content: SECURITIES AND EXCHANGE COMMISSION
                               WASHINGTON, D.C. 20549
  
                                      FORM 10-Q
  
                  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                       OF THE SECURITIES EXCHANGE ACT OF 1934
  
                  For the quarterly period ended September 30, 2001
  
                             Commission File No. 1-15669
  
                            Gentiva Health Services, Inc.
               (Exact name of Registrant as specified in its charter)
  
  
                 DELAWARE                                    36-433-5801
                 --------                                    -----------
      (State or other jurisdiction of                     (I.R.S. Employer
      incorporation or organization)                     Identification No.)
  
  
                  3 Huntington Quadrangle 2S, Melville, NY 11747-8943
                  ---------------------------------------------------
                 (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
                                         ---
  
  
         The number of shares outstanding of the Registrant's Common Stock,
                       as of November 9, 2001 was 25,395,958.
  
  
  <PAGE>
  
  
                                        INDEX
  
                                                                          Page No.
  
  PART I - FINANCIAL INFORMATION
  
       Item 1.  Financial Statements
                Consolidated Balance Sheets - September 30, 2001
                (Unaudited) and December 31, 2000                           2
  
                Consolidated Statements of Operations (Unaudited) -
                Three and Nine Months Ended September 30, 2001 and
                October 1, 2000                                             3
  
                Consolidated Statements of Cash Flows (Unaudited) -
                Nine Months Ended September 30, 2001 and October 1,
                2000                                                        4
  
                Notes to Consolidated Financial Statements
                (Unaudited)                                                 5-15
  
       Item 2.  Management's Discussion and Analysis of Financial
                Condition and Results of Operations                         16-22
  
       Item 3.  Quantitative and Qualitative Disclosures about
                Market Risk                                                 22
  
  PART II - OTHER INFORMATION
  
       Item 1.  Legal Proceedings                                           23-25
  
       Item 2.  Change in Securities and Use of Proceeds                    25
  
       Item 3.  Defaults Upon Senior Securities                             25
  
       Item 4.  Submission of Matters to a Vote of Security Holders         25
  
       Item 5.  Other Information                                           25-26
  
       Item 6.  Exhibits and Reports on Form 8-K                            26-39
  
  SIGNATURES                                                                30
  
  
  
  <PAGE>
  
                           PART I - FINANCIAL INFORMATION
  
  Item 1. Financial Statements.
  
  <TABLE>
  <CAPTION>
                   Gentiva Health Services, Inc. and Subsidiaries
                             Consolidated Balance Sheets
                        (In thousands, except share amounts)
  
  
                                                                    September 30, 2001         December 31, 2000
                                                                 -------------------------- -------------------------
  ASSETS                                                                (Unaudited)
  Current assets:
  <S>                                                            <C>                        <C>
         Cash and cash equivalents                               $ 83,586                   $    452
  
         Receivables, less allowance for doubtful accounts
         of $90,256 and $105,962, respectively                    366,303                    419,178
  
         Inventories                                               48,709                     51,111
  
         Prepaid expenses and other current assets                 47,100                     50,333
                                                                 -------------------------- -------------------------
              Total current assets                                545,698                    521,074
  
  Fixed assets, net                                                30,939                     36,961
  
  Intangible assets, net                                          222,886                    230,702
  
  Other assets                                                     16,069                     16,747
                                                                 -------------------------- -------------------------
              Total assets                                       $815,592                   $805,484
                                                                 ========================== =========================
  
  LIABILITIES AND SHAREHOLDERS' EQUITY
  
  Current liabilities:
  
         Accounts payable                                        $ 57,552                   $ 74,083
  
         Accrued expenses                                          57,031                     50,682
  
         Payroll and related taxes                                 13,029                     17,305
  
         Insurance costs                                           29,771                     30,320
                                                                 -------------------------- -------------------------
              Total current liabilities                           157,383                    172,390
  
  Other liabilities                                                46,249                     46,945
  
  Gentiva - obligated mandatorily redeemable
  convertible securities of a subsidiary holding solely
  Gentiva debentures                                                    -                     20,000
  
  Shareholders' equity:
         Common stock, $.10 par value; authorized 100,000,000
         shares; issued and outstanding 25,316,824 and
         21,196,693 shares, respectively                            2,532                      2,120
         Additional paid-in capital                               719,778                    689,163
         Accumulated deficit                                     (109,893)                  (124,570)
         Accumulated other comprehensive loss                        (457)                      (564)
                                                                 -------------------------- -------------------------
              Total shareholders' equity                          611,960                    566,149
                                                                 -------------------------- -------------------------
              Total liabilities and
              shareholders' equity                               $815,592                   $805,484
                                                                 ========================== =========================
  
  See notes to consolidated financial statements.
  </TABLE>
  
  
  
                                        -2-
  <PAGE>
  
  
  <TABLE>
  <CAPTION>
                   Gentiva Health Services, Inc. and Subsidiaries
                             Consolidated Statements of
                              Operations (In thousands,
                              except per share amounts)
                                     (Unaudited)
  
  
                                                     Three Months Ended                             Nine Months Ended
                                         --------------------------------------------  ----------------------------------------
                                         September 30, 2001        October 1, 2000      September 30, 2001     October 1, 2000
                                         --------------------    --------------------  --------------------- ------------------
  
  <S>                                    <C>                     <C>
  Net revenues                           $  328,262              $  380,325            $1,020,884             $1,148,202
  
  Cost of services sold                     216,162                 262,160               678,719               772,911
                                         --------------------    --------------------  --------------------- ------------------
         Gross profit                       112,100                 118,165               342,165               375,291
  
  Selling, general and administrative
    expenses                                105,748                 245,930               326,096               496,247
  
  Interest income (expense), net                319                  (2,270)                 (267)               (8,618)
  
                                         --------------------    --------------------  --------------------- ------------------
         Income (loss) before income
           taxes                              6,671                (130,035)                15,802             (129,574)
  
  Income tax expense                            425                     311                  1,125                  507
                                         --------------------    --------------------  --------------------- ------------------
  
         Net income (loss)               $    6,246               $(130,346)           $    14,677           $ (130,081)
                                         ====================    ====================  ===================== ==================
  
  Net income (loss) per share:
         Basic                           $     0.26               $   (6.30)           $      0.65           $    (6.34)
                                         ====================    ====================  ===================== ==================
         Diluted                         $     0.24               $   (6.30)           $      0.61           $    (6.34)
                                         ====================    ====================  ===================== ==================
  
  Average shares outstanding:
         Basic                               23,616                  20,705                 22,442               20,521
                                         ====================    ====================  ===================== ==================
         Diluted                             26,546                  20,705                 25,746               20,521
                                         ====================    ====================  ===================== ==================
  </TABLE>
  
  See notes to consolidated financial statements.
  
  
  
                                        -3-
  <PAGE>
  
  <TABLE>
  <CAPTION>
                   Gentiva Health Services, Inc. and Subsidiaries
                        Consolidated Statements of Cash Flows
                                   (In thousands)
                                     (Unaudited)
  
  
                                                                               Nine Months Ended
                                                            --------------------------------------------------------
                                                                September 30, 2001             October 1, 2000
                                                            ---------------------------    -------------------------
  OPERATING ACTIVITIES:
  <S>                                                       <C>                               <C>
  Net income (loss)                                         $  14,677                         $(130,081)
  Adjustments to reconcile net income (loss)
  to net cash provided by (used in) operating
  activities:
  
      Depreciation and amortization                            20,048                           24,307
  
      Provision for doubtful accounts                          26,929                          136,408
  
      Write-off of goodwill                                        -                             5,200
  
      Gain on sale/disposal of assets                            (285)                              -
      Changes in assets and liabilities:
  
                 Accounts receivable                           25,946                          (25,441)
  
                 Inventories                                    2,402                           22,110
  
                 Prepaid expenses and other current
                 assets                                         3,233                               89
  
                 Current liabilities                          (25,506)                         (52,147)
  
                 Other, net                                        89                           (2,302)
                                                            ---------------------------    -------------------------
  
  Net cash provided by (used in) operating
  activities                                                   67,533                          (21,857)
                                                            ---------------------------    -------------------------
  INVESTING ACTIVITIES:
  
  Purchase of fixed assets                                     (6,400)                          (4,778)
  
  Proceeds from sale of assets                                    475                               -
                                                            ---------------------------    -------------------------
  Net cash used in investing activities                        (5,925)                          (4,778)
                                                            ---------------------------    -------------------------
  FINANCING ACTIVITIES:
  
  Proceeds from issuance of common stock                       11,027                            2,127
  
  Issuance of mandatorily redeemable and other
  securities                                                       -                            20,100
  
  Net transactions with Olsten                                     -                             5,226
  
  Proceeds from revolving credit
  facility                                                         -                             7,128
  
  Debt issuance costs                                              -                            (2,657)
  
  Increase (decrease) in book
  overdrafts                                                  (10,379)                           4,400
  
  Retirement of debt                                               -                            (9,525)
  
  Advances from Medicare program                               20,878                               -
                                                            ---------------------------    -------------------------
  Net cash provided by financing
  activities                                                   21,526                           26,799
                                                            ---------------------------    -------------------------
  
  Net increase in cash and cash equivalents                    83,134                              164
  
  Cash and cash equivalents at beginning of period                452                            2,942
                                                            ---------------------------    -------------------------
  Cash and cash equivalents at end of period                $  83,586                      $     3,106
                                                            ===========================    =========================
  NON-CASH INVESTING/FINANCING ACTIVITIES
    Conversion of convertible debt                          $  20,000                               -
                                                            ===========================    =========================
  See notes to consolidated financial statements.
  </TABLE>
  
  
  
  
                                        -4-
  <PAGE>
  
                   Gentiva Health Services, Inc. and Subsidiaries
                     Notes to Consolidated Financial Statements
                                     (Unaudited)
  
  
       1. Accounting Policies
  
       The accompanying interim consolidated financial statements are unaudited,
  but have been prepared by Gentiva Health Services, Inc. (the "Company") 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, but does not include all disclosures
  required by accounting principles generally accepted in the United States of
  America.
  
       2. Background and Basis of Presentation
  
       On March 15, 2000, the Company and its subsidiaries were split-off (the
  "Split-off") from Olsten Corporation ("Olsten") through the issuance of all of
  the Company's shares of common stock to Olsten's shareholders and the Company
  became an independent, publicly-owned company. Prior to the Split-off, the
  Company operated Olsten's health services business as a wholly-owned subsidiary
  of Olsten.
  
       The accompanying interim consolidated financial statements reflect the
  results of operations, financial position and cash flows of the Company as if it
  were a separate entity for all periods presented. The consolidated financial
  statements have been prepared using the historical basis in the assets and
  liabilities and historical results of operations related to the Company.
  
       The Company's selling, general and administrative expenses included a
  management fee of approximately $1.0 million for the first nine months of fiscal
  2000. This fee represented an allocation of certain general corporate overhead
  expenses related to Olsten's corporate headquarters. Management believes the
  allocations related to general corporate overhead expenses were reasonable;
  however, the costs charged to the Company were not necessarily indicative of the
  costs that would have been incurred if the Company had been a stand-alone entity
  during the period for which such expenses were allocated. Subsequent to the
  Split-off, the Company began to perform these functions using its own resources
  or purchased services.
  
       Interest income (expense), net as presented in the consolidated statement
  of operations included net interest expense of approximately $2.7 million for
  the first nine months of fiscal 2000 relating to the intercompany balances with
  Olsten. Such intercompany balances have been reflected as a contribution to
  capital as of the Split-off date.
  
  
                                        -5-
  <PAGE>
  
  
       3. Earnings per Share
  
       Basic net income (loss) per share for each period presented has been
  computed by dividing net income (loss) by the weighted average number of shares
  outstanding for each respective period. Diluted net income (loss) per share for
  each period presented has been computed using the weighted average number of
  common and dilutive common equivalent shares outstanding.
  
       During the three and nine months ended September 30, 2001, the weighted
  average numbers of shares outstanding were 23,616,000 and 22,442,000,
  respectively. As discussed in Note 7, the 10 percent convertible preferred trust
  securities in the amount of $19.4 million during the third quarter of fiscal
  2001 and $20.0 million for the first nine months of fiscal 2001 were converted
  to common shares at a conversion price of $9.319219 per share and such shares
  were included in the weighted average number of shares outstanding from the date
  of conversion.
  
       Dilutive common equivalent shares included (i) an incremental 1,543,000
  shares for the third quarter and 1,938,000 shares for the nine month period that
  would have been issued if the 10 percent convertible preferred trust securities
  were converted at the beginning of each period and (ii) 1,387,000 shares for the
  third quarter and 1,365,000 shares for the nine month period that would be
  issued upon the assumed exercise of 2,603,000 stock options under the treasury
  stock method.
  
       During the three and nine months ended October 1, 2000, the basic and
  diluted weighted average numbers of shares outstanding were 20,705,000 and
  20,521,000, respectively. The computation of diluted net loss per share for the
  fiscal 2000 periods excluded the effect of shares issuable upon the conversion
  of the 4 3/4 percent convertible subordinated debentures, which matured and were
  retired in October 2000, and the 10 percent convertible preferred trust
  securities and the exercise of stock options since their inclusion would have an
  antidilutive effect on earnings.
  
       4. Restructuring and Special Charges
  
       During the first nine months of fiscal 2001, the Company recorded special
  charges of approximately $3.0 million in connection with the settlement of the
  Gile v. Olsten Corporation, et al, and the State of Indiana v. Quantum Health
  Resources, Inc. and Olsten Health Services, Inc. lawsuits and for various other
  legal costs. These legal matters are further discussed in Note 8. These special
  charges are reflected in selling, general
  
  
  
                                        -6-
  <PAGE>
  
  and administrative expenses in the accompanying consolidated statement of
  operations.
  
       During the third quarter and first nine months of fiscal 2000, the Company
  recorded special charges aggregating $132.0 million and $138.8 million,
  respectively. Of this amount, charges of $125.6 million and $132.4 million,
  respectively, were reflected in selling, general and administrative expenses.
  These charges for both the third quarter and first nine months included (i) an
  incremental provision for doubtful accounts of $112.0 million, (ii) a $7.2
  million charge to reflect estimated settlement costs in excess of insurance
  coverage related to class action securities and derivative lawsuits assumed by
  the Company from Olsten Corporation under an indemnification provision in
  connection with the split-off and government inquiries in New Mexico and North
  Carolina and (iii) a charge of $5.2 million associated with the impairment of
  goodwill relating to the Company's Canadian home care nursing services operation
  which was sold during the fourth quarter of 2000.
  
       In addition, special charges of $1.2 million in the third quarter and $3.9
  million in the first nine months of fiscal 2000 were incurred in connection with
  the change of the Company's name to Gentiva Health Services, Inc. These special
  charges primarily consisted of costs incurred and paid for consulting fees,
  promotional items and advertising.
  
       Furthermore, charges of $4.1 million were incurred in the first nine months
  of fiscal 2000 to reflect obligations resulting from the Company's Split-off
  from Olsten and transition costs associated with the establishment of the
  Company as an independent, publicly-owned entity. These special charges included
  change of control and compensation and benefit payments of $3.6 million made to
  certain former employees of the Company and Olsten and a current executive
  officer of the Company, and transition costs of $0.5 million relating to
  registration costs, professional fees and other items.
  
       During the third quarter and first nine months of fiscal 2000, an
  adjustment of $6.4 million was recorded in cost of services sold for the
  estimated obsolescence, shrinkage of inventory and changes in cost estimates
  arising from the systems conversion and asset verification and physical
  inventory procedures which were performed during the third quarter of fiscal
  2000.
  
       The Company recorded charges of $5.5 million in the fourth quarter of
  fiscal 2000 in connection with a restructuring of certain business operations.
  During the period from December 31, 2000 to September 30, 2001, the unpaid
  portion of these restructuring charges declined from $3.4 million to $0.8
  million primarily as a result of cash payments made during the nine month period
  relating to operating lease and severance payments.
  
       5. Current Liabilities
  
       In early 2001, the Center for Medicare and Medicaid Services, formerly
  known as the Health Care Financing Administration, issued cash advances to
  certain Medicare providers in connection with the transition from the Interim
  Payment System to the Prospective Payment System (PPS) for Medicare
  reimbursement. Such advances are expected to be repaid during the second quarter
  of fiscal 2002. In the first quarter of fiscal 2001, the Company received a cash
  advance relating to the transition to PPS, net of payments for estimated
  settlements relating to cost report filings, of approximately $20.9 million
  which was reflected in accrued expenses in the accompanying consolidated balance
  sheet as of September 30, 2001.
  
  
                                        -7-
  <PAGE>
  
       6. Cash and Revolving Credit Facility
  
       As of September 30, 2001, there were no outstanding borrowings and total
  outstanding letters of credit approximated $25.7 million under the Company's
  $150 million amended revolving credit facility which expires in 2004. The
  Company was in compliance with the financial covenants of the credit facility as
  of September 30, 2001.
  
       In June 2001, the Company's credit facility was amended to increase the
  portion of the facility available for letters of credit from $30 million to
  either (i) $40 million or (ii) $70 million in the event that the Company elects
  to post a letter of credit in lieu of an appellate bond for all or a part of the
  total amount of the judgment plus interest in the Fredrickson v. Olsten Health
  Services Corp. and Olsten Corporation case while the Company pursues its appeal
  of the judgment as further discussed in Note 8. A supersedeas bond in the amount
  of $35.2 million was posted to satisfy the judgment plus interest. Under the
  terms of the bond, cash equal to the amount of the bond is held in a segregated
  account as collateral for the bond and the interest relating thereto accrues to
  the Company. The cash in the segregated account is reflected in cash and cash
  equivalents in the accompanying consolidated balance sheet as of September 30,
  2001. At its discretion, the Company may substitute a letter of credit for the
  segregated cash to collateralize the bond.
  
