LINCARE HOLDINGS INC - 10-K Annual Report

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

(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, 2000

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

COMMISSION FILE NUMBER 0-19946

LINCARE HOLDINGS INC.
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(Exact name of registrant as specified in its charter)

DELAWARE 51-0331330
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)

19337 US 19 NORTH, SUITE 500 CLEARWATER, FLORIDA 33764
- ------------------------------------------------ ----------
(Address of principal executive office) (Zip Code)

Registrant's telephone number, including area code: (727) 530-7700
--------------

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

Common Stock, $.01 par value per share

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

[X] Yes [ ] No

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

The aggregate market value of the registrant's common stock, $.01 par
value, held by non-affiliates of the registrant, based on the closing sale price
of the common stock on February 28, 2001, as reported in the NASDAQ National
Market System, was approximately $3,153,207,990.

As of February 28, 2001, there were 53,589,867 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

The information called for by Part III of this Form 10-K is incorporated by
reference to the definitive Proxy Statement for the 2001 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, 2000.

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PART I

ITEM 1. BUSINESS

GENERAL

Lincare Holdings Inc. and subsidiaries ("Lincare" or the "Company") is one
of the nation's largest providers of oxygen and other respiratory therapy
services to patients in the home. The Company's customers typically suffer from
chronic obstructive pulmonary disease ("COPD"), such as emphysema, chronic
bronchitis or asthma, and require supplemental oxygen or other respiratory
therapy services in order to alleviate the symptoms and discomfort of
respiratory dysfunction. Lincare currently serves over 275,000 customers in 44
states through 510 operating centers.

THE HOME RESPIRATORY MARKET

The Company estimates that the home respiratory therapy market (including
home oxygen equipment and respiratory therapy services) represents approximately
$4.0 billion in annual sales, with growth in services estimated at approximately
7% per year over the last five years. This growth reflects the significant
increase in the number of persons afflicted with COPD, which is largely
attributable to the increasing proportion of the population over the age of 65
years. Growth in the home respiratory market is further driven by the continued
trend towards treatment of patients in the home as a lower cost alternative to
the acute care setting.

BUSINESS STRATEGY

The Company's strategy is to increase its market share through internal
growth and acquisitions. Lincare focuses primarily on growth within its existing
geographic markets, which the Company believes is generally more profitable than
adding additional operating centers in new markets. 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. In 2000, Lincare acquired 15 local and
regional competitors with combined annual revenues of approximately $82.0
million. These acquisitions expanded the Company's presence in states where the
Company had existing locations.

Revenue growth will be dependent upon the overall growth rate of the home
respiratory care market, as well as on opportunities to increase market share
through effective marketing efforts and selective acquisitions of local or
regional competitors. The Company believes that the growing cost containment
efforts of government and private insurance reimbursement programs have created
an increasingly competitive environment, accelerating consolidation trends
within the home health care industry.

The Company will continue to concentrate on providing oxygen and other
respiratory therapy services to patients in the home and to provide home medical
equipment and other services where it believes such services will enhance the
Company's primary business. In 2000, oxygen and other respiratory therapy
services accounted for approximately 86% of the Company's revenues.

PRODUCTS AND SERVICES OF LINCARE

Lincare primarily provides oxygen and other respiratory therapy services to
patients in the home. Lincare also provides a variety of infusion therapies in
certain geographic markets. When a patient is referred to one of the Company's
operating centers by a physician, hospital discharge planner or other source,
the Company's customer representative obtains the necessary medical and
insurance coverage information and coordinates the delivery of patient care. The
prescribed therapy is administered by one of the Company's representatives in
the customer's home, where instructions and training are given to the customer
and the customer's family regarding appropriate equipment use and maintenance
and the therapy to be administered. Following the initial setup, Company
representatives make periodic visits to the customer's home, the frequency of
which is dictated by the type of therapy. The Company's services are coordinated
with the customer's physician. During the period that the Company performs
services for a customer, the customer remains under the physician's care and
medical supervision. The Company employs respiratory therapists and nurses to
perform

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certain training and other functions in connection with the Company's services.
The respiratory therapists and nurses are licensed where required by applicable
law.

HOME OXYGEN EQUIPMENT. The major types of oxygen delivery equipment are
liquid oxygen systems and oxygen concentrators. Each method of delivery has
different characteristics that make it more or less suitable to specific patient
applications.

Oxygen concentrators are stationary units that provide a continuous
flow of oxygen by filtering ordinary room air. Concentrators are most
commonly used by patients as their primary source of stationary oxygen.
These systems are often supplemented with portable gaseous oxygen
cylinders, to meet the ambulatory needs of the patient.

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

OTHER RESPIRATORY THERAPY SERVICES. Other respiratory therapy services
offered by the Company include the following:

Nebulizers and associated respiratory medications provide aerosol
therapy for patients suffering from COPD and asthma;

Non-invasive ventilation provides nocturnal ventilatory support for
neuromuscular and COPD patients. This therapy improves daytime function and
decreases incidents of acute illness;

Apnea monitors provide respiratory alarm systems for infants at risk
for sudden infant death syndrome;

Ventilators support respiratory function in severe cases of
respiratory failure where the patient can no longer sustain the mechanics
of breathing without the assistance of a machine; and

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

INFUSION THERAPY. Lincare provides a variety of infusion therapies
including the following:

Parenteral nutrition involves the intravenous feeding of
life-sustaining nutrients to patients with impaired or altered digestive
tracts or conditions that prohibit adequate oral nutritional support;

Intravenous antibiotic therapy is the infusion of anti-infective
medications into the patient's bloodstream for the treatment of a variety
of infectious diseases;

Enteral nutrition is administered to patients who cannot eat as a
result of an obstruction to the upper gastrointestinal tract or other
medical condition;

Chemotherapy is the administration of cytotoxic drugs to patients
suffering from various types of cancer;

Dobutamine infusions are provided to patients to treat chronic
end-stage congestive heart failure that has not responded to standard drug
therapy. These patients require a long-term venous access device and
frequent blood chemistry monitoring;

Immune globulin (IVIG) therapy is utilized for a variety of immune
disorders such as B-cell and T-cell immune deficiency, acute infections,
post transplant immunodeficiency and burns;

Continuous pain management is the administration of analgesic drugs to
patients suffering from acute or chronic pain; and

Central catheter management provides monitoring and supplies to
patients requiring access via a peripherally inserted line into the
superior vena cava.

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

COMPANY OPERATIONS

Management. The Company maintains a decentralized approach to management
of its local business operations. Decentralization of managerial decision-making
enables the Company's operating centers to respond promptly and effectively to
local market demands and opportunities. The Company believes that the
personalized nature of customer requirements and referral relationships
characteristic of the home health care business mandate the Company's localized
operating structure.

Each of the Company's 510 operating centers is managed by a center manager
who has responsibility and accountability 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 executive 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 the Company's operations. The Company's operating centers are
served by 24 billing centers which control all of the Company's billing and
reimbursement functions.

MIS Systems. The Company believes that the proprietary management
information systems developed by the Company are one of its key competitive
advantages. These systems provide management with a critical asset in measuring
and evaluating performance levels throughout the Company. Management reviews
monthly reports containing information critical to the evaluation process,
including revenues and profitability by individual center, accounts receivable
and cash collection management, equipment controls and utilization, customer
activity, and manpower trends. The Company has an in-house staff of computer
programmers which enables the Company to continually enhance its computer
systems in order to provide timely financial and operational information and to
respond promptly to changes in reimbursement regulations and policies.

Accounts Receivable Management. The Company derives a majority of its
revenues from reimbursement by third party payors. The Company accepts
assignment of insurance benefits from customers and, in most instances, invoices
and collects payments directly from Medicare, Medicaid and private insurance
carriers, as well as directly from customers under co-insurance provisions. The
following table sets forth, for the periods indicated, the Company's payor mix.

YEAR ENDED DECEMBER 31,
-------------------------
2000 1999 1998
PAYORS ----- ----- -----

Medicare and Medicaid programs.............................. 61% 62% 62%
Private insurance........................................... 30 29 29
Direct payment.............................................. 9 9 9
--- --- ---
100% 100% 100%
=== === ===

Reimbursement is a complicated process which involves submission of claims
to multiple payors, each having its own claims requirements. To operate
effectively in this environment, the Company has designed and implemented
proprietary computer systems to decrease the time required for the submission
and processing of third party payor claims. The Company's systems are capable of
tailoring the submission of claims to the specifications of the individual
payors. The Company's in-house MIS capability also enables it to adjust quickly
to any regulatory or reimbursement changes. These features serve to decrease the
processing time of claims by payors, resulting in a more rapid turnover of
accounts receivable. In addition, the Company is capable of submitting claims
electronically to any Medicare carrier or other third party payor that can
receive electronic claims submissions.

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SALES AND MARKETING

Favorable trends affecting the U.S. population and home health care have
created an environment which should produce 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 the Company's full-time sales
representatives located at the Company's operating centers with assistance from
the center managers. In addition to promoting the high quality of the Company's
services, the sales representatives are trained to provide information
concerning the advantages 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.

The Company primarily acquires new customers through referrals. The
Company's principal sources of referrals are physicians, hospital discharge
planners, prepaid health plans, clinical case managers and nursing agencies. The
Company's sales representatives maintain continual contact with these medical
professionals in order to strengthen these relationships.

The Company's current base of referral sources recognizes the Company's
reputation for providing high-quality service to patients and provides a steady
flow of customers. While the Company views its referral sources as fundamental
to its business, no single referral source accounts for more than 1.0% of the
Company's revenues. The Company has more than 275,000 active customers, and the
loss of any single customer or group of customers would not materially impact
the Company's business.

The Company has received accreditation from the Community Health
Accreditation Program ("CHAP"). CHAP is one of only two national accrediting
bodies in the nation to receive deeming authority from the federal government.
By approving CHAP for deeming authority, the government certified that CHAP's
Standards of Excellence met or exceeded the government's own standards for
Medicare certification.

