Quarterly Report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2007

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File No. 1-15669

Gentiva Health Services, Inc.

(Exact name of registrant as specified in its charter)

Delaware

36-4335801

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)


3 Huntington Quadrangle, Suite 200S, Melville, NY		11747-4627
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (631) 501-7000

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

Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Large accelerated filer ¨ Accelerated filer x Non-accelerated filer ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

The number of shares outstanding of the registrant’s Common Stock, as of November 5, 2007, was 27,974,558.

INDEX


		Page No.
PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets (Unaudited) – September 30, 2007 and December 31, 2006	3

	Consolidated Statements of Income (Unaudited) – Three Months and Nine Months Ended September 30, 2007 and October 1, 2006	4

	Consolidated Statements of Cash Flows (Unaudited) – Nine Months Ended September 30, 2007 and October 1, 2006	5

	Notes to Consolidated Financial Statements (Unaudited)	6-22

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22-35

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35

Item 4.	Controls and Procedures	36

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	36

Item 1A.	Risk Factors	36

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36

Item 3.	Defaults Upon Senior Securities	36

Item 4.	Submission of Matters to a Vote of Security Holders	36

Item 5.	Other Information	36

Item 6.	Exhibits	37

SIGNATURES		38

EXHIBIT INDEX

PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements

Gentiva Health Services, Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands, except share and per share amounts)

(Unaudited)


	September 30, 2007			December 31, 2006
ASSETS
Current assets:
Cash, cash equivalents and restricted cash	$	33,720		$	32,910
Short-term investments		23,400			24,325
Receivables, less allowance for doubtful accounts of $10,127 and $9,805 at September 30, 2007 and December 31, 2006, respectively		214,510			181,549
Deferred tax assets		21,562			30,443
Prepaid expenses and other current assets		15,031			11,933

Total current assets		308,223			281,160
Fixed assets, net		57,481			49,684
Intangible assets, net		212,604			213,280
Goodwill		276,100			274,959
Other assets		26,518			24,799

Total assets	$	880,926		$	843,882

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	1,577		$	—
Accounts payable		20,360			19,580
Payroll and related taxes		24,090			16,085
Deferred revenue		28,118			20,122
Medicare liabilities		9,619			9,232
Cost of claims incurred but not reported		21,175			19,462
Obligations under insurance programs		37,607			35,910
Other accrued expenses		42,472			45,020

Total current liabilities		185,018			165,411
Long-term debt		314,423			342,000
Deferred tax liabilities, net		46,101			41,065
Other liabilities		23,530			21,081
Shareholders’ equity:
Common stock, $.10 par value; authorized 100,000,000 shares; issued 28,033,621 shares at September 30, 2007 and 27,483,789 shares at December 31, 2006		2,803			2,748
Additional paid-in capital		312,008			298,450
Accumulated deficit		(1,238	)		(25,220	)
Accumulated other comprehensive loss		(720	)		(886	)
Treasury stock, 59,063 shares at September 30, 2007 and 47,489 shares at December 31, 2006		(999	)		(767	)

Total shareholders’ equity		311,854			274,325

Total liabilities and shareholders’ equity	$	880,926		$	843,882

See notes to consolidated financial statements.

Gentiva Health Services, Inc. and Subsidiaries

Consolidated Statements of Income

(In thousands, except per share amounts)

(Unaudited)


	For the Three Months Ended						For the Nine Months Ended
	September 30, 2007			October 1, 2006			September 30, 2007			October 1, 2006
Net revenues	$	309,082		$	286,169		$	915,901		$	813,470
Cost of services and goods sold		179,041			168,250			525,438			474,764

Gross profit		130,041			117,919			390,463			338,706
Selling, general and administrative expenses		110,299			104,520			330,795			299,800

Operating income		19,742			13,399			59,668			38,906
Interest expense		(6,564	)		(7,408	)		(20,649	)		(17,382	)
Interest income		810			862			2,436			2,519

Income before income taxes		13,988			6,853			41,455			24,043
Income tax expense		5,797			1,539			17,473			8,779

Net income	$	8,191		$	5,314		$	23,982		$	15,264

Net income per common share:
Basic	$	0.29		$	0.20		$	0.86		$	0.58

Diluted	$	0.28		$	0.19		$	0.84		$	0.56

Weighted average shares outstanding:
Basic		27,955			27,178			27,729			26,207

Diluted		28,802			27,983			28,564			27,040

See notes to consolidated financial statements.

Gentiva Health Services, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


	For the Nine Months Ended
	September 30, 2007			October 1, 2006
OPERATING ACTIVITIES:
Net income	$	23,982		$	15,264
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		14,705			11,391
Amortization of debt issuance costs		763			759
Provision for doubtful accounts		6,644			5,416
Reversal of tax audit reserves		—			(800	)
Equity-based compensation expense		5,085			2,951
Windfall tax benefits associated with equity-based compensation		(788	)		(1,729	)
Deferred income tax expense		15,725			8,909
Changes in assets and liabilities, net of acquired businesses:
Accounts receivable		(39,837	)		855
Prepaid expenses and other current assets		(3,847	)		(2,233	)
Accounts payable		766			(8,190	)
Payroll and related taxes		8,005			5,496
Deferred revenue		7,996			(2,745	)
Medicare liabilities		386			1,518
Cost of claims incurred but not reported		1,713			(2,038	)
Obligations under insurance programs		1,697			1,571
Other accrued expenses		(2,295	)		8,750
Other, net		1,677			201

Net cash provided by operating activities		42,377			45,346

INVESTING ACTIVITIES:
Purchase of fixed assets		(19,534	)		(16,286	)
Acquisition of businesses, net of cash acquired		(3,820	)		(212,422	)
Purchase of short-term investments available-for-sale		(58,850	)		(143,095	)
Maturities of short-term investments available-for-sale		59,775			159,270

Net cash used in investing activities		(22,429	)		(212,533	)

FINANCING ACTIVITIES:
Proceeds from issuance of common stock		7,010			9,742
Windfall tax benefits associated with equity-based compensation		788			1,729
Proceeds from issuance of debt		—			370,000
Healthfield debt repayments		—			(195,305	)
Other debt repayments		(26,000	)		(17,000	)
Changes in book overdrafts		—			(1,395	)
Debt issuance costs		—			(6,930	)
Repayment of capital lease obligations		(936	)		(336	)

Net cash (used in) provided by financing activities		(19,138	)		160,505

Net change in cash, cash equivalents and restricted cash		810			(6,682	)
Cash, cash equivalents and restricted cash at beginning of period		32,910			38,617

Cash, cash equivalents and restricted cash at end of period	$	33,720		$	31,935

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid	$	22,258		$	7,680
Income taxes paid, net of refunds	$	1,648		$	2,400

During the nine months ended October 1, 2006, the Company issued 3,194,137 shares of common stock in connection with the acquisition of The Healthfield Group, Inc. on February 28, 2006. On June 29, 2007, 11,574 shares of common stock were transferred as treasury shares from the Healthfield escrow account to satisfy certain pre-acquisition liabilities paid by the Company.

See notes to consolidated financial statements.

Gentiva Health Services, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

1. Background and Basis of Presentation

Gentiva ^® Health Services, Inc. (“Gentiva” or the “Company”) provides comprehensive home health services throughout most of the United States through its Home Health, CareCentrix ^® and Other Related Services operating segments. See Note 14 for a description of the Company’s reportable business segments.

On February 28, 2006, the Company completed the acquisition of The Healthfield Group, Inc. (“Healthfield”), a regional provider of home healthcare, hospice and related services, as further described in Note 5. In connection with the acquisition, the Company entered into a $445 million Credit Agreement and a Guarantee and Collateral Agreement, as further described in Note 9.

The accompanying interim consolidated financial statements are unaudited, and have been prepared by Gentiva using accounting principles consistent with those described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006 and pursuant to the rules and regulations of the Securities and Exchange Commission and, in the opinion of management, include all adjustments necessary for a fair presentation of results of operations, financial position and cash flows for each period presented. Results for interim periods are not necessarily indicative of results for a full year. The year-end balance sheet data was derived from audited financial statements. The interim financial statements do not include all disclosures required by accounting principles generally accepted in the United States of America.

2. Accounting Policies

Cash, Cash Equivalents and Restricted Cash

The Company considers all investments with an original maturity of three months or less on their acquisition date to be cash equivalents. Restricted cash of $22.0 million at September 30, 2007 and December 31, 2006 primarily represented segregated cash funds in a trust account designated as collateral under the Company’s insurance programs. The Company, at its option, may access the cash funds in the trust account by providing equivalent amounts of alternative collateral. Interest on all restricted funds accrues to the Company. The Company had operating funds of approximately $4.0 million and $5.3 million at September 30, 2007 and December 31, 2006, respectively, which exclusively relate to a non-profit hospice operation in Florida. Cash and cash equivalents also included amounts on deposit with individual financial institutions in excess of $100,000, which is the maximum amount insured by the Federal Deposit Insurance Corporation. Management believes that these financial institutions are viable entities and believes any risk of loss is remote.

Short-Term Investments

The Company’s short-term investments consist primarily of AAA-rated auction rate securities and other debt securities with an original maturity of more than three months and less than one year on the acquisition date in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 115, “Accounting for Certain Investments in Debt and Equity Securities.” Investments in debt securities are classified by individual security into one of three separate categories: available-for-sale, held-to-maturity or trading.

Available-for-sale investments are carried on the balance sheet at fair value, which for the Company approximates carrying value. Auction rate securities of $23.4 million and $24.3 million at September 30, 2007 and December 31, 2006, respectively, are classified as available-for-sale and are expected to be available to meet the Company’s current operational needs and accordingly are classified as short-term investments. The interest rates on auction rate securities are reset to current interest rates periodically, typically 7, 14 and 28 days. Contractual maturities of the auction rate securities exceed ten years.

Debt securities which the Company has the intent and ability to hold to maturity are classified as held-to-maturity investments and are reported at amortized cost, which approximates fair value. The Company has no investments classified as held-to-maturity investments.

The Company has no investments classified as trading securities.

Inventory

Inventories, which are included in prepaid expenses and other current assets, are stated at the lower of cost or market. Cost is determined using the specific identification method. Inventories amounted to $2.1 million at September 30, 2007 and $2.0 at December 31, 2006, respectively.

Home Medical Equipment

Home medical equipment (“HME”), which is included in fixed assets, is stated at cost and consists of medical equipment, such as hospital beds and wheelchairs, provided to in-home patients in the Company’s respiratory therapy and HME operations. Depreciation is provided using the straight-line method over the estimated useful lives of the equipment. In 2007, in accordance with recent legislation, ownership of certain HME will transfer directly to the patient at the end of a 13-month continuous rental period. As a result, in the first quarter of fiscal 2007, the Company changed its estimated useful lives of certain HME whose ownership is ultimately expected to transfer to the patient and recorded a charge of approximately $400,000 in depreciation expense relating to the change in estimate. At September 30, 2007 and December 31, 2006, the net book value of HME included in fixed assets, net in the accompanying balance sheets was $5.6 million and $6.1 million, respectively.

3. New Accounting Standards

In July 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), which requires that realization of an uncertain income tax position must be more likely than not (i.e., greater than 50 percent likelihood of receiving a benefit) before it can be recognized in the financial statements. FIN 48 further prescribes the benefit to be recorded in the financial statements as the amount most likely to be realized assuming a review by tax authorities having all relevant information and applying current conventions. The Interpretation also clarifies the financial statement classification of tax-related penalties and interest and sets forth new disclosures regarding unrecognized tax benefits. This Interpretation is effective as of the beginning of an entity’s fiscal year that begins after December 15, 2006. The Company adopted this Interpretation in the first quarter of fiscal 2007 as further described in Note 13, and the adoption had no material impact on its consolidated financial statements.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value under Generally Accepted Accounting Principles (“GAAP”) and expands disclosures about fair value measurements. This Statement will be effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company expects that the adoption of the Statement will have no material impact on the Company’s consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an Amendment to FASB Statement No. 115” (“SFAS 159”), which permits entities to choose to measure many financial instruments and certain other items at fair value. SFAS 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. The Company expects that the adoption of SFAS 159 will have no material impact on the Company’s consolidated financial position or results of operations.

4. Net Revenues and Accounts Receivable

Net revenues by major payer classification were as follows:


(Dollars in millions)	Third Quarter						First Nine Months
	2007		2006		Percentage Variance		2007		2006		Percentage Variance
Medicare	$	151.7	$	136.1	11.5	%	$	453.9	$	367.9	23.4	%
Medicaid and Local Government		37.9		45.5	(16.7	%)		116.5		132.4	(12.0	%)
Commercial Insurance and Other		119.5		104.6	14.2	%		345.5		313.2	10.3	%

	$	309.1	$	286.2	8.0	%	$	915.9	$	813.5	12.6	%

The Company is party to a contract with CIGNA Health Corporation (“Cigna”), pursuant to which the Company provides or contracts with third-party providers to provide direct home nursing services and related services, home infusion therapies, and certain other specialty medical equipment to patients insured by Cigna. For the third quarter and first nine months of fiscal 2007, Cigna accounted for approximately 20 percent and 19 percent, respectively, of the Company’s total net revenues compared to approximately 18 percent and 20 percent for the third quarter and first nine months of fiscal 2006, respectively.

Net revenues generated under capitated agreements with managed care payers were approximately 5 percent of total net revenues for both the third quarter and first nine months of fiscal 2007, and 6 percent and 7 percent for the third quarter and first nine months of fiscal 2006, respectively.

Medicare revenues for the first nine months of fiscal 2006 included approximately $1.9 million received in settlement of the Company’s appeal filed with the U.S. Provider Relations Review Board (“PRRB”) related to the reopening of all of its 1999 cost reports. (See Note 12.)

Accounts receivable attributable to major payer sources of reimbursement were as follows (in thousands):


	September 30, 2007			December 31, 2006
Medicare	$	92,130		$	76,105
Medicaid and Local Government		23,578			24,175
Commercial Insurance and Other		108,929			91,074

Gross Accounts Receivable		224,637			191,354
Less: Allowance for doubtful accounts		(10,127	)		(9,805	)

Net Accounts Receivable	$	214,510		$	181,549

The Commercial Insurance and Other payer group included self-pay accounts receivable relating to patient co-payments of $7.2 million and $7.0 million as of September 30, 2007 and December 31, 2006, respectively.

5. Acquisitions

Baptist Home Care

Effective July 1, 2007, the Company acquired the home health operations as well as the respiratory and HME business of North Carolina Baptist Hospital pursuant to an asset purchase agreement. The transaction, which included the acquisition of certain assets and the assumption of certain liabilities related to contracts and leases, was completed primarily to expand the Company’s home health offerings in North Carolina.

Total consideration of $3.8 million was paid in cash in the third quarter of 2007. The purchase price was allocated to goodwill ($1.5 million), identifiable intangible assets (including a certificate of need) ($2.2 million) and other assets ($0.1 million). The Company determined the estimated fair values based on independent appraisals, discounted cash flows, quoted market prices, and management estimates derived from an independent valuation analysis of the intangible assets acquired.

Carolina Vital Care and Lazarus House Hospice

During the second quarter of fiscal 2006, the Company completed two acquisitions to expand home infusion services in the Carolinas and hospice services into Tennessee.

The Company acquired the assets of Carolina Vital Care, a home infusion pharmacy business based in Charlotte, North Carolina, and commitments related to certain contracts and office leases with respect to the period after the closing date, pursuant to an asset purchase agreement.

The Company acquired certain assets and the operations of Lazarus House Hospice, a not-for-profit provider of licensed hospice services based in Tennessee, pursuant to an asset purchase agreement.

The combined purchase price for the two acquisitions was $4.5 million. The combined purchase price was allocated to goodwill ($2.2 million), identifiable intangible assets ($1.9 million), and other assets ($0.4 million). The Company determined the estimated fair values based on independent appraisals, discounted cash flows, quoted market prices, and management estimates derived from an independent valuation analysis of the intangible assets acquired.

Healthfield

On February 28, 2006, the Company completed the acquisition of 100 percent of the equity interest of Healthfield, a regional provider of home healthcare, hospice and related services with approximately 130 locations primarily in eight southeastern states. Total consideration for the acquisition was $466.0 million in cash and shares of Gentiva common stock, including transaction costs of $11.2 million. Total consideration included $2.0 million in adjustments recorded since the acquisition to reflect a change in estimate relating to the final true-up of working capital and net debt as of the Healthfield closing date, as well as incremental closing costs. In December 2006 and June 2007, the Company received, in interim settlements of escrow claims, fair value of approximately $0.8 million and $0.2 million, respectively, through the return of 47,489 shares and 11,574 shares of Gentiva common stock, respectively (see Note 12). Final consideration is subject to various post closing adjustments.

In connection with the acquisition, the Company repaid Healthfield’s existing long-term debt, including accrued interest and prepayment penalties, aggregating $195.3 million. The Company funded the purchase price using (i) $363.3 million of borrowings under a new senior term loan facility, exclusive of debt issuance costs (see Note 9); (ii) 3,194,137 shares of Gentiva common stock at a fair value of $53.3 million, determined based on the average stock price for the period beginning two days prior and ending two days after the measurement date, February 24, 2006; and (iii) existing cash balances of $49.4 million.

The Company acquired Healthfield to strengthen and expand the Company’s presence in the southeastern United States, which has favorable demographic trends and includes important Certificate of Need states; diversify the Company’s business mix; provide a meaningful platform for the Company to enter the hospice business, as well as expansion into respiratory therapy and HME services and infusion therapy as a direct provider of services; and expand its current specialty programs.

The transaction was accounted for in accordance with the provisions of SFAS No. 141, “Business Combinations” (“SFAS 141”). Accordingly, Healthfield’s results of operations are included in the Company’s consolidated financial statements from the acquisition date. The purchase price was allocated to the underlying assets acquired and liabilities assumed based on their estimated fair values at the date of the acquisition. The excess of the purchase price over the fair value of the net identifiable tangible and intangible assets acquired is recorded as goodwill. The Company, with the assistance of independent appraisers, has determined the estimated fair values based on such independent appraisals, discounted cash flows, quoted market prices, and management estimates derived from an independent valuation analysis of the intangible assets acquired. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the acquisition date inclusive of an adjustment made during fiscal 2007 as further described in Note 6 (in thousands):


Cash	$	13,705
Accounts receivable		48,716
Deferred tax assets		8,636
Fixed assets		12,912
Identifiable intangible assets		208,898
Goodwill		265,640
Other assets		3,074

Total assets acquired		561,581
Accounts payable and accrued liabilities		(50,359	)
Short-term and long-term debt		(195,305	)
Deferred tax liability		(45,700	)
Other liabilities		(899	)

Total liabilities assumed		(292,263	)

Net assets acquired	$	269,318

The valuation and useful lives of the intangible assets by component and assignment to reportable segments are as follows (in thousands):


	Home Health		Other Related Services		Total		Useful Life
Intangible assets:
Tradenames	$	15,881	$	—	$	15,881	10 Years
Customer relationships		10,680		—		10,680	10 Years
Certificates of need		178,311		4,026		182,337	Indefinite

Total	$	204,872	$	4,026	$	208,898

Goodwill	$	196,857	$	68,783	$	265,640

The estimated fair values of the assets acquired and liabilities assumed as noted above reflect the completion of the independent valuation analysis and post closing adjustments through September 30, 2007. The Company expects that between 15 percent and 20 percent of the aggregate amount of goodwill and identifiable intangible assets will be amortizable for tax purposes.

Pro Forma Results

The following unaudited pro forma financial information presents the combined results of operations of the Company and Healthfield as if the acquisition had occurred at January 2, 2006, the beginning of fiscal 2006. The pro forma results presented below for the nine months ended October 1, 2006 combine the results of the Company for such period and the historical results of Healthfield from January 1, 2006 through February 28, 2006 (in thousands, except per share data):


	Nine Months Ended October 1, 2006
Net revenues	$	863,991
Net income	$	15,447
Net income per common share:
Basic	$	0.57
Diluted	$	0.56
Weighted average shares outstanding:
Basic		26,874
Diluted		27,707

The pro forma results above reflect adjustments for (i) interest on debt incurred, at the Company’s weighted average interest rate of 7.1 percent; (ii) amortization of identifiable intangibles related to the Healthfield acquisition; and (iii) income tax provision at a normalized tax rate of 39 percent. The information presented above is for illustrative purposes for the period ended October 1, 2006 only and is not necessarily indicative of results that would have been achieved if the acquisition had occurred as of the beginning of the Company’s 2006 fiscal year.

Pro forma financial information presenting the combined results of operations of the Company and Carolina Vital Care, Lazarus House Hospice and Baptist Home Care as if those acquisitions had occurred on January 2, 2006 would not vary significantly from the Company’s actual results of operations for the periods presented.

