | 8,955,616           |  | $33.46                  |  | 3,452,006                 

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, 2007, 2006, 2005, 2004, and
2003, and the caption Balance Sheet Data as of December 31, 2007, 2006, 2005,
2004 and 2003 are derived from our consolidated financial statements audited by
KPMG LLP, an independent registered public accounting firm.

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

|                                                                                                       |  | Year Ended December
  31,            
|------------------------------------------------------------------------------------------------------ |  | -------------------------------------
|                                                                                                       |  | 2007                                 
|                                                                                                       |  | (In thousands, except per share data)
|Statements of Operations Data:                                                                         |  |                                      
|Net revenues                                                                                           |  | $                                    
|Cost of goods and services                                                                             |  |                                      
|Operating
      expenses                                                                               |  |                                      
|Selling, general and administrative expenses                                                           |  |                                      
|Bad debt
      expense                                                                                 |  |                                      
|Depreciation expense                                                                                   |  |                                      
|Amortization
      expense                                                                             |  |                                      
|Operating income                                                                                       |  |                                      
|Interest
      income                                                                                  |  |                                      
|Interest expense                                                                                       |  |                                      
|Income before
      income taxes                                                                       |  |                                      
|Income tax expense                                                                                     |  |                                      
|Net income                                                                                             |  | $                                    
|Income per common share:                                                                               |  |                                      
|Basic                                                                                                  |  | $                                    
|Diluted (1)                                                                                            |  | $                                    
|Weighted average number of common shares outstanding                                                   |  |                                      
|Weighted
      average number of common shares and common share
      equivalents      outstanding (1) |  |                                      

| | (1) |  | Figures in 2007, 2006, 2005 and
      2004 reflect the application of the if converted method of accounting
      for our outstanding 3.0% 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.
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                      |  | At December 31,
|----------------------------------------------------- |  | ---------------
|                                                      |  | 2007           
|                                                      |  | (In thousands) 
|Balance Sheet Data:                                   |  |                
|Total assets                                          |  | $              
|Long-term obligations, including current installments |  |                
|Stockholders
      equity                            |  |                

18

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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 92% 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.

Critical
accounting policies are those we believe are both most important to the
portrayal of our financial condition and operating results and require our most
difficult, subjective or complex judgments, often as a result of the need to
make estimates about the effect of matters that are inherently uncertain.
Judgments and uncertainties affecting the application of those policies may
result in materially different amounts being reported under different conditions
or using different assumptions. We consider the following policies to be most
critical in understanding the judgments that are involved in preparing our
consolidated financial statements.

*Revenue Recognition and Accounts
Receivable*

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. The Company has established an
allowance to account for sales adjustments that result from differences between
the payment amount received and the expected realizable amount. Actual
adjustments that result from differences between the payment amount received and
the expected realizable amount are recorded against the allowance for sales
adjustments and are typically identified and ultimately recorded at the point of
cash application or when otherwise determined pursuant to the Companys
collection procedures. We report revenues in our financial statements net of
such adjustments.

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

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

19

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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 of equipment and supplies to customers, we perform certain
certification and approval procedures to ensure collection is reasonably assured
and that unbilled accounts receivable are recorded at net amounts expected to be
paid by customers and third-party payors. Billing delays, ranging from several
weeks to several months, can occur due to delays in obtaining certain required
payor-specific documentation from internal and external sources, interim
transactions occurring between cycle billing dates established for each customer
within the billing system and business acquisitions awaiting assignment of new
provider enrollment identification numbers. In the event that a third-party
payor does not accept the claim 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, Sales
Adjustments and Related Allowances for Uncollectible Accounts
Receivable*

Accounts
receivable are reported net of allowances for sales adjustments and
uncollectible accounts. 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.
Bad debt is recorded as an operating expense and consists of billed charges that
are ultimately deemed uncollectible due to the customers or third-party payors
inability or refusal to pay. 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 increase our
allowances for doubtful accounts, which may materially impact our financial
position or results of operations. The Company has established an allowance to
account for sales adjustments that result from differences between the payment
amounts received from customers and third-party payors and the expected
realizable amounts. Actual adjustments that result from such differences are
recorded against the allowance for sales adjustments and are typically
identified and ultimately recorded at the point of cash application or when
otherwise determined pursuant to the Companys collection procedures. We report
revenues in our financial statements net of such adjustments.

*Business Acquisition
Accounting*

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.

*Impairment of Intangible and
Long-Lived Assets*

We assess
the Companys intangible assets for impairment annually, pursuant to SFAS No. 142,
Goodwill and Other Intangible Assets. Additionally, intangible and long-lived
assets impairment is tested 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.

Results of Operations

Net Revenues

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

Year Ended December
  31,2007
    
    2006
    
    2005(In thousands)Oxygen and other respiratory therapy
    
    $
    1,470,363
    
    $
    1,295,983
    
    $
    1,154,268Home medical
      equipment and other
    
    
    125,627
    
    
    113,812
    
    
    112,359Total
    
    $
    1,595,990
    
    $
    1,409,795
    
    $
    1,266,627


Net
revenues for the year ended December 31, 2007 increased by $186.2 million, an
increase of 13.2% above net revenues for 2006. The 13.2% increase in net
revenues in 2007 was comprised of 11.3% internal growth and 3.5% acquisition
growth, partially offset by Medicare price changes taking effect in 2007 (see
Medicare Reimbursement). Net revenues for the year ended December 31, 2006
increased by $143.2 million, an increase of 11.3% above net revenues for 2005.
The 11.3% increase in net revenues in 2006 was comprised of 13.3% internal
growth and 2.6% acquisition growth partially offset by Medicare price changes
taking effect in 2006. 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 reputation for 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 2007 and 2006, we completed the acquisition
of three businesses with annual revenues of approximately $4.3 million and ten
businesses with annual revenues of approximately $67.0 million,
respectively.

The contribution of oxygen and other
respiratory therapy products to our net revenues was 92.1%, 91.9% and 91.1%,
respectively, for the years ended December 31, 2007, 2006 and 2005. 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 as a percentage of net revenues was 24.4% for the year ended
December 31, 2007, 22.4% for the year ended December 31, 2006 and 20.0% for the
year ended December 31, 2005. Cost of goods and services increased by $73.8
million, or 23.3%, in 2007 and $62.8 million, or 24.8% in 2006. The increase in
cost of goods and services in 2007 is attributable primarily to an increase in
drug purchasing costs due to a product mix shift away from compounded to higher
cost commercially-available products in our inhalation drug business as a result
of a determination by CMS to eliminate Medicare coverage of compounded
medications as of July 1, 2007. Also contributing to higher cost of goods and
services in 2007 were increased sales of medical supplies and nutritional
products to pediatric customers associated with our acquisition of the business
of a pediatric respiratory provider in the fourth quarter of 2006. We also
experienced significant growth in our sleep therapy product lines during 2007,
which generally carry a lower gross margin than other products we provide. The
increase in cost of goods and services in 2006 is attributable primarily to
increased patient and drug shipment volumes and an increase in drug purchasing
costs due to a product mix shift in our inhalation drug product line. Cost of
goods and services in 2006 was also impacted by growth in shipments of
disposables and accessories related to our sleep therapy product lines.

Cost of
goods and services includes the cost of equipment (excluding depreciation of
$82.6 million, $68.6 million and $62.3 million in 2007, 2006 and 2005,
respectively), drugs and supplies sold to patients and certain operating costs
related to the Companys respiratory drug product line. These costs include an
allocation of customer service, distribution and administrative costs relating
to the respiratory drug product line of approximately $48.8 million, $49.2
million and $50.0 million in 2007, 2006 and 2005, respectively. Included in cost
of goods and services for the year ended December 31, 2007 are salary and
related expenses of pharmacists and pharmacy technicians of $10.5 million. Such
salary and related expenses for the years ended December 31, 2006 and 2005 were
$10.3 million and $10.2 million, respectively.

21

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Operating and Other Expenses

Operating
expenses as a percentage of net revenues for the years ended December 31, 2007,
2006 and 2005 were 22.9%, 23.5% and 23.4%, respectively. Operating expenses in
2007 and 2006 increased by $33.1 million, or 10.0%, and $36.1 million, or 12.2%,
respectively, when compared with the prior year periods. Gains in productivity
at our operating centers and modest growth in office rent and related facility
expenses helped to offset higher freight charges due to gains in customer
shipment volumes in our inhalation drug and sleep accessory product lines and
significant vehicle-related cost increases attributable to higher fuel prices
and vehicle lease expenses.

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

The
Company includes in operating expenses the costs incurred at the Companys
operating centers for certain service personnel (center manager, CSRs and
Service Reps), facilities (rent, utilities, communications, property taxes,
etc.), vehicles (vehicle leases, gasoline, repair and maintenance), and general
business supplies and miscellaneous expenses. Operating expenses for the years
ended December 31, 2007, 2006 and 2005 within these major categories were as
follows:

Operating
      Expenses (in thousands)
    
    Year Ended December
  31,2007
    
    2006
    
    2005Salary and related
    
    $
    232,579
    
    $
    208,994
    
    $
    185,435Facilities
    
    
    55,617
    
    
    51,914
    
    
    49,451Vehicles
    
    
    45,120
    
    
    40,598
    
    
    34,982General
      supplies/miscellaneous
    
    
    31,700
    
    
    30,391
    
    
    25,939Total
    
    $
    365,016
    
    $
    331,897
    
    $
    295,807


Included
in operating expenses during the year ended December 31, 2007 are salary and
related expenses for Service Reps in the amount of $100.0 million. Such salary
and related expenses for the years ended December 31, 2006 and 2005 were $91.2
million and $80.7 million, respectively.

Selling, general and administrative
expenses (SG&A) as a percentage of net revenues for the years ended
December 31, 2007, 2006 and 2005, were 19.9%, 20.7%, and 19.9%, respectively.
SG&A expenses in 2007 increased by $26.1 million, or 8.9%, compared with the
prior year period. Contributing to the increase in SG&A expenses in 2007
were higher payroll costs included in selling expenses and higher liability
insurance expenses, partially offset by cost controls at our administrative,
field overhead and billing office locations and lower stock-based compensation
expense. SG&A expenses in 2006 increased by $39.8 million, or 15.8%,
compared with the prior year period. SG&A expenses in 2006 were impacted by
the adoption of SFAS No. 123R (see Notes 1 and 11 to the consolidated financial
statements) effective January 1, 2006, resulting in the recognition of $20.3
million of stock-based compensation expense during the year. Also contributing
to the increase in SG&A expenses in 2006 were higher payroll costs included
in selling expenses and higher legal expenses, partially offset by cost controls
at our administrative, field overhead and billing office locations.

SG&A expenses include costs
related to sales and marketing activities, clinical respiratory services,
corporate overhead and other business support functions. Included in SG&A
during the year ended December 31, 2007 are salary and related expenses of
$226.2 million. These salary and related expenses include the cost of the
Companys respiratory therapists in the amount of $63.0 million during 2007. The
Companys respiratory therapists generally provide non-reimbursable and
discretionary clinical follow-up with the customer and communication, as
appropriate, to the prescribing physician with respect to the customers plan of
care. The Company includes the salaries and related expenses of its respiratory
therapist personnel (licensed respiratory therapists or, in some cases,
registered nurses) in SG&A because it believes that these personnel enhance
the Companys business relative to its competitors that do not employ
respiratory therapists. Included in SG&A during the years ended December 31,
2006 and 2005 are salary and related expenses of $207.9 million and $168.6
million, respectively. These salary and related expenses include the cost of the
Companys respiratory therapists in the amount of $54.0 million and $45.9
million during the respective years.

22

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Bad debt
expense as a percentage of net revenues was 1.5% for the years ended December
31, 2007, 2006 and 2005. Days sales outstanding (DSO) were 43 days at December
31, 2007, up from 42 days and 40 days at December 31, 2006 and 2005,
respectively. The increase in DSO over the three-year period is attributable
primarily to disruptions caused by the transition in the contractors that
process Medicare claims during 2006 and 2007 (see Medicare Reimbursement), an
increase in accounts receivable from business acquisitions and growth in our
sleep therapy product line, which generally has a higher mix of managed care and
commercial insurance payors than our traditional Medicare business. Our net
accounts receivable balance as of December 31, 2006 was also impacted by the
adoption by the Company of the provisions of Staff Accounting Bulletin No. 108,
Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements (SAB 108) during the
fourth quarter of 2006 which resulted in the Company recording an allowance for
sales adjustments of $10.7 million (see Note 3 and Note 9 of the Notes to
Consolidated Financial Statements). While we have achieved consistent results in
managing bad debt expense over the past three years, business acquisition
activities 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 7.3% for the
year ended December 31, 2007 compared with 7.1% and 7.4% for the years ended
December 31, 2006 and 2005, respectively. Included in depreciation expense in
the year ended December 31, 2007 is depreciation of medical equipment of $82.6
million and depreciation of other property and equipment of $33.4 million.
Included in depreciation expense in the years ended December 31, 2006 and 2005
is depreciation of medical equipment of $68.6 million and $62.3 million,
respectively, and depreciation of other property and equipment of $31.9 million
and $31.0 million, respectively. The growth in depreciation expense in 2007
compared with 2006 is attributed to increased purchases of medical and other
equipment necessary to support the growth in the Company's customer base during
2007. Approximately $7.1 million and $2.2 million of the increase in
depreciation expense in 2007 and 2006, respectively, is attributable to a
reduction in the estimated useful lives of certain DME equipment attributable to
provisions contained in the Deficit Reduction Act of 2005 that change the
Medicare reimbursement methodology for items of DME in the capped rental payment
category (see Medicare Reimbursement).

