FOR IMMEDIATE RELEASE

Gentiva(R) Reports Third Quarter 2004 EPS of $0.17 and Double-Digit Medicare Revenue Increase

MELVILLE, N.Y., Oct. 27 /PRNewswire-FirstCall/ -- Gentiva Health Services, Inc. (Nasdaq: GTIV), the nation's largest provider of comprehensive home health services, today reported net income of $4.4 million, or $0.17 per diluted share, for the third quarter ended September 26, 2004 compared to $4.5 million, or $0.17 per diluted share, for the corresponding period of fiscal 2003.

Net Income-As Adjusted for the third quarter of 2004 was $3.7 million, or $0.14 per diluted share, compared with $3.0 million, or $0.11 per diluted share, for the third quarter of 2003. See the Supplemental Information for a reconciliation between "Net Income - As Reported" and "Net Income - As Adjusted."

During the third quarter of 2004, Gentiva repurchased 1.01 million shares of its common stock at an aggregate cost of $15.5 million and generated cash flow from operating activities of $11.2 million. The Company reported cash items and short-term investments of $106.5 million as of September 26, 2004 versus $111.1 million as of June 27, 2004, the end of the second quarter.

Third quarter 2004 net revenues were $198.1 million versus $199.7 million in the comparable period of 2003. Revenue increases associated with Medicare and non-CIGNA commercial insurance business were offset by anticipated lower revenues from CIGNA business and Medicaid and local government programs, as well as the impact of storms in the southeastern United States. The 2004 net revenues include approximately $1.1 million received from a $1.4 million settlement of the Company's appeal filed with the U.S. Provider Reimbursement Review Board related to the reopening of all of its 1998 Medicare cost reports.

Gentiva's Medicare revenues for the third quarter of 2004 increased $7.2 million, or 16.5%, over the third quarter of 2003, excluding the impact of the special item related to the 1998 cost report. This was the Company's fifth consecutive quarter of double-digit Medicare growth. The increase was driven by growth in admissions, including admissions to Gentiva's specialty programs, higher reimbursement rates compared with the prior year period, and various operational and clinical process enhancements.

Revenues from Medicaid and local government sources declined by $2.7 million, or 6.6%, in the third quarter versus the prior year period due to the Company's ongoing plan to reduce participation in certain low-margin, hourly Medicaid and state and county programs. This was offset somewhat by an increase in skilled visits within Medicaid programs. Revenues from the Company's third major payer category - Commercial Insurance and Other - declined by $7.3 million, or 6.3%, due to the reduction in revenues from Gentiva's contract with CIGNA Healthcare.

Net revenues for the nine months ended September 26, 2004 were $620.2 million versus $610.2 million reported in the prior year period. Excluding special items and revenues from CIGNA, net revenues for the first nine months of 2004 increased $31.9 million, or 8.2%. Revenues from CIGNA, which declined 13.9% in the first nine months of 2004, represented approximately 31% of Gentiva's total net revenues in the first nine months of 2004 versus approximately 36% in the comparable period of 2003.

Net income for the first nine months of 2004 was $19.6 million, or $0.74 per diluted share, compared with $15.0 million, or $0.55 per diluted share, for the same period of 2003. Results for the first nine months of 2004 included a pre-tax gain of $946,000 from the sale of a Canadian investment as well as special items related to the favorable settlement of the Company's Medicare cost report appeals for 1997 and 1998, net of a revenue adjustment to reflect an industrywide repayment of certain Medicare reimbursements. The Medicare special items contributed $9.1 million to nine-month 2004 net revenues and income before income taxes.

Net Income -- As Adjusted for the first nine months of 2004 as compared to the same period of 2003 was $0.50 and $0.36 per diluted share, respectively. The 2004 adjusted results exclude the gain from the sale of the Canadian investment and the Medicare special items, and the 2003 adjusted results assume a normalized tax rate, exclusive of adjustments to the valuation allowance, which were recorded in the 2003 period.

"During the quarter, we achieved solid Medicare growth and an increase in our non-CIGNA commercial insurance revenues," said Gentiva Chairman and CEO Ron Malone. "We also continued to report increases in gross margins and operating income, and generated strong positive cash flow, some of which was used to repurchase a significant number of shares.