6. Goodwill and Other Intangible Assets

The gross carrying amount and accumulated amortization of each category of identifiable intangible assets and goodwill as of September 30, 2007 and December 31, 2006 were as follows (in thousands):


	September 30, 2007									December 31, 2006
	Home Health			Other Related Services			Total			Home Health			Other Related Services			Total			Useful Life
Amortized intangible assets:
Covenants not to compete	$	1,198		$	275		$	1,473		$	1,198		$	275		$	1,473		5 Years
Less: accumulated amortization		(588	)		(75	)		(663	)		(409	)		(34	)		(443	)

Net covenants not to compete		610			200			810			789			241			1,030
Customer relationships		16,170			1,600			17,770			14,650			1,600			16,250		7-10 Years
Less: accumulated amortization		(2,944	)		(305	)		(3,249	)		(1,717	)		(133	)		(1,850	)

Net customer relationships		13,226			1,295			14,521			12,933			1,467			14,400
Tradenames		17,028			—			17,028			17,028			—			17,028		10 Years
Less: accumulated amortization		(2,792	)		—			(2,792	)		(1,515	)		—			(1,515	)

Net tradenames		14,236			—			14,236			15,513			—			15,513

Subtotal		28,072			1,495			29,567			29,235			1,708			30,943
Indefinite-lived intangible assets:
Certificates of need		179,011			4,026			183,037			178,311			4,026			182,337		Indefinite

Total identifiable intangible assets	$	207,083		$	5,521		$	212,604		$	207,546		$	5,734		$	213,280

Goodwill	$	205,150		$	70,950		$	276,100		$	204,008		$	70,951		$	274,959

For the third quarter and first nine months of fiscal 2007, the Company recorded amortization expense of approximately $1.0 million and $2.9 million, respectively, as compared to $1.0 million and $2.4 million for the corresponding periods of fiscal 2006. The estimated amortization expense for the remainder of 2007 is $1.0 million and for each of the next five succeeding years approximates $4.0 million for fiscal years 2008 through 2009, $3.8 million for fiscal year 2010 and $3.7 million for fiscal years 2011 through 2012.

During the first nine months of 2007, the gross carrying amount of certain identifiable intangible assets and goodwill increased as a result of the Baptist Home Care acquisition (see Note 5) and goodwill decreased by $0.4 million as a result of adjustment of certain net operating loss carryforwards relating to Healthfield.

7. Restructuring and Integration Costs

During the third quarter and first nine months of fiscal 2007, the Company recorded restructuring and integration costs of approximately $0.6 million and $2.2 million, respectively, as compared to $1.7 million and $4.4 million for the corresponding periods of 2006, as further described below.

Integration Activities

The Company recorded charges of $0.6 million and $2.1 million during the third quarter and first nine months of fiscal 2007, respectively, as compared to $1.7 million and $3.7 million for the third quarter and first nine months of 2006, respectively, in connection with integration activities relating to the Healthfield acquisition. Charges include severance costs in connection with the termination of personnel, discretionary bonuses to certain employees in connection with the Healthfield acquisition, write-off of prepaid fees in connection with the Company’s former credit facility that was terminated on February 28, 2006, and the write-off of developed software for which there was determined to be minimal value. The Company expects to incur additional integration costs during fiscal 2007, primarily related to back office and systems integration, but the aggregate amount of such costs cannot be determined at this time.

Other Related Services Restructuring Activities

During the first nine months of fiscal 2007, the Company recorded charges of $0.1 million and in the fourth quarter of fiscal 2006 recorded charges of $0.9 million, in connection with a restructuring plan associated with its hospice operations. Charges include severance costs in connection with the termination of personnel and lease costs associated with the closing of some facilities. The Company substantially completed this restructuring during the third quarter of 2007.

The costs incurred and cash expenditures associated with restructuring and integration activities for Home Health and Other Related Services were as follows (in thousands):


	Integration Activities									Other Related Services
	Compensation and Severance Costs			Other Costs			Total			Compensation and Severance Costs			Facility Lease and Other Costs			Total
Beginning balance at January 1, 2006	$	—		$	—		$	—		$	—		$	—		$	—
Charge in 2006		3,205			2,925			6,130			748			125			873
Cash expenditures		(2,347	)		(2,221	)		(4,568	)		(325	)		(125	)		(450	)
Asset write-off		—			(702	)		(702	)		—			—			—

Ending balance at December 31, 2006		858			2			860			423			—			423
Charge in first quarter 2007		559			417			976			1			(2	)		(1	)
Cash expenditures		(838	)		(393	)		(1,231	)		(309	)		2			(307	)

Ending balance at April 1, 2007		579			26			605			115			—			115
Charge in second quarter 2007		186			307			493			25			127			152
Cash expenditures		(273	)		(315	)		(588	)		(25	)		(119	)		(144	)

Ending balance at July 1, 2007		492			18			510			115			8			123
Charge in third quarter 2007		412			159			571			(19	)		1			(18	)
Cash expenditures		(262	)		(177	)		(439	)		(64	)		(9	)		(73	)

Ending balance at September 30, 2007	$	642		$	—		$	642		$	32		$	—		$	32

CareCentrix Restructuring Activities

During the first nine months of fiscal 2006, the Company recorded charges of $0.7 million in connection with a restructuring plan associated with its CareCentrix operations. This plan included the closing and consolidation of two regional care centers in response to changes primarily in the nature of services provided to Cigna members under an amended contract entered into in late 2005. The Company completed this restructuring during the second quarter of fiscal 2006.

Other Restructuring Activities

In connection with a restructuring plan adopted in fiscal year 2002, the Company had remaining lease obligations of $1.0 million at September 30, 2007 and $1.1 million at December 31, 2006. The balance of unpaid charges relating to all restructuring and integration activities aggregated $1.6 million at September 30, 2007 and $2.4 million at December 31, 2006, which was included in other accrued expenses in the consolidated balance sheets.

8. Earnings Per Share

Basic and diluted earnings per share for each period presented has been computed by dividing net income by the weighted average number of shares outstanding for each respective period. The computations of the basic and diluted per share amounts were as follows (in thousands, except per share amounts):


	Three Months Ended				Nine Months Ended
	September 30, 2007		October 1, 2006		September 30, 2007		October 1, 2006
Net income	$	8,191	$	5,314	$	23,982	$	15,264

Basic weighted average common shares outstanding		27,955		27,178		27,729		26,207
Shares issuable upon the assumed exercise of stock options and in connection with the employee stock purchase plan using the treasury stock method		847		805		835		833

Diluted weighted average common shares outstanding		28,802		27,983		28,564		27,040

Net income per common share:
Basic	$	0.29	$	0.20	$	0.86	$	0.58
Diluted	$	0.28	$	0.19	$	0.84	$	0.56

9. Long-Term Debt

Credit Arrangements

The Company’s credit agreement provides for an aggregate borrowing amount of $445.0 million of senior secured credit facilities consisting of (i) a seven year term loan of $370.0 million repayable in quarterly installments of 1 percent per annum (with the remaining balance due at maturity on March 31, 2013) and (ii) a six year revolving credit facility of $75.0 million, of which $55.0 million is available for the issuance of letters of credit and $10.0 million is available for swing line loans. A pre-approved $25.0 million increase to the revolving credit facility is available at the Company’s discretion. Upon the occurrence of certain events, including the issuance of capital stock, the incurrence of additional debt (other than that specifically allowed under the credit agreement), certain asset sales where the cash proceeds are not reinvested, or if the Company has excess cash flow (as defined in the agreement), mandatory prepayments of the term loan are required in the amounts specified in the credit agreement.

Interest under the credit agreement accrues at Base Rate or Eurodollar Rate (plus 1.25 percent for Base Rate Loans and 2.25 percent for Eurodollar Rate Loans) for both the revolving credit facility and the term loan. Overdue amounts bear interest at 2 percent per annum above the applicable rate. The interest rates under the credit agreement are reduced if the Company meets certain reduced leverage targets as follows:


Revolving Credit Consolidated Leverage Ratio	Term Loan Consolidated Leverage Ratio	Margin for Base Rate Loans	Margin for Eurodollar Loans
³ 3.5	³ 3.5	1.25%	2.25%
< 3.5 & ³ 3.0	< 3.5 & ³ 3.0	1.00%	2.00%
< 3.0 & ³ 2.5	< 3.0	0.75%	1.75%
< 2.5		0.50%	1.50%

The Company is also subject to a revolving credit commitment fee equal to 0.5 percent per annum of the average daily difference between the total revolving credit commitment and the total outstanding borrowings and letters of credit, excluding amounts outstanding under swing loans. The commitment fee will be reduced to 0.375 percent per annum if the Company’s consolidated leverage ratio (as defined in the agreement) is less than 3.5. At July 1, 2007, the Company achieved a consolidated leverage ratio of less than 3.5 and, as a result, the margin on revolving credit and term loan borrowings was reduced by 25 basis points and the revolving credit commitment fee was reduced to 0.375 percent on a prospective basis, effective August 1, 2007. As of September 30, 2007, the consolidated leverage ratio was 3.02.

The credit agreement requires the Company to meet certain financial tests. These tests include a consolidated leverage ratio and a consolidated interest coverage ratio. The credit agreement also contains additional covenants which, among other things, require the Company to deliver to the lenders specified financial information, including annual and quarterly financial information, and limit the Company’s ability to do the following, subject to various exceptions and limitations: (i) merge with other companies; (ii) create liens on its property; (iii) incur additional debt obligations; (iv) enter into transactions with affiliates, except on an arms-length basis; (v) dispose of property; (vi) make capital expenditures; and (vii) pay dividends or acquire capital stock of the Company or its subsidiaries. As of September 30, 2007, the Company was in compliance with the covenants in the credit agreement.

To assist in managing the potential interest rate risk associated with its floating rate term loan under the credit agreement, on July 3, 2006, the Company entered into a two year interest rate swap agreement with a notional value of $170 million. Under the swap agreement, the Company pays a fixed rate of 5.665 percent per annum plus an applicable margin (an aggregate of 7.915 percent per annum for the period July 3, 2006 through July 31, 2007 and 7.665 percent per annum thereafter) on the $170 million rather than a fluctuating rate plus an applicable margin.

During the third quarter and first nine months of fiscal 2007, the Company made prepayments of $8.0 million and $26 million, respectively, under its term loan. Beginning in the second quarter of 2008, the Company is required to make quarterly installment payments of $789,000 with the remaining balance due at maturity on March 31, 2013. The required quarterly installment payments are reduced by any additional prepayments the Company may make, applied against the quarterly installments pro rata based on the remaining outstanding principal amount of such installments, including the balance due at maturity. As of September 30, 2007, maturities under the term loan were as follows: no maturities through fiscal 2007, $2.4 million for fiscal 2008, $3.2 million per year for fiscal 2009 through fiscal 2011 and $304.0 million thereafter. As of September 30, 2007, the Company had outstanding borrowings under the term loan of $316.0 million. There were no borrowings outstanding under the revolving credit facility as of September 30, 2007.

Total outstanding letters of credit were approximately $20.1 million at September 30, 2007 and December 31, 2006. The letters of credit, which expire one year from the date of issuance, were issued to guarantee payments under the Company’s workers’ compensation program and for certain other commitments. The Company also had outstanding surety bonds of $1.9 million at September 30, 2007 and $2.7 million at December 31, 2006.

Guarantee and Collateral Agreement

The Company has entered into a Guarantee and Collateral Agreement, among the Company and certain of its subsidiaries, in favor of the administrative agent under the credit agreement (the “Guarantee and Collateral Agreement”). The Guarantee and Collateral Agreement grants a collateral interest in all real property and personal property of the Company and its subsidiaries, including stock of its subsidiaries. The Guarantee and Collateral Agreement also provides for a guarantee of the Company’s obligations under the credit agreement by substantially all subsidiaries of the Company.

Other

The Company has equipment capitalized under capital lease obligations. At September 30, 2007 and December 31, 2006, long-term capital lease obligations were $1.1 million and $1.2 million, respectively, and were recorded in other liabilities on the Company’s consolidated financial statements. The current portion of obligations under capital leases was $1.2 million and $1.1 million at September 30, 2007 and December 31, 2006, respectively, and was recorded in other accrued expenses on the Company’s consolidated balance sheets.

For the third quarter and first nine months of fiscal 2007, net interest expense was approximately $5.8 million and $18.2 million, respectively, which included interest income of $0.8 million and $2.4 million, respectively. For fiscal 2006, net interest expense for the third quarter and first nine months was $6.5 million and $14.9 million, respectively, which included interest income of $0.9 million and $2.5 million, respectively. Net interest expense for all periods consisted primarily of interest expense associated with the term loan borrowings, fees associated with the credit agreement and outstanding letters of credit and amortization of debt issuance costs, partially offset by interest income earned on short-term investments and existing cash balances.

10. Shareholders’ Equity

Changes in shareholders’ equity for the nine months ended September 30, 2007 were as follows (in thousands, except share amounts):


	Common Stock			Additional Paid-in Capital		Accumulated Deficit			Accumulated Other Comprehensive Loss			Treasury Stock			Total
	Shares	Amount		Additional Paid-in Capital		Accumulated Deficit			Accumulated Other Comprehensive Loss			Treasury Stock			Total
Balance at December 31, 2006	27,483,789	$	2,748	$	298,450	$	(25,220	)	$	(886	)	$	(767	)	$	274,325
Comprehensive income:
Net income	—		—		—		23,982			—			—			23,982
Unrealized gain on interest rate swap, net of tax	—		—		—		—			166			—			166

Total comprehensive income	—		—		—		23,982			166			—			24,148
Income tax benefits associated with the exercise of non-qualified stock options	—		—		1,520		—			—			—			1,520
Equity-based compensation expense	—		—		5,085		—			—			—			5,085
Issuance of stock upon exercise of stock options and under stock plans for employees and directors	549,832		55		6,953		—			—			—			7,008
Treasury stock received from Healthfield escrow (11,574 shares)	—		—		—		—			—			(232	)		(232	)

Balance at September 30, 2007	28,033,621	$	2,803	$	312,008	$	(1,238	)	$	(720	)	$	(999	)	$	311,854

Comprehensive income amounted to $7.9 million and $4.2 million for the third quarter of fiscal 2007 and fiscal 2006, respectively, and $24.1 million and $14.1 million for the first nine months of fiscal 2007 and 2006, respectively.

The Company has an authorized stock repurchase program under which the Company can repurchase and retire up to 1,500,000 shares of its outstanding common stock. The repurchases can occur periodically in the open market or through privately negotiated transactions based on market conditions and other factors. The Company made no repurchases of its common stock during the nine months ended September 30, 2007. As of September 30, 2007, the Company had remaining authorization to repurchase an aggregate of 683,396 shares of its outstanding common stock.

11. Equity-Based Compensation Plans

Effective January 2, 2006, the Company adopted the fair value method of accounting for equity-based compensation arrangements in accordance with SFAS No. 123(Revised), “Share-Based Payment” (“SFAS 123(R)”). Under the provisions of SFAS 123(R), the estimated fair value of share-based awards granted under the Company’s equity-based compensation plans is recognized as compensation expense over the vesting period of the award. The Company used the modified prospective method of transition under which compensation expense is recognized for all share-based payments (i) granted after the effective date of adoption and (ii) granted prior to the effective date of adoption and that remain unvested on the date of adoption.

Stock option grants in fiscal 2007 and fiscal 2006 fully vest over a four year period based on a vesting schedule that provides for one-half vesting after year two and an additional one-fourth vesting after each of years three and four. Stock option grants in fiscal 2005 fully vest over a four year period based on a vesting schedule that provides for one-third vesting after each of years one, three and four.

For the third quarter and first nine months of fiscal 2007, the Company recorded equity-based compensation expense of $1.6 million and $5.1 million, respectively, as compared to $1.2 million and $3.0 million, respectively, for the corresponding periods of fiscal 2006. Equity-based compensation expense is reflected as selling, general and administrative expense in the consolidated statements of income, as calculated on a straight-line basis over the vesting periods of the related options in accordance with the provisions of SFAS 123(R). The weighted-average fair values of the Company’s stock options granted during the first nine months of fiscal 2007 and fiscal 2006, calculated using the Black-Scholes option-pricing model and other assumptions, are as follows:


	Nine Months Ended
	September 30, 2007			October 1, 2006
Weighted-average fair value of options granted	$	7.07		$	7.28
Risk-free interest rate		4.70	%		4.79	%
Expected volatility		30	%		35	%
Contractual life		10 years			10 years
Expected dividend yield		0	%		0	%

For stock options granted during the fiscal 2007 and 2006 periods, the expected life of an option is estimated to be 2.5 years following its vesting date, and forfeitures are reflected in the calculation using an estimate based on experience.

Compensation expense is calculated for the fair value of the employee’s purchase rights under the Company’s Employee Stock Purchase Plan (“ESPP”), using the Black-Scholes option pricing model. Assumptions for the first nine months of fiscal 2007 and fiscal 2006 are as follows:


	Nine Months Ended
	September 30, 2007				October 1, 2006
	1st offering Period		2nd offering Period		1st offering Period		2nd offering Period
Risk-free interest rate	5.09	%	5.01	%	4.42	%	5.30	%
Expected volatility	30	%	23	%	32	%	34	%
Expected life	0.5 years		0.5 years		0.5 years		0.5 years
Expected dividend yield	0	%	0	%	0	%	0	%

A summary of Gentiva stock option activity as of September 30, 2007 and changes during the nine months then ended is presented below:


	Number of Options		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value
Balance as of December 31, 2006	3,321,961		$	12.73
Granted	872,100			19.52
Exercised	(418,994	)		10.79
Cancelled	(311,705	)		18.01

Balance as of September 30, 2007	3,463,362		$	14.20	7.01	$	17,354,929

Exercisable Options	1,562,498		$	9.10	5.08	$	15,799,172

During the first nine months of fiscal 2007, the Company granted 872,100 stock options to officers and employees under its 2004 Equity Incentive Plan at an average exercise price of $19.52 and a weighted-average, grant-date fair value of $7.07. The total intrinsic value of options exercised during the nine months ended September 30, 2007 and October 1, 2006 was $3.9 million and $7.9 million, respectively.

As of September 30, 2007, the Company had $6.6 million of total unrecognized compensation cost related to nonvested stock options. This compensation expense is expected to be recognized over a weighted-average period of 1.1 years. The total fair value of options that vested during the first nine months of fiscal 2006 was $2.0 million. There were no options that vested during the first nine months of fiscal 2007.

12. Legal Matters

Litigation

In addition to the matters referenced in this Note 12, the Company is party to certain legal actions arising in the ordinary course of business, including legal actions arising out of services rendered by its various operations, personal injury and employment disputes. Management does not expect that these other legal actions will have a material adverse effect on the business or financial condition of the Company.

Indemnifications

Upon the closing of the acquisition of Healthfield on February 28, 2006, an escrow fund was created to cover potential indemnification claims by the Company after the closing. Covered claims include, for example, claims for breaches of representations under the acquisition agreement and claims relating to legal proceedings existing as of the closing date, taxes for the pre-closing periods and medical malpractice and workers’ compensation claims relating to any act or event occurring on or before the closing date. The escrow fund initially consisted of 1,893,656 shares of Gentiva’s common stock valued at $30 million and $5 million in cash. The first $5 million of any disbursements consist of shares of Gentiva’s common stock;

the next $5 million of any disbursements consist of cash; and any additional disbursements consist of shares of Gentiva’s common stock. On December 29, 2006 and June 29, 2007, 47,489 shares and 11,574 shares of Gentiva’s common stock, respectively, valued at $767,415 and $232,066, respectively, were disbursed to the Company from the escrow fund covering interim claims the Company had made against the escrow fund. The escrow fund is subject to staged releases of shares of Gentiva’s common stock and cash in the escrow fund to certain principal stockholders of Healthfield, less the amount of claims the Company makes against the escrow fund. The final staged release will take place on February 28, 2008, the second anniversary of the closing.

Government Matters

PRRB Appeal

The Company’s annual cost reports, which were filed with the Centers for Medicare & Medicaid Services (“CMS”), were subject to audit by the fiscal intermediary engaged by CMS. In connection with the audit of the Company’s 1997 cost reports, the Medicare fiscal intermediary made certain audit adjustments related to the methodology used by the Company to allocate a portion of its residual overhead costs. The Company filed cost reports for years subsequent to 1997 using the fiscal intermediary’s methodology. The Company believed the methodology it used to allocate such overhead costs was accurate and consistent with past practice accepted by the fiscal intermediary; as such, the Company filed appeals with the PRRB concerning this issue with respect to cost reports for the years 1997, 1998 and 1999. The Company’s consolidated financial statements for the years 1997, 1998 and 1999 had reflected use of the methodology mandated by the fiscal intermediary.

In June 2003, the Company and its Medicare fiscal intermediary signed an Administrative Resolution relating to the issues covered by the appeals pending before the PRRB. Under the terms of the Administrative Resolution, the fiscal intermediary agreed to reopen and adjust the Company’s cost reports for the years 1997, 1998 and 1999 using a modified version of the methodology used by the Company prior to 1997. This modified methodology will also be applied to cost reports for the year 2000, which are currently under audit. The Administrative Resolution required that the process to (i) reopen all 1997 cost reports, (ii) determine the adjustments to allowable costs through the issuance of Notices of Program Reimbursement and (iii) make appropriate payments to the Company, be completed in early 2004. Cost reports relating to years subsequent to 1997 were to be reopened after the process for the 1997 cost reports was completed. During fiscal 2004, the Company received an aggregate of $10.4 million in connection with the reopening of the 1997 and 1998 cost reports.