During
2007, we amortized $0.3 million of intangible assets compared with $1.5 million
in 2006 and $1.7 million in 2005. Our net intangible assets were $1.2 billion as
of December 31, 2007. Of this total, $0.4 million (consisting of various
covenants not-to-compete) is being amortized over periods of one to seven years,
as the remainder represents goodwill.

Operating Income

As shown
in the table below, operating income for the year ended December 31, 2007
increased $36.1 million when compared to the prior year. The increase in
operating income in 2007 is attributable primarily to revenue growth from
increases in customer volumes partially offset by higher costs and expenses as
noted above. The decrease in operating income in 2006 is attributable to several
factors, including the negative impact on our net revenues resulting from
reduced Medicare payment rates for inhalation drugs and related dispensing fees
that took effect on January 1, 2006 and the reduction of Medicare reimbursement
rates for oxygen equipment that took effect on April 1, 2005, and higher
reported SG&A expenses due to the required adoption of SFAS No. 123R and the
resulting recognition of $20.3 million of stock-based compensation expense
during the year.

Year Ended December
  31,2007
    
    2006
    
    2005(In thousands)Operating income
    
    $383,148
    
    $347,059
    
    $351,780Percentage of
      net revenues
    
    24.0%
    
    24.6%
    
    27.8%


Interest Expense

Interest
expense for the year ended December 31, 2007 was $26.5 million, compared to $9.9
million and $12.4 million for the years ended December 31, 2006 and 2005,
respectively. Interest expense in 2007 was higher than interest expense in 2006
due to the placement of $550.0 million of convertible senior debentures in the
fourth quarter of 2007 and higher average balances outstanding under our
revolving credit facility. Interest expense in 2006 was lower than the prior
year due to the full year effect of the repayment of $45.0 million of 9.11%
Senior Secured Notes in September of 2005. Included in interest expense is
amortization of debt issuance costs of $5.7 million, $1.0 million and $0.7
million in 2007, 2006 and 2005, respectively.

23

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Income Taxes

Our
effective income tax rate was 37.3% for the years ended December 31, 2007 and
2006 compared with 37.7% for the year ended December 31, 2005.

Acquisitions

In 2007,
the Company acquired certain operating assets of three companies resulting in
the addition of one new operating center. The aggregate cost of these
acquisitions was $6.0 million and was allocated to acquired assets as follows:
$0.3 million to current assets, $0.1 million to property and equipment, and $5.6
million to goodwill.

In 2006, the Company acquired
certain operating assets of ten companies resulting in the addition of 48 new
operating centers. The aggregate cost of these acquisitions was $72.5 million
and was allocated to acquired assets as follows: $8.7 million to current assets,
$5.6 million to property and equipment, $0.2 million to separately identifiable
intangible assets, and $58.0 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 operating costs, capital expenditures, acquisitions, debt
service and share repurchases.

At
December 31, 2007, our current liabilities exceeded our current assets by $72.3
million, resulting in negative working capital as compared to positive working
capital of $52.8 million at December 31, 2006. The decline in working capital is
primarily attributable to the reclassification of our $275.0 million principal
amount of 3.0% Convertible Debentures due 2033 (the Debentures) to a current
liability due to the right of the holders to put the securities to us for cash
within one year of the December 31, 2007 balance sheet.

Net cash
provided by operating activities was $406.2 million for the year ended December
31, 2007, compared with $328.7 million for the year ended December 31, 2006 and
$370.0 million for the year ended December 31, 2005. 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
43 days as of December 31, 2007 and 42 days as of December 31, 2006. 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 $379.5 million, $312.2 million
and $395.0 million for the years ended December 31, 2007, 2006 and 2005,
respectively. Activity in the year ended December 31, 2007 included our
investment of $4.8 million in business acquisitions, net investment in property
and equipment of $129.8 million, payments of debt of $264.1 million, proceeds of
$755.4 million from the issuance of debt, proceeds of $41.1 million from the
exercise of stock options and issuance of common shares and $673.4 million in
payments to repurchase our common stock.

As of
December 31, 2007, our principal sources of liquidity consisted of approximately
$51.7 million of cash and cash equivalents, $98.3 million of short-term
investments and $356.5 million available under our revolving credit agreement.
The revolving credit agreement, dated December 1, 2006, makes available to us up
to $390.0 million over a five-year period, subject to certain terms and
conditions set forth in the agreement. As of December 31, 2007, there were $10.0
million of borrowings and $23.5 million of standby letters of credit issued
under the credit facility.

At
December 31, 2007, the Company held $98.3 million of investment grade auction
rate securities. These securities are variable-rate debt instruments with
contractual maturities between the years 2020 and 2041 with interest rates that
reset every seven or 35 days pursuant to a bidding process as determined by the
underlying security indentures. Under the provisions of SFAS No. 115,
Accounting for Certain Investments in Debt and Equity Securities, the
investments are classified as available-for-sale and are carried at fair value,
with any unrealized gains and losses included in comprehensive income as a
separate component of shareholders' equity. The book value of available-for-sale
investments held at December 31, 2007, approximated fair value. Therefore, the
Company had no reported unrealized gains and losses. The Company did not hold
any available-for-sale investments at December 31, 2006.

Of the
auction rate securities held as of December 31, 2007, $88.2 million are secured
by pools of student loans guaranteed by state-designated guaranty agencies or
monoline insurers or reinsured by the United States government. The remaining
$10.0 million was comprised of securities backed by pools of municipal bonds.
All of the auction rate securities held by the company are senior obligations
under the applicable indentures authorizing the issuance of such securities.
Recent turmoil in the credit markets has resulted in widespread failures to
attract demand for such securities at the periodic auction dates occurring
subsequent to December 31, 2007. While all of the auctions involving all of the
securities held by the Company as of December 31, 2007, were successful during
January 2008, auctions involving $80.0 million of these securities failed to
attract sufficient demand in February 2008, resulting in our continuing to hold
such securities.

24

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

On
February 14, 2006, our Board of Directors authorized a share repurchase plan
whereby the Company may repurchase from time to time, on the open market or in
privately negotiated transactions, shares of the Companys common stock in
amounts determined pursuant to a formula (the share repurchase formula) that
takes into account both the ratio of the Companys net debt to cash flow and its
available cash resources and borrowing availability. During the year ended
December 31, 2007, the Company repurchased and retired 18,423,994 shares for
$673.4 million pursuant to the repurchase plan. On January 23, 2007 and October
23, 2007, our Board of Directors approved modifications to the share repurchase
formula to increase the ratio of debt to cash flow to allow additional share
repurchases. As of December 31, 2007, $310.6 million of the Companys common
stock was eligible for repurchase in accordance with the amended formula.

On
October 31, 2007, we completed the sale of $275.0 million principal amount
(including exercise of a $25.0 million over-allotment option) of convertible
senior debentures due 2037  Series A (the Series A Debentures) and $275.0
million principal amount (including exercise of a $25.0 million over-allotment
option) of convertible senior debentures due 2037  Series B (the Series B
Debentures and together with the Series A Debentures, the Series Debentures)
in a private placement. The Series Debentures will pay interest semi-annually at
a rate of 2.75% per annum. The Series Debentures are unsecured and
unsubordinated obligations and will be convertible under specified circumstances
based upon a base conversion rate, which, under certain circumstances, will be
increased pursuant to a formula that is subject to a maximum conversion rate.
Upon conversion, holders of the Series Debentures will receive cash up to the
principal amount, and any excess conversion value will be delivered in shares of
our common stock or in a combination of cash and shares of common stock, at our
option. The initial base conversion rate for the Debentures is 19.5044 shares of
common stock per $1,000 principal amount of Series Debentures, equivalent to an
initial base conversion price of approximately $51.27 per share. In addition, if
at the time of conversion the applicable price of our common stock exceeds the
base conversion price, holders of the Series A Debentures and Series B
Debentures will receive an additional number of shares of common stock per
$1,000 principal amount of the Debentures, as determined pursuant to a specified
formula. We will have the right to redeem the Series A Debentures and the Series
B Debentures at any time after November 1, 2012 and November 1, 2014,
respectively. Holders of the Series Debentures will have the right to require us
to repurchase for cash all or some of their Series Debentures upon the
occurrence of certain fundamental change transactions or on November 1, 2012,
2017, 2022, 2027 and 2032 in the case of the Series A Debentures and November 1,
2014, 2017, 2022, 2027 and 2032 in the case of the Series B
Debentures.

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.

Accounts Receivable:The Company maintains payor-specific price tables in its
billing system that reflect the fee schedule amounts statutorily in effect or
contractually agreed upon by various government and commercial payors for each
item of equipment or supply provided to a customer. Due to the nature of the
health care industry and the reimbursement environment in which Lincare
operates, situations can occur where expected payment amounts are not
established by fee schedules or contracted rates, and estimates are required to
record revenues and accounts receivable at their net realizable values. Inherent
in these estimates is the risk that revenues and accounts receivable will have
to be revised or updated as additional information becomes available.
Contractual adjustments to revenues and accounts receivable can result
from

25

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price differences between allowed
charges and amounts initially recognized as revenue due to incorrect price
tables or subsequently negotiated payment rates. Actual adjustments that result
from differences between the payment amount received and the expected realizable
amount are recorded against the allowance for sales adjustments and are
typically identified and ultimately recorded at the point of cash application or
account review. We report revenues in our financial statements net of such
adjustments. Accounts receivable are reported net of allowances for sales
adjustments and uncollectible accounts. Bad debt is recorded as an operating
expense and consists of billed charges that are ultimately deemed uncollectible
due to the customers or third-party payors inability or refusal to
pay.

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

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

Percentage of
      Accounts Receivable Outstanding:December 31,
    
    December 31,2007
    
    2006Medicare
    
    36.8
    %
    
    40.1
    %Medicaid/Other
      Government
    
    17.8
    %
    
    12.5
    %Private Insurance
    
    37.4
    %
    
    38.1
    %Self-Pay
    
    8.0
    %
    
    9.3
    %Total
    
    100.0
    %
    
    100.0
    %


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

December 31, 2007Percentage of
      Accounts Aged in Days:0-60
    
    61-120
    
    Over 120Medicare
    
    77.0
    %
    
    10.5
    %
    
    12.5
    %Medicaid/Other
      Government
    
    50.1
    %
    
    20.7
    %
    
    29.2
    %Private Insurance
    
    60.8
    %
    
    15.0
    %
    
    24.2
    %Self-Pay
    
    51.4
    %
    
    26.6
    %
    
    22.0
    %All Payors
    
    64.1
    %
    
    15.3
    %
    
    20.6
    %December 31, 2006Percentage of
      Accounts Aged in Days:0-60
    
    61-120
    
    Over 120Medicare
    
    80.3
    %
    
    10.1
    %
    
    9.6
    %Medicaid/Other
      Government
    
    65.6
    %
    
    18.3
    %
    
    16.1
    %Private Insurance
    
    61.6
    %
    
    15.0
    %
    
    23.4
    %Self-Pay
    
    53.8
    %
    
    21.5
    %
    
    24.7
    %All Payors
    
    68.9
    %
    
    14.0
    %
    
    17.1
    %


The
Company operates 33 regional billing and collection offices (RBCOs) that are
responsible for the billing and collection of accounts receivable. The RBCOs are
aligned geographically to support the accounts receivable activity of the
operating centers within their assigned territories. As of December 31, 2007 and
2006, there were 1,322 and 1,262 full-time employees in the RBCOs. Accounts
receivable collections are performed by designated collectors within each of the
RBCOs. The collectors use various reporting tools available within the Companys
proprietary billing system toidentify claims that have been
denied or partially paid by the responsible party and claims that have not been
processed by the third-party payor in a timely manner. Collections of accounts
receivable are typically pursued using direct phone contact to

26

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determine the reason for non-payment
and, if necessary, corrected claims are prepared for resubmission and further
follow-up with the responsible party. In some cases, third-party payors have
developed electronic inquiry methods that the Company can access to determine
the status of individual claims. The Company has benefited from the increasing
availability of electronic funds transfers from payors, which now account for
approximately 68% of all payments received. The Company believes that its
collection procedures contribute to its accounts receivable days sales
outstanding (DSO) and bad debt expense being among the lowest in its industry,
according to published industry data and public filings of some of its
competitors.

The
ultimate collection of accounts receivable may not be known for several months.
We record bad debt expense based on a percentage of revenue using historical
Company-specific data. The percentage and amounts used to record bad debt
expense and the allowance for doubtful accounts are supported by various methods
and analyses, including current and historical cash collections, bad debt
write-offs, aged accounts receivable and consideration of any payor-specific
concerns. The ultimate write-off of an accounts receivable occurs once
collection procedures are determined to have been exhausted by the collector and
after appropriate review of the specific account and approval by supervisory
and/or management employees within the RBCOs. Management and RBCO supervisory
and management employees also review accounts receivable write-off reports,
correspondence from payors and individual account information to evaluate and
correct processes that might have contributed to an unsuccessful collection
effort.