  
  
       7. Shareholders' Equity
  
       Changes in shareholders' equity during the nine months ended September 30,
  2001 were as follows (in thousands):
  
  <TABLE>
  <CAPTION>
                                                  Common          Additional     Accumulated     Accumulated      Total
                                                   Stock          Paid-in         Deficit        Other Compre-
                                                                  Capital                        hensive Loss
                                                  -----------    ------------- ---------------   --------------  -----------
  <S>                                             <C>            <C>            <C>              <C>             <C>
  Balance at December 31, 2000                    $   2,120      $ 689,163      $ (124,570)      $    (564)      $566,149
  
       Comprehensive income:
          Net income                                                                14,677                         14,677
  
          Unrealized gain on investments                                                               107            107
  
          Issuance of stock upon conversion
          of convertible preferred trust
          securities                                    214         19,786             -                 -         20,000
  
          Issuance of stock upon exercise of
          stock options and under stock plans
          for employees and directors                   198         10,829             -                 -         11,027
                                                  -----------    ------------- ---------------   --------------  -----------
  Balance at September 30, 2001                   $   2,532      $ 719,778     $ (109,893)       $    (457)      $611,960
                                                  ===========    ============= ===============   ==============  ===========
  </TABLE>
  
  
                                        -8-
  <PAGE>
  
       Total comprehensive income (loss) amounted to $6.6 million and ($131.0)
  million during the third quarter of fiscal 2001 and 2000, respectively, and
  $14.8 million and ($130.7) million during the first nine months of fiscal 2001
  and 2000, respectively.
  
       On August 7, 2001, the Company's Board of Directors authorized the Company
  to call for the redemption of its 10 percent convertible subordinated debentures
  on or about September 14, 2001 at a redemption price of 108 percent of the
  original principal amount of the debentures in accordance with the terms of an
  Indenture dated March 15, 2000, between the Company and Wilmington Trust
  Company. These debentures, which are due in 2005, were issued to a Trust of
  which the Company owns all the common equity. The Trust, in turn, issued
  convertible preferred trust securities which have the same terms as the
  debentures, including, but not limited to, maturity, interest, conversion and
  redemption price to a number of holders under the terms of a Trust Agreement
  dated March 9, 2000. The convertible preferred trust securities are convertible
  into the Company's common stock at a conversion price of $9.319219.
  
       In June 2001, the Company issued 64,383 shares of common stock upon the
  conversion of $0.6 million of the convertible preferred trust securities. During
  the third quarter of fiscal 2001, the Company issued 2,081,722 shares of common
  stock upon the conversion of the remaining $19.4 million of convertible
  preferred trust securities. As of September 30, 2001, there were no convertible
  subordinated debentures of the Company and no convertible preferred trust
  securities of the Trust outstanding.
  
       8. Legal Matters
  
  Litigation
  
       In addition to the matters referenced below, 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.
  
       In late 2000, after engaging in a mediation conducted by a third-party
  mediator, the parties to the previously disclosed Class Action (In re Olsten
  Corporation Securities Litigation, No. 97-CV-5056 (DRH), U.S. District Court for
  the Eastern District of New York) and Derivative Lawsuit (Rubin v. May, No.
  17135-NC, Delaware Chancery Court) reached an agreement to settle both lawsuits
  for the aggregate sum of $25 million which was subject to approval by the
  respective courts. The Company's insurers funded $18 million of the proposed
  settlement sum. The Company funded the $7 million balance and recorded a special
  charge for that amount during fiscal 2000. On August 7, 2001, the Delaware
  Chancery Court gave final approval to the settlement of the Derivative Lawsuit
  and, on August 31, 2001, the District Court issued its final approval to the
  settlement of the Class Action.
  
       On July 21, 2000, plaintiff Ultimate Home Health Care, Inc. served an
  Amended Complaint in a purported class action lawsuit against the Company. This
  Amended Complaint was filed in the U.S. District Court for the Middle District
  of Tennessee, captioned Ul-
  
  
  
                                        -9-
  <PAGE>
  
  timate Home Health Care, Inc. v. Columbia/HCA Healthcare Corp., No. 3-00-0560,
  (the "Tennessee Lawsuit") and named as defendants Columbia/HCA, Columbia
  Homecare Group, Olsten Health Management a/k/a Hospital Contract Management
  Services (an affiliate of the Company) and Olsten Corporation. The Amended
  Complaint alleged, among other things, that the defendants' business practices
  in connection with home health care patient referrals between 1994 and 1996
  violated provisions of Federal antitrust laws, the Racketeer Influenced and
  Corrupt Organizations Act (RICO), the Tennessee Consumer Protection Act, and
  state common law, and sought unspecified compensatory damages, punitive damages,
  treble damages and attorneys' fees on behalf of a proposed class of home
  healthcare companies and/or agencies which conducted business in Tennessee,
  Texas, Florida and/or Georgia. By an order dated January 21, 2001, the Court
  ruled on defendants' motion to dismiss and dismissed plaintiffs' RICO and state
  common law tort claims, but allowed plaintiff's other claims to proceed. After
  conducting some discovery on the issues, on October 10, 2001, the plaintiff
  filed with the Court a Notice of Withdrawal of Certain Allegations notifying the
  Court of plaintiff's intent to withdraw all allegations related to class status
  and antitrust claims in the Amended Complaint. On November 5, 2001, plaintiff
  filed a second amended complaint alleging violation of Tennessee Consumer
  Protection Act and civil conspiracy, and seeking unspecified compensatory and
  punitive damages, and attorney's fees. The Company intends to continue to defend
  itself vigorously in this matter.
  
       On November 22, 2000, the jury in an age-discrimination lawsuit commenced
  in 1998, captioned Fredrickson v. Olsten Health Services Corp. and Olsten
  Corporation, Case No. 98 CV 1937, Court of Common Pleas, Mahoning County, Ohio,
  returned a verdict in favor of the plaintiff against Olsten consisting of
  $675,000 in compensatory damages, $30 million in punitive damages and an
  undetermined amount of attorneys' fees. The jury found that, although Olsten had
  lawfully terminated the plaintiff's employment, its failure to transfer or
  rehire the plaintiff rendered Olsten liable to the plaintiff. The defendants
  posted a court ordered bond in the amount of $675,000. The parties filed several
  post-trial motions, and following a March 23, 2001 hearing on the parties'
  respective post-trial motions, the trial court, on May 17, 2001, denied all
  post-trial motions, and entered judgment for the plaintiff for the full amount
  of compensatory and punitive damages, and awarded the plaintiff reduced
  attorney's fees of $247,938. On June 14, 2001, defendants timely filed a Notice
  of Appeal with the Court of Appeals, Seventh Appellate District, Mahoning
  County, Ohio, and on June 19, 2001, the Company posted a supersedeas bond for
  the full amount of the judgment, plus interest. On October 12, 2001, the Company
  timely filed its appellate brief with the Court of Appeals. Defendants agreed to
  extend the due date for Plaintiff's response brief up to and including January
  4, 2002. The Company continues to defend itself vigorously in this matter.
  
       On January 14, 1999, Kimberly Home Health Care, Inc. ("Kimberly"), one of
  the Company's subsidiaries, initiated three arbitration proceedings against
  hospitals owned by Columbia/HCA Healthcare Corp. ("Columbia/HCA") with which
  Kimberly had management services agreements to provide services to the
  hospitals' home health agencies. The basis for each of the arbitrations is that
  Columbia/HCA sold the home health agencies without assigning the management
  services agreements and, as a result, Columbia/HCA has breached the management
  services agreements. In response to the arbitrations, Columbia/HCA has as-
  
  
  
                                        -10-
  <PAGE>
  
  serted that the arbitrations be consolidated and stayed, in part based upon its
  alleged claims against Kimberly for breach of contract, and requested indemnity
  and possibly return of management fees. Columbia/HCA has not yet formally
  presented these claims in the arbitrations or other legal proceedings and has
  not yet quantified the claims. Still pending before the arbitrators is
  Columbia/HCA's request to consolidate the proceedings, which Kimberly has
  opposed.
  
       In Gile v. Olsten Corporation, et al., U.S. District Court for the Central
  District of California, No. 97-9363-NM, plaintiff filed an age discrimination
  suit against Olsten Corporation, Olsten Health Services, and a certain
  individual in December 1997. The defendants denied the allegations of
  discrimination on the basis that plaintiff's termination was part of a reduction
  in force. The individual defendant was dismissed from the action, and the
  remaining corporate defendants filed a motion for summary judgment that was
  granted by the District Court in February 1999. The plaintiff appealed the
  District Court's order to the Ninth Circuit Court of Appeals and in December,
  2000, the Court of Appeals issued its ruling which reversed the District Court
  and remanded the case for trial. On or about June 19, 2001, the Company and the
  plaintiff agreed to settle this matter and entered into a confidential
  settlement agreement with full release.
  
       In July 1999, the Indiana Attorney General's Office filed a lawsuit against
  Olsten in Indiana Superior Court, captioned State of Indiana v. Quantum Health
  Resources, Inc. and Olsten Health Services, Inc., No. 49D029907CP001011,
  alleging that Olsten was overpaid by Medicaid, failed to properly disclose
  information to Medicaid and engaged in improper billing. The alleged violations
  predate Olsten's acquisition of Quantum Health Resources in June 1996. The
  lawsuit sought unspecified monetary damages, double or treble damages, penalties
  and investigative costs. The parties resolved this matter during the second
  quarter of fiscal 2001 pursuant to a confidential Settlement agreement and full
  release. There is no ongoing obligation on the part of the Company arising from
  this settlement.
  
       In connection with the Split-Off, the Company agreed to assume, to the
  extent permitted by law, the liabilities, if any, arising out of (and to
  indemnify Olsten for) the above lawsuits and arbitration proceedings and other
  liabilities arising out of the health services business, including any such
  liabilities arising after the Split-Off in connection with the government
  investigations described below.
  
  Government Investigations
  
       In early December 1999, Olsten received a document subpoena from the
  Department of Health and Human Services, Office of Inspector General, and Office
  of Investigations. Based on discussions with the Office of Inspector General,
  the Company believed that the subpoena related to an investigation of possible
  overpayments made to the Company by the Medicare program. The Company provided
  the Office of Inspector General and other government agencies with requested
  documents and cooperated fully with this investigation. On November 1, 2001, the
  Company received notice of the entry of an Order dated October 25, 2001,
  unsealing a complaint in an action captioned United States of America ex rel.
  Lee Einer
  
  
  
                                        -11-
  <PAGE>
  
  v. Olsten Corporation, No. CIV-S-99-0860 DFL/DAD filed with the U.S. District
  Court for the Eastern District of California. In connection with the unsealing
  of the Complaint, and as recited in the Order unsealing the Complaint, the
  United States gave notice to the District Court that the United States was
  declining to intervene in the action. The Company believes that it was this
  Complaint that gave rise to the December 1999 document subpoena, and that
  following an almost two year investigation into the allegations made in the
  Complaint, the United States decided not to intervene and not to proceed with
  this action. The Company believes that the government has concluded its
  investigation into this matter. The Plaintiff has not yet served the Company
  with the Complaint.
  
       In early February 2000, the Company received a document subpoena from the
  Department of Health and Human Services, Office of Inspector General, and Office
  of Investigations. The Company believes the subpoena relates to its agencies'
  cost reporting procedures concerning contracted nursing and home health aide
  costs. The Company continues to provide the Office of Inspector General and
  other government agencies with the requested documents and to cooperate fully
  with their investigation. At this time, the Company is unable to assess the
  probable outcome or potential liability, if any, arising from this subpoena.
  
  
       9. Business Segment Information
  
       The Company operates in the United States and operated in Canada during the
  fiscal 2000 period, servicing patients and customers through the following
  business segments: Specialty Pharmaceutical Services, Home Health Services and,
  for the fiscal 2000 period, Staffing Services. These segments are briefly
  described below.
  
       Specialty Pharmaceutical Services includes (i) the distribution of drugs
  and other biological and pharmaceutical products and professional support
  services for individuals with chronic diseases, such as hemophilia, primary
  pulmonary hypertension, autoimmune deficiencies and growth disorders, (ii) the
  administration of antibiotics, chemotherapy, nutrients and other medications for
  patients with acute or episodic disease states, (iii) distribution services for
  pharmaceutical, biotechnology and medical service firms and (iv) clinical
  support services for pharmaceutical and biotechnology firms.
  
       Home Health Services includes (i) professional and paraprofessional
  services, including skilled nursing, rehabilitation and other therapies, home
  health aide and personal care services, to individuals with acute illnesses,
  long-term chronic health conditions, permanent disabilities, terminal illnesses
  or post-procedural needs and (ii) care management and coordination for managed
  care organizations and self-insured employees.
  
       Staffing Services included services to institutional, occupational and
  alternate site health care organizations by providing health care professionals
  to meet supplemental staffing needs. Canada included professional and
  paraprofessional services to individuals in home and institutional settings.
  Both Staffing Services and Canada constituted less than 10 percent of
  
  
  
                                        -12-
  <PAGE>
  
  the net revenues, operating contribution and the total assets of the Company
  and, as such, were combined for segment reporting purposes.
  
       The Company and its chief decision makers evaluate performance and allocate
  resources based on operating contributions of the reportable segments, which
  exclude corporate expenses, depreciation, amortization and interest expense, but
  include revenues and all other costs directly attributable to the specific
  segment. Intersegment revenues represent Specialty Pharmaceutical Services
  segment revenues generated from services provided to the Home Health Services
  segment. Identifiable assets of the segments reflect net accounts receivable and
  inventories associated with segment activities. All other assets are assigned to
  the Company for the benefit of all segments.
  
       During fiscal 2001, the Company changed its evaluation performance
  methodology, as described below, which resulted in a change in reportable
  segments. In the fiscal 2000 periods, clinical support services for the
  pharmaceutical and biotechnology firms and staffing services provided under a
  state contract were included in the Staffing Services segment. The Company now
  considers these services to be part of the Specialty Pharmaceutical Services
  segment and Home Health Services segment, respectively. In addition, services
  relating to care management and coordination for managed care organizations and
  self-insured employees were allocated between Specialty Pharmaceutical Services
  and Home Care Nursing Services segments in the fiscal 2000 periods based on the
  nature of services rendered; the Company now considers these services to be part
  of the Home Health Services segment. Furthermore, Canadian operating results
  were included in the Home Care Nursing Services segment in the prior year
  periods and are now reflected in the Staffing and Canada results for
  presentation purposes. Prior period segment data has been reclassified to
  conform with the current year presentation.
  
       Information about the Company's operations is as follows (in thousands):
  
  
  
                                        -13-
  <PAGE>
  
  <TABLE>
  <CAPTION>
                                                      Specialty         Home          Staffing          Total
                                                    Pharmaceutical     Health           and
                                                       Services       Services         Canada
                                                  -----------------  ------------     ----------     ------------
  Three months ended September 30, 2001
  -------------------------------------
  <S>                                              <C>                <C>             <C>            <C>
  Net revenues - segments                          $  172,740         $ 175,496       $      -       $  348,236
                                                  =================  ============     ==========
  Intersegment revenues                                                                                 (19,974)
                                                                                                     ------------
  Net revenues                                                                                       $  328,262
                                                                                                     ============
  
  Operating contribution                           $   18,733         $  11,901       $      -       $   30,634
                                                  =================  ============     ==========
  Corporate expenses                                                                                    (17,859)
                                                                                                     ------------
  Earnings before interest expense, taxes,
    depreciation and amortization                                                                        12,775
  Depreciation and amortization                                                                          (6,423)
  Interest income, net                                                                                      319
                                                                                                     ------------
  
  Income before income taxes                                                                          $   6,671
                                                                                                     ============
  
  
  Three months ended October 1, 2000
  ----------------------------------
  Net revenues - segments                          $  174,606         $ 178,715       $  45,254       $ 398,575
                                                  =================  ============     ==========
  Intersegment revenues                                                                                 (18,250)
                                                                                                     ------------
  Net revenues                                                                                        $ 380,325
                                                                                                     ============
  
  Operating contribution before special charges    $   19,975         $   7,824       $   4,241       $  32,040
  Special charges - segments                          (99,400)          (19,200)             -         (118,600)
                                                  -----------------  ------------     ----------     ------------
  Operating contribution (loss)                    $  (79,425)        $ (11,376)       $  4,241         (86,560)
                                                  =================  ============     ==========
  Corporate expenses                                                                                    (19,934)
  Special charges - corporate                                                                           (13,425)
                                                                                                     ------------
  Loss before interest expense, taxes,
    depreciation and amortization                                                                      (119,919)
  
  Depreciation and amortization                                                                          (7,846)
  Interest expense, net                                                                                  (2,270)
                                                                                                     ------------
  Loss before income taxes                                                                            $(130,035)
                                                                                                     ============
  </TABLE>
  
  
  
                                        -14-
  <PAGE>
  
  <TABLE>
  <CAPTION>
                                                      Specialty              Home          Staffing          Total
                                                    Pharmaceutical          Health           and
                                                       Services            Services         Canada
                                                  -------------------     ------------     ----------     ------------
  Nine months ended September 30, 2001
  ------------------------------------
  <S>                                             <C>                     <C>              <C>            <C>
  Net revenues - segments                         $ 546,955               $ 540,818        $       -      $1,087,773
                                                 ====================     ============     ==========
  Intersegment revenues                                                                                      (66,889)
                                                                                                          ------------
  Net revenues                                                                                            $1,020,884
                                                                                                          ============
  Operating contribution                          $  52,652               $  39,455        $       -      $   92,107
                                                 ====================     ============     ==========
  Corporate expenses                                                                                         (52,979)
  Special charges - corporate                                                                                 (3,011)
                                                                                                          ------------
  Earnings before interest expense, taxes,
    depreciation and amortization                                                                             36,117
  Depreciation and amortization                                                                              (20,048)
  Interest expense, net                                                                                         (267)
                                                                                                          ------------
  