The fiscal intermediary completed the reopening of the 1999 cost reports during the first quarter of fiscal 2006. The Company received an aggregate amount of $5.5 million, of which $1.9 million was recorded as net revenues during the first quarter of fiscal 2006 and $3.6 million was received and recorded as net revenues during fiscal 2005.

The time frame for resolving all items relating to the 2000 cost reports cannot be determined at this time.

Subpoena

On April 17, 2003, the Company received a subpoena from the Department of Health and Human Services, Office of the Inspector General, Office of Investigations (“OIG”). The subpoena seeks information regarding the Company’s implementation of settlements and corporate integrity agreements entered into with the government, as well as the Company’s treatment on cost reports of employees engaged in sales and marketing efforts. With respect to the cost report issues, the government has preliminarily agreed to narrow the scope of production to the period from January 1, 1998 through September 30, 2000. On February 17, 2004, the Company received a subpoena from the U.S. Department of Justice (“DOJ”) seeking additional information related to the matters covered by the OIG subpoena. The Company has provided documents and other information requested by the OIG and DOJ pursuant to their subpoenas and similarly intends to cooperate fully with any future OIG or DOJ information requests. To the Company’s knowledge, the government has not filed a complaint against the Company.

13. Income Taxes

The Company recorded a federal and state income tax provision of $5.8 million for the third quarter of fiscal 2007, of which $0.7 million represented a current tax benefit and $6.5 million represented a deferred tax provision. The difference between the federal statutory income tax rate of 35 percent and the Company’s effective rate of 41.4 percent for the quarter ended September 30, 2007 is primarily due to (i) the impact of the adoption of SFAS 123(R) (approximately 2.2 percent) and (ii) state taxes and other items, partially offset by tax exempt interest (approximately 4.2 percent).

For the nine months ended September 30, 2007, the Company recorded a federal and state income tax provision of $17.5 million representing a current tax provision of $1.8 million and a deferred tax provision of $15.7 million. The difference between the federal statutory income tax rate of 35 percent and the Company’s effective rate of 42.1 percent for the first nine months of 2007 is primarily due to (i) the impact of the adoption of SFAS 123(R) (approximately 2.4 percent) and (ii) state taxes and other items, partially offset by tax exempt interest and a change in the state valuation allowance (approximately 4.7 percent).

The Company recorded a federal and state income tax provision of $1.5 million for the third quarter of fiscal 2006, of which $0.7 million represented a current tax benefit and $2.2 million represented a deferred tax provision. For the nine months ended October 1, 2006, the Company recorded a federal and state income tax provision of $8.8 million representing a current tax benefit of $0.1 million and a deferred tax provision of $8.9 million.

The difference between the federal statutory income tax rate of 35 percent and the Company’s effective rate of 22.5 percent for the quarter ended October 1, 2006 is primarily due to (i) the impact of the adoption of SFAS 123(R) (approximately 4.8 percent) and (ii) state taxes and other items partially offset by tax exempt interest (approximately 4.3 percent), offset by (iii) the release of $0.8 million of tax reserves associated with the expiration of the statute of limitations (approximately 11.6 percent) and (iv) additional state net operating loss carryforwards resulting from the finalization of prior year state tax audits (approximately 10.0 percent).

The difference between the federal statutory income tax rate of 35 percent and the Company’s effective rate of 36.5 percent for the first nine months of fiscal 2006 is primarily due to (i) the impact of the adoption of SFAS 123(R) (approximately 3.4 percent) and (ii) state taxes and other items partially offset by tax exempt interest (approximately 4.2 percent), offset by (iii) the release of $0.8 million of tax reserves associated with the expiration of the statute of limitations (approximately 3.3 percent) and (iv) additional state net operating loss carryforwards resulting from the finalization of prior year state tax audits (approximately 2.8 percent).

Deferred tax assets and deferred tax liabilities were as follows (in thousands):


	September 30, 2007			December 31, 2006
Deferred tax assets
Current:
Reserves and allowances	$	11,531		$	14,017
Federal net operating loss and other carryforwards		6,392			13,373
Other		3,639			3,053

Total current deferred tax assets		21,562			30,443
Noncurrent:
Intangible assets		44,610			49,453
State net operating loss		8,438			8,689
Less: valuation allowance		(4,295	)		(4,191	)

Total noncurrent deferred tax assets		48,753			53,951

Total deferred tax assets		70,315			84,394

Deferred tax liabilities:
Noncurrent:
Fixed assets		(1,453	)		(2,828	)
Intangible assets		(81,068	)		(82,227	)
Developed software		(10,427	)		(7,316	)
Acquisition reserves		(1,545	)		(1,513	)
Other		(361	)		(1,132	)

Total non-current deferred tax liabilities		(94,854	)		(95,016	)

Net deferred tax liabilities	$	(24,539	)	$	(10,622	)

At September 30, 2007, the Company had a federal tax credit carryforward of $1.9 million and federal net operating loss carryforwards of $12.7 million, which begin to expire in 2025. The federal net operating loss carryforwards of $12.7 million are from the Healthfield acquisition and are subject to Internal Revenue Code §382 limitations. Deferred tax assets relating to federal net operating loss carryforwards approximate $4.4 million. In addition, the Company had state net operating loss carryforwards of approximately $169 million, which expire between 2007 and 2026. Deferred tax assets relating to state net operating loss carryforwards approximate $8.4 million. A valuation allowance of $4.3 million at September 30, 2007 and $4.2 million at December 31, 2006 has been recorded to reduce this deferred tax asset to its estimated realizable value since certain state net operating loss carryforwards may expire before realization. Approximately $1.1 million of the valuation allowance relates to Healthfield’s state net operating losses, the benefit of which, if realized, will be credited to goodwill.

On January 1, 2007, the Company adopted FIN 48, which requires that the realization of an uncertain income tax position must be more likely than not (i.e., greater than 50 percent likelihood of receiving a benefit) before it can be recognized in the financial statements. The implementation of FIN 48 had no significant impact on the Company’s consolidated financial statements. On January 1, 2007, the date of adoption, the Company had $5.5 million of unrecognized

tax benefits, of which $2.8 million would affect the Company’s effective tax rate if recognized. As of January 1, 2007, it is not likely that there would be a change in the Company’s uncertain tax benefits that would significantly impact the Company’s tax rate within the next twelve months.

The Company recognizes interest and penalties on uncertain tax positions in income tax expense. As of September 30, 2007 and December 30, 2006, the Company had approximately $0.6 million and $0.7 million, respectively, of accrued interest related to uncertain tax positions.

As of January 1, 2007, the Company is subject to federal income tax examinations for the tax years 2003 through 2006. In the major state jurisdictions under which the Company is subject to income tax, tax years 2003 through 2006 remain subject to examination, with the exception of Arizona, Michigan and Texas, for which tax years 2002 through 2006 remain subject to examination.

14. Business Segment Information

The Company’s operations involve servicing patients and customers through its three reportable business segments: Home Health, CareCentrix and Other Related Services. The Other Related Services segment encompasses the Company’s hospice, respiratory therapy and HME, infusion therapy and consulting services businesses.

Home Health

The Home Health segment is comprised of direct home nursing and therapy services operations, including specialty programs. The Company conducts direct home nursing and therapy services operations through licensed and Medicare-certified agencies from which the Company provides various combinations of skilled nursing and therapy services, paraprofessional nursing services and homemaker services to pediatric, adult and elder patients. The Company’s direct home nursing and therapy services operations also deliver services to its customers through focused specialty programs that include:

•

Gentiva Orthopedics, which provides individualized home orthopedic rehabilitation services to patients recovering from joint replacement or other major orthopedic surgery;

•

Gentiva Safe Strides ^® , which provides therapies for patients with balance issues who are prone to injury or immobility as a result of falling;

•

Gentiva Cardiopulmonary, which helps patients and their physicians manage heart and lung health in a home-based environment; and

•

Gentiva Rehab Without Walls ^® , which provides home and community-based neurorehabilitation therapies for patients with traumatic brain injury, cerebrovascular accident injury and acquired brain injury, as well as a number of other complex rehabilitation cases.

CareCentrix

The CareCentrix segment encompasses Gentiva’s ancillary care benefit management and the coordination of integrated homecare services for managed care organizations and health benefit plans. CareCentrix operations provide an array of administrative services and coordinate the delivery of home nursing services, acute and chronic infusion therapies, HME, respiratory products, orthotics and prosthetics, and services for managed care organizations and health benefit plans. CareCentrix accepts case referrals from a wide variety of sources, verifies eligibility and benefits and transfers case requirements to the providers for services to the patient. CareCentrix provides services to its customers, including the fulfillment of case requirements, care management, provider credentialing, eligibility and benefits verification, data reporting and analysis, and coordinated centralized billing for all authorized services provided to the customer’s enrollees.

Other Related Services

Hospice

Hospice serves terminally ill patients in the southeast United States. The Company provides comprehensive management of the healthcare services and products needed by hospice patients and their families through the use of an interdisciplinary team. Depending on a patient’s needs, each hospice patient is assigned an interdisciplinary team comprised of a physician, nurse(s), home health aide(s), medical social worker(s), chaplain, dietary counselor and bereavement coordinator, as well as other care professionals.

Respiratory Therapy and Home Medical Equipment

Respiratory therapy and HME services are provided to patients at home through branch locations primarily in the southeast United States. Patients are offered a broad portfolio of products and services that serve as an adjunct to traditional home health nursing and hospice care. Respiratory therapy services are provided to patients who suffer from a variety of conditions including asthma, chronic obstructive pulmonary diseases, cystic fibrosis and other respiratory conditions. HME includes hospital beds, wheelchairs, ambulatory aids, bathroom aids, patient lifts and rehabilitation equipment.

Infusion Therapy

Infusion therapy is provided to patients at home through pharmacy locations in the southeast United States. Infusion therapy serves as a complement to the Company’s traditional service offerings, providing clients with a comprehensive home health provider while diversifying the Company’s revenue base. Services provided include: (i) enteral nutrition, (ii) antibiotic therapy, (iii) total parenteral nutrition, (iv) pain management, (v) chemotherapy, (vi) patient education and training and (vii) nutrition management.

Consulting

The Company provides consulting services to home health agencies through its Gentiva Consulting unit. These services include billing and collection activities, on-site agency support and consulting, operational support and individualized strategies for reduction of days sales outstanding.

Corporate Expenses

Corporate expenses consist of costs relating to executive management and corporate and administrative support functions that are not directly attributable to a specific segment, as well as equity-based compensation expense. Corporate and administrative support functions represent primarily information services, accounting and reporting, tax compliance, risk management, procurement, marketing, legal, regulatory compliance and human resource benefits and administration.

Other Information

The Company’s senior management evaluates performance and allocates resources based on operating contributions of the reportable segments, which exclude corporate expenses, depreciation, amortization and net interest costs, but include revenues and all other costs (including special items and restructuring and integration costs) directly attributable to the specific segment. Intersegment revenues primarily represent Home Health segment revenues generated from services provided to the CareCentrix segment. Segment assets represent net accounts receivable, inventory, HME, identifiable intangible assets, goodwill and certain other assets associated with segment activities. Intersegment assets represent accounts receivable associated primarily with services provided by the Home Health segment to the CareCentrix segment. All other assets are assigned to corporate assets for the benefit of all segments for the purposes of segment disclosure.

For the third quarter and first nine months of fiscal 2007, net revenues relating to the Company’s participation in Medicare amounted to $151.7 million and $453.9 million, respectively, of which $137.1 million and $409.1 million, respectively, was included in the Home Health segment and $14.6 million and $44.8 million, respectively, was included in the Other Related Services segment.

For the third quarter and nine months ended October 1, 2006, net revenues relating to the Company’s participation in Medicare amounted to $136.1 million and $367.9 million, respectively, of which $119.1 million and $329.9 million, respectively, were included in the Home Health segment and $17.0 million and $38.0 million, respectively, were included in the Other Related Services segment. Revenues from Cigna amounting to $62.3 million and $52.1 million for the third quarter of fiscal 2007 and 2006, respectively, and $176.7 million and $160.2 million for the first nine months of fiscal 2007 and 2006, respectively, were included in the CareCentrix segment.

Net revenues associated with the Other Related Services segment are as follows (in thousands):


	Three Months Ended				Nine Months Ended
	September 30, 2007		October 1, 2006		September 30, 2007		October 1, 2006
Hospice	$	16,633	$	19,834	$	49,907	$	44,604
Respiratory services and HME		9,708		8,322		28,776		19,772
Infusion therapies		2,839		3,006		9,050		7,032
Consulting services		1,147		886		3,489		2,663

Total net revenues	$	30,327	$	32,048	$	91,222	$	74,071

Segment information about the Company’s operations is as follows (in thousands):


	Home Health			CareCentrix			Other Related Services			Total
For the three months ended September 30, 2007 (unaudited)
Net revenue - segments	$	204,410		$	75,295		$	30,327		$	310,032

Intersegment revenues											(950	)

Total net revenue										$	309,082

Operating contribution	$	30,895	(1)	$	6,949		$	2,762	(1)	$	40,606

Corporate expenses											(15,857	)(1)
Depreciation and amortization											(5,007	)
Interest expense, net											(5,754	)

Income before income taxes										$	13,988

For the three months ended October 1, 2006 (unaudited)
Net revenue - segments	$	192,343		$	64,829		$	32,048		$	289,220

Intersegment revenues											(3,051	)

Total net revenue										$	286,169

Operating contribution	$	23,567	(1)	$	5,661		$	6,333		$	35,561

Corporate expenses											(17,769	)(1)
Depreciation and amortization											(4,393	)
Interest expense, net											(6,546	)

Income before income taxes										$	6,853

For the nine months ended September 30, 2007 (unaudited)
Net revenue - segments	$	614,335		$	214,511		$	91,222		$	920,068

Intersegment revenues											(4,167	)

Total net revenue										$	915,901

Operating contribution	$	91,984	(1)	$	21,890		$	10,228	(1)	$	124,102

Corporate expenses											(49,729	)(1)
Depreciation and amortization											(14,705	)
Interest expense, net											(18,213	)

Income before income taxes										$	41,455

Segment assets	$	546,119		$	58,825		$	100,399		$	705,343

Intersegment assets											(277	)
Corporate assets											175,860

Total assets										$	880,926

For the nine months ended October 1, 2006 (unaudited)
Net revenue - segments	$	549,791	(2)	$	199,411	(3)	$	74,071		$	823,273

Intersegment revenues											(9,803	)

Total net revenue										$	813,470

Operating contribution	$	68,996	(1),(2)	$	18,346	(3)	$	13,839		$	101,181

Corporate expenses											(50,884	)(1)
Depreciation and amortization											(11,391	)
Interest income, net											(14,863	)

Income before income taxes										$	24,043

Segment assets	$	527,522		$	49,870		$	93,492		$	670,884

Intersegment assets											(1,048	)
Corporate assets											170,425

Total assets										$	840,261

(1)	For the third quarter and first nine months of 2007 and 2006, operating contribution and corporate expenses were impacted by the following costs incurred in connection with integration and restructuring activities relating to the Healthfield acquisition (dollars in millions):


	3rd Quarter				Nine Months
	2007		2006		2007		2006
Home Health	$	0.1	$	0.6	$	0.6	$	1.7
Other Related Services		—		—		0.1		—
Corporate expenses		0.5		1.1		1.5		2.0

Total	$	0.6	$	1.7	$	2.2	$	3.7

(2)

The Home Health segment net revenues and operating contribution for the first nine months of fiscal 2006 included funds received of $1.9 million related to the $5.5 million settlement of the Company’s appeal filed with the PRRB related to the reopening of all of its 1999 Medicare cost reports. (See Note 12.)

(3)	For the first nine months ended October 1, 2006, CareCentrix operating contribution included restructuring costs of $0.7 million associated with the restructuring relating to the closing and consolidation of two regional care centers. (See Note 7.)

In addition, net revenue and operating contribution for the first nine months of fiscal 2006 included an increase of $0.6 million which represented incremental revenue relating to a classification change of a CareCentrix contract.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-looking Statements

Certain statements contained in this Quarterly Report on Form 10-Q, 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, the following:

•

general economic and business conditions;

•

demographic changes;

•

changes in, or failure to comply with, existing governmental regulations;

•

legislative proposals for healthcare reform;

•

changes in Medicare and Medicaid reimbursement levels, including changes to the Medicare home health Prospective Payment System adopted August 2007;

•

effects of competition in the markets in which the Company operates;

•

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 revenue associated with major payer sources;

•

ability of customers to pay for services;

•

business disruption due to natural disasters or terrorist acts;

•

ability to successfully integrate the operations of Healthfield and other acquisitions the Company may make to achieve synergies and operational efficiencies from the acquisitions within expected timeframes;

•

effect on liquidity of the Company’s debt service requirements;

•

a material shift in utilization within capitated agreements; and

•

changes in estimates and judgments associated with critical accounting policies and estimates.

Forward-looking statements are found throughout “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report on Form 10-Q. The reader should not place undue reliance on forward-looking statements, which speak only as of the date of this report. Except as required under the federal securities laws and the rules and regulations of the Securities and Exchange Commission (“SEC”), the Company does not have any intention or obligation to publicly release any revisions to forward-looking statements to reflect unforeseen or other events after the date of this report. The Company has provided a detailed discussion of risk factors in its 2006 Annual Report on Form 10-K and various filings with the SEC. The reader is encouraged to review these risk factors and filings.

General

The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of Gentiva’s results of operations and financial position. This discussion and analysis should be read in conjunction with the Company’s consolidated financial statements and related notes included elsewhere in this report.

The Company’s results of operations are impacted by various regulations and other matters that are implemented from time to time in its industry, some of which are described in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006 and in other filings with the SEC.

Overview

Gentiva Health Services, Inc. is the nation’s largest provider of comprehensive home health and related services. Gentiva serves patients through more than 300 locations in 35 states, and through CareCentrix, which provides an array of administrative services and coordinates the delivery of home nursing services, acute and chronic infusion therapies, home medical equipment (“HME”), respiratory products, orthotics and prosthetics, and services for managed care organizations and health plans. These administrative services are delivered through an extensive nationwide network of approximately 4,000 third-party provider locations in all 50 states. The Company provides a single source for skilled nursing; physical, occupational, speech and neurorehabilitation services; hospice services; social work; nutrition; disease management education; help with daily living activities; respiratory therapy and HME; infusion therapy services; and other therapies and services. Gentiva’s revenues are generated from federal and state government programs, commercial insurance and individual consumers.

The Company has identified three business segments for reporting purposes: Home Health, CareCentrix and Other Related Services. The Other Related Services segment encompasses the Company’s hospice, respiratory therapy and HME, infusion therapy and consulting services businesses. This presentation aligns financial reporting with the manner in which the Company manages its business operations with a focus on the strategic allocation of resources and separate branding strategies among the business segments.

Home Health

•

Gentiva Orthopedics, which provides individualized home orthopedic rehabilitation services to patients recovering from joint replacement or other major orthopedic surgery;

•

Gentiva Safe Strides, which provides therapies for patients with balance issues who are prone to injury or immobility as a result of falling;

•

Gentiva Cardiopulmonary, which helps patients and their physicians manage heart and lung health in a home-based environment; and

•

Gentiva Rehab Without Walls, which provides home and community-based neurorehabilitation therapies for patients with traumatic brain injury, cerebrovascular accident injury and acquired brain injury, as well as a number of other complex rehabilitation cases.

CareCentrix

The CareCentrix segment encompasses Gentiva’s ancillary care benefit management and the coordination of integrated homecare services for managed care organizations and health benefit plans. CareCentrix operations provide an array of administrative services and coordinate the delivery of home nursing services, acute and chronic infusion therapies, home medical equipment, respiratory products, orthotics and prosthetics, and services for managed care organizations and health benefit plans. CareCentrix accepts case referrals from a wide variety of sources, verifies eligibility and benefits and transfers case requirements to the providers for services to the patient. CareCentrix provides services to its customers, including the fulfillment of case requirements, care management, provider credentialing, eligibility and benefits verification, data reporting and analysis, and coordinated centralized billing for all authorized services provided to the customer’s enrollees.

Other Related Services

Hospice

Respiratory Therapy and Home Medical Equipment

Infusion Therapy

Consulting

Significant Developments

Healthfield Acquisition

On February 28, 2006, the Company completed the acquisition of Healthfield, a regional provider of home healthcare, hospice and related services with approximately 130 locations primarily in eight southeastern states, for $466 million in cash and shares of Gentiva common stock. Total consideration included transaction costs and post-closing adjustments. The Company funded the purchase price from approximately $363 million of borrowings under a new senior term loan facility, approximately 3.2 million shares of Gentiva common stock and the remainder from existing cash balances. A portion of the purchase price was used to refinance Healthfield’s existing net indebtedness.

