FOR IMMEDIATE RELEASE

Gentiva(R) Reports Second Quarter 2004 EPS Increase and Raises 2004 Financial Outlook

MELVILLE, N.Y., July 28 /PRNewswire-FirstCall/ -- Gentiva Health Services, Inc. (Nasdaq: GTIV), the nation's largest provider of comprehensive home health services, today reported net income of $6.0 million, or $0.22 per diluted share, for the second quarter ended June 27, 2004 compared to $5.2 million, or $0.19 per diluted share, for the corresponding period of fiscal 2003.

Net income - as adjusted for the second quarter of 2004 was $5.4 million, or $0.20 per diluted share, compared with $3.5 million, or $0.13 per diluted share, for the second quarter of 2003. The 2004 adjusted results exclude a nonrecurring, pre-tax gain of approximately $0.9 million from the sale of Gentiva's investment in a Canadian homecare company. The 2003 adjusted results assume a normalized tax rate of 39%, although the effective tax rate for this period was 7.8% due to the reversal of a portion of Gentiva's deferred tax valuation allowance. (See Supplemental Information for a reconciliation between Net income - as reported and Net income - as adjusted.)

The Company also announced a revised 2004 financial outlook -- excluding special items -- that raises expected full year earnings to a range of $0.64 to $0.67 per diluted share, up from the previous $0.57 to $0.63 per diluted share, and changes full year net revenues to a range of $840 million to $850 million, as compared with the prior range of $835 million to $850 million.

Second quarter 2004 net revenues were $208.2 million compared with $208.4 million reported in the second quarter of 2003. Gentiva's Medicare revenues for the second quarter of 2004 increased $11.9 million, or 28.3%, over the second quarter of 2003. Medicare revenue growth was driven by an increase in admissions, the contribution of Gentiva's growing specialty services, operational and clinical process enhancements, and higher reimbursement rates compared with the prior year period.

Revenues from Medicaid and local government sources declined by $3.7 million, or 8.6%, in the second quarter due to a reduction in the Company's participation in certain low-margin, hourly Medicaid and state and county programs. Revenues from the Company's third major payer category -- Commercial Insurance and Other -- declined by $8.4 million, or 6.8%, due to a reduction in revenue from CIGNA Healthcare.

For the six months ended June 27, 2004, net income was $15.2 million, or $0.56 per diluted share, compared with $10.4 million, or $0.38 per diluted share, in the first six months of 2003. Net revenues for the first six months of 2004 were $422.2 million versus $410.5 million reported in the same prior year period.

Results for the first half of 2004 included the second quarter gain on the sale of the Canadian investment as well as first quarter special items related to the favorable settlement of the Company's 1997 Medicare cost reports, net of a revenue adjustment to reflect an industrywide repayment of certain Medicare reimbursements. The Medicare special items contributed $8.0 million to first half 2004 net revenues and income before income taxes.

First half 2004 net revenues, excluding the special items and revenues from CIGNA, increased $25.8 million, or 10.1%. Revenues from CIGNA, which declined 14.4% in the first half of 2004, represented approximately 31% of Gentiva's total net revenues in the first half of 2004 versus 38% in the comparable period of 2003.

Net income - as adjusted for the first half of 2004 versus the same period of 2003 was $0.36 versus $0.25 per diluted share, respectively. The 2004 adjusted results exclude the gain on the sale of the Canadian investment and the special items recorded during this period, and the 2003 adjusted results assume a normalized tax rate of 39%.

"Thanks to the expansion of our sales force, the continued growth of our specialty services and operating improvements within our branch structure, we have shown solid growth in our Medicare business," said Gentiva Chairman and CEO Ron Malone. "We have also reconfigured our CareCentrix(R) managed care provider network to better serve our customers and to drive improvements in operating margins. Furthermore, our CareCentrix model continues to attract interest, as evidenced by the recently announced TriWest Healthcare Alliance contract to serve military personnel and their families in 21 states."