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

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 |         |      |   |        |  |     
|------------------------------------------ |  | ------------ | ------- | ---- | - | ------ |  | ----
|                                           |  | 2008         |         | 2009 |   | 2010   |  | 2011
|Short-term debt                            |  | $            | 12,900  |      | $ |       |  | $   
|Capital lease
      commitments            |  |              | 144     |      |   | 150    |  |     
|Long-term debt (1)                         |  |              | 275,000 |      |   |       |  |     
|Interest
      expense                     |  |              | 20,027  |      |   | 15,616 |  |     
|Operating leases                           |  |              | 39,230  |      |   | 26,416 |  |     
|Employment
      Agreements                |  |              | 1,943   |      |   | 1,943  |  |     
|Taxes & related interest and penalties (2) |  |              | 577     |      |   |       |  |     
|Total                                      |  | $            | 349,821 |      | $ | 44,125 |  | $   

| | (1) |  | Amounts include the Debentures due 2033 that 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. The Debentures are shown in the table as
      scheduled for repurchase in 2008 as a result of the put feature. Amounts
      also include the Series Debentures due 2037. The Series A Debentures are
      redeemable by us on or after November 1, 2012, and may be put to us for
      repurchase on November 1, 2012, 2017, 2022, 2027 and 2032. The Series A
      Debentures are shown in the table as scheduled for repurchase in 2012 as a
      result of the put feature. The Series B Debentures are redeemable by us on
      or after November 1, 2014, and may be put to us for repurchase on November
      1, 2014, 2017, 2022, 2027 and 2032.
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | (2) |  | The Company had gross unrecognized tax benefits, including interest
      and penalties, of $17.7 million of which we anticipate payment settlement
      of $0.6 million during 2008. We are unable to determine a reasonable
      estimate of the payment settlement date or the settlement amount for the
      remaining balance of $17.1 million in unrecognized tax
  benefits.                                                                                                                                                                                                                                                                                                                                                                                                                                                             

27

---

New Accounting
Standards

In
December 2007, the FASB issued SFAS No. 141(R), Business Combinations. SFAS
No. 141(R) replaces SFAS No. 141, Business Combinations. SFAS No. 141(R)
requires an acquirer in a business combination, including business combinations
achieved in stages (step acquisition), to recognize the assets acquired,
liabilities assumed, and any noncontrolling interest in the acquiree at the
acquisition date, measured at their fair values of that date, with limited
exceptions. It also requires the recognition of assets acquired and liabilities
assumed arising from certain contractual contingencies as of the acquisition
date, measured at their acquisition-date fair values. The provisions of SFAS No.
141(R) are effective as of the beginning of the 2009 calendar year. The Company
is currently evaluating the potential future impact of this standard on its
financial condition, results of operations and cash flows.

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

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

Inflation

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

Segment Information

We follow
Financial Accounting Standards Board Statement of Financial Accounting Standards
(SFAS) No. 131, Disclosures about Segments of an Enterprise and Related
Information. SFAS No. 131 utilizes the management approach for determining
reportable segments. The management approach designates the internal
organization that is used by management for making operating decisions and
assessing performance as the source of our reportable segments. We maintain a
decentralized approach to management of our local business operations.
Decentralization of managerial decision-making enables our operating centers to
respond promptly and effectively to local market demands and opportunities. We
provide home health care equipment and services through 1,019 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.

28

---

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 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 current portions thereof) and our estimate of the impact from a 10 percent
increase in interest rates on the fair value of such obligations and the
associated change in annual interest expense.

|Market
      Risk Sensitive Instruments  Interest Rate Sensitivity
|-------------------------------------------------------------------
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|(dollars in
      thousands)                                       
|                                                                   
|                                                                   
|As of December 31, 2007:                                           
|Debentures                                                         
|Series A Debentures                                                
|Series B Debentures                                                
|Deferred acquisition obligations                                   
|Revolving bank credit facility                                     
|Capital lease obligations                                          
|As of December
      31, 2006:                                     
|Debentures                                                         
|Deferred acquisition obligations                                   
|Revolving bank credit facility                                     
|Capital lease obligations                                          

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

(a) Evaluation of Disclosure
Controls and Procedures.

The
Company has conducted an evaluation of the effectiveness of the design and
operation of the Companys disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended) as of the end of the fiscal year covered by this Annual Report on Form
10-K. Based on its evaluation, the Companys Chief Executive Officer and Chief
Financial Officer have concluded that the Companys disclosure controls and
procedures are effective in ensuring that information required to be disclosed
by the Company is recorded, processed, summarized and reported within the
required time periods.

(b) 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

29

---

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 Chief Executive Officer and Chief Financial
Officer, Lincare conducted an evaluation of the effectiveness of its internal
control over financial reporting as of December 31, 2007 based on the framework
inInternal Control 
IntegratedFrameworkissued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).

Based on
Lincares evaluation under the framework inInternal Control  Integrated Framework, management concluded that internal control over financial reporting was
effective as of December 31, 2007.

Lincares
registered public accounting firm, KPMG LLP, has issued an attestation report on
Lincares internal control over financial reporting.

(c) 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, 2007 that has materially affected, or
is reasonably likely to materially affect, Lincares internal control over
financial reporting.

30

---

Report of Independent Registered
Public Accounting Firm

The Board of Directors and
StockholdersLincare Holdings Inc.:

We have audited Lincare Holdings Inc.s
internal control over financial reporting as of December 31, 2007, based on
criteria established inInternal Control -
Integrated Frameworkissued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO). Lincare Holdings
Inc.'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, included in the accompanying Managements
Annual Report on Internal Control Over Financial Reporting (Item 9A(b)). Our
responsibility is to express an opinion on 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, assessing the
risk that a material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk. Our
audit also included performing such other procedures as we considered necessary
in the circumstances. We believe that our audit provides a reasonable basis for
our opinion.

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

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

In our opinion, Lincare Holdings Inc.
maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2007, based on criteria established inInternal Control - Integrated
Frameworkissued by the Committee of
Sponsoring Organizations of the Treadway Commission.

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. as of December
31, 2007 and 2006, 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, 2007, and our report dated February 27,
2008expressed an unqualified opinion on those consolidated financial
statements.

/s/ KPMG LLPTampa, FloridaFebruary 27, 2008Certified Public Accountants

Item 9B.Other Information

None.

31

---

PART III

Item 10.Directors,
Executive Officers, and Corporate Governance

Directors, Executive Officers,
Promoters and Control Persons

Information required to be furnished by Item 401 of Regulation S-K of the
Securities Exchange Act of 1934, as amended (the Exchange Act), will be
included in the definitive proxy statement for the Annual Meeting of
Stockholders to be held on May 12, 2008, 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 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 12, 2008, 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 407(d)(5)(ii) of Regulation S-K of the
Exchange Act and has determined that he is independent as defined in the listing
standards applicable to the Company.

Compliance with Section 16(a) of the
Exchange Act

Information required to be furnished by Item 405 of Regulation S-K will
be included in the definitive proxy statement for the Annual Meeting of
Stockholders to be held on May 12, 2008, 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.

Nominating Committee

Information required to be furnished by Item 407(c)(3) of Regulation S-K
will be included in the definitive proxy statement for the Annual Meeting of
Stockholders to be held on May 12, 2008, and is herein incorporated by
reference.

Item 11.Executive
Compensation

Information required to be furnished by Item 402 of Regulation S-K and
paragraphs (e)(4) and (e)(5) of Item 407 of Regulation S-K regarding executive
compensation will be included in the definitive proxy statement for the Annual
Meeting of Stockholders to be held on May 12, 2008, and is herein incorporated
by reference.

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

Information required to be furnished by Item 201(d) of Regulation S-K and
by Item 403 of Regulation S-K will be included in the definitive proxy statement
for the Annual Meeting of Stockholders to be held on May 12, 2008, and is herein
incorporated by reference.

Item 13.Certain
Relationships and Related Transactions, and Director
Independence

Information required to be furnished by Item 404 of Regulation S-K and
Item 407(a) of Regulation S-K will be included in the definitive proxy statement
for the Annual Meeting of Stockholders to be held on May 12, 2008, and is herein
incorporated by reference.

Item 14.Principal
Accountant Fees and Services

Information required to be furnished by Item 9(e) of Schedule 14A will be
included in the definitive proxy statement for the Annual Meeting of
Stockholders to be held on May 12, 2008, and is herein incorporated by
reference.

32

---

PART IV

Item 15.Exhibits and
Financial Statement Schedules

(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, 2007 and 2006

Consolidated Statements of
Operations  Years ended December 31, 2007, 2006 and 2005

Consolidated Statements of
Stockholders Equity  Years ended December 31, 2007, 2006 and 2005

Consolidated Statements of Cash
Flows  Years ended December 31, 2007, 2006 and 2005

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 II  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.



33

---

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 on its behalf by
the undersigned, thereunto duly authorized.

|                              |                                             
|----------------------------- | --------------------------------------------
|                              | LINCARE HOLDINGS
      INC.                 
|                             
|Date: February
      27, 2008 | /s/ PAUL G. GABOS                           
|                              | Paul G.
      Gabos                         
|                              | Secretary,
      Chief Financial Officer 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 and in the
capacities and on the dates indicated.

|Signature                     |  | Position                                     |  | Date                   
|----------------------------- |  | -------------------------------------------- |  | -----------------------
|                              |  | Director,
      Chief                        |  |                        
|/s/ JOHN P. BYRNES            |  | Executive
      Officer and Principal        |  | February 27,
      2008
|John P.
      Byrnes          |  | Executive
      Officer                      |  |                        
|                              |  |                                              |  |                        
|/s/ PAUL G. GABOS             |  | Secretary,
      Chief Financial Officer and |  |                        
|Paul G.
      Gabos           |  | Principal
      Accounting Officer           |  | February 27,
      2008
|                              |  |                                              |  |                        
|*                             |  |                                              |  |                        
|Chester B.
      Black        |  | Director                                     |  | February 27,
      2008
|                              |  |                                              |  |                        
|*                             |  |                                              |  |                        
|William F.
      Miller, III  |  | Director                                     |  | February 27,
      2008
|                              |  |                                              |  |                        
|*                             |  |                                              |  |                        
|Frank D.
      Byrne, M.D.    |  | Director                                     |  | February 27,
      2008
|                              |  |                                              |  |                        
|*                             |  |                                              |  |                        
|Stuart H.
      Altman, Ph.D. |  | Director                                     |  | February 27,
      2008

*By:
    /s/ PAUL G. GABOSAttorney in
      fact




34

---

Report of Independent Registered
Public Accounting Firm

The Board of Directors and
StockholdersLincare Holdings Inc.:

We have
audited the accompanying consolidated balance sheets of Lincare Holdings Inc.
and subsidiaries as of December 31, 2007 and 2006, 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, 2007. In connection with our
audits of the consolidated financial statements, we also have audited the
financial statement schedule on page S-1. These consolidated financial
statements and the financial statement schedule are the responsibility of the
Companys management. Our responsibility is to express an opinion on these
consolidated financial statements and this 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, 2007 and 2006, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2007, 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, present fairly, in all material respects, the information set forth
therein.

As
discussed in Notes 1(t) and 11 to the consolidated financial statements,
effective January 1, 2006, the Company adopted Statement of Financial Accounting
Standards No. 123R,Share-Based
Payment,and as discussed in Note 9 to the
consolidated financial statements, the Company changed its method of quantifying
errors in 2006.

As
discussed in Note 7 to the consolidated financial statements, effective January
1, 2007, the Company adopted Financial Accounting Standards Board Interpretation
No. 48,Accounting for Uncertainty in Income
Taxes.

We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), Lincare Holdings Inc.s internal control over
financial reporting as of December 31, 2007, based on criteria established inInternal Control - Integrated
Frameworkissued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO)), and our report
dated February 27, 2008 expressed an unqualified opinion on the effectiveness of
the Companys internal control over financial reporting.

/s/ KPMG LLPTampa, FloridaFebruary 27, 2008Certified Public Accountants



F-1

---

|LINCARE
      HOLDINGS INC. AND SUBSIDIARIES                      
|------------------------------------------------------------------
|                                                                  
|CONSOLIDATED BALANCE SHEETS                                       
|December
      31, 2007 and 2006                                  
|                                                                  
|                                                                  
|ASSETS                                                            
|Current assets:                                                   
|Cash and cash equivalents                                         
|Short-term investments (note 2)                                   
|Accounts receivable, net (note 3)                                 
|Income tax receivable                                             
|Inventories                                                       
|Prepaid and other current assets                                  
|Deferred income taxes                                             
|Total current assets                                              
|Property and
      equipment, net (note 4)                        
|Other assets:                                                     
|Goodwill                                                          
|Other                                                             
|Total other assets                                                
|Total assets                                                      
|LIABILITIES AND
      STOCKHOLDERS EQUITY                        
|Current liabilities:                                              
|Current installments of long-term obligations (note
      6)      
|Accounts payable                                                  
|Accrued expenses:                                                 
|Compensation and benefits                                         
|Liability insurance                                               
|Other current liabilities (note 8)                                
|Total
      current liabilities                                   
|Long-term obligations, excluding current installments (note 6)    
|Deferred income
      taxes and other taxes                       
|Total liabilities                                                 
|Commitments and
      contingencies (notes 5, 6 and 15)           
|Stockholders equity (notes 6, 7, 9, 10 and 11):                  
|Common stock, $.01 par value. Authorized 200,000,000
      shares;
|issued: 74,193,793 in 2007, 90,299,413 in 2006                    
|Additional paid-in capital                                        
|Retained earnings                                                 
|Total stockholders equity                                        
|Total liabilities and stockholders equity                        

See accompanying notes to consolidated
financial statements.