The Company acquired Healthfield to strengthen and expand the Company’s presence in the southeast United States, which has favorable demographic trends and includes important Certificate of Need states; diversify the Company’s business mix; provide a meaningful platform for the Company to enter the hospice business, as well as expansion into respiratory therapy and HME services and infusion therapy as a direct provider of services; and expand its current specialty programs.

The comparison of results of operations between the first nine months of fiscal 2007 and 2006 has been impacted significantly by the inclusion of the operating results of former Healthfield locations for approximately seven months of fiscal 2006 versus the full first nine months of fiscal 2007.

Results of Operations

Revenues

The Company’s net revenues increased by $22.9 million, or 8.0 percent, to $309.1 million for the quarter ended September 30, 2007 as compared to the quarter ended October 1, 2006. For the nine months ended September 30, 2007 as compared to the nine months ended October 1, 2006, net revenues increased by $102.4 million, or 12.6 percent, to $915.9 million from $813.5 million.

A summary of the Company’s net revenues by segment follows:


(Dollars in millions)	Third Quarter								First Nine Months
	2007			2006			Percentage Variance		2007			2006			Percentage Variance
Home Health	$	204.4		$	192.3		6.3	%	$	614.3		$	549.8		11.7	%
CareCentrix		75.3			64.8		16.2	%		214.5			199.4		7.6	%
Other Related Services		30.3			32.1		(5.6	%)		91.2			74.1		23.1	%
Intersegment revenues		(0.9	)		(3.0	)	(70.0	%)		(4.1	)		(9.8	)	(58.2	%)

Total net revenues	$	309.1		$	286.2		8.0	%	$	915.9		$	813.5		12.6	%

A summary of the Company’s net revenues by payer follows:


(Dollars in millions)	Third Quarter						First Nine Months
	2007		2006		Percentage Variance		2007		2006		Percentage Variance
Medicare
Home Health	$	137.1	$	119.1	15.1	%	$	409.1	$	329.9	24.0	%
Other		14.6		17.0	(14.1	%)		44.8		38.0	17.9	%

Total Medicare		151.7		136.1	11.5	%		453.9		367.9	23.4	%
Medicaid and Local Government		37.9		45.5	(16.7	%)		116.5		132.4	(12.0	%)
Commercial Insurance and Other		119.5		104.6	14.2	%		345.5		313.2	10.3	%

	$	309.1	$	286.2	8.0	%	$	915.9	$	813.5	12.6	%

Home Health

Home Health segment revenues are derived from all three payer groups: Medicare, Medicaid and Local Government and Commercial Insurance and Other. Third quarter 2007 net revenues were $204.4 million, up $12.1 million or 6.3 percent from $192.3 million in the prior year period. For the first nine months of fiscal 2007, net revenues were $614.3 million, a $64.5 million or 11.7 percent increase compared to $549.8 million for the corresponding period of fiscal 2006.

The increase in net revenues for the first nine months of 2007 as compared to the first nine months of 2006 was positively impacted by the acquisition of Healthfield, whose home health revenues averaged $18 million per month. Healthfield revenues were included for seven months in the 2006 period as compared to a full nine months in fiscal 2007. As a result of a commingling of business and resources between legacy Gentiva branch locations and former Healthfield branch locations in selected markets in the southeast United States, it is not possible to provide specific net revenue information for former Healthfield locations for fiscal 2007.

Revenues generated from Medicare were $137.1 million in the third quarter of 2007, an increase of 15.1 percent as compared to $119.1 million in the third quarter of 2006. The majority of Medicare revenue growth resulted from increased volume in specialty programs in both new and existing locations as well as growth in traditional Medicare home health business and higher revenue per admission due to increases in the mix of patients with higher acuity level and reimbursement rate changes as noted below.

Medicare reimbursement rate changes included a 3.3 percent market basket increase that became effective for patients on service on or after January 1, 2007, partially offset by the elimination of the 5 percent rate increase related to home health services performed in specially defined rural areas of the country (referred to as the rural add-on provision). These changes resulted in an overall rate change of about 2.5 percent in 2007 as compared to 2006.

Medicare revenues represented approximately 67 percent of total Home Health revenues in the 2007 third quarter as compared to 62 percent of total Home Health revenues in the 2006 third quarter. Medicare revenues increased by 15 percent, for the third quarter of 2007 as compared to the corresponding 2006 period and, for branch locations that were part of either Gentiva or Healthfield for more than one year, increased by 14 percent for the first nine months of 2007 as compared to the corresponding period of fiscal 2006.

For the nine months ended September 30, 2007, revenues generated from Medicare increased $79.2 million to $409.1 million from $329.9 million for the nine months ended October 1, 2006, due to the reasons noted above. This period to period comparison was also impacted by a Medicare special item of $1.9 million recorded and received during the first quarter of fiscal 2006 in settlement of the Company’s appeal filed with the PRRB related to the reopening of its 1999 cost reports.

Revenues from all other payer sources were $67.3 million in the third quarter of 2007 and $73.2 million in the third quarter of 2006. For the first nine months of fiscal 2007 and fiscal 2006, revenues from all other payer sources were $205.2 million and $219.9 million, respectively. The decreases for the third quarter and first nine months of 2007 compared to the corresponding periods of 2006 resulted primarily from a reduction in hourly Medicaid and Local Government revenues (approximately $5 million and $16 million, respectively) offset somewhat by incremental revenues from former Healthfield locations for the first nine months of 2007. The decrease in legacy Gentiva locations is primarily due to the Company’s decision to exit certain low margin business as the Company continues to pursue more favorable commercial pricing and a higher mix of Medicare business.

CareCentrix

CareCentrix segment revenues are derived from the Commercial Insurance and Other payer group only. Third quarter 2007 net revenues were $75.3 million, a 16.2 percent increase from $64.8 million reported in the prior year period. For the first nine months of fiscal 2007, net revenues were $214.5 million, a 7.6 percent increase compared to $199.4 million for the corresponding period of fiscal 2006. The increase in net revenues for the third quarter and first nine months is due primarily to membership increases in Cigna’s PPO and Open Access plans offset somewhat, for the nine month period, by the absence of transitional revenues of approximately $9 million due to contractual changes with Cigna implemented during the first quarter of 2006. Revenues derived from Cigna increased by approximately $10.2 million and $16.5 million, respectively, in the third quarter and first nine months of 2007 as compared to the corresponding periods of the prior year.

Other Related Services

Other Related Services segment revenues are derived from all three payer groups and include hospice, respiratory therapy and HME services, and infusion therapy net revenues, as well as revenues derived from consulting. Third quarter and first nine months of fiscal 2007 net revenues were $30.3 million and $91.2 million, respectively, as compared to the third quarter and first nine months of fiscal 2006 net revenues of $32.1 million and $74.1 million, respectively. In comparing revenues for the third quarters of fiscal 2007 and fiscal 2006, revenue increases in respiratory services and HME and consulting services were offset primarily by a decline in hospice services. The decline in hospice revenue reflected the impact of certain restructuring activities which commenced during the second half of 2006. The increase in revenues in the first nine months of fiscal 2007 was due primarily to revenues generated from Healthfield operations subsequent to its acquisition on February 28, 2006.

Medicaid and Local Government revenues amounted to $6.3 million and $18.4 million for the third quarter and first nine months of 2007 as compared to $6.7 million and $15.8 million for the corresponding periods of 2006, respectively. Revenues derived from Commercial Insurance and Other payers for the third quarter and first nine months of 2007 were $9.4 million and $28.0 million, respectively, as compared to $8.3 million and $20.2 million for the third quarter and first nine months of 2006, respectively.

Gross Profit


(Dollars in millions)	Third Quarter									First Nine Months
	2007			2006			Variance			2007			2006			Variance
Gross profit	$	130.0		$	117.9		$	12.1		$	390.5		$	338.7		$	51.8
As a percent of revenues		42.1	%		41.2	%		0.9	%		42.6	%		41.6	%		1.0	%

Gross profit in the fiscal 2007 periods increased primarily from increased revenues and improvements in gross margin percentage, as compared to the corresponding periods of 2006.

As a percentage of revenues, gross profit of 42.1 percent in the third quarter of 2007 represented a 0.9 percentage point increase as compared to the third quarter of 2006. From a total Company perspective, increases in Home Health segment gross margin percentage attributable to significant changes in business mix were somewhat offset by growth in the lower gross margin CareCentrix business and incremental depreciation in the respiratory therapy and HME business due to a change in early 2007 in the estimated useful lives of certain equipment. The changes in revenue mix in the Home Health segment resulted from (i) organic revenue growth in Medicare, particularly in the Company’s specialty programs, and (ii) the elimination or reduction of certain low margin Medicaid and local government business and commercial business. These changes in revenue mix contributed to an increase in gross margin within the Home Health segment from 47.6 percent in the third quarter of 2006 to 50.4 percent in the third quarter of 2007.

In addition to reasons noted above, the increase in gross margin percentage for the nine months period of 2007 reflected the full impact of the Healthfield acquisition and the corresponding increase in Medicare revenue at a traditionally higher gross margin than certain other business lines as well as productivity gains in the clinician workforce. This increase was partially offset by the Medicare special item recorded in the first quarter of 2006, as discussed above, which had a positive impact on gross profit of $1.9 million or 0.2 percent of revenues in the first nine months of 2006 and the positive impact of a $0.6 million change in estimate related to prior period contract revenue in CareCentrix.

Gross profit was impacted by depreciation expense of $1.3 million and $3.8 million in the third quarter and first nine months of 2007, respectively, as compared to $0.9 million and $2.0 million for the third quarter and first nine months of 2006, respectively.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $5.8 million to $110.3 million for the quarter ended September 30, 2007, as compared to $104.5 million for the quarter ended October 1, 2006, and $31.0 million to $330.8 million for the nine months ended September 30, 2007, as compared to $299.8 million for the nine months ended October 1, 2006.

The increase of $5.8 million for the third quarter of 2007 as compared to the corresponding period of 2006 was primarily attributable to (i) the Other Related Services segment (approximately $2 million) due to continuing investments in infrastructure and capacity necessary to accelerate future growth, (ii) incremental provision for doubtful accounts of approximately $1 million related to certain receivable balances in the Other Related Services segment, (iii) Home Health segment field operating costs (approximately $4 million) to support higher revenue volume in the 2007 period as compared to the 2006 period, (iv) incremental equity-based compensation costs (approximately $0.4 million) and (v) increased depreciation and amortization expense (approximately $0.5 million).

The increase of $31.0 million for the first nine months of 2007 as compared to the first nine months of 2006 was primarily attributable to the impact of the Healthfield acquisition. Selling, general and administrative expenses associated with Healthfield’s corporate and field locations, which averaged about $10 million per month in fiscal 2006, were included for about seven months (from February 28, 2006, the Healthfield acquisition date), in the first nine months of 2006 but were included in the entire first nine months of 2007. As a result of commingling of business and resources between legacy Gentiva locations and former Healthfield locations, it is not possible to provide specific selling, general and administrative expense information for former Healthfield locations for the fiscal 2007 period.

In addition to the impact of the Healthfield acquisition, selling, general and administrative expenses also increased during the first nine months of 2007 due to (i) investments in the Other Related Services segment as noted above, (ii) incremental provision for doubtful accounts of approximately $1 million related to certain receivable balances in the Other Related Services segment, (iii) increased costs in the Home Health segment to support higher revenue volume, (iv) incremental costs of $2.1 million relating to equity-based compensation, which was $5.1 million for the first nine months of 2007 and $3.0 million for the first nine months of 2006, (v) incremental depreciation and amortization expense of $1.5 million as noted below and (vi) incremental costs of approximately $3 million for employees and consultants to support information services and the Company’s strategic technology projects, including the Company’s new LifeSmart clinical management system.

These increases during the first nine months of 2007 were offset somewhat by synergies realized in connection with the consolidation of certain Gentiva and Healthfield back office functions as well as lower restructuring and integration costs relating to the Healthfield acquisition and CareCentrix restructuring activities in the 2006 nine month period. The aggregate amount of restructuring and integration costs were $2.2 million for the first nine months of 2007 and $4.4 million for the first nine months of 2006.

Depreciation and amortization expense included in selling, general and administrative expenses were $3.7 million and $10.9 million for the third quarter and first nine months of 2007, respectively, as compared to $3.5 million and $9.4 million for the corresponding periods of 2006.

Interest Expense and Interest Income

For the third quarter and first nine months of fiscal 2007, net interest expense was approximately $5.8 million and $18.2 million, respectively, which included interest income of $0.8 million and $2.4 million, respectively. For fiscal 2006, net interest expense for the third quarter and first nine months was $6.5 million and $14.9 million, respectively, including interest income of $0.9 million and $2.5 million, respectively. Net interest expense for all periods consisted primarily of interest expense associated with the term loan borrowings, fees associated with the credit agreement and outstanding letters of credit and amortization of debt issuance costs, partially offset by interest income earned on short-term investments and existing cash balances.

Income before Income Taxes

Components of income before income taxes were as follows:


(Dollars in millions)	Third Quarter									First Nine Months
	2007			2006			Variance			2007			2006			Variance
Operating Contribution:
Home Health	$	30.9		$	23.6		$	7.3		$	92.0		$	69.0		$	23.0
CareCentrix		6.9			5.7			1.2			21.9			18.4			3.5
Other Related Services		2.8			6.3			(3.5	)		10.2			13.8			(3.6	)

Total Operating Contribution		40.6			35.6			5.0			124.1			101.2			22.9
Corporate expenses		(15.9	)		(17.8	)		1.9			(49.7	)		(50.9	)		1.2
Depreciation and amortization		(5.0	)		(4.4	)		(0.6	)		(14.7	)		(11.4	)		(3.3	)
Interest (expense) income, net		(5.7	)		(6.5	)		0.8			(18.2	)		(14.9	)		(3.3	)

Income before income taxes	$	14.0		$	6.9		$	7.1		$	41.5		$	24.0		$	17.5
As a percent of revenues		4.5	%		2.4	%		2.1	%		4.5	%		3.0	%		1.5	%

Income Taxes

The difference between the federal statutory income tax rate of 35 percent and the Company’s effective rate of 36.5 percent for the first nine months of 2006 is primarily due to (i) the impact of the adoption of SFAS 123(R) (approximately 3.4 percent) and (ii) state taxes and other items partially offset by tax exempt interest (approximately 4.2 percent), offset by (iii) the release of $0.8 million of tax reserves associated with the expiration of the statute of limitations (approximately 3.3 percent) and (iv) additional state net operating loss carryforwards resulting from the finalization of prior year state tax audits (approximately 2.8 percent).

Net Income

For the third quarter of fiscal 2007, net income was $8.2 million, or $0.28 per diluted share, compared with net income of $5.3 million, or $0.19 per diluted share, for the corresponding period of 2006.

For the first nine months of fiscal 2007, net income was $24.0 million, or $0.84 per diluted share, compared with net income of $15.3 million, or $0.56 per diluted share, for the first nine months of fiscal 2006.

Net income for the 2007 third quarter and first nine months reflected a pre-tax charge of $0.6 million, or $0.02 per diluted share, and $2.2 million, or $0.05 per diluted share, respectively, relating to restructuring and integration costs. In addition, net income per diluted share for the 2007 third quarter and first nine months included a net cost of $0.03 and $0.13 per diluted share, respectively, representing a pre-tax charge of $1.6 million and $5.1 million, respectively, associated with equity-based compensation charges and the respective impact on the Company’s effective tax rate.

Net income for the 2006 third quarter and first nine months reflected (i) a pre-tax charge of $1.7 million, or $0.04 per diluted share, and $4.4 million, or $0.10 per diluted share, respectively, relating to restructuring and integration costs and (ii) a net cost of $0.04 and $0.10 per diluted share, respectively, representing a pre-tax charge of $1.2 million and $3.0 million, respectively, associated with equity-based compensation charges and the respective impact on the Company’s effective tax rate. In addition, net income per diluted share for the 2006 first nine months included a special item related to Medicare which had a positive pre-tax impact of $1.9 million, or $0.04 per diluted share.

Liquidity and Capital Resources

Liquidity

The Company’s principal source of liquidity is the collection of its accounts receivable. For healthcare services, the Company grants credit without collateral to its patients, most of whom are insured under third party commercial or governmental payer arrangements.

During the third quarter of 2007, cash provided by operating activities was $20.9 million and cash generated from the issuance of common stock upon exercise of stock options and under the Company’s Employee Stock Purchase Plan (“ESPP”) was $0.5 million. In the 2007 third quarter, the Company used $7.0 million of cash for capital expenditures, $3.8 million in the acquisition of Baptist Home Care and $8.0 million on voluntary debt prepayments relating to the Company’s term loan.

The Company generated net cash from operating activities of $42.4 million in the nine months ended September 30, 2007 as compared to net cash from operating activities of $45.3 million in the nine months ended October 1, 2006. The decrease of $2.9 million in net cash provided by operating activities between the 2006 and 2007 periods was primarily driven by changes in accounts receivable and other assets ($42.3 million) offset by changes impacting the statement of income ($24.0 million) and changes in current liabilities and other items ($15.4 million) between the 2006 and 2007 reporting periods. Adjustments to add back non-cash items affecting net income are summarized as follows (in thousands):


	For the Nine Months Ended
	September 30, 2007			October 1, 2006			Variance
OPERATING ACTIVITIES:
Net income	$	23,982		$	15,264		$	8,718
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		14,705			11,391			3,314
Amortization of debt issuance costs		763			759			4
Provision for doubtful accounts		6,644			5,416			1,228
Reversal of tax audit reserves		—			(800	)		800
Equity-based compensation expense		5,085			2,951			2,134
Windfall tax benefits associated with equity-based compensation		(788	)		(1,729	)		941
Deferred income tax expense		15,725			8,909			6,816

Total cash provided by operations prior to changes in assets and liabilities	$	66,116		$	42,161		$	23,955

The $24.0 million difference in “Total cash provided by operations prior to changes in assets and liabilities” between the 2006 and 2007 periods is primarily related to improvements in net income after adjusting for components of income that do not have an impact on cash, such as depreciation and amortization, deferred income taxes and equity-based compensation expense.

The comparison of cash flow from operating activities between the first nine months of 2006 and 2007 was negatively impacted by $40.7 million resulting from changes in net accounts receivable represented by a $0.9 million reduction during the 2006 reporting period and a $39.8 million increase during the 2007 reporting period. These changes were exclusive of accounts receivable of acquired businesses as of the respective acquisition dates and the impact of the provision for doubtful accounts during each reporting period.

The increase in accounts receivable for the 2007 period was due primarily to revenue growth in the Company’s CareCentrix and Home Health businesses ($7 million and $7 million, respectively), as well as (i) delays in cash received due to a change in the intermediary assigned to process Medicare claims for the respiratory therapy and HME business, (ii) short-term delays in certain billing and collection activities associated with ongoing billing center consolidation activity, and (iii) the reclassification of approximately $2 million in customer credits from accounts receivable to other accrued expenses. Cash flow from operating activities was positively impacted by $13.9 million as a result of changes in current liabilities of $18.3 million in the 2007 period and $4.4 million in the 2006 period. A summary of the changes in current liabilities impacting cash flow from operating activities for the nine month fiscal period ended September 30, 2007 follows (in thousands):


	For the Nine Months Ended
	September 30, 2007			October 1, 2006			Variance
OPERATING ACTIVITIES:
Changes in current liabilities:
Accounts payable	$	766		$	(8,190	)	$	8,956
Payroll and related taxes		8,005			5,496			2,509
Deferred revenue		7,996			(2,745	)		10,741
Medicare liabilities		386			1,518			(1,132	)
Cost of claims incurred but not reported		1,713			(2,038	)		3,751
Obligations under insurance programs		1,697			1,571			126
Other accrued expenses		(2,295	)		8,750			(11,045	)

Total changes in current liabilities	$	18,268		$	4,362		$	13,906

The primary drivers for the $13.9 million difference resulting from changes in current liabilities that impacted cash flow from operating activities include:

•

Accounts payable, which had a positive impact on cash of $9.0 million, and payroll and related taxes, which had a positive impact of $2.5 million, between the 2006 and 2007 reporting periods primarily related to the timing of payments.

•

Deferred revenue, which had a positive impact of $10.7 million between the 2006 and 2007 reporting periods, exclusive of businesses acquired, primarily due to growth in Medicare revenues.

•

Medicare liabilities, which had a negative impact of $1.1 million between the 2006 and 2007 reporting periods, primarily related to the repayment associated with corrections CMS made to the Medicare hospice cap amounts for the periods from November 1, 2002 to October 31, 2003 and from November 1, 2003 to October 31, 2004 as further described below.

•

Cost of claims incurred but not reported, which had a positive impact of $3.7 million on the changes in operating cash flows between the 2006 and 2007 reporting periods, associated with growth in the Company’s CareCentrix business and timing of claims adjudication.

•

Obligations under insurance programs, which had a positive impact on the change in operating cash flow of $0.1 million between the 2006 and 2007 reporting periods, primarily as a result of an increase in workers’ compensation and health and welfare benefit liabilities due to an increase in the number of covered associates, offset by continuing favorable trends in workers’ compensation and malpractice claims.