  Income before income taxes                                                                               $  15,802
                                                                                                          ============
  
  Segment assets                                  $ 286,782               $ 141,686        $        -      $ 428,468
                                                 ====================     ============     ==========
  Intersegment assets                                                                                        (13,456)
                                                                                                          ------------
  Segment assets, net                                                                                        415,012
  Corporate assets                                                                                           400,580
                                                                                                          ------------
  Total assets                                                                                             $ 815,592
                                                                                                          ============
  
  Nine months ended October 1, 2000
  ---------------------------------
  Net revenues - segments                         $ 515,500               $ 555,426        $  129,022     $1,199,948
                                                 ====================     ============     ==========
  Intersegment revenues                                                                                      (51,746)
                                                                                                          ------------
  Net revenues                                                                                            $1,148,202
                                                                                                          ============
  
  Operating contribution before special charges   $  63,396               $  29,971        $    9,893     $  103,260
  
  Special charges - segments                        (99,400)                (19,200)                -       (118,600)
                                                 --------------------     ------------     ----------     ------------
  Operating contribution (loss)                   $ (36,004)              $   10,771       $    9,893        (15,340)
                                                 ====================     ============     ==========
  
  Corporate expenses                                                                                         (61,093)
  Special charges - corporate                                                                                (20,216)
                                                                                                          ------------
  Loss before interest expense, taxes,
    depreciation and amortization                                                                            (96,649)
  
  Depreciation and amortization                                                                              (24,307)
  Interest expense, net                                                                                       (8,618)
                                                                                                          ------------
  Loss before income taxes                                                                                $ (129,574)
                                                                                                          ============
  
  Segment assets                                  $  359,480              $ 147,234        $  25,687      $  532,401
                                                 ====================     ============     ==========
  Intersegment assets                                                                                        (12,000)
                                                                                                          ------------
  Segment assets, net                                                                                        520,401
  Corporate assets                                                                                           333,216
                                                                                                          ------------
  Total assets                                                                                            $  853,617
                                                                                                          ============
  </TABLE>
  
                                        -15-
  <PAGE>
  
  Item 2. Management's Discussion and Analysis of Financial Condition and Results
          -----------------------------------------------------------------------
          of Operations
          -------------
  
  General
  -------
  
       The comparability of the Company's results of operations between the third
  quarter and the first nine months of fiscal 2001 and 2000 was impacted by
  several items which are briefly described below.
  
       o    On March 15, 2000, the Company was Split-off from Olsten Corporation
            ("Olsten") through the issuance of all of the Company's common stock
            to Olsten's shareholders and the Company became an independent,
            publicly-owned company. Prior thereto, the Company operated Olsten's
            health services business as a wholly-owned subsidiary of Olsten. The
            accompanying consolidated financial statements reflect the financial
            position, results of operations and cash flows of the Company as if it
            were a separate entity for all periods presented. The consolidated
            financial statements have been prepared using the historical basis of
            assets and liabilities and historical results of operations related to
            the Company.
  
       o    During the first nine months of fiscal 2001, the Company recorded
            special charges of approximately $3.0 million in connection with the
            settlement of the Gile v. Olsten Corporation, et al., and the State of
            Indiana v. Quantum Health Resources, Inc. and Olsten Health Services,
            Inc. lawsuits and for various other legal costs. These legal matters
            are further discussed in Note 8. These special charges are reflected
            in selling, general and administrative expenses in the accompanying
            consolidated statement of operations.
  
            During the third quarter and first nine months of fiscal 2000, the
            Company recorded special charges aggregating $132.0 million and $138.8
            million, respectively. Of this amount, charges of $125.6 million and
            $132.4 million, respectively, were reflected in selling, general and
            administrative expenses. These charges for both the third quarter and
            first nine months included (i) an incremental provision for doubtful
            accounts of $112.0 million, (ii) a $7.2 million charge to reflect
            estimated settlement costs in excess of insurance coverage related to
            class action securities and derivative lawsuits assumed by the Company
            from Olsten Corporation under an indemnification provision in
            connection with the split-off and government inquiries in New Mexico
            and North Carolina and (iii) a charge of $5.2 million associated with
            the impairment of goodwill relating to the Company's Canadian home
            care nursing services operation which was sold during the fourth
            quarter of 2000.
  
            In addition, special charges of $1.2 million in the third quarter and
            $3.9 million in the first nine months of fiscal 2000 were incurred in
            connection with the change of
  
  
  
                                        -16-
  <PAGE>
  
            the Company's name to Gentiva Health Services, Inc. These special
            charges primarily consisted of costs incurred and paid for consulting
            fees, promotional items and advertising.
  
            Furthermore, charges of $4.1 million were incurred in the first nine
            months of fiscal 2000 to reflect obligations resulting from the
            Company's Split-off from Olsten and transition costs associated with
            the establishment of the Company as an independent, publicly-owned
            entity. These special charges included change of control and
            compensation and benefit payments of $3.6 million made to certain
            former employees of the Company and Olsten and a current executive
            officer of the Company, and transition costs of $0.5 million relating
            to registration costs, professional fees and other items.
  
            During the third quarter and first nine months of fiscal 2000, an
            adjustment of $6.4 million was recorded in cost of services sold for
            the estimated obsolescence, shrinkage of inventory and changes in cost
            estimates arising from the systems conversion and asset verification
            and physical inventory procedures which were performed during the
            third quarter of fiscal 2000.
  
       o    Prior to October 1, 2000, reimbursement of Medicare home care nursing
            services was based on reasonable, allowable costs incurred in
            providing services to eligible beneficiaries subject to both per visit
            and per beneficiary limits in accordance with the Interim Payment
            System (the "IPS") established through the Balanced Budget Act of
            1997. These costs are reported in annual cost reports which are filed
            with the Medicare fiscal intermediary and are subject to audit.
            Effective October 1, 2000, the IPS was replaced by a Prospective
            Payment System ("PPS") for Medicare home care reimbursement. Under
            PPS, the Company is eligible to receive a fixed reimbursement which
            covers a specified treatment period for each patient. The
            reimbursement rate is established based on a clinical assessment of
            the severity of the patient's condition, service needs and certain
            other factors. The rate is subject to adjustment if there are
            significant changes in the patient's condition during the specified
            treatment period. Net revenues attributable to the Medicare program as
            a percentage of total consolidated net revenues were 17 percent in the
            third quarter and first nine months of both fiscal 2001 and 2000.
  
       o    During the fourth quarter of fiscal 2000, the Company sold its health
            care staffing services business and its Canadian operations. In the
            third quarter and first nine months of fiscal 2000, the Company
            recorded revenues of $45 million and $129 million, respectively, gross
            profit of $11 million and $33 million, respectively, and selling,
            general and administrative expenses of $7 million and $24 million,
            respectively, relating to the businesses that were sold.
  
  
  
                                        -17-
  <PAGE>
  
       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 of Form 10-K for the fiscal
  year ended December 31, 2000.
  
  
  
  Results of Operations
  ---------------------
  
       Revenues
  
       After adjusting for the Staffing and Canadian operations which were sold
  during the fourth quarter of fiscal 2000, net revenues decreased by $7 million
  or 2.0% to $328 million during the third quarter of fiscal 2001 as compared to
  the third quarter of fiscal 2000 primarily due to a $3 million or 1.8 percent
  decline in Home Health Services revenues, a $2 million or 1.1 percent decrease
  in the Specialty Pharmaceutical Services revenue and a $2 million increase in
  the intersegment revenue elimination relating to services provided to the Home
  Health Services segment by the Specialty Pharmaceutical Services segment that is
  eliminated in consolidation. Overall, net revenues in the third quarter of
  fiscal 2001 decreased by $52 million or 13.7 percent as compared to the third
  quarter of fiscal 2000, of which $7 million in revenues related to the items
  discussed above and $45 million in revenues related to the aforementioned sold
  operations.
  
       After adjusting for the sales of the Staffing and Canadian operations as
  noted above, net revenues increased by $2 million or 0.2 percent to $1.02
  billion during the first nine months of fiscal 2001 as compared to the
  corresponding period of fiscal 2000. This increase was driven by growth in the
  Specialty Pharmaceutical Services segment of $32 million or 6.1 percent, of
  which $15 million related to intersegment revenues, offset by a decline of $15
  million or 2.6 percent in Home Health Services revenue. Overall, net revenues
  decreased by $12.7 million or 11.1 percent during the first nine months of
  fiscal 2001 as compared to the corresponding period of the prior year which
  included $129 million in revenue related to the sold operations.
  
       During the third quarter and first nine months of fiscal 2001, the Company
  experienced unit volume increases in several core chronic therapies in the
  Specialty Pharmaceutical Services segment. These therapies included (i) Flolan,
  an intravenous therapy used in the treatment of pulmonary arterial hypertension,
  (ii) intravenous immune globulin (IVIG), used in the treatment of primary immune
  deficiency and other diagnoses and (iii) growth hormone, used in the treatment
  of growth hormone disorder. Revenue growth was negatively impacted in both the
  third quarter and nine month periods by some product shortages of recombinant
  coagulation therapy, which is used in the treatment of hemophilia. In addition,
  revenue relating to acute infusion products decreased somewhat due to
  management's decision to terminate certain contracts in an effort to improve
  revenue quality and cash flow. Due to significant purchases by wholesale
  customers early in 2001 revenue relating to Oxandrin, an oral pharmaceutical for
  involuntary weight loss, increased during the fiscal 2001 year to date period as
  compared to the corresponding period of fiscal 2000 as a result of growth in
  unit volume dur-
  
  
  
                                        -18-
  <PAGE>
  
  ing the first half of fiscal 2001 offset by a decrease in volume during the
  third quarter. In addition, the Company recognized revenues of $5.0 million in
  the third quarter of fiscal 2000 relating to an adjustment to estimated revenue
  accruals and increased a provision for doubtful accounts by a corresponding
  amount. Excluding this adjustment, net revenues in the Specialty Pharmaceutical
  Services segment increased by 1.7 percent in the third quarter and 7.1 percent
  in the first nine months of fiscal 2001 as compared to the corresponding periods
  of fiscal 2000.
  
       The decline in Home Health Services revenue during the third quarter and
  first nine months of fiscal 2001 was attributable primarily to the continuing
  transition to new clinical protocols as part of the new Medicare reimbursement
  system which has resulted in a more efficient delivery of care in fiscal 2002
  and the impact of the closing of certain home care nursing branches during the
  fourth fiscal quarter at 2000.
  
       Gross Profit
  
       Gross profit margins as a percentage of net revenues increased from 31.1
  percent in the fiscal 2000 third quarter to 34.1 percent in the third quarter of
  fiscal 2001 and from 32.7 percent in the first nine months of fiscal 2000 to
  33.5 percent in the first nine months of the fiscal 2001. Of the total increase
  in margins, 1.7 percent for the third quarter and 0.5 percent for the nine
  months can be attributed to the special charges associated with the inventory
  adjustment of $6.4 million which was recorded in the three month and nine month
  periods of fiscal 2000. The remaining increase in margins was primarily
  attributable to productivity enhancements resulting from a change in clinical
  protocols and rate increases in Home Health Services as well as the absence of
  lower margin Staffing and Canadian operations which were sold in late 2000
  offset by a change in business mix reflecting growth in the lower margin
  Specialty Pharmaceutical Services products and higher costs attributable to
  certain biological and pharmaceutical products due to product shortages.
  
       Selling, General and Administrative Expenses
  
       Selling, general and administrative expenses decreased to $106 million
  during the third quarter of fiscal 2001 as compared to $246 million during the
  third quarter of fiscal 2000 due to (i) special charges of $126 million which
  were recorded in the fiscal 2000 period, (ii) the reduction of $8 million in
  costs associated with the sale of the Staffing and Canadian operations, (iii)
  efficiency improvement efforts in Home Health Services branch operations,
  certain Specialty Pharmaceutical Services administrative functions and corporate
  administrative support departments, and (iv) the closing of certain home care
  nursing branches during the fourth quarter of fiscal 2000.
  
       For the first nine months of fiscal 2001, selling, general and
  administrative expenses were $326 million as compared to $496 million for the
  first nine months of fiscal 2000. This decrease resulted from the reduction of
  $24 million in costs associated with the sale of the Staffing and Canadian
  operations, the impact of efficiency improvement efforts and the clos-
  
  
  
                                        -19-
  <PAGE>
  
  ing of home care nursing branches as well as a change in special charges from
  $132 million in the fiscal 2000 period to $3 million in the fiscal 2001 period.
  
       Excluding the effects of the businesses that were sold and the special
  charges recorded in the periods as described above, selling, general and
  administrative expenses as a percentage of net revenues were 31.6 percent and
  32.3 percent during the first nine months of fiscal 2001 and 2000, respectively,
  and 32.2 percent and 33.7 percent during the third quarter of fiscal 2001 and
  2000, respectively.
  
       Interest Income (Expense), Net
  
       Net interest income was approximately $0.3 million in the third quarter of
  fiscal 2001 and net interest expense was approximately $2.3 million in the third
  quarter of fiscal 2000. Net interest expense was approximately $0.3 million and
  $8.6 million in the first nine months of fiscal 2001 and 2000, respectively. Net
  interest income (expense) for the third quarter and first nine months of fiscal
  2001 represented primarily fees relating to the revolving credit facility and
  outstanding letters of credit and, for the first half of fiscal 2001, the 10
  percent convertible preferred trust securities offset by interest income of
  approximately $0.9 million and $1.4 million, respectively. During the three and
  nine months ended October 1, 2000, net interest expense also included interest
  on the outstanding 4 3/4 percent convertible subordinated debentures which
  matured and were retired in October 2000, net intercompany borrowings with
  Olsten up to the Split-off date and interest on borrowings under the credit
  facility subsequent to the Split-off date.
  
       Income Taxes
  
       Income tax expense for the fiscal 2001 period consisted primarily of taxes
  relating to certain state jurisdictions. The Company had estimated net operating
  loss carryforwards (NOLs) of approximately $76 million as of December 31, 2000.
  Because of the uncertainty of ultimate realization of the net deferred tax
  asset, the Company has established a valuation allowance for the deferred tax
  asset that is not otherwise used to offset deferred tax liabilities. The Company
  expects its effective tax rate to range between 6 and 8 percent until such time
  as the NOLs are utilized.
  
       Liquidity and Capital Resources
  
       Working capital at September 30, 2001, was $388 million, an increase of $39
  million as compared to $349 million at December 31, 2000. Net receivables
  decreased by $53 million in the first nine months of fiscal 2001 as a result of
  improved cash collections driven by enhancements in the billing system for
  Specialty Pharmaceutical Services as well as increases in billings through
  electronic data interchange and a decrease in related revenues. After adjusting
  for the sale of the Company's staffing services business and Canadian
  operations, adjusted Days Sales Outstanding ("DSO") was 111 days at December 31,
  2000. DSO was reduced by 9 days to 102 days at September 30, 2001 as a result of
  improved cash collections.
  
  
  
                                        -20-
  <PAGE>
  
       Cash and cash equivalents increased by approximately $83 million as of
  September 30, 2001 as compared to December 31, 2000 as a result of (i) cash flow
  from operations, net of decrease in book overdrafts which were included in
  accounts payable at December 31, 2000, of approximately $57 million, (ii)
  Medicare advances, net of payments for estimated settlements, of approximately
  $21 million, and (iii) proceeds from the exercise of stock options of
  approximately $11 million, offset somewhat by capital expenditures of
  approximately $5.9 million. In early 2001, the Center for Medicare and Medicaid
  Services, formerly known as the Health Care Financing Administration, issued
  cash advances to certain Medicare providers in connection with the transition
  from the IPS to the PPS for Medicare reimbursement. Such advances are expected
  to be repaid during the second quarter of fiscal 2002. In the first quarter of
  fiscal 2001, the Company received a cash advance relating to the transition to
  PPS, net of payments for estimated settlements relating to cost report filings,
  of approximately $21 million which was reflected in accrued expenses in the
  accompanying consolidated balance sheet as of September 30, 2001.
  
       The Company maintains a credit facility, which provides for up to $150
  million in borrowings. The Company may borrow up to a maximum of 80 percent of
  eligible accounts receivable, as defined. At the Company's option, the interest
  rate on borrowings under the credit facility is based on the London Interbank
  Offered Rate (LIBOR) plus 2.5 percent or the lender's prime rate plus 0.25
  percent. As of September 30, 2001, there were no borrowings outstanding under
  the credit facility and total outstanding letters of credit approximated $25.7
  million. The Company is subject to an unused line fee equal to 0.375 percent per
  annum of the average daily difference between $150 million and the total
  outstanding borrowings and letters of credit. In addition, the Company must pay
  a fee equal to 2.25 percent per annum of the aggregate face amount of
  outstanding standby letters of credit.
  
       The amended credit facility, which expires in 2004, includes certain
  covenants requiring the Company to maintain a minimum tangible net worth and
  minimum earnings before interest, taxes, depreciation and amortization. Other
  covenants in the credit facility include limitation on mergers, consolidations,
  acquisitions, indebtedness, liens, capital expenditures and dispositions of
  assets and other limitations with respect to the Company's operations. The
  Company's obligations under the credit facility are collateralized by all of the
  Company's tangible and intangible personal property, and other equipment. As of
  September 30, 2001, the Company was in compliance with its financial covenants
  and had borrowing capacity under the credit facility, after adjusting for
  outstanding letters of credit, of approximately $124 million.
  