Accreditation by a national accrediting body represents a marketing benefit
to the Company's operating centers and provides for a recognized quality
assurance program throughout the Company. Several proposals have been made to
require health care providers to be accredited or licensed by independent
agencies in order to participate in government reimbursement programs. Many
private payors already require such accreditation.

ACQUISITIONS

In 2000, the Company acquired, in unrelated acquisitions, certain operating
assets of 15 local and regional competitors. The operations acquired in 2000 had
aggregate annualized revenues of approximately $82.0 million at the time of
acquisition. These acquisitions resulted in the addition of 48 new operating
centers.

In 1999, the Company acquired, in unrelated acquisitions, certain operating
assets of 18 local and regional competitors and the common stock of four
companies. The operations acquired in 1999 had aggregate annualized revenues of
approximately $61.0 million at the time of acquisition. These acquisitions
resulted in the addition of 21 new operating centers.

QUALITY CONTROL

The Company is committed to providing consistently high quality products
and services. The Company's quality control procedures and training programs are
designed to promote greater responsiveness and sensitivity to individual
customer needs and to provide the highest level of quality assurance and
convenience to the customer and the referring physician. Licensed respiratory
therapists and registered nurses provide professional health care support and
assist in the Company's sales and marketing efforts.

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SUPPLIERS

The Company purchases its oxygen and equipment from a variety of suppliers.
The Company is not dependent upon any single supplier and believes that its
oxygen and equipment needs can be provided by several manufacturers.

COMPETITION

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

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

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

MEDICARE REIMBURSEMENT

As a supplier of home oxygen and other respiratory therapy services for the
home health care market, the Company participates in Medicare Part B, the
Supplementary Medical Insurance Program, which was established by the Social
Security Act of 1965. Suppliers of home oxygen and other respiratory therapy
services have historically been heavily dependent on Medicare reimbursement due
to the high proportion of elderly suffering from respiratory disease.

On December 21, 2000, an approximately $35 billion Medicare "giveback"
package was signed into law as part of H.R. 4577, the "Consolidated
Appropriations Act, 2001." The appropriations act incorporates by reference the
text of H.R. 5661, the Medicare, Medicaid and SCHIP Benefits Improvement and
Protection Act of 2000 ("BIPA"), which includes sweeping reimbursement and other
policy changes intended to mitigate the effects of reimbursement cuts contained
in the Balanced Budget Act of 1997. Among other things, BIPA:

(1) modifies payments for durable medical equipment ("DME") items.
Specifically, for items provided in 2001, BIPA updates payments by the
full increase in the consumer price index for urban consumers ("CPI-U")
during the 12-month period ending June 2000. The update is implemented
in two steps: for the period January 1, 2001 through June 30, 2001, DME
payments will remain the same as were in effect before enactment of
BIPA, and for the period of July 1, 2001 through December 31, 2001, DME
items will receive the full CPI-U update increased by a "transitional
allowance" of 3.28 percent. As provided under BIPA, the transitional
allowance will not be taken into account in calculating payment amounts
after 2001. No DME payment increase is authorized for 2002. The DME
payment update specifically does not apply to oxygen and oxygen
equipment.

(2) requires the U.S. General Accounting Office ("GAO") to study Medicare
reimbursement for drugs and biologicals and for related services. The
study, which the GAO is directed to complete within nine months of
enactment of BIPA, must include specific recommendations for revised
payment methodologies. The Department of Health and Human Services
("HHS") is required to revise the current payment methodologies based on
the GAO's recommendations; however, total payments may not exceed the
aggregate payments that would otherwise have been made under current
law. BIPA imposes a temporary moratorium on reductions in Medicare
reimbursement for drugs and biologicals until GAO submits its findings
to Congress.

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On November 29, 1999, the Balanced Budget Refinement Act of 1999 ("BBA
Refinement Act") was signed into law. This legislation was designed to mitigate
the effects of the Balanced Budget Act of 1997 ("BBA") on health care providers.
The BBA Refinement Act restores approximately $1.2 billion in funding in 2000
and $16 billion over five years, and affects a wide range of health care
providers. With respect to the services provided by the Company, the BBA
Refinement Act provides for temporary increases in Medicare payment rates for
durable medical equipment (including oxygen equipment) of 0.3% in 2001 and 0.6%
in 2002. Furthermore, the BBA Refinement Act temporarily prohibits the HHS from
exercising its inherent reasonableness authority to reduce payments for
non-physician Part B services, including durable medical equipment, and excludes
durable medical equipment from the home health consolidated billing requirements
established in the BBA.

On August 5, 1997, the Balanced Budget Act of 1997 ("BBA") was signed into
law. The legislation, among other things, was intended to reduce Medicare
expenditures by $115 billion over five years. The BBA reduced Medicare
reimbursement amounts for oxygen and oxygen equipment furnished after January 1,
1998, to 75 percent of the fee schedule amounts in effect during 1997.
Reimbursement amounts for oxygen and oxygen equipment furnished after January 1,
1999, and each subsequent year thereafter, were reduced to 70 percent of the fee
schedule amounts in effect during 1997. The BBA also reduced payment amounts for
covered drugs and biologicals furnished after January 1, 1998 to 95 percent of
the average wholesale price of such covered items.

The BBA authorizes HHS to conduct up to five competitive bidding
demonstration projects for the acquisition of durable medical equipment and
requires that one such project be established for oxygen and oxygen equipment.
Each demonstration project is to be operated over a three-year period and is to
be conducted in not more than three competitive acquisition areas. The first
demonstration project became effective in Polk County, Florida on October 1,
1999. A second demonstration site was established in the three counties
surrounding San Antonio, Texas and became effective on February 1, 2001. The BBA
also includes provisions designated to reduce health care fraud and abuse
including a surety bond requirement, which has not yet been implemented, for
durable medical equipment providers.

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

GOVERNMENT REGULATION

The federal government and all states in which the Company currently
operates regulate various aspects of its business. In particular, the Company's
operating centers are subject to federal laws covering the repackaging of drugs
(including oxygen) and regulating interstate motor-carrier transportation. The
Company's locations 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 the Company's employees are
subject to state laws and regulations governing the ethics and professional
practice of respiratory therapy, pharmacy and nursing.

As a supplier of services under the Medicare and Medicaid programs, the
Company is subject to the Medicare and Medicaid fraud and abuse laws. These
laws, among other things, prohibit any payment, kickback or rebate in return for
the referral of patients receiving benefits from Medicare, Medicaid or other
federally funded health care programs. Violations of these provisions may result
in civil and criminal penalties and exclusion from participation in such
programs.

Health care is an area of rapid regulatory change. Changes in the law and
new interpretations of existing laws may affect permissible activities, the
relative costs associated with doing business, and reimbursement amounts paid by
federal, state and other third party payors. The Company cannot 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 legislative and regulatory changes could have an adverse
impact on the Company.

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INSURANCE

The Company currently has in force general liability, product liability and
professional liability insurance with primary and excess coverage limits of
$10.0 million. The Company's product liability insurance provides coverage on a
claims-made basis, while its general and professional liability insurance are on
an occurrence basis. All policies are subject to annual renewal and the Company
anticipates adequate amounts of insurance coverage to be available at such
renewal dates.

EMPLOYEES

As of February 28, 2001, the Company had approximately 5,500 employees.
None of the Company's employees are covered by collective bargaining agreements.
The Company believes that the relations between the Company's management and its
employees are good.

ENVIRONMENTAL MATTERS

Management believes that the Company is 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.
Management does not believe it 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 its capital expenditures, earnings or
competitive position.

ITEM 2. PROPERTIES

All but one of the Company's 510 operating center locations are leased from
unrelated third parties. Each operating center is a combination warehouse and
office, with warehouse space generally comprising approximately 50% of the
facility. Warehouse space is used for storage of adequate supplies of equipment
necessary to conduct the Company's business. The Company also currently leases
its headquarters facility and 24 separate billing centers from unrelated third
parties.

ITEM 3. LEGAL PROCEEDINGS

From time to time, the Company receives inquiries from various government
agencies requesting patient records and other documents. It has been Lincare's
policy to cooperate with all such requests for information. The government has
not instituted any proceedings or served Lincare with any complaints as a result
of these inquiries.

Private litigants may also make claims against the Company for violations
of health care laws in actions known as qui tam suits and the government may
intervene in, and take control of, such actions. The Company is a defendant in
certain qui tam proceedings. Lincare intends to vigorously defend these suits
should they proceed. The government has declined to intervene in all unsealed
qui tam actions of which the Company is aware.

As a health care provider, 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, documentation 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 the Company for payment of
services rendered to patients. 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.

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

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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of the Company's stockholders during
the fourth quarter of 2000.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's Common Stock is traded on the NASDAQ National Market System
under the symbol LNCR. The following table sets forth the high and low closing
sale prices as reported by NASDAQ for the periods indicated.

HIGH LOW
------ ------

2000
First quarter............................................... $39.00 $21.31
Second quarter.............................................. 34.75 23.31
Third quarter............................................... 29.88 24.44
Fourth quarter.............................................. 61.06 28.19
1999
First quarter............................................... $39.94 $19.38
Second quarter.............................................. 31.44 23.25
Third quarter............................................... 32.94 23.50
Fourth quarter.............................................. 34.69 24.44

There were approximately 194 holders of record of the common stock as of
February 28, 2001.

The Company has not paid any cash dividends on its capital stock and does
not anticipate paying cash dividends in the foreseeable future. It is the
present intention of the Company's Board of Directors to retain all earnings in
the Company in order to support the future growth of the Company's business.

ITEM 6. SELECTED FINANCIAL DATA

The selected consolidated financial data presented below under the caption
"Statements of Operations Data" for the years ended December 31, 2000, 1999,
1998, 1997 and 1996, are derived from the consolidated financial statements of
the Company audited by KPMG LLP, independent certified public accountants.

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The data set forth below is qualified by reference to, and should be read
in conjunction with, the consolidated financial statements, accompanying notes
and Management's Discussion and Analysis of Financial Condition and Results of
Operations included in this report.