Malone said that Gentiva's revised 2004 outlook reflects operating performance in the first half of the year, anticipated lower seasonal demand for homecare in the fiscal third quarter, and the reduction in diluted shares resulting from stock repurchases, including 587,000 shares repurchased during the second quarter of 2004.

Non-GAAP Financial Measures

The information provided in the following tables includes certain non-GAAP financial measures as defined under Securities and Exchange Commission (SEC) rules. In accordance with SEC rules, the Company has provided, in the supplemental information and the footnotes to the tables, a reconciliation of those measures to the most directly comparable GAAP measures.

Conference Call and Web Cast Details

The Company will comment further on its second quarter results during its conference call and live web cast to be held Thursday, July 29, 2004, at 10:00 a.m. Eastern Time. To participate in the call from the United States or Canada, dial: (612) 326-1003. The web cast is an audio only, one-way event. Web cast listeners who wish to ask questions must participate in the conference call. To hear the web cast, log onto http://www.gentiva.com/investor/events.asp. This press release is also accessible at the same link, and a transcript of the conference call will be available on the site within 24 hours after the call.

About Gentiva Health Services, Inc.

Gentiva Health Services, Inc. is the nation's largest provider of comprehensive home health services. Gentiva serves patients through more than 350 direct service delivery units within approximately 250 locations in 35 states, and through CareCentrix(R), which manages home healthcare services for many major managed care organizations throughout the United States and delivers them in all 50 states through a network of more than 2,000 third-party provider locations, as well as Gentiva locations. The Company is a single source for skilled nursing; physical, occupational, speech and neuro-rehabilitation services; social work; nutrition; disease management education; and help with daily living activities, as well as other therapies and services. Gentiva's revenues are generated from commercial insurance, federal and state government programs and individual consumers. For more information, visit Gentiva's web site, http://www.gentiva.com/, and its investor relations section at http://www.gentiva.com/investor.

    (in 000's, except per share
     data)                                 2nd Quarter          Six Months
                                         2004      2003      2004      2003
    Statements of Income
       Net revenues                    $208,248  $208,446  $422,153  $410,462
       Cost of services sold            129,910   138,822   260,553   272,072
       Gross profit                      78,338    69,624   161,600   138,390
       Selling, general and
        administrative expenses         (67,809)  (62,341) (134,178) (123,594)
       Depreciation and amortization     (1,904)   (1,730)   (3,749)   (3,475)
       Operating income                   8,625     5,553    23,673    11,321
       Gain on sale of Canadian
        investment                          946        --       946        --
       Interest income, net                 208       139       290       182
       Income before income taxes         9,779     5,692    24,909    11,503
       Income tax expense                (3,814)     (445)   (9,714)   (1,055)
       Net income                        $5,965    $5,247   $15,195   $10,448

    Earnings per Share
      Net income:
       Basic                              $0.24     $0.20     $0.60     $0.39
       Diluted                            $0.22     $0.19     $0.56     $0.38

      Average shares outstanding:
       Basic                             25,068    26,530    25,305    26,613
       Diluted                           26,818    27,490    26,967    27,635


    Condensed Balance Sheets

       ASSETS                                  Jun 27, 2004      Dec 28, 2003
        Cash, cash equivalents and
         restricted cash                          $101,104          $100,013
        Short-term investments                      10,000            10,000
        Net receivables                            133,778           132,998
        Deferred tax assets                         23,210            26,464

        Prepaid expenses and other
         current assets                              7,890             6,524
             Total current assets                  275,982           275,999

        Fixed assets                                18,121            15,135
        Deferred tax assets, net                    23,631            28,025
        Other assets                                14,885            15,929
            Total assets                          $332,619          $335,088

       LIABILITIES AND SHAREHOLDERS' EQUITY
        Accounts payable                           $12,205           $16,079
        Payroll and related taxes                   13,845            12,932
        Medicare liabilities                        13,331            12,736
        Cost of claims incurred but not
         reported                                   28,287            28,525
        Obligations under insurance programs        36,583            37,200
        Other accrued expenses                      28,742            32,230
             Total current liabilities             132,993           139,702

        Other liabilities                           20,375            18,207
        Shareholders' equity                       179,251           177,179
             Total liabilities and
              shareholders' equity                $332,619          $335,088

        Common shares outstanding                   24,859            25,598

    Note:  Cash, cash equivalents and restricted cash includes restricted
           cash of $21.8 million at June 27, 2004 and December 28,2003.