       In June 2001, the Company's credit facility was amended to increase the
  portion of the facility available for letters of credit from $30 million to
  either (i) $40 million or (ii) $70 million in the event that the Company elects
  to post a letter of credit in lieu of an appellate bond for all or a part of the
  total amount of the judgment plus interest in the Fredrickson v. Olsten Health
  Services Corp. and Olsten Corporation case while the Company pursues its appeal
  of the judgment as further discussed in Note 8. A supersedeas bond in the amount
  of $35 million was posted to satisfy the judgment plus interest. Under the terms
  of the bond, cash equal to the amount of the bond is held in a segregated
  account as collateral for the bond
  
  
  
                                        -21-
  <PAGE>
  
  and the interest relating thereto accrues to the Company. The cash in the
  segregated account is reflected in cash and cash equivalents in the accompanying
  consolidated balance sheet. At its discretion, the Company may substitute a
  letter of credit for the segregated cash to collateralize the bond.
  
       Management believes cash flows from operations, borrowings available under
  the credit facility and other financing options, including issuance of debt or
  equity securities under an effective shelf registration statement will be
  adequate to support the ongoing operations and to meet debt service requirements
  for the foreseeable future. The Company intends to make investments and other
  expenditures to, among other things, upgrade its computer technology and system
  infrastructure and comply with regulatory changes in the industry. If cash flows
  from operations or availability under the credit facility 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
          ----------------------------------------------------------
  
       The Company's exposure to the market risk for changes in the interest rates
  related to the fair value of its fixed rate Quantum debentures until their
  repayment in October 2000. Generally, the fair market value of fixed rate debt
  will increase as interest rates fall and decrease as interest rates rise. The
  Company had no interest rate exposure on fixed rate debt at September 30, 2001.
  
  OTHER:
  
       INFORMATION CONTAINED HEREIN, OTHER THAN HISTORICAL INFORMATION, SHOULD BE
  CONSIDERED FORWARD-LOOKING AND IS SUBJECT TO VARIOUS RISKS AND UNCERTAINTIES.
  FOR INSTANCE, THE COMPANY'S STRATEGIES AND OPERATIONS INVOLVE RISKS OF
  COMPETITION, CHANGING MARKET CONDITIONS, CHANGES IN LAWS AND REGULATIONS
  AFFECTING THE COMPANY'S INDUSTRIES AND NUMEROUS OTHER FACTORS DISCUSSED IN THIS
  DOCUMENT AND IN OTHER COMPANY FILINGS WITH THE SECURITIES AND EXCHANGE
  COMMISSION. ACCORDINGLY, ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE
  EXPRESSED IN ANY FORWARD-LOOKING STATEMENTS CONTAINED HEREIN.
  
  
                                        -22-
  <PAGE>
  
                             PART II - OTHER INFORMATION
  
  Item 1. Legal Proceedings
          -----------------
  
       Litigation
  
  
       In addition to the matters referenced below, 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.
  
       In late 2000, after engaging in a mediation conducted by a third-party
  mediator, the parties to the previously disclosed Class Action (In re Olsten
  Corporation Securities Litigation, No. 97-CV-5056 (DRH), U.S. District Court for
  the Eastern District of New York) and Derivative Lawsuit (Rubin v. May, No.
  17135-NC, Delaware Chancery Court) reached an agreement to settle both lawsuits
  for the aggregate sum of $25 million which was subject to approval by the
  respective courts. The Company's insurers funded $18 million of the proposed
  settlement sum. The Company funded the $7 million balance and recorded a special
  charge for that amount during fiscal 2000. On August 7, 2001, the Delaware
  Chancery Court gave final approval to the settlement of the Derivative Lawsuit
  and, on August 31, 2001, the District Court issued its final approval to the
  settlement of the Class Action.
  
       On July 21, 2000, plaintiff Ultimate Home Health Care, Inc. served an
  Amended Complaint in a purported class action lawsuit against the Company. This
  Amended Complaint was filed in the U.S. District Court for the Middle District
  of Tennessee, captioned Ultimate Home Health Care, Inc. v. Columbia/HCA
  Healthcare Corp., No. 3-00-0560 (the "Tennessee Lawsuit"), and named as
  defendants Columbia/HCA, Columbia Homecare Group, Olsten Health Management a/k/a
  Hospital Contract Management Services (an affiliate of the Company) and Olsten
  Corporation. The Amended Complaint alleged, among other things, that the
  defendants' business practices in connection with home health care patient
  referrals between 1994 and 1996 violated provisions of Federal antitrust laws,
  the Racketeer Influenced and Corrupt Organizations Act (RICO), the Tennessee
  Consumer Protection Act, and state common law, and sought unspecified
  compensatory damages, punitive damages, treble damages and attorneys' fees on
  behalf of a proposed class of home healthcare companies and/or agencies which
  conducted business in Tennessee, Texas, Florida and/or Georgia. By an order
  dated January 21, 2001, the Court ruled on defendants' motion to dismiss and
  dismissed plaintiffs' RICO and state common law tort claims, but allowed
  plaintiff's other claims to proceed. After conducting some discovery on the
  issues, on October 10, 2001, the plaintiff filed with the Court a Notice of
  Withdrawal of Certain Allegations notifying the Court of plaintiff's intent to
  withdraw all allegations related to class status and antitrust claims in the
  Amended Complaint. On November 5, 2001, plaintiff filed a second amended
  complaint alleging violation of Tennessee Consumer Protection Act and civil
  conspiracy, and seeking un-
  
  
  
                                        -23-
  <PAGE>
  
  specified compensatory and punitive damages, and attorney's fees. The Company
  intends to continue to defend itself vigorously in this matter.
  
       On November 22, 2000, the jury in an age-discrimination lawsuit commenced
  in 1998, captioned Fredrickson v. Olsten Health Services Corp. and Olsten
  Corporation, Case No. 98 CV 1937, Court of Common Pleas, Mahoning County, Ohio,
  returned a verdict in favor of the plaintiff against Olsten consisting of
  $675,000 in compensatory damages, $30 million in punitive damages and an
  undetermined amount of attorneys' fees. The jury found that, although Olsten had
  lawfully terminated the plaintiff's employment, its failure to transfer or
  rehire the plaintiff rendered Olsten liable to the plaintiff. The defendants
  posted a court ordered bond in the amount of $675,000. The parties filed several
  post-trial motions, and following a March 23, 2001 hearing on the parties'
  respective post-trial motions, the trial court, on May 17, 2001, denied all
  post-trial motions, and entered judgment for the plaintiff for the full amount
  of compensatory and punitive damages, and awarded the plaintiff reduced
  attorney's fees of $247,938. On June 14, 2001, defendants timely filed a Notice
  of Appeal with the Court of Appeals, Seventh Appellate District, Mahoning
  County, Ohio, and on June 19, 2001, the Company posted a supersedeas bond for
  the full amount of the judgment, plus interest. On October 12, 2001, the Company
  timely filed its appellate brief with the Court of Appeals. Defendants agreed to
  extend the due date for Plaintiff's response brief up to and including January
  4, 2002. The Company continues to defend itself vigorously in this matter.
  
       On January 14, 1999, Kimberly Home Health Care, Inc. ("Kimberly"), one of
  the Company's subsidiaries, initiated three arbitration proceedings against
  hospitals owned by Columbia/HCA Healthcare Corp. ("Columbia/HCA") with which
  Kimberly had management services agreements to provide services to the
  hospitals' home health agencies. The basis for each of the arbitrations is that
  Columbia/HCA sold the home health agencies without assigning the management
  services agreements and, as a result, Columbia/HCA has breached the management
  services agreements. In response to the arbitrations, Columbia/HCA has asserted
  that the arbitrations be consolidated and stayed, in part based upon its alleged
  claims against Kimberly for breach of contract, and requested indemnity and
  possibly return of management fees. Columbia/HCA has not yet formally presented
  these claims in the arbitrations or other legal proceedings and has not yet
  quantified the claims. Still pending before the arbitrators is Columbia/HCA's
  request to consolidate the proceedings, which Kimberly has opposed.
  
       In connection with the Split-Off, the Company agreed to assume, to the
  extent permitted by law, the liabilities, if any, arising out of (and to
  indemnify Olsten for) the above lawsuits and arbitration proceedings and other
  liabilities arising out of the health services business, including any such
  liabilities arising after the Split-Off in connection with the government
  investigations described below.
  
  
  
                                        -24-
  <PAGE>
  
       Government Investigations
  
       In early December 1999, Olsten received a document subpoena from the
  Department of Health and Human Services, Office of Inspector General, and Office
  of Investigations. Based on discussions with the Office of Inspector General,
  the Company believed that the subpoena related to an investigation of possible
  overpayments made to the Company by the Medicare program. The Company provided
  the Office of Inspector General and other government agencies with requested
  documents and cooperated fully with this investigation. On November 1, 2001, the
  Company received notice of the entry of an Order dated October 25, 2001,
  unsealing a complaint in an action captioned United States of America ex rel.
  Lee Einer v. Olsten Corporation, No. CIV-S-99-0860 DFL/DAD filed with the U.S.
  District Court for the Eastern District of California. In connection with the
  unsealing of the Complaint, and as recited in the Order unsealing the Complaint,
  the United States gave notice to the District Court that the United States was
  declining to intervene in the action. The Company believes that it was this
  Complaint that gave rise to the December 1999 document subpoena, and that
  following an almost two year investigation into the allegations made in the
  Complaint, the United States decided not to intervene and not to proceed with
  this action. The Company believes that the government has concluded its
  investigation into this matter. The Plaintiff has not yet served the Company
  with the Complaint.
  
       In early February 2000, the Company received a document subpoena from the
  Department of Health and Human Services, Office of Inspector General, and Office
  of Investigations. The Company believes the subpoena relates to its agencies'
  cost reporting procedures concerning contracted nursing and home health aide
  costs. The Company continues to provide the Office of Inspector General and
  other government agencies with the requested documents and to cooperate fully
  with their investigation. At this time, the Company is unable to assess the
  probable outcome or potential liability, if any, arising from this subpoena.
  
  
  Item 2. Change in Securities and Use of Proceeds
          ----------------------------------------
  
       None.
  
  Item 3. Defaults Upon Senior Securities
          -------------------------------
  
       None.
  
  Item 4. Submission of Matters to a Vote of Security Holders
          ---------------------------------------------------
  
  (a)  None.
  
  
  
                                        -25-
  <PAGE>
  
  Item 5. Other Information
          -----------------
  
       In October 1998, in connection with its settlement of a government
  investigation into the health care practices of Quantum Health Resources (a
  subsidiary of the Company) for a period prior to 1997, Olsten executed a
  corporate integrity agreement with the U.S. Department of Justice, the Office of
  Inspector General of the U.S. Department of Health and Human Services, the U.S
  Secretary of Defense (for the CHAMPUS/Tricare Program) and the Attorneys General
  for the United States of New York and Oklahoma that will be in effect until
  December 31, 2001. The October 1998 corporate integrity agreement applies to the
  Company's specialty pharmaceutical services business and focuses on the training
  and billing of blood factor products for hemophiliacs.
  
       In connection with a July 19, 1999 settlement with various government
  agencies, Olsten executed a corporate integrity agreement with the Office of
  Inspector General of the Department of Health and Human Services which will
  remain in effect until August 18, 2004. The July 1999 corporate integrity
  agreement applies to the Company's businesses that bill the federal government
  health programs directly for services, such as its home care nursing business
  (but excluding the specialty pharmaceutical services business). This corporate
  integrity agreement focuses on issues and training related to cost report
  preparation, contracting, medical necessity and billing of claims.
  
       Under each of the corporate integrity agreements, the Company is required,
  for example, to maintain a corporate compliance officer to develop and implement
  compliance programs, to retain an independent review organization to perform
  annual reviews and to maintain a compliance program and reporting systems, as
  well as provide certain training to employees.
  
       The Company's compliance program will be implemented for all newly
  established or acquired business units if their type of business is covered by
  the corporate integrity agreements. Reports under each integrity agreement are
  to be filed annually with the Department of Health and Human Services, Office of
  Inspector General. After each corporate integrity agreement expires, the Company
  is to file a final annual report with the government. The Company is in
  compliance with both corporate integrity agreements and has timely filed all
  required reports. If the Company fails to comply with the terms of either of its
  corporate integrity agreements, the Company will be subject to penalties.
  
  Item 6. Exhibits and Reports on Form 8-K
          --------------------------------
  
  (a)      Exhibit Number    Description
           --------------    -----------
  
            3.1  Restated Certificate of Incorporation of Company. (1)
  
            3.2  Restated By-Laws of Company. (1)
  
            4.1  Specimen of common stock. (3)
  
  
  
                                        -26-
  <PAGE>
  
            4.2  Form of Certificate of Designation of Series A Junior
                 Participating Preferred Stock. (1)
  
            4.3  Form of Certificate of Designation of Series A Cumulative
                 Non-Voting Redeemable Preferred Stock. (2)
  
            4.4  Trust Agreement among the Company, Wilmington Trust Company, the
                 Administrative Trustees named therein and the holders from time
                 to time of the convertible trust preferred securities dated March
                 9, 2000. (4)
  
            4.5  Indenture between the Company and Wilmington Trust Company dated
                 March 15, 2000. (4)
  
            10.1 Separation Agreement dated August 17, 1999, among Olsten
                 Corporation, Aaronco Corp. and Adecco SA. (1)*
  
            10.2 Omnibus Amendment No. 1 dated October 7, 1999, by and among
                 Olsten Corporation, Aaronco Corp., Adecco SA and Olsten Health
                 Services Holding Corp. (1)
  
            10.3 Form of Rights Agreement dated March 2, 2000 between the
                 Registrant and Equiserve Limited Partnership, as rights agent.
                 (1)
  
            10.4 Company's Executive Officers Bonus Plan. (1)*
  
            10.5 Company's 1999 Stock Incentive Plan. (4)*
  
            10.6 Company's Stock & Deferred Compensation Plan for Non-Employee
                 Directors. (4)*
  
            10.7 Company's Employee Stock Purchase Plan. (1)*
  
            10.8 Omnibus Amendment No. 2 dated January 18, 2000, by and among
                 Olsten Corporation, Adecco SA, Olsten Health Services Holding
                 Corp., the Company and Staffing Acquisition Corporation. (1)
  
            10.9 Loan and Security Agreement by and between Fleet Capital Corp.,
                 on behalf of the lenders named therein, the Company, Olsten
                 Health Services Holding Corp. and the subsidiaries named therein,
                 dated March 13, 2000. (4)
  
            10.10 Form of Employment Agreement with Edward A. Blechschmidt. (2)*
  
  
  
                                        -27-
  <PAGE>
  
            10.11 Form of Change of Control Agreement with Executive Officers of
                  Company. (4)*
  
            10.12 Form of Change in Control Agreement with Edward A. Blechschmidt.
                  (4)*
  
            10.13 Form of Severance Agreement with Executive Officers of Company.
                  (2)*
  
            10.14 Amendment No. 1 dated June 30, 2000 to Trust Agreement among the
                  Company, Wilmington Trust Company, the Administrative Trustees
                  named therein and the holders from time to time of the
                  convertible trust preferred securities. (5)
  
            10.15 Amendment No. 1 dated June 30, 2000 to Indenture between the
                  Company and Wilmington Trust Company. (5)
  
            10.16 First Amendment and Consent Agreement dated September 15, 2000
                  to the Loan Agreement by and among the lending institutions
                  named therein, Fleet Capital Corporation, the Company, Olsten
                  Health Services Holding Corp. and the subsidiaries named
                  therein. (6)
  
            10.17 Purchase and Sale Agreement dated August 25, 2000 by and between
                  the Company and Intelistaf Group, Inc. (formerly known as GS
                  Acquisition Co.) (6)
  
            10.18 Second Amendment and Consent Agreement dated as of November 20,
                  2000 to the Loan Agreement by and among the lending institutions
                  named therein, Fleet Capital Corporation, the Company, Olsten
                  Health Services Holding Corp. and the subsidiaries named therein
                  (7)
  
            10.19 Third Amendment to Loan and Security Agreement dated as of June
                  1, 2001 by and among the lending institutions named therein,
                  Fleet Capital Corporation, the Company, Olsten Health Services
                  Holding Corp. and the subsidiaries named therein.
  
            21.1 List of Subsidiaries of Company. (2)
  
            ---------------------------------------------------------------------
  
            (1)  Incorporated herein by reference to Amendment No. 2 to the
                 Registration Statement on Form S-4, dated January 20, 2000
  
  
  
                                        -28-
  <PAGE>
  
                 (File No. 333-88663).
  
            (2)  Incorporated herein by reference to Amendment No. 3 to the
                 Registration Statement on Form S-4, dated February 4, 2000 (File
                 No. 333-88663).
  
            (3)  Incorporated herein by reference to Amendment No. 4 to the
                 Registration Statement on Form S-4, dated February 9, 2000 (File
                 No. 333-88663).
  
            (4)  Incorporated herein by reference to Form 10-K for the Registrant
                 for the fiscal year ended January 2, 2000.
  
            (5)  Incorporated herein by reference to Form 10-Q for the Registrant
                 for the period ended July 2, 2000.
  
            (6)  Incorporated herein by reference to Form 10-Q for the Registrant
                 for the period ended October 1, 2000.
  
            (7)  Incorporated herein by reference to Form 10-K for the Registrant
                 for the fiscal year ended December 31, 2000.
  
            *    Management contract or compensatory plan or arrangement.
  
  (b)      Reports on Form 8-K
           -------------------
  
       No reports on Form 8-K have been filed during the period covered by this
  report.
  