YEAR ENDED DECEMBER 31,
----------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

STATEMENTS OF OPERATIONS DATA:
Net revenue................................. $702,484 $581,786 $487,407 $443,181 $348,870
Cost of goods and services.................. 112,949 89,592 76,367 65,932 53,711
Operating expenses.......................... 158,794 131,240 111,222 93,830 75,158
Selling, general and administrative
expenses.................................. 147,699 128,345 107,691 90,225 71,259
Bad debt expense............................ 10,537 6,981 5,849 4,432 3,472
Depreciation expense........................ 47,960 41,178 34,430 27,603 20,790
Amortization expense........................ 19,495 15,954 12,745 14,229 13,128
Non-recurring expense(1).................... -- -- -- 15,557 3,932
-------- -------- -------- -------- --------
Operating income............................ 205,050 168,496 139,103 131,373 107,420
Interest income............................. 1,763 468 447 202 153
Interest expense............................ 18,019 5,940 1,177 1,161 497
Gain (loss) on disposal of property and
equipment................................. 8 (277) (113) (93) (80)
-------- -------- -------- -------- --------
Income before income taxes.................. 188,802 162,747 138,260 130,321 106,996
Income tax expense.......................... 71,934 62,007 52,954 50,173 40,422
-------- -------- -------- -------- --------
Net income.................................. $116,868 $100,740 $ 85,306 $ 80,148 $ 66,574
======== ======== ======== ======== ========
Income per common share:
Basic..................................... $ 2.20 $ 1.77 $ 1.47 $ 1.41 $ 1.19
======== ======== ======== ======== ========
Diluted................................... $ 2.16 $ 1.74 $ 1.44 $ 1.37 $ 1.15
======== ======== ======== ======== ========
Weighted average number of common shares
outstanding............................... 53,087 56,942 57,992 56,837 55,999
======== ======== ======== ======== ========
Weighted average number of common shares and
common share equivalents outstanding...... 54,151 57,989 59,435 58,655 57,726
======== ======== ======== ======== ========

- ---------------

(1) In 1997, the Company recorded a non-recurring expense of $15,557,000, of
which $11,849,000 was related to the write down of impaired capital
equipment and $3,708,000 was related to the write down of impaired
intangible assets. In 1996, the Company recorded a non-recurring expense of
$3,932,000, of which $2,682,000 was related to the restructuring of certain
senior management employment agreements and $1,250,000 was related to the
resolution of an investigation and associated legal expenses.

AT DECEMBER 31,
----------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
(IN THOUSANDS)

BALANCE SHEET DATA:
Working capital............................. $ 84,475 $ 70,179 $ 49,078 $ 42,106 $ 23,633
Total assets................................ 877,595 716,824 582,639 440,388 347,408
Long-term obligations, excluding current
installments.............................. 204,024 159,000 22,258 4,602 8,234
Stockholders' equity........................ 584,450 486,111 495,656 393,067 299,248

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

GENERAL

The Company continues to pursue its strategy of increasing market share
within its existing geographical markets through internal growth and selective
acquisitions of local and regional competitors. In addition, the Company will
continue to expand into new geographical markets on a selective basis, either
through acquisitions or by opening new operating centers, when the Company
believes it will enhance its business. The Company's focus remains primarily on
oxygen and other respiratory therapy services, which represent approximately 86%
of the Company's revenues.

NET REVENUES

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

YEAR ENDED DECEMBER 31,
--------------------------------
2000 1999 1998
-------- -------- --------
(IN THOUSANDS)

Oxygen and other respiratory therapy............... $607,071 $521,870 $433,594
Home medical equipment and other................... 95,413 59,916 53,813
-------- -------- --------
Total.................................... $702,484 $581,786 $487,407
======== ======== ========

Net revenues for the year ended December 31, 2000 increased by $120,698,000
(20.8%)over 1999. Net revenues for the year ended December 31, 1999 increased by
$94,379,000 (or 19.4%) over 1998. The increases in net revenues are attributable
to the Company's sales and marketing efforts that emphasize quality and customer
service, and the effect of the acquisitions completed by the Company. The
Company's revenues were adversely impacted in 1999 and 1998 by provisions
contained in the Balanced Budget Act of 1997 (the "BBA") which reduced Medicare
payment amounts for certain equipment and supplies provided by the Company. The
BBA provisions resulted in a reduction of the Company's revenues by
approximately $19,343,000 (or 3.9%) and $73,221,000 (or 16.5%) for the years
ended December 31, 1999 and 1998, respectively. The BBA reduced Medicare payment
amounts for oxygen and oxygen equipment furnished after January 1, 1998, to 75
percent of the fee schedule amounts in effect during 1997. Payment amounts for
oxygen and oxygen equipment furnished after January 1, 1999 were reduced to 70
percent of the fee schedule amounts in effect during 1997. The BBA also reduced
payment amounts for covered drugs and biologicals furnished after January 1,
1998 to 95 percent of the average wholesale price of such covered items.

COST OF GOODS AND SERVICES

Cost of goods and services as a percentage of net revenues was 16.1% for
the year ended December 31, 2000 and was 15.4% and 15.7% for the years ended
December 31, 1999 and 1998, respectively. The increase in cost of goods for the
year ended December 31, 2000 was the result of the Company's purchase of the
assets of United Medical, Inc. ("UMI") on June 28, 2000. The UMI locations
operated by the Company provide a more broad base of durable medical equipment
and supplies which have lower gross margins than the Company's traditional
respiratory care business.

OPERATING AND OTHER EXPENSES

The Company continues to maintain a cost structure that, with increased net
revenues, has permitted the Company to spread its fixed operating expenses and
overhead over a larger base of revenues, resulting in improvement in operating
income. Operating expenses expressed as a percentage of net revenues for the
years ended December 31, 2000, 1999 and 1998 were 22.6%, 22.6% and 22.8%,
respectively. Selling, general and administrative expenses expressed as a
percentage of net revenues for the years ended December 31, 2000, 1999 and 1998
were 21.0%, 22.1% and 22.1%.

Bad debt expense as a percentage of net revenues was 1.5% for the year
ended December 31, 2000 and 1.2% for each of the years ended December 31, 1999
and 1998. Continued growth in the pace of the

10
12

Company's acquisition program has contributed to the increase in the Company's
bad debt expense. The integration of these acquired companies into the Company's
regional billing and collections offices can disrupt the operations of these
offices and adversely impact the amount of accounts receivable written off as
uncollectable.

Depreciation expense as a percentage of net revenues was 6.8% for the year
ended December 31, 2000 compared with 7.1% for each of the years ended December
31, 1999 and 1998, respectively. The decrease in depreciation expense as a
percentage of net revenues in 2000 is attributable to reduced capital
expenditures for respiratory assist devices resulting from changes in Medicare
coverage guidelines on October 1, 1999.

AMORTIZATION EXPENSE

The Company's net intangible assets were $550,291,000 as of December 31,
2000. Of this total, $8,501,000 (consisting of the value assigned to customer
lists) is being amortized over a period of three years, $1,153,000 (consisting
of various covenants not to compete) over a period of one to five years and
$540,637,000 (consisting of goodwill) over a period of 40 years.

During 2000, the Company amortized $19,495,000 of its intangible assets
compared to $15,954,000 in 1999 and $12,745,000 in 1998. The increase in
amortization expense in 2000 is attributed to the amortization of intangible
assets associated with business combinations in 2000.

OPERATING INCOME

As shown in the table below, operating income for the year ended December
31, 2000 increased by $36,554,000 from 1999.

YEAR ENDED DECEMBER 31,
--------------------------------
2000 1999 1998
-------- -------- --------
(IN THOUSANDS)

Operating income........................................... $205,050 $168,496 $139,103
Percentage of net revenues................................. 29.2% 29.0% 28.5%

INTEREST EXPENSE

Interest expense for the year ended December 31, 2000 was $18,019,000,
compared to $5,940,000 and $1,177,000 for the years ended December 31, 1999 and
1998, respectively. The increase in interest expense in 2000 is primarily
attributable to additional borrowings utilized for the Company's open market
repurchases of approximately 6.7 million shares of its outstanding common stock
during 2000 and the purchase of the assets of United Medical, Inc. on June 28,
2000.

INCOME TAXES

The Company's effective income tax rate was 38.1% for the year ended
December 31, 2000, 38.1% for 1999 and 38.3% for 1998.

ACQUISITIONS

In 2000, the Company acquired, in unrelated acquisitions, certain operating
assets of 15 local and regional competitors. The operations acquired in 2000 had
aggregate annualized revenues of approximately $82,000,000 at the time of
acquisition. The cost of these acquisitions was $162,387,000 and was allocated
to acquired assets as follows: $7,318,000 to current assets, $6,562,000 to
property and equipment, $6,142,000 to intangible assets and $142,365,000 to
goodwill. These acquisitions resulted in the addition of 48 new operating
centers.

In 1999, the Company acquired, in unrelated acquisitions, certain operating
assets of 18 local and regional competitors and the common stock of four other
companies. The operations acquired in 1999 had aggregate annualized revenues of
approximately $61,000,000 at the time of acquisition. The cost of these
acquisitions was $103,356,000 and was allocated to acquired assets as follows:
$2,969,000 to current assets, $6,097,000 to

11
13

property and equipment, $7,132,000 to intangible assets, and $87,158,000 to
goodwill. These acquisitions resulted in the addition of 21 new operating
centers.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2000, the Company's working capital was $84,475,000, as
compared to $70,179,000 at December 31, 1999 and $49,078,000 at December 31,
1998.

Net cash provided by operating activities was $215,029,000 for the year
ended December 31, 2000, compared with $149,155,000 for the year ended December
31, 1999 and $145,442,000 for the year ended December 31, 1998. A significant
portion of the Company's assets consists of accounts receivables from third
party payors that are responsible for payment for the services provided by the
Company. The Company's net accounts receivable in terms of days sales
outstanding was 56 days as of December 31, 2000 and 62 days as of December 31,
1999.