                                                             Six Months
    Condensed Statements of Cash Flows                2004              2003
       OPERATING ACTIVITIES:
       Net income                                   $15,195           $10,448
       Adjustments to reconcile net
         income to net cash
         provided by operating activities
        Depreciation and amortization                 3,749             3,475
        Provision for doubtful accounts               3,414             3,608
        Gain on sale of Canadian investment            (946)               --
        Deferred income taxes                         7,433                --
       Changes in assets and liabilities,
        net of acquisitions/divestitures
        Accounts receivable                          (4,194)          (11,569)
        Prepaid expenses and other current assets    (1,616)            1,613
        Current liabilities                          (7,458)            6,358
       Other, net                                       169            (1,200)
       Net cash provided by operating activities     15,746            12,733

       INVESTING ACTIVITIES:
       Purchase of fixed assets                      (5,493)           (3,928)
       Proceeds from sale of assets                   4,123               200
       Acquisition of businesses                         --            (1,300)
       Maturities of short-term investments           10,000            10,035
       Purchase of short-term investments           (10,000)          (14,900)
       Net cash used in investing activities         (1,370)           (9,893)

       FINANCING ACTIVITIES:
       Proceeds from issuance of common stock         1,579               822
       Repurchases of common stock                  (14,702)           (7,857)
       Repayment of capital lease obligations          (162)               --
       Net cash used in financing activities        (13,285)           (7,035)

       Net change in cash, cash
        equivalents and restricted cash               1,091            (4,195)
       Cash, cash equivalents and
        restricted cash at beginning of period      100,013           101,241
       Cash, cash equivalents and
        restricted cash at end of period           $101,104           $97,046


                                            2nd Quarter          Six Months
                                          2004     2003      2004       2003
     Supplemental Information
       Net Revenues:
       Medicare (1)                     $53,839   $41,957  $116,441   $84,525
       Medicaid and other government     38,978    42,658    78,145    85,003
       Commercial insurance and other   115,431   123,831   227,567   240,934
            Total net revenues         $208,248  $208,446  $422,153  $410,462



    A reconciliation of net income
     between as reported and as
     adjusted, and the related
     diluted earnings
     per share amounts follows (2):

       Net income - as reported          $5,965    $5,247   $15,195   $10,448
       Add: income tax expense - as
        reported (3)                      3,814       445     9,714     1,055
       Income before income taxes - as
        reported                          9,779     5,692    24,909    11,503
       Less: Gain on sale of Canadian
        investment (4)                     (946)       --      (946)       --
       Less: Medicare cost report
        settlement (1)                       --        --    (9,003)       --
       Add: Revenue adjustment for
        estimated Medicare repayment(1)      --        --     1,000        --
       Income before income taxes - as
        adjusted                          8,833     5,692    15,960    11,503
       Less: income tax expense - at
        assumed 39% rate                 (3,445)   (2,220)   (6,224)   (4,486)
       Net income - as adjusted          $5,388    $3,472    $9,736    $7,017

       Diluted Earnings per Share
       Net income - as reported           $0.22     $0.19     $0.56     $0.38
       Net income - as adjusted           $0.20     $0.13     $0.36     $0.25


    Notes:

     1) Medicare revenues for the first six months of fiscal 2004 included
        approximately $9 million received in settlement of the Company's
        appeal filed with the U.S. Provider Reimbursement Review Board
        ("PRRB") related to the reopening of all of its 1997 cost reports net
        of a $1 million estimated repayment to Medicare in connection with
        services rendered to certain patients since the inception of the
        Prospective Payment Reimbursement System in October 2000.  In
        connection with the estimated repayment, the Centers for Medicare &
        Medicaid Services has determined that homecare providers should have
        received lower reimbursements for certain services rendered to
        beneficiaries discharged from inpatient hospitals within fourteen days
        immediately preceding admission to home healthcare.