  
  
  
                                        -29-
  <PAGE>
  
  
                                     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.
  
  Date:  November 14, 2001           /S/ Edward A. Blechschmidt
                                     -----------------------------------
                                     Edward A. Blechschmidt
                                     President and Chief Executive
                                     Officer
  
  
  Date:  November 14, 2001           /S/ John J. Collura
                                     ------------------------------------
                                     John J. Collura
                                     Executive Vice President,
                                     Chief Financial Officer and
                                     Treasurer
  
  
  
                                        -30-
metadata_documents: [{"type": "10-Q", "sequence": "1", "filename": "gentiva10q111401.txt", "description": "FORM 10-Q", "secsgml_size_bytes": 96932}]
metadata_filer: {"company-data": {"conformed-name": "GENTIVA HEALTH SERVICES INC", "cik": "0001096142", "assigned-sic": "7363", "irs-number": "364335801", "state-of-incorporation": "DE", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "10-Q", "act": "34", "file-number": "001-15669", "film-number": "1788679"}, "business-address": {"street1": "3 HUNTINGTON QUADRANGLE 2S", "city": "MELVILLE", "state": "NY", "zip": "11747-8943", "phone": "6315017000"}, "mail-address": {"street1": "3 HUNTINGTON QUADRANGLE 2S", "city": "MELVILLE", "state": "NY", "zip": "11747-8943"}, "former-company": {"former-conformed-name": "OLSTEN HEALTH SERVICES HOLDING CORP", "date-changed": "19991001"}}
text: SECURITIES AND EXCHANGE COMMISSION
                               WASHINGTON, D.C. 20549
  
                                      FORM 10-Q
  
                  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                       OF THE SECURITIES EXCHANGE ACT OF 1934
  
                  For the quarterly period ended September 30, 2001
  
                             Commission File No. 1-15669
  
                            Gentiva Health Services, Inc.
               (Exact name of Registrant as specified in its charter)
  
                 DELAWARE                                    36-433-5801
                 --------                                    -----------
      (State or other jurisdiction of                     (I.R.S. Employer
      incorporation or organization)                     Identification No.)
  
                  3 Huntington Quadrangle 2S, Melville, NY 11747-8943
                  ---------------------------------------------------
                 (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
                                         ---
  
         The number of shares outstanding of the Registrant's Common Stock,
                       as of November 9, 2001 was 25,395,958.
  INDEX
  
                                                                          Page No.
  
  PART I - FINANCIAL INFORMATION
  
       Item 1.  Financial Statements
                Consolidated Balance Sheets - September 30, 2001
                (Unaudited) and December 31, 2000                           2
  
                Consolidated Statements of Operations (Unaudited) -
                Three and Nine Months Ended September 30, 2001 and
                October 1, 2000                                             3
  
                Consolidated Statements of Cash Flows (Unaudited) -
                Nine Months Ended September 30, 2001 and October 1,
                2000                                                        4
  
                Notes to Consolidated Financial Statements
                (Unaudited)                                                 5-15
  
       Item 2.  Management's Discussion and Analysis of Financial
                Condition and Results of Operations                         16-22
  
       Item 3.  Quantitative and Qualitative Disclosures about
                Market Risk                                                 22
  
  PART II - OTHER INFORMATION
  
       Item 1.  Legal Proceedings                                           23-25
  
       Item 2.  Change in Securities and Use of Proceeds                    25
  
       Item 3.  Defaults Upon Senior Securities                             25
  
       Item 4.  Submission of Matters to a Vote of Security Holders         25
  
       Item 5.  Other Information                                           25-26
  
       Item 6.  Exhibits and Reports on Form 8-K                            26-39
  
  SIGNATURES                                                                30
  PART I - FINANCIAL INFORMATION
  
  Item 1. Financial Statements.
  Gentiva Health Services, Inc. and Subsidiaries
                             Consolidated Balance Sheets
                        (In thousands, except share amounts)
  
                                                                    September 30, 2001         December 31, 2000
                                                                 -------------------------- -------------------------
  ASSETS                                                                (Unaudited)
  Current assets:
  Cash and cash equivalents                               $ 83,586                   $    452
  
         Receivables, less allowance for doubtful accounts
         of $90,256 and $105,962, respectively                    366,303                    419,178
  
         Inventories                                               48,709                     51,111
  
         Prepaid expenses and other current assets                 47,100                     50,333
                                                                 -------------------------- -------------------------
              Total current assets                                545,698                    521,074
  
  Fixed assets, net                                                30,939                     36,961
  
  Intangible assets, net                                          222,886                    230,702
  
  Other assets                                                     16,069                     16,747
                                                                 -------------------------- -------------------------
              Total assets                                       $815,592                   $805,484
                                                                 ========================== =========================
  
  LIABILITIES AND SHAREHOLDERS' EQUITY
  
  Current liabilities:
  
         Accounts payable                                        $ 57,552                   $ 74,083
  
         Accrued expenses                                          57,031                     50,682
  
         Payroll and related taxes                                 13,029                     17,305
  
         Insurance costs                                           29,771                     30,320
                                                                 -------------------------- -------------------------
              Total current liabilities                           157,383                    172,390
  
  Other liabilities                                                46,249                     46,945
  
  Gentiva - obligated mandatorily redeemable
  convertible securities of a subsidiary holding solely
  Gentiva debentures                                                    -                     20,000
  
  Shareholders' equity:
         Common stock, $.10 par value; authorized 100,000,000
         shares; issued and outstanding 25,316,824 and
         21,196,693 shares, respectively                            2,532                      2,120
         Additional paid-in capital                               719,778                    689,163
         Accumulated deficit                                     (109,893)                  (124,570)
         Accumulated other comprehensive loss                        (457)                      (564)
                                                                 -------------------------- -------------------------
              Total shareholders' equity                          611,960                    566,149
                                                                 -------------------------- -------------------------
              Total liabilities and
              shareholders' equity                               $815,592                   $805,484
                                                                 ========================== =========================
  
  See notes to consolidated financial statements.
  -2-
  Gentiva Health Services, Inc. and Subsidiaries
                             Consolidated Statements of
                              Operations (In thousands,
                              except per share amounts)
                                     (Unaudited)
  
                                                     Three Months Ended                             Nine Months Ended
                                         --------------------------------------------  ----------------------------------------
                                         September 30, 2001        October 1, 2000      September 30, 2001     October 1, 2000
                                         --------------------    --------------------  --------------------- ------------------
  Net revenues                           $  328,262              $  380,325            $1,020,884             $1,148,202
  
  Cost of services sold                     216,162                 262,160               678,719               772,911
                                         --------------------    --------------------  --------------------- ------------------
         Gross profit                       112,100                 118,165               342,165               375,291
  
  Selling, general and administrative
    expenses                                105,748                 245,930               326,096               496,247
  
  Interest income (expense), net                319                  (2,270)                 (267)               (8,618)
  
                                         --------------------    --------------------  --------------------- ------------------
         Income (loss) before income
           taxes                              6,671                (130,035)                15,802             (129,574)
  
  Income tax expense                            425                     311                  1,125                  507
                                         --------------------    --------------------  --------------------- ------------------
  
         Net income (loss)               $    6,246               $(130,346)           $    14,677           $ (130,081)
                                         ====================    ====================  ===================== ==================
  
  Net income (loss) per share:
         Basic                           $     0.26               $   (6.30)           $      0.65           $    (6.34)
                                         ====================    ====================  ===================== ==================
         Diluted                         $     0.24               $   (6.30)           $      0.61           $    (6.34)
                                         ====================    ====================  ===================== ==================
  
  Average shares outstanding:
         Basic                               23,616                  20,705                 22,442               20,521
                                         ====================    ====================  ===================== ==================
         Diluted                             26,546                  20,705                 25,746               20,521
                                         ====================    ====================  ===================== ==================
  See notes to consolidated financial statements.
  
                                        -3-
  Gentiva Health Services, Inc. and Subsidiaries
                        Consolidated Statements of Cash Flows
                                   (In thousands)
                                     (Unaudited)
  
                                                                               Nine Months Ended
                                                            --------------------------------------------------------
                                                                September 30, 2001             October 1, 2000
                                                            ---------------------------    -------------------------
  OPERATING ACTIVITIES:
  Net income (loss)                                         $  14,677                         $(130,081)
  Adjustments to reconcile net income (loss)
  to net cash provided by (used in) operating
  activities:
  
      Depreciation and amortization                            20,048                           24,307
  
      Provision for doubtful accounts                          26,929                          136,408
  
      Write-off of goodwill                                        -                             5,200
  
      Gain on sale/disposal of assets                            (285)                              -
      Changes in assets and liabilities:
  
                 Accounts receivable                           25,946                          (25,441)
  
                 Inventories                                    2,402                           22,110
  
                 Prepaid expenses and other current
                 assets                                         3,233                               89
  
                 Current liabilities                          (25,506)                         (52,147)
  
                 Other, net                                        89                           (2,302)
                                                            ---------------------------    -------------------------
  
  Net cash provided by (used in) operating
  activities                                                   67,533                          (21,857)
                                                            ---------------------------    -------------------------
  INVESTING ACTIVITIES:
  
  Purchase of fixed assets                                     (6,400)                          (4,778)
  
  Proceeds from sale of assets                                    475                               -
                                                            ---------------------------    -------------------------
  Net cash used in investing activities                        (5,925)                          (4,778)
                                                            ---------------------------    -------------------------
  FINANCING ACTIVITIES:
  
  Proceeds from issuance of common stock                       11,027                            2,127
  
  Issuance of mandatorily redeemable and other
  securities                                                       -                            20,100
  
  Net transactions with Olsten                                     -                             5,226
  
  Proceeds from revolving credit
  facility                                                         -                             7,128
  
  Debt issuance costs                                              -                            (2,657)
  
  Increase (decrease) in book
  overdrafts                                                  (10,379)                           4,400
  
  Retirement of debt                                               -                            (9,525)
  
  Advances from Medicare program                               20,878                               -
                                                            ---------------------------    -------------------------
  Net cash provided by financing
  activities                                                   21,526                           26,799
                                                            ---------------------------    -------------------------
  
  Net increase in cash and cash equivalents                    83,134                              164
  
  Cash and cash equivalents at beginning of period                452                            2,942
                                                            ---------------------------    -------------------------
  Cash and cash equivalents at end of period                $  83,586                      $     3,106
                                                            ===========================    =========================
  NON-CASH INVESTING/FINANCING ACTIVITIES
    Conversion of convertible debt                          $  20,000                               -
                                                            ===========================    =========================
  See notes to consolidated financial statements.
  -4-
  Gentiva Health Services, Inc. and Subsidiaries
                     Notes to Consolidated Financial Statements
                                     (Unaudited)
  
       1. Accounting Policies
  
       The accompanying interim consolidated financial statements are unaudited,
  but have been prepared by Gentiva Health Services, Inc. (the "Company") 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, but does not include all disclosures
  required by accounting principles generally accepted in the United States of
  America.
  
       2. Background and Basis of Presentation
  
       On March 15, 2000, the Company and its subsidiaries were split-off (the
  "Split-off") from Olsten Corporation ("Olsten") through the issuance of all of
  the Company's shares of common stock to Olsten's shareholders and the Company
  became an independent, publicly-owned company. Prior to the Split-off, the
  Company operated Olsten's health services business as a wholly-owned subsidiary
  of Olsten.
  
       The accompanying interim consolidated financial statements reflect the
  results of operations, financial position and cash flows of the Company as if it
  were a separate entity for all periods presented. The consolidated financial
  statements have been prepared using the historical basis in the assets and
  liabilities and historical results of operations related to the Company.
  
       The Company's selling, general and administrative expenses included a
  management fee of approximately $1.0 million for the first nine months of fiscal
  2000. This fee represented an allocation of certain general corporate overhead
  expenses related to Olsten's corporate headquarters. Management believes the
  allocations related to general corporate overhead expenses were reasonable;
  however, the costs charged to the Company were not necessarily indicative of the
  costs that would have been incurred if the Company had been a stand-alone entity
  during the period for which such expenses were allocated. Subsequent to the
  Split-off, the Company began to perform these functions using its own resources
  or purchased services.
  
       Interest income (expense), net as presented in the consolidated statement
  of operations included net interest expense of approximately $2.7 million for
  the first nine months of fiscal 2000 relating to the intercompany balances with
  Olsten. Such intercompany balances have been reflected as a contribution to
  capital as of the Split-off date.
  
                                        -5-
  3. Earnings per Share
  
       Basic net income (loss) per share for each period presented has been
  computed by dividing net income (loss) by the weighted average number of shares
  outstanding for each respective period. Diluted net income (loss) per share for
  each period presented has been computed using the weighted average number of
  common and dilutive common equivalent shares outstanding.
  
       During the three and nine months ended September 30, 2001, the weighted
  average numbers of shares outstanding were 23,616,000 and 22,442,000,
  respectively. As discussed in Note 7, the 10 percent convertible preferred trust
  securities in the amount of $19.4 million during the third quarter of fiscal
  2001 and $20.0 million for the first nine months of fiscal 2001 were converted
  to common shares at a conversion price of $9.319219 per share and such shares
  were included in the weighted average number of shares outstanding from the date
  of conversion.
  
       Dilutive common equivalent shares included (i) an incremental 1,543,000
  shares for the third quarter and 1,938,000 shares for the nine month period that
  would have been issued if the 10 percent convertible preferred trust securities
  were converted at the beginning of each period and (ii) 1,387,000 shares for the
  third quarter and 1,365,000 shares for the nine month period that would be
  issued upon the assumed exercise of 2,603,000 stock options under the treasury
  stock method.
  
       During the three and nine months ended October 1, 2000, the basic and
  diluted weighted average numbers of shares outstanding were 20,705,000 and
  20,521,000, respectively. The computation of diluted net loss per share for the
  fiscal 2000 periods excluded the effect of shares issuable upon the conversion
  of the 4 3/4 percent convertible subordinated debentures, which matured and were
  retired in October 2000, and the 10 percent convertible preferred trust
  securities and the exercise of stock options since their inclusion would have an
  antidilutive effect on earnings.
  
       4. Restructuring and Special Charges
  
       During the first nine months of fiscal 2001, the Company recorded special
  charges of approximately $3.0 million in connection with the settlement of the
  Gile v. Olsten Corporation, et al, and the State of Indiana v. Quantum Health
  Resources, Inc. and Olsten Health Services, Inc. lawsuits and for various other
  legal costs. These legal matters are further discussed in Note 8. These special
  charges are reflected in selling, general
  
                                        -6-
  and administrative expenses in the accompanying consolidated statement of
  operations.
  
       During the third quarter and first nine months of fiscal 2000, the Company
  recorded special charges aggregating $132.0 million and $138.8 million,
  respectively. Of this amount, charges of $125.6 million and $132.4 million,
  respectively, were reflected in selling, general and administrative expenses.
  These charges for both the third quarter and first nine months included (i) an
  incremental provision for doubtful accounts of $112.0 million, (ii) a $7.2
  million charge to reflect estimated settlement costs in excess of insurance
  coverage related to class action securities and derivative lawsuits assumed by
  the Company from Olsten Corporation under an indemnification provision in
  connection with the split-off and government inquiries in New Mexico and North
  Carolina and (iii) a charge of $5.2 million associated with the impairment of
  goodwill relating to the Company's Canadian home care nursing services operation
  which was sold during the fourth quarter of 2000.
  
       In addition, special charges of $1.2 million in the third quarter and $3.9
  million in the first nine months of fiscal 2000 were incurred in connection with
  the change of the Company's name to Gentiva Health Services, Inc. These special
  charges primarily consisted of costs incurred and paid for consulting fees,
  promotional items and advertising.
  
       Furthermore, charges of $4.1 million were incurred in the first nine months
  of fiscal 2000 to reflect obligations resulting from the Company's Split-off
  from Olsten and transition costs associated with the establishment of the
  Company as an independent, publicly-owned entity. These special charges included
  change of control and compensation and benefit payments of $3.6 million made to
  certain former employees of the Company and Olsten and a current executive
  officer of the Company, and transition costs of $0.5 million relating to
  registration costs, professional fees and other items.
  
       During the third quarter and first nine months of fiscal 2000, an
  adjustment of $6.4 million was recorded in cost of services sold for the
  estimated obsolescence, shrinkage of inventory and changes in cost estimates
  arising from the systems conversion and asset verification and physical
  inventory procedures which were performed during the third quarter of fiscal
  2000.
  
       The Company recorded charges of $5.5 million in the fourth quarter of
  fiscal 2000 in connection with a restructuring of certain business operations.
  During the period from December 31, 2000 to September 30, 2001, the unpaid
  portion of these restructuring charges declined from $3.4 million to $0.8
  million primarily as a result of cash payments made during the nine month period
  relating to operating lease and severance payments.
  
       5. Current Liabilities
  
       In early 2001, the Center for Medicare and Medicaid Services, formerly
  known as the Health Care Financing Administration, issued cash advances to
  certain Medicare providers in connection with the transition from the Interim
  Payment System to the Prospective Payment System (PPS) for Medicare
  reimbursement. Such advances are expected to be repaid during the second quarter
  of fiscal 2002. In the first quarter of fiscal 2001, the Company received a cash
  advance relating to the transition to PPS, net of payments for estimated
  settlements relating to cost report filings, of approximately $20.9 million
  which was reflected in accrued expenses in the accompanying consolidated balance
  sheet as of September 30, 2001.
  
                                        -7-
  6. Cash and Revolving Credit Facility
  
       As of September 30, 2001, there were no outstanding borrowings and total
  outstanding letters of credit approximated $25.7 million under the Company's
  $150 million amended revolving credit facility which expires in 2004. The
  Company was in compliance with the financial covenants of the credit facility as
  of September 30, 2001.
  