•

Other accrued expenses, which had a negative impact on the change in operating cash flow of $11.0 million between the 2006 and 2007 reporting periods, due primarily to accrued interest payable associated with the credit agreement and incentive and commission payments during the first nine months of fiscal 2007, as well as changes in various other accrued expenses.

Working capital at September 30, 2007 was approximately $123 million, an increase of $7 million as compared to approximately $116 million at December 31, 2006, primarily due to:

•

a $33 million increase in accounts receivable, due to the reasons noted above; and

•

a $3 million increase in prepaid expenses and other assets due to prepayments made in connection with the Company’s insurance programs, offset somewhat by:

•

a $9 million decrease in deferred tax assets; and

•

a $20 million increase in current liabilities, consisting of increases in payroll and related taxes ($8 million), deferred revenue ($8 million), cost of claims incurred but not reported ($2 million), obligations under insurance programs ($2 million), accounts payable ($1 million), and current portion of long term debt ($2 million), partially offset by a decrease in other accrued expenses ($3 million). The changes in current liabilities are described above in the discussion on changes in current liabilities that impacted cash flow from operating activities.

Days Sales Outstanding (“DSO”) as of September 30, 2007 were 63 days, an increase of seven days from December 31, 2006. The increase was due primarily to normal seasonal patterns and revenue growth primarily in the CareCentrix and Medicare business, as well as, (i) delays in cash received due to a change in the intermediary assigned to process Medicare claims for our HME and respiratory services business, (ii) short-term delays in certain billing and collection activities associated with ongoing billing center consolidation activity, and (iii) the reclassification of approximately $2 million in customer credits from accounts receivable to other accrued expenses.

Accounts receivable attributable to major payer sources of reimbursement at September 30, 2007 and December 31, 2006 were as follows (in thousands):


	September 30, 2007
	Total		Current		31 - 90 days		91 - 180 days		Over 180 days
Medicare	$	92,130	$	46,030	$	32,796	$	8,617	$	4,687
Medicaid and Local Government		23,578		11,576		7,110		2,925		1,967
Commercial Insurance and Other		101,703		63,733		18,825		10,131		9,014
Self - Pay		7,226		761		1,679		2,176		2,610

Gross Accounts Receivable	$	224,637	$	122,100	$	60,410	$	23,849	$	18,278


	December 31, 2006
	Total		Current		31- 90 days		91 - 180 days		Over 180 days
Medicare	$	76,105	$	35,794	$	28,882	$	8,445	$	2,984
Medicaid and Local Government		24,175		12,064		7,581		2,410		2,120
Commercial Insurance and Other		84,089		49,129		20,101		8,375		6,484
Self - Pay		6,985		569		1,401		1,638		3,377

Gross Accounts Receivable	$	191,354	$	97,556	$	57,965	$	20,868	$	14,965

The Company participates in Medicare, Medicaid and other federal and state healthcare programs. Revenue mix by major payer classifications is as follows:


	Three Months Ended				Nine Months Ended
	September 30, 2007		October 1, 2006		September 30, 2007		October 1, 2006
Medicare	49	%	48	%	50	%	45	%
Medicaid and Local Government	12	%	16	%	13	%	16	%
Commercial Insurance and Other	39	%	36	%	37	%	39	%

	100	%	100	%	100	%	100	%

In November 2006, CMS announced an increase of 3.3 percent in Medicare home health rates (the “market basket increase”) for episodes ending on or after January 1, 2007 and the elimination of a temporary 5 percent premium reflected in the reimbursement rate for specifically defined rural-areas of the country (the “rural add-on provision”) for episodes that begin on or after January 1, 2007. In August 2007, CMS issued its final rule that contains refinements to the Medicare home health prospective payment system including, among other things, a multi-year reduction in the home health system payment rates to offset coding changes since the original implementation of PPS in 2000, and a rate update for calendar year 2008. The rule becomes effective on January 1, 2008.

Medicare reimbursement rates for hospice services increased by 3.4 percent effective October 1, 2006. On June 29, 2007, CMS released a transmittal that confirmed an increase of 3.3 percent to the fiscal 2008 Medicare hospice annual update payment. On April 20, 2007, CMS released a transmittal which described corrections to the Medicare hospice cap amount for the periods from November 1, 2002 to October 31, 2003 and from November 1, 2003 to October 31, 2004. Based on the notifications received from CMS through September 30, 2007, the Company believes that the aggregate amount to be repaid as a result of Medicare hospice cap corrections for the aforementioned periods approximates $1.3 million, of which the Company has repaid approximately $1.1 million. The Company has filed a claim for substantially all of this amount under the indemnification provisions of a previous acquisition agreement under Healthfield.

There are certain standards and regulations that the Company must adhere to in order to continue to participate in these programs. As part of these standards and regulations, the Company is subject to periodic audits, examinations and investigations conducted by, or at the direction of, governmental investigatory and oversight agencies. Periodic and random audits conducted or directed by these agencies could result in a delay or adjustment to the amount of reimbursements received under these programs. Violation of the applicable federal and state health care regulations can result in the Company’s exclusion from participating in these programs and can subject the Company to substantial civil and/or criminal penalties. The Company believes it is currently in compliance with these standards and regulations.

The Company is party to a contract with Cigna, pursuant to which the Company provides or contracts with third-party providers to provide direct home nursing services and related services, home infusion therapies, and certain other specialty medical equipment to patients insured by Cigna. For the third quarter and first nine months of fiscal 2007, Cigna accounted for approximately 20 percent and 19 percent of the Company’s total net revenues, respectively, compared to approximately 18 percent and 20 percent for the third quarter and first nine months of fiscal 2006, respectively. The increase for the third quarter of 2007 as compared to the 2006 period is primarily attributable to contractual rate changes and membership

increases in Cigna’s PPO and Open Access plans. For the nine month period, the decline in Cigna revenues as a percent of the Company’s total net revenues is primarily attributable to revenue growth resulting from the Healthfield acquisition and lower revenues from Cigna as a result of changes in the Cigna contract in the 2006 period, partially offset by the Cigna membership growth and contractual rate changes noted above. Effective February 1, 2006, the Company no longer provides respiratory therapy services and certain home medical equipment services under its Cigna contract. However, the Company extended its relationship with Cigna by entering into an amendment to its contract in October 2005 relating to the coordination of the provision of direct home nursing and related services, home infusion services and certain other specialty medical equipment. The term of the contract, as now amended, extends to January 31, 2009, and automatically renews thereafter for additional one year terms unless terminated. Each party has the right to terminate at the end of each subsequent one year term by providing at least 90 days advance written notice to the other party prior to the start of the new term. If Cigna chose to terminate or not renew the contract, or to significantly modify its use of the Company’s services, there could be a material adverse effect on the Company’s cash flow.

Net revenues generated under capitated agreements with managed care payers were approximately 5 percent of total net revenues for both the third quarter and first nine months of fiscal 2007, and 6 percent and 7 percent of total net revenues for the third quarter and first nine months of fiscal 2006, respectively.

Credit Arrangements


Revolving Credit Consolidated Leverage Ratio	Term Loan Consolidated Leverage Ratio	Margin for Base Rate Loans	Margin for Eurodollar Loans
³ 3.5	³ 3.5	1.25%	2.25%
< 3.5 & ³ 3.0	< 3.5 & ³ 3.0	1.00%	2.00%
< 3.0 & ³ 2.5	< 3.0	0.75%	1.75%
< 2.5		0.50%	1.50%

During the third quarter and first nine months of fiscal 2007, the Company made prepayments of $8.0 million and $26.0 million, respectively, under its term loan. Beginning in the second quarter of 2008, the Company is required to make quarterly installment payments of $789,000 with the remaining balance due at maturity on March 31, 2013. The required quarterly installment payments are reduced by any additional prepayments the Company may make, applied against the quarterly installments pro rata based on the remaining outstanding principal amount of such installments, including the balance due at maturity. As of September 30, 2007, maturities under the term loan were as follows: no maturities through fiscal 2007, $2.4 million for fiscal 2008, $3.2 million per year for fiscal 2009 through fiscal 2011 and $304.0 million thereafter. As of September 30, 2007, the Company had outstanding borrowings under the term loan of $316.0 million. There were no borrowings outstanding under the revolving credit facility as of September 30, 2007.

Guarantee and Collateral Agreement

The Company has entered into a Guarantee and Collateral Agreement which grants a collateral interest in all real property and personal property of the Company and its subsidiaries, including stock of its subsidiaries, in favor of the administrative agent under the credit agreement. The Guarantee and Collateral Agreement also provides for a guarantee of the Company’s obligations under the credit agreement by substantially all subsidiaries of the Company.

Insurance Programs

The Company may be subject to workers’ compensation claims and lawsuits alleging negligence or other similar legal claims. The Company maintains various insurance programs to cover these risks with insurance policies subject to substantial deductibles and retention amounts. The Company recognizes its obligations associated with these programs in the period the claim is incurred. The Company estimates the cost of both reported claims and claims incurred but not reported, up to specified deductible limits and retention amounts, based on its own specific historical claims experience and current enrollment statistics, industry statistics and other information. These estimates and the resulting reserves are reviewed and updated periodically.

The Company is responsible for the cost of individual workers’ compensation claims and individual professional liability claims up to $500,000 per incident which occurred prior to March 15, 2002 and $1,000,000 per incident thereafter. The Company also maintains excess liability coverage relating to professional liability and casualty claims which provides insurance coverage for individual claims of up to $25,000,000 in excess of the underlying coverage limits. Payments under the Company’s workers’ compensation program are guaranteed by letters of credit and segregated restricted cash balances.

Capital Expenditures

The Company’s capital expenditures for the nine months ended September 30, 2007 were $19.5 million as compared to $16.3 million for the same period in fiscal 2006. The Company intends to make investments and other expenditures to upgrade its computer technology and system infrastructure and comply with regulatory changes in the industry, among other things. In this regard, management expects that capital expenditures for fiscal 2007 will approximate $24 million. Management expects that the Company’s capital expenditure needs will be met through operating cash flow and available cash reserves.

Cash Resources and Obligations

The Company had cash, cash equivalents, restricted cash and short-term investments of approximately $57.1 million as of September 30, 2007. The restricted cash of $22.0 million at September 30, 2007 related primarily to cash funds of $21.8 million that have been segregated in a trust account to provide collateral under the Company’s insurance programs. The Company, at its option, may access the cash funds in the trust account by providing equivalent amounts of alternative collateral, including letters of credit and surety bonds. In addition, restricted cash included $0.2 million on deposit to comply with New York state regulations requiring that one month of revenues generated under capitated agreements in the state be held in escrow. As of September 30, 2007, the Company had operating funds of approximately $4.0 million exclusively relating to a non-profit hospice operation in Florida. Interest on all restricted funds accrues to the Company.

The Company anticipates that repayments to Medicare for partial episode payments and prior year cost report settlements will be made periodically through 2007. These amounts are included in Medicare liabilities in the accompanying consolidated balance sheets.

The Company made no purchases of its common stock during the first nine months of 2007. As of September 30, 2007, the Company had remaining authorization to repurchase an aggregate of 683,396 shares of its outstanding common stock.

Management anticipates that in the near term the Company may make voluntary prepayments on the term loan rather than stock repurchases with certain excess cash resources.

As of October 24, 2007, the Company has an effective shelf registration statement under which the Company may from time to time offer debt securities, guarantees, preferred stock, common stock, warrants or any combination of such securities for a maximum aggregate offering amount of $300 million. Unless otherwise described in future prospectus supplements, the Company intends to use the net proceeds from the sale of securities registered under this universal shelf registration statement for general corporate purposes, including strategic acquisitions, the repayment of debt, capital expenditures and working capital requirements.

Contractual Obligations and Commercial Commitments

As of September 30, 2007, the Company had outstanding borrowings of $316.0 million under the term loan of the credit agreement. There were no borrowings under the revolving credit facility. Debt repayments, future minimum rental commitments for all non-cancelable leases and purchase obligations at September 30, 2007 are as follows (in thousands):


	Payment due by period
			Less than						More than
Contractual Obligations	Total		1 year		1-3 years		4-5 years		5 years
Long-term debt obligations	$	316,000	$	1,577	$	6,309	$	6,309	$	301,805
Capital lease obligations		2,300		1,213		874		213		—
Operating lease obligations		71,980		21,171		33,649		15,644		1,516
Purchase obligations		10,998		2,588		5,175		3,235		—

Total	$	401,278	$	26,549	$	46,007	$	25,401	$	303,321

During the first nine months of fiscal 2007, the Company made voluntary debt prepayments of $26.0 million relating to its term loan. Prepayments have extinguished all required principal payments on the term loan through the first quarter of 2008. Beginning in the second quarter of 2008, the Company is required to make quarterly installment payments which currently approximate $0.8 million. During the second week of October 2007, the Company made additional prepayments of $1.0 million on the term loan. (See Note 9 to the consolidated financial statements.)

The Company had total letters of credit outstanding of approximately $20.1 million at September 30, 2007 and at December 31, 2006. The letters of credit, which expire one year from date of issuance, were issued to guarantee payments under the Company’s workers’ compensation program and for certain other commitments. The Company has the option to renew these letters of credit or set aside cash funds in a segregated account to satisfy the Company’s obligations as further discussed above under the caption “Cash Resources and Obligations.” The Company also had outstanding surety bonds of $1.9 million and $2.7 million at September 30, 2007 and December 31, 2006, respectively.

The Company has no other off-balance sheet arrangements and has not entered into any transactions involving unconsolidated, limited purpose entities or commodity contracts.

Management expects that the Company’s working capital needs for fiscal 2007 will be met through operating cash flow and existing cash balances. The Company may also consider other alternative uses of cash including, among other things, acquisitions, voluntary prepayments on the term loan, additional share repurchases and cash dividends. These uses of cash may require the approval of its Board of Directors and may require the approval of its lenders. If cash flows from operations, cash resources or availability under the credit agreement fall below expectations, the Company may be forced to delay planned capital expenditures, reduce operating expenses, seek additional financing or consider alternatives designed to enhance liquidity.

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

Generally, the fair market value of fixed rate debt will increase as interest rates fall and decrease as interest rates rise. The Company is exposed to market risk from fluctuations in interest rates. The interest rate on the Company’s borrowings under the credit agreement can fluctuate based on both the interest rate option (i.e., base rate or LIBOR plus applicable margins) and the interest period. As of September 30, 2007, the total amount of outstanding debt subject to interest rate fluctuations was $146.0 million. A hypothetical 100 basis point change in short-term interest rates as of that date would result in an increase or decrease in interest expense of $1.5 million per year, assuming a similar capital structure.

To assist in managing the potential interest rate risk associated with its floating rate term loan under the credit agreement, on July 3, 2006, the Company entered into a two year interest rate swap agreement with a notional value of $170 million. Under the swap agreement, the Company will pay a fixed rate of 5.665 percent per annum plus an applicable margin (an aggregate of 7.915 percent per annum for the period July 3, 2006 through July 31, 2007 and 7.665 percent per annum thereafter) on the $170 million rather than a fluctuating rate plus an applicable margin. (See Note 9 to the consolidated financial statements.)

Item 4.

Controls and Procedures

Evaluation of disclosure controls and procedures

The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 (“Exchange Act”) Rule 13a-15(e)) as of the end of the period covered by this report. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective as of the end of such period to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Changes in internal control over financial reporting

As required by the Exchange Act Rule 13a-15(d), the Company’s Chief Executive Officer and Chief Financial Officer evaluated the Company’s internal control over financial reporting to determine whether any change occurred during the quarter ended September 30, 2007 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. Based on that evaluation, there has been no such change during such quarter.

PART II – OTHER INFORMATION

Item 1.

Legal Proceedings

See Note 12 to the consolidated financial statements included in this report for a description of legal matters and pending legal proceedings, which description is incorporated herein by reference.

Item 1A.

Risk Factors

There have been no material changes from the risk factors as previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.

Defaults Upon Senior Securities

None.

Item 4.

Submission of Matters to a Vote of Security Holders

None.

Item 5.

Other Information

Corporate Integrity Agreement

In connection with a July 19, 1999 settlement with various government agencies, Olsten Corporation, the Company’s former parent corporation, executed a corporate integrity agreement with the OIG, effective until August 18, 2004, subject to the Company’s filing of a final annual report with the OIG in form and substance acceptable to the government. The Company has filed a final annual report and is awaiting closure by the government.

The Company believes that it has been in compliance with the corporate integrity agreement and has timely filed all required reports. If the Company has failed to comply with the terms of its corporate integrity agreement, the Company will be subject to penalties. The corporate integrity agreement applies to the Company’s businesses that bill the federal government health programs directly for services, such as its nursing brand, and focuses on issues and training related to cost report preparation, contracting, medical necessity and billing of claims. Under the corporate integrity agreement, the Company is required, for example, to maintain a corporate compliance officer to develop and implement compliance programs, and to maintain a compliance program and reporting systems, as well as to provide certain training to employees.

Item 6.

Exhibits


Exhibit Number		Description

3.1		Amended and Restated Certificate of Incorporation of Company. (1)

3.2		Amended and Restated By-Laws of Company. (1)

4.1		Specimen of Common Stock. (4)

4.2		Form of Certificate of Designation of Series A Junior Participating Preferred Stock. (2)

4.3		Form of Certificate of Designation of Series A Cumulative Non-Voting Redeemable Preferred Stock. (3)

4.4		Indenture, dated as of September 25, 2007, between Company and The Bank of New York, a New York banking corporation, as Trustee. (5)

10.1		2005 Nonqualified Retirement Plan.*

10.2		Nonqualified Retirement and Savings Plan, as amended and restated effective November 1, 2007.*

10.3		Stock & Deferred Compensation Plan for Non-Employee Directors, as amended and restated as of December 31, 2007.*

10.4		Amendment No. 1 to 2004 Equity Incentive Plan.*

31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a).*

31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a).*

32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350.*

32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350.*

(1)	Incorporated herein by reference to Form 8-K of Company dated May 12, 2006 and filed May 15, 2006.

(2)	Incorporated herein by reference to Amendment No. 2 to the Registration Statement of Company on Form S-4 dated January 19, 2000 (File No. 333-88663).

(3)	Incorporated herein by reference to Amendment No. 3 to the Registration Statement of Company on Form S-4 dated February 4, 2000 (File No. 333-88663).

(4)	Incorporated herein by reference to Amendment No. 4 to the Registration Statement of Company on Form S-4 dated February 9, 2000 (File No. 333-88663).

(5)	Incorporated herein by reference to the Registration Statement of Company on Form S-3 dated September 25, 2007 (File No. 333-146297).

*	Filed herewith

SIGNATURES

Pursuant to the requirements 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.


	GENTIVA HEALTH SERVICES, INC. (Registrant)

Date: November 9, 2007		/s/ Ronald A. Malone
		Ronald A. Malone Chairman and Chief Executive Officer

Date: November 9, 2007		/s/ John R. Potapchuk
		John R. Potapchuk Executive Vice President, Chief Financial Officer and Treasurer

EXHIBIT INDEX


Exhibit Number		Description

3.1		Amended and Restated Certificate of Incorporation of Company. (1)

3.2		Amended and Restated By-Laws of Company. (1)

4.1		Specimen of Common Stock. (4)

4.2		Form of Certificate of Designation of Series A Junior Participating Preferred Stock. (2)

4.3		Form of Certificate of Designation of Series A Cumulative Non-Voting Redeemable Preferred Stock. (3)

4.4		Indenture, dated as of September 25, 2007, between Company and The Bank of New York, a New York banking corporation, as Trustee. (5)

10.1		2005 Nonqualified Retirement Plan.*

10.2		Nonqualified Retirement and Savings Plan, as amended and restated effective November 1, 2007.*

10.3		Stock & Deferred Compensation Plan for Non-Employee Directors, as amended and restated as of December 31, 2007.*

10.4		Amendment No. 1 to 2004 Equity Incentive Plan.*

31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a).*

31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a).*

32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350.*

32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350.*

(1)	Incorporated herein by reference to Form 8-K of Company dated May 12, 2006 and filed May 15, 2006.

(2)	Incorporated herein by reference to Amendment No. 2 to the Registration Statement of Company on Form S-4 dated January 19, 2000 (File No. 333-88663).

(3)	Incorporated herein by reference to Amendment No. 3 to the Registration Statement of Company on Form S-4 dated February 4, 2000 (File No. 333-88663).

(4)	Incorporated herein by reference to Amendment No. 4 to the Registration Statement of Company on Form S-4 dated February 9, 2000 (File No. 333-88663).

(5)	Incorporated herein by reference to the Registration Statement of Company on Form S-3 dated September 25, 2007 (File No. 333-146297).

*	Filed herewith

Exhibit 10.1

GENTIVA HEALTH SERVICES, INC.

2005 NONQUALIFIED

RETIREMENT PLAN

Adopted Effective November 1, 2007 for Amounts Deferred After December 31, 2004

and All After-Tax Salary Deferrals (and the earnings on such amounts)

GENTIVA HEALTH SERVICES, INC.