F-2

---

|LINCARE HOLDINGS INC. AND SUBSIDIARIES                                                 
|---------------------------------------------------------------------------------------
|                                                                                       
|CONSOLIDATED STATEMENTS OF OPERATIONS                                                  
|Years
      Ended December 31, 2007, 2006 and 2005                                     
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|Net revenues (note 12)                                                                 
|Costs and
      expenses:                                                              
|Cost of goods and services                                                             
|Operating expenses                                                                     
|Selling, general and administrative expenses                                           
|Bad debt expense                                                                       
|Depreciation expense                                                                   
|Amortization expense                                                                   
|                                                                                       
|Operating income                                                                       
|Other income (expenses):                                                               
|Interest income                                                                        
|Interest expense                                                                       
|                                                                                       
|Income before income taxes                                                             
|Income tax
      expense (note 7)                                                      
|Net income                                                                             
|Income per
      common share (note 13):                                               
|Basic                                                                                  
|Diluted                                                                                
|Weighted average number of common shares outstanding                                   
|Weighted average
      number of common shares and common share equivalents outstanding

See accompanying notes to consolidated
financial statements.

F-3

---

|LINCARE HOLDINGS INC. AND SUBSIDIARIES               
|-----------------------------------------------------
|                                                     
|CONSOLIDATED STATEMENTS OF STOCKHOLDERS
      EQUITY
|Years Ended December 31, 2007, 2006 and 2005         
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|Balances at December 31, 2004                        
|Exercise of stock options (note 11)                  
|Shares issued through ESPP                           
|Vesting of restricted stock                          
|Treasury stock adjustment                            
|Common stock acquired                                
|Tax benefit for exercise                             
|of employee stock                                    
|awards (notes 7 and 11)                              
|Net income                                           
|Balances at December 31, 2005                        
|SAB 108 cumulative                                   
|adjustment (note 9)                                  
|Adjusted balances at                                 
|January 1, 2006                                      
|Exercise of stock options (note 11)                  
|Shares issued through ESPP                           
|Vesting of restricted stock                          
|Reclass stock compensation                           
|Common stock acquired                                
|Common stock retired                                 
|Stock-based compensation expense                     
|Tax benefit for exercise                             
|of employee stock                                    
|awards (notes 7 and 11)                              
|Net income                                           
|Balances at December 31, 2006                        
|Adoption of FIN 48 (note 7)                          
|Exercise of stock options (note 11)                  
|Shares issued through ESPP                           
|Issuance of restricted stock                         
|Forfeitures of restricted stock                      
|Common stock acquired                                
|Common stock retired                                 
|Stock-based compensation expense                     
|Tax benefit for exercise                             
|of employee stock                                    
|awards (notes 7 and 11)                              
|Net income                                           
|Balances at December 31, 2007                        

See accompanying notes to consolidated
financial statements.

F-4

---

LINCARE HOLDINGS INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH
FLOWSYears Ended December 31, 2007, 2006 and 2005

|                                                                                                 |  | 2007                 |          | 2006 |  | 2005
|------------------------------------------------------------------------------------------------ |  | -------------------- | -------- | ---- |  | ----
|Cash flows from
      operating activities:                                                      |  | (In
      thousands)
|Net income                                                                                       |  | $                    | 226,077  |      |  | $   
|Adjustments
      to reconcile net income to net cash provided by operating
      activities:    |  |                      |          |      |  |     
|Bad debt expense                                                                                 |  |                      | 23,940   |      |  |     
|Depreciation expense                                                                             |  |                      | 116,020  |      |  |     
|Net loss (gain) on disposal of property and
      equipment                                      |  |                      | 160      |      |  |     
|Amortization expense                                                                             |  |                      | 260      |      |  |     
|Amortization of debt issuance costs                                                              |  |                      | 5,706    |      |  |     
|Stock-based compensation expense                                                                 |  |                      | 18,039   |      |  |     
|Deferred income taxes                                                                            |  |                      | 24,580   |      |  |     
|Excess tax benefit from stock-based
      compensation                                           |  |                      | (4,988   | )    |  |     
|Minority interest in net earnings of
      subsidiary                                            |  |                      |         |      |  |     
|Change in assets and liabilities net of effects of
      acquired businesses:                    |  |                      |          |      |  |     
|Increase in accounts receivable                                                                  |  |                      | (52,307  | )    |  |     
|Increase in inventories                                                                          |  |                      | (541     | )    |  |     
|Decrease (increase) in prepaid and other
      assets                                            |  |                      | 749      |      |  |     
|Increase in accounts payable                                                                     |  |                      | 11,002   |      |  |     
|Increase (decrease) in accrued expenses                                                          |  |                      | 15,355   |      |  |     
|Increase (decrease) in income taxes payable                                                      |  |                      | 22,115   |      |  |     
|Net cash provided by operating activities                                                        |  |                      | 406,167  |      |  |     
|Cash flows from
      investing activities:                                                      |  |                      |          |      |  |     
|Proceeds from
      sale of property and equipment                                               |  |                      | 13,052   |      |  |     
|Capital
      expenditures                                                                       |  |                      | (142,898 | )    |  |     
|Purchases of
      short-term investments                                                        |  |                      | (249,180 | )    |  |     
|Sales and
      maturities of short-term investments                                             |  |                      | 150,930  |      |  |     
|Business
      acquisitions, net of cash acquired and purchase price adjustments (note
      14) |  |                      | (4,775   | )    |  |     
|Changes in
      cash restricted for future payments                                             |  |                      |         |      |  |     
|Net cash used in investing activities                                                            |  |                      | (232,871 | )    |  |     
|Cash flows from
      financing activities:                                                      |  |                      |          |      |  |     
|Proceeds from
      issuance of debt                                                             |  |                      | 755,435  |      |  |     
|Payments of
      principal on debt                                                              |  |                      | (264,053 | )    |  |     
|Decrease in
      minority interest                                                              |  |                      |         |      |  |     
|Payments of
      debt issuance costs                                                            |  |                      | (10,732  | )    |  |     
|Proceeds from
      exercise of stock options and issuance of common shares                      |  |                      | 41,147   |      |  |     
|Excess tax
      benefit from stock-based compensation                                           |  |                      | 4,988    |      |  |     
|Payments to
      acquire treasury stock                                                         |  |                      | (673,449 | )    |  |     
|Net cash used in financing activities                                                            |  |                      | (146,664 | )    |  |     
|Net increase (decrease) in cash and cash
      equivalents                                       |  |                      | 26,632   |      |  |     
|Cash and cash
      equivalents, beginning of period                                             |  |                      | 25,075   |      |  |     
|Cash and cash equivalents, end of period                                                         |  | $                    | 51,707   |      |  | $   
|Supplemental
      disclosure of cash flow information:                                          |  |                      |          |      |  |     
|Cash paid for interest                                                                           |  | $                    | 18,319   |      |  | $   
|Cash paid for income taxes                                                                       |  | $                    | 102,333  |      |  | $   
|Supplemental disclosure of non-cash financing activities:                                        |  |                      |          |      |  |     
|Assets acquired under capital lease                                                              |  | $                    | 435      |      |  | $   

See accompanying notes to consolidated
financial statements.

F-5

---

LINCARE HOLDINGS INC. AND
SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTSDecember 31, 2007, 2006 and 2005

(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. It is at least reasonably possible that a
change in those estimates will occur in the near term.

**(c) Basis of
Presentation**

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.

In fiscal
year 2006 and 2005, $63,000 net gains and $387,000 net losses, respectively,
related to the disposal of property and equipment were reclassified to operating
expenses.

**(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. The Company has established an allowance to account for sales
adjustments that result from differences between the payment amount received and
the expected realizable amount. Actual adjustments that result from differences
between the payment amount received and the expected realizable amount are
recorded against the allowance for sales adjustments and are typically
identified and ultimately recorded at the point of cash application or when
otherwise determined pursuant to the Companys collection procedures. The
Company reports revenues in its financial statements net of such
adjustments.

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

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

- persuasive evidence of an arrangement
  exists;
- delivery has occurred;
- the sellers price to the buyer is fixed or
  determinable; and
- collectibility is reasonably
assured.

F-6

---

LINCARE HOLDINGS INC. AND
SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)December 31, 2007, 2006 and 2005

Due to
the nature of the industry and the reimbursement environment in which the
Company operates, certain estimates are required to record net revenues and
accounts receivable at their net realizable values at the time products are
provided. Inherent in these estimates is the risk that they will have to be
revised or updated as additional information becomes available. Specifically,
the complexity of many third-party billing arrangements and the uncertainty of
reimbursement amounts for certain services from certain payors may result in
adjustments to amounts originally recorded. Such adjustments are typically
identified and recorded by the Company at the point of cash application, claim
denial or account review. Included in accounts receivable are earned but
unbilled accounts receivable from earned revenues.

Unbilled
accounts receivable represent charges for equipment and supplies delivered to
customers for which invoices have not yet been generated by the billing system.
Prior to the delivery of equipment and supplies to customers, the Company
performs certain certification and approval procedures to ensure collection is
reasonably assured. Once the items are delivered, unbilled accounts receivable
are recorded at net amounts expected to be paid by customers and third-party
payors. Billing delays, ranging from several weeks to several months, can occur
due to delays in obtaining certain required payor-specific documentation from
internal and external sources as well as interim transactions occurring between
cycle billing dates established for each customer within the billing system, and
business acquisitions awaiting assignment of new provider enrollment
identification numbers. In the event that a third-party payor does not accept
the claim, the customer is ultimately responsible. Accounts receivable are
reported net of allowances for sales adjustments and uncollectible accounts.
Sales adjustments are recorded against revenues and result from differences
between the payment amount received and the expected realizable amount. Bad debt
is recorded as an operating expense and consists of billed charges that are
ultimately deemed uncollectible due to the customers or third-party payors
inability or refusal to pay.

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

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

**(e) Cash and Cash
Equivalents**

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

**(f) Short-term
Investments**

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

At
December 31, 2007, the Company held $98.3 million of investment grade auction
rate securities. These securities are variable-rate debt instruments with
contractual maturities between the years 2020 and 2041 with interest rates that
reset every seven or 35 days pursuant to a bidding process as determined by the
underlying security indentures. Under the provisions of SFAS No. 115,
Accounting for Certain Investments in Debt and Equity Securities, the
investments are classified as available-for-sale and are carried at fair value,
with any unrealized gains and losses included in comprehensive income as a
separate component of shareholders' equity. The book value of available-for-sale
investments held at December 31, 2007, approximated fair value. Therefore, the
Company had no reported unrealized gains and losses. The Company did not hold
any available-for-sale investments at December 31, 2006.

Of the
auction rate securities held as of December 31, 2007, $88.3 million are secured
by pools of student loans guaranteed by state-designated guaranty agencies or
monoline insurers or reinsured by the United States government. The remaining
$10.0 million was comprised of securities backed by pools of municipal bonds.
All of the auction rate securities held by the company are senior obligations
under the applicable indentures authorizing the issuance of such securities.
Recent turmoil in the credit markets has resulted in widespread
failures

F-7

---

LINCARE HOLDINGS INC. AND
SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)December 31, 2007, 2006 and 2005

to attract demand for such securities
at the periodic auction dates occurring subsequent to December 31, 2007. While
all of the auctions involving all of the securities held by the Company as of
December 31, 2007, were successful during January 2008, auctions involving $80.0
million of these securities failed to attract sufficient demand in February
2008, resulting in our continuing to hold such securities.

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

**(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% Debentures due 2033, 2.75%
Series A Debentures due 2037 and 2.75% Series B Debentures due 2037 are
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, 2007 and 2006 was
$273,597,500 and $271,562,500, respectively. The fair value of the Series A and
Series B Debentures at December 31, 2007 was $290,482,500 and $288,337,500,
respectively.

**(h)
Inventories**

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

**(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
    
    1 year to 39 yearsMedical rental
      equipment
    
    1 year to 11
      yearsOther equipment and furniture
    
    3 years to 25 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**

Goodwill results from the excess of
cost over identifiable net assets of acquired businesses.

On
January 1, 2002, the Company adopted SFAS No. 142, Goodwill and Other
Intangible Assets. SFAS No. 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 No. 142, the
Company performed its annual impairment test on September 30, 2007. The Company
has determined that it has one reporting unit under SFAS No. 142. For the three
year period ending December 31, 2007, the Company performed its annual
impairment review of goodwill and concluded that there was no impairment in any
of the years.

**(k) Other
Assets**

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

F-8

---

LINCARE HOLDINGS INC. AND
SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)December 31, 2007, 2006 and 2005

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

In
accordance with FASB Statement No. 144, Accounting for Impairment or Disposal
of Long-Lived Assets, 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 tax
assets and liabilities 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 and operating
loss and credit carryforwards. 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 tax assets and liabilities of a change in tax rate is
recognized in income in the period that includes the enactment date.

**(n) Advertising
Costs**

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

**(o) Cost of Goods and
Services**

Cost of
goods and services includes the cost of equipment (excluding depreciation of
$82.6 million, $68.7 million and $62.3 million in 2007, 2006 and 2005,
respectively), drugs and supplies sold to patients and certain operating costs
related to the Companys respiratory drug product line. These costs include an
allocation of customer service, distribution and administrative costs relating
to the respiratory drug product line of approximately $48.8 million, $49.2
million and $50.0 million in 2007, 2006 and 2005, respectively. Included in cost
of goods and services are salary and related expenses of pharmacists and
pharmacy technicians of $10.5 million, $10.3 million and $10.2 million in 2007,
2006 and 2005, respectively.

