FOR IMMEDIATE RELEASE

Gentiva^® Reports 2005 Second Quarter and Six-Month Results

Melville, N.Y., August 2, 2005 -- Gentiva Health Services, Inc. (NASDAQ: GTIV), the nation's largest provider of comprehensive home health services, today reported net income of $8.7 million, or $0.35 per diluted share, for the second quarter ended July 3, 2005, compared to $6.0 million, or $0.22 per diluted share, for the second quarter ended June 27, 2004.

Results for the 2005 second quarter included a $4.2 million income tax benefit due to a favorable resolution of tax audit issues relating to fiscal 1997 through 2000. Second quarter results for 2004 included a pre-tax gain of approximately $0.9 million from the sale of an investment in a Canadian homecare company. Excluding the impact of these nonrecurring items, Net Income – As Adjusted for the second quarter of 2005 was $4.5 million, or $0.18 per diluted share, compared with $5.4 million, or $0.20 per diluted share, for the second quarter of 2004. See the supplemental information for a reconciliation of “Net Income – As Reported” and “Net Income – As Adjusted.”

Second quarter 2005 net revenues were $220.1 million versus second quarter 2004 net revenues of $208.2 million. Gentiva's Medicare revenues for the second quarter of 2005 were $65.3 million, a 21.3% increase from the $53.8 million reported in the prior year period. The increase was due primarily to growth in admissions from greater referral opportunities and improved capacity, and the contribution of Gentiva's specialty programs, as well as the impact of the Heritage Home Care Services acquisition, which closed on May 1, 2005.

Medicaid and Local Government revenues were $37.8 million for the second quarter of 2005, a 3.1% decline from the $39.0 million reported in the second quarter of last year.

Commercial Insurance and Other revenues for the second quarter of 2005 were $117.1 million, up 1.4% from the $115.4 million reported in the same period a year earlier. Excluding revenues from CIGNA, Commercial Insurance and Other revenues for the second quarter rose 8.5%, driven by services provided to other managed care customers. Revenues derived from CIGNA declined 3.7% due primarily to lower revenues from capitated plans partially offset by a revenue increase from CIGNA fee-for-service plans.

For the six months ended July 3, 2005, net income was $12.8 million, or $0.51 per diluted share, compared with $15.2 million, or $0.56 per diluted share, for the six months ended June 27, 2004. Net revenues for the first six months of 2005 were $427.2 million versus first half 2004 net revenues of $422.2 million.

Results for the 2005 and 2004 six-month periods included the special items referred to above, and for the six-month period of 2004, included 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.

Excluding the impact of special items, Net Income – As Adjusted for the first half of 2005 versus the same period of 2004 was $0.34 versus $0.36 per diluted share, respectively. First half 2005 net revenues, excluding the special items and revenues from CIGNA, increased $23.3 million, or 8.3%. Revenues from CIGNA, which declined 7.8% in the first half of 2005, represented 28% of Gentiva's total net revenues for this period versus 31% in the first half of 2004.

During the second quarter of 2005, Gentiva repurchased 283,800 shares of its common stock at an aggregate cost of $4.7 million and closed the Heritage acquisition at a cost of $11.5 million, excluding transaction costs of $0.5 million and working capital funding in excess of $3.5 million. As of July 3, 2005, Gentiva reported cash items and short-term investments of $83.4 million versus $103.6 million as of April 3, 2005, the end of the 2005 first quarter.

“We've taken actions beginning in the second quarter that should improve our performance for the remainder of the year,” said Gentiva Chairman and CEO Ron Malone. “In the Home Healthcare segment, we generated strong second quarter Medicare growth and continued our focus on capacity improvement, including training of newly hired clinicians and staff. We successfully completed the Heritage Home Care acquisition and concentrated on investing in our branch operations to generate greater returns.

“Our CareCentrix segment contributed to positive revenue growth in the Commercial Insurance and Other category,” he added, “even as we adjusted resources to match changing volume. Expanding managed care relationships contributed to the increase in non-CIGNA revenues. Though revenues from our CIGNA relationship were not at the levels of the prior year, they were up sequentially between the first and second quarters of 2005 due to increased PPO and Open Access business.” See the following tables for additional segment information.

Gentiva also affirmed its financial outlook for fiscal 2005, with net revenues in a range of $870 million to $890 million, and net income in a range of $0.75 to $0.83 per diluted share.