Net cash used in investing and financing activities was $215,527,000,
$150,556,000 and $144,420,000 for the years ended December 31, 2000, 1999 and
1998, respectively. Activity in the year ended December 31, 2000 included the
Company's investment of $150,326,000 in business acquisitions, investment in
capital equipment of $58,622,000, proceeds of $314,018,000 from its revolving
credit loan and other long-term obligations, and payments of $283,663,000
related to long-term obligations. The Company anticipates that capital
expenditures for 2001 will be approximately $70,000,000 to $80,000,000 which
includes construction costs of a headquarters building on the land purchased in
1999.

As of December 31, 2000, the Company's principal sources of liquidity
consisted of $84,475,000 of working capital and $158,000,000 available under its
three year bank credit facility. The Company's $60,000,000 364-day revolving
credit facility expired on August 22, 2000 and was replaced on September 6, 2000
by $125,000,000 of senior secured notes offered through a private placement. The
senior secured notes have a fixed interest rate and mature over three, four and
five years as follows: $30,000,000 at 8.91% due September 15, 2003, $50,000,000
at 9.01% due September 15, 2004 and $45,000,000 at 9.11% due September 15, 2005.
Upon entering into the senior secured note agreement a placement fee of $893,000
was paid and is being amortized over the periods of the notes. The Company
believes that internally generated funds, together with funds that may be
borrowed under its three year bank credit facility, will be sufficient to meet
the Company's anticipated capital requirements and financial obligations for the
foreseeable future.

On June 11, 1999, the Company's Board of Directors authorized the Company
to repurchase up to $200,000,000 of its outstanding common stock. Purchases are
made through open market or privately negotiated transactions, subject to market
conditions and trading restrictions. As of December 31, 2000, $178,007,000 of
common stock had been repurchased under this program. The total common stock
held in treasury was $176,845,000 as of December 31, 2000.

The Company's future liquidity will continue to be dependent upon its
operating cash flow and management of accounts receivable. The Company does not
expect any impact on liquidity due to pending litigation.

NEW ACCOUNTING STANDARDS

In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 137, "Accounting for Derivative
Instruments and Hedging Activities -- Deferral of the Effective Date of SFAS No.
133," which deferred, for one year, the effective date for the implementation of
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities".
SFAS No. 133 requires that an entity recognize all derivative instruments as
either assets or liabilities on the balance sheet and measure those instruments
at fair values. The Company manages interest rate risk by using derivative
instruments. During 2000, the Company entered into an interest rate swap
agreement whereby the interest rate on its $125,000,000 senior secured notes was
effectively converted to a variable interest rate based on three month LIBOR
plus a fixed spread. In addition, the Company entered into an interest rate
collar transaction with an initial notional amount of $125,000,000. The collar
has a floor rate of 5.81% and a cap rate

12
14

of 8.00% with a floating rate option based on three month LIBOR. The collar
contract matures from 2003 - 2005. The collar is used to offset variability with
respect to the Company's variable rate debt.

During the fourth quarter of 2000, the Company terminated the swap
agreement prior to its maturity at a gain of $3,018,000. The gain was deferred
and will be recognized over the original term of the swap contract provided the
senior notes remain outstanding. The collar contract was recorded at a fair
value by the Company at December 31, 2000 for $1,961,000.

Upon adoption of SFAS No. 133, changes in the fair value of the collar over
its remaining term that are effective hedges of the variability in the Company's
variable rate debt will be recorded in other comprehensive income. Changes in
fair value that are not effective hedges will be recorded in earnings. The
Company believes that a portion of the changes in fair value may qualify for
hedge accounting under SFAS No. 133.

In December 1999, the Securities and Exchange Commission (the "Commission")
issued Staff Accounting Bulletin No. 101 "Revenue Recognition in Financial
Statements" ("SAB 101"), which summarized certain views of the Commission in
applying generally accepted accounting principles to revenue recognition in
financial statements. The Company believes that its current revenue recognition
policies are consistent with the guidance of SAB 101.

In September 2000, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 140, "Accounting for
Transfers and Services of Financial Assets and Extinguishments of Liabilities",
which is effective for transfers after March 31, 2001. It is effective for
disclosures about securitizations and collateral and for recognition and
reclassification of collateral for fiscal years ending after December 15, 2000.
SFAS No. 140 replaces SFAS No. 125, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities. It revises the standards
for accounting for securitizations and other transfers of financial assets and
collateral and requires certain disclosure, but it carries over most of SFAS No.
125's provisions without reconsideration. The Company does not believe the
adoption of SFAS No. 140 will have any effect on its financial statements.

INFLATION

The Company has not experienced large increases in either the cost of
supplies or operating expenses due to inflation. Because of reductions in
reimbursement by government and private medical insurance programs and pressure
to contain the costs of such programs, the Company bears the risk that
reimbursement rates set by such programs will not keep pace with inflation.

QUANTITATIVE AND QUALITATIVE DISCLOSURE REGARDING MARKET RISK

During September 1999 as part of the Company's stock repurchase program,
the Company sold European Put Options ("Puts") on underlying shares of the
Company's common stock. The Puts had a six-month maturity period and the Company
was paid a $4,454,000 premium in advance which was accounted for as additional
paid-in capital. The Company had the option to settle the Puts in cash or in
shares of common stock. In March 2000, the Company amended the terms of the Puts
to extend the maturity date of the Puts by two months. In connection with
extending the maturity period of the Puts, the Company was paid an additional
cash premium of $280,000. In May 2000, the Puts expired out-of-the-money with no
obligation to the Company.

The fair value of the Company's long-term obligations and interest rate
collar are subject to change as a result of changes in market prices or interest
rates. The Company estimates potential changes in the fair value of interest
rate sensitive financial instruments based on a hypothetical increase (or
decrease) in interest rates. The Company's 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.

13
15

The following table sets forth the Company's estimated impact on the fair
value of its long-term obligations and interest rate collar plus the impact on
earnings resulting from a 10% decrease in interest rates.

Estimated fair value of financial instruments (in thousands):

(ASSUMING 10%
DECREASE IN INTEREST RATES)
-------------------------------
HYPOTHETICAL HYPOTHETICAL
FACE CARRYING FAIR CHANGE IN CHANGE IN
AMOUNT AMOUNT VALUE FAIR VALUE INTEREST EXPENSE
-------- -------- -------- ------------ ----------------

December 31, 2000:
Three year revolving bank credit
agreement......................... $ 78,000 $ 78,000 $ 78,000 $ 0 $ (624)
Senior secured notes................. 125,000 125,000 125,820 447 0
Interest rate collar................. 0 1,961 1,961 1,717 635
December 31, 1999:
Three year revolving bank credit
agreement......................... $159,000 $159,000 $159,000 $ 0 $(1,034)

FORWARD LOOKING STATEMENTS

Statements contained herein that are not based on historical facts are
forward-looking statements that are based on projections and estimates regarding
the economy in general, the health care industry and other factors which impact
the Company. These statements involve known and unknown risks, uncertainties and
other factors that may cause the Company'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. The estimates relate to reimbursement by government
and third party payors for the Company's products and services, the costs
associated with government regulation of the health care industry and the
effects of competition and industry consolidation. 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 the Company's ability to attain these
estimates include potential reductions in reimbursement rates by government and
third party payors, changes in reimbursement policies, demand for the Company's
products and services, the availability of appropriate acquisition candidates
and the Company's ability to successfully complete acquisitions, efficient
operations of the Company's existing and future operating facilities, regulation
and/or regulatory action affecting the Company or its business, economic and
competitive conditions and access to borrowed and/or equity capital on favorable
terms.

In developing its forward-looking statements, the Company has 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 used by the Company differ materially from what actually occurs,
then actual results could vary significantly from the performance projected in
the forward-looking statements. The Company is under no duty to update any of
the forward-looking statements after the date of this Form 10-K.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements required by this item are listed in Item 14(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.

14
16

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The response to this item will be included in the definitive proxy
statement for the Annual Meeting of Stockholders to be held May 7, 2001, under
"Information Regarding the Board of Directors and Executive Officers" and is
herein incorporated by reference.

ITEM 11. EXECUTIVE COMPENSATION

The response to this item will be included in the definitive proxy
statement for the Annual Meeting of Stockholders to be held May 7, 2001, under
"Executive Compensation" and is herein incorporated by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The response to this item will be included in the definitive proxy
statement for the Annual Meeting of Stockholders to be held May 7, 2001, under
"Security Ownership of Principal Stockholders and Management" and is herein
incorporated by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K

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

Independent Auditors' Report

Consolidated Balance Sheets -- December 31, 2000 and 1999

Consolidated Statements of Operations -- Years ended December 31, 2000,
1999 and 1998.

Consolidated Statements of Stockholders' Equity -- Years ended December
31, 2000, 1999 and 1998

Consolidated Statements of Cash Flows -- Years ended December 31, 2000,
1999 and 1998

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 VIII -- Valuation and Qualifying Accounts

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

(3) Exhibits included or incorporated herein:

See Exhibit Index.

(b) The Company did not file a Current Report on Form 8-K during the three
months ended December 31, 2000.

15
17

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.

/s/ PAUL G. GABOS
--------------------------------------
Paul G. Gabos
Secretary, Chief Financial and
Principal Accounting Officer

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

SIGNATURE POSITION DATE
--------- -------- ----

/s/ JOHN P. BYRNES Director, President, Chief Executive March 29, 2001
- ------------------------------------------------ Officer and Principal Executive
John P. Byrnes Officer

/s/ PAUL G. GABOS Secretary, Chief Financial and March 29, 2001
- ------------------------------------------------ Principal Accounting Officer
Paul G. Gabos

* Director March 29, 2001
- ------------------------------------------------
Chester B. Black

* Director March 29, 2001
- ------------------------------------------------
Frank T. Cary

* Director March 29, 2001
- ------------------------------------------------
William F. Miller, III

* Director March 29, 2001
- ------------------------------------------------
Frank D. Byrne

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

16
18

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Lincare Holdings Inc.:

We have audited the consolidated financial statements of Lincare Holdings
Inc. and subsidiaries as listed in the index on page 15. In connection with our
audits of the consolidated financial statements, we also have audited the
consolidated financial statement schedule listed in the index on page 15. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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, 2000 and 1999, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States of America. Also, in our opinion, the
related consolidated financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.