**(p) Operating
Expenses**

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

The
Company includes in operating expenses the costs incurred at the Companys
operating centers for certain service personnel (center manager, CSRs and
Service Reps), facilities (rent, utilities, communications, property taxes,
etc.), vehicles (vehicle leases, gasoline, repair and maintenance), and general
business supplies and miscellaneous expenses. Operating expenses for the years
ended December 31, 2007, 2006 and 2005 within these major categories were as
follows:

F-9

---

LINCARE HOLDINGS INC. AND
SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)December 31, 2007, 2006 and 2005

Operating
      Expenses ( in thousands)
    
    Year Ended December
  31,2007
    
    2006
    
    2005Salary and related
    
    $
    232,579
    
    $
    208,994
    
    $
    185,435Facilities
    
    
    55,617
    
    
    51,914
    
    
    49,451Vehicles
    
    
    45,120
    
    
    40,598
    
    
    34,982General
      supplies/miscellaneous
    
    
    31,700
    
    
    30,391
    
    
    25,939Total
    
    $
    365,016
    
    $
    331,897
    
    $
    295,807


Included
in operating expenses during the year ended December 31, 2007 are salary and
related expenses for Service Reps in the amount of $100.0 million. Such salary
and related expenses for the years ended December 31, 2006 and 2005 were $91.2
million and $80.7 million, respectively.

**(q) Lease
Commitments**

The
Company leases office space, vehicles and equipment under non-cancelable
operating leases, which expire at various dates through 2013. The Company's
operating leases generally have one to six year terms and may have renewal
options. The Company records its respective rent expense and amortization of
leasehold improvements on a straight-line basis over the initial term of the
lease and the Company does not negotiate rent holidays, rent concessions or
leasehold improvements in its office leases.

The lease
period is determined as the original lease term without renewals, unless and
until the exercise of lease renewal options is reasonably assured.

**(r) Selling, General and
Administrative Expenses**

Selling,
general and administrative expenses (SG&A) include costs related to sales
and marketing activities, corporate overhead and other business support
functions. Included in SG&A during the years ended December 31, 2007, 2006
and 2005 are salary and related expenses of $226.2 million, $207.9 million and
$168.6 million, respectively. These salary and related expenses include the cost
of the Companys respiratory therapists in the amount of $63.0 million, $54.0
million and $45.9 million during the respective periods. The Companys
respiratory therapists generally provide non-reimbursable and discretionary
clinical follow-up with the customer and communication, as appropriate, to the
prescribing physician with respect to the customers plan of care. The Company
includes the salaries and related expenses of its respiratory therapist
personnel (licensed respiratory therapists or, in some cases, registered nurses)
in SG&A because it believes that these personnel enhance the Companys
business relative to its competitors that do not employ respiratory
therapists.

**(s) 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,
486,635 shares have been issued under this authorization. During 2007, the
Company issued 43,767 shares at an average price of $31.22; during 2006, the
Company issued 41,973 shares at an average price of $32.36; and during 2005, the
Company issued 51,939 shares at an average price of $33.18 per share. In years
prior to 2005, the Company funded its employee stock purchase plan using
treasury shares. In 2005, the Company began funding its employee stock purchase
plan by issuing new common shares. See Note 11 to the Consolidated Financial
Statements for a full description of the Companys stock compensation
expense.

**(t) Stock
Plans**

The
Company has multiple stock-based employee compensation plans, which are
described more fully in Note 11 below.

Through
December 31, 2005, the Company accounted for stock-based compensation using the
intrinsic value method under Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees**(APB 25), and, accordingly, recognized no
compensation expense related to stock options and employee stock purchases. For
grants of restricted stock, other than those awarded under long-term incentive
agreements, the fair value of the shares at the date of grant was amortized to
compensation expense over the awards vesting period.

F-10

---

LINCARE HOLDINGS INC. AND
SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)December 31, 2007, 2006 and 2005

The Company has historically reported
pro forma results under the disclosure-only provisions of SFAS No. 123, as
amended by Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation-Transition and
Disclosure.

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

SFAS No.
123R requires the disclosure of pro forma information for periods prior to the
adoption. The following table illustrates the effect on net income and earnings
per share for 2005 as if the Company had recognized compensation expense for all
stock-based payments to employees based on their fair values:

Year EndedDecember 31,2005(In thousandsexcept per sharedata)Net income:As reported
    
    $
    213,696Add:
      Stock-based employee compensation expense included innet income, net of related tax effects
    
    
    1,783Deduct: Total
      stock-based employee compensation expensedetermined under fair value method for all awards, net
      ofrelated tax effects
    
    
    (10,282
    )Pro forma net
      income
    
    $
    205,197Earnings per
      common share:Basicas
      reported
    
    $
    2.16Dilutedas
      reported (1)
    
    $
    2.06Basicpro
      forma
    
    $
    2.07Dilutedpro
      forma (1)
    
    $
    1.98


(1)
Figures reflect the application of the if converted method of accounting for
the Companys outstanding 3.0% convertible debentures in accordance with EITF
Issue No. 04-8, effective for reporting periods ending after December 15,
2004.

Refer to Note 11  Stock Plans for
additional disclosures regarding our stock compensation programs.

**(u) Segment
Information**

The
Company provides home health care equipment and services through 1,019 operating
centers in 47 states. The Companys operating centers exhibit similar long-term
financial performance and have similar economic characteristics, having similar
products and services, types of customers and methods used to distribute their
products and services. We believe we meet the criteria for aggregating our
operating segments into a single reporting segment based on the provisions of
SFAS No. 131.

**(v) New Accounting
Standards**

In
December 2007, the FASB issued SFAS No. 141(R), Business Combinations. SFAS
No. 141(R) replaces SFAS No. 141, Business Combinations. SFAS No. 141(R)
requires an acquirer in a business combination, including business combinations
achieved in stages (step acquisition), to recognize the assets acquired,
liabilities assumed, and any noncontrolling interest in the acquiree at the
acquisition date, measured at their fair values of that date, with limited
exceptions. It also requires the recognition of assets acquired and liabilities
assumed arising from certain contractual contingencies as of the acquisition
date, measured at their acquisition-date fair values. The provisions of SFAS No.
141(R) are effective as of the beginning of the 2009 calendar year. The Company
is currently evaluating the potential future impact of this standard on its
financial condition, results of operations and cash flows.

F-11

---

LINCARE HOLDINGS INC. AND
SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)December 31, 2007, 2006 and 2005

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

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

**(w)
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.

**(x) 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 64% of net revenues in
2007, and 67% of net revenues in 2006 and 2005, respectively.

**(y) Comprehensive
Income**

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

The
Companys comprehensive income is the same as reported net income for all
periods presented.

**(z) Accounting for
Uncertainty in Income Taxes**

Beginning
with the adoption of FASB Interpretation No. 48, Accounting for Uncertainty in
Income Taxes, (FIN 48) as of January 1, 2007, the Company recognizes the
effect of income tax positions only if those positions are more likely than not
of being sustained. Recognized income tax positions are measured at the largest
amount that is greater than 50% likely of being realized. Changes in recognition
or measurement are reflected in the period in which the change in judgment
occurs. Prior to the adoption of FIN 48, the Company recognized the effect of
income tax positions only if such positions were probable of being sustained.
The Company records interest and penalties related to unrecognized tax benefits
in income tax expense.

**(2) Short-Term
Investments**

At
December 31, 2007, the Company held $98.3 million of investment grade auction
rate securities. These securities are variable-rate debt instruments with
contractual maturities between the years 2020 and 2041 with interest rates that
reset every seven or 35 days pursuant to a bidding process as determined by the
underlying security indentures. Under the provisions of SFAS No. 115,
Accounting for Certain Investments in Debt and Equity Securities, the
investments are classified as available-for-sale and are carried at fair value,
with any unrealized gains and losses included in comprehensive income as a
separate component of shareholders' equity. The book value of available-for-sale
investments held at December 31, 2007, approximated fair value. Therefore, the
Company had no reported unrealized gains and losses. The Company did not hold
any available-for-sale investments at December 31, 2006.

Of the
auction rate securities held as of December 31, 2007, $88.3 million are secured
by pools of student loans guaranteed by state-designated guaranty agencies or
monoline insurers or reinsured by the United States government. The remaining
$10.0 million was comprised of securities backed by pools of municipal bonds.
All of the auction rate securities held by the company are senior obligations
under the applicable indentures authorizing the issuance of such securities.
Recent turmoil in the credit markets has resulted in widespread failures to
attract demand for such securities at the periodic auction dates occurring
subsequent to December 31, 2007. While all of the auctions involving all of the
securities held by the Company as of December 31, 2007, were successful during
January 2008, auctions involving $80.0 million of these securities failed to
attract sufficient demand in February 2008, resulting in our continuing to hold
such securities.

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

F-12

---

LINCARE HOLDINGS INC. AND
SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)December 31, 2007, 2006 and 2005

(3) Accounts
Receivable

Accounts receivable at December 31,
2007 and 2006 consist of:

2007
    
    2006(In thousands)Trade Accounts Receivable
    
    $
    241,288
    
    
    $
    204,892Less allowance
      for sales adjustments and uncollectible accounts (1)
    
    
    (42,370
    )
    
    
    (34,359
    )$
    198,918
    
    
    $
    170,533


(1) The
Company recorded an allowance for sales adjustments of $10.7 million in 2006
pursuant to SEC Staff Accounting Bulletin No. 108 (see Note 9).

(4) Property and Equipment,
Net

Property and equipment at December
31, 2007 and 2006 consist of:

2007
    
    2006(In thousands)Land and improvements
    
    $
    3,111
    
    
    $
    3,111Building and
      improvements
    
    
    21,830
    
    
    
    21,023Medical rental equipment
    
    
    696,824
    
    
    
    612,679Equipment,
      furniture and other
    
    
    178,534
    
    
    
    156,194900,299
    
    
    
    793,007Less accumulated
      depreciation
    
    
    (560,148
    )
    
    
    (471,682
    )Net property and equipment
    
    $
    340,151
    
    
    $
    321,325


Depreciation of medical rental equipment was approximately $82.6 million
in 2007, $68.7 million in 2006 and $62.3 million in 2005.

(5) Leases

The
Company entered into a three-year capital lease in 2007 covering computer
equipment with an outstanding balance of $0.3 million at December 31, 2007. The
Company entered into a two-year capital lease in 2005 covering computer
equipment with no outstanding balance at December 31, 2007 and $0.4 million
outstanding at December 31, 2006. The book value of the underlying equipment is
included in Property and Equipment as follows:

2007
    
    2006(In thousands)Equipment and furniture
    
    $
    1,250
    
    
    $
    815Less accumulated
      depreciation
    
    
    (614
    )
    
    
    (244
    )$
    636
    
    
    $
    571


Amortization of assets held under capital leases of $1.0 million, $1.0
million and $0.9 million in 2007, 2006 and 2005, respectively, is included with
depreciation expense in the accompanying statement of operations.

The
Company has noncancelable lease obligations, primarily for buildings, office
equipment and vehicles, that expire over the next six years and may provide for
renewal options for periods ranging from one year to five years and that require
the Company to pay ancillary costs such as maintenance and insurance. The
Company records its respective rent expense and amortization of leasehold
improvements on a straight-line basis over the initial term of the lease and the
Company does not negotiate rent holidays, rent concessions or leasehold
improvements in its office leases. Operating lease expense was approximately
$51.7 million in 2007, $47.7 million in 2006 and $43.2 million in 2005. Future
minimum lease payments under capital leases and noncancelable operating leases
as of December 31, 2007, are as follows:

F-13

---

LINCARE HOLDINGS INC. AND
SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)December 31, 2007, 2006 and 2005

Capital
    
    Operatingleases
    
    leases(In thousands)2008
    
    $
    144
    
    $
    39,2302009
    
    
    150
    
    
    26,4162010
    
    
    13
    
    
    15,0082011
    
    
    
    
    
    5,5032012
    
    
    
    
    
    1,502Thereafter
    
    
    
    
    
    195Total minimum lease
      payments
    
    $
    307
    
    $
    87,854


(6) Long-Term
Obligations

Long-term obligations at December
31, 2007 and 2006 consist of:

|                                                                                                                |  | 2007           |         | 2006
|--------------------------------------------------------------------------------------------------------------- |  | -------------- | ------- | ----
|                                                                                                                |  | (In thousands)
|Convertible debt to mature in 2037, bearing fixed interest of
      2.75%, with a callable option in 2012       |  | $              | 275,000 |     
|Convertible debt
      to mature in 2037, bearing fixed interest of 2.75%, with a callable option
      in 2014 |  |                | 275,000 |     
|Convertible debt to mature in 2033, bearing fixed interest of 3.0%,
      with a callable option in 2008        |  |                | 275,000 |     
|Eurodollar loans
      under five year revolving credit agreement bearing annual interest equal
      to        |  |                |         |     
|the British Bankers Association LIBOR Rate (BBA LIBOR) plus an
      applicable margin based                  |  |                |         |     
|on the Companys consolidated leverage ratio (consolidated funded
      indebtedness to consolidated            |  |                |         |     
|EBITDA)                                                                                                         |  |                | 10,000  |     
|Capital lease obligations due through 2010                                                                      |  |                | 307     |     
|Unsecured,
      deferred acquisition obligations net of imputed interest, payable in
      various             |  |                |         |     
|installments through 2008                                                                                       |  |                | 2,900   |     
|Total long-term obligations                                                                                     |  |                | 838,207 |     
|Less: current installments                                                                                      |  |                | 288,044 |     
|Long-term debt, excluding current
      installments                                                            |  | $              | 550,163 |     

The
Companys current revolving credit agreement with several lenders and Bank of
America N.A. as agent, dated December 1, 2006, permits the Company to borrow
amounts up to $390.0 million under a five-year revolving credit facility. The
five-year revolving credit facility contains a $60.0 million letter of credit
sub-facility, which reduces the principal amount available under the five-year
revolving credit facility by the amount of outstanding letters of credit on the
sub-facility. As of December 31, 2007 and 2006, $10.0 million and $60.0 million,
respectively, in borrowings were outstanding on the five-year credit facility
and $23.5 million and $19.0 million, respectively, in standby letters of credit
were issued as of those dates. The revolving five-year credit agreement has a
maturity date of December 1, 2011. Upon entering into the five-year credit
agreement, origination and other upfront fees and expenses of $1.0 million were
paid and are being amortized over five years. In addition to the upfront fees,
the Company pays an annual administration agency fee along with a quarterly
facility fee. The facility fee is based on the Companys consolidated leverage
ratio and ranges between 0.10% and 0.175% annually. The leverage ratio is
calculated each quarter to determine the applicable interest rate on revolving
loans, the letter of credit fee and the facility fee for the following quarter.
The revolving credit agreement contains several financial and other negative and
affirmative covenants customary in such agreements and is secured by a pledge of
the stock of the wholly-owned subsidiaries of Lincare Holdings Inc. The
financial covenants in the Companys credit agreement include interest coverage
and leverage ratios, as defined in the agreement. The Companys credit agreement
requires compliance with all covenants set forth in the agreement and the
Company was in compliance with all covenants as of December 31, 2007 and 2006.
The credit agreement defines the occurrence of certain specified events as
events of default which, if not waived by or cured to the satisfaction of the
requisite lenders, allow the lenders to take actions against the Company,
including termination of commitments under the agreement, acceleration of any
unpaid principal and accrued interest in respect of outstanding borrowings,
payment of additional cash collateral to be held in escrow for the benefit of
the lenders and enforcement of any and all rights and interests created and
existing under the credit agreement.