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 and first half 2005 results during its conference call and live web cast to be held Wednesday, August 3, 2005, at 10:00 a.m. Eastern Time. To participate in the call from the United States or Canada , dial: (651) 291-0900. 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 more than 250 locations in 35 states, and through CareCentrix^®, 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 2,500 third-party provider locations, as well as Gentiva locations. The Company is a single source for skilled nursing; physical, occupational, speech and neurorehabilitation 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, www.gentiva.com, and its investor relations section at http://www.gentiva.com/investor.

(Tables and notes follow)

      (in 000's, except per share data)    2nd Quarter          Six Months
                                         2005      2004      2005      2004
    Statements of Income
      Net revenues                     $220,135  $208,248  $427,242  $422,153
      Cost of services sold             138,628   129,910   265,857   260,553
      Gross profit                       81,507    78,338   161,385   161,600
      Selling, general and
       administrative expenses          (72,658)  (67,809) (144,417) (134,178)
      Depreciation and amortization      (1,911)   (1,904)   (3,647)   (3,749)
      Operating income                    6,938     8,625    13,321    23,673
      Gain on sale of Canadian
       investment                           -         946       -         946
      Interest income, net                  414       208       877       290
      Income before income taxes          7,352     9,779    14,198    24,909
      Income tax benefit (expense)        1,298    (3,814)   (1,423)   (9,714)
      Net income                         $8,650    $5,965   $12,775   $15,195

    Earnings per Share
     Net income:
      Basic                               $0.37     $0.24     $0.55     $0.60
      Diluted                             $0.35     $0.22     $0.51     $0.56

     Average shares outstanding:
      Basic                              23,271    25,068    23,358    25,305
      Diluted                            24,935    26,818    24,981    26,967


    Condensed Balance Sheets
     ASSETS                                   July 3, 2005       Jan 2, 2005
      Cash, cash equivalents and
       restricted cash                             $36,645           $31,924
      Short-term investments                        46,750            81,100
      Net receivables                              142,424           132,002
      Deferred tax assets                           23,134            23,861
      Prepaid expenses and other current
       assets                                        7,882             6,057
           Total current assets                    256,835           274,944

      Fixed assets, net                             19,951            19,687
      Deferred tax assets, net                      18,723            21,233
      Goodwill                                      10,613             1,325
      Other assets                                  18,518            14,909
          Total assets                            $324,640          $332,098

     LIABILITIES AND SHAREHOLDERS' EQUITY
      Accounts payable                             $25,462           $25,896
      Payroll and related taxes                     10,413             9,356
      Medicare liabilities                           8,545             9,949
      Cost of claims incurred but not
       reported                                     25,881            27,361
      Obligations under insurance
       programs                                     32,506            34,660
      Other accrued expenses                        26,707            31,117
           Total current liabilities               129,514           138,339

      Other liabilities                             18,945            21,819
      Shareholders' equity                         176,181           171,940
           Total liabilities and
            shareholders' equity                  $324,640          $332,098

      Common shares outstanding                     23,264            23,722


                                                            Six Months
    Condensed Statements of Cash Flows                2005              2004
     OPERATING ACTIVITIES:
     Net income                                     $12,775           $15,195
     Adjustments to reconcile net income
      to net cash (used in)
      provided by operating activities
      Depreciation and amortization                   3,647             3,749
      Provision for doubtful accounts                 3,154             3,414
      Gain on sale of Canadian investment               -                (946)
      Reversal of tax audit reserves                 (4,200)              -
      Deferred income taxes                           3,237             7,433
     Changes in assets and liabilities:
      Accounts receivable                           (13,576)           (4,194)
      Prepaid expenses and other current
       assets                                        (1,677)           (1,616)
      Current liabilities                           (13,564)           (7,479)
     Other, net                                          33               169
     Net cash (used in) provided by
      operating activities                          (10,171)           15,725

     INVESTING ACTIVITIES:
     Purchase of fixed assets                        (3,294)           (5,493)
     Proceeds from sale of assets                       -               4,123
     Acquisition of businesses                      (12,040)              -
     Purchases of short-term investments
      available-for-sale                           (106,900)          (25,000)
     Maturities of short-term investments
      available-for-sale                            131,250             5,000
     Purchases of short-term investments                -             (10,000)
     Maturities of short-term investments            10,000            10,000
     Net cash provided by (used in)
      investing activities                           19,016           (21,370)