2005 NONQUALIFIED

RETIREMENT PLAN

Table of Contents


		Page
	ARTICLE I
	Background and Purpose

1.1	Background	1
1.2	Purpose	1

	ARTICLE II
	Definitions

2.1	Affiliate	2
2.2	Account(s)	2
2.3	Amounts Deferred	2
2.4	Approved Leave of Absence	2
2.5	Base Salary	2
2.6	Beneficiary	3
2.7	Benefits Committee	3
2.8	Bonus/Incentive Compensation	3
2.9	Break-in-Service	3
2.10	Change in Control	4
2.11	Code	6
2.12	Company	6
2.13	Company Contributions	6
2.14	Disability (or Disabled)	6
2.15	Effective Date	6
2.16	Employee	6
2.17	ERISA	7
2.18	Grandfathered Plan	7
2.19	Highly Compensated Employee	7
2.20	Hours of Service	7
2.21	Participant	9
2.22	Participating Employer	9
2.23	Plan Administrator	9


2.24	Plan Year	9
2.25	Prior Plan	9
2.26	Rabbi Trust	9
2.27	Secular Trust	9
2.28	Separation from Service	9
2.29	Specified Employee	10
2.30	Total Compensation	10
2.31	Trust(s)	11
2.32	Trustee(s)	11
2.33	Unforeseeable Emergency	11
2.34	Valuation Date(s)	12
2.35	Year(s) of Service	12

	ARTICLE III
	Eligibility and Participation

3.1	Eligibility	12
3.2	Participation	13

	ARTICLE IV
	Contributions

4.1	Participant Contributions	14
4.2	Company or Participating Employer Contributions	17

	ARTICLE V
	Investment and Valuation of Accounts

5.1	Investment of Accounts	18
5.2	Determining the Value of Participant Accounts	20
5.3	Alternate Payees Treated as Participants	20

	ARTICLE VI
	Vesting and Forfeitures

6.1	Participant Contributions	21
6.2	Matching and Profit-Sharing Contributions	21
6.3	Forfeitures	22
6.4	Change in Control	22

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	ARTICLE VII
	Distributions

7.1	In-Service Withdrawals	22
7.2	Final Distributions	23

	ARTICLE VIII
	Leaves of Absence, Layoffs, and Reemployment

8.1	Leaves of Absence, Layoffs and Severance Payments	26
8.2	Returning to Work After Separation from Service	27

	ARTICLE IX
	Participating Employers

9.1	Adoption by Other Employers	28
9.2	Allocation of Plan and Trust Expenses	29
9.3	Designation of Company as Agent	29
9.4	Employee Transfers	29
9.5	Contributions and Forfeitures of Participating Employer	29
9.6	Amendments by Participating Employers	29
9.7	Discontinuance of Participation	30

	ARTICLE X
	Amendment and Termination

10.1	Right to Terminate	30
10.2	Continuation of Trust	30
10.3	Right to Amend	31
10.4	Merger or Consolidation	31

	ARTICLE XI
	Administration

11.1	Plan Administrator	32
11.2	Binding Effect	32
11.3	Delegation of Authority	33
11.4	Plan Records and Expenses	33

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11.5	Limited Liability	33
11.6	Insolvency	34
11.7	Trusts; Funding of Benefits	35

	ARTICLE XII
	Claims Procedure

12.1	Claims Submission	36
12.2	Claim Review	37
12.3	Right of Appeal	37
12.4	Review of Appeal	37
12.5	Designation	38

	ARTICLE XIII
	Miscellaneous

13.1	Headings	38
13.2	Uniformity	38
13.3	Obligations of the Company and Participating Employers	38
13.4	Insufficiency of Trust Fund	39
13.5	Contingent Nature of Accounts	39
13.6	Governing Law	39
13.7	Gender and Number	39
13.8	Taxes	39
13.9	Plan Benefits Nontransferable	40
13.10	Incompetence	40
13.11	Identity	40
13.12	Other Benefits	41
13.13	Construction	41
13.14	No Guarantee of Employment	41
13.15	Qualified Domestic Relations Orders	41

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GENTIVA HEALTH SERVICES, INC.

2005 NONQUALIFIED

RETIREMENT PLAN

ARTICLE I

Background And Purpose

1.1 Background . The Gentiva Health Services, Inc. Nonqualified Retirement and Savings Plan (“Prior Plan”) was established effective March 15, 2000, and was most recently amended and restated in its entirety effective January 1, 2003. To comply with new Code section 409A, the Prior Plan was divided into two plans effective November 1, 2007 in a spin-off transaction—(1) the continuing portion of the Gentiva Health Services, Inc. Nonqualified Retirement and Savings Plan (the “Grandfathered Plan”), which includes all Amounts Deferred before January 1, 2005, except for after-tax deferrals (and earnings on such amounts) and (2) this plan, the Gentiva Health Services, Inc. 2005 Nonqualified Retirement Plan, which includes all Amounts Deferred after December 31, 2004 (the “Plan”) and all after-tax deferrals (and earnings on such amounts), including after-tax deferrals made before January 1, 2005 under the Prior Plan.

1.2 Purpose . This Plan was established for the purpose of providing deferred compensation to a select group of management and highly compensated employees, as defined in Title I of the Employee Retirement Income Security Act of 1974, as amended. Participants may make pre-tax and after-tax salary deferrals under the Plan. In addition, the Participating Employers may match a portion of the Participants’ pre-tax and after-tax salary deferrals. Furthermore, the Participating Employers may make profit-sharing contributions to the Plan regardless of whether the Participants have made any deferrals under the Plan. The Plan is intended to comply with the requirements imposed by Code section 409A on nonqualified deferred compensation plans (and the applicable guidance issued thereunder) and the terms of the Plan shall be interpreted consistent therewith.

ARTICLE II

Definitions

2.1 Affiliate means a trade or business that, together with the Company is a member of: (i) a controlled group of corporations, within the meaning of Code section 414(b); (ii) a group of trades or businesses under common control, within the meaning of Code section 414(c); (iii) an affiliated service group, within the meaning of Code section 414(m); or (iv) a trade or business required to be aggregated pursuant to Code section 414(o).

2.2 Account(s) means the Participant’s Pre-Tax Deferral Account, After-Tax Deferral Account, Matching Contribution Account, and Profit Sharing Contribution Account, as well as any separate account established under the Plan for the benefit of an Alternate Payee pursuant to a Qualified Domestic Relations Order, as determined by the Plan Administrator.

2.3 Amounts Deferred means the amounts to which, as of an applicable date, a Participant has a legally binding right to be paid and are earned and vested, and which are or were credited under the Prior Plan or this Plan, as applicable. For this purpose, an amount is earned and vested only if the amount is not subject to a substantial risk of forfeiture (as defined in Code Regulations section 1.83-3(c)) or a requirement to perform further services. Amounts Deferred include actual and deemed earnings on such amounts.

2.4 Approved Leave of Absence means any leave approved by a Participating Employer, which may or may not include unpaid leaves of absence pursuant to the Family and Medical Leave Act of 1993.

2.5 Base Salary means the amount paid to an Employee as regular, annual remuneration for services performed for the Participating Employer, as determined by the Plan Administrator. Base Salary does not include Bonus/Incentive Compensation.

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2.6 Beneficiary means such beneficiary as the Participant or Alternate Payee may designate from time to time in a manner acceptable to the Plan Administrator (which may include paper, facsimile, electronic or voice response format), to receive any benefit payable in the event of the Participant’s or Alternate Payee’s death. Unless otherwise designated, the Beneficiary with respect to a married Participant or Alternate Payee shall be the Participant’s surviving spouse. If a Participant or Alternate Payee has no surviving spouse and has not made a valid Beneficiary designation hereunder, the Participant’s or Alternate Payee’s death benefit shall be paid to the Beneficiary designated under the Prior Plan, or if none, to the Participant’s or Alternate Payee’s estate.

2.7 Benefits Committee means the committee established by the Company to manage its various employee benefit plans.

2.8 Bonus/Incentive Compensation means the amount of remuneration for services paid to an Employee by the Participating Employer as a bonus or incentive in excess of the Employee’s Base Salary, as determined by the Plan Administrator.

2.9 Break-in-Service means:

(a) A Plan Year during which a Participant is not credited with more than five hundred (500) Hours of Service.

(b) (1) In computing Hours of Service to determine whether a Participant has a Break in Service, a person shall be credited with up to five hundred one (501) Hours of Service based on the Participant’s previous customary service with the Participating Employer for any period of absence from work as a result of:

(A) the Participant’s pregnancy;

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(B) the birth of the Participant’s child;

(D) the Participant’s caring for such child for a period beginning immediately following such birth or placement.

(2) If the previous customary service cannot be determined, then such credit shall be at the rate of eight (8) Hours of Service per day.

(c) The Hours of Service credited under subsection (b) shall be credited in the Plan Year in which the absence from work begins, if the Participant would be prevented from having a Break in Service in such Plan Year solely because of the Hours of Service credited under subsection (b). If the Participant would not be so prevented from having a Break in Service during the period described in the preceding sentence, then such Hours of Service shall be credited in the Plan Year immediately following those in which such absence from work begins.

(d) No credit shall be given under subsection (b) unless the Participant furnishes the Plan Administrator with information necessary to establish that the absence is for one of the reasons enumerated in subsection (b) and the number of days of such absence.

2.10 Change in Control means a change in the ownership of a corporation, a change in the effective control of a corporation or change in the ownership of a substantial portion

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of a corporation’s assets. Whether there has been a Change in Control will be determined by the Plan Administrator in accordance with the guidance issued under Code section 409A. For purposes of this Section 2.10:

(a) A change in the ownership of a corporation occurs on the date that any one person, or more than one person acting as a group, acquires ownership of stock of the corporation that, together with stock held by such person or group, constitutes more than 50 percent of the total fair market value or total voting power of the stock of such corporation.

(b) A change in the effective control of a corporation occurs on the date that either:

(1) any one person, or more than one person acting as a group acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) ownership of stock of the corporation possessing 30 percent or more of the total voting power of the stock of such corporation; or

(2) a majority of members of the corporation’s board of directors is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the corporation’s board of directors prior to the date of the appointment or election.

(c) A change in the ownership of a substantial portion of a corporation’s assets occurs on the date that any one person, or more than one person acting as a group, acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) assets from the corporation that have a total gross fair market value equal to or more than 40 percent of the total gross fair market value of all of the assets of the corporation immediately prior to such acquisition or acquisitions.

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2.11 Code means the Internal Revenue Code of 1986, as amended.

2.12 Company means Gentiva Health Services, Inc., a Delaware corporation, and its successors.

2.13 Company Contributions means matching contributions and profit sharing contributions.

2.14 Disability (or Disabled) means (a) a Participant is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, (b) a Participant is, by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than 3 months under an accident and health plan covering employees of the Company or an Affiliate, or (c) a Participant has been determined to be totally disabled by the Social Security Administration. Whether a Participant is Disabled will be determined by the Plan Administrator in accordance with guidance issued under Code section 409A.

2.15 Effective Date of the Plan means November 1, 2007.

2.16 Employee means a full-time, regular employee of a Participating Employer who is designated as such on the books and records of the Participating Employer, as determined by the Plan Administrator.

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2.17 ERISA means the Employee Retirement Income Security Act of 1974, as amended from time to time.

2.18 Grandfathered Plan means the continuing portion of the Prior Plan that includes the Amounts Deferred before January 1, 2005 other than after-tax deferrals (and the earnings on such amounts).

2.19 Highly Compensated Employee means any Employee who is a management or highly compensated employee (within the meaning of Title I of ERISA), and who:

(a) is a five percent (5%) owner of a Participating Employer at any time during the Plan Year or the preceding Plan Year;

(b) for the preceding Plan Year received Total Compensation in excess of the amount specified in Code section 414(q)(1)(B)(i); or

(c) for the current Plan Year, the Plan Administrator determines that the Employee’s Total Compensation is expected to exceed the amount specified in Code section 414(q)(1)(B)(i) and the Employee is not, for such Plan Year, participating in a plan maintained by a Participating Employer that is intended to be qualified under Code section 401(a).

2.20 Hours of Service

(a) Hours of Service include each hour:

(1) for which an individual is paid by, or entitled to pay from, a Participating Employer for the performance of duties, and

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(2) for which an individual is paid, or entitled to pay, by the Company or Participating Employer with respect to a period of time during which no duties are performed due to vacation, holiday, illness, incapacity, disability, maternity leave, layoff, jury duty, military duty, or leave of absence (determined in accordance with 29 C.F.R. §2530.200b-2(b) and (c)), and

(3) for which back pay, irrespective of mitigation of damages, is either awarded to an individual or agreed to by the Company or Participating Employer.

(b) An Hour of Service shall not be credited under more than one paragraph above. Only five hundred and one (501) Hours of Service will be credited to an individual for any single continuous period of time during which the individual was paid but rendered no services, even where such period spans more than one computation period.

(c) An Employee will be credited with forty-five (45) Hours of Service for each week for which he or she would be credited with one Hour of Service under the Department of Labor regulations.

(d) Hours of Service shall include employment with the Participating Employer and with affiliates of the Participating Employer within the meaning of Code section 1563(a).

(e) Employment with entities within the Olsten Corporation’s controlled group or affiliated group through March 15, 2000 shall be counted towards crediting Hours of Service or Years of Service for purposes of vesting.

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2.21 Participant means a Highly Compensated Employee who participates in the Plan as provided in ARTICLE III.

2.22 Participating Employer means any Affiliate that has adopted this Plan with the permission of the Plan Administrator.

2.23 Plan Administrator means the Benefits Committee.

2.24 Plan Year means the period beginning January 1 and ending on the following December 31 of each year. However, the initial Plan Year shall be the two-month period beginning on the Effective Date and ending December 31, 2007.

2.25 Prior Plan means the Gentiva Health Services, Inc. Nonqualified Retirement and Savings Plan before such plan was divided into the following two plans, effective as of November 1, 2007, to comply with new Code section 409A—(1) the Grandfathered Plan, and (2) this Plan.

2.26 Rabbi Trust means the grantor trust instrument established under Code section 671 and intended to satisfy the requirements of Revenue Procedure 92-64, which is designated to hold plan assets associated with the Participants’ Pre-tax Salary Deferral Account, Matching Contribution Account and Profit Sharing Contribution Account, and the earnings thereon.

2.27 Secular Trust means the grantor trust instrument established under Code section 671, which is designated to hold plan assets associated with Participants’ After-Tax Salary Deferral Account and the earnings thereon.

2.28 Separation from Service means a Participant’s death, retirement or other termination of employment with the Company and all Affiliates. Whether a Separation

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from Service has occurred will be determined by the Plan Administrator based on all of the facts and circumstances and in accordance with the guidance issued under Code section 409A. For purposes of this Plan, a Participant will be presumed to have experienced a Separation from Service when the level of bona fide services performed decreases to a level less than fifty percent (50%) of the average level of bona fide services performed during the immediately preceding thirty-six (36)-month period (or the full period of services to the Company and all Affiliates if the Participant has been providing services to the Company and all Affiliates less than thirty-six (36) months).

2.29 Specified Employee means a Participant who, as of the date of the Participant’s Separation from Service, is a specified employee of the Company and its Affiliates as determined under the Specified Employee Determination Policy established by the Plan Administrator and maintained in accordance with the guidance issued under Code section 409A.

2.30 Total Compensation means:

(a) As determined by the Plan Administrator, all remuneration for services paid to an Employee by a Participating Employer, as defined in Code section 3401(a) (for purposes of income tax withholding at the source), but determined without regard to any rules that limit remuneration included in wages based on the nature and location of employment or the services performed.

(b) Total Compensation as defined in subsection (a) shall exclude the following items (even if includable in gross income), as determined by the Plan Administrator:

(1) reimbursement or other expense allowances;

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(2) fringe benefits (cash and noncash);

(3) moving expenses and gross up for taxes;

(4) welfare benefits (including disability income from insurance policies);

(5) payments on account of severance of the Participant from employment with a Participating Employer;

(6) payments on account of early retirement of the Participant;

(7) income arising from the grant or exercise of stock options;

(8) restricted stock awards; and

(9) distributions under this Plan.

2.31 Trust(s) means the assets of the Plan held in trust pursuant to the Rabbi Trust and/or the Secular Trust.

2.32 Trustee(s) means the Trustee of the Rabbi Trust and/or the Trustee of the Secular Trust as the context may require, and any successor Trustees.

2.33 Unforeseeable Emergency means a severe financial hardship of a Participant, Alternate Payee or Beneficiary resulting from an illness or accident of the Participant, Alternate Payee or Beneficiary, or his or her spouse or dependent (as defined in Code section 152(a)); loss of the Participant’s, Alternate Payee’s or Beneficiary’s property due to casualty (including the need to rebuild a home following damage to a home not otherwise

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covered by insurance); or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant, Alternate Payee or Beneficiary. Whether an Unforseeable Emergency has occurred will be determined by the Plan Administrator in accordance with the guidance issued under Code section 409A.

2.34 Valuation Date(s) means each day the recordkeeper values the balances of the Participants’ Accounts.

2.35 Year(s) of Service means a Plan Year during which an Employee has completed at least 1,000 Hours of Service. All Years of Service shall be considered except Years of Service prior to the Plan Year in which the Participant attained age eighteen (18).

ARTICLE III

Eligibility And Participation

3.1 Eligibility .

(a) All participants in the Prior Plan as of the Effective Date shall become Participants hereunder as of the Effective Date.

(b) On and after the Effective Date, Highly Compensated Employees (i) who are age twenty-one (21) or older; (ii) who have completed one hour of service with a Participating Employer; (iii) who are employed by a Participating Employer on or after the Effective Date; (iv) who did not participate in the Prior Plan; and (v) who are designated by the Plan Administrator as eligible to participate in the Plan, shall become eligible to make salary deferral contributions under Section 4.1 as of the first day of the first payroll period of the calendar month occurring on or after the date the Employee satisfies such eligibility requirements; provided however, that such Highly Compensated Employees shall not be eligible to receive Matching Contributions under Section 4.2(a) until they have completed six (6) months of service with a Participating Employer.

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(c) The Plan Administrator shall have sole discretion to determine when a Highly Compensated Employee becomes eligible to participate in the Plan and the Plan Administrator may take into consideration whether the Highly Compensated Employee has received sufficient notice of his or her eligibility to participate in the Plan (such that the Employee may make a timely election to defer salary within thirty (30) days of first becoming eligible to participate in the Plan). The Plan Administrator shall also have sole discretion to determine if an Employee is expected to be a Highly Compensated Employee in the current Plan Year based on such Employee’s expected Total Compensation for the current Plan Year.

3.2 Participation . To participate in the Plan, an eligible Highly Compensated Employee must enroll in the Plan, regardless of whether the Employee elects to make salary deferral contributions to the Plan. If an Employee fails to enroll in the Plan, the Plan Administrator shall nevertheless enroll the Employee in the Plan. Enrollment in the Plan is required in order for the Employee to be eligible to receive profit sharing contributions hereunder (which are available to Participants even if the Participant does not make any salary deferral contributions under the Plan). Participants may enroll in the Plan in any format acceptable to the Plan Administrator, including, but not limited to, paper, facsimile, electronic record or voice response record. Participants who enrolled in the Prior Plan shall be deemed to be enrolled hereunder, and, except as otherwise provided herein, any elections made under the Prior Plan shall continue to apply under this Plan until changed in accordance with the terms of this Plan.

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ARTICLE IV

Contributions

4.1 Participant Contributions

(a) Amount . A Participant may defer receipt of the following amounts, in increments of one percent (1%), under procedures established by the Plan Administrator:

(1) up to thirty percent (30%) of the Participant’s Base Salary on a pre-tax and/or after-tax basis; and/or

(2) up to seventy-five percent (75%) of the Participant’s Bonus/Incentive Compensation on a pre-tax and/or after-tax basis.

(b) Deferral Elections .

(1) Elections . In order to elect pre-tax or after-tax salary deferrals, each eligible Employee shall deliver a salary deferral election to the Plan Administrator in such form as the Plan Administrator may accept (including, but not limited to, paper, facsimile, electronic record or voice response record). Salary deferral elections shall designate the amount of pre-tax and/or after-tax Base Salary and Bonus/Incentive Compensation to be deferred, the Participant’s Beneficiary and such other items as the Plan Administrator may prescribe, such as the time and form of distribution of the amounts deferred under the Plan. A Participant’s deferral election shall remain in effect until terminated or amended, as provided below. Pre-tax and after-tax deferral elections in effect for Participants under the Prior Plan on the Effective Date shall be deemed to continue hereunder, until changed by the Participant.

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(2) Pre-Tax Deferrals .