F-14

---

LINCARE HOLDINGS INC. AND
SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)December 31, 2007, 2006 and 2005

Under certain conditions, an event of
default may result in an increase in the interest rate (the Default Rate)
payable by the Company on loans outstanding under the credit facility. The
Default Rate is equal to the interest rate (including any applicable percentage
as set forth in the agreement) otherwise applicable to such loans plus 2% per
annum. In the case of a bankruptcy event (as defined in the credit agreement)
all commitments automatically terminate and all amounts outstanding under the
credit facility become immediately due and payable.

On
October 31, 2007, the Company completed the sale of $275.0 million principal
amount (including exercise of a $25.0 million over-allotment option) of
convertible senior debentures due 2037  Series A (the Series A Debentures)
and $275.0 million principal amount (including exercise of a $25.0 million
over-allotment option) of convertible senior debentures due 2037  Series B (the
Series B Debentures and together with the Series A Debentures, the Series
Debentures) in a private placement. The Series Debentures will pay interest
semi-annually at a rate of 2.75% per annum. The Series Debentures are unsecured
and unsubordinated obligations and will be convertible under specified
circumstances based upon a base conversion rate, which, under certain
circumstances, will be increased pursuant to a formula that is subject to a
maximum conversion rate. Upon conversion, holders of the Series Debentures will
receive cash up to the principal amount, and any excess conversion value will be
delivered in shares of the Companys common stock or in a combination of cash
and shares of common stock, at the Companys option. The initial base conversion
rate for the Debentures is 19.5044 shares of common stock per $1,000 principal
amount of Series Debentures, equivalent to an initial base conversion price of
approximately $51.27 per share. In addition, if at the time of conversion the
applicable price of the Companys common stock exceeds the base conversion
price, holders of the Series A Debentures and Series B Debentures will receive
an additional number of shares of common stock per $1,000 principal amount of
the Debentures, as determined pursuant to a specified formula. The Company will
have the right to redeem the Series A Debentures and the Series B Debentures at
any time after November 1, 2012 and November 1, 2014, respectively. Holders of
the Series Debentures will have the right to require the Company to repurchase
for cash all or some of their Series Debentures upon the occurrence of certain
fundamental change transactions or on November 1, 2012, 2017, 2022, 2027 and
2032 in the case of the Series A Debentures and November 1, 2014, 2017, 2022,
2027 and 2032 in the case of the Series B Debentures.

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. 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 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 total of 5,156,663 shares at a conversion
price of approximately $53.33 per share of common stock. The Debentures are
convertible into common stock in any calendar quarter if, among other
circumstances, the last reported sale price of 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. The Debentures are not secured by any assets of the Company or guaranteed
by the Company or by those of its subsidiaries. As a result, the Debentures are
effectively subordinated to the revolving bank credit facility. Due to the right
of the holders of the Debentures to put the securities to us for cash within one
year of December 31, 2007 balance sheet date, the Company reclassified the
Debentures from a long-term obligation to a current liability on the
consolidated balance sheet as of December 31, 2007.

F-15

---

LINCARE HOLDINGS INC. AND
SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)December 31, 2007, 2006 and 2005

The
aggregate maturities of long-term obligations for each of the five years
subsequent to December 31, 2007 are as follows:

(In thousands)2008
    
    $
    288,0442009
    
    
    1502010
    
    
    132011
    
    
    2012
    
    
    275,000Thereafter
    
    
    275,000$
    838,207


(7) 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, 2007 and 2006
are presented below:

2007
    
    2006(In thousands)Deferred tax assets:Allowance for doubtful
      accounts
    
    $
    8,678
    
    
    $
    8,700Accruals
    
    
    8,290
    
    
    
    7,014Deferred revenue
    
    
    4,351
    
    
    
    3,458Stock-based
      compensation
    
    
    12,216
    
    
    
    7,049Other
    
    
    11,592
    
    
    
    6,34045,127
    
    
    
    32,561Less: Valuation allowance
    
    
    __
    
    
    
    __Total deferred tax assets
    
    
    45,127
    
    
    
    32,561Deferred tax
      liabilities:Tax over book intangible asset
      amortization
    
    
    (169,195
    )
    
    
    (139,563
    )Tax over book
      depreciation
    
    
    (41,151
    )
    
    
    (45,854
    )Convertible
      debt interest
    
    
    (21,654
    )
    
    
    (14,736
    )Other
    
    
    (1,302
    )
    
    
    (13,073
    )Total deferred tax liabilities
    
    
    (233,302
    )
    
    
    (213,226
    )Net deferred tax liabilities
    
    $
    (188,175
    )
    
    $
    (180,665
    )


There is
no valuation allowance for deferred tax assets. The Company believes that it is
more likely than not that the results of future operations will generate
sufficient taxable income to allow for the utilization of its deferred tax
assets.

F-16

---

LINCARE HOLDINGS INC. AND
SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)December 31, 2007, 2006 and 2005

Income tax expense attributable to
operations consists of:

Year Ended December
  31,2007
    
    2006
    
    2005(In thousands)Current:Federal
    
    $
    101,570
    
    
    $
    102,612
    
    
    $
    104,002State
    
    
    8,441
    
    
    
    6,023
    
    
    
    9,667Total current
    
    
    110,011
    
    
    
    108,635
    
    
    
    113,669Deferred:Federal
    
    
    21,977
    
    
    
    14,148
    
    
    
    16,060State
    
    
    2,603
    
    
    
    4,079
    
    
    
    (359
    )Total deferred
    
    
    24,580
    
    
    
    18,227
    
    
    
    15,701Total income tax expense
    
    $
    134,591
    
    
    $
    126,862
    
    
    $
    129,370Total income tax
      expense allocation:Income from
      operations
    
    $
    134,591
    
    
    $
    126,862
    
    
    $
    129,370Stockholders
      equity, for compensation expense for tax purposesin excess of
      amounts recognized for financial reporting purposes
    
    
    (12,040
    )
    
    
    (557
    )
    
    
    (26,520
    )$
    122,551
    
    
    $
    126,305
    
    
    $
    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
  31,2007
    
    2006
    
    2005(In thousands)Computed expected tax expense
    
    $
    126,234
    
    $
    118,945
    
    $
    120,073State income
      taxes, net of federal income tax benefit
    
    
    7,179
    
    
    6,566
    
    
    6,050Other
    
    
    1,178
    
    
    1,351
    
    
    3,247Total income tax expense
    
    $
    134,591
    
    $
    126,862
    
    $
    129,370


The
Company adopted the provisions of Financial Accounting Standards Board (FASB)
Interpretation No. 48, Accounting for Uncertainty in Income Taxes, on January
1, 2007. As a result of adoption, the Company recognized a charge to
stockholders equity of $0.6 million as a cumulative effect adjustment. As of
January 1, 2007 and December 31, 2007 respectively, the Company had gross
unrecognized tax benefits including interest and penalties, of $17.9 million and
$17.7 million of which $12.2 million and $12.0 million, net of federal tax
benefit, if recognized, would favorably affect the effective tax rate. The
Company recognizes accrued interest and penalties related to unrecognized tax
benefits as a component of income tax expense. The gross amount provided for
potential interest and penalties at the date of adoption totaled $3.2 million
and $1.0 million respectively. The gross amount provided for potential interest
and penalties at December 31, 2007 totaled $3.9 million and $0.9 million,
respectively.

F-17

---

LINCARE HOLDINGS INC. AND
SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)December 31, 2007, 2006 and 2005

A
reconciliation of the beginning and ending balances of the Companys gross
liability for unrecognized tax benefits excluding the related interest and
penalties at December 31, 2007 is a follows:

2007(In
      thousands)Total gross unrecognized tax benefits at January 1, 2007
    
    $
    13,748Additions for tax positions
      related to the current year
    
    
    1,627Additions for
      tax positions related to prior years
    
    
    577Reductions
      for tax positions related to prior years
    
    
    (2,362
    )Settlements
    
    
    (464
    )Reductions
      due to lapse in statute of limitations
    
    
    (166
    )Total gross unrecognized tax benefits at December 31, 2007
    
    $
    12,960


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

The
Internal Revenue Service (IRS) closed its examination of the Companys U.S.
income tax returns for the years 2001 through 2003 in the third quarter of 2007.
The Company subsequently filed additional claims for the years 2002 through
2005. The examination phase of the audit for the year 2005 has concluded with
the exception of the additional claim and it is likely that the examination of
the year 2006 will conclude in 2008. The Company has been invited to participate
in the IRSs Compliance Assurance Program, or CAP, for the years 2007 and 2008.
The objective of CAP is to reduce taxpayer burden and uncertainty, while
assuring the IRS of the tax returns accuracy prior to filing, thereby reducing
or eliminating the need for post-filing examination.

The
Company does not expect that the total amount of unrecognized tax positions will
significantly increase or decrease in the next twelve months.

(8) Other Current
Liabilities

Other current liabilities at
December 31, 2007 and 2006 consist of:

2007
    
    2006(In thousands)Deferred revenue
    
    $
    40,917
    
    $
    38,121Other current
      liabilities
    
    
    11,328
    
    
    2,735$
    52,245
    
    $
    40,856


(9) Staff Accounting Bulletin No.
108 (SAB 108)

In September 2006, the SEC issued Staff Accounting Bulletin
No. 108, Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements (SAB 108). SAB 108
addresses how the effects of prior-year uncorrected misstatements should be
considered when quantifying misstatements in current-year financial statements.
SAB 108 requires an entity to quantify misstatements using a balance sheet and
income statement approach (the dual approach) and to evaluate whether either
approach results in quantifying an error that is material in light of relevant
quantitative and qualitative factors. SAB 108 is effective for annual financial
statements covering the first fiscal year ending after November 15,
2006.

Traditionally, there have been two methods available for quantifying the
effects of misstatements in financial statements, the roll-over method and the
iron curtain method. The roll-over method considers the impact of errors or
misstatements on the current-year income statement, including the effect of
reversing prior-year misstatements, but its use can result in the accumulation
of misstatements in the balance sheet. The iron-curtain method, on the other
hand, considers the effect of correcting the accumulation of prior and current
year misstatements in the period ending balance sheet. Prior to the Companys
adoption of SAB 108, the Company applied the roll-over method in quantifying
financial statement misstatements.

F-18

---

LINCARE HOLDINGS INC. AND
SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)December 31, 2007, 2006 and 2005

During
the fourth quarter of 2006, the Company adopted the provisions of SAB 108
effective as of January 1, 2006. As permitted by SAB 108, the Company elected to
record the effects of applying SAB 108 using the cumulative effect transition
method, thereby recording the cumulative effect of initially applying the dual
approach as adjustments to the carrying values of assets and liabilities with an
offsetting adjustment recorded to the opening balance of retained earnings. The
misstatements that were corrected are described below.

Certain
items provided by the Company are reimbursed under rental arrangements that
generally provide for fixed monthly payments for as long as the patient is using
the equipment and medical necessity continues (subject to capped rental
arrangements which limit the rental payment periods in some instances). Once
initial delivery of rental equipment is made to the patient, a monthly billing
cycle is established based on the date of delivery. Monthly rental billings are
generated in 30-day cycles so that each months billing falls on approximately
the same day of the month as the initial billing. No separate payment is earned
from the initial equipment delivery and setup process. During the rental period,
the Company is responsible for servicing the equipment and providing routine
maintenance, if necessary. In all accounting periods prior to the application of
SAB 108 and in all instances where such rental arrangements occurred in the
past, rental revenue was recognized on the cycle billing date for the full
months billing amount.