KPMG LLP

St. Petersburg, Florida
February 6, 2001

F-1
19

LINCARE HOLDINGS INC.
AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 1999

2000 1999
---------- ----------
(DOLLARS IN THOUSANDS)

ASSETS
Current assets:
Cash and cash equivalents................................. $ 3,201 $ 3,699
Accounts and notes receivable (note 2).................... 116,838 104,762
Income taxes receivable................................... 5,210 5,837
Inventories............................................... 3,882 3,612
Other..................................................... 7,121 1,700
-------- --------
Total current assets.............................. 136,252 119,610
-------- --------
Property and equipment (notes 3 and 4)...................... 364,819 305,168
Less accumulated depreciation............................... 176,770 134,041
-------- --------
Net property and equipment........................ 188,049 171,127
-------- --------
Other assets:
Goodwill, less accumulated amortization of $48,644 in 2000
and $35,166 in 1999.................................... 540,637 413,856
Intangible assets, less accumulated amortization of
$49,819 in 2000
and $44,491 in 1999.................................... 8,501 8,577
Covenants not to compete, less accumulated amortization of
$12,673 in 2000
and $11,984 in 1999.................................... 1,153 951
Other..................................................... 3,003 2,703
-------- --------
Total other assets................................ 553,294 426,087
-------- --------
$877,595 $716,824
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term obligations (note 5).... $ 6,328 $ 12,436
Accounts payable.......................................... 23,499 20,598
Accrued expenses:
Compensation and benefits.............................. 15,455 10,859
Other.................................................. 6,495 5,538
-------- --------
Total current liabilities......................... 51,777 49,431
-------- --------
Long-term obligations, excluding current installments (note
5)........................................................ 204,024 159,000
Interest rate derivative financial instrument (note 1)...... 1,961 --
Deferred income taxes (note 6).............................. 34,585 21,493
Minority interest........................................... 798 789
Stockholders' equity (notes 6, 7, and 8):
Common stock, $.01 par value. Authorized 200,000,000
shares; issued and outstanding: 59,983,332 and
53,317,717 in 2000, 58,397,702 and 54,069,202 in
1999................................................... 600 584
Additional paid-in capital................................ 176,002 135,741
Retained earnings......................................... 584,693 467,825
Less treasury stock, at cost: 6,665,615 shares in 2000 and
4,328,500 shares in 1999............................... 176,845 118,039
-------- --------
Total stockholders' equity........................ 584,450 486,111
Commitments and contingencies (notes 4 and 13)..............
-------- --------
$877,595 $716,824
======== ========

See accompanying notes to consolidated financial statements.

F-2
20

LINCARE HOLDINGS INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

2000 1999 1998
--------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Net revenues (note 9)................................. $ 702,484 $581,786 $487,407
--------- -------- --------
Costs and expenses:
Cost of goods and services.......................... 112,949 89,592 76,367
Operating expenses.................................. 158,794 131,240 111,222
Selling, general and administrative expenses........ 147,699 128,345 107,691
Bad debt expense.................................... 10,537 6,981 5,849
Depreciation expense................................ 47,960 41,178 34,430
Amortization expense................................ 19,495 15,954 12,745
--------- -------- --------
497,434 413,290 348,304
--------- -------- --------
Operating income............................ 205,050 168,496 139,103
--------- -------- --------
Other income (expenses):
Interest income..................................... 1,763 468 447
Interest expense.................................... (18,019) (5,940) (1,177)
Net gain (loss) on disposal of property and
equipment........................................ 8 (277) (113)
--------- -------- --------
(16,248) (5,749) (843)
--------- -------- --------
Income before income taxes.................. 188,802 162,747 138,260
Income tax expense (note 6)........................... 71,934 62,007 52,954
--------- -------- --------
Net income.................................. $ 116,868 $100,740 $ 85,306
========= ======== ========
Income per common share (note 10):
Basic............................................... $ 2.20 $ 1.77 $ 1.47
========= ======== ========
Diluted............................................. $ 2.16 $ 1.74 $ 1.44
========= ======== ========
Weighted average number of common shares
outstanding......................................... 53,087 56,942 57,992
========= ======== ========
Weighted average number of common shares and common
share equivalents outstanding....................... 54,151 57,989 59,435
========= ======== ========

See accompanying notes to consolidated financial statements.

F-3
21

LINCARE HOLDINGS INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

ADDITIONAL TOTAL
COMMON PAID-IN RETAINED TREASURY STOCKHOLDERS'
STOCK CAPITAL EARNINGS STOCK EQUITY
------ ---------- -------- -------- -------------
(DOLLARS IN THOUSANDS)

Balances at December 31, 1997............... $574 $110,714 $281,779 -- $393,067
Exercise of stock options (note 8).......... 9 9,412 -- -- 9,421
Tax benefit related to exercise of employee
stock options (notes 6 and 8)............. -- 8,702 -- -- 8,702
Net income.................................. -- -- 85,306 -- 85,306
Treasury stock issued....................... -- -- -- 891 891
Treasury stock acquired..................... -- -- -- 1,731 1,731
---- -------- -------- -------- --------
Balances at December 31, 1998............... 583 128,828 367,085 840 495,656
Exercise of stock options (note 8).......... 1 1,847 -- -- 1,848
Proceeds from sale of put options (note
7)........................................ -- 4,454 -- -- 4,454
Tax benefit related to exercise of employee
stock options (notes 6 and 8)............. -- 612 -- -- 612
Net income.................................. -- -- 100,740 -- 100,740
Treasury stock issued....................... -- -- -- 1,061 1,061
Treasury stock acquired..................... -- -- -- 118,260 118,260
---- -------- -------- -------- --------
Balances at December 31, 1999............... 584 135,741 467,825 118,039 486,111
Exercise of stock options (note 8).......... 16 21,839 -- -- 21,855
Proceeds from sale of put options (note
7)........................................ -- 280 -- -- 280
Tax benefit related to exercise of employee
stock options (notes 6 and 8)............. -- 18,142 -- -- 18,142
Net income.................................. -- -- 116,868 -- 116,868
Treasury stock issued....................... -- -- -- 941 941
Treasury stock acquired..................... -- -- -- 59,747 59,747
---- -------- -------- -------- --------
Balances at December 31, 2000............... $600 $176,002 $584,693 $176,845 $584,450
==== ======== ======== ======== ========

See accompanying notes to consolidated financial statements.

F-4
22

LINCARE HOLDINGS INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

2000 1999 1998
--------- --------- ---------
(DOLLARS IN THOUSANDS)

Cash flows from operating activities:
Net income................................................ $ 116,868 $ 100,740 $ 85,306
Adjustments to reconcile net income to net cash provided
by operating activities:
Increase in provision for losses on accounts and notes
receivable........................................... (1,390) (6,260) (2,080)
Depreciation expense................................... 47,960 41,178 34,430
Gain/loss on disposal of property and equipment........ (8) 277 113
Amortization expense................................... 19,495 15,954 12,745
Amortization of imputed interest....................... -- 15 67
Amortization of interest swap contracts................ (33) -- --
Deferred income taxes.................................. 13,092 8,539 8,790
Minority interest in net earnings of subsidiary........ 137 83 264
Change in operating assets and liabilities:
Increase in accounts and notes receivable............ (3,939) (9,302) (8,377)
(Increase) decrease in inventories................... 1,685 (225) (1,103)
Increase in other current assets..................... (5,456) (1,435) (113)
Increase in accounts payable......................... 2,901 1,430 4,779
Increase (decrease) in accrued expenses.............. 4,948 (167) 2,942
(Increase) decrease in income taxes.................. 18,769 (1,672) 7,679
--------- --------- ---------
Net cash provided by operating activities......... 215,029 149,155 145,442
--------- --------- ---------
Cash flows from investing activities:
Proceeds from sale of property and equipment.............. 310 632 158
Capital expenditures...................................... (58,622) (66,882) (62,188)
(Increase) decrease in other assets....................... (445) (1,884) 498
Business acquisitions, net of cash acquired (note 12)..... (150,326) (73,426) (95,704)
--------- --------- ---------
Net cash used by investing activities............. (209,083) (141,560) (157,236)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from long-term obligations....................... 314,018 273,000 64,000
Payment of long-term obligations.......................... (283,663) (170,879) (59,512)
Decrease in minority interest............................. (128) (220) (253)
Proceeds from issuance of common stock.................... 21,855 1,848 9,421
Proceeds from put options................................. 280 4,454 --
Proceeds from issuance of treasury stock.................. 941 1,061 891
Payment to acquire treasury stock......................... (59,747) (118,260) (1,731)
--------- --------- ---------
Net cash provided (used) by financing
activities...................................... (6,444) (8,996) 12,816
--------- --------- ---------
Net increase (decrease) in cash and cash
equivalents..................................... (498) (1,401) 1,022
Cash and cash equivalents, beginning of year................ 3,699 5,100 4,078
--------- --------- ---------
Cash and cash equivalents, end of year...................... $ 3,201 $ 3,699 $ 5,100
========= ========= =========

See accompanying notes to consolidated financial statements.

F-5
23

LINCARE HOLDINGS INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998
(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, and infusion therapy services to the home health
care market and also supplies home medical equipment, such as hospital beds,
wheelchairs and other medical supplies. The Company's customers are located in
44 states. The Company's 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 generally accepted accounting principles. Actual results could
differ from those estimates.

(c) Principles of Consolidation

The consolidated financial statements include the accounts of Lincare
Holdings Inc. and its subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.