       In June 2001, the Company's credit facility was amended to increase the
  portion of the facility available for letters of credit from $30 million to
  either (i) $40 million or (ii) $70 million in the event that the Company elects
  to post a letter of credit in lieu of an appellate bond for all or a part of the
  total amount of the judgment plus interest in the Fredrickson v. Olsten Health
  Services Corp. and Olsten Corporation case while the Company pursues its appeal
  of the judgment as further discussed in Note 8. A supersedeas bond in the amount
  of $35.2 million was posted to satisfy the judgment plus interest. Under the
  terms of the bond, cash equal to the amount of the bond is held in a segregated
  account as collateral for the bond and the interest relating thereto accrues to
  the Company. The cash in the segregated account is reflected in cash and cash
  equivalents in the accompanying consolidated balance sheet as of September 30,
  2001. At its discretion, the Company may substitute a letter of credit for the
  segregated cash to collateralize the bond.
  
       7. Shareholders' Equity
  
       Changes in shareholders' equity during the nine months ended September 30,
  2001 were as follows (in thousands):
  Common          Additional     Accumulated     Accumulated      Total
                                                   Stock          Paid-in         Deficit        Other Compre-
                                                                  Capital                        hensive Loss
                                                  -----------    ------------- ---------------   --------------  -----------
  Balance at December 31, 2000                    $   2,120      $ 689,163      $ (124,570)      $    (564)      $566,149
  
       Comprehensive income:
          Net income                                                                14,677                         14,677
  
          Unrealized gain on investments                                                               107            107
  
          Issuance of stock upon conversion
          of convertible preferred trust
          securities                                    214         19,786             -                 -         20,000
  
          Issuance of stock upon exercise of
          stock options and under stock plans
          for employees and directors                   198         10,829             -                 -         11,027
                                                  -----------    ------------- ---------------   --------------  -----------
  Balance at September 30, 2001                   $   2,532      $ 719,778     $ (109,893)       $    (457)      $611,960
                                                  ===========    ============= ===============   ==============  ===========
  -8-
  Total comprehensive income (loss) amounted to $6.6 million and ($131.0)
  million during the third quarter of fiscal 2001 and 2000, respectively, and
  $14.8 million and ($130.7) million during the first nine months of fiscal 2001
  and 2000, respectively.
  
       On August 7, 2001, the Company's Board of Directors authorized the Company
  to call for the redemption of its 10 percent convertible subordinated debentures
  on or about September 14, 2001 at a redemption price of 108 percent of the
  original principal amount of the debentures in accordance with the terms of an
  Indenture dated March 15, 2000, between the Company and Wilmington Trust
  Company. These debentures, which are due in 2005, were issued to a Trust of
  which the Company owns all the common equity. The Trust, in turn, issued
  convertible preferred trust securities which have the same terms as the
  debentures, including, but not limited to, maturity, interest, conversion and
  redemption price to a number of holders under the terms of a Trust Agreement
  dated March 9, 2000. The convertible preferred trust securities are convertible
  into the Company's common stock at a conversion price of $9.319219.
  
       In June 2001, the Company issued 64,383 shares of common stock upon the
  conversion of $0.6 million of the convertible preferred trust securities. During
  the third quarter of fiscal 2001, the Company issued 2,081,722 shares of common
  stock upon the conversion of the remaining $19.4 million of convertible
  preferred trust securities. As of September 30, 2001, there were no convertible
  subordinated debentures of the Company and no convertible preferred trust
  securities of the Trust outstanding.
  
       8. Legal Matters
  
  Litigation
  
       In addition to the matters referenced below, 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.
  
       In late 2000, after engaging in a mediation conducted by a third-party
  mediator, the parties to the previously disclosed Class Action (In re Olsten
  Corporation Securities Litigation, No. 97-CV-5056 (DRH), U.S. District Court for
  the Eastern District of New York) and Derivative Lawsuit (Rubin v. May, No.
  17135-NC, Delaware Chancery Court) reached an agreement to settle both lawsuits
  for the aggregate sum of $25 million which was subject to approval by the
  respective courts. The Company's insurers funded $18 million of the proposed
  settlement sum. The Company funded the $7 million balance and recorded a special
  charge for that amount during fiscal 2000. On August 7, 2001, the Delaware
  Chancery Court gave final approval to the settlement of the Derivative Lawsuit
  and, on August 31, 2001, the District Court issued its final approval to the
  settlement of the Class Action.
  
       On July 21, 2000, plaintiff Ultimate Home Health Care, Inc. served an
  Amended Complaint in a purported class action lawsuit against the Company. This
  Amended Complaint was filed in the U.S. District Court for the Middle District
  of Tennessee, captioned Ul-
  
                                        -9-
  timate Home Health Care, Inc. v. Columbia/HCA Healthcare Corp., No. 3-00-0560,
  (the "Tennessee Lawsuit") and named as defendants Columbia/HCA, Columbia
  Homecare Group, Olsten Health Management a/k/a Hospital Contract Management
  Services (an affiliate of the Company) and Olsten Corporation. The Amended
  Complaint alleged, among other things, that the defendants' business practices
  in connection with home health care patient referrals between 1994 and 1996
  violated provisions of Federal antitrust laws, the Racketeer Influenced and
  Corrupt Organizations Act (RICO), the Tennessee Consumer Protection Act, and
  state common law, and sought unspecified compensatory damages, punitive damages,
  treble damages and attorneys' fees on behalf of a proposed class of home
  healthcare companies and/or agencies which conducted business in Tennessee,
  Texas, Florida and/or Georgia. By an order dated January 21, 2001, the Court
  ruled on defendants' motion to dismiss and dismissed plaintiffs' RICO and state
  common law tort claims, but allowed plaintiff's other claims to proceed. After
  conducting some discovery on the issues, on October 10, 2001, the plaintiff
  filed with the Court a Notice of Withdrawal of Certain Allegations notifying the
  Court of plaintiff's intent to withdraw all allegations related to class status
  and antitrust claims in the Amended Complaint. On November 5, 2001, plaintiff
  filed a second amended complaint alleging violation of Tennessee Consumer
  Protection Act and civil conspiracy, and seeking unspecified compensatory and
  punitive damages, and attorney's fees. The Company intends to continue to defend
  itself vigorously in this matter.
  
       On November 22, 2000, the jury in an age-discrimination lawsuit commenced
  in 1998, captioned Fredrickson v. Olsten Health Services Corp. and Olsten
  Corporation, Case No. 98 CV 1937, Court of Common Pleas, Mahoning County, Ohio,
  returned a verdict in favor of the plaintiff against Olsten consisting of
  $675,000 in compensatory damages, $30 million in punitive damages and an
  undetermined amount of attorneys' fees. The jury found that, although Olsten had
  lawfully terminated the plaintiff's employment, its failure to transfer or
  rehire the plaintiff rendered Olsten liable to the plaintiff. The defendants
  posted a court ordered bond in the amount of $675,000. The parties filed several
  post-trial motions, and following a March 23, 2001 hearing on the parties'
  respective post-trial motions, the trial court, on May 17, 2001, denied all
  post-trial motions, and entered judgment for the plaintiff for the full amount
  of compensatory and punitive damages, and awarded the plaintiff reduced
  attorney's fees of $247,938. On June 14, 2001, defendants timely filed a Notice
  of Appeal with the Court of Appeals, Seventh Appellate District, Mahoning
  County, Ohio, and on June 19, 2001, the Company posted a supersedeas bond for
  the full amount of the judgment, plus interest. On October 12, 2001, the Company
  timely filed its appellate brief with the Court of Appeals. Defendants agreed to
  extend the due date for Plaintiff's response brief up to and including January
  4, 2002. The Company continues to defend itself vigorously in this matter.
  
       On January 14, 1999, Kimberly Home Health Care, Inc. ("Kimberly"), one of
  the Company's subsidiaries, initiated three arbitration proceedings against
  hospitals owned by Columbia/HCA Healthcare Corp. ("Columbia/HCA") with which
  Kimberly had management services agreements to provide services to the
  hospitals' home health agencies. The basis for each of the arbitrations is that
  Columbia/HCA sold the home health agencies without assigning the management
  services agreements and, as a result, Columbia/HCA has breached the management
  services agreements. In response to the arbitrations, Columbia/HCA has as-
  
                                        -10-
  serted that the arbitrations be consolidated and stayed, in part based upon its
  alleged claims against Kimberly for breach of contract, and requested indemnity
  and possibly return of management fees. Columbia/HCA has not yet formally
  presented these claims in the arbitrations or other legal proceedings and has
  not yet quantified the claims. Still pending before the arbitrators is
  Columbia/HCA's request to consolidate the proceedings, which Kimberly has
  opposed.
  
       In Gile v. Olsten Corporation, et al., U.S. District Court for the Central
  District of California, No. 97-9363-NM, plaintiff filed an age discrimination
  suit against Olsten Corporation, Olsten Health Services, and a certain
  individual in December 1997. The defendants denied the allegations of
  discrimination on the basis that plaintiff's termination was part of a reduction
  in force. The individual defendant was dismissed from the action, and the
  remaining corporate defendants filed a motion for summary judgment that was
  granted by the District Court in February 1999. The plaintiff appealed the
  District Court's order to the Ninth Circuit Court of Appeals and in December,
  2000, the Court of Appeals issued its ruling which reversed the District Court
  and remanded the case for trial. On or about June 19, 2001, the Company and the
  plaintiff agreed to settle this matter and entered into a confidential
  settlement agreement with full release.
  
       In July 1999, the Indiana Attorney General's Office filed a lawsuit against
  Olsten in Indiana Superior Court, captioned State of Indiana v. Quantum Health
  Resources, Inc. and Olsten Health Services, Inc., No. 49D029907CP001011,
  alleging that Olsten was overpaid by Medicaid, failed to properly disclose
  information to Medicaid and engaged in improper billing. The alleged violations
  predate Olsten's acquisition of Quantum Health Resources in June 1996. The
  lawsuit sought unspecified monetary damages, double or treble damages, penalties
  and investigative costs. The parties resolved this matter during the second
  quarter of fiscal 2001 pursuant to a confidential Settlement agreement and full
  release. There is no ongoing obligation on the part of the Company arising from
  this settlement.
  
       In connection with the Split-Off, the Company agreed to assume, to the
  extent permitted by law, the liabilities, if any, arising out of (and to
  indemnify Olsten for) the above lawsuits and arbitration proceedings and other
  liabilities arising out of the health services business, including any such
  liabilities arising after the Split-Off in connection with the government
  investigations described below.
  
  Government Investigations
  
       In early December 1999, Olsten received a document subpoena from the
  Department of Health and Human Services, Office of Inspector General, and Office
  of Investigations. Based on discussions with the Office of Inspector General,
  the Company believed that the subpoena related to an investigation of possible
  overpayments made to the Company by the Medicare program. The Company provided
  the Office of Inspector General and other government agencies with requested
  documents and cooperated fully with this investigation. On November 1, 2001, the
  Company received notice of the entry of an Order dated October 25, 2001,
  unsealing a complaint in an action captioned United States of America ex rel.
  Lee Einer
  
                                        -11-
  v. Olsten Corporation, No. CIV-S-99-0860 DFL/DAD filed with the U.S. District
  Court for the Eastern District of California. In connection with the unsealing
  of the Complaint, and as recited in the Order unsealing the Complaint, the
  United States gave notice to the District Court that the United States was
  declining to intervene in the action. The Company believes that it was this
  Complaint that gave rise to the December 1999 document subpoena, and that
  following an almost two year investigation into the allegations made in the
  Complaint, the United States decided not to intervene and not to proceed with
  this action. The Company believes that the government has concluded its
  investigation into this matter. The Plaintiff has not yet served the Company
  with the Complaint.
  
       In early February 2000, the Company received a document subpoena from the
  Department of Health and Human Services, Office of Inspector General, and Office
  of Investigations. The Company believes the subpoena relates to its agencies'
  cost reporting procedures concerning contracted nursing and home health aide
  costs. The Company continues to provide the Office of Inspector General and
  other government agencies with the requested documents and to cooperate fully
  with their investigation. At this time, the Company is unable to assess the
  probable outcome or potential liability, if any, arising from this subpoena.
  
       9. Business Segment Information
  
       The Company operates in the United States and operated in Canada during the
  fiscal 2000 period, servicing patients and customers through the following
  business segments: Specialty Pharmaceutical Services, Home Health Services and,
  for the fiscal 2000 period, Staffing Services. These segments are briefly
  described below.
  
       Specialty Pharmaceutical Services includes (i) the distribution of drugs
  and other biological and pharmaceutical products and professional support
  services for individuals with chronic diseases, such as hemophilia, primary
  pulmonary hypertension, autoimmune deficiencies and growth disorders, (ii) the
  administration of antibiotics, chemotherapy, nutrients and other medications for
  patients with acute or episodic disease states, (iii) distribution services for
  pharmaceutical, biotechnology and medical service firms and (iv) clinical
  support services for pharmaceutical and biotechnology firms.
  
       Home Health Services includes (i) professional and paraprofessional
  services, including skilled nursing, rehabilitation and other therapies, home
  health aide and personal care services, to individuals with acute illnesses,
  long-term chronic health conditions, permanent disabilities, terminal illnesses
  or post-procedural needs and (ii) care management and coordination for managed
  care organizations and self-insured employees.
  
       Staffing Services included services to institutional, occupational and
  alternate site health care organizations by providing health care professionals
  to meet supplemental staffing needs. Canada included professional and
  paraprofessional services to individuals in home and institutional settings.
  Both Staffing Services and Canada constituted less than 10 percent of
  
                                        -12-
  the net revenues, operating contribution and the total assets of the Company
  and, as such, were combined for segment reporting purposes.
  
       The Company and its chief decision makers evaluate performance and allocate
  resources based on operating contributions of the reportable segments, which
  exclude corporate expenses, depreciation, amortization and interest expense, but
  include revenues and all other costs directly attributable to the specific
  segment. Intersegment revenues represent Specialty Pharmaceutical Services
  segment revenues generated from services provided to the Home Health Services
  segment. Identifiable assets of the segments reflect net accounts receivable and
  inventories associated with segment activities. All other assets are assigned to
  the Company for the benefit of all segments.
  
       During fiscal 2001, the Company changed its evaluation performance
  methodology, as described below, which resulted in a change in reportable
  segments. In the fiscal 2000 periods, clinical support services for the
  pharmaceutical and biotechnology firms and staffing services provided under a
  state contract were included in the Staffing Services segment. The Company now
  considers these services to be part of the Specialty Pharmaceutical Services
  segment and Home Health Services segment, respectively. In addition, services
  relating to care management and coordination for managed care organizations and
  self-insured employees were allocated between Specialty Pharmaceutical Services
  and Home Care Nursing Services segments in the fiscal 2000 periods based on the
  nature of services rendered; the Company now considers these services to be part
  of the Home Health Services segment. Furthermore, Canadian operating results
  were included in the Home Care Nursing Services segment in the prior year
  periods and are now reflected in the Staffing and Canada results for
  presentation purposes. Prior period segment data has been reclassified to
  conform with the current year presentation.
  