(A) Except with respect to the first year an Employee is eligible to participate in any account balance plans maintained by the Company or any Affiliate or with respect to performance-based compensation, pre-tax salary deferral elections shall be void unless submitted before the first day of the calendar year during which the amount to be deferred will be earned. In the Plan Year in which the Employee is first eligible to participate in any account balance plans maintained by the Company or any Affiliate, such salary deferral election shall be filed within thirty (30) days of the date on which the Employee is first eligible to participate in the Plan and such election shall be with respect to Total Compensation earned from the Participating Employer during the remainder of such Plan Year. To the extent Total Compensation constitutes performance-based compensation, the deferral election, at the discretion of the Plan Administrator, can be made no later than 6 months before the end of the performance period to which such compensation relates. For this purpose, “performance-based compensation” means compensation where the amount of, or entitlement to, the compensation is contingent on the satisfaction of preestablished organizational or individual performance criteria relating to a performance period of at least 12 consecutive months. The extent to which compensation is performance-based compensation will be determined by the Plan Administrator in accordance with guidance issued under Code section 409A.

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(B) A Participant may not terminate or amend his or her pre-tax salary deferral election for a Plan Year during that Plan Year. Any termination or amendment of a pre-tax salary deferral election must be made during an annual open enrollment period and shall be effective as of the first payroll period of the next Plan Year following the date the Plan Administrator receives the Participant’s revised salary deferral election.

(C) The Plan Administrator shall credit as a bookkeeping entry to the Participant’s Pre-Tax Salary Deferral Account the amount designated by the Participant on his or her pre-tax salary deferral election and any subsequent deemed earnings or losses thereon; provided however, that all such amounts shall be subject to the rights of the general unsecured creditors of the Participating Employer. The Participating Employer shall reduce the Participant’s Total Compensation in accordance with the provisions of the applicable salary deferral election.

(3) After-Tax Deferrals .

(A) An after-tax salary deferral election may be submitted at any time; provided, however, that the after-tax deferral election shall become effective as of the first day of the first payroll period of the calendar month following the date the Plan Administrator receives the Participant’s salary deferral election.

(B) A Participant may terminate or amend his or her after-tax salary deferral election during a Plan Year; provided, however, that such termination or amendment shall become effective as of the first

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day of the first payroll period of the calendar month following the date the Plan Administrator receives the Participant’s revised salary deferral election.

(C) The Plan Administrator shall credit to the Participant’s After-Tax Salary Deferral Account the after-tax deferral amount designated by the Participant on his or her salary deferral election and any subsequent earnings or losses thereon. The Participating Employer shall withhold an amount from the Participant’s after-tax salary in accordance with the Participant’s applicable after-tax salary deferral election.

4.2 Company or Participating Employer Contributions .

(a)

Matching Contributions .

(1) The Participating Employer may match a Participant’s pre-tax and/or after-tax salary deferrals up to six percent (6%) of the Participant’s Total Compensation. The amount of the match, if any, will be announced each year and allocated to the Participant’s Matching Contribution Account.

(2) Matching contributions will vest based on the vesting schedule set forth in ARTICLE VI.

(3) The Participating Employer shall not contribute any matching contributions to the Plan on behalf of the Participant during any period in which the Participant’s contributions to the Plan have been suspended.

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(b)

Profit-Sharing Contributions .

(1) The Participating Employer may also choose to make a profit sharing contribution, in addition to, or in lieu of a matching contribution. If the Participating Employer makes a profit sharing contribution, only Participants employed by the Participating Employer on the last day of the Plan Year who have completed one thousand (1,000) Hours of Service during the Plan Year shall be eligible to receive an allocation from such profit sharing contribution.

(2) The amount of any profit sharing contribution shall be determined in the sole discretion of the Participating Employer. The Participating Employer may vary the amount it contributes to each Participant’s Profit Sharing Contribution Account. For example, the Participating Employer may contribute a fixed percentage of pay for earnings up to a certain level and a variable percentage of pay for earnings above a specified level. The Participating Employer may also choose other methods to determine the amount of the profit sharing contribution.

(3) The amount of any profit sharing contribution, if any, will be announced each Plan Year. Profit sharing contributions will vest based on the vesting schedule set forth in ARTICLE VI.

ARTICLE V

Investment And Valuation Of Plan Accounts

5.1 Investment of Accounts

(a)

Actual and Deemed Investments . The assets contributed to the Rabbi Trust

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shall remain the property of the Participating Employer until distributions are made to Participants employed by such Participating Employer. Accordingly, all investments under the Rabbi Trust shall be deemed investments selected by Participants, rather than actual investments. The assets contributed to the Secular Trust are treated as the property of Participants and therefore, investments under the Secular Trust shall be actual (not deemed) investments. Participants’ actual or deemed investments shall continue in force for subsequent Plan Years until revoked or changed by the Participant. Investment directions made by Participants under the Prior Plan as of the Effective Date shall be deemed to continue hereunder until changed by the Participant.

(b)

Investment Direction .

(1) Pre-tax salary deferrals, profit sharing contributions and matching contributions are invested in accordance with each Participant’s deemed investment directions and after-tax contributions are invested in accordance with each Participant’s actual investment directions. Participant’s Accounts may be invested in any combination of investment options, in accordance with rules established by the Plan Administrator.

(2) A Participant may change investment or deemed investment directions at any time by following the procedures announced from time to time by the Plan Administrator. Changes in investment direction or transfer of account balances, in whole or in part, may be accomplished in any format acceptable to the Plan Administrator, including, but not limited to, paper, facsimile, electronic record or voice response record. The change in investment direction shall be effective only with respect to subsequent contributions.

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(c)

Responsibility for Investments

(1) Each Participant is solely responsible for the selection of investment funds or deemed investment funds for the Participant’s Accounts, subject to such rules as the Plan Administrator may determine. The Trustees, the Plan Administrator, and the officers, supervisors and other employees of the Participating Employers are not empowered to advise Participants as to the manner in which Accounts should be invested. The fact that an investment fund is available under the Plan shall not be construed as a recommendation for investment in that fund.

(2) If a Participant does not direct the investment or deemed investment of any of his or her Accounts, the Accounts will be treated as being invested in a guaranteed interest account selected by the Plan Administrator until the Participant directs otherwise.

5.2 Determining the Value of Participant Accounts . The net value of the Accounts in the Trusts is determined on each Valuation Date. Any net earnings, losses and expenses associated with the Participant’s Accounts since the preceding Valuation Date shall be allocated to each Participant’s Account.

5.3 Alternate Payees Treated As Participants . With respect to all provisions of Article V dealing with actual and deemed investments under the Rabbi Trust and Secular Trust, an Alternate Payee under a Qualified Domestic Relations Order described in Section 13.15 shall be treated in the same manner as a Participant pursuant to Sections 5.1 and 5.2.

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ARTICLE VI

Vesting And Forfeitures

6.1 Participant Contributions . Vesting means a nonforfeitable right to receive the value of the Account. Pre-tax and after-tax salary deferrals and the earnings thereon are always one hundred percent (100%) vested. Pre-tax salary deferrals and earnings thereon are subject to the claims of the Company’s or Participating Employer’s creditors, as described in Section 11.6.

6.2 Matching and Profit-Sharing Contributions .

(a) Matching and profit sharing contributions and earnings thereon are subject to the claims of the Company’s or Participating Employer’s creditors, as described in Section 11.6. Notwithstanding section 6.2(b), Participants become fully vested in the value of matching and profit sharing contributions upon Disability or death while employed by a Participating Employer.

(b) A Participant’s entire vested percentage of matching and profit sharing contributions is determined on the basis of Years of Service, as follows:


		Years of Service		Percentage Vested
		1		0%
		2		25%
		3		50%
		4		75%
		5		100%

(c) A Highly Compensated Employee who is designated to participate in the Plan or Prior Plan on or after January 1, 2007 and who, as of December 31, 2006, was an eligible member of The Healthfield, Inc. Hugs$ Retirement Plan shall have his or her service with Healthfield, Inc. (and its participating affiliates) taken into account in determining his or her Years of Service under this Plan.

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6.3 Forfeitures . If a Participant has a Separation from Service for any reason other than death or Disability, he or she will receive the value of his or her vested Matching Contribution Account and Profit Sharing Contribution Account and shall forfeit the value of any non-vested Matching and Profit-Sharing Contributions. The forfeited amount shall be used to reduce future contributions otherwise required from the Participating Employer.

6.4 Change in Control . Notwithstanding anything to the contrary contained in the Plan, in the event of a Change in Control, Participants will become fully vested in the value of matching and profit sharing contributions. Distributions of Participant Accounts shall be made as soon as practicable following the Change in Control, but in no event more than ninety (90) days following such Change in Control.

ARTICLE VII

Distributions

7.1 In-Service Withdrawals

(a) Unforeseeable Emergency . Subject to Section 7.1(c), Participants may receive an in-service withdrawal of pre-tax salary deferrals and vested profit sharing and matching contributions (and the earnings thereon) in the event of an Unforeseeable Emergency. A distribution on account of an Unforeseeable Emergency may not be made to the extent that such emergency is or may be relieved through reimbursement or compensation from insurance or otherwise, by liquidation of the Participant’s, Alternate Payee’s or Beneficiary’s assets, to the extent the liquidation of such assets would not cause severe financial hardship, or by cessation of deferrals under the Plan. Distributions because of an Unforeseeable Emergency

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must be limited to the amount reasonably necessary to satisfy the emergency need (which may include amounts necessary to pay any Federal, state, or local income taxes or penalties reasonably anticipated to result from the distribution).

(b) After-Tax Salary Deferrals . Subject to Section 7.1(c), a Participant may withdraw any after-tax salary deferrals (and earnings thereon) at any time.

(c) Number of Withdrawals . Notwithstanding the foregoing provisions of this Section 7.1, the Plan Administrator may restrict the number of withdrawals permitted in a Plan Year.

(d) With respect to all provisions of Section 7.1 dealing with in-service distributions, an Alternate Payee under a Qualified Domestic Relations Order described in Section 13.15 shall be treated in the same manner as a Participant pursuant to subsections 7.1(a), (b) and (c).

7.2 Final Distributions .

(a) Distributions During Participant’s Lifetime .

(1) Distributions Upon Separation from Service . Upon Separation from Service with the Participating Employer, a Participant will be entitled to receive the full value of his or her vested Accounts in accordance with the Participant’s election pursuant to Section 7.2(a)(2) below. Subject to Section 7.2(a)(3) below, the time and form of payment from a Participant’s Accounts shall be determined in accordance with the last valid designation filed by the Participant with the Plan Administrator.

(2) Elective Distribution Time and Form of Payment . Participants who have not experienced a Separation from Service may designate a

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specific time on which to receive (or begin receiving) distributions from their Plan Accounts. Such payment shall be made (or begin): (i) as soon as practicable following the Participant’s Separation from Service, but in no event more than ninety (90) days following such Separation from Service; (ii) in the first calendar year that begins after the calendar year in which the Separation from Service occurs; or (iii) on the later of (a) the age the Participant elected to receive payment or (b) the date the Participant has a Separation from Service, but in no event more than ninety (90) days following such Separation from Service. The Participant may also designate whether the payment shall be in the form of a single, lump sum payment or approximately equal annual installments, for a period up to ten (10) years. Except as otherwise provided in Section 7.2(a)(3) below, designations of elective distribution dates and methods of distribution must be made at the time of a Participant’s initial deferral election under this Plan and may only be changed in accordance with Section 7.2(a)(3) below. If a Participant does not designate a distribution date and/or method of distribution at the time of his or her initial deferral election under this Plan, the Participant shall be deemed to have elected to receive a single, lump sum payment upon Separation from Service, and such deemed distribution election may only be changed by the Participant in accordance with Section 7.2(a)(3).

(3) Changes in Time or Form of Distribution.

(A) Except as otherwise provided in subsection (B) below, a Participant may change the time or form of his or her distribution in accordance with procedures to be prescribed by the Plan Administrator only if the following conditions are satisfied: (i) the change is not effective until the 1-year anniversary of the election,

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(ii) the payment is deferred for a period of not less than 5 years from the date payments would otherwise have commenced, and (iii) the election is made at least 12 months before the date the payments were previously scheduled to commence. For purposes of Code section 409A(a)(4)(C), any installment payments shall be treated as a single payment.

(B) With respect to Amounts Deferred before December 31, 2007, the Plan Administrator may provide Participants and Alternate Payees with an opportunity to make a new distribution election under this Plan during a designated period ending on or before December 31, 2007 and in accordance with procedures to be prescribed by the Plan Administrator; provided that, to the extent that a new distribution election under this Plan would result in either (i) a deferral to a later calendar year of an amount that would otherwise have been payable under the Prior Plan in 2007, or (ii) an acceleration into 2007 of an amount that would otherwise have been payable under the Prior Plan in a later calendar year, the distribution election under the Prior Plan as of the Effective Date shall apply to any such amounts.

(4) Payments to Specified Employees on Account of Separation from Service . Notwithstanding anything herein to the contrary, any payments to a Specified Employee on account of his or her Separation from Service may not commence any earlier than 6 months from the date of the Separation from Service.

(b) Distributions After Participant’s Death . Upon a Participant’s death, the balance in full of the Participant’s Account shall be payable to the Participant’s

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Beneficiary in a lump sum as soon as administratively practicable after the Valuation Date following the Participant’s date of death, but in no event more than ninety (90) days following such Valuation Date, regardless of whether the Participant had elected to receive installment payments.

(1) Distribution Date and Form of Payment . Distribution to an Alternate Payee shall be made in accordance with the terms of the Qualified Domestic Relations Order.

(2) Distributions After Alternate Payee’s Death . Upon an Alternate Payee’s death, the balance in full of the Alternate Payee’s Account shall be payable to the Alternate Payee’s Beneficiary in a lump sum as soon as administratively practicable after the Valuation Date following the Alternate Payee’s date of death, but in no event more than ninety (90) days following such Valuation Date, regardless of whether the Alternate Payee was receiving or entitled to receive installment payments.

ARTICLE VIII

Leaves Of Absence, Layoffs, And Reemployment

8.1 Leaves of Absence, Layoffs and Severance Payments . A Participant who is laid off or on an Approved Leave of Absence will still be considered a Participant until he or she incurs a Break-in-Service.

(a) During periods of layoff, the Participating Employer will not make any contributions on the Participant’s behalf.

(b) During Approved Leaves of Absence, the Participant may receive an allocation of any profit sharing contribution made by the Participating Employer for such period.

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(c) During periods of layoff or Approved Leaves of Absence, previous matching and profit sharing contributions made on the Participant’s behalf will continue to vest unless the Participant incurs a Break-in-Service and all contributions in the Participant’s Accounts will continue to reflect the performance of the investment fund(s) selected by the Participant.

(d) A Participant who receives severance payments from the Participating Employer shall not be entitled to participate in the Plan during the period in which such severance benefits are being paid. Accordingly, Participants shall not be permitted to make any deferral contributions or to receive any matching or profit sharing contributions with respect to such severance period.

8.2 Returning to Work After Separation from Service . If a Participant has a Separation from Service and is later rehired, the following provisions shall apply.

(a) Participation Upon Re-Employment . A re-employed Participant who is designated by the Plan Administrator as eligible to participate in this Plan as of the date of re-employment may re-enter the Plan as soon as administratively possible following the date the Participant is credited with an Hour of Service after re-employment with the Participating Employer; provided that a re-employed Participant may make a pre-tax salary deferral election for the Plan Year in which he or she re-enters the Plan only if the Participant is determined by the Plan Administrator to be initially eligible in accordance with the guidance issued under Code section 409A and such election is made in accordance with Section 4.1(b)(2)(A). In all other cases, a re-employed Participant may re-enter the Plan only after the conditions for participation prescribed in Section 3.1 are again satisfied (including the condition that the Plan Administrator must designate the person as eligible to participate in the Plan).

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(b) Vesting Upon Re-employment . Upon re-employment after a Break-in-Service, a Participant’s previous Years of Service shall be restored if:

(1) the Participant was vested in any matching or profit sharing contributions, or

(2) the Participant was not vested in any matching or profit sharing contributions and the number of years of the Participant’s Break-In-Service was less than the greater of five (5) or the number of Years of Service the Participant had completed before the Break-in-Service.

ARTICLE IX

Participating Employers

9.1 Adoption by Other Employers .

(a) Notwithstanding anything herein to the contrary, an Affiliate may, with the consent of the Plan Administrator and the Trustees, adopt the Plan and all of the provisions hereof by taking the actions prescribed by the Plan Administrator for the proper adoption and operation of the Plan.

(b) The Plan Administrator shall have the authority to make any and all necessary rules or regulations to effectuate the purposes of this Section.

(c) The Plan is not intended to be a joint venture between the Company and any Participating Employer or between any Participating Employers.

(d) Each Participating Employer shall be solely responsible for providing benefits under the Plan for its own Employees. To the extent amounts are set

- 28 -

aside by the Participating Employer under the Rabbi Trust, such amounts shall be subject to the claims of creditors of the particular Participating Employer only, and shall not be subject to the claims of creditors of other entities participating in the Plan.

9.2 Allocation of Plan and Trust Expenses . Any expenses of the Plan and Trusts which are to be paid by the Company shall be allocated to the Participating Employers in the proportion that the total amount in the Trusts attributable to the Participating Employer’s Participants bears to the total assets of the Trusts.

9.3 Designation of Company as Agent . Each Participating Employer shall be deemed irrevocably to have designated the Company as its agent with respect to all matters affecting the Trustees and the Plan.

9.4 Employee Transfers . The transfer of employment of a Participant from one Participating Employer to another Participating Employer shall not affect the Participant’s rights under the Plan and the number of the Participant’s Years of Service shall not be deemed to be interrupted. Transfer of employment between such entities shall not be treated as a Separation from Service and distributions shall not be made from the Plan based on such transfer of employment. The entity to which the Participant is transferred shall thereupon become obligated hereunder with respect to such Participant in the same manner as was the entity from which the Participant was transferred.

9.5 Contributions and Forfeitures of Participating Employer . All contributions made by a Participating Employer shall be determined separately and shall be paid to the Accounts of the Employees of such Participating Employer, subject to all of the terms and conditions of the Plan.

9.6 Amendments by Participating Employers . Participating Employers (other than the Company) do not have the right to amend the Plan in any regard.

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9.7 Discontinuance of Participation . A Participating Employer (other than the Company) shall be permitted to discontinue or terminate its participation in the Plan at any time, upon giving reasonable advance notice to the Plan Administrator. At the time of any such discontinuance or termination, satisfactory evidence thereof shall be delivered to the Trustees and the Accounts held in the Trusts for the benefit of Employees of the withdrawing Participating Employer shall be distributed as soon as administratively feasible to the extent permitted in accordance with the guidance issued under Code section 409A. To the extent such Accounts cannot be withdrawn in accordance with the guidance issued under Code section 409A, the Accounts shall be retained in the Plan for the affected Participants in the same manner and with the same powers, rights, and privileges as set forth herein; and the Accounts shall be distributed in accordance with the provisions of ARTICLE VII.

ARTICLE X

Amendment And Termination

10.1 Right to Terminate . The Company expressly reserves the right to terminate the Plan in whole or in part without the consent of Participants, Alternate Payees or Beneficiaries. Notice of such termination shall be given to each Participant, Alternate Payee or Beneficiary.

10.2 Continuation of Trust .

(a) Upon the termination of the Plan in whole or in part with respect to a Participating Employer or upon the bankruptcy of the Participating Employer, all unvested Participants shall become one hundred percent (100%) vested in their benefits under the Plan and distributions shall be made from the Plan, to the extent permitted in accordance with the guidance issued under Code section 409A, as soon as practicable, but in no event later than ninety (90) days following the termination of the Plan.

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(b) If the benefits cannot be distributed in accordance with the guidance issued under Code section 409A, the Trustees shall continue to hold and administer the Trusts for the benefit of the Participants in the same manner and with the same powers, rights, and privileges as set forth herein; and the Trustees shall pay to the Participants their respective amounts in accordance with the provisions in ARTICLE VII.

10.3 Right to Amend . Except as hereinafter provided, the Benefits Committee shall have the right to amend the Plan and Trusts at any time and from time to time but only to the extent that such amendments are required to comply with changes in the law or such amendments do not increase the costs to the Participating Employers hereunder. Notwithstanding the preceding sentence, the Board may amend the Plan and Trusts at any time and from time to time. Amendments adopted by the Benefits Committee or Board shall not (i) increase the responsibilities of the Plan Administrator or the Trustees without their written consent; or (ii) directly or indirectly reduce the Participant’s vested Accounts. Notwithstanding anything herein to the contrary, this Plan may be amended at any time if necessary or desirable to conform the Plan to the Code (including, but not limited to, Code section 409A) or any federal statute with respect to employees’ trusts or any regulations or rulings issued pursuant thereto and no such amendment shall be considered prejudicial to the rights of any Participant or Beneficiary. Notice of all material amendments shall be given to each Participant and Beneficiary entitled to receive distributions under the Plan.

10.4 Merger or Consolidation . The Plan may not be merged or consolidated with any other plan and its assets or liabilities may not be transferred to any other plan, unless each person entitled to benefits under the Plan would receive a benefit immediately after the merger, consolidation or transfer which is equal to or greater than the benefit he or she would have been entitled to receive immediately before the merger, consolidation or transfer.