(d) Revenue Recognition

Revenues are recognized on an accrual basis in the period in which services
and related products are provided to patients and are recorded at net realizable
amounts estimated to be received from patients and third party payors.

(e) Financial Instruments

The Company believes the book value of its cash equivalents, accounts and
notes 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 bank revolving credit facility and deferred acquisition obligations
approximate their fair value as the current interest rates approximate rates at
which similar types of borrowing arrangements could be currently obtained by the
Company. The fair value of the Company's senior secured notes are estimated
based on the discounted value of the future cash flows expected to be paid over
the maturity period of the notes. The estimated fair value of the senior secured
notes at December 31, 2000 was $125,820,000.

(f) Inventories

Inventories, consisting of equipment, supplies and replacement parts, are
stated at the lower of cost or market. Cost is determined using the first-in,
first-out (FIFO) method.

F-6
24
LINCARE HOLDINGS INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(g) Property and Equipment

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

Building and improvements................................... 5 to 40 years
Equipment and furniture..................................... 3 to 20 years

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

(h) Other Assets

Goodwill results from the excess of cost over net assets of acquired
businesses and is amortized on a straight-line basis over 40 years.

Intangible assets (customer base) are amortized on a straight-line basis
over the estimated life of three years.

Covenants not to compete are amortized on a straight-line basis over the
life of the respective covenants, one to five years.

The Company periodically evaluates the ability to recover goodwill and
other intangible assets by utilizing a cash flow from operating income test. In
addition, the Company considers the effects of external changes to the Company's
business environment, including competitive pressures, market changes and
technological and regulatory changes.

(i) Income Taxes

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

(j) Pension Plan

The Company has a defined contribution pension plan covering substantially
all employees. The Company makes monthly contributions to the plan equal to the
amount accrued for pension expense. Employer contributions (net of applied
forfeitures) were approximately $4,093,000 in 2000, $3,537,000 in 1999, and
$2,248,000 in 1998.

(k) Statements of Cash Flows

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

(l) Stock Options

The Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," and related interpretations, in accounting for its fixed
plan stock options. As such, compensation expense would be recorded on the date
of grant only if the current market price of the underlying stock exceeded the
exercise price. Statement of Financial Accounting Standards ("SFAS") No. 123
"Accounting for Stock-Based Compensation", estab-

F-7
25
LINCARE HOLDINGS INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

lished accounting and disclosure requirements using a fair value-based method of
accounting for stock-based employee compensation plans. As allowed by SFAS No.
123, the Company has elected to continue to apply the intrinsic value-based
method of accounting described above, and has adopted the disclosure
requirements of SFAS No. 123.

(m) Segment Information

The Company follows Financial Accounting Standards Board Statement of
Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments of
an Enterprise and Related Information". SFAS No. 131 utilizes the "management"
approach for determining reportable segments. The management approach designates
the internal organization that is used by management for making operating
decisions and assessing performance as the source of the Company's reportable
segments. The Company maintains a decentralized approach to management of its
local business operations. Decentralization of managerial decision-making
enables the Company's operating centers to respond promptly and effectively to
local market demands and opportunities. As a result, the Company has one
reportable segment.

(n) New Accounting Standards

In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 137, "Accounting for Derivative
Instruments and Hedging Activities -- Deferral of the Effective Date of SFAS No.
133," which deferred, for one year, the effective date for the implementation of
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities".
SFAS No. 133 requires that an entity recognize all derivative instruments as
either assets or liabilities on the balance sheet and measure those instruments
at fair values. The Company manages interest rate risk by using derivative
instruments. During 2000, the Company entered into an interest rate swap
agreement whereby the interest rate on its $125,000,000 senior secured notes was
effectively converted to a variable interest rate based on three month LIBOR
plus a fixed spread. In addition, the Company entered into an interest rate
collar transaction with an initial notional amount of $125,000,000. The collar
has a floor rate of 5.81% and a cap rate of 8.00% with a floating rate option
based on three month LIBOR. The collar contract matures from 2003 -- 2005. The
collar is used to offset variability with respect to the Company's variable rate
debt.

During the fourth quarter of 2000, the Company terminated the swap
agreement prior to its maturity at a gain of $3,018,000. The gain was deferred
and will be recognized over the original term of the swap contract provided the
senior notes remain outstanding. The collar contract was recorded at a fair
value by the Company at December 31, 2000 for $1,961,000.

Upon adoption of SFAS No. 133, changes in the fair value of the collar over
its remaining term that are effective hedges of the variability in the Company's
variable rate debt will be recorded in other comprehensive income. Changes in
fair value that are not effective hedges will be recorded in earnings. The
Company believes that a portion of the changes in fair value may qualify for
hedge accounting under SFAS No. 133.

In December 1999, the Securities and Exchange Commission (the "Commission")
issued Staff Accounting Bulletin No. 101 "Revenue Recognition in Financial
Statements" ("SAB 101"), which summarized certain views of the Commission in
applying generally accepted accounting principles to revenue recognition in
financial statements. The Company believes that its current revenue recognition
policies are consistent with the guidance of SAB 101.

In September 2000, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 140, "Accounting for
Transfers and Services of Financial Assets and Extinguishments of Liabilities",
which is effective for transfers after March 31, 2001. It is effective for
disclosures about securitizations and collateral and for recognition and
reclassification of collateral for fiscal

F-8
26
LINCARE HOLDINGS INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

years ending after December 15, 2000. SFAS No. 140 replaces SFAS No. 125,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities. It revises the standards for accounting for securitizations and
other transfers of financial assets and collateral and requires certain
disclosure, but it carries over most of SFAS No. 125's provisions without
reconsideration. The Company does not believe the adoption of SFAS No. 140 will
have any effect on its financial statements.

(2) ACCOUNTS AND NOTES RECEIVABLE

Accounts and notes receivable at December 31, 2000 and 1999 consist of:

2000 1999
-------- --------
(IN THOUSANDS)

Trade....................................................... $126,069 $109,310
Other....................................................... 258 349
-------- --------
126,327 109,659
Less allowance for uncollectible accounts................... 9,489 4,897
-------- --------
$116,838 $104,762
======== ========

(3) PROPERTY AND EQUIPMENT

Property and equipment at December 31, 2000 and 1999 consist of:

2000 1999
-------- --------
(IN THOUSANDS)

Land and improvements $3,063... $ 3,170
Building and improvements 9,483... 1,901
Equipment and furniture 352,273.. 300,097
-------- --------
$364,819 $305,168
======== ========

Rental equipment of approximately $267,812,000 in 2000 and $227,928,000 in
1999 are included with equipment and furniture.

(4) LEASES

The Company has several noncancelable operating leases, primarily for
buildings, office equipment and vehicles, that expire over the next five years
and provide for purchase or renewal options. Operating lease expense was
approximately $27,763,000 in 2000, $24,118,000 in 1999 and $18,739,000 in 1998.

Future minimum lease payments under noncancelable operating leases as of
December 31, 2000 are as follows:

(IN THOUSANDS)

2001........................................................ $21,425
2002........................................................ 14,393
2003........................................................ 6,547
2004........................................................ 2,009
2005........................................................ 671
-------
Total minimum lease payments...................... $45,045
=======

F-9
27
LINCARE HOLDINGS INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(5) LONG-TERM OBLIGATIONS

Long-term obligations at December 31, 2000 and 1999 consist of:

2000 1999
-------- --------
(IN THOUSANDS)

Borrowings under three year revolving bank credit agreement
bearing interest (8.02% at December 31, 2000) at the
Interbank Offered Rate, adjusted for changes in reserve
requirements, plus an applicable margin based upon the
Company's consolidated leverage ratio (consolidated funded
indebtedness to consolidated earnings before interest,
taxes, depreciation and amortization) payable in 2002..... $ 78,000 $159,000
Borrowings under private placement senior secured notes
bearing fixed interest maturing over three, four and five
years: $30,000,000 at 8.91% due 2003, $50,000,000 at 9.01%
due 2004 and $45,000,000 at 9.11% due 2005 and proceeds
from the sale of interest swap contracts.................. 126,024 --
Unsecured, deferred acquisition obligations net of imputed
interest, payable in various installments through 2001.... 6,328 12,201
Computer equipment purchases financed through installment
loans; interest (4.17% to 4.52%) and principal paid in
full in 2000.............................................. -- 235
-------- --------
Total long-term obligations....................... 210,352 171,436
Less current installments......................... 6,328 12,436
-------- --------
Long-term debt, excluding current installments.... $204,024 $159,000
======== ========

The bank credit facility with several lenders and Bank of America N.A. as
agent dated August 23, 1999 and amended June 7, 2000 permits the Company to
borrow amounts up to $240,000,000 on a three year revolving credit facility. The
three year revolving credit facility contains a $20,000,000 letter of credit sub
facility which reduces the principal amount available under the three year
credit facility by the amount of outstanding letters of credit. As of December
31, 2000, $4,000,000 was outstanding under the letter of credit sub facility.
The three year revolving credit facility has a termination date of August 22,
2002. Upon entering into the credit agreement, an origination fee of $1,840,000
was paid and is being amortized over three years. Commitment fees on the unused
portion of the facility (.48% at December 31, 2000) are based upon the Company's
consolidated leverage ratio for the most recent four fiscal quarters. Interest
accrued on the outstanding principal balance that is not termed for repayment is
payable monthly. The credit agreement contains several financial and other
covenants and is secured by a pledge of the stock of the wholly-owned
subsidiaries of Lincare Holdings Inc.

The Company's $60,000,000 364-day revolving bank credit facility expired on
August 22, 2000 and was replaced on September 6, 2000 by $125,000,000 of senior
secured notes offered through a private placement. The senior secured notes have
a fixed interest rate and mature over three, four and five years: $30,000,000 at
8.91% due September 15, 2003, $50,000,000 at 9.01% due September 15, 2004 and
$45,000,000 at 9.11% due September 15, 2005. Upon entering into the senior
secured note agreement a placement fee of $893,000 was paid and is being
amortized over the periods of the notes. The senior secured notes contain
several financial and other covenants and is secured by a pledge of the stock of
the wholly-owned subsidiaries of Lincare Holdings Inc. Interest swap agreements
entered into on September 6, 2000 were sold on December 14, 2000 for $3,018,000.
The proceeds are being amortized over the maturity period of the senior secured
notes.