       Information about the Company's operations is as follows (in thousands):
  
                                        -13-
  Specialty         Home          Staffing          Total
                                                    Pharmaceutical     Health           and
                                                       Services       Services         Canada
                                                  -----------------  ------------     ----------     ------------
  Three months ended September 30, 2001
  -------------------------------------
  Net revenues - segments                          $  172,740         $ 175,496       $      -       $  348,236
                                                  =================  ============     ==========
  Intersegment revenues                                                                                 (19,974)
                                                                                                     ------------
  Net revenues                                                                                       $  328,262
                                                                                                     ============
  
  Operating contribution                           $   18,733         $  11,901       $      -       $   30,634
                                                  =================  ============     ==========
  Corporate expenses                                                                                    (17,859)
                                                                                                     ------------
  Earnings before interest expense, taxes,
    depreciation and amortization                                                                        12,775
  Depreciation and amortization                                                                          (6,423)
  Interest income, net                                                                                      319
                                                                                                     ------------
  
  Income before income taxes                                                                          $   6,671
                                                                                                     ============
  
  Three months ended October 1, 2000
  ----------------------------------
  Net revenues - segments                          $  174,606         $ 178,715       $  45,254       $ 398,575
                                                  =================  ============     ==========
  Intersegment revenues                                                                                 (18,250)
                                                                                                     ------------
  Net revenues                                                                                        $ 380,325
                                                                                                     ============
  
  Operating contribution before special charges    $   19,975         $   7,824       $   4,241       $  32,040
  Special charges - segments                          (99,400)          (19,200)             -         (118,600)
                                                  -----------------  ------------     ----------     ------------
  Operating contribution (loss)                    $  (79,425)        $ (11,376)       $  4,241         (86,560)
                                                  =================  ============     ==========
  Corporate expenses                                                                                    (19,934)
  Special charges - corporate                                                                           (13,425)
                                                                                                     ------------
  Loss before interest expense, taxes,
    depreciation and amortization                                                                      (119,919)
  
  Depreciation and amortization                                                                          (7,846)
  Interest expense, net                                                                                  (2,270)
                                                                                                     ------------
  Loss before income taxes                                                                            $(130,035)
                                                                                                     ============
  -14-
  Specialty              Home          Staffing          Total
                                                    Pharmaceutical          Health           and
                                                       Services            Services         Canada
                                                  -------------------     ------------     ----------     ------------
  Nine months ended September 30, 2001
  ------------------------------------
  Net revenues - segments                         $ 546,955               $ 540,818        $       -      $1,087,773
                                                 ====================     ============     ==========
  Intersegment revenues                                                                                      (66,889)
                                                                                                          ------------
  Net revenues                                                                                            $1,020,884
                                                                                                          ============
  Operating contribution                          $  52,652               $  39,455        $       -      $   92,107
                                                 ====================     ============     ==========
  Corporate expenses                                                                                         (52,979)
  Special charges - corporate                                                                                 (3,011)
                                                                                                          ------------
  Earnings before interest expense, taxes,
    depreciation and amortization                                                                             36,117
  Depreciation and amortization                                                                              (20,048)
  Interest expense, net                                                                                         (267)
                                                                                                          ------------
  
  Income before income taxes                                                                               $  15,802
                                                                                                          ============
  
  Segment assets                                  $ 286,782               $ 141,686        $        -      $ 428,468
                                                 ====================     ============     ==========
  Intersegment assets                                                                                        (13,456)
                                                                                                          ------------
  Segment assets, net                                                                                        415,012
  Corporate assets                                                                                           400,580
                                                                                                          ------------
  Total assets                                                                                             $ 815,592
                                                                                                          ============
  
  Nine months ended October 1, 2000
  ---------------------------------
  Net revenues - segments                         $ 515,500               $ 555,426        $  129,022     $1,199,948
                                                 ====================     ============     ==========
  Intersegment revenues                                                                                      (51,746)
                                                                                                          ------------
  Net revenues                                                                                            $1,148,202
                                                                                                          ============
  
  Operating contribution before special charges   $  63,396               $  29,971        $    9,893     $  103,260
  
  Special charges - segments                        (99,400)                (19,200)                -       (118,600)
                                                 --------------------     ------------     ----------     ------------
  Operating contribution (loss)                   $ (36,004)              $   10,771       $    9,893        (15,340)
                                                 ====================     ============     ==========
  
  Corporate expenses                                                                                         (61,093)
  Special charges - corporate                                                                                (20,216)
                                                                                                          ------------
  Loss before interest expense, taxes,
    depreciation and amortization                                                                            (96,649)
  
  Depreciation and amortization                                                                              (24,307)
  Interest expense, net                                                                                       (8,618)
                                                                                                          ------------
  Loss before income taxes                                                                                $ (129,574)
                                                                                                          ============
  
  Segment assets                                  $  359,480              $ 147,234        $  25,687      $  532,401
                                                 ====================     ============     ==========
  Intersegment assets                                                                                        (12,000)
                                                                                                          ------------
  Segment assets, net                                                                                        520,401
  Corporate assets                                                                                           333,216
                                                                                                          ------------
  Total assets                                                                                            $  853,617
                                                                                                          ============
  -15-
  Item 2. Management's Discussion and Analysis of Financial Condition and Results
          -----------------------------------------------------------------------
          of Operations
          -------------
  
  General
  -------
  
       The comparability of the Company's results of operations between the third
  quarter and the first nine months of fiscal 2001 and 2000 was impacted by
  several items which are briefly described below.
  
       o    On March 15, 2000, the Company was Split-off from Olsten Corporation
            ("Olsten") through the issuance of all of the Company's common stock
            to Olsten's shareholders and the Company became an independent,
            publicly-owned company. Prior thereto, the Company operated Olsten's
            health services business as a wholly-owned subsidiary of Olsten. The
            accompanying consolidated financial statements reflect the financial
            position, results of operations and cash flows of the Company as if it
            were a separate entity for all periods presented. The consolidated
            financial statements have been prepared using the historical basis of
            assets and liabilities and historical results of operations related to
            the Company.
  
       o    During the first nine months of fiscal 2001, the Company recorded
            special charges of approximately $3.0 million in connection with the
            settlement of the Gile v. Olsten Corporation, et al., and the State of
            Indiana v. Quantum Health Resources, Inc. and Olsten Health Services,
            Inc. lawsuits and for various other legal costs. These legal matters
            are further discussed in Note 8. These special charges are reflected
            in selling, general and administrative expenses in the accompanying
            consolidated statement of operations.
  
            During the third quarter and first nine months of fiscal 2000, the
            Company recorded special charges aggregating $132.0 million and $138.8
            million, respectively. Of this amount, charges of $125.6 million and
            $132.4 million, respectively, were reflected in selling, general and
            administrative expenses. These charges for both the third quarter and
            first nine months included (i) an incremental provision for doubtful
            accounts of $112.0 million, (ii) a $7.2 million charge to reflect
            estimated settlement costs in excess of insurance coverage related to
            class action securities and derivative lawsuits assumed by the Company
            from Olsten Corporation under an indemnification provision in
            connection with the split-off and government inquiries in New Mexico
            and North Carolina and (iii) a charge of $5.2 million associated with
            the impairment of goodwill relating to the Company's Canadian home
            care nursing services operation which was sold during the fourth
            quarter of 2000.
  
            In addition, special charges of $1.2 million in the third quarter and
            $3.9 million in the first nine months of fiscal 2000 were incurred in
            connection with the change of
  
                                        -16-
  the Company's name to Gentiva Health Services, Inc. These special
            charges primarily consisted of costs incurred and paid for consulting
            fees, promotional items and advertising.
  
            Furthermore, charges of $4.1 million were incurred in the first nine
            months of fiscal 2000 to reflect obligations resulting from the
            Company's Split-off from Olsten and transition costs associated with
            the establishment of the Company as an independent, publicly-owned
            entity. These special charges included change of control and
            compensation and benefit payments of $3.6 million made to certain
            former employees of the Company and Olsten and a current executive
            officer of the Company, and transition costs of $0.5 million relating
            to registration costs, professional fees and other items.
  
            During the third quarter and first nine months of fiscal 2000, an
            adjustment of $6.4 million was recorded in cost of services sold for
            the estimated obsolescence, shrinkage of inventory and changes in cost
            estimates arising from the systems conversion and asset verification
            and physical inventory procedures which were performed during the
            third quarter of fiscal 2000.
  
       o    Prior to October 1, 2000, reimbursement of Medicare home care nursing
            services was based on reasonable, allowable costs incurred in
            providing services to eligible beneficiaries subject to both per visit
            and per beneficiary limits in accordance with the Interim Payment
            System (the "IPS") established through the Balanced Budget Act of
            1997. These costs are reported in annual cost reports which are filed
            with the Medicare fiscal intermediary and are subject to audit.
            Effective October 1, 2000, the IPS was replaced by a Prospective
            Payment System ("PPS") for Medicare home care reimbursement. Under
            PPS, the Company is eligible to receive a fixed reimbursement which
            covers a specified treatment period for each patient. The
            reimbursement rate is established based on a clinical assessment of
            the severity of the patient's condition, service needs and certain
            other factors. The rate is subject to adjustment if there are
            significant changes in the patient's condition during the specified
            treatment period. Net revenues attributable to the Medicare program as
            a percentage of total consolidated net revenues were 17 percent in the
            third quarter and first nine months of both fiscal 2001 and 2000.
  
       o    During the fourth quarter of fiscal 2000, the Company sold its health
            care staffing services business and its Canadian operations. In the
            third quarter and first nine months of fiscal 2000, the Company
            recorded revenues of $45 million and $129 million, respectively, gross
            profit of $11 million and $33 million, respectively, and selling,
            general and administrative expenses of $7 million and $24 million,
            respectively, relating to the businesses that were sold.
  
                                        -17-
  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 of Form 10-K for the fiscal
  year ended December 31, 2000.
  
  Results of Operations
  ---------------------
  
       Revenues
  
       After adjusting for the Staffing and Canadian operations which were sold
  during the fourth quarter of fiscal 2000, net revenues decreased by $7 million
  or 2.0% to $328 million during the third quarter of fiscal 2001 as compared to
  the third quarter of fiscal 2000 primarily due to a $3 million or 1.8 percent
  decline in Home Health Services revenues, a $2 million or 1.1 percent decrease
  in the Specialty Pharmaceutical Services revenue and a $2 million increase in
  the intersegment revenue elimination relating to services provided to the Home
  Health Services segment by the Specialty Pharmaceutical Services segment that is
  eliminated in consolidation. Overall, net revenues in the third quarter of
  fiscal 2001 decreased by $52 million or 13.7 percent as compared to the third
  quarter of fiscal 2000, of which $7 million in revenues related to the items
  discussed above and $45 million in revenues related to the aforementioned sold
  operations.
  
       After adjusting for the sales of the Staffing and Canadian operations as
  noted above, net revenues increased by $2 million or 0.2 percent to $1.02
  billion during the first nine months of fiscal 2001 as compared to the
  corresponding period of fiscal 2000. This increase was driven by growth in the
  Specialty Pharmaceutical Services segment of $32 million or 6.1 percent, of
  which $15 million related to intersegment revenues, offset by a decline of $15
  million or 2.6 percent in Home Health Services revenue. Overall, net revenues
  decreased by $12.7 million or 11.1 percent during the first nine months of
  fiscal 2001 as compared to the corresponding period of the prior year which
  included $129 million in revenue related to the sold operations.
  
       During the third quarter and first nine months of fiscal 2001, the Company
  experienced unit volume increases in several core chronic therapies in the
  Specialty Pharmaceutical Services segment. These therapies included (i) Flolan,
  an intravenous therapy used in the treatment of pulmonary arterial hypertension,
  (ii) intravenous immune globulin (IVIG), used in the treatment of primary immune
  deficiency and other diagnoses and (iii) growth hormone, used in the treatment
  of growth hormone disorder. Revenue growth was negatively impacted in both the
  third quarter and nine month periods by some product shortages of recombinant
  coagulation therapy, which is used in the treatment of hemophilia. In addition,
  revenue relating to acute infusion products decreased somewhat due to
  management's decision to terminate certain contracts in an effort to improve
  revenue quality and cash flow. Due to significant purchases by wholesale
  customers early in 2001 revenue relating to Oxandrin, an oral pharmaceutical for
  involuntary weight loss, increased during the fiscal 2001 year to date period as
  compared to the corresponding period of fiscal 2000 as a result of growth in
  unit volume dur-
  
                                        -18-
  ing the first half of fiscal 2001 offset by a decrease in volume during the
  third quarter. In addition, the Company recognized revenues of $5.0 million in
  the third quarter of fiscal 2000 relating to an adjustment to estimated revenue
  accruals and increased a provision for doubtful accounts by a corresponding
  amount. Excluding this adjustment, net revenues in the Specialty Pharmaceutical
  Services segment increased by 1.7 percent in the third quarter and 7.1 percent
  in the first nine months of fiscal 2001 as compared to the corresponding periods
  of fiscal 2000.
  
       The decline in Home Health Services revenue during the third quarter and
  first nine months of fiscal 2001 was attributable primarily to the continuing
  transition to new clinical protocols as part of the new Medicare reimbursement
  system which has resulted in a more efficient delivery of care in fiscal 2002
  and the impact of the closing of certain home care nursing branches during the
  fourth fiscal quarter at 2000.
  
       Gross Profit
  
       Gross profit margins as a percentage of net revenues increased from 31.1
  percent in the fiscal 2000 third quarter to 34.1 percent in the third quarter of
  fiscal 2001 and from 32.7 percent in the first nine months of fiscal 2000 to
  33.5 percent in the first nine months of the fiscal 2001. Of the total increase
  in margins, 1.7 percent for the third quarter and 0.5 percent for the nine
  months can be attributed to the special charges associated with the inventory
  adjustment of $6.4 million which was recorded in the three month and nine month
  periods of fiscal 2000. The remaining increase in margins was primarily
  attributable to productivity enhancements resulting from a change in clinical
  protocols and rate increases in Home Health Services as well as the absence of
  lower margin Staffing and Canadian operations which were sold in late 2000
  offset by a change in business mix reflecting growth in the lower margin
  Specialty Pharmaceutical Services products and higher costs attributable to
  certain biological and pharmaceutical products due to product shortages.
  
       Selling, General and Administrative Expenses
  
       Selling, general and administrative expenses decreased to $106 million
  during the third quarter of fiscal 2001 as compared to $246 million during the
  third quarter of fiscal 2000 due to (i) special charges of $126 million which
  were recorded in the fiscal 2000 period, (ii) the reduction of $8 million in
  costs associated with the sale of the Staffing and Canadian operations, (iii)
  efficiency improvement efforts in Home Health Services branch operations,
  certain Specialty Pharmaceutical Services administrative functions and corporate
  administrative support departments, and (iv) the closing of certain home care
  nursing branches during the fourth quarter of fiscal 2000.
  
       For the first nine months of fiscal 2001, selling, general and
  administrative expenses were $326 million as compared to $496 million for the
  first nine months of fiscal 2000. This decrease resulted from the reduction of
  $24 million in costs associated with the sale of the Staffing and Canadian
  operations, the impact of efficiency improvement efforts and the clos-
  
                                        -19-
  ing of home care nursing branches as well as a change in special charges from
  $132 million in the fiscal 2000 period to $3 million in the fiscal 2001 period.
  
       Excluding the effects of the businesses that were sold and the special
  charges recorded in the periods as described above, selling, general and
  administrative expenses as a percentage of net revenues were 31.6 percent and
  32.3 percent during the first nine months of fiscal 2001 and 2000, respectively,
  and 32.2 percent and 33.7 percent during the third quarter of fiscal 2001 and
  2000, respectively.
  
       Interest Income (Expense), Net
  
       Net interest income was approximately $0.3 million in the third quarter of
  fiscal 2001 and net interest expense was approximately $2.3 million in the third
  quarter of fiscal 2000. Net interest expense was approximately $0.3 million and
  $8.6 million in the first nine months of fiscal 2001 and 2000, respectively. Net
  interest income (expense) for the third quarter and first nine months of fiscal
  2001 represented primarily fees relating to the revolving credit facility and
  outstanding letters of credit and, for the first half of fiscal 2001, the 10
  percent convertible preferred trust securities offset by interest income of
  approximately $0.9 million and $1.4 million, respectively. During the three and
  nine months ended October 1, 2000, net interest expense also included interest
  on the outstanding 4 3/4 percent convertible subordinated debentures which
  matured and were retired in October 2000, net intercompany borrowings with
  Olsten up to the Split-off date and interest on borrowings under the credit
  facility subsequent to the Split-off date.
  
       Income Taxes
  
       Income tax expense for the fiscal 2001 period consisted primarily of taxes
  relating to certain state jurisdictions. The Company had estimated net operating
  loss carryforwards (NOLs) of approximately $76 million as of December 31, 2000.
  Because of the uncertainty of ultimate realization of the net deferred tax
  asset, the Company has established a valuation allowance for the deferred tax
  asset that is not otherwise used to offset deferred tax liabilities. The Company
  expects its effective tax rate to range between 6 and 8 percent until such time
  as the NOLs are utilized.
  
       Liquidity and Capital Resources
  
       Working capital at September 30, 2001, was $388 million, an increase of $39
  million as compared to $349 million at December 31, 2000. Net receivables
  decreased by $53 million in the first nine months of fiscal 2001 as a result of
  improved cash collections driven by enhancements in the billing system for
  Specialty Pharmaceutical Services as well as increases in billings through
  electronic data interchange and a decrease in related revenues. After adjusting
  for the sale of the Company's staffing services business and Canadian
  operations, adjusted Days Sales Outstanding ("DSO") was 111 days at December 31,
  2000. DSO was reduced by 9 days to 102 days at September 30, 2001 as a result of
  improved cash collections.
  
                                        -20-
  Cash and cash equivalents increased by approximately $83 million as of
  September 30, 2001 as compared to December 31, 2000 as a result of (i) cash flow
  from operations, net of decrease in book overdrafts which were included in
  accounts payable at December 31, 2000, of approximately $57 million, (ii)
  Medicare advances, net of payments for estimated settlements, of approximately
  $21 million, and (iii) proceeds from the exercise of stock options of
  approximately $11 million, offset somewhat by capital expenditures of
  approximately $5.9 million. In early 2001, the Center for Medicare and Medicaid
  Services, formerly known as the Health Care Financing Administration, issued
  cash advances to certain Medicare providers in connection with the transition
  from the IPS to the PPS for Medicare reimbursement. Such advances are expected
  to be repaid during the second quarter of fiscal 2002. In the first quarter of
  fiscal 2001, the Company received a cash advance relating to the transition to
  PPS, net of payments for estimated settlements relating to cost report filings,
  of approximately $21 million which was reflected in accrued expenses in the
  accompanying consolidated balance sheet as of September 30, 2001.
  
       The Company maintains a credit facility, which provides for up to $150
  million in borrowings. The Company may borrow up to a maximum of 80 percent of
  eligible accounts receivable, as defined. At the Company's option, the interest
  rate on borrowings under the credit facility is based on the London Interbank
  Offered Rate (LIBOR) plus 2.5 percent or the lender's prime rate plus 0.25
  percent. As of September 30, 2001, there were no borrowings outstanding under
  the credit facility and total outstanding letters of credit approximated $25.7
  million. The Company is subject to an unused line fee equal to 0.375 percent per
  annum of the average daily difference between $150 million and the total
  outstanding borrowings and letters of credit. In addition, the Company must pay
  a fee equal to 2.25 percent per annum of the aggregate face amount of
  outstanding standby letters of credit.
  
       The amended credit facility, which expires in 2004, includes certain
  covenants requiring the Company to maintain a minimum tangible net worth and
  minimum earnings before interest, taxes, depreciation and amortization. Other
  covenants in the credit facility include limitation on mergers, consolidations,
  acquisitions, indebtedness, liens, capital expenditures and dispositions of
  assets and other limitations with respect to the Company's operations. The
  Company's obligations under the credit facility are collateralized by all of the
  Company's tangible and intangible personal property, and other equipment. As of
  September 30, 2001, the Company was in compliance with its financial covenants
  and had borrowing capacity under the credit facility, after adjusting for
  outstanding letters of credit, of approximately $124 million.
  