"The hurricanes have had an impact on our business in Florida, which caused us to temper our revenue outlook for 2004," Malone added. "However, we were able to limit the impact due to our disaster recovery plans and the commitment of our people. Because we activated our plans well in advance of the storms, we responded quickly and were open for business when patients and referral sources needed us most."

Due primarily to the third quarter impact of the storms and their anticipated residual effect on fourth quarter performance, Gentiva's revenue outlook for the 2004 fiscal year - excluding special items -- has been adjusted to approximately $828 million to $835 million (versus the previously announced range of $840 million to $850 million). However, the outlook for 2004 earnings - excluding special items - continues within the previously announced range of $0.64 to $0.67 per diluted share, and remains unchanged due to the improvement of operating margins, a lower effective tax rate, and the effect of the share repurchase program.

Gentiva also announced a preliminary outlook for the 2005 fiscal year that anticipates full-year net revenues of $870 million to $890 million, and net income in the range of $0.78 to $0.85 per diluted share. The Company plans to offer additional commentary on this outlook on tomorrow's conference call and live web cast.

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 third quarter results during its conference call and live web cast to be held Thursday, October 28, 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)   3rd Quarter         Nine Months
                                         2004      2003      2004      2003
    Statements of Income
       Net revenues                    $198,070  $199,698  $620,223  $610,160
       Cost of services sold            122,539   130,457   383,092   402,529
       Gross profit                      75,531    69,241   237,131   207,631
       Selling, general and
        administrative expenses         (67,227)  (62,738) (201,405) (186,332)
       Depreciation and amortization     (1,756)   (1,689)   (5,505)   (5,164)
       Operating income                   6,548     4,814    30,221    16,135
       Gain on sale of Canadian
        investment                          -         -         946       -
       Interest income, net                 248        93       538       275
       Income before income taxes         6,796     4,907    31,705    16,410
       Income tax expense                (2,397)     (360)  (12,111)   (1,415)
       Net income                        $4,399    $4,547   $19,594   $14,995

    Earnings per Share
      Net income:
       Basic                              $0.18     $0.18     $0.78     $0.57
       Diluted                            $0.17     $0.17     $0.74     $0.55

      Weighted average shares
       outstanding:
       Basic                             24,422    25,972    25,011    26,399
       Diluted                           26,034    27,098    26,645    27,452

    Condensed Balance Sheets
       ASSETS                                 Sep 26, 2004      Dec 28, 2003
        Cash, cash equivalents and
         restricted cash                           $96,518          $100,013
        Short-term investments                      10,000            10,000
        Net receivables                            127,345           132,998
        Deferred tax assets                         21,667            26,464
        Prepaid expenses and other
         current assets                              7,227             6,524
             Total current assets                  262,757           275,999

        Fixed assets                                18,457            15,135
        Deferred tax assets, net                    22,798            28,025
        Other assets                                15,009            15,929
            Total assets                          $319,021          $335,088

       LIABILITIES AND SHAREHOLDERS'
        EQUITY
        Accounts payable                           $13,236           $16,079
        Payroll and related taxes                    9,976            12,932
        Medicare liabilities                        12,591            12,736
        Cost of claims incurred but not
         reported                                   26,297            28,525
        Obligations under insurance
         programs                                   36,591            37,200
        Other accrued expenses                      29,772            32,230
             Total current liabilities             128,463           139,702

        Other liabilities                           20,528            18,207
        Shareholders' equity                       170,030           177,179
             Total liabilities and
              shareholders' equity                $319,021          $335,088

        Common shares outstanding                   24,080            25,598

     Note:  Cash, cash equivalents and restricted cash includes restricted
            cash of $21.8 million at September 26, 2004 and December 28, 2003.