Unamortized imputed interest on the deferred acquisition obligations and
installment loans at 4.17% to 6.0% were zero in 2000 and $35,000 in 1999.

F-10
28
LINCARE HOLDINGS INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The aggregate maturities of long-term obligations for each of the five
years subsequent to December 31, 2000 are as follows:

(IN THOUSANDS)

2001........................................................ $ 6,577
2002........................................................ 78,249
2003........................................................ 30,243
2004........................................................ 50,196
2005........................................................ 45,087
--------
$210,352
========

(6) INCOME TAXES

The tax effects of temporary differences that account for significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
2000 and 1999 are presented below:

2000 1999
-------- --------
(IN THOUSANDS)

Deferred tax assets:
Accrued expenses, principally due to deferral for income
tax reporting purposes................................. $ (3,728) $ (4,516)
Intangible assets and covenants not to compete,
principally due to differences in amortization......... (8,713) (7,587)
Net operating loss carryforward........................... (73) (145)
-------- --------
Total gross deferred tax assets................... (12,514) (12,248)
-------- --------
Deferred tax liabilities:
Accounts receivable, principally due to valuation
adjustment............................................. 1 4
Property and equipment, principally due to differences in
depreciation........................................... 25,798 18,308
Goodwill, principally due to differences in
amortization........................................... 19,141 12,615
Other..................................................... 754 2,814
-------- --------
Total gross deferred tax liabilities.............. 45,694 33,741
-------- --------
Net deferred tax liability........................ $ 33,180 $ 21,493
======== ========

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

F-11
29
LINCARE HOLDINGS INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Income tax expense attributable to operations consists of:

YEAR ENDED DECEMBER 31,
----------------------------
2000 1999 1998
-------- ------- -------
(IN THOUSANDS)

Current:
Federal................................................ $ 55,345 $47,574 $36,423
State.................................................. 4,902 4,215 3,850
-------- ------- -------
Total current.................................. 60,247 51,789 40,273
-------- ------- -------
Deferred:
Federal................................................ 10,737 9,387 11,535
State.................................................. 950 831 1,146
-------- ------- -------
Total deferred................................. 11,687 10,218 12,681
-------- ------- -------
Total income tax expense....................... $ 71,934 $62,007 $52,954
======== ======= =======
Total income tax expense was allocated:
Income from operations................................. $ 71,934 $62,007 $52,954
Stockholders' equity for compensation expense for tax
purposes............................................ (18,142) (612) (8,702)
-------- ------- -------
$ 53,792 $61,395 $44,252
======== ======= =======

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,
---------------------------
2000 1999 1998
------- ------- -------
(IN THOUSANDS)

Computed "expected" tax expense........................... $66,081 $56,961 $48,391
State income taxes, net of federal income tax benefit..... 3,804 3,280 3,247
Other..................................................... 2,049 1,766 1,316
------- ------- -------
Total income tax expense........................ $71,934 $62,007 $52,954
======= ======= =======

(7) STOCKHOLDERS' EQUITY

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

During September 1999 as part of the Company's stock repurchase program,
the Company sold European Put Options ("Puts") on underlying shares of the
Company's common stock. The Puts had a six-month maturity period and the Company
was paid a $4,454,000 premium in advance which was accounted for as additional
paid in capital. The Company had the option to settle the Puts in cash or in
shares of common stock. In March 2000, the Company amended the terms of the Puts
to extend the maturity date of the Puts by two months. In connection with
extending the maturity period of the Puts, the Company was paid an additional
cash premium of $280,000. In May 2000, the Puts expired out-of-the-money with no
obligation to the Company.

F-12
30
LINCARE HOLDINGS INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(8) STOCK OPTIONS

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

The Company has reserved a total of 5,947,536 shares of common stock for
issuance under its Non-Qualified Stock Option Plan (the "Plan"). At December 31,
2000, there were options for 80,000 shares outstanding and no options available
for issuance under the Plan. The Company has reserved a total of 3,200,000
shares of common stock for issuance under its 1991 Stock Plan (the "1991 Plan").
At December 31, 2000, there were options for 129,400 shares outstanding and no
options available for issuance under the 1991 Plan. The Company has reserved a
total of 1,000,000 shares of common stock for issuance under its 1994 Stock Plan
(the "1994 Plan"). At December 31, 2000, there were options for 178,500 shares
outstanding and 24,000 options available for issuance under the 1994 Plan. The
Company has reserved a total of 2,000,000 shares of common stock for issuance
under its 1996 Stock Plan (the "1996 Plan"). At December 31, 2000, there were
options for 1,252,350 shares outstanding and options for 131,000 shares
available for issue under the 1996 Plan. The Company has reserved a total of
1,500,000 shares of common stock for issuance under its 1998 stock plan (the
"1998 Plan"). At December 31, 2000, there were options for 1,394,250 shares
outstanding and options for 72,000 shares available for issue under the 1998
Plan. The Company has reserved a total of 1,000,000 shares of common stock for
issuance under the 2000 Stock Plan (the "2000 Plan"). At December 31, 2000,
there were options for 1,000,000 shares outstanding and no options available for
issuance under the 2000 Plan.

The per share weighted average fair value of stock options granted during
2000, 1999, and 1998 was $16.70, $17.61 and $23.61 on the date of grant using
the Black Scholes option pricing model with the following weighted average
assumptions: 2000 -- expected dividend yield 0%, risk-free interest rate of
4.9%, expected life of 7 years, and volatility of 62.6%; 1999 -- expected
dividend yield 0%, risk-free interest rate of 6.9%, expected life of 8 years,
and volatility of 60.6%; 1998 -- expected dividend yield 0%, risk-free interest
rate of 5.3%, expected life of 9 years, and volatility of 59.0%.

The Company applies Accounting Principles Board Opinion No. 25 in
accounting for its stock plans and, accordingly, no compensation cost has been
recognized for its stock options in the financial statements. Had the Company
determined compensation cost based on the fair value at the grant date for its
stock options under Statement of Financial Accounting Standards No. 123, the
Company's net income would have been reduced to the pro forma amounts indicated
below:

2000 1999 1998
-------- -------- -------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)

Net income:
As reported................................... $116,868 $100,740 $85,306
======== ======== =======
Pro forma..................................... $106,207 $ 93,103 $78,689
======== ======== =======
Income per common share:
Basic -- as reported.......................... $ 2.20 $ 1.77 $ 1.47
======== ======== =======
Diluted -- as reported........................ $ 2.16 $ 1.74 $ 1.44
======== ======== =======
Basic -- pro forma............................ $ 2.00 $ 1.64 $ 1.36
======== ======== =======
Diluted -- pro forma.......................... $ 1.96 $ 1.61 $ 1.32
======== ======== =======

F-13
31
LINCARE HOLDINGS INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Pro forma net income reflects only options granted since December 31, 1994.
Therefore, the full impact of calculating compensation cost for stock options
under Statement of Financial Accounting Standards No. 123 is not reflected in
the pro forma net income or per share amounts presented above because
compensation cost is reflected over the options vesting period of four years and
compensation cost for options granted prior to January 1, 1995 are not
considered.

Information related to the plans is as follows:

WEIGHTED
NUMBER OF AVERAGE
OPTIONS EXERCISE PRICE
---------- ----------------

Outstanding at December 31, 1997.......................... 3,935,742 $14.22
Exercised in 1998......................................... (903,942) 10.42
Canceled in 1998.......................................... (83,000) 21.34
Options issued in 1998.................................... 1,090,000 33.83
----------
Outstanding at December 31, 1998.......................... 4,038,800 19.88
Exercised in 1999......................................... (114,800) 16.40
Canceled in 1999.......................................... (53,500) 28.79
Options issued in 1999.................................... 681,000 24.50
----------
Outstanding at December 31, 1999.......................... 4,551,500 20.56
Exercised in 2000......................................... (1,523,500) 14.32
Canceled in 2000.......................................... (75,000) 32.12
Options issued in 2000.................................... 1,081,500 24.78
----------
Outstanding at December 31, 2000.......................... 4,034,500 $24.00
==========

At December 31, 2000, the range of exercise prices and weighted average
remaining contractual life of outstanding options were as follows:

OPTIONS WEIGHTED
OUTSTANDING AVERAGE
AS OF REMAINING
RANGE OF DECEMBER 31, CONTRACTUAL
EXERCISE PRICES 2000 LIFE
--------------- ------------ ----------------

$ 9.50 -$18.91 ........................................... 1,101,250 4.1 years
$19.50 -$24.50 ........................................... 1,005,000 6.9 years
$24.63 -$24.63 ........................................... 1,013,000 7.1 years
$29.38 -$35.63 ........................................... 915,250 6.6 years
---------
$ 9.50 -$35.63 ........................................... 4,034,500 6.1 years
=========

At December 31, 2000, 1999 and 1998, the number of options exercisable was
1,380,750, 2,074,000 and 1,535,800, respectively, and the weighted average
exercise price of those options was $19.18, $14.09 and $12.61, respectively.

In connection with the exercise of certain stock options, the Company
receives a tax deduction for the difference between the fair value of the common
stock at the date of exercise and the exercise price. The related income tax
benefit of approximately $18,142,000 in 2000, $612,000 in 1999 and $8,702,000 in
1998 has been recorded as a reduction of income taxes payable and an increase to
additional paid-in capital.

F-14
32
LINCARE HOLDINGS INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(9) NET REVENUES

Included in the Company's net revenues is reimbursement from the federal
government under Medicare, Medicaid and other federally funded programs, which
aggregated approximately 61% in 2000, 62% in 1999, and 62% in 1998 of such net
revenues.