       In June 2001, the Company's credit facility was amended to increase the
  portion of the facility available for letters of credit from $30 million to
  either (i) $40 million or (ii) $70 million in the event that the Company elects
  to post a letter of credit in lieu of an appellate bond for all or a part of the
  total amount of the judgment plus interest in the Fredrickson v. Olsten Health
  Services Corp. and Olsten Corporation case while the Company pursues its appeal
  of the judgment as further discussed in Note 8. A supersedeas bond in the amount
  of $35 million was posted to satisfy the judgment plus interest. Under the terms
  of the bond, cash equal to the amount of the bond is held in a segregated
  account as collateral for the bond
  
                                        -21-
  and the interest relating thereto accrues to the Company. The cash in the
  segregated account is reflected in cash and cash equivalents in the accompanying
  consolidated balance sheet. At its discretion, the Company may substitute a
  letter of credit for the segregated cash to collateralize the bond.
  
       Management believes cash flows from operations, borrowings available under
  the credit facility and other financing options, including issuance of debt or
  equity securities under an effective shelf registration statement will be
  adequate to support the ongoing operations and to meet debt service requirements
  for the foreseeable future. The Company intends to make investments and other
  expenditures to, among other things, upgrade its computer technology and system
  infrastructure and comply with regulatory changes in the industry. If cash flows
  from operations or availability under the credit facility 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
          ----------------------------------------------------------
  
       The Company's exposure to the market risk for changes in the interest rates
  related to the fair value of its fixed rate Quantum debentures until their
  repayment in October 2000. Generally, the fair market value of fixed rate debt
  will increase as interest rates fall and decrease as interest rates rise. The
  Company had no interest rate exposure on fixed rate debt at September 30, 2001.
  
  OTHER:
  
       INFORMATION CONTAINED HEREIN, OTHER THAN HISTORICAL INFORMATION, SHOULD BE
  CONSIDERED FORWARD-LOOKING AND IS SUBJECT TO VARIOUS RISKS AND UNCERTAINTIES.
  FOR INSTANCE, THE COMPANY'S STRATEGIES AND OPERATIONS INVOLVE RISKS OF
  COMPETITION, CHANGING MARKET CONDITIONS, CHANGES IN LAWS AND REGULATIONS
  AFFECTING THE COMPANY'S INDUSTRIES AND NUMEROUS OTHER FACTORS DISCUSSED IN THIS
  DOCUMENT AND IN OTHER COMPANY FILINGS WITH THE SECURITIES AND EXCHANGE
  COMMISSION. ACCORDINGLY, ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE
  EXPRESSED IN ANY FORWARD-LOOKING STATEMENTS CONTAINED HEREIN.
  
                                        -22-
  PART II - OTHER INFORMATION
  
  Item 1. Legal Proceedings
          -----------------
  
       Litigation
  
       In addition to the matters referenced below, 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.
  
       In late 2000, after engaging in a mediation conducted by a third-party
  mediator, the parties to the previously disclosed Class Action (In re Olsten
  Corporation Securities Litigation, No. 97-CV-5056 (DRH), U.S. District Court for
  the Eastern District of New York) and Derivative Lawsuit (Rubin v. May, No.
  17135-NC, Delaware Chancery Court) reached an agreement to settle both lawsuits
  for the aggregate sum of $25 million which was subject to approval by the
  respective courts. The Company's insurers funded $18 million of the proposed
  settlement sum. The Company funded the $7 million balance and recorded a special
  charge for that amount during fiscal 2000. On August 7, 2001, the Delaware
  Chancery Court gave final approval to the settlement of the Derivative Lawsuit
  and, on August 31, 2001, the District Court issued its final approval to the
  settlement of the Class Action.
  
       On July 21, 2000, plaintiff Ultimate Home Health Care, Inc. served an
  Amended Complaint in a purported class action lawsuit against the Company. This
  Amended Complaint was filed in the U.S. District Court for the Middle District
  of Tennessee, captioned Ultimate Home Health Care, Inc. v. Columbia/HCA
  Healthcare Corp., No. 3-00-0560 (the "Tennessee Lawsuit"), and named as
  defendants Columbia/HCA, Columbia Homecare Group, Olsten Health Management a/k/a
  Hospital Contract Management Services (an affiliate of the Company) and Olsten
  Corporation. The Amended Complaint alleged, among other things, that the
  defendants' business practices in connection with home health care patient
  referrals between 1994 and 1996 violated provisions of Federal antitrust laws,
  the Racketeer Influenced and Corrupt Organizations Act (RICO), the Tennessee
  Consumer Protection Act, and state common law, and sought unspecified
  compensatory damages, punitive damages, treble damages and attorneys' fees on
  behalf of a proposed class of home healthcare companies and/or agencies which
  conducted business in Tennessee, Texas, Florida and/or Georgia. By an order
  dated January 21, 2001, the Court ruled on defendants' motion to dismiss and
  dismissed plaintiffs' RICO and state common law tort claims, but allowed
  plaintiff's other claims to proceed. After conducting some discovery on the
  issues, on October 10, 2001, the plaintiff filed with the Court a Notice of
  Withdrawal of Certain Allegations notifying the Court of plaintiff's intent to
  withdraw all allegations related to class status and antitrust claims in the
  Amended Complaint. On November 5, 2001, plaintiff filed a second amended
  complaint alleging violation of Tennessee Consumer Protection Act and civil
  conspiracy, and seeking un-
  
                                        -23-
  specified compensatory and punitive damages, and attorney's fees. The Company
  intends to continue to defend itself vigorously in this matter.
  
       On November 22, 2000, the jury in an age-discrimination lawsuit commenced
  in 1998, captioned Fredrickson v. Olsten Health Services Corp. and Olsten
  Corporation, Case No. 98 CV 1937, Court of Common Pleas, Mahoning County, Ohio,
  returned a verdict in favor of the plaintiff against Olsten consisting of
  $675,000 in compensatory damages, $30 million in punitive damages and an
  undetermined amount of attorneys' fees. The jury found that, although Olsten had
  lawfully terminated the plaintiff's employment, its failure to transfer or
  rehire the plaintiff rendered Olsten liable to the plaintiff. The defendants
  posted a court ordered bond in the amount of $675,000. The parties filed several
  post-trial motions, and following a March 23, 2001 hearing on the parties'
  respective post-trial motions, the trial court, on May 17, 2001, denied all
  post-trial motions, and entered judgment for the plaintiff for the full amount
  of compensatory and punitive damages, and awarded the plaintiff reduced
  attorney's fees of $247,938. On June 14, 2001, defendants timely filed a Notice
  of Appeal with the Court of Appeals, Seventh Appellate District, Mahoning
  County, Ohio, and on June 19, 2001, the Company posted a supersedeas bond for
  the full amount of the judgment, plus interest. On October 12, 2001, the Company
  timely filed its appellate brief with the Court of Appeals. Defendants agreed to
  extend the due date for Plaintiff's response brief up to and including January
  4, 2002. The Company continues to defend itself vigorously in this matter.
  
       On January 14, 1999, Kimberly Home Health Care, Inc. ("Kimberly"), one of
  the Company's subsidiaries, initiated three arbitration proceedings against
  hospitals owned by Columbia/HCA Healthcare Corp. ("Columbia/HCA") with which
  Kimberly had management services agreements to provide services to the
  hospitals' home health agencies. The basis for each of the arbitrations is that
  Columbia/HCA sold the home health agencies without assigning the management
  services agreements and, as a result, Columbia/HCA has breached the management
  services agreements. In response to the arbitrations, Columbia/HCA has asserted
  that the arbitrations be consolidated and stayed, in part based upon its alleged
  claims against Kimberly for breach of contract, and requested indemnity and
  possibly return of management fees. Columbia/HCA has not yet formally presented
  these claims in the arbitrations or other legal proceedings and has not yet
  quantified the claims. Still pending before the arbitrators is Columbia/HCA's
  request to consolidate the proceedings, which Kimberly has opposed.
  
       In connection with the Split-Off, the Company agreed to assume, to the
  extent permitted by law, the liabilities, if any, arising out of (and to
  indemnify Olsten for) the above lawsuits and arbitration proceedings and other
  liabilities arising out of the health services business, including any such
  liabilities arising after the Split-Off in connection with the government
  investigations described below.
  
                                        -24-
  Government Investigations
  
       In early December 1999, Olsten received a document subpoena from the
  Department of Health and Human Services, Office of Inspector General, and Office
  of Investigations. Based on discussions with the Office of Inspector General,
  the Company believed that the subpoena related to an investigation of possible
  overpayments made to the Company by the Medicare program. The Company provided
  the Office of Inspector General and other government agencies with requested
  documents and cooperated fully with this investigation. On November 1, 2001, the
  Company received notice of the entry of an Order dated October 25, 2001,
  unsealing a complaint in an action captioned United States of America ex rel.
  Lee Einer v. Olsten Corporation, No. CIV-S-99-0860 DFL/DAD filed with the U.S.
  District Court for the Eastern District of California. In connection with the
  unsealing of the Complaint, and as recited in the Order unsealing the Complaint,
  the United States gave notice to the District Court that the United States was
  declining to intervene in the action. The Company believes that it was this
  Complaint that gave rise to the December 1999 document subpoena, and that
  following an almost two year investigation into the allegations made in the
  Complaint, the United States decided not to intervene and not to proceed with
  this action. The Company believes that the government has concluded its
  investigation into this matter. The Plaintiff has not yet served the Company
  with the Complaint.
  
       In early February 2000, the Company received a document subpoena from the
  Department of Health and Human Services, Office of Inspector General, and Office
  of Investigations. The Company believes the subpoena relates to its agencies'
  cost reporting procedures concerning contracted nursing and home health aide
  costs. The Company continues to provide the Office of Inspector General and
  other government agencies with the requested documents and to cooperate fully
  with their investigation. At this time, the Company is unable to assess the
  probable outcome or potential liability, if any, arising from this subpoena.
  
  Item 2. Change in Securities and Use of Proceeds
          ----------------------------------------
  
       None.
  
  Item 3. Defaults Upon Senior Securities
          -------------------------------
  
       None.
  
  Item 4. Submission of Matters to a Vote of Security Holders
          ---------------------------------------------------
  
  (a)  None.
  
                                        -25-
  Item 5. Other Information
          -----------------
  
       In October 1998, in connection with its settlement of a government
  investigation into the health care practices of Quantum Health Resources (a
  subsidiary of the Company) for a period prior to 1997, Olsten executed a
  corporate integrity agreement with the U.S. Department of Justice, the Office of
  Inspector General of the U.S. Department of Health and Human Services, the U.S
  Secretary of Defense (for the CHAMPUS/Tricare Program) and the Attorneys General
  for the United States of New York and Oklahoma that will be in effect until
  December 31, 2001. The October 1998 corporate integrity agreement applies to the
  Company's specialty pharmaceutical services business and focuses on the training
  and billing of blood factor products for hemophiliacs.
  
       In connection with a July 19, 1999 settlement with various government
  agencies, Olsten executed a corporate integrity agreement with the Office of
  Inspector General of the Department of Health and Human Services which will
  remain in effect until August 18, 2004. The July 1999 corporate integrity
  agreement applies to the Company's businesses that bill the federal government
  health programs directly for services, such as its home care nursing business
  (but excluding the specialty pharmaceutical services business). This corporate
  integrity agreement focuses on issues and training related to cost report
  preparation, contracting, medical necessity and billing of claims.
  
       Under each of the corporate integrity agreements, the Company is required,
  for example, to maintain a corporate compliance officer to develop and implement
  compliance programs, to retain an independent review organization to perform
  annual reviews and to maintain a compliance program and reporting systems, as
  well as provide certain training to employees.
  
       The Company's compliance program will be implemented for all newly
  established or acquired business units if their type of business is covered by
  the corporate integrity agreements. Reports under each integrity agreement are
  to be filed annually with the Department of Health and Human Services, Office of
  Inspector General. After each corporate integrity agreement expires, the Company
  is to file a final annual report with the government. The Company is in
  compliance with both corporate integrity agreements and has timely filed all
  required reports. If the Company fails to comply with the terms of either of its
  corporate integrity agreements, the Company will be subject to penalties.
  
  Item 6. Exhibits and Reports on Form 8-K
          --------------------------------
  
  (a)      Exhibit Number    Description
           --------------    -----------
  
            3.1  Restated Certificate of Incorporation of Company. (1)
  
            3.2  Restated By-Laws of Company. (1)
  
            4.1  Specimen of common stock. (3)
  
                                        -26-
  4.2  Form of Certificate of Designation of Series A Junior
                 Participating Preferred Stock. (1)
  
            4.3  Form of Certificate of Designation of Series A Cumulative
                 Non-Voting Redeemable Preferred Stock. (2)
  
            4.4  Trust Agreement among the Company, Wilmington Trust Company, the
                 Administrative Trustees named therein and the holders from time
                 to time of the convertible trust preferred securities dated March
                 9, 2000. (4)
  
            4.5  Indenture between the Company and Wilmington Trust Company dated
                 March 15, 2000. (4)
  
            10.1 Separation Agreement dated August 17, 1999, among Olsten
                 Corporation, Aaronco Corp. and Adecco SA. (1)*
  
            10.2 Omnibus Amendment No. 1 dated October 7, 1999, by and among
                 Olsten Corporation, Aaronco Corp., Adecco SA and Olsten Health
                 Services Holding Corp. (1)
  
            10.3 Form of Rights Agreement dated March 2, 2000 between the
                 Registrant and Equiserve Limited Partnership, as rights agent.
                 (1)
  
            10.4 Company's Executive Officers Bonus Plan. (1)*
  
            10.5 Company's 1999 Stock Incentive Plan. (4)*
  
            10.6 Company's Stock & Deferred Compensation Plan for Non-Employee
                 Directors. (4)*
  
            10.7 Company's Employee Stock Purchase Plan. (1)*
  
            10.8 Omnibus Amendment No. 2 dated January 18, 2000, by and among
                 Olsten Corporation, Adecco SA, Olsten Health Services Holding
                 Corp., the Company and Staffing Acquisition Corporation. (1)
  
            10.9 Loan and Security Agreement by and between Fleet Capital Corp.,
                 on behalf of the lenders named therein, the Company, Olsten
                 Health Services Holding Corp. and the subsidiaries named therein,
                 dated March 13, 2000. (4)
  
            10.10 Form of Employment Agreement with Edward A. Blechschmidt. (2)*
  
                                        -27-
  10.11 Form of Change of Control Agreement with Executive Officers of
                  Company. (4)*
  
            10.12 Form of Change in Control Agreement with Edward A. Blechschmidt.
                  (4)*
  
            10.13 Form of Severance Agreement with Executive Officers of Company.
                  (2)*
  
            10.14 Amendment No. 1 dated June 30, 2000 to Trust Agreement among the
                  Company, Wilmington Trust Company, the Administrative Trustees
                  named therein and the holders from time to time of the
                  convertible trust preferred securities. (5)
  
            10.15 Amendment No. 1 dated June 30, 2000 to Indenture between the
                  Company and Wilmington Trust Company. (5)
  
            10.16 First Amendment and Consent Agreement dated September 15, 2000
                  to the Loan Agreement by and among the lending institutions
                  named therein, Fleet Capital Corporation, the Company, Olsten
                  Health Services Holding Corp. and the subsidiaries named
                  therein. (6)
  
            10.17 Purchase and Sale Agreement dated August 25, 2000 by and between
                  the Company and Intelistaf Group, Inc. (formerly known as GS
                  Acquisition Co.) (6)
  
            10.18 Second Amendment and Consent Agreement dated as of November 20,
                  2000 to the Loan Agreement by and among the lending institutions
                  named therein, Fleet Capital Corporation, the Company, Olsten
                  Health Services Holding Corp. and the subsidiaries named therein
                  (7)
  
            10.19 Third Amendment to Loan and Security Agreement dated as of June
                  1, 2001 by and among the lending institutions named therein,
                  Fleet Capital Corporation, the Company, Olsten Health Services
                  Holding Corp. and the subsidiaries named therein.
  
            21.1 List of Subsidiaries of Company. (2)
  
            ---------------------------------------------------------------------
  
            (1)  Incorporated herein by reference to Amendment No. 2 to the
                 Registration Statement on Form S-4, dated January 20, 2000
  
                                        -28-
  (File No. 333-88663).
  
            (2)  Incorporated herein by reference to Amendment No. 3 to the
                 Registration Statement on Form S-4, dated February 4, 2000 (File
                 No. 333-88663).
  
            (3)  Incorporated herein by reference to Amendment No. 4 to the
                 Registration Statement on Form S-4, dated February 9, 2000 (File
                 No. 333-88663).
  
            (4)  Incorporated herein by reference to Form 10-K for the Registrant
                 for the fiscal year ended January 2, 2000.
  
            (5)  Incorporated herein by reference to Form 10-Q for the Registrant
                 for the period ended July 2, 2000.
  
            (6)  Incorporated herein by reference to Form 10-Q for the Registrant
                 for the period ended October 1, 2000.
  
            (7)  Incorporated herein by reference to Form 10-K for the Registrant
                 for the fiscal year ended December 31, 2000.
  
            *    Management contract or compensatory plan or arrangement.
  
  (b)      Reports on Form 8-K
           -------------------
  
       No reports on Form 8-K have been filed during the period covered by this
  report.
  
                                        -29-
  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.
  
  Date:  November 14, 2001           /S/ Edward A. Blechschmidt
                                     -----------------------------------
                                     Edward A. Blechschmidt
                                     President and Chief Executive
                                     Officer
  
  Date:  November 14, 2001           /S/ John J. Collura
                                     ------------------------------------
                                     John J. Collura
                                     Executive Vice President,
                                     Chief Financial Officer and
                                     Treasurer
  
                                        -30-