This
accounting treatment resulted in an overstatement of revenue at each calendar
month-end period. More appropriately, revenues recorded from rental arrangements
should have been recognized ratably over the 30-day service period with a
portion deferred for the amount of the monthly bill that is unearned at calendar
month-end. The Company previously quantified these errors under the roll-over
method and concluded that they were immaterial.

In its
application of SAB 108, the Company corrected the errors resulting from its
rental revenue recognition policies by deferring the unearned portion of rental
revenues and establishing a deferred revenue liability on its balance sheet. The
deferral of rental revenues also required an adjustment to deferred income
taxes. In electing the cumulative effect transition method in applying SAB 108,
the Company recorded cumulative adjustments to the carrying amounts of
liabilities for deferred revenue and deferred income taxes by $34.4 million and
$13.3 million, respectively, in its 2006 opening balance sheet and an offsetting
adjustment to its opening balance of retained earnings in the amount of $21.1
million.

Pursuant
to its application of SAB 108, the Company made additional adjustments to its
2006 opening balance sheet related to the recording of an allowance for sales
adjustments against accounts receivable. The Companys revenues 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. Actual adjustments that result from differences between the
payment amount received and the expected realizable amount are typically
identified and ultimately recorded at the point of cash application or when
otherwise determined pursuant to the Companys collection procedures. The
Company reports revenues in its financial statements net of such adjustments.

Due to
the nature of the industry and the reimbursement environment in which the
Company operates, certain estimates are required to record net revenues and
accounts receivable at their net realizable values at the time products are
provided. Inherent in these estimates is the risk that they will have to be
revised or updated as additional information becomes available. Specifically,
the complexity of many third-party billing arrangements and the uncertainty of
reimbursement amounts from certain payors may result in adjustments to amounts
originally recorded.

The
Company had historically reported revenues in its financial statements prior to
the application of SAB 108 net of such sales adjustments at the time they were
identified but did not report accounts receivable net of a specific allowance
for estimates of such sales adjustments. The Company does, however, report
accounts receivable net of allowances for uncollectible accounts (i.e., bad
debt). Bad debt is recorded as an operating expense and consists of billed
charges that are ultimately deemed uncollectible due to the customers or
third-party payors inability or refusal to pay.

In all
accounting periods prior to the application of SAB 108 and in all instances
where such sales adjustments were recorded in the past, the Company consistently
applied this accounting treatment which resulted in the recording of sales
adjustments related to prior period revenues against current period revenues
that either overstated or understated net revenues within each financial
statement period. More appropriately, an estimate of sales adjustments arising
from differences between the payment amounts received and the expected
realizable amounts should have been recorded at the time that revenues were
recognized and an allowance recorded against accounts receivable for estimates
of such sales adjustments. The Company previously quantified these errors under
the roll-over method and concluded that they were immaterial.

F-19

---

LINCARE HOLDINGS INC. AND
SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)December 31, 2007, 2006 and 2005

In its
application of SAB 108, the Company corrected the errors by establishing an
allowance against accounts receivable for sales adjustments on its balance
sheet. The recognition of such allowances also required an adjustment to
deferred income taxes. In electing the cumulative effect transition method in
applying SAB 108, the Company recorded cumulative adjustments to the carrying
amounts of the allowance for doubtful accounts and deferred income taxes by
$10.7 million and $4.2 million, respectively, in its 2006 opening balance sheet
and an offsetting adjustment to its opening balance of retained earnings in the
amount of $6.5 million.

The cumulative effect of correcting
the financial statement misstatements in accordance with SAB 108 was an increase
in deferred revenue and the allowance for doubtful accounts of $34.4 million and
$10.7 million, respectively, and reduced retained earnings of $27.6 million.
Deferred income tax adjustments totaling $17.5 million were also recorded as
part of the cumulative adjustment.

(10) Stockholders
Equity

During
the fourth quarter of 2006, the Company adopted the provisions of SAB 108 (see
Note 9) effective as of January 1, 2006. The related impact to stockholders
equity was a $27.6 million reduction to retained earnings in the 2006 opening
balance sheet.

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.

(11) Stock Plans

The
Company issues stock options and other stock-based awards to key employees and
directors under stock-based compensation plans. The Company also sponsors an
employee stock purchase plan.

Through
December 31, 2005, the Company accounted for stock-based compensation using the
intrinsic value method under Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees**(APB 25), and, accordingly, recognized no
compensation expense related to stock options and employee stock purchases. For
grants of restricted stock, other than those awarded under long-term incentive
agreements, the fair value of the shares at the date of grant was amortized to
compensation expense over the awards vesting period. The Company had
historically reported pro forma results under the disclosure-only provisions of
SFAS No. 123, as amended by Statement of Financial Accounting Standards No. 148,
Accounting for Stock-Based
Compensation-Transition and Disclosure.

Adoption of Statement of Financial Accounting Standards No. 123R, Share
Based Payment (SFAS No. 123R)

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

Prior to
adopting SFAS No. 123R, the Company presented all tax benefits resulting from
the exercise of stock options as operating cash flows in the statements of cash
flows. SFAS No. 123R requires cash flows resulting from excess tax benefits to
be classified as a part of cash flows from financing activities. Excess tax
benefits are realized tax benefits from tax deductions for exercised options in
excess of the deferred tax asset attributable to stock compensation costs for
such options. As a result of adopting SFAS No. 123R, $5.0 million and $1.1
million of excess tax benefits for the years ended December 31, 2007 and 2006,
respectively, have been classified as a financing cash inflow as well as an
operating cash outflow. Additionally, $12.4 million and $3.5 million have been
included in the change in income taxes payable as an operating cash inflow for
the years ended December 31, 2007 and 2006, respectively.

For the
years ended December 31, 2007, 2006 and 2005, the Company recognized total
stock-based compensation costs of $18.0 million, $20.3 million and $2.9 million,
respectively, as well as related tax benefits of $6.4 million, $6.6 million and
$0.3 million, respectively. All stock-based compensation costs are expensed
using a graded method approach and are either classified within operating or
selling, general and administrative expenses on the attached consolidated
statements of operations. As a result of the adoption of SFAS No. 123R effective
January 1, 2006, the Company recognized compensation costs of $15.5 million and
$17.4 million in 2007 and 2006, respectively, in excess of amounts that would
have been recognized if the Company had continued to account for the stock-based
compensation programs under APB 25.

F-20

---

LINCARE HOLDINGS INC. AND
SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)December 31, 2007, 2006 and 2005

Stock Options

The
Company has six 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 fair
value of the stock at the date of grant. Stock options generally have eight to
ten year expiration terms and generally vest over one to five years depending on
the particular grant. As of December 31, 2007, approximately 3.5 million shares
are available for future grant under the Companys shareholder-approved stock
plans. See table below for summary of individual plans.

Plan Year1996
    
    1998
    
    2000
    
    2001
    
    2004
    
    2007
    
    TotalReserved
    
    4,000,000
    
    3,000,000
    
    2,000,000
    
    6,500,000
    
    4,000,000
    
    4,000,000
    
    23,500,000Outstanding
    
    20,000
    
    676,500
    
    118,000
    
    4,258,450
    
    2,594,666
    
    1,288,000
    
    8,955,616Availablefor grant
    
    
    
    
    
    500
    
    104,800
    
    634,706
    
    2,712,000
    
    3,452,006


The following table summarizes
information about stock options outstanding under the plans at December 31,
2007:

|                             |  | Stock Options
    Outstanding |        | Stock Options
    Exercisable
|---------------------------- |  | ----------------------------- | ------ | -----------------------------
|                             |  |                               |        | Weighted                     
|                             |  |                               |        | Average                      
|                             |  |                               |        | Remaining                    
|                             |  |                               |        | Contractual                  
|Range of Exercise
    Prices |  |                               | Number |                              
|$12.25$24.45                |  | 936,000                       |        | 1.48 years                   
|$24.50$32.00                |  | 3,890,966                     |        | 2.70
      years             
|$32.00$42.33                |  | 4,128,650                     |        | 6.36 years                   
|$ 12.25$42.33               |  | 8,955,616                     |        | 4.26
      years             

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 considers the use of both historical and implied volatility
assumptions in calculating the fair value of stock options issued. Prior to
2005, the Company used only historical volatility in calculating the fair value
of its stock options. In estimating the fair value of stock options granted
during 2005, 2006 and 2007, the Company used implied volatility derived from its
publicly-traded options as the volatility input in the option valuation model.
In using implied volatility, the Company considered SFAS No. 123R and the
guidance provided in Staff Accounting Bulletin No. 107, Share-Based Payment, and determined that
implied volatility provides the most reliable estimate of expected volatility.
The expected option term is based on historical exercise and post-vesting
termination patterns. The expected dividend yield is 0% as the Company has not
paid any cash dividends on its capital stock and does not anticipate it will pay
cash dividends in the foreseeable future. The risk-free interest rate is based
on the U.S. Treasury yield curve at the time of the grant.

F-21

---

LINCARE HOLDINGS INC. AND
SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)December 31, 2007, 2006 and 2005

Following
are the specific weighted average valuation assumptions for the stock options,
where applicable, used for each respective period:

Year Ended December
  31,2007
    
    2006
    
    2005Expected dividend yield
    
    
    0.00
    %
    
    
    
    0.00
    %
    
    
    
    0.00
    %Risk-free
      interest rate
    
    
    4.69
    %
    
    
    
    5.03
    %
    
    
    
    4.15
    %Expected volatility
    
    
    23.28
    %
    
    
    
    26.21
    %
    
    
    
    24.40
    %Expected
      term
    
    
    5
      years
    
    
    
    5
      years
    
    
    
    5
      years


During the year ended December 31,
2007, the Company granted 1,288,000 stock options.

Stock option activity for the years
ended December 31, 2005 through 2007 is summarized below:

Weighted
    
    Weighted
      AverageAverage
    
    RemainingNumber of
    
    Exercise
    
    Contractual
      Life
    
    AggregateOptions
    
    Price
    
    (Years)
    
    Intrinsic ValueOutstanding at December 31, 2004
    
    10,048,100
    
    
    $
    23.32
    
    4.59
    
    $
    194,199,486Exercised in
      2005
    
    (2,740,565
    )
    
    
    17.65Cancelled in 2005
    
    (36,950
    )
    
    
    32.82Options granted
      in 2005
    
    2,176,100
    
    
    
    42.33Outstanding at December 31, 2005
    
    9,446,685
    
    
    
    29.32
    
    4.89
    
    $
    119,939,146Exercised in
      2006
    
    (521,925
    )
    
    
    22.31Cancelled in 2006
    
    (142,250
    )
    
    
    39.02Options granted
      in 2006
    
    874,400
    
    
    
    38.51Outstanding at December 31, 2006
    
    9,656,910
    
    
    
    30.38
    
    4.26
    
    $
    96,515,984Exercised in
      2007
    
    (1,886,688
    )
    
    
    21.09Cancelled in 2007
    
    (102,606
    )
    
    
    40.74Options granted
      in 2007
    
    1,288,000
    
    
    
    39.03Outstanding at December 31, 2007
    
    8,955,616
    
    
    $
    33.46
    
    4.26
    
    $
    37,355,609Exercisable at
      December 31, 2007
    
    5,526,107
    
    
    $
    29.11
    
    2.90
    
    $
    37,355,609Vested or expected to vest as of December31, 2007
    
    8,713,854
    
    
    $
    33.24
    
    4.21
    
    $
    37,355,609


Stock
options outstanding at December 31, 2007, were 8,955,616. Of those stock options
outstanding at December 31, 2007, 5,526,107 are exercisable at December 31, 2007
and 3,429,509 are unvested. Of the total stock options outstanding at December
31, 2007, 8,713,854 stock options are vested or expected to vest in the future,
net of expected cancellations and forfeitures of 241,762. The intrinsic value of
options exercised during the years ended December 31, 2007, 2006 and 2005,
amounted to $33.0 million, $8.6 million and $68.7 million,
respectively.

Restricted Stock

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. Restricted stock vests upon the employees fulfillment
of specified performance and/or service-based conditions. On May 17, 2007 and
October 1, 2007, the Company granted 383,500 and 5,800 shares, respectively, of
restricted stock to certain employees. On December 14, 2006, the Company granted
8,000 shares of restricted stock to certain employees. The restrictions lapse in
three equal annual installments. Prior to the adoption of SFAS No. 123R,
unearned compensation for grants of restricted stock equivalent to the fair
value of the shares at the date of grant was recorded as a separate component of
stockholders equity and subsequently amortized to compensation expense over the
vesting period of the awards. All unamortized unearned compensation at January
1, 2006 was reclassified to additional paid-in capital. During the years ended
December 31, 2007, 2006 and 2005, the Company recognized $2.6 million, $2.9
million and $2.9 million, respectively, of stock-based compensation expense
related to restricted stock.