     FINANCING ACTIVITIES:
     Proceeds from issuance of common
      stock                                           3,791             1,579
     Changes in book overdrafts                       4,586            (2,557)
     Repurchases of common stock                    (12,325)          (14,702)
     Repayment of capital lease obligations            (176)             (162)
     Net cash used in financing activities           (4,124)          (15,842)

     Net change in cash, cash equivalents
      and restricted cash                             4,721           (21,487)
     Cash, cash equivalents and
      restricted cash at beginning of
      period                                         31,924            97,438
     Cash, cash equivalents and
      restricted cash at end of period              $36,645           $75,951


    Note:  Cash, cash equivalents and restricted cash includes restricted cash
           of $22.0 million and $21.8 million at the beginning and end of the
           2005 and 2004 periods, respectively.


                                          2nd Quarter          Six Months
                                         2005      2004      2005      2004
    Supplemental Information
     Net Revenues by Major Payer
      Source:
      Medicare (1)                      $65,290   $53,839  $127,051  $116,441
      Medicaid and local government      37,785    38,978    74,429    78,145
      Commercial insurance and other    117,060   115,431   225,762   227,567
           Total net revenues          $220,135  $208,248  $427,242  $422,153

    A reconciliation of net income
     between As Reported and As
     Adjusted amounts,
     and the related diluted earnings
     per share, follow (2):

      Net income - As Reported           $8,650    $5,965   $12,775   $15,195
      Income tax (benefit) expense -
       As Reported (3)                   (1,298)    3,814     1,423     9,714
      Income before income taxes - As
       Reported                           7,352     9,779    14,198    24,909
      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                           7,352     8,833    14,198    15,960
      Less: income tax expense - At
       normalized rate (3)               (2,902)   (3,445)   (5,623)   (6,224)
      Net income - As Adjusted           $4,450    $5,388    $8,575    $9,736

      Diluted Earnings per Share
      Net income - As Reported            $0.35     $0.22     $0.51     $0.56
      Net income - As Adjusted            $0.18     $0.20     $0.34     $0.36

    Segment Information
     Net revenues
      Home Healthcare Services         $137,667  $127,801  $270,750  $265,006
      CareCentrix                        87,069    85,492   166,003   167,615
      Intersegment revenues              (4,601)   (5,045)   (9,511)  (10,468)
     Total net revenues                $220,135  $208,248  $427,242  $422,153

     Operating contribution
      Home Healthcare Services          $12,111   $13,901   $23,717   $35,152
      CareCentrix                         7,165     8,515    14,007    14,929
     Total operating contribution        19,276    22,416    37,724    50,081
     Corporate expenses                 (10,427)  (11,887)  (20,756)  (22,659)
     Gain on sale of Canadian
      investment                            -         946       -         946
     Depreciation and amortization       (1,911)   (1,904)   (3,647)   (3,749)
     Interest income, net                   414       208       877       290
     Income before income taxes          $7,352    $9,779   $14,198   $24,909

    Notes:

    (1) Medicare revenues for the first six months of fiscal 2004 included
        approximately $9.0 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.  The Centers
        for Medicare & Medicaid Services 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, which excludes the nonrecurring tax
        benefit as described in Note 3, and excluding the PRRB settlement and
        the estimated Medicare repayment 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 2005 and 2004.
        Management believes the favorable resolution of tax audit issues as
        described in Note 3 should be excluded from "Net Income - As Adjusted"
        as this is a nonrecurring item which relates to prior periods.  In
        addition, the PRRB settlement in the first six months of fiscal 2004,
        reduced by the Medicare estimated repayment, should be excluded from
        "Net Income - As Adjusted" as these items relate to reimbursement
        activities for the periods described in Note 1. Furthermore, 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 year 2005, the
        Company's income tax benefit (expense) included a $4.2 million income
        tax benefit resulting from a favorable resolution of tax audit issues
        relating to fiscal 1997 through 2000.  Management has excluded this
        nonrecurring item and has incorporated a normalized tax rate in its
        presentation of "Net Income - As Adjusted."

    (4) Income before income taxes for fiscal 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.

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