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ARTICLE XI

Administration

11.1 Plan Administrator . The Plan Administrator shall have the sole authority, in its absolute discretion:

(a) to adopt, amend and rescind such rules and regulations as, in its opinion, may be advisable in the administration of the Plan;

(b) to prescribe the form or forms used in connection with the Plan, including salary deferral election forms and beneficiary designation forms (which forms shall be consistent with the terms of the Plan but need not be identical and which may be in any format acceptable to the Plan Administrator, including, but not limited to, paper, facsimile, electronic record or voice response record); and

(d) to employ actuaries, accountants, counsel and other persons the Plan Administrator deems necessary in connection with the administration of the Plan; and

(e) to take all other necessary and proper actions to fulfill its duties under the Plan.

11.2 Binding Effect . All decisions, determinations and interpretations of the Plan Administrator shall be final and binding on all Participants, Alternate Payees and Beneficiaries receiving benefits under the Plan.

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11.3 Delegation of Authority . The Plan Administrator may delegate its authority to administer the Plan to any individual(s) as the Plan Administrator may determine and such individual(s) shall serve solely at the pleasure of the Plan Administrator. Any individual(s) who are authorized by the Plan Administrator to administer the Plan shall have the full power to act on behalf of the Plan Administrator, but shall at all times be subordinate to the Plan Administrator and the Plan Administrator shall retain ultimate authority for the administration of the Plan.

11.4 Plan Records and Expenses . The books and records to be maintained for the purposes of the Plan shall be maintained by the Company’s employees subject to the supervision of the Plan Administrator. All expenses incurred in connection with the performance of any settlor functions with respect to the Plan and Trusts, including, but not limited to, the cost of initially establishing the various Participant or Alternate Payee Accounts, shall be paid by the Company, and may be allocated among other Participating Employers, as provided in Section 9.2. Unless the Company determines otherwise, each Participant’s or Alternate Payee’s Account shall be charged with a pro-rata share of the administrative expenses and investment fees incurred by the Plan and Trusts, including, but not limited to, any annual fees imposed by financial institutions, brokerage firms or otherwise to maintain such Accounts, provided, however, that all expenses related to any Participant-directed or Alternate Payee-directed investment (such as brokerage fees, commissions or other transaction-specific costs) shall be deducted from such Participant’s or Alternate Payee’s Account.

11.5 Limited Liability . No member of the Company’s Board of Directors or the Benefits Committee and no employee of any Participating Employer shall be liable to any person for any action taken or omitted in connection with the establishment or administration of this Plan, including the receipt of benefits thereunder, unless attributable to

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his or her own fraud or willful misconduct, nor shall any Participating Employer be liable to any person for any such action unless attributable to fraud or willful misconduct on the part of a director or employee of the Participating Employer.

11.6 Insolvency .

(a) Should a Participating Employer be considered insolvent (such that the Participating Employer is unable to pay its debts as they come due) or subject to a proceeding as a debtor under the United States Bankruptcy Code, or should the Participating Employer become aware of its pending insolvency or bankruptcy, the affected entity, acting through its board of directors or chief executive officer shall give immediate written notice of such to the Plan Administrator and the Trustees, if any.

(b) Upon receipt of such notice, the Plan Administrator and the Trustees shall cease to make any payments of matching contributions, profit sharing contributions, pre-tax contributions and all earnings thereon to Participants, Alternate Payees or Beneficiaries of the affected entity and shall hold any and all assets with respect to those Participants, Alternate Payees and Beneficiaries for the benefit of the general unsecured creditors of the affected entity. For this purpose, it is expressly provided that such assets of each Participating Employer which are intended for use in this Plan shall at all times be available to creditors of such Participating Employer. Accordingly, the Plan shall be administered on an employer-by-employer basis, such that accrued liabilities under the Plan on behalf of a particular Participating Employer’s Employees shall always be available to creditors of such Participating Employer.

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11.7 Trusts; Funding of Benefits .

(a) Except for amounts held in the Secular Trust, nothing contained herein shall be deemed to create a trust of any kind or create any fiduciary relationship. Funds deposited into the Rabbi Trust shall continue for all purposes to be a part of the general funds of the Participating Employer and no person other than the Participating Employer shall, by virtue of the Plan, have any interest in such funds. Except for amounts held in the Secular Trust, to the extent that any person acquires a right to receive payments from the Participating Employer under the Plan, such right shall be no greater than the right of any unsecured general creditor of the Participating Employer.

(b) Except for amounts held in the Secular Trust, should any insurance contract or other investment be acquired in connection with the liabilities assumed under this Plan, it is expressly understood and agreed that the Participants and Beneficiaries shall not have any right with respect to, or claim against, such assets nor shall any such purchase be construed to create a trust of any kind or a fiduciary relationship between the Company, Participating Employers and the Participants, Beneficiaries or any other person. The Participating Employer or the Trust(s) shall be the designated owner and beneficiary of any insurance contract acquired in connection with its obligation under this Plan.

(c) Each Participant, Alternate Payee and Beneficiary shall be required to look to the provisions of this Plan and to the Participating Employer for enforcement of any and all benefits under this Plan. Except for amounts held in the Secular Trust, to the extent any Participant, Alternate Payee or Beneficiary acquires a right to receive payment under this Plan, such right shall be no greater than the right of any unsecured general creditor of the Participating Employer.

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ARTICLE XII

Claims Procedure

12.1 Claims Submission .

(a) All claims for benefits under the Plan by a Participant or Beneficiary, regardless of the nature of the claim, shall be initially submitted in writing to the Plan Administrator. Such claims shall be submitted within a reasonable period of time after the date such benefit was, or was purported to be, available to the Participant or Beneficiary, with such determination of reasonableness to be made by the Plan Administrator in its sole discretion. All claims must adequately state the basis for the claim including a statement of all pertinent facts and applicable law, except to the extent expressly waived by the Plan Administrator. The Plan Administrator may prescribe additional procedural requirements for claims, not inconsistent herewith.

(b) In the event that a Participant or Beneficiary does not receive any Plan benefit that is claimed, such Participant or Beneficiary shall be entitled to consideration and review as provided in this ARTICLE. Such consideration and review shall be conducted in a manner designed to comply with ERISA section 503.

(c) Failure to follow the requirements of this ARTICLE shall result in the denial of the claim submitted. The Participant or Beneficiary submitting such deficient claim shall be deemed to have not exhausted his or her administrative remedies under the Plan.

(d) Alternate Payees shall be treated the same as Participants and Beneficiaries with respect to the claims procedures described in this Article XII.

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12.2 Claim Review . Upon receipt of any written claim for benefits, the Plan Administrator shall be notified and shall give due consideration to the claim presented. If the claim is denied to any extent by the Plan Administrator, the Plan Administrator shall furnish the claimant with a written notice setting forth (in a manner calculated to be understood by the claimant):

(a) the specific reason or reasons for denial of the claim;

(b) a specific reference to the Plan provisions on which the denial is based;

(c) a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and

(d) an explanation of the provisions of this ARTICLE.

12.3 Right of Appeal . A claimant who has a claim denied under Section 12.2 may appeal for reconsideration of that claim. A request for reconsideration under this Section must be filed by written notice with the Plan Administrator within sixty (60) days after receipt by the claimant of the notice of denial under Section 12.2.

12.4 Review of Appeal . Upon receipt of an appeal, the Company shall promptly assign a committee or appropriate officer independent of the Plan Administrator to review the Plan Administrator’s denial of the claim. Such independent committee or officer shall take action to give due consideration to the appeal. Such consideration may include a hearing of the parties involved, if the committee or officer feels such a hearing is necessary. In preparing for this appeal, the claimant shall be given the right to review pertinent documents and the right to submit in writing a statement of issues and comments. After consideration of the

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merits of the appeal, the committee or officer shall issue a written decision which shall be binding on all parties. The decision shall be written in a manner calculated to be understood by the claimant and shall specifically state its reasons and pertinent Plan provisions on which it relies. The decision on the appeal shall be issued within sixty (60) days after the appeal is filed, except that if a hearing is held, the decision may be issued within one hundred twenty (120) days after the appeal is filed.

12.5 Designation . The Plan Administrator may designate one or more of its members or any other person of its choosing to make any determination otherwise required to be made by the Plan Administrator under this ARTICLE.

ARTICLE XIII

Miscellaneous

13.1 Headings . The headings in this Plan are for convenience of reference only and are not to be considered as constructions of the provisions.

13.2 Uniformity . In the exercise of any discretionary power of authority hereunder, all Participants under similar circumstances shall be treated in a uniform and non-discriminatory manner.

13.3 Obligations of the Company and Participating Employers . The Participating Employers expect to continue the Plan in force indefinitely, but continuance of the Plan is completely voluntary and is not assumed as a contractual obligation of the Participating Employers. The obligations of the Participating Employers, which are expressly stated to be noncontractual, are limited solely to the making of contributions to the Trusts provided for herein. The Participating Employers shall only be responsible for making contributions to the Trusts that correspond to the deferral elections made by the Participating Employer’s Employees, as well as any profit-sharing contributions that the Participating Employer may make.

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13.4 Insufficiency of Trust Fund . The Participating Employer shall not be liable in any manner to Participants employed by such Participating Employer and the Participants’ Alternate Payees and Beneficiaries if the Trusts are insufficient to provide for the payment of all benefits due to such Participants, Alternate Payees and Beneficiaries. Such benefits are to be payable only from the Trusts and only to the extent of the assets of such Trusts. Any person having any claim under the Plan shall look solely to the Trusts for payment or satisfaction thereof.

13.5 Contingent Nature of Accounts . Except for amounts held in the Secular Trust, until the deferred benefits are distributed under the Plan to the Participants, Alternate Payees or Beneficiaries, the interest of each Participant in this Plan is contingent only and is subject to forfeiture as provided hereunder. Title to and beneficial ownership of any assets, whether cash or investments, which the Participating Employer may set aside to meet its contingent deferred obligation hereunder shall at all times remain the property of the Participating Employer and no Participant, Alternate Payee or Beneficiary shall under any circumstances acquire any property interest in any specific assets of the Participating Employer.

13.6 Governing Law . This Plan is made under, and shall be subject to and governed by, the laws of the State of New York.

13.7 Gender and Number . Words used in the masculine shall be read and construed in the feminine where applicable. Wherever required, the singular of the word used in this Plan shall include the plural and the plural may be read in the singular.

13.8 Taxes . The Participating Employers have the right to deduct from all benefits paid under the Plan any taxes required by law to be withheld with respect to such benefits. The Participating Employers do not represent or guarantee that any particular federal or state

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income, payroll, personal property or other tax consequence will result from participation in this Plan. Participants should consult their personal tax advisors to determine the tax consequences of his or her participation in the Plan.

13.9 Plan Benefits Nontransferable . Except for amounts held in the Secular Trust and amounts transferred in connection with a Qualified Domestic Relations Order as provided in Section 13.15, the right of any Participant, Alternate Payee or Beneficiary to any payment hereunder shall not be subject in any manner to attachment or other legal process for the debts of such Participant, Alternate Payee or Beneficiary and any such benefit or payment shall not be subject to anticipation, alienation, sale, transfer, assignment, pledge or encumbrance. Any attempt to subject any benefit or payment in whole or in part to the debts, contracts, liabilities engagements or torts of the Participant, Alternate Payee or Beneficiary or any other person, entitled to any such benefit or payment pursuant to the terms of the Plan shall result, in the discretion of the Plan Administrator, in the termination of such payment.

13.10 Incompetence. If the Plan Administrator determines that any person to whom a benefit is payable under the Plan is incompetent by reason of a physical or mental disability, the Plan Administrator shall have the power to cause the payments becoming due to such person to be made to another person for his or her benefit without the responsibility of the Plan Administrator, the Participating Employer or Trustees to see to the application of such payments. Any payment made pursuant to such power shall, as to such payment, operate as a complete discharge of the Plan Administrator, the Participating Employer and any Trustee.

13.11 Identity . If, at any time, any doubt exists as to the identity of any person entitled to any payment hereunder or the amount or time of such payment, the Plan Administrator shall be entitled to hold such sum until such identity or amount or time is determined or until an order of a court of competent jurisdiction is obtained. The Plan Administrator shall also be entitled to pay such sum into court in accordance with the appropriate rules of law. Any

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expenses incurred by the Participating Employer, the Plan Administrator and any Trustee incident to such proceeding or litigation shall be charged against the account of the affected Participant.

13.12 Other Benefits . The benefits of each Participant or Beneficiary hereunder shall be in addition to any benefits paid or payable to the Participant or Beneficiary under any other pension, disability, annuity or retirement plan.

13.13 Construction . All questions of interpretation, construction or application arising under this Plan shall be decided by the Plan Administrator whose decision shall be final and conclusive upon all persons.

13.14 No Guarantee of Employment . Nothing contained herein shall be construed as a contract of employment or deemed to give any Participant the right to be retained in the employ of the Participating Employer, or to interfere with the rights of any such employer to discharge any individual at any time, with or without cause, except as may be otherwise agreed to in writing or provided by applicable law.

13.15 Qualified Domestic Relations Orders .

(a) Notwithstanding any contrary provision of the Plan, separate Accounts under the Plan shall be maintained and payments under the Plan shall be made in accordance with any Qualified Domestic Relations Order received by the Plan Administrator.

(b) (1) If the Plan receives a Domestic Relations Order, the Plan Administrator shall promptly notify the Participant and each Alternate Payee of the receipt of such order and of the Plan’s procedures for determining whether such order is a Qualified Domestic Relations Order. The Plan Administrator shall, within a reasonable period after receipt of such order, determine whether it is a Qualified Domestic Relations Order and notify the Participant and each Alternate Payee of that determination.

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(2) During any period in which the issue of whether a Domestic Relations Order is a Qualified Domestic Relations Order is being determined, the Plan Administrator shall separately account for the amounts that would have been payable to the Alternate Payee during such period if the order had been determined to be a Qualified Domestic Relations Order.

(c) (1) A Domestic Relations Order meets the requirements of this subsection only if such order clearly specifies the following:

(A) the name and last known mailing address (if any) of the Participant and the name and mailing address of each Alternate Payee covered by the order;

(B) the amount or the percentage of the Participant’s benefits to be paid by the Plan to each such Alternate Payee or the manner in which such amount or percentage is to be determined;

(D) each plan to which such order applies.

(2) A Domestic Relations Order meets the requirements of this subsection only if such order does not:

(A) require the Plan to provide any type or form of benefit or any option not otherwise provided under the Plan;

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(B) require the Plan to provide increased benefits; and

(C) does not require the payment of benefits to an Alternate Payee that are required to be paid to another Alternate Payee under another order previously determined to be a Qualified Domestic Relations Order.

(d) A Domestic Relations Order shall not be treated as failing to meet the requirements of subsection (c)(2)(A) above solely because such order requires that payment of benefits be made to an Alternate Payee:

(1) in the case of any payment before a Participant has separated from service, on or after the date on which the Participant attains (or would have attained) the Earliest Retirement Date;

(2) as if the Participant had retired on the date on which such payment is to begin under such order (but taking into account only the present value of the benefits actually accrued); and

(3) in any form in which such benefits may be paid under the Plan to the Participant.

(e) A Domestic Relations Order shall not be treated as failing to meet the requirements of subsection (c)(2)(A) above solely because such order requires that payment of benefits be made to an Alternate Payee at a date before the Participant is entitled to receive a distribution. Such distribution shall be made to such Alternate Payee notwithstanding any contrary provision of the Plan.

(f) The following terms shall have the meanings specified:

(1) Alternate Payee . Any spouse, former spouse, child or other dependent of a Participant who is recognized by a Domestic Relations Order as having a right to benefits under the Plan with respect to such Participant.

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(2) Domestic Relations Order . A judgment, decree or order relating to child support, alimony or marital property rights, as defined in Code section 414(p)(1)(B), notwithstanding the fact that this Plan is not a tax-qualified plan under Code section 401(a).

(3) Earliest Retirement Date . The earlier of:

(A) the date on which the Participant is entitled to a distribution under the Plan; or

(B) the later of:

(i) the date the Participant attains age fifty (50);

(ii) the earliest date on which the Participant could begin receiving benefits under the Plan if the Participant separated from service.

(4) Qualified Domestic Relations Order . A Domestic Relations Order that satisfies the requirements of subsection (c) and Code section 414(p)(1)(A), notwithstanding the fact that this Plan is not tax-qualified under Code section 401(a).

(g) If a Domestic Relations Order directs that payment be made to an Alternate Payee before the Participant’s Earliest Retirement Date and such Domestic Relations Order otherwise qualifies as a Qualified Domestic Relations Order, then the Domestic Relations Order shall be treated as a Qualified Domestic Relations Order and such payment shall be made to the Alternate Payee, even though the Participant is not entitled to receive a distribution under the Plan because he or she continues to be an Employee of the Company or an Affiliate.

- 44 -

(h) This section shall be interpreted and administered in accordance with Code section 414(p), notwithstanding the fact that this Plan is not tax-qualified under Code section 401(a).

IN WITNESS WHEREOF, this Plan is hereby adopted effective as of November 1, 2007.

GENTIVA HEALTH SERVICES, INC.

BENEFITS COMMITTEE

John Potapchuk

Douglas Dahlgard

Kevin Marrazzo

Brian Silva

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Exhibit 10.2

GENTIVA HEALTH SERVICES, INC.

NONQUALIFIED RETIREMENT AND SAVINGS PLAN

As Amended and Restated Effective November 1, 2007

To Include Only Amounts Attributable To Amounts Deferred

Before January 1, 2005 Other Than After-Tax Salary Deferrals

GENTIVA HEALTH SERVICES, INC.

NONQUALIFIED RETIREMENT AND SAVINGS PLAN

Table of Contents


		Page
	ARTICLE I
	Background and Purpose

1.1	Background	1
1.2	Purpose	1
1.3	Frozen Benefits	2

	ARTICLE II
	Definitions

2.1	Account(s)	2
2.2	Approved Leave of Absence	2
2.3	Base Salary	2
2.4	Beneficiary	2
2.5	Benefits Committee	3
2.6	Bonus/Incentive Compensation	3
2.7	Break-in-Service	3
2.8	Change in Control	4
2.9	Code	5
2.10	Company	5
2.11	Company Contributions	5
2.12	Disability (or Disabled)	5
2.13	Effective Date	5
2.14	Employee	5
2.15	ERISA	5
2.16	Highly Compensated Employee	6
2.17	Hours of Service	6
2.18	Participant	7
2.19	Participating Employer	7
2.20	Plan Administrator	8
2.21	Plan Year	8
2.22	Rabbi Trust	8
2.23	Termination of Employment	8


2.24	Total Compensation	9
2.25	Trust	10
2.26	Trustee	10
2.27	Unforseeable Emergency	10
2.28	Valuation Date(s)	10
2.29	Year(s) of Service	10

	ARTICLE III
	Eligibility and Participation

3.1	Eligibility	11
3.2	Participation	11

	ARTICLE IV
	Contributions

4.1	Participant Contributions	11
4.2	Company or Participating Employer Contributions	11

	ARTICLE V
	Investment and Valuation of Accounts

5.1	Investment of Accounts	12
5.2	Determining the Value of Participant Accounts	13
5.3	Alternate Payees Treated As Participants	13

	ARTICLE VI
	Vesting and Forfeitures

6.1	Participant Contributions	14
6.2	Matching and Profit-Sharing Contributions	14
6.3	Forfeitures	15
6.4	Change in Control	15

	ARTICLE VII
	Distributions

7.1	In-Service Withdrawals	15
7.2	Final Distributions	16

- ii -



	ARTICLE VIII
	Leaves of Absence, Layoffs, and Reemployment

8.1	Leaves of Absence and Layoffs	20
8.2	Returning to Work After Termination of Employment	20

	ARTICLE IX
	Participating Employers

9.1	Adoption by Other Employers	22
9.2	Allocation of Plan and Trust Expenses	22
9.3	Designation of Company as Agent	23
9.4	Employee Transfers	23
9.5	Contributions and Forfeitures of Participating Employer	23
9.6	Amendments by Participating Employers	23
9.7	Discontinuance of Participation	23

	ARTICLE X
	Amendment and Termination

10.1	Right to Terminate	24
10.2	Continuation of Trust	24
10.3	Right to Amend	24
10.4	Merger or Consolidation	25

	ARTICLE XI
	Administration

11.1	Plan Administrator	25
11.2	Binding Effect	26
11.3	Delegation of Authority	26
11.4	Plan Records and Expenses	26
11.5	Limited Liability	27
11.6	Insolvency	27
11.7	Trust; Funding of Benefits	28

- iii -



	ARTICLE XII
	Claims Procedure

12.1	Claims Submission	29
12.2	Claim Review	30
12.3	Right of Appeal	30
12.4	Review of Appeal	31
12.5	Designation	31

	ARTICLE XIII
	Miscellaneous

13.1	Headings	31
13.2	Uniformity	31
13.3	Obligations of the Company and Participating Employers	32
13.4	Insufficiency of Trust Fund	32
13.5	Contingent Nature of Accounts	32
13.6