F-22

---

LINCARE HOLDINGS INC. AND
SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)December 31, 2007, 2006 and 2005

A summary
of the status of unvested restricted stock for the years ended December 31, 2005
through 2007 is presented below:

Weighted-Average GrantDate Fair ValueShares
    
    Per ShareUnvested at January 1, 2005
    
    260,000
    
    
    
    $
    31.72Granted
    
    0
    
    
    
    
    Vested
    
    (86,667
    )
    
    
    
    31.72Forfeited
    
    0
    
    
    
    
    Unvested at December 31, 2005
    
    173,333
    
    
    
    
    31.72Granted
    
    8,000
    
    
    
    
    39.30Vested
    
    (86,667
    )
    
    
    
    31.72Forfeited
    
    0
    
    
    
    
    Unvested at December 31, 2006
    
    94,666
    
    
    
    
    32.36Granted
    
    389,300
    
    
    
    
    38.99Vested
    
    (89,333
    )
    
    
    
    31.95Forfeited
    
    (22,783
    )
    
    
    
    39.09Unvested at December 31, 2007
    
    371,850
    
    
    
    $
    38.99


Employee Stock Purchase Plan

The
Companys Employee Stock Purchase Plan (Stock Purchase Plan) provides a means
to encourage and assist employees in acquiring a stock ownership interest in
Lincare. Payroll deductions are accumulated during each quarter and applied
toward the purchase of stock on the last trading day of each quarter. The Stock
Purchase Plan defines purchase price per share as 85% of the lower of the fair
value of a share of common stock on the last trading day of the previous plan
quarter, or the last trading day of the current plan quarter.

During
the years ended December 31, 2007, 2006 and 2005, 43,767 shares, 41,973 shares
and 51,939 shares, respectively, of common stock were purchased under the Stock
Purchase Plan resulting in compensation cost of $0.3 million and $0.3 million
and $0.0 million, respectively.

F-23

---

LINCARE HOLDINGS INC. AND
SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)December 31, 2007, 2006 and 2005

Total Stock-Based
Compensation

SFAS No.
123R requires the disclosure of pro forma information for periods prior to the
adoption. The following table illustrates the effect on net income and earnings
per share for 2005 as if the Company had recognized compensation expense for all
stock-based payments to employees based on their fair values:

Year EndedDecember 31,2005(In thousands, exceptper share data)Net income:As reported
    
    $
    213,696Add: Stock-based employee compensation
      expense included in netincome, net of related tax effects
    
    
    1,783Deduct: Total stock-based employee compensation expensedetermined under fair value method for all awards, net
      ofrelated tax effects
    
    
    (10,282
    )Pro forma net income
    
    $
    205,197Earnings per
      common share:Basicas reported
    
    $
    2.16Dilutedas reported (1)
    
    $
    2.06Basicpro forma
    
    $
    2.07Dilutedpro forma (1)
    
    $
    1.98


|(1) |  | Figures reflect the application
      of the if converted method of accounting for the Companys outstanding
      3.0% convertible debentures in accordance with EITF Issue No. 04-8,
      effective for reporting periods ending after December 15,
    2004.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The
following weighted-average per share fair values were determined for stock-based
compensation grants or employee stock purchases occurring during the years ended
December 31, 2007, 2006 and 2005:

Year Ended December
  31,2007
    
    2006
    
    2005Options granted
    
    $
    12.23
    
    $
    11.94
    
    $
    12.46Restricted stock
      and stock awards granted
    
    $
    38.99
    
    $
    39.30
    
    
    n/aEmployee stock purchases
    
    $
    7.38
    
    $
    7.80
    
    $
    8.69


During
the years ended December 31, 2007, 2006 and 2005, the Company received cash of
$41.1 million, $13.2 million and $50.4 million, respectively, from employee
stock purchases and exercises of stock options, and recognized related tax
benefits of $12.1 million, $3.2 and $25.1 million, respectively. There were no
stock options settled for cash during the years ended December 31, 2007, 2006
and 2005.

As of
December 31, 2007, the total remaining unrecognized compensation cost related to
unvested stock options and restricted stock amounted to $22.1 million and $13.2
million, respectively, which will be amortized over the weighted-average
remaining requisite service periods of 2 years and 3 years,
respectively.

The total
estimated fair value of stock options vested during 2007, 2006 and 2005 was
$11.0 million, $12.3 million and $20.5 million, respectively. The total
estimated fair value of restricted stock vested during 2007, 2006 and 2005 was
$2.9 million, $2.7 million and $2.7 million, respectively.

The Company issues new shares of
common stock to satisfy stock-based awards upon exercise.

(12) 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 64% of net revenues in 2007, and 67% of net revenues in 2006 and
2005, respectively.

F-24

---

LINCARE HOLDINGS INC. AND
SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)December 31, 2007, 2006 and 2005

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

|                                       |  | Year Ended December
  31,
|-------------------------------------- |  | -------------------------
|                                       |  | 2007                     
|                                       |  | (In thousands)           
|Oxygen and other respiratory therapy   |  | $                        
|Home medical
      equipment and other |  |                          
|Total                                  |  | $                        

Included
in net revenues are rental and sale items that comprise approximately 66.7% and
33.3% of total revenues in 2007, approximately 69.6% and 30.4% in 2006, and
approximately 71.4% and 28.6% in 2005, respectively.

(13) 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 and outstanding
3% convertible debt. When the exercise of stock options is anti-dilutive, they
are excluded from the calculation. For the year ended December 31, 2007, the
number of excluded shares underlying anti-dilutive stock options was 577,556.
For the year ended December 31, 2006, the number of excluded shares underlying
anti-dilutive stock options was 35,020. There were no anti-dilutive stock
options excluded from the calculation for the year ended December 31, 2005.

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

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,            
|------------------------------------------------------------------------------------------ |  | -------------------------------------
|                                                                                           |  | 2007                                 
|                                                                                           |  | (In thousands, except per share data)
|Numerator:                                                                                 |  |                                      
|Basic 
      Income available to common stockholders                                      |  | $                                    
|Adjustment for assumed dilution:                                                           |  |                                      
|Interest on 3% convertible debt, net of tax                                                |  |                                      
|Diluted  Income available to common stockholders and holders of
      dilutive securities |  | $                                    
|Denominator:                                                                               |  |                                      
|Weighted average shares                                                                    |  |                                      
|Effect of
      dilutive securities:                                                       |  |                                      
|Stock options                                                                              |  |                                      
|3% convertible debt                                                                        |  |                                      
|Adjusted weighted average shares                                                           |  |                                      
|Per share
      amount:                                                                    |  |                                      
|Basic                                                                                      |  | $                                    
|Diluted                                                                                    |  | $                                    

(14)
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 through 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.

F-25

---

LINCARE HOLDINGS INC. AND
SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)December 31, 2007, 2006 and 2005

The
Company acquired certain assets of three businesses in 2007, 10 businesses in
2006 and 15 businesses in 2005. Consideration for the acquisitions generally
included cash, deferred acquisition payments (unsecured non-interest bearing)
and the assumption of certain liabilities.

Each
acquisition during 2007, 2006 and 2005 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. These allocations are inclusive of amounts not yet paid.

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

2007
    
    2006
    
    2005(In thousands)Cash
    
    $
    4,775
    
    $
    60,068
    
    $
    93,326Deferred
      acquisition obligations
    
    
    1,210
    
    
    12,310
    
    
    27,994Assumption of liabilities
    
    
    23
    
    
    164
    
    
    479$
    6,008
    
    $
    72,542
    
    $
    121,799


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

2007
    
    2006
    
    2005(In thousands)Current assets
    
    $
    258
    
    $
    8,726
    
    $
    4,263Property and
      equipment
    
    
    83
    
    
    5,631
    
    
    3,329Intangible assets
    
    
    40
    
    
    190
    
    
    225Goodwill
    
    
    5,627
    
    
    57,995
    
    
    113,982$
    6,008
    
    $
    72,542
    
    $
    121,799


The following unaudited pro forma
supplemental information on the results of operations for the years endedDecember 31, 2007 and 2006 includes the 2007
acquisitions as if they had been combined at the beginning of 2006.

2007
    
    2006(In thousands, exceptper share data)Net revenues
    
    $
    1,599,860
    
    $
    1,414,052Net
      income
    
    $
    226,824
    
    $
    213,794Basic  income per common share
    
    $
    2.72
    
    $
    2.27Diluted  income
      per common share
    
    $
    2.59
    
    $
    2.17


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 2006 or of future results of operations of the
combined companies.

(15) Contingencies

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

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

F-26

---

LINCARE HOLDINGS INC. AND
SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)December 31, 2007, 2006 and 2005

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 asqui
tamsuits. In these cases, the government has
the opportunity to intervene in, and take control of, the litigation. The
Company is a defendant in certainqui tamproceedings. The government has declined to
intervene in all unsealedqui tamactions 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.

(16) Quarterly Financial Data
(Unaudited  see accompanying accountants report)

The following is a summary of
quarterly financial results for the years ended December 31, 2007 and
2006:

First
    
    Second
    
    Third
    
    FourthQuarter
    
    Quarter
    
    Quarter
    
    Quarter(In thousands, except per share data)2007:Net revenues
    
    $
    378,459
    
    $
    397,083
    
    $
    408,152
    
    $
    412,296Operating income
    
    $
    90,429
    
    $
    94,104
    
    $
    99,089
    
    $
    99,526Net income
    
    $
    53,895
    
    $
    55,955
    
    $
    58,639
    
    $
    57,588Income per common
      share:Basic
    
    $
    0.62
    
    $
    0.66
    
    $
    0.69
    
    $
    0.73Diluted
    
    $
    0.59
    
    $
    0.63
    
    $
    0.66
    
    $
    0.702006:Net revenues
    
    $
    333,591
    
    $
    350,127
    
    $
    358,013
    
    $
    368,064Operating income
    
    $
    79,672
    
    $
    86,565
    
    $
    89,138
    
    $
    91,684Net income
    
    $
    47,886
    
    $
    51,905
    
    $
    56,222
    
    $
    56,968Income per common share:Basic
    
    $
    0.50
    
    $
    0.55
    
    $
    0.60
    
    $
    0.62Diluted
    
    $
    0.48
    
    $
    0.52
    
    $
    0.57
    
    $
    0.59


F-27

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SCHEDULE II

LINCARE HOLDINGS INC. AND
SUBSIDIARIES

FINANCIAL STATEMENT
SCHEDULE

VALUATION AND QUALIFYING ACCOUNTS

|                                     |  | Balance at     |         |            |  | Net Sales   |  |            |         |        |  | Balance at
|------------------------------------ |  | -------------- | ------- | ---------- |  | ----------- |  | ---------- | ------- | ------ |  | ----------
|                                     |  | Beginning      |         | Charged to |  | Adjustments |  |            |         |        |  | End of    
|Description                          |  | of Period      |         | Expenses   |  | and Other   |  | Deductions |         | Period
|                                     |  | (In thousands)
|Year Ended December 31, 2007         |  |                |         |            |  |             |  |            |         |        |  |           
|Deducted from
      asset accounts:  |  |                |         |            |  |             |  |            |         |        |  |           
|Allowance for sales adjustments and  |  |                |         |            |  |             |  |            |         |        |  |           
|uncollectible accounts               |  |                | $34,359 |            |  | $23,940     |  |            | $6,264  | (1)    |  |           
|Year Ended
      December 31, 2006   |  |                |         |            |  |             |  |            |         |        |  |           
|Deducted from asset accounts:        |  |                |         |            |  |             |  |            |         |        |  |           
|Allowance for sales adjustments and  |  |                |         |            |  |             |  |            |         |        |  |           
|uncollectible accounts               |  |                | $15,678 |            |  | $21,147     |  |            | $11,636 | (1)(3) |  |           
|Year Ended December 31, 2005         |  |                |         |            |  |             |  |            |         |        |  |           
|Deducted from asset accounts:        |  |                |         |            |  |             |  |            |         |        |  |           
|Allowance for uncollectible accounts |  |                | $15,468 |            |  | $18,999     |  |            | ($268)  | (1)    |  |           

(1)To
record net sales adjustments and allowance on business combinations.

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

(3) Includes SAB 108 adjustment to
beginning balance of $10.7 million (see Note 9 within the Notes to Consolidated
Financial Statements).

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(T)  |  | 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                                                                                                                                                                                                          
|10.29(R) |  | Lincare
      Holdings Inc. 2007 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                                                                                                             
|10.68(Q) |  | Credit Agreement with Bank of America, N.A. as Agent and Calyon,
      New York Branch as Syndication Agent dated December 1, 2006                                                                                                             
|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                                                                                                                                                                                                                          
|10.75(S) |  | First
      Amendment to Credit Agreement dated October 31, 2007.                                                                                                                                                                              
|10.76(S) |  | Registration Rights Agreement dated October 31, 2007.                                                                                                                                                                                          
|10.77(S) |  | Indenture
      Between Lincare Holdings Inc. and U.S. Bank National Association dated
      October 31, 2007                                                                                                                                  
|10.78(S) |  | Indenture Between Lincare Holdings Inc. and U.S. Bank National
      Association dated October 31, 2007.                                                                                                                                       
|10.79(U) |  | Second
      Amended Executive Employment Agreements dated December 28,
  2007.                                                                                                                                                                
|12.1     |  | Computation of Ratio of Earnings to Fixed Charges                                                                                                                                                                                              
|21.1     |  | List of
      Subsidiaries of Lincare Holdings Inc.                                                                                                                                                                                            
|23.1     |  | Consent
      of KPMG LLP                                                                                                                                                                                                                      
|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                                                         

S-2

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|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.                                                         
|Q |  | Incorporated by reference to the
      Registrants Form 8-K dated December 4, 2006.                                                      
|R |  | Incorporated by reference to the
      Registrants Form DEF 14-A dated April 5, 2007.                                                    
|S |  | Incorporated by reference to the
      Registrants Form 8-K dated November 6, 2007.                                                      
|T |  | Incorporated by reference to
      Registrants Form 8-K dated November 26, 2007.                                                         
|U |  | Incorporated by reference to the
      Registrants Form 8-K dated January 3, 2008.                                                       

S-3

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