                                                            Nine Months
    Condensed Statements of Cash Flows                2004               2003
       OPERATING ACTIVITIES:
       Net income                                  $19,594            $14,995
       Adjustments to reconcile net
        income to net cash
         provided by operating activities
        Depreciation and amortization                5,505              5,164
        Provision for doubtful accounts              4,708              5,544
        Gain on sale of Canadian
         investment                                   (946)               -
        Deferred income taxes                        9,743                -
       Changes in assets and liabilities,
        net of acquisitions/divestitures
        Accounts receivable                            945            (10,773)
        Prepaid expenses and other
         current assets                             (1,144)             3,682
        Current liabilities                        (12,102)              (969)
       Other, net                                      657             (1,295)
       Net cash provided by operating
        activities                                  26,960             16,348

       INVESTING ACTIVITIES:
       Purchase of fixed assets                     (7,607)            (4,725)
       Proceeds from sale of assets                  4,123                200
       Acquisition of businesses                       -               (1,300)
       Purchase of short-term investments          (10,000)           (14,900)
       Maturities of short-term
        investments                                 10,000             14,935
       Net cash used in investing
        activities                                  (3,484)            (5,790)

       FINANCING ACTIVITIES:
       Proceeds from issuance of common
        stock                                        3,420              2,179
       Repurchases of common stock                 (30,163)            (9,651)
       Repayment of capital lease
        obligations                                   (228)               -
       Net cash used in financing
        activities                                 (26,971)            (7,472)

       Net change in cash, cash
        equivalents and restricted cash             (3,495)             3,086
       Cash, cash equivalents and
        restricted cash at beginning of
        period                                     100,013            101,241
       Cash, cash equivalents and
        restricted cash at end of period           $96,518           $104,327

                                          3rd Quarter         Nine Months
                                         2004      2003      2004      2003
     Supplemental Information
       Net Revenues:
       Medicare (1)                     $52,308   $43,977  $168,749  $128,502
       Medicaid and local government     38,017    40,718   116,162   125,721
       Commercial insurance and other   107,745   115,003   335,312   355,937
            Total net revenues         $198,070  $199,698  $620,223  $610,160

    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          $4,399    $4,547   $19,594   $14,995
       Add: income tax expense - as
        reported (3)                      2,397       360    12,111     1,415
       Income before income taxes - as
        reported                          6,796     4,907    31,705    16,410
       Less: Gain on sale of Canadian
        investment (4)                      -         -        (946)      -
       Less: Medicare cost report
        settlement (1)                   (1,084)      -     (10,087)      -
       Add: Revenue adjustment for
        estimated Medicare repayment
        (1)                                 -         -       1,000       -
       Income before income taxes - as
        adjusted                          5,712     4,907    21,672    16,410
       Less: income tax expense - at
        normalized tax rate (3)          (2,054)   (1,914)   (8,278)   (6,400)
       Net Income - As Adjusted          $3,658    $2,993   $13,394   $10,010

       Diluted Earnings per Share
       Net Income - As Reported           $0.17     $0.17     $0.74     $0.55
       Net Income - As Adjusted           $0.14     $0.11     $0.50     $0.36

     Notes:
     1) Medicare revenues for the third quarter of fiscal 2004 included
        approximately $1.1 million received from a $1.4 million settlement of
        the Company's appeal filed with the U.S. Provider Reimbursement Review
        Board ("PRRB") related to the reopening of all of its 1998 cost
        reports.  Medicare revenues for the first nine months of fiscal 2004
        included approximately $10.1 million received in settlement of the
        Company's appeals filed with the PRRB related to the reopening of all
        of its 1997 and 1998 cost reports reduced by 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 normalized tax rates for each period and excluding the PRRB
        settlements and the estimated Medicare repayment as described in Note
        1, as well as the 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 third quarter and first nine months of fiscal years 2004 and 2003.
        Furthermore, due to the lower effective tax rate for the third quarter
        and first nine 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 tax
        rate for reporting purposes. Management also believes that the PRRB
        settlements in the third quarter and first nine months of fiscal 2004,
        reduced by the Medicare estimated repayment recorded in the first nine
        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 third quarter and first nine months of fiscal 2003, the
        Company's effective tax rates were 7.3% and 8.6%, 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.  For
        fiscal 2003, a 39% tax rate was more representative of the Company's
        normalized tax rate for reporting purposes, exclusive of the
        adjustment to the valuation allowance.  For fiscal 2004, the Company's
        annual effective tax rate is estimated to be 38.2%.

     4) Income before income taxes for the first nine months of 2004 included
        a gain of $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.

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; business disruption due to natural disasters or terrorist acts; 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.

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