(10) INCOME PER COMMON SHARE

Basic income per common share is computed by dividing earnings available to
common stockholders by the weighted average number of common shares outstanding
for the period. Diluted income per common share reflects the potential dilution
of securities that could share in earnings, including stock options. When the
exercise of stock options is antidilutive, they are excluded from the
calculation.

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

INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

YEAR ENDED DECEMBER 31, 2000
Basic:
Income available to common stockholders.... $116,868 53,087 $2.20
=====
Effect of dilutive securities:
Stock options.............................. -- 1,064
-------- ------
Diluted:
Income available to common stockholders and
holders of dilutive securities........... $116,868 54,151 $2.16
======== ====== =====
YEAR ENDED DECEMBER 31, 1999
Basic:
Income available to common stockholders.... $100,740 56,942 $1.77
=====
Effect of dilutive securities:
Stock options.............................. -- 1,047
-------- ------
Diluted:
Income available to common stockholders and
holders of dilutive securities........... $100,740 57,989 $1.74
======== ====== =====
YEAR ENDED DECEMBER 31, 1998
Basic:
Income available to common stockholders.... $ 85,306 57,992 $1.47
=====
Effect of dilutive securities:
Stock options.............................. -- 1,443
-------- ------
Diluted:
Income available to common stockholders and
holders of dilutive securities........... $ 85,306 59,435 $1.44
======== ====== =====

F-15
33
LINCARE HOLDINGS INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(11) SUPPLEMENTAL STATEMENTS OF CASH FLOWS INFORMATION

YEAR ENDED DECEMBER 31,
---------------------------
2000 1999 1998
------- ------- -------
(IN THOUSANDS)

Cash paid for:
Interest.................................................. $14,434 $ 5,823 $ 1,106
======= ======= =======
Income taxes.............................................. $44,451 $53,461 $37,699
======= ======= =======

(12) BUSINESS COMBINATIONS

During 2000, the Company acquired the outstanding stock or certain assets
of 15 businesses in 15 separate transactions. During 1999, the Company acquired
the outstanding stock or certain assets of 22 businesses in 22 separate
transactions. Consideration for the acquisitions generally included cash,
unsecured non-interest bearing obligations and the assumption of certain
liabilities.

None of the businesses acquired were related to the Company prior to
acquisition. Each acquisition during 2000 and 1999 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.

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

2000 1999
-------- --------
(IN THOUSANDS)

Cash........................................................ $150,326 $ 73,426
Deferred acquisition obligations............................ 9,261 11,988
Assumption of liabilities................................... 2,800 17,942
-------- --------
$162,387 $103,356
======== ========

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

2000 1999
-------- --------
(IN THOUSANDS)

Current assets.............................................. $ 7,318 $ 2,969
Property and equipment...................................... 6,562 6,097
Intangible assets........................................... 6,142 7,132
Goodwill.................................................... 142,365 87,158
-------- --------
$162,387 $103,356
======== ========

The following unaudited pro forma supplemental information on the results
of operations for the years ended December 31, 2000 and 1999 include the
acquisitions as if they had been combined at the beginning of 1999.

2000 1999
---------- ----------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)

Net revenues................................................ $740,655 $664,158
======== ========
Net income.................................................. $118,404 $108,773
======== ========
Basic -- income per common share............................ $ 2.23 $ 1.91
======== ========
Diluted -- income per common share.......................... $ 2.19 $ 1.88
======== ========

F-16
34
LINCARE HOLDINGS INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 1999 or of future results of
operations of the combined companies.

(13) CONTINGENCIES

From time to time, the Company receives inquiries from various government
agencies requesting patient records and other documents. It has been Lincare's
policy to cooperate with all such requests for information. The government has
not instituted any proceedings or served Lincare with any complaints as a result
of these inquiries.

Private litigants may also make claims against the Company for violations
of health care laws in actions known as qui tam suits and the government may
intervene in, and take control of, such actions. The Company is a defendant in
certain qui tam proceedings. Lincare intends to vigorously defend these suits
should they proceed. The government has declined to intervene in all unsealed
qui tam actions of which the Company is aware.

As a health care provider, 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, documentation 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 the Company for payment of
services rendered to patients. 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.

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 the Company's
financial position, results of operations or liquidity.

F-17
35
LINCARE HOLDINGS INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(14) QUARTERLY FINANCIAL DATA (UNAUDITED)

The following is a summary of quarterly financial results for the years
ended December 31, 2000 and 1999:

FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

2000:
Net revenues................................ $159,497 $167,621 $186,022 $189,344
======== ======== ======== ========
Operating income............................ $ 47,113 $ 48,956 $ 53,386 $ 55,595
======== ======== ======== ========
Net income.................................. $ 27,136 $ 28,217 $ 29,671 $ 31,844
======== ======== ======== ========
Income per common share:
Basic....................................... $ .51 $ .53 $ .56 $ .61
======== ======== ======== ========
Diluted..................................... $ .50 $ .52 $ .55 $ .59
======== ======== ======== ========
1999:
Net revenues................................ $136,081 $143,025 $150,247 $152,433
======== ======== ======== ========
Operating income............................ $ 38,579 $ 40,806 $ 43,500 $ 45,611
======== ======== ======== ========
Net income.................................. $ 23,503 $ 24,810 $ 26,021 $ 26,406
======== ======== ======== ========
Income per common share:
Basic....................................... $ .40 $ .43 $ .46 $ .49
======== ======== ======== ========
Diluted..................................... $ .40 $ .42 $ .45 $ .47
======== ======== ======== ========

F-18
36

SCHEDULE VIII

LINCARE HOLDINGS INC.
AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS

BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- ----------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)

YEAR ENDED DECEMBER 31, 2000
Deducted from asset accounts
Allowance for uncollectible
accounts........................... $4,897 $10,537 $5,816(1) $11,761(2) $9,489
====== ======= ====== ======= ======
YEAR ENDED DECEMBER 31, 1999
Deducted from asset accounts:
Allowance for uncollectible
accounts........................... $9,353 $ 6,981 $1,891(1) $$13,328(2) $4,897
====== ======= ====== ======= ======
YEAR ENDED DECEMBER 31, 1998
Deducted from asset accounts:
Allowance for uncollectible
accounts........................... $7,951 $ 5,849 $2,632(1) $ 7,079(2) $9,353
====== ======= ====== ======= ======

- ---------------

(1) To record allowance on business combinations
(2) To record write-offs

S-1
37
INDEX OF EXHIBITS

SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
- ------- ------- ------------

A 3.10 -- Amended and Restated Certificate of Incorporation of Lincare Holdings Inc...................

B 3.11 -- Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Lincare
Holdings Inc................................................................................

A 3.20 -- Amended and Restated By-Laws of Lincare Holdings Inc........................................

A 10.20 -- Non-Qualified Stock Option Plan of Registrant...............................................

A 10.21 -- Lincare Holdings Inc. 1991 Stock Plan.......................................................

10.22 -- Lincare Holdings Inc. 1994 Stock Plan.......................................................

10.23 -- Lincare Holdings Inc. 1996 Stock Plan.......................................................

10.24 -- Lincare Holdings Inc. 1998 Stock Plan.......................................................

10.25 -- Lincare Holdings Inc. 2000 Stock Plan.......................................................

A 10.30 -- Lincare Inc. 401(k) Plan....................................................................

C 10.31 -- Employment Stock Purchase Plan..............................................................

C 10.40 -- Employment Agreement dated as of January 1, 1997 between Lincare Holdings Inc. and
John P. Byrnes..............................................................................

C 10.41 -- Employment Agreement dated as of June 1, 1997 between Lincare Holdings Inc. and
Paul G. Gabos...............................................................................

H 10.42 -- Employment Agreement dated as of January 1, 1997 between Lincare Holdings Inc. and
James T. Kelly..............................................................................

10.43 -- Employment Agreement dated as of January 1, 1998 between Lincare Holdings Inc. and
Shawn S. Schabel............................................................................

C 10.50 -- Form of Non-employee Director Stock Option Agreement........................................

C 10.51 -- Form of Non-qualified Stock Option Agreement................................................

G 10.52 -- Non-Qualified Stock Option Agreements dated as of January 23, 1995 between the Registrant
and James M. Emanuel........................................................................

H 10.53 -- Non-Qualified Stock Option Agreements dated as of January 26, 1996 between the Registrant
and John P. Byrnes..........................................................................

H 10.54 -- Non-Qualified Stock Option Agreements dated as of July 15, 1996 between the Registrant
and John P. Byrnes..........................................................................

D 10.60 -- Three-Year Credit Agreement among Lincare Holdings Inc., as Borrower, Certain Subsidiaries
of Borrower from time to time party thereto, as Guarantors, the several Lenders from time
to time party thereto and Bank of America, N.A., as Agent...................................

E 10.61 -- First Amendment to the Three-Year Credit Agreement dated June 20, 2000......................

E 10.62 -- Second Amendment to the Three-Year Credit Agreement dated August 21, 2000...................

E 10.70 -- Senior Secured Note Purchase Agreement among Lincare Holdings Inc., as Borrower, and several
note holders with Bank of America, N.A., as Agent...........................................

E 10.71 -- Form of Series A Note.......................................................................

E 10.72 -- Form of Series B Note.......................................................................

E 10.73 -- Form of Series C Note.......................................................................

F 22.10 -- List of Subsidiaries of Lincare Holdings Inc................................................

23.10 -- Consent of KPMG LLP.........................................................................

99.0 -- Powers of Attorney..........................................................................

38

A Incorporate 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-Q dated August
12, 1998.

C Incorporate by reference to the Registrant's Form 10-K dated March 26,
1998.

D Incorporate by reference to the Registrant's Form 10-Q dated November
12, 1999.

E Incorporate by reference to the Registrant's 10-Q dated November 13,
2000.

F Incorporate by reference to the Registrant's Form 10-K dated March 22,
1994.

G Incorporate by reference to the Registrant's Form 10-K dated March 27,
1996.

H Incorporate by reference to the Registrant's Form 10-K dated March 25,
1997.