     2) Although "Net income - as adjusted" is a non-GAAP financial measure,
        management believes that the presentation of net income as calculated
        using a normalized tax rate of 39% and excluding the PRRB settlement
        and the estimated Medicare repayments in the first six months of 2004,
        as described in Note 1, as well as the second quarter 2004 gain on the
        sale of Gentiva's investment in a Canadian homecare company, as
        described in Note 4, is a useful adjunct to "Net income - as reported"
        under GAAP because it measures the Company's performance in a
        consistent manner between the results for the second quarter and first
        six months of fiscal years 2004 and 2003. Furthermore, due to the
        lower effective tax rate for the second quarter and first six months
        of fiscal 2003 as described in Note 3, the presentation of "Net
        income - as adjusted"  incorporates an effective tax rate which is
        more representative of the Company's normalized rate. Management also
        believes that the PRRB settlement, net of the Medicare estimated
        repayment recorded in the first six months of fiscal 2004, should be
        excluded from "Net income - as adjusted" as these items relate to
        reimbursement activities from prior periods as described in Note 1. In
        addition, the gain on the sale of the Canadian investment should be
        excluded from "Net income - as adjusted," since this is a nonrecurring
        item.  For these reasons, management believes that "Net income - as
        adjusted" is useful to investors. Investors should not view "Net
        income - as adjusted" as an alternative to the GAAP measure of Net
        income.

     3) For the second quarter and first six months of fiscal 2003, the
        Company's effective tax rates were 7.8% and 10.1%, respectively.
        These effective rates were lower than the statutory income tax rate
        due to the reversal of a portion of the Company's valuation allowance
        relating to the realization of tax benefits associated with a net
        operating loss carry forward and other net deferred tax assets.  A 39%
        tax rate is more representative of the Company's normalized tax rate
        for reporting purposes, and is the rate being utilized for the 2004
        periods.

     4) Income before income taxes for the second quarter and first six months
        of 2004 included a gain of approximately $946,000 from the sale of
        Gentiva's 19.9% interest in a Canadian homecare company to whom
        Gentiva sold its Canadian operations in November 2000.

Forward-Looking Statement Certain statements contained in this news release, including, without limitation, statements containing the words "believes," "anticipates," "intends," "expects," "assumes," "trends" and similar expressions, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based upon the Company's current plans, expectations and projections about future events. However, such statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, general economic and business conditions; demographic changes; changes in, or failure to comply with, existing governmental regulations; legislative proposals for health care reform; changes in Medicare and Medicaid reimbursement levels; effects of competition in the markets the Company operates in; liability and other claims asserted against the Company; ability to attract and retain qualified personnel; availability and terms of capital; loss of significant contracts or reduction in revenues associated with major payer sources; ability of customers to pay for services; a material shift in utilization within capitated agreements; and changes in estimates and judgments associated with critical accounting policies. For a detailed discussion of these and other factors that could cause actual results to differ from those contained in this news release, please refer to the Company's various filings with the Securities and Exchange Commission (SEC), including the "risk factors" section contained in the Company's annual report on Form 10-K for the year ended December 28, 2003. Financial and Investor Contact: John R. Potapchuk 631-501-7035 john.potapchuk@gentiva.com Media Contact: David Fluhrer 631-501-7102 516-857-7231 david.fluhrer@gentiva.com SOURCE Gentiva Health Services, Inc.

Last Updated: Monday, December 18, 2006 10:56 AM