<PAGE>

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                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON D.C. 20549
                                  ___________

                                   FORM 10-K

             Annual Report Pursuant To Section 13 or 15(d) of the
                        Securities Exchange Act of 1934

                  For the fiscal year ended December 31, 2000

                       Commission File Number 001-15699
                                  ___________

                         Concentra Operating Corporation
            (Exact name of Registrant as specified in its charter)

                     Nevada                               75-2822620
         (State or other jurisdiction of               (I.R.S. Employer
         incorporation or organization)               Identification No.)

   5080 Spectrum Drive, Suite 400 - West Tower               75001
                 Addison, Texas                            (Zip Code)
    (address of principal executive offices)

                                 (972) 364-8000
             (Registrant's telephone number, including area code)
                                  ___________

       Securities registered pursuant to Section 12(b) of the Act: None

          Securities registered pursuant to Section 12(g) of the Act:

                   13% Series B Subordinated Notes Due 2009
               Guarantees of Senior Subordinated Notes Due 2009

     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 twelve months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [x] No [_]

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

     As of March 15, 2001, the Registrant had outstanding an aggregate of 1,000
shares of its Common Stock, $.01 par value. The Registrant is a wholly-owned
subsidiary of Concentra Inc., a Delaware corporation, which, as of March 15,
2001, had 25,970,083 shares outstanding of its common stock, $.01 par value.

                      DOCUMENTS INCORPORATED BY REFERENCE

                                     None

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                         CONCENTRA OPERATING CORPORATION

                                   FORM 10-K
                      Fiscal Year Ended December 31, 2000

                                     INDEX

<TABLE>
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<S>                                                                                                     <C>
                                                PART I
Item 1    Business                                                                                         3
Item 2    Properties                                                                                      26
Item 3    Legal Proceedings                                                                               26
Item 4    Submission of Matters to a Vote of Security Holders                                             26


                                               PART II
Item 5    Market for Registrant's Common Equity and Related Stockholder Matters                           26
Item 6    Selected Financial Data                                                                         26
Item 7    Management's Discussion and Analysis of Financial Condition and Results of Operations           27
Item 7A   Quantitative and Qualitative Disclosures About Market Risk                                      36
Item 8    Financial Statements and Supplementary Data                                                     36
Item 9    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure            36


                                               PART III
Item 10   Directors and Executive Officers of the Registrant                                              37
Item 11   Executive Compensation                                                                          39
Item 12   Security Ownership of Certain Beneficial Owners and Management                                  46
Item 13   Certain Relationships and Related Transactions                                                  48


                                               PART IV
Item 14   Exhibits, Financial Statement Schedule, and Reports on Form 8-K                                 50
</TABLE>

                                       2
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                          FORWARD-LOOKING INFORMATION

     This Report includes "forward-looking statements" including, in particular,
the statements about our plans, strategies and prospects under the headings Item
1. "Business," including "Risk Factors" and Item 7. "Management's Discussion and
Analysis of Financial Condition and Results of Operations." Although we believe
that these forward-looking statements reasonably reflect our plans, intentions
and expectations, we can give no assurance that we will achieve these plans,
intentions or expectations. Certain important factors that could cause actual
results to differ materially from the forward-looking statements we make in this
Report are identified in this Report, including under the headings Item 1.
"Business" including "Risk Factors," and Item 7. "Management's Discussion and
Analysis of Financial Condition and Results of Operations." These factors
include:

     .    the effects of economic conditions;

     .    the impact of competitive services and pricing, including through
          legislative reform;

     .    changes in accounting standards and regulations affecting the workers'
          compensation, insurance and healthcare industries in general;

     .    customer demand;

     .    changes in costs; and

     .    opportunities that others may present to us or that we may pursue, all
          of which are difficult to predict and beyond the control of
          management.

     All forward-looking statements attributable to us or persons acting on our
behalf are expressly qualified in their entirety by the cautionary statements
and risk factors contained throughout this Report. In light of these risks,
uncertainties and assumptions, the forward-looking events we discuss in this
Report might not occur.

                                    PART I

ITEM 1.   BUSINESS

A. General

     For purposes of this Report, Concentra Operating Corporation is referred to
as "Concentra Operating" or the "Company," and Concentra Inc., formerly known as
Concentra Managed Care, Inc., is referred to as "Concentra Holding."
Concentra(R), First Notice Systems(R), and Focus Healthcare Management(R)are
registered service marks of Concentra Operating.

     We are the largest company dedicated primarily to serving the workers'
compensation market. We provide initial treatment for approximately 5% of
workplace injuries in the United States and perform non-injury occupational
healthcare services for over 130,000 local employers. We provide specialized
cost containment and field case management services to over 2,000 customers
across the United States and Canada, including most of the major underwriters of
workers' compensation insurance, third-party administrators and self-insured
employers. We are also the largest provider of out-of-network bill review
services to the group health marketplace. We offer a continuum of
healthcare-related services to employers, insurers and third-party
administrators of all sizes. We typically do not assume risk for receipt of
payment. We are compensated for our services on a fee-for-service or
percentage-of-savings basis. Less than 0.5% of our revenue is dependent on
Medicare or Medicaid reimbursement.

     Our services reduce our customers' healthcare costs by:

     .    efficiently managing the application of appropriate medical care and
          the return-to-work process, thereby reducing the non-medical costs
          associated with a claim; and

     .    using sophisticated cost containment techniques to determine the
          proper pricing of care once it has been administered.

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     We believe that by offering both the provision of care and claims
management services, we are in a unique position to provide comprehensive,
integrated services on a bundled or unbundled basis to national or regional
accounts and local employers. In addition to the workers' compensation,
occupational healthcare and group health markets, we also provide cost
containment services to the auto insurance markets. In 2000, we generated
revenue of $752.2 million.

     As healthcare costs continue to rise, we believe that payors will seek to
increase the use of cost saving strategies, such as those we offer, to minimize
these costs. Our comprehensive services are comprised of three distinct
categories:

     .    healthcare services;

     .    specialized cost containment services; and

     .    field case management services.

     We provide healthcare services through our network of 224 owned and managed
occupational healthcare centers, located in 69 markets in 32 states as of March
15, 2001. As a primary starting point for the provision of care in the workers'
compensation market, our occupational healthcare centers are designed to
efficiently provide quality care to patients while also providing an entry point
for our other cost containment services. Healthcare services include injury care
and physical therapy services for work-related injuries and illnesses, physical
examinations, substance abuse testing and certain other loss prevention
services. In 2000, revenue from healthcare services represented approximately
53.1% of our total revenue.

     Specialized cost containment services consist of first report of injury,
telephonic case management, utilization management, both in- and out-of-network
bill review, preferred provider organization network access, independent medical
exams and peer reviews. These specialized cost containment services are designed
to monitor the timing and appropriateness of medical care, as well as the proper
pricing for that care. These services are primarily provided to the workers'
compensation market, except for out-of-network bill review which we provide to
the group health market. We are currently expanding our out-of-network bill
review services to the workers' compensation and auto insurance markets. In
2000, revenue from specialized cost containment services represented
approximately 28.0% of our total revenue.

     We provide field case management services to a national customer base using
approximately 1,000 full-time field case managers. Field case management
services involve working on a one-on-one basis with injured employees and aiding
communication among their various healthcare professionals, employers and
insurance company adjusters. Field case management services are designed both to
assist in maximizing medical improvement and, where appropriate, to expedite
return to work. In 2000, revenue from field case management services represented
approximately 18.9% of our total revenue.

B. Industry Overview

Occupational Healthcare

     Occupational healthcare is largely provided by independent physicians, who
have experienced increasing pressures in recent years from growing regulatory
complexity and other factors, as well as hospital emergency departments and
other urgent care providers. We anticipate that competition in the occupational
healthcare market may continue to shift to specialized provider groups, such as
groups we manage. Occupational healthcare services consist of two primary
components:

     .    workers' compensation injury care and related services; and

     .    non-injury occupational healthcare services related to employer needs
          or statutory requirements.

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   Workers' Compensation Injury Care

     Workers' compensation is a state-mandated, comprehensive insurance program
that requires employers to fund all medical expenses, lost wages and other costs
resulting from work-related injuries and illnesses with no co-payment from the
employee. Since their introduction in the early 1900s, these programs have been
adopted by all fifty states, the District of Columbia and Canada. In addition,
federal statutes provide workers' compensation benefits for federal employees.
Each state is responsible for implementing and regulating its own program.
Consequently, workers' compensation benefits and arrangements vary on a
state-by-state basis and are often highly complex.

     Workers' compensation legislation generally requires employers, directly or
indirectly through an insurance vehicle, to fund all of an employee's costs of
medical treatment and related lost wages, legal fees and other costs associated
with an occupational injury. Typically, work-related injuries are broadly
defined, and injured or ill employees are entitled to extensive benefits.
Employers are required, directly or indirectly, to provide first-dollar coverage
with no co-payment or deductible due from the injured or ill employee for
medical treatment and, in many states, there is no lifetime limit on expenses.
However, in exchange for providing this coverage for employees, employers are
not subject to litigation by employees for benefits in excess of those provided
pursuant to the relevant state statute. The extensive benefits coverage, for
both medical costs and lost wages, is provided through the purchase of
commercial insurance from private insurance companies, participation in
state-run insurance funds or employer self-insurance.

     According to data published in the 1999 National Safety Council Injury
Facts, total workers' compensation costs to employers in the United States were
estimated to be approximately $108 billion in 1999. Although the industry as a
whole is fragmented with a large number of competitors in the various
sub-segments of workers' compensation services, we believe that we are the only
integrated provider offering a full range of healthcare management and cost
containment services on a nationwide basis.

     The dollar amount of workers' compensation claims has increased
significantly in recent years, resulting in escalating costs to employers. We
believe that workers' compensation costs will continue to rise primarily because
of:

     .    broader definitions of work-related injuries and illnesses covered by
          workers' compensation laws;

     .    the shifting of medical costs from group health plans to the workers'
          compensation system;

     .    an aging work force;

     .    the continued requirement that employers pay all of an employee's
          costs of medical treatment, without any co-payment or deductible, and
          related lost wages and non-medical costs; and

     .    the under-utilization to date of comprehensive cost containment
          programs in the workers' compensation industry.

     As workers' compensation costs increase, we expect that employers will
continue to seek and use strategies and programs to reduce workers' compensation
costs and to improve worker productivity, health and safety. We believe that
clients' use of our healthcare services at the primary care level, focusing on
proactively managing each injury episode and encouraging early return to work,
as appropriate, can result in substantial savings in indemnity and medical
costs.

     Provider reimbursement methods vary on a state-by-state basis. As of March
15, 2001, 40 states have adopted fee schedules under which all healthcare
providers are uniformly reimbursed. The fee schedules are set by each state and
generally prescribe the maximum amounts that may be reimbursed for a designated
procedure. Of the 32 states in which we currently operate occupational
healthcare centers, as of March 15, 2001, 23 have fee schedules. In states
without fee schedules, healthcare providers are reimbursed based on usual,
customary and reasonable fees charged in the particular state in which the
services are provided. (These usual, customary and reasonable fees are commonly
called "UCR".)

                                       5
<PAGE>

     Limits on an employee's right to choose a specific healthcare provider
depend on the particular state statute. According to the Workers' Compensation
Research Institute, as of March 1998, 25 states limited the employee's initial
choice of provider, 2 states prohibited employee change of provider and 37
states and the District of Columbia placed restrictions on the ability of all
employees to switch providers, including provisions requiring employer approval
for any changes. Generally, the employer will also have the ability to direct
the employee when the employer is self-insured. It has been our experience that
our results of operations and prospects in a particular state do not materially
depend on state statutes regarding direction of care. Consequently, we believe
that employers greatly influence their employees' choices of physicians even in
states in which the employees may select their providers.

   Non-Injury Healthcare Services

     Non-injury occupational healthcare services include:

     .    employment-related physical examinations;

     .    drug and alcohol testing;

     .    functional capacity testing; and

     .    other related programs designed to meet specific employer needs.

     Non-injury healthcare services also include programs to assist employers in
complying with a continuously expanding list of federal and state requirements,
including hearing conservation programs, toxic chemical exposure surveillance
and monitoring programs, and Department of Transportation and Federal Aviation
Administration-mandated physical examinations. Federal laws governing health
issues in the workplace, including the Americans with Disabilities Act, have
increased employers' demand for healthcare professionals who are experts in the
delivery of these regulated services.

Cost Containment Services

     Cost containment techniques are intended to control the cost of healthcare
services and to measure the performance of healthcare providers. These goals are
accomplished through intervention and through on-going review of proposed
services and of services actually provided. Healthcare companies and insurance
companies originally developed managed care techniques to stem the rising costs
of group healthcare.

     Workers' Compensation Cost Containment Services

     Historically, employers were slow to apply managed care techniques to
workers' compensation costs primarily because the total costs are relatively
small compared to those associated with group health benefits and because
state-by-state regulations related to workers' compensation are more complex
than those related to group health. However, in recent years, employers and
insurance carriers have been increasing their focus on applying managed care
techniques to control their workers' compensation costs.

     A number of states have adopted legislation encouraging the use of workers'
compensation managed care organizations in an effort to allow employers to
control their workers' compensation costs. Managed care organization laws
generally provide employers an opportunity to channel injured employees into
provider networks. In certain states, managed care organization laws require
licensed managed care organizations to offer certain specified services, such as
utilization management, case management, peer review and provider bill review.
Most of the managed care organization laws adopted to date establish a framework
within which a company such as ours can provide its customers a full range of
managed care services for greater cost control.

     Because workers' compensation benefits are mandated by law and are subject
to extensive regulation, payors and employers do not have the same flexibility
to alter benefits as they have with other health benefit programs. In addition,
workers' compensation programs vary from state to state, making it difficult for
payors and multi-state employers to adopt uniform policies to administer, manage
and control the costs of benefits. As a result, managing the cost of workers'
compensation requires approaches that are tailored to the specific state
regulatory environment in which the employer operates.

                                       6
<PAGE>

     Workers' compensation cost containment services include two broad
categories:

     .    specialized cost containment services; and

     .    field case management services.

     Specialized cost containment services are designed to reduce the cost of
workers' compensation claims through a variety of techniques such as:

     .    first report of injury;

     .    telephonic case management;

     .    utilization management;

     .    precertification and concurrent review;

     .    both in- and out-of-network bill review;

     .    preferred provider organization network access;

     .    independent medical examinations; and

     .    peer reviews.

     Group Health Cost Containment Services - Out of Network Claims

     According to information from the Health Care Financing Administration,
Office of the Actuary, private health insurance claims payments were estimated
to total approximately $355.3 billion in 1999. All healthcare payors have
out-of-network exposure due to healthcare claims that are outside their
geographic coverage area or their network of providers, either because of an
insured person's choice of providers or as a result of geographic circumstances
where the insured does not have local access to contracted providers. Out-of-
network healthcare claims expose payors to a greater incidence of over-
utilization, cost shifting, omission of appropriate discounts and possible
billing errors. Out-of-network bill review service providers produce savings for
their clients by analyzing these out-of-network medical claims and reducing the
costs which otherwise would be payable through a variety of methods, including
professional negotiation, line item analysis, specialized audit and bill review
processes, and broader access to preferred provider networks with additional
geographic coverage.

Field Case Management Services

     Field case management services involve:

     .    working on a one-on-one basis with injured employees; and

     .    facilitating communication among an injured employee's various
          healthcare professionals, employers and insurance company adjusters.

     Field case management services are designed both to assist in maximizing
medical improvement and, where appropriate, to expedite return to work.

C. Our Business Strategy

     Our objective is to capitalize on our national presence by providing an
integrated platform of comprehensive healthcare management and cost containment
services. Our strategy is to (i) increase market penetration of early
intervention services such as healthcare services, first report of injury and
telephonic case management, (ii) increase market penetration of out-of-network
bill review services to the group health, workers' compensation and auto
insurance markets, (iii) streamline patient care, outcomes reporting and claims
resolution through enhanced information technology, (iv) continue to acquire and
develop occupational healthcare centers and expand healthcare

                                       7
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network services by developing direct affiliations with primary care physicians,
specialists, hospitals and other ancillary providers and (v) capitalize on our
national organization and local market presence to win new customers and to
increase cross-selling of services to existing accounts. We will seek to
implement this strategy as follows:

Increase Market Penetration of Early Intervention Services

     We intend to increase our development and marketing of early intervention
services, such as access to our network of occupational healthcare centers and
other providers in our preferred provider organization ("PPO") network, first
report of injury, precertification, and telephonic case management. Early
intervention enables us to identify promptly cases that have the potential to
result in significant expense and to take appropriate measures to control these
expenses before they are incurred. In addition, we believe that providing early
intervention services generally results in our obtaining earlier access to
claims files. Such earlier access improves our opportunity to provide the full
range of our healthcare management and cost containment services, which should
result in lowering the total costs of the claim.

Increase Market Penetration of Out-of-Network Bill Review Services

     We will further expand our reach into the group health marketplace by
offering new and existing customers of Concentra Preferred Systems, Inc. ("CPS")
comprehensive retrospective bill review services, including expanded PPO network
access, to assist customers in containing costs related to out-of-network group
health medical charges. CPS is the market leader in this line of business and is
expanding its services into the workers' compensation market and auto insurance
market in states that do not have established fee schedules. We believe that
expansion in these areas represents a significant opportunity for us in the
future.

Streamline Patient Care, Outcomes Reporting and Claims Resolution Through
Enhanced Information Technology

     Our ongoing development of enhanced information technology will strengthen
our ability to provide a full continuum of integrated services to our customers.
We will continue to develop our information systems to make more effective use
of our extensive proprietary knowledge base relating to workplace injuries,
treatment protocols, outcomes data and the workers' compensation system's
complex web of regulations. These enhanced information systems will enable us to
streamline patient care and outcomes reporting, thus augmenting our ability to
furnish high-quality, efficient healthcare services in compliance with the
regulations governing healthcare services. Further, we believe we can more
efficiently process bill review and field case management claims through the use
of enhanced information technology, and we will continue to devote resources to
improving such systems.

Continue To Acquire And Develop Occupational Healthcare Centers And Expand
Healthcare Network Services

     We estimate that there are more than 2,000 healthcare centers in the United
States in which physicians who specialize in occupational medicine are providing
occupational healthcare services. We will continue to acquire and develop
occupational healthcare centers in new and existing markets and will continue to
organize our occupational healthcare centers in each market into clusters to
serve employers, payors and workers more effectively, to leverage management and
other resources and to facilitate the development of integrated networks of
affiliated physicians and other healthcare providers. In addition, we will
develop occupational healthcare centers in new markets and within existing
markets through joint ventures and management agreements. Finally, through Focus
Healthcare Management, Inc. ("Focus") we will continue to expand our
vertically-integrated PPO networks of specialists, hospitals and other
healthcare providers. These networks, and our occupational healthcare centers,
are designed to provide quality care to patients, while reducing total costs to
employers and insurers.

Capitalize On National Organization And Local Market Presence To Win New
Customers And To Increase Cross-Selling Of Services To Existing Accounts

     We believe that national and regional insurance carriers and self-insured
employers will benefit greatly from our ability to provide a full continuum of
healthcare management and cost containment services on a nationwide basis. We
offer these large payors a comprehensive solution to their healthcare management
and cost containment needs from a service provider that is adept at
understanding and working with many different and complex state legislative
environments. Our national organization of local service locations enables us to
meet the needs of these large, national payors while maintaining the local
market presence necessary to monitor changes in state-specific regulations and
to facilitate case resolution through locally provided managed care services.
Our national marketing

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personnel will continue to target these large payors to expand our customer
base. In addition, we are well-positioned to capitalize on the relationships
developed through our broad-based national and local marketing efforts by cross-
selling our full continuum of healthcare management and cost containment
services to our existing customer base.

D. Services and Operations

     The workers' compensation and group health markets represent a significant
opportunity for the full range of healthcare management and cost containment
services we provide. In each of these markets, insurance companies, self-insured
employers and third party administrators have a need for our services as they
continue to try to control their rising healthcare costs.

Healthcare Services

   Occupational Healthcare Centers

     Our 224 occupational healthcare centers at March 15, 2001, provide
treatment for:

     .    work-related injuries and illnesses;

     .    physical therapy;

     .    preplacement physical examinations and evaluations;

     .    certain diagnostic testing;

     .    drug and alcohol testing; and

     .    various other employer-requested or government-mandated occupational
          health services.

     During 2000, approximately 48.5% of all patient visits to our centers were
for the treatment of injuries or illnesses and 51.5% were for substance abuse
testing, physical examinations and other non-injury occupational healthcare
services.

     Each occupational healthcare center is staffed with at least one licensed
physician who is an employee of a physician group and at least one licensed
physical therapist. The licensed physicians are generally experienced in
occupational medicine or have emergency, family practice, internal medicine or
general medicine backgrounds. Most centers use a staff of between 10 and 15
full-time persons, or their part-time equivalents, including licensed
physicians, nurses, licensed physical therapists and administrative support
personnel.

     Physician and physical therapy services are provided at the centers under
management agreements with the affiliated physician associations, which are
independently organized professional corporations that hire licensed physicians
and physical therapists to provide healthcare services to the centers' patients.
The management agreements between us and the physician groups with respect to
the 422 affiliated physicians as of March 15, 2001, have 40-year terms. Pursuant
to each management agreement, we provide a wide array of business services to
the physician groups, such as:

     .    providing nurses and other medical support personnel;

     .    practice and facilities management;

     .    billing and collection;

     .    accounting;

     .    tax and financial management;

     .    human resource management;

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     .    risk management; and

     .    marketing and information-based services such as process management
          and outcome analysis.

     As another service to the physician groups, we recruit physicians, nurses,
physical therapists and other healthcare providers. We collect receivables on
behalf of the physician groups and advance funds for payment of each physician
group's expenses, including salaries, shortly after services are rendered to
patients. We receive a management fee based on all services performed at the
centers. The management fee is subject to renegotiation and may be adjusted from
time to time to reflect industry practice, business conditions and actual
expenses for contractual allowances and bad debts. We provide services to the
physician groups as an independent contractor and are responsible only for the
non-medical aspects of the physician groups' practices. The physician groups
retain sole responsibility for all medical decisions, including the hiring of
medical personnel.

     The physician groups operate in accordance with annual budgets. We consult
with the physician groups to aid in establishing their budgets. The management
agreements between the physician groups and our company provide that in no event
shall we have any obligation to supply working capital out of our funds for the
physician groups or their operations. Accordingly, we retain sole discretion
over the decision to advance funds to the physician groups and regarding the
amount of any such advances. Because we own and operate the nonmedical aspects
of the occupational healthcare centers, we also retain ultimate authority to
determine the type of equipment used in the centers and other fiscal matters
with respect to the operation of the centers.

     Individual physicians who perform services pursuant to contracts with a
physician group are employees of the physician group. The physicians providing
services for the physician groups do not maintain other practices. The owners of
the physicians group are physicians. It is the responsibility of the owners of
the physician group to hire and manage all physicians associated with the
physician group and to develop operating policies and procedures and
professional standards and controls. Under each management agreement, the
physician group indemnifies us from any loss or expense arising from acts or
omissions of the physician group or our professionals or other personnel,
including claims for malpractice. For further discussion, see Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Overview.

   Joint Ventures and Management Agreements

     Our strategy is to continue to develop clusters of occupational healthcare
centers in new and existing geographic markets through the acquisition and
development of occupational healthcare centers. In selected markets in which a
hospital management company, hospital system or other healthcare provider has a
significant presence, we may focus our expansion efforts on strategic joint
ventures or management contracts. In our joint venture relationships, we
typically acquire a majority ownership interest in the venture and agree to
manage the venture for a management fee based on net revenue. We currently
manage 14 joint ventures through which we operate 34 centers. In addition, we
have entered into three management agreements through which we operate six
centers.

   Other Ancillary Programs

     We offer other ancillary programs as described below. It has been our
experience that, by offering a full range of programs to complement our core
healthcare management services, it strengthens our relationships with existing
clients and increases the likelihood of attracting new clients. We anticipate
expanding our ancillary programs as needed to address occupational legislation
and regulations enacted in the future.

     Compliance With the Americans with Disabilities Act. The Americans with
Disabilities Act is a federal statute that generally prohibits employers from
discriminating against qualified disabled individuals in the areas of the job
application process, hiring, discharge, compensation and job training. The
Americans with Disabilities Act now applies to all employers with 15 or more
employees. Through our "ADApt Program," we assist employers with the Americans
with Disabilities Act compliance issues by addressing the Americans with
Disabilities Act requirements relating to job descriptions, pre-placement
physical examinations, analysis, compliance and confidentiality of
applicant/employee information. ADApt helps employers adapt their hiring and
termination procedures, job descriptions and injury/illness management programs
in order to comply with Americans with Disabilities Act guidelines.

                                       10
<PAGE>

     Risk Assessment and Injury Prevention Programs. We assist clients in
reducing workplace injuries and illnesses by providing ongoing educational
programs for our clients, as well as through our on-site risk assessment and
injury prevention programs. These programs include:

     .    identifying workplace hazards;

     .    designing plant-specific safety programs; and

     .    helping clients comply with federal and state occupational health
          regulations.

     On-site Services. We provide on-site occupational healthcare services for
employers at each employer's workplace. Our staffing and services are customized
to meet each employer's specific needs. On-site services create a strategic
relationship with employers to provide an innovative and comprehensive approach
to job-related healthcare needs. On-site services assist employers in
maintaining regulatory compliance, promoting health and safety initiatives, and
reducing costs associated with workers' compensation.

     For 2000, revenue from healthcare services represented approximately 53.1%
of our total revenue.

Specialized Cost Containment Services

     We provide a number of specialized services focused directly on helping to
reduce the medical and indemnity costs associated with workers' compensation and
the medical costs associated with group health claims. These specialized cost
containment services include:

     .    in-and out-of-network bill review;

     .    first report of injury;

     .    telephonic case management;

     .    utilization management: precertification and concurrent review;

     .    preferred provider organization network access;

     .    independent medical examinations; and

     .    peer reviews.

     We are able to offer our services separately or on a bundled basis as a
full-service managed care program, beginning with the first report of injury and
including all specialized cost containment services needed to aggressively
manage the costs associated with a work-related injury. Our comprehensive
approach to managing workers' compensation costs serves the needs of a broad
range of clients, from local adjusters to national accounts. In addition to
providing specialized cost containment services for work-related injuries and
illnesses, we also provide out-of-network bill review services to the group
health market and cost containment services to payors of automobile accident
medical claims.

     We believe that the demand for specialized cost containment services will
continue to increase due to a number of factors, including:

     .    greater payor awareness of the availability of these techniques for
          cost containment and case management;

     .    the effectiveness of managed care techniques at reducing costs for
          group health insurance plans;

     .    the verifiable nature of the savings that can be obtained by
          application of specialized cost containment techniques applicable to
          workers' compensation; and

     .    the broad applicability of these techniques to all injured employees,
          not just severely injured employees likely to be absent from work.

                                       11
<PAGE>

   Out-of-Network Bill Review

     Through CPS, we continue to expand our market presence in bill review
services. We believe that CPS is the market leader in this line of business in
the group health market and is expanding its services into the workers'
compensation market in states that do not have established fee schedules and
into the auto insurance market where appropriate. CPS uses a variety of
techniques to reduce expenses by repricing hospital and other facilities' bills.
Using its services, CPS reduces costs ordinarily payable on medical bills
submitted by healthcare providers and the administrative expense associated with
reviewing and analyzing medical bills. These services include:

     .    professional fee negotiation;

     .    line-item analysis;

     .    post-payment services

     .    other specialized audit and bill review processes; and

     .    access to a preferred provider organization network with broader
          geographic coverage than otherwise available to its clients.

     CPS provides out-of-network bill review services to healthcare payors in
most risk categories, including:

     .    indemnity;

     .    preferred provider organization;

     .    health maintenance organization;

     .    Employee Retirement Income Security Act of 1974, or ERISA, self-
          insured plans;

     .    Taft-Hartley Plans;

     .    reinsurance carriers; and

     .    intermediaries such as administrative services organizations and
          third-party administrators.

     CPS is the largest provider of these specific services in the managed care
industry and specializes in out-of-area and non-network cost management services
that reduce exposure to:

     .    over-use;

     .    upcoding;

     .    cost shifting;

     .    various forms of revenue enhancement tactics; and

     .    inflated retail charge practices.

     The current technology employed at CPS is designed to:

     .    review most provider bill types;

     .    employ multiple transmission methods to aid the exchange of bill data;

     .    use various database technologies as part of the bill screening
          process;

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<PAGE>

     .    score each bill referred based on the individual service requirements
          of each client group; and

     .    route each bill to the most appropriate bill review service included
          in our range of cost containment services.

     CPS has packaged this process and markets it as the CPS Healthcare Bill
Management System. The system affords large payor clients breadth of service and
capacity, consolidated and uniform cost management capability, rigorous due
diligence and high quality performance.

     CPS has also experienced significant growth in its post-payment services
area, where the company audits paid healthcare claims and determines the
appropriateness of those payments based upon various criteria such as primary
and secondary diagnosis, primary and secondary payor liability, reimbursement
and coding methodology, and the application of contracted discounts. CPS audits
paid claims up to 24 months in the post-payment cycle and offers refund
collection services to recover overpayments.

   First Report of Injury

     Through First Notice Systems, Inc. ("First Notice"), we provide a
computerized first report of injury/loss reporting service using two centralized
national call centers to which an individual, employer or insurance company
claims adjuster communicates reports of injuries or losses as soon as they
occur. First Notice provides its services primarily to the auto industry for
first notice of loss reporting and to workers' compensation carriers for first
report of injuries, as well as to property and casualty carriers that write both
auto and workers' compensation insurance. For injuries, each report is
electronically transferred or mailed to the state agency, the employer and the
insurance company. This service assists in the timely preparation and
distribution of state-mandated injury reports, provides us and our customers
with an early intervention tool to maximize control over workers' compensation
and auto claims and also provides us with cross-selling and referral
opportunities.

   Telephonic Case Management

     This service provides for short-duration (30 to 90 days) telephonic
management of workers' compensation claims. The telephonic case management
units:

     .    accept first reports of injury;

     .    negotiate discounts with hospitals and other providers;

     .    identify care alternatives; and

     .    work with injured employees to minimize lost time on the job.

     Each of the telephonic case management units is overseen by nurses who are
experienced in medical case management. The telephonic case management units
represent an important component of early intervention and help to promptly
identify cases that require our field case management services.

   Utilization Management: Precertification and Concurrent Review

     Our precertification and concurrent review services are used by clients to
ensure that certain medical procedures are precertified by one of our registered
nurses and/or physicians for medical necessity and appropriateness of treatment
before the medical procedure is performed. Our determinations represent only
recommendations to the customer. The ultimate decision to approve or disapprove
a request is made by the claims adjuster. Precertification calls are made by
either the claimant or the provider to one of our national utilization
management reporting units. After a treatment plan has been precertified, one of
our employees performs a follow-up call and concurrent review, at the end of an
approved time period to evaluate compliance and/or discuss alternative plans.

   Bill Review

     Through a sophisticated software program, we review and reduce our
customers' medical bills, including hospital bills, to either the various
state-mandated fee schedules for workers' compensation claims or a percentage of

                                       13
<PAGE>

the usual, customary and reasonable (UCR) rates that exist in non-fee schedule
states. Additionally, this automated bill review service enables clients to
access certain preferred provider organization pricing schedules that represent
additional savings below the fee schedules or UCR rates. The savings to our
clients as a result of this service can be significant. Bill review also creates
an important historical database for provider practice patterns and managed care
provider compliance requirements.

   Access to Preferred Provider Networks

     Through Focus, we provide our clients with access to a national preferred
provider organization network. This network provides injured workers with access
to quality medical care at pre-negotiated volume discounts, thereby offering our
clients the ability to influence, or in certain states to direct, their
employees into the preferred provider organization network as a means of
managing their work-related claims. In addition to providing a vehicle for
managing the delivery of appropriate care by qualified providers, the discounts
associated with these preferred provider organization arrangements generate
additional savings through the retrospective bill review program described
above. As of March 15, 2001, Focus's national network includes approximately
260,142 individual providers and over 2,907 hospitals covering 50 states and the
District of Columbia.

   Independent Medical Examinations

     Independent medical examinations are provided to assess the extent and
nature of an employee's injury or illness. We provide our clients with access to
independent physicians who perform the independent medical examinations from 15
of our service locations and, upon completion, prepare reports describing their
findings.

   Peer Reviews

     Peer review services are provided by a physician, therapist, chiropractor
or other healthcare provider who reviews medical files to confirm that the care
being provided appears to be necessary and appropriate. The reviewer does not
meet with the patient, but merely reviews the file as presented.

     For 2000, revenue from specialized cost containment services represented
approximately 28.0% of our total revenue.

Field Case Management Services

     We provide field case management services to the workers' compensation
insurance industry through case managers working at the local level on a
one-on-one basis with injured employees and their various healthcare
professionals, employers and insurance company adjusters. Our services are
designed to assist in maximizing medical improvement and, where appropriate, to
expedite employees' return to work through medical management and vocational
rehabilitation services.

     Our field case management services consist of one-on-one management of a
work-related injury by approximately 1,000 full-time field case managers from 81
offices in 50 states, the District of Columbia, Canada, and Puerto Rico. This
service typically involves a case with a significant potential or actual amount
of lost work time or a catastrophic injury that requires detailed management of
the type we provide. Our field case managers specialize in expediting the
injured employee's return to work through both medical management and vocational
rehabilitation. Medical management services provided by our field case managers
include coordinating the efforts of all the healthcare professionals involved
and increasing the effectiveness of the care being provided by encouraging
compliance and active participation on the part of the injured worker.
Vocational rehabilitation services include job analysis, work capacity
assessments, labor market assessments, job placement assistance and return to
work coordination.

     We believe that the following factors will contribute to continued growth
of our field case management services:

     .    increased acceptance of field case management techniques due to
          greater exposure to the workers' compensation managed care market;

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<PAGE>

     .    earlier identification of individuals in need of field case management
          services due to increased utilization of our specialized cost
          containment services, particularly early intervention services such as
          telephonic case management;

     .    increased market share at the expense of smaller, undercapitalized
          competitors; and

     .    the ability to access national accounts for use of case management
          services.

     For 2000, revenue from field case management services represented
approximately 18.9% of our total revenue.

E. Customers

     Our occupational healthcare centers currently serve more than 130,000 local
employers. We serve more than 2,000 specialized cost containment and field case
management customers across the United States and Canada, including most of the
major underwriters of workers' compensation insurance, third-party
administrators and self-insured employers.

     We are compensated primarily on a fee-for-service or percentage-of-savings
basis. Our largest customer represented less than 4% of our total revenue in
2000. We have not entered into written agreements with most of our healthcare
services customers. Many of our specialized cost containment and field case
management relationships are based on written agreements. However, either we or
the customer can terminate most of these agreements on short notice. We have no
risk-bearing or capitated arrangements. Less than 0.5% of our revenue is
dependent on Medicare or Medicaid reimbursement.

F. Sales and Marketing

     We actively market our services primarily to workers' compensation
insurance companies, third-party administrators, employers and employer groups.
We also market to the group health, automobile insurance and disability
insurance markets. Our marketing organization includes over 390 full-time sales
and marketing personnel.

     We market our services at the local level to insurance company adjusters
and employers. In addition, we market our services at the national and regional
level for large managed care accounts and for self-insured corporations where a
more sophisticated sales presentation is required. We have a dedicated staff of
national accounts salespeople responsible for marketing and coordinating our
full range of services to corporate offices.

     Our local marketing has been a critical component of our strategy,
primarily because of the decision-making authority that resides at the local
level and the relationship-driven nature of that portion of the business.
However, the expansion of comprehensive managed care legislation, continuing
receptiveness to workers' compensation change and a more comprehensive product
offering by us demand that we continue to focus on marketing to national
headquarters offices of insurance companies and self-insured companies. As part
of our coordinated marketing effort, we periodically distribute follow-up
questionnaires to patients, insurers and employers to monitor satisfaction with
our services.

G. Quality Assurance

     We routinely use internal audits to test the quality of our delivery of
services. We conduct audits of compliance with special instructions, completion
of activities in a timely fashion, quality of reporting, identification of
savings, accuracy of billing and professionalism in contacts with healthcare
providers. We conduct audits on a nationwide basis for particular customers or
on a local office basis by selecting random files for review. A detailed report
is generated outlining the audit findings and providing specific recommendations
for service delivery improvements. When appropriate, we conduct follow-up audits
to ensure that recommendations from the initial audit have been implemented.

H. Competition

Healthcare Services

     The market to provide healthcare services within the workers' compensation
system is highly fragmented and competitive. Our competitors typically have been
independent physicians, hospital emergency departments and

                                       15
<PAGE>

other urgent care providers. We believe that, as integrated networks continue to
be developed, our competitors will increasingly consist of specialized provider
groups.

     We believe that we compete effectively because of:

     .    our specialization in the occupational healthcare industry;

     .    our broad knowledge and expertise in the occupational medicine
          industry;

     .    the effectiveness of our services as measured by favorable outcomes;

     .    our ability to offer services in multiple markets; and

     .    our information systems.

     We believe that we enjoy a competitive advantage by specializing in and
focusing on occupational healthcare at the primary care provider level, which,
as the entry point into the occupational healthcare system, is well-suited to
controlling the total costs of a claim. We do not believe that any other company
offers the full range of services we provide.

     The recruiting of physicians, physical therapists, nurses and other
healthcare providers can be competitive. However, our recruiting becomes easier
as we grow and become more widely known by healthcare providers.

Specialized Cost Containment and Field Case Management Services

     The managed care services market is fragmented, with a large number of
competitors. We compete with numerous companies, including national managed care
providers, smaller independent providers, and insurance companies. Our primary
competitors are companies that offer one or more workers' compensation managed
care services on a national basis. We also compete with many smaller companies
that generally provide unbundled services on a national basis and on a local
level where such companies often have a relationship with a local adjuster.
Several large workers' compensation insurance carriers offer managed care
services for their insurance customers either through the insurance carrier's
own personnel or by outsourcing various services to providers such as us. We
believe that this competitive environment will continue into the foreseeable
future.

     We believe that we compete effectively because of:

     .    our specialized knowledge and expertise in the workers' compensation
          managed care services industry;

     .    the effectiveness of our services;

     .    our ability to offer a full range of services in multiple markets
          throughout the United States;

     .    our information systems; and

     .    the prices at which we offer our services.

I. Information Systems and Technology

     We maintain a fundamental commitment to the development and implementation
of advanced information technology, with a considerable focus on web-based
applications. We believe that our information systems enable us to improve
referrals among our full range of services, streamline patient care and enhance
outcomes reporting. Therefore, we believe that this makes our operations more
efficient while improving our ability to demonstrate the cost savings our
services provide to our clients.

     We have completed the implementation of a wide area network, or WAN, in
each market in which we provide healthcare services. All occupational healthcare
centers in a market will use a patient administration system, named
"OccuSource," which runs on a client/server architecture allowing each center to
access and share a common database for that market. The database contains
employer protocols, patient records and other information regarding

                                       16
<PAGE>

our operations in the market. The WAN allows the centers in the market to share
information and thereby improve center and physician efficiencies and enhance
customer service. We have created a centralized repository of company data to be
used, among other things, for clinical outcomes analysis. We believe that our
commitment to continued development of our healthcare information system
provides a unique and sustainable competitive advantage within the occupational
healthcare industry.

     We have developed and licensed to third parties a new Internet-based first
notice of loss reporting system for all lines of insurance named FNSNet. The
application extends our call center technology through the Internet, enabling
users to report first notices of loss, as well as providing the user with
immediate access to customized networks and routing to appropriate and qualified
healthcare providers. FNSNet can be accessed through hyperlinks on customers'
web pages. This application enhances both internal integration and customer
communication and creates an effective platform for our First Notice subsidiary
to handle calls with greater speed and efficiency.

     Our Integrated Case Management Software System aids and speeds up the daily
tasks of our case managers, allowing them to devote more time to consistent
delivery of quality service. This software allows immediate exchange of
information among our offices, as well as among employees in the same office.
The Integrated Case Management Software System is partially integrated with the
FNSNet web-based product. The Integrated Case Management Software System
application will enable a clear, precise and immediate transmission of data from
First Notice into the Integrated Case Management Software System. This
pre-population of data will eliminate redundant and duplicative data entry for
nurse case managers, thus resulting in greater time efficiency and cost savings.
The Integrated Case Management Software System allows for shared data in
situations in which multiple case managers are working on a case, creates better
customer access to information and allows us to produce specific, user-friendly
reports to demonstrate the value of our services.

     Finally, our subsidiary, CPS, uses our proprietary, technology-based
Healthcare Bill Management System for our out-of-network medical claims review
services. We are completing a major technology upgrade for this system to use
Oracle and a front-end browser. Client bills are accessed and entered into the
Healthcare Bill Management System in a variety of ways, including electronic
bill identification within the client's claim adjudication system with
subsequent electronic data interchange, or EDI, transfer to CPS, entry of
appropriate bills into a customized Data Access Point system, on-site bill entry
by a CPS employee into the Data Access Point system, and overnight mail or
facsimile of client bills to a CPS service center. These access strategies are
designed to increase the number of appropriate bills that CPS receives, while
minimizing the administrative cost to the client. Once a bill is electronically
or manually entered into the Healthcare Bill Management System, the bill is
evaluated against CPS's licensed and proprietary databases that are designed to
identify instances of cost shifting, improper coding and utilization and pricing
issues. Following analysis of the bill, the bill passes through CPS's client
preference profile that is created at the time of CPS's initial engagement with
the client. The Healthcare Bill Management System then evaluates the
compatibility of the service with the greatest expected savings with the service
requirements of the client and electronically sends the bill for processing to
the appropriate CPS service department.

J. Government Regulation

General

     As a provider of healthcare services, cost containment services, and case
management services, we are subject to extensive and increasing regulation by a
number of governmental entities at the federal, state and local levels. We are
also subject to laws and regulations relating to business corporations in
general. Applicable laws and regulations are subject to frequent changes.

     Laws and regulations affecting our operations fall into four general
categories:

     .    workers' compensation and other laws that regulate the provision of
          healthcare services or the provision of cost containment services or
          require licensing, certification or other approval of services we
          provide;

     .    laws regarding the provision of healthcare services generally;

     .    laws regulating the operation of managed care provider networks; and

     .    other laws and regulations of general applicability.

                                       17
<PAGE>

Workers' Compensation Laws and Regulations

     In performing workers' compensation healthcare services and cost
containment services, we must comply with state workers' compensation laws.
Workers' compensation laws require employers to assume financial responsibility
for medical costs, a portion of lost wages and related legal costs of
work-related illnesses and injuries. These laws establish the rights of workers
to receive benefits and to appeal benefit denials. Workers' compensation laws
generally prohibit charging medical co-payments or deductibles to employees. In
addition, certain states restrict employers' rights to select healthcare
providers and establish maximum fee levels for the treatment of injured workers.

     Many states are considering or have enacted legislation reforming their
workers' compensation laws. These reforms generally give employers greater
control over who will provide healthcare services to their employees and where
those services will be provided and attempt to contain medical costs associated
with workers' compensation claims. At present, 23 of the states in which we do
business have implemented treatment-specific fee schedules that set maximum
reimbursement levels for our healthcare services. Of the states in which we do
business, eight states provide for a "reasonableness" review of medical costs
paid or reimbursed by workers' compensation. When not governed by a fee
schedule, we adjust our charges to the usual, customary and reasonable levels
accepted by the payor.

     Many states, including a number of those in which we transact business,
have licensing and other regulatory requirements that apply to our specialized
cost containment and field case management businesses. Approximately half of the
states have enacted laws that require licensing of businesses that provide
medical review services, such as ours. Some of these laws apply to medical
review of care covered by workers' compensation. These laws typically establish
minimum standards for qualifications of personnel, confidentiality, internal
quality control and dispute resolution procedures. In addition, new laws
regulating the operation of managed care provider networks have been adopted by
a number of states. These laws may apply to managed care provider networks
having contracts with us or to provider networks that we have organized and may
organize in the future. To the extent that we are governed by these regulations,
we may be subject to additional licensing requirements, financial oversight and
procedural standards for beneficiaries and providers.

Corporate Practice of Medicine and Other Laws

     Most states limit the practice of medicine to licensed individuals or
professional organizations comprised of licensed individuals. Many states also
limit the scope of business relationships between business entities such as ours
and licensed professionals and professional corporations, particularly with
respect to fee-splitting between physicians and non-physicians. Laws and
regulations relating to the practice of medicine, fee-splitting and similar
issues vary widely from state to state, are often vague, and are seldom
interpreted by courts or regulatory agencies in a manner that provides guidance
with respect to business operations such as ours. We attempt to structure all of
our healthcare services operations to comply with applicable state statutes
regarding medical practice, fee-splitting and similar issues. However, there can
be no assurance:

     .    that courts or governmental officials with the power to interpret or
          enforce these laws and regulations will not assert that we are in
          violation of such laws and regulations; or

     .    that future interpretations of such laws and regulations will not
          require us to modify the structure and organization of our business.

Fraud and Abuse Laws

     A federal law ("The Anti-Kickback Statute") prohibits the offer, payment,
solicitation or receipt of any form of remuneration to induce or in return for
the referral of Medicare or other governmental health program patients or
patient care opportunities, or in return for the purchase, lease or order of
items or services that are covered by Medicare or other governmental health
programs. Violations of the statute can result in the imposition of substantial
civil and criminal penalties. In addition, as of January 1, 1995, certain other
federal anti-referral provisions (the "Stark Amendments"), prohibit a physician
with a "financial relationship" with an entity from referring a patient to that
entity for the provision of any of 11 "designated medical services," some of
which are provided by physician groups affiliated with us.

                                       18
<PAGE>

     At least seven of the states where we conduct our healthcare services
business, Arizona, California, Florida, Illinois, Maryland, New Jersey, and
Texas, have enacted statutes similar in scope and purpose to the Anti-Kickback
Statute, with applicability to services other than those covered by Medicare or
other governmental health programs. In addition, most states have statutes,
regulations or professional codes that restrict a physician from accepting
various kinds of remuneration in exchange for making referrals. Even in states
which have not enacted such statutes, we believe that regulatory authorities and
state courts interpreting these statutes may regard federal law under the
Anti-Kickback Statute and the Stark Amendments as persuasive.

     We believe that our arrangements with the physician groups should not
violate the Anti-Kickback Statute, the Stark Amendments and applicable state
laws. However, all of the above laws are subject to modification and
interpretation and have not often been interpreted by appropriate authorities in
a manner applicable to our business. Moreover, these laws are enforced by
authorities vested with broad discretion. We have attempted to structure all of
our operations so that they should not violate any applicable anti-kickback and
anti-referral prohibitions. We also continually monitor developments in this
area. If these laws are interpreted in a manner contrary to our interpretation
or are reinterpreted or amended, or if new legislation is enacted with respect
to healthcare fraud and abuse, illegal remuneration or similar issues, we will
seek to restructure any affected operations to maintain our compliance with
applicable law. We cannot assure you that such restructuring will be possible,
or, if possible, will not adversely affect our business or results of
operations.

Health Insurance Portability and Accountability Act of 1996/Fraud and Abuse

     The Health Insurance Portability and Accountability Act of 1996 (commonly
referred to as "HIPAA") broadens the application of the Anti-Kickback Statute
beyond the Medicare and Medicaid programs. An amendment included in HIPAA
extended the Anti-Kickback Statute's prohibitions to all "Federal healthcare
programs," which include all state healthcare programs receiving federal funding
but exclude the Federal Employees Health Benefit Program. Because the
prohibitions contained in the Anti-Kickback Statute apply to the furnishing of
items or services for which payment is made in "whole or in part," the
Anti-Kickback Statute could be implicated if any portion of an item or service
we provide is covered by the state or federal health benefit programs described
above. Additionally, HIPAA created a general healthcare fraud criminal offense
that applies to include all healthcare benefit programs regardless of whether
such programs are funded in whole or in part with federal funds.

Stark II Regulations

     On January 4, 2001, the Healthcare Financing Administration issued final
regulations subject to comment intended to clarify parts of the Stark Amendments
and some of the exceptions to the Stark Amendments. These regulations are
considered Phase I of a two-phase process, with the remaining regulations to be
published at an unknown future date. With the exception of the provisions
regarding home health services, Phase I of the regulations becomes effective
January 4, 2002. The Health Care Financing Administration is accepting comments
on Phase I of the regulations until April 4, 2001, which may lead to further
changes. On February 2, 2001, the Health Care Financing Administration delayed
the effective date of the Stark regulations on home health services from
February 5, 2001 to April 6, 2001 to give the Bush Administration officials time
to review the regulations. This action might affect these regulations.
Consequently, we cannot predict the final form that these regulations will take
or the effect that the final regulations will have on us. Therefore, some or all
of our physician arrangements may ultimately be found to be not in compliance
with the Stark Amendments.

HIPAA Administrative Simplification Provisions - Patient Privacy, Protection and
Security

     Another set of laws that may have an impact on our operations concerns the
Administrative Simplification Provisions of HIPAA. These laws require the use of
uniform electronic data transmission standards for healthcare claims and payment
transactions submitted or received electronically. On August 7, 2000, the
Department of Health and Human Services published final regulations establishing
electronic data transmission standards that all healthcare providers must use
when submitting or receiving certain healthcare transactions electronically.
Compliance with these regulations is required by October 2002. We cannot predict
the impact that the final regulations, when effective, will have on our
operations.

     HIPAA also requires the Department of Health and Human Services to adopt
standards to protect the security and privacy of health information. The
security regulations were proposed on August 12, 1998, but have not yet been
finalized. As proposed, the regulations would require healthcare providers to
implement organizational and

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<PAGE>

technical practices to protect the security of electronically maintained or
transmitted health information about individuals.

     In addition, the Department of Health and Human Services released final
regulations containing privacy standards in December 2000, which require
compliance by February 2003. Upon taking office, the Bush Administration
reopened the final privacy regulations for additional comment and postponed the
compliance date to April 2003. This action might affect these regulations.
However, if they become effective as currently drafted, the privacy regulations
will extensively regulate the use and disclosure of individually identifiable
health information. The security regulations, as proposed, and the privacy
regulations, if they become effective, could impose significant costs on us in
order to comply with these standards. Violations of the Administration
Simplification Provisions could result in civil penalties of up to $25,000 per
type of violation in each calendar year and criminal penalties of up to $250,000
per violation.

Specialized Cost Containment Services

     Many of our specialized cost containment services include prospective or
concurrent review of requests for medical care or therapy. Approximately half of
the states have enacted laws that require licensure, certification or other
approval of businesses, such as ours, that provide medical review services. Some
of these laws apply to medical review of care covered by workers' compensation.
These laws typically establish minimum standards for qualifications of
personnel, confidentiality, internal quality control and dispute resolution
procedures. These regulatory programs may result in increased costs of operation
for us, which may have an adverse impact upon our ability to compete with other
available alternatives for healthcare cost control.

Use of Provider Networks

     Our ability to provide comprehensive healthcare management and cost
containment services depends in part on our ability to contract with or create
networks of healthcare providers which share our objectives. For some of our
clients, we offer injured workers access to networks of providers who are
selected by us for quality of care and pricing. Laws regulating the operation of
managed care provider networks have been adopted by a number of states. These
laws may apply to managed care provider networks having contracts with us or to
provider networks that we may develop or acquire. To the extent these
regulations apply to us, we may be subject to:

     .    additional licensing requirements;

     .    financial oversight; and

     .    procedural standards for beneficiaries and providers.

Prompt Pay Laws

     Many states are considering or have enacted legislation governing prompt
payment for healthcare services. These laws generally set a specific time frame
for providers to receive payment for services rendered and define a process for
the payment of claims. Although we are not responsible for provider payment,
entities that use our provider networks and specialized cost containment
services typically do have that responsibility. Approximately half of the states
in which we do business have some form of prompt pay law for workers'
compensation, and an even greater number of states have implemented prompt pay
laws regarding the provision of general healthcare services. We may be subject
to additional procedural requirements, as well as the education of our
customers, in connection with compliance with prompt pay laws.

ERISA

     The provision of goods and services to certain types of employee health
benefit plans is subject to the Employee Retirement Income Security Act of 1974,
or ERISA. ERISA is a complex set of laws and regulations subject to periodic
interpretation by the Internal Revenue Service and the Department of Labor.
ERISA regulates certain aspects of the relationship between our managed care
contracts and employers that maintain employee benefit plans subject to ERISA.
The Department of Labor is engaged in ongoing ERISA enforcement activities that
may result in additional constraints on how ERISA-governed benefit plans conduct
their activities. We cannot assure you that future revisions to ERISA or
judicial or regulatory interpretations of ERISA will not have a material adverse
effect on our business or results of operations.

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<PAGE>

Environmental

     We are subject to various federal, state and local laws and regulations for
the protection of human health and environment, including the disposal of
infectious medical waste and other waste generated at our occupational
healthcare centers. If an environmental regulatory agency finds any of our
facilities to be in violation of environmental laws, penalties and fines may be
imposed for each day of violation, and the affected facility could be forced to
cease operations. While we believe that our environmental practices, including
waste handling and discharge practices, are in material compliance with
applicable law, future claims or changes in environmental laws could have an
adverse effect on our business.

K. Seasonality

     Our healthcare services business is seasonal in nature. Although our
expansion of services and continuing growth may obscure the effect of
seasonality in our financial results, our first and fourth quarters generally
reflect lower net healthcare services revenue on a same market basis when
compared to the second and third quarters.

     Plant closings, vacations and holidays during the first and fourth quarters
result in fewer patient visits at our occupational healthcare centers, primarily
because of fewer occupational injuries and illnesses during those periods. In
addition, employers generally hire fewer employees during the fourth quarter,
thereby reducing the number of pre-employment physical examinations and drug and
alcohol tests conducted at our centers during that quarter. See Item 7.
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations--Seasonality."

L. Insurance

     We and the physician groups maintain medical malpractice insurance in the
amount of $1.0 million per medical incident and $3.0 million annual aggregate
per provider, with a shared aggregate of $20.0 million. We also maintain an
umbrella liability policy providing an additional liability limit of $30.0
million. Pursuant to the management agreements between us and the physician
groups, each physician group has agreed to indemnify us from certain losses,
including medical malpractice. We maintain a managed care organization errors
and omissions liability insurance policy covering all aspects of our managed
care services. This policy has limits of $20.0 million per claim, with an annual
aggregate of $20.0 million. Our directors and officers liability policy has a
liability limit of $20.0 million per occurrence and in the aggregate, with an
additional $10.0 in limits provided through an excess liability policy. In
addition, we maintain $1.0 million per occurrence and $3.0 million annual
aggregate of commercial general liability insurance.

M. Employees

     We had approximately 8,800 employees at March 15, 2001. We have experienced
no work stoppages and believe that our employee relations are good. All
physicians, physician assistants and physical therapists providing professional
services in our occupational healthcare centers are either employed by or under
contract with the physician groups.

     Currently, none of our employees is subject to a collective bargaining
agreement. However, in August 2000, several physicians employed by the physician
group in our New Jersey market petitioned the National Labor Relations Board
("NLRB") to form a local physician collective bargaining unit. Although the New
Jersey physicians voted in September 2000, the NLRB has not determined the
outcome of that vote as of March 15, 2001.

N. Risk Factors

If we cannot generate cash, then we will not be able to service our
indebtedness.

     As of December 31, 2000, our consolidated indebtedness was approximately
$561.6 million. In addition, our business strategy calls for significant capital
expenditures for acquisition and development. Our ability to make payments on
and to refinance our indebtedness and to fund planned capital expenditures will
depend on our ability to generate cash in the future. Over the next year, we
will be required to make debt payments of $5.2 million and interest payments
related to Concentra Operating's debt of approximately $69.2 million.

                                       21
<PAGE>

     We believe our cash flow from operations, available cash and available
borrowings under our credit facilities will be adequate to carry on our business
strategy. However, our ability to generate cash is subject to general economic
and industry conditions that are beyond our control. Therefore, it is possible
that our business will not generate sufficient cash flow from operations or that
future borrowings will not be available to us under our senior credit facilities
in an amount sufficient to enable us to pay our indebtedness or to fund our
other liquidity needs.

Restrictions imposed by our credit facilities will make it more difficult for us
to take the actions listed below.

     Our credit facilities restrict our ability to:

     .    make investments;

     .    pay dividends and make distributions;

     .    repurchase stock;

     .    incur additional indebtedness;

     .    create liens;

     .    merge or consolidate our company or any of our subsidiaries;

     .    transfer and sell assets;

     .    enter into transactions with our affiliates;

     .    enter into sale and leaseback transactions; and

     .    issue common and preferred stock of our subsidiaries.

     In addition, we must maintain minimum debt service and maximum leverage
ratios under our senior credit facilities. We calculate these ratios on a
rolling four-quarter basis. The debt service ratio and leverage ratio
requirements for the quarter ended December 31, 2000, were 1.50 to 1.00 and 5.30
to 1.00, respectively. We were in compliance with these ratios at December 31,
2000, with a debt service ratio of approximately 2.76 to 1.00 and a leverage
ratio of approximately 4.73 to 1.00. These ratios become more restrictive for
future periods. Our ability to be in compliance with these more restrictive
ratios will be dependent upon our ability to increase our cash flow over current
levels.

     A failure to comply with these restrictions or maintain these ratios in the
future could lead to an event of default which could result in an acceleration
of the related indebtedness before the terms of that indebtedness otherwise
require us to pay that indebtedness. See Item 7. "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources."

If we cannot make future acquisitions or enter into joint ventures successfully,
that lack of success may impair our planned growth.

     Our business strategy requires us to negotiate the purchase of occupational
healthcare centers and enter into joint ventures to operate occupational
healthcare centers. A strategy of growth by acquisition or joint venture also
involves the risk of assuming unknown or contingent liabilities of the acquired
business or joint venture, which could be material, individually or in the
aggregate. Nevertheless, we may not be able to find suitable acquisition or
joint venture candidates, or if we do, finance or consummate such transactions
on favorable terms. In addition, we cannot assure you we can successfully
integrate the operations of any completed acquisitions or joint ventures into
our own.

                                       22
<PAGE>

Our continued rapid growth could cause our management to lose focus on all
aspects of our business, our response time to customer inquiries to increase,
our customer service to decline in quality and other similar effects.

     We have experienced rapid growth. Our recent and continued rapid growth
could place a significant strain on our management and other resources. This
strain could result in our management not having enough time to focus on
managing all aspects of our business and operations, our response time to
customer inquiries increasing, our customer service declining in quality and
other similar effects. Our rapid growth should not affect the quality of care
provided by our affiliated physician associations or employees. We anticipate
that any continued growth will require us to continue to recruit, hire, train
and retain a substantial number of new and highly skilled administrative,
information technology, finance, sales and marketing and support personnel. We
may be unable to slow our growth without increasing our costs if management
becomes strained. Our ability to compete effectively and to manage current and
any future growth will depend on our ability to continue to implement and
improve operational, financial and management information systems on a timely
basis and to expand, train, motivate and manage our workforce. Should we
continue to experience rapid growth, we cannot assure you that personnel,
systems, procedures and controls will be adequate to support our operations or
that management will adequately anticipate all demands that growth will place on
us. If we are unable to meet increasing demand, we may lose customers and our
revenue may decrease.

If competition increases, our growth and profits may decline.

     The market to provide occupational healthcare services is highly fragmented
and competitive. Our primary competitors have typically been independent
physicians, hospital emergency departments and hospital-owned or
hospital-affiliated medical facilities.

     We believe that, as managed care techniques continue to gain acceptance in
the occupational healthcare marketplace, our competitors will increasingly
consist of nationally focused workers' compensation managed care service
companies, specialized provider groups, insurance companies, health management
organizations and other significant providers of managed care products. These
organizations may be significantly larger and have greater financial and
marketing resources than we do. Accordingly, competitors may affect our ability
to continue to maintain our existing performance or our success with any new
products or in any new geographic markets we may enter.

If healthcare reform intensifies competition and reduces the costs of workers'
compensation claims, the rates we charge for our services could decrease.

     Legislative reforms in some states permit employers to designate health
plans such as health management organizations and preferred provider
organizations to cover workers' compensation claimants. Because many health
plans have the capacity to manage healthcare for workers' compensation
claimants, that legislation may intensify competition in the market we serve.
Within the past few years, several states have experienced decreases in the
number of workers' compensation claims and the total value of claims which have
been reflected in workers' compensation insurance premium rate reductions in
those states. We believe that declines in workers' compensation costs in these
states are due principally to intensified efforts by payors to manage and
control claim costs, to improved risk management by employers and to legislative
reforms. As these costs decrease, we may have to reduce the rates we charge for
our services in order to effectively compete.

If lawsuits against us are successful, we may incur significant liabilities.

     Our affiliated physician associations and some of our employees are
involved in the delivery of healthcare services to the public. In each case, the
physician makes all decisions concerning the appropriate medical treatment for
the patient based on his or her prior medical experience and experience in the
treatment of occupational healthcare injuries. We charge our customers for these
services on a fee-for-service basis. We base these fees on either the
state-mandated fee or the usual and customary rate for such services, as
appropriate. In providing these services, the physicians, our employees and,
consequently, our company are exposed to the risk of professional liability
claims. Although we have not faced any material lawsuits in the past that were
not covered by our insurance, claims of this nature, if successful, could result
in substantial damage awards to the claimants which may exceed the limits of any
applicable insurance coverage. We are indemnified under our management
agreements with our affiliated physician associations from claims against them,
maintain liability insurance for ourselves and negotiate liability insurance for
the physicians in our affiliated physician associations. However, successful

                                       23
<PAGE>

malpractice claims asserted against us or our affiliated physician associations
could result in significant liabilities that are not indemnified by the
physicians or our insurance. Further, plaintiffs have proposed new types of
liabilities against managed care companies as well as against employers who use
managed care in workers' compensation cases which, if established and
successful, may discourage the use of managed care in workers' compensation
cases and could reduce the number of claims referred to us or the rates we
charge for our services.

     Through our specialized cost containment and field case management
services, we make recommendations about the appropriateness of providers'
proposed medical treatment plans of patients throughout the country, and as a
result we could be subject to charges arising from any adverse medical
consequences. We do not grant or deny claims for payment of benefits and we do
not believe that we engage in the practice of medicine or the delivery of
medical services. Although plaintiffs have not subjected us to any claims or
litigation related to the grant or denial of claims for payment of benefits or
allegations that we engage in the practice of medicine or the delivery of
medical services so far, we cannot assure you that plaintiffs will not make
those types of claims or litigation. We maintain errors and omissions insurance
and such other lines of coverage as we believe are reasonable in light of our
experience to date. We cannot assure you, however, that our insurance will
provide sufficient coverage or that insurance companies will make insurance
available at reasonable cost to protect us from liability.

If corporate practice of medicine and other laws and regulations increase our
costs, our profits may decline.

     State laws relating to our business vary widely from state to state and
courts or regulatory agencies seldom interpret those laws in a way that provides
guidance with respect to our business operations. In addition, many states have
licensing or regulatory programs and we may incur significant costs due to the
failure to comply with existing laws and regulations, failure to obtain
necessary licenses and government approvals or failure to adapt to new or
modified regulatory requirements. In addition, these regulatory programs may
result in increased costs of operation for us, which may have an adverse impact
on our ability to charge competitive rates for our services while maintaining
profitability.

     Most states limit the practice of medicine to licensed individuals or
professional organizations comprised of licensed individuals. Many states also
limit the scope of business relationships between business entities like us and
licensed professionals and professional corporations, particularly with respect
to fee-splitting between a physician and another person or entity and
non-physicians exercising control over physicians engaged in the practice of
medicine.

     Laws and regulations relating to the practice of medicine, fee-splitting
and similar issues vary widely from state to state, are often vague, and courts
or regulatory agencies seldom interpret those laws in a manner that provides
guidance with respect to business operations such as ours. Although we attempt
to structure all of our operations so that they comply with the relevant state
statutes and applicable medical practice, fee-splitting and similar laws, any
new interpretation of these laws could significantly increase our costs of
operations or result in substantial liabilities.

     In addition, state agencies regulate the automobile insurance industry,
like the workers' compensation industry, on a state-by-state basis. Although
regulators do not require approval for us to offer most of our services to the
automobile insurance market, state regulators require approval in order to offer
automobile insurers' products that permit them to direct claimants into a
network of medical providers. Changes in these regulations may increase our
costs.

If fraud and abuse laws change, we may incur significant liabilities.

     The Anti-Kickback Statute prohibits the offer, payment, solicitation or
receipt of any form of remuneration to induce or in return for the referral of
Medicare or other governmental health program patients or patient care
opportunities, or in return for the purchase, lease or order of items or
services that are covered by Medicare or other governmental health programs.
Violations of the statute can result in the imposition of substantial civil and
criminal penalties.

     As of January 1, 1995, the Stark Amendments prohibit a physician with a
"financial relationship" with an entity from referring a patient to that entity
for the provision of any of eleven "designated health services," some of which
are provided by physician associations affiliated with us. On January 4, 2001,
the Health Care Financing Administration issued final regulations subject to
comment intended to clarify parts of the Stark Amendments and some of the
exceptions to the Stark Amendments. These regulations are under review, and we
cannot predict the final form that they will take or the effect that they will
have on us.

                                       24
<PAGE>

     HIPAA broadens the application of the Anti-Kickback Statute beyond the
Medicare and Medicaid programs, including creating a general healthcare fraud
criminal offense that applies to include all healthcare benefit programs
regardless of whether such programs are funded in whole or in part with federal
funds.

     At least seven of the states where we conduct our healthcare services
business, Arizona, California, Florida, Illinois, Maryland, New Jersey and
Texas, have enacted statutes similar in scope and purpose to the Anti-Kickback
Statute, which are applicable to services other than those covered by Medicare
or other governmental health programs. In addition, most states have statutes,
regulations or professional codes that restrict a physician from accepting
various kinds of remuneration in exchange for making referrals. Several states
are considering legislation that would prohibit referrals by a physician to an
entity in which the physician has a specified financial interest. Even in states
that have not enacted that kind of statute, we believe that regulatory
authorities and state courts interpreting these statutes may regard federal law
under the Anti-Kickback Statute as persuasive.

     We believe that our arrangements with our affiliated physician associations
should not violate the Anti-Kickback Statute, the Stark Amendments, HIPPA and
applicable state laws. However, appropriate authorities subject all of these
laws to modification and interpretation and appropriate authorities seldom
interpret these laws in a manner that provides guidance to our business.
Moreover these laws are enforced by authorities vested with broad discretion. We
have attempted to structure all of our operations so that they should not
violate any applicable anti-kickback and anti-referral prohibitions.

     We also continually monitor developments in this area. If appropriate
authorities interpret these laws in a manner contrary to our interpretation, or
reinterpret or amend them, or if new legislation is enacted with respect to
healthcare fraud and abuse or similar issues, we will seek to restructure any
affected operations so as to maintain compliance with applicable law.

We may incur significant liabilities related to compliance with HIPAA.

     The Administrative Simplification Provisions of HIPAA require the use of
uniform electronic data transmission standards for healthcare claims and payment
transactions submitted or received electronically. On August 7, 2000, the
Department of Health and Human Services published final regulations establishing
electronic data transmission standards that all healthcare providers must use
when submitting or receiving certain healthcare transactions electronically.
Compliance with these regulations is required by October 2002. We cannot predict
the impact that the final regulations, when effective, will have on our
operations.

     HIPAA also requires the Department of Health and Human Services to adopt
standards to protect the security and privacy of health information. The
security regulations were proposed on August 12, 1998, but have not yet been
finalized. As proposed, the regulations would require healthcare providers to
implement organizational and technical practices to protect the security of
electronically maintained or transmitted health information about individuals.

     In addition, the Department of Health and Human Services released final
regulations containing privacy standards in December 2000, which require
compliance by February 2003. Upon taking office, the Bush Administration
reopened the final privacy regulations for additional comment and postponed the
compliance date to April 2003. This action might affect these regulations.
However, if they become effective as currently drafted, the privacy regulations
will extensively regulate the use and disclosure of individually identifiable
health information. The security regulations, as proposed, and the privacy
regulations, if they become effective, could impose significant costs on us in
order to comply with these standards. Violations of the Administration
Simplification Provisions could result in civil penalties of up to $25,000 per
type of violation in each calendar year and criminal penalties of up to $250,000
per violation.

If our data processing is interrupted or our licenses to use software are
revoked, that interruption or revocation may impair our ability to effectively
operate our business.

     Certain aspects of our business are dependent upon our ability to store,
retrieve, process and manage data and to maintain and upgrade our data
processing capabilities. Interruption of data processing capabilities for any
extended length of time, loss of stored data, programming errors or other
computer problem could impair our ability to provide these services. Certain of
the software that we use in our medical bill review operation is licensed from
an independent third party software company under a nonexclusive license.
Although we believe that alternative

                                       25
<PAGE>

software would be available if the existing license were terminated, termination
could disrupt and could result in our inability to operate our business,
including our ability to effectively review medical bills.

If we lose key personnel, the loss of that personnel will impair our ability to
implement our strategy.

     Our success depends in large part on the services of our senior management
team. We have employment contracts with all of our key personnel; however we do
not maintain key man life insurance policies. In any case, the loss of any of
our key executives could materially adversely affect us and seriously impair our
ability to implement our strategy. Our ability to manage our anticipated growth
will depend on our ability to identify, hire and retain additional qualified
management personnel. We have recently experienced high employee turnover, which
is typical in our industry, but our key personnel have remained with us. While
we are able to offer competitive compensation to prospective employees, we may
still be unsuccessful in attracting and retaining personnel and that failure
could result in our growth declining and materially adversely affect our results
of operations. See Item 10. "Directors and Executive Officers of the
Registrant."

Risks Associated with Intangible Assets

     The acquisition of occupational healthcare centers and other businesses may
result in significant increases in our intangible assets relating to goodwill.
We expect the amount allocable to goodwill on our consolidated balance sheet to
increase in the future if additional acquisitions are made which will increase
our intangible amortization expense. In the event of any sale or liquidation of
the Company or a portion of its assets, there can be no assurance that the value
of our intangible assets will be realized. In addition, we regularly evaluate
whether events and circumstances have occurred indicating that any portion of
the remaining balance of the amount allocable to our goodwill may not be
recoverable. When factors indicate that the amount allocable to our goodwill
should be evaluated for possible impairment, we may be required to reduce the
carrying value of such assets. We recorded no goodwill impairment charges during
2000, 1999 or 1998. Any future determination requiring the write off of a
significant portion of unamortized intangible assets could have a material
adverse effect on our business, financial condition and operating results.

ITEM 2.  PROPERTIES

     As of March 15, 2001, our principal corporate office is located in Addison,
Texas. We lease 50,726 square feet of space in this site pursuant to a lease
agreement expiring on February 28, 2005. We make annual rental payments under
that lease of $1,222,368. Except for 13 properties owned by us, we lease all of
our offices. We believe that our facilities are adequate for our current needs
and that suitable additional space will be available as required.

ITEM 3.  LEGAL PROCEEDINGS

     The Company is party to certain claims and litigation in the ordinary
course of business. The Company is not involved in any legal proceedings that it
believes will result, individually or in the aggregate, in a material adverse
effect upon its financial condition or results of operations.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     During the fourth quarter of 2000, no matter was submitted to a vote of
security holders.

                                    PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     Neither Concentra Operating nor Concentra Holding has publicly held shares
outstanding.

ITEM 6.  SELECTED FINANCIAL DATA

     Selected Financial Data is included in this Form 10-K in Note 14 Selected
Financial Data, to the Company's Consolidated Financial Statements on page F-25.

                                       26
<PAGE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

     This section contains certain forward-looking statements that are based on
management's current views and assumptions regarding future events, future
business conditions and the outlook for the Company based on currently available
information. Wherever possible, the Company has identified these
"forward-looking statements" (as defined in Section 27A of the Securities Act
and Section 21E of the Exchange Act) by words and phrases such as "anticipates,"
"plans," "believes," "estimates," "expects," "will be developed and
implemented," and similar expressions. Readers are cautioned not to place undue
reliance on these forward looking statements. These forward-looking statements
are subject to risks and uncertainties, and future events could cause the
Company's actual results, performance, or achievements to differ materially from
those expressed in, or implied by, these statements. These risks and
uncertanties include, but are not limited to, general industry and economic
conditions; shifts in customer demands; the ability to manage business growth
and diversification; the ability to identify suitable acquisition candidates or
joint venture relationships for expansion and consummating such matters on
favorable terms; the ability to attract and retain qualified professionals and
other employees to expand and complement the Company's services; the
effectiveness of the Company's information systems and controls; the ability to
meet the Company's debt, interest and operating lease payment obligations;
possible litigation and legal liability in the course of operations;
fluctuations in interest and tax rates; strategies pursued by competitors;
restrictions imposed by government regulation; and changes in the industry
resulting from changes in workers' compensation laws, regulations and in the
healthcare environment generally. The Company assumes no obligation to update
publicly any forward looking statements, whether as a result of new information,
future events, or otherwise.

Overview

     On August 29, 1997, Concentra Inc. ("Concentra Holding") was formed by the
merger (the "1997 Merger ") of CRA Managed Care, Inc. ( "CRA ") and Occusystems,
Inc. ( "OccuSystems "). As a result of the 1997 Merger, CRA changed its name to
Concentra Managed Care Services, Inc. ( "Managed Care Services ") and
OccuCenters, Inc., the operating subsidiary of OccuSystems, changed its name to
Concentra Health Services, Inc. ( "Health Services ").

     On August 17, 1999, Concentra Holding merged (the "1999 Merger") with
Yankee Acquisition Corp. ("Yankee"), a corporation formed by Welsh, Carson,
Anderson & Stowe VIII, L.P. ("WCAS"), a 14.9% stockholder of Concentra Holding.
As a result of the 1999 Merger, 41.1 million outstanding shares of Concentra
Holding common stock were converted to cash. The remaining 6.3 million shares
held by Yankee were not converted. WCAS acquired approximately 86%, funds
managed by Ferrer Freeman Thompson & Co., LLC ("FFT") acquired approximately 7%,
and other investors acquired approximately 7% of the post-merger shares of
common stock of Concentra Holding, Concentra Operating Corporation's parent
company. Simultaneous with the right to receive cash for shares, Yankee merged
with and into Concentra Holding, the surviving entity, and Concentra Holding
contributed all of its operating assets, liabilities, and shares in its
subsidiaries, including Health Services, Managed Care Services and Concentra
Preferred Systems, Inc., with the exception of $110.0 million of 14% Senior
Discount Debentures and $327.7 million of 6.0% and 4.5% Convertible Subordinated
Notes to Concentra Operating Corporation (the "Company" or "Concentra
Operating"), a wholly-owned subsidiary of Concentra Holding in exchange for
1,000 shares of Concentra Operating common stock. To finance the acquisition of
Concentra Holding, WCAS, FFT and other investors invested approximately $423.7
in equity financing and $110.0 million of 14% Senior Discount Debentures. This
additional debt is not guaranteed by Concentra Operating. The 1999 Merger was
valued at approximately $1.1 billion, including refinancing Concentra Holding's
existing debt that was tendered in the third quarter of 1999, and was accounted
for as a recapitalization transaction, with no changes to the historical cost
basis of Concentra Holding or Concentra Operating assets or liabilities.

     The following represents a discussion and analysis of the operations of
Concentra Holding through August 17, 1999, and of Concentra Operating
thereafter. Concentra Holding and Concentra Operating are presented together
through August 17, 1999, since they represent the same reporting entity for the
periods presented.

     Health Services provides specialized injury and occupational healthcare
services to employers through our network of health centers. Health Services
delivers primary and rehabilitative care, including the diagnosis, treatment and
management of work-related illnesses. Health Services also provides a full
complement of non-injury, employment-related health services, including physical
examinations, pre-placement substance abuse testing, job-specific return to work
evaluations and other related programs. Health Services, and the joint ventures
which Health Services controls, own all of the operating assets of our health
centers, including leasehold interests and medical

                                       27
<PAGE>

equipment. For the years ended December 31, 2000, 1999 and 1998, Health Services
derived 64.3%, 63.3% and 63.1% of its net revenue from the treatment of work-
related injuries and illnesses, respectively, and 35.7%, 36.7% and 36.9% of its
net revenue from non-injury related medical services, respectively.

     Physician and physical therapy services are provided at our centers under
management agreements with affiliated physician associations. These associations
or groups are independently organized professional corporations that hire
licensed physicians and physical therapists to provide medical services to our
centers' patients. The management agreements have 40-year terms and provide for
the wide array of services that Health Services offers to the physician groups,
such as: providing nurses and other medical support personnel, practice and
facilities management, billing and collection, accounting, tax and financial
management, human resource management, risk management, and marketing and
information-based services. Health Services has a nominee shareholder
relationship with each group as defined in EITF 97-2, "Application of APB
Opinion No. 16 and FASB Statement No. 94 to Physician Practice Entities," and as
a result, the financial statements of each affiliated physician group are
consolidated. The management fees collected from each physician group are
calculated as collected revenue net of compensation, benefits and other expenses
incurred by the groups.

     The Specialized Cost Containment services are designed to reduce the cost
of workers' compensation claims, automobile accident injury claims and group
health claims. Most of this revenue is earned on a fee-for-service or
percentage-of-savings basis. The Specialized Cost Containment services provided
include the following:

     .    in-and out-of-network medical bill review

     .    first-report-of-injury

     .    telephonic case management

     .    utilization management: precertification and concurrent review

     .    preferred provider organization network access

     .    independent medical examinations

     .    peer reviews

     Field Case Management services involve working at the local level on a
one-on-one basis with injured employees and their various healthcare
professionals, employers and insurance company adjusters to assist in maximizing
medical improvement and, where appropriate, to expedite their return to work.

     The following table provides certain information concerning our service
locations:

<TABLE>
<CAPTION>
                                                                      Year Ended December 31,
                                                                     -------------------------
                                                                      2000      1999     1998
                                                                     ------    ------   ------
<S>                                                                  <C>       <C>      <C>
Service locations at the end of the period:
   Occupational healthcare centers/(1)/.                                216       209      156
   Specialized Cost Containment services offices/(2)/                    59        61       85
   Field Case Management offices/(3)/                                    81        81       89
Occupational healthcare centers acquired during the period/(4)/           8        53       12
Occupational healthcare centers developed during the period              --        --        4
Occupational healthcare centers--same market revenue growth/(5)/        8.8%      8.1%    11.4%
</TABLE>

___________
/(1)/ Does not include the assets of the occupational healthcare centers that
      were acquired and subsequently divested or consolidated into existing
      centers within the same market during the period. Effective March 1, 2001,
      Health Services acquired the assets of Industrial Health Care Company
      ("IHC") for approximately $15.0 million. IHC was a privately held operator
      of seven occupational health centers and several on-site offices for large
      employers located throughout Connecticut, generating annual patient visits
      in excess of 157,000. With this acquisition, Health Services operates 224
      centers.

/(2)/ The decline in Specialized Cost Containment services offices in 1999 is
      primarily due to a facility consolidation in the fourth quarter of 1999.

                                       28
<PAGE>

/(3)/ The decline in Field Case Management offices in 1999 is primarily due to a
      facility consolidation in the fourth quarter of 1999.

/(4)/ Represents occupational healthcare centers that were acquired during each
      period presented and not subsequently divested or consolidated into
      existing centers within the same market during the period.

/(5)/ Same market revenue growth sets forth the aggregate net change from the
      prior period for all markets in which Health Services has operated
      healthcare centers for longer than one year (excluding revenue growth due
      to acquisitions of additional centers).

Results of Operations for the Years Ended December 31, 2000 and 1999

Revenue

     Total revenue increased 10.4% in 2000 to $752.2 million from $681.4 million
in 1999. The largest portion of this growth came from Health Services, which
increased 21.1% in 2000 to $399.7 million from $330.1 million in 1999. To a
lesser extent, our Specialized Cost Containment revenue increase of 3.3% in 2000
to $210.7 million from $204.1 million in 1999 also contributed to our revenue
growth. However, Field Case Management's revenue decreased 3.7% in 2000 to
$141.8 million from $147.3 million in 1999.

     Health Services' revenue growth resulted primarily from the acquisition of
new centers and an increase in patient visits within existing markets. The
increased revenue from the new center growth was primarily a result of the 53
new centers acquired in 1999, and to a lesser extent, the eight centers acquired
in 2000. The number of visits to Health Services' centers in 2000 increased
20.0% in total compared to 1999 and 9.6% on a same-market basis. Average revenue
per visit decreased 0.2% as compared to the prior year. This decrease is
primarily due to increasing non-injury related visits. The average fees charged
for non-injury visits are generally lower than those charged for injury-related
visits. Non-injury related visits constituted 51.5% of total visits in 2000 as
compared to 50.1% in 1999. We currently anticipate that this trend of higher
visit growth from non-injury visits relative to visit growth of injury-related
visits will continue and that we will experience an increasing percentage of
non-injury visits as compared to total visits in future periods. Further, Health
Services' revenue growth will depend on both existing center growth and future
center acquisitions. We will continue to pursue acquisitions of clinics in 2001
that complement our existing centers. However, we currently anticipate a more
modest rate of future center acquisitions as compared to 1999.

     The increase of Specialized Cost Containment's revenue for 2000 is
primarily related to an increase in revenue from our independent medical
examination and first report of injury services business, as compared to 1999.
Further, our out-of-network group health medical bill review revenue increased
over 1999, primarily due to increased bill volumes. However, the average size of
each reviewed bill has decreased. We currently anticipate that we will have to
review a greater number of bills with this smaller average bill size in the
future to achieve the same level of revenue. These increases in Specialized Cost
Containment revenue were partially offset by decreases in revenue from our
post-payment medical bill review services and our telephonic case management
services due to declining bill and case volume, respectively. We currently
anticipate that our telephonic case management service business will begin to
stabilize at the current level and that our other Specialized Cost Containment
business lines will continue to provide growth consistent with current levels.

     Revenue declines for Field Case Management have been primarily due to
decreases in business volume resulting mainly from customer uncertainty
concerning our 1998 fourth quarter reorganization of this line of business, our
competitors' related marketing efforts and, to a lesser extent, the recent
"task-based" approach to service delivery. These have had a reduced impact
during 2000 as compared to 1999. Continued consistency in revenue trends,
however, will be subject to a number of factors, including the success of our
current marketing and management initiatives.

     Total contractual provisions offset against revenue during the years ended
December 31, 2000 and 1999 were $31.5 million and $27.8 million, respectively.

Cost of Services

     Total cost of services increased 11.0 % in 2000 to $593.4 million from
$534.5 million in 1999. The largest portion of this increase came from Health
Services, which increased 21.4% in 2000 to $321.8 million from $265.1

                                       29
<PAGE>

million in 1999.To a lesser extent, our Specialized Cost Containment cost of
services increase of 4.2% in 2000 to $143.0 million from $137.3 million in 1999
also contributed to the overall increase. However, Field Case Management's cost
of services decreased 2.7 % in 2000 to $128.6 million from $132.1 million in
1999.

     Total gross profit margin increased 8.0% to $158.7 million in 2000 from
$146.9 million in 1999. However, as a percentage of revenue, gross profit
decreased to 21.1% in 2000 compared to 21.6% in 1999. This percentage decline
was primarily due to Field Case Management's gross profit margin decline to 9.3%
in 2000 as compared to 10.3% in 1999. Also, Health Services' gross profit margin
decreased slightly to 19.5% in 2000 compared to 19.7% in 1999, and Specialized
Cost Containment's gross profit margin was 32.1% in 2000 compared to 32.7% in
1999.

     Health Services' gross profit margin decrease relates primarily to the
impact of lower margins from practices recently acquired and developed. Health
Services acquired 53 clinics in 1999 and eight centers in 2000. Historically,
consolidated gross profit margins are initially negatively impacted due to lower
margins from centers recently acquired. However, as we have consolidated certain
functions, made other staff-related changes and increased patient volume, the
margins of our acquired centers have demonstrated improvements. We will continue
to pursue acquisitions of clinics in 2001 that complement our existing centers.

     The decrease in Specialized Cost Containment's gross profit margin in 2000
from 1999 primarily relates to increased costs within our out-of-network group
health medical bill review business associated with processing higher bill
volumes with a lower average price per bill and a decline in revenue and gross
margin from our telephonic case management services. The lower margins were
partially offset by profit margins in claims review. Further, our provider bill
review services margins improved due to efficiencies realized from our fourth
quarter 1998 and 1999 office consolidations as well as the implementation of a
new bill review system. We currently do not anticipate any further office
consolidations.

     The gross profit margin for Field Case Management decreased in 2000 as
compared to 1999 primarily due to lower revenue as compared to 1999, offset by
lower expenses. We currently expect the recent margin decreases to stabilize.
This stabilization, however, will be dependent on several factors, including the
success of our marketing and management efforts.

General and Administrative Expenses

     General and administrative expenses increased 1.8% in 2000 to $66.5 million
from $65.3 million in 1999, or 8.8% and 9.6% as a percentage of revenue for 2000
and 1999, respectively. The increase in general and administrative expenses in
2000 was primarily due to our continued investment in support personnel and
information technology in order to support recent and planned growth, partially
offset by Y2K expenditures made in 1999 that were not incurred in 2000, as well
as the realization of certain cost reduction initiatives.

Amortization of Intangibles

     Amortization of intangibles increased 12.9% in 2000 to $14.6 million from
$13.0 million in 1999, or 1.9% as a percentage of revenue for 2000 and 1999. The
increase is the result of the amortization of additional intangible assets such
as goodwill, customer lists and assembled workforces, primarily associated with
recent acquisitions by Health Services. As of December 31, 2000, net intangible
assets of $323.2 million consisted primarily of goodwill.

Non-Recurring Charges

     There were no non-recurring charges recorded in 2000 as compared to a $54.4
million charge recorded in 1999, which primarily related to the 1999 Merger. At
December 31, 2000, approximately $3.8 million of nonrecurring charges remain.
See a further discussion of our non-recurring charges and their usage below and
also at Note 4, Recent Acquisitions and Non-Recurring Charges, in our audited
consolidated financial statements.

                                       30
<PAGE>

Interest Expense

     Interest expense increased $33.1 million in 2000 to $68.9 million from
$35.8 million in 1999 due primarily to increased outstanding borrowings from the
issuance of $565.0 million in merger-related financing incurred in the third
quarter of 1999 and, to a lesser extent, additional interest related to the
amendment of our credit facility in the first quarter of 2000. This increase was
partially offset by the retirement of substantially all of the $327.7 million of
6.0% and 4.5% convertible subordinated notes during the 1999 Merger. We expect
interest expense to be approximately $76.1 million in 2001 as a result of
increased borrowings on our credit facility. As of December 31, 2000,
approximately 65.9% of our debt contains floating rates. Although we utilize
interest rate hedges to manage a significant portion of this market exposure,
rising interest rates would negatively impact our results. See "Liquidity and
Capital Resources" and "Item 7A. Quantitative and Qualitative Disclosures About
Market Risk."

Interest Income

     Interest income decreased $2.1 million in 2000 to $0.8 million from $2.9
million in 1999 primarily as a result of excess cash being used to complete the
1999 Merger transaction and to pay related fees and expenses.

Interest Rate Hedging Arrangements

     We utilize interest rate collars to reduce our exposure to variable
interest rates and, in part, because it is required under our current senior
secured credit agreement. These collars generally provide for certain ceilings
and floors on interest payments as the three-month LIBOR rate increases and
decreases, respectively. The changes in fair value of this combination of
ceilings and floors are recognized each period in earnings. We recorded a loss
of $9.6 million in 2000 based upon the change in the fair value of our interest
rate collar agreements. This earnings impact and any subsequent changes in our
earnings as a result of the changes in the fair values of the interest rate
collars are non-cash charges or credits and do not impact cash flows from
operations or operating income. There have been and may continue to be periods
with significant non-cash increases or decreases to our earnings pertaining to
the change in the fair value of the interest rate collars. Further, if we hold
these interest rate hedging arrangements to maturity (2004 and 2005), the
earnings adjustments will offset each other on a cumulative basis and will
ultimately equal zero.

Other, net

     Other income increased $0.3 million in 2000 to $0.7 million from $0.4
million in 1999, primarily due to minority interests.

Provision for Income Taxes

     We recorded a tax provision of $4.4 million in 2000 versus a tax provision
of $8.3 million in 1999. The effective tax rate was 694.6% and 45.3% in 2000 and
1999, respectively. Excluding the tax effects of the non-recurring charges, the
effective tax rate would have been 46.3% for 1999. The effective tax rate is in
excess of the statutory rate due to the non-deductibility of goodwill and
certain fees and expenses associated with acquisition costs and, to a lesser
extent, the impact of state income taxes. We currently expect to provide for
taxes at an effective tax rate of 55.0% for next year.

Cumulative Effect of Accounting Change

     In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101 provides additional guidance in applying generally accepted
accounting principles for revenue recognition in financial statements. New
implementation guidance issued by the SEC in the fourth quarter of 2000 requires
the Company to recognize revenue from its post payment bill review services
effectively on a cash basis. Prior to adoption of this standard, the Company
recognized this revenue as savings were identified for our clients. The
cumulative charge recognized in 2000 from this change in accounting principle
was $2.8 million, net of tax effect.

                                       31
<PAGE>

Results of Operations for the Years Ended December 31, 1999 and 1998

Revenue

     Total revenue increased 11.5% in 1999 to $681.4 million from $611.1 million
in 1998. Health Services' revenue increased 27.2% in 1999 to $330.1 million from
$259.5 million in 1998. Specialized Cost Containment's revenue increased 11.1%
in 1999 to $204.1 million from $183.7 million in 1998. Field Case Management's
revenue decreased 12.2% in 1999 to $147.3 million from $167.8 million in 1998.

     Health Services' revenue growth resulted primarily from the acquisition of
practices and an increase of business in existing markets. While the Company
acquired a greater number of practices during 1999 than in previous years,
contributing to higher total revenue growth, the Company experienced same market
revenue growth of 8.1% which was lower than the 11.4% experienced during 1998.
The Company believes that this lower same market revenue growth is due in part
to factors that include the following:

     .    indirect effects related to the integration of the Company's newly
          acquired centers

     .    the training and relative performance of the Company's sales and
          marketing group

     .    the maturity of the Company's individual centers

     .    national injury rates

     .    effects of weather conditions on national injuries


     The increase in Specialized Cost Containment's revenue is largely
attributable to growth in the following areas:

     .    our growth in out-of-network bill review services

     .    preferred provider organization network access fees

     .    first report of injury services

     .    telephonic case management services in existing locations

     The decrease in Field Case Management's revenue is primarily attributable
to a reorganization of the division in the fourth quarter of 1998 to improve
efficiency through facility consolidations and related headcount reductions, to
decreases in business volume and, to a lesser extent, to a change in the way
that a portion of the Company's case management services are provided. Because
this reorganization created customer uncertainty as to the eventual effects of
the acquisition of the Company by Yankee and due to related marketing efforts by
competitors, the Company experienced a general decline in business volume in its
case management business during 1999. Additionally, prior to 1999, the Field
Case Management business was generally handled on a "full" case management
approach, where all tasks were bundled as a single package. In an effort to
increase efficiency and better service its customer base, the Field Case
Management business increasingly provided a portion of its services under a
"task-based" approach, where the customer selected the specific tasks Field Case
Management performed. This new approach caused a reduction in the billable hours
per case and thereby decreased Field Case Management revenue.

     Total contractual provisions offset against revenue during the years ended
December 31, 1999 and 1998 were $27.8 million and $16.1 million, respectively.

Cost of Services

     Total cost of services increased 13.9% in 1999 to $534.5 million from
$469.3 million in 1998. Health Services' cost of services increased 31.8% in
1999 to $265.1 million from $201.2 million in 1998. Specialized Cost

                                       32
<PAGE>

Containment's cost of services increased 11.4% to $137.3 million in 1999 from
$123.3 million in 1998. Field Case Management's cost of services decreased 8.8%
to $132.1 million in 1999 from $144.8 million in 1998.

     Total gross profit margin decreased to 21.6% in 1999 compared to 23.2% in
1998. Health Services' gross profit margin decreased to 19.7% in 1999 compared
to 22.5% in 1998. Specialized Cost Containment's gross profit margin decreased
slightly to 32.7% in 1999 compared to 32.9% in 1998. Field Case Management's
gross profit margin decreased to 10.3% in 1999 compared to 13.7% in 1998.

     Health Services' gross profit margin decreased primarily as a result of the
following factors:

     .    the impact of lower margins from practices recently acquired and
          developed

     .    an increase in the benefits cost for health service employees

     .    costs associated with the start-up of a new drug-screening lab
          facility in Memphis, Tennessee

     .    an acceleration in the roll-out of patient tracking and billing
          systems into the medical centers, which resulted in additional
          depreciation expense related to those systems this year over last year

     In 1999, Health Services acquired 53 clinics in 20 acquisitions.
Historically, as we consolidate certain functions, make other staff-related
changes and increase patient volume, the margins of our acquired or developed
practices have tended to improve.

     Specialized Cost Containment's gross profit margins decreased slightly in
1999 due primarily a decrease in provider bill review and claims review gross
profit margins.

     Provider bill review gross profit margins decreased primarily due to the
following factors:

     .    reduced productivity associated with implementation of a year 2000
          compliant version of this business unit's software

     .    an increase in software maintenance fees associated with a third party
          software supplier

     .    pricing concessions made in the second half of 1998

     .    an increase of approximately $380,000, primarily related to the
          provision for billing adjustments as a result of our experience
          related to the billing and collection of revenue

     Field Case Management's gross profit margins decreased slightly in 1999 due
primarily to a slowdown in field case management revenue, partially offset by a
decrease in cost of services.

General and Administrative Expenses

     General and administrative expenses increased 44.2% in 1999 to $65.3
million from $45.3 million in 1998, or 9.6% and 7.4% as a percentage of revenue
for 1999 and 1998, respectively. The increase in general and administrative
expenses in 1999 was due primarily to the continued investment in the
Information Services and Technology Group and in accounting and administrative
personnel.

Amortization of Intangibles

     Amortization of intangibles increased 59.3% in 1999 to $12.9 million from
$8.1 million in 1998, or 1.9% and 1.3% as a percentage of revenue for 1999 and
1998, respectively. The increase is primarily the result of a prospective change
in the amortization period of goodwill and the amortization of additional
intangible assets such as goodwill, customer lists and assembled workforces
primarily associated with acquisitions by Health Services.

                                       33
<PAGE>

     We have historically amortized goodwill over periods ranging from 30 to 40
years. Effective January 1, 1999, we changed our policy, on a prospective basis,
with respect to the amortization of goodwill. All existing and future goodwill
will be amortized over a period not to exceed 25 years. Had we adopted this
policy at the beginning of 1998, amortization for the year ended December 31,
1998, would have increased approximately $3.3 million. As of December 31, 1999,
net intangible assets of $325.0 million consisted primarily of goodwill.

Non-Recurring Charges

     The Company recorded a $54.4 million non-recurring charge in 1999,
primarily related to the 1999 Merger, as compared to $33.1 million of
non-recurring charges in 1998, which primarily related to the CPS merger and the
reorganization of our Field Case Management division. At December 31, 1999,
approximately $6.7 million of nonrecurring charges remained. See a further
discussion of our non-recurring charges and their usage below and also at Note
4, Recent Acquisitions and Non-Recurring Charges, in the audited consolidated
financial statements of the Company.

Interest Expense

     Interest expense increased $17.8 million in 1999 to $35.8 million from
$18.0 million in 1998 due primarily to increased outstanding borrowings from the
issuance of $565.0 million in merger-related financing with annual interest
rates ranging from 8.5% to 13.0%. This increase was partially offset by the
retirement of substantially all of the $327.7 million of 6.0% and 4.5%
convertible subordinated notes.

Interest Income

     Interest income decreased $1.8 million in 1999 to $2.9 million from $4.7
million in 1998 primarily as a result of excess cash being used to complete the
merger transaction and to pay related fees and expenses. The decline in interest
income was also impacted by the increase in our investment of excess cash in
1998 as a result of the net proceeds of $223.6 million from the March and April
1998 issuance of the 4.5% convertible subordinated notes after the payment of
approximately $122.0 million of outstanding borrowings under the senior credit
facility, debt assumed in the merger with Preferred Payment Systems, Inc., and
the payment to Preferred Payment Systems, Inc.'s dissenting shareholders.

Other, net

     Other income increased $0.4 million in 1999 to $0.4 million from ($44,000)
in 1998, primarily due to minority interests.

Provision for Income Taxes

     We recorded a tax provision of $8.3 million in 1999 versus a tax provision
of $19.3 million in 1998. The effective tax rate was 45.3% and 46.2% in 1999 and
1998, respectively. Excluding the tax effects of the non-recurring charges, the
effective tax rate would have been 46.3% and 41.0% for 1999 and 1998,
respectively. The above disparities in the effective tax rates excluding the tax
effects of the non-recurring charges are the result of the impact of the
non-deductibility of certain fees and expenses associated with the 1999 Merger
and the Preferred Payment Systems, Inc. merger in 1998.

Non-Recurring Charges

     In the first quarter of 1998, we recorded a non-recurring charge of $12.6
million primarily associated with the merger of Preferred Payment Systems, Inc.
now operating as CPS. Through December 31, 2000, we had paid approximately $5.6
million for professional fees and services, $2.7 million in costs associated
with personnel reductions, $1.0 million in facility consolidations and closings,
specifically the payment of lease obligations related to these facilities, $1.5
million associated with the write-off of deferred financing fees on Preferred
Payment Systems, Inc. indebtedness retired and $1.5 million of other
non-recurring costs. At December 31, 2000,

                                       34
<PAGE>

approximately $0.3 million of the non-recurring charge remains, primarily
related to remaining facility lease obligations with terms expiring through
March 2003.

     In the fourth quarter of 1998, we recorded a non-recurring charge of $20.5
million primarily associated with the reorganization of our Field Case
Management division to improve efficiency through facility consolidations and
related headcount reductions. The charge related to the reorganization, settling
claims on six expired contracts and the write-off of assets, including customer
lists, the value of the trained work force and furniture and fixtures we
acquired from an insurance carrier associated with a contract which we
subsequently determined to be unprofitable. Through December 31, 2000, we had
incurred approximately $7.4 million in charges for the write-off of assets
related to the acquired contract and paid $3.8 million in costs associated with
personnel reductions, $1.2 million in costs associated with settling claims on
other expired contracts, $4.9 million in facility consolidations and $0.4
million of other non-recurring costs. At December 31, 2000, approximately $2.8
million of the non-recurring charge remains, primarily related to remaining
facility lease obligations with terms expiring through December 2003 and costs
associated with settling claims on other expired contracts.

     In the third quarter of 1999, we recorded a non-recurring charge of $54.4
million primarily for fees, expenses and other non-recurring charges associated
with the 1999 Merger. Through December 31, 2000, we had paid approximately $29.4
million for professional fees and services, including legal, accounting and
regulatory fees, $21.7 million in costs related to personnel reductions, $0.7
million in facility consolidations and closings and $1.8 million of other
non-recurring charges. At December 31, 2000, approximately $0.8 million of the
non-recurring charge remains for professional fees and services and other
non-recurring charges. We anticipate that the majority of this remaining charge
will be used over the next 12 months.

Seasonality

     Our business is seasonal in nature. Patient visits at our Health Services'
medical centers are generally lower in the first and fourth quarters primarily
because of fewer occupational injuries and illnesses during those time periods
due to plant closings, vacations, weather and holidays. In addition, since
employers generally hire fewer employees in the fourth quarter, the number of
pre-placement physical examinations and drug and alcohol tests conducted at the
medical centers during that quarter is further reduced. Additionally, Field Case
Management's revenue is usually lower in the fourth quarter compared to the
third quarter due to the impact of vacations and holidays. In a manner somewhat
similar, although less pronounced, the first and fourth quarters generally
reflect lower revenue when compared to our second and third quarters.

Liquidity and Capital Resources

     Cash flows generated from operations were $38.8 million, $28.3 million and
$34.9 million for the years ended December 31, 2000, 1999 and 1998,
respectively. During 2000, working capital used $7.7 million of cash primarily
due to increases in accounts receivable of $6.3 million and prepaid expenses and
other assets of $1.7 million. Accounts receivable increased primarily due to
continued revenue growth, and prepaid expenses and other assets increased
primarily due to the timing of payments. During 1999, working capital used $4.6
million of cash primarily due to an increase in accounts receivable of $19.2
million, offset by a decrease in prepaid expenses and other assets of $10.8
million and an increase in accounts payable and accrued expenses of $13.0
million. Within the next twelve months, it is currently anticipated that
approximately $1.9 million in cash payments will be made related to the
non-recurring charges that occurred in the first quarter of 1998, fourth quarter
of 1998 and the third quarter of 1999. These expenditures are anticipated to
consist of fees and other expenses related to the 1999 Merger, facility related
costs, costs associated with settling claims on certain expired contracts and
other costs.

     We used net cash of $9.7 million in connection with acquisitions and $30.9
million of cash to purchase property and equipment during 2000, the majority of
which was spent on acquiring new computer hardware and software technology, as
well as leasehold improvements.

     Cash flows used by financing activities of $8.1 million in 2000 was due
primarily to $4.0 million in payments on the revolving credit facility, $3.1
million in debt repayments and the payment of $1.7 million of deferred financing
costs related to the March 2000 credit facility amendment.

     We were in compliance with our covenants, including our financial covenant
ratio tests, in 2000. At December 31, 2000 we had no borrowings outstanding
under our revolving credit facility.

                                       35
<PAGE>

     We currently believe that our cash balances, the cash flow generated from
operations and our borrowing capacity under our revolving credit facility will
be sufficient to fund our working capital, occupational healthcare center
acquisitions and capital expenditure requirements for the foreseeable future.
Our long-term liquidity needs will consist of working capital and capital
expenditure requirements, the funding of any future acquisitions, and repayment
of borrowings under our revolving credit facility and the repayment of
outstanding indebtedness. We intend to fund these long-term liquidity needs from
the cash generated from operations, available borrowings under our revolving
credit facility and, if necessary, future debt or equity financing. However, we
cannot be certain that any future debt or equity financing will be available on
terms favorable to us, or that our long-term cash generated from operations will
be sufficient to meet our long-term obligations.

Legal Proceedings

     The Company is party to certain claims and litigation in the ordinary
course of business. The Company is not involved in any legal proceeding that it
believes will result, individually or in the aggregate, in a material adverse
effect upon its financial condition or results of operations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     We have fixed rate and variable rate debt instruments. Our variable rate
debt instruments are subject to market risk from changes in the level or
volatility of interest rates. In order to hedge this risk under our current
credit agreements, we have utilized interest rate collars. We do not hold or
issue derivative financial instruments for trading purposes and are not a party
to any leveraged derivative transactions. Sensitivity analysis is one technique
used to measure the impact of changes in the interest rates on the value of
market-risk sensitive financial instruments. A hypothetical 10% movement in
interest rates would not have a material impact on our future earnings, fair
value or cash flows relative to our debt instruments. However, the same
hypothetical 10% movement in interest rates would change the fair value of our
hedging arrangements and pretax earnings by $5.8 million as of December 31,
2000. For more information on the interest rate collars, see Note 5 in the
audited consolidated financial statements of the Company.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The audited consolidated financial statements of the Company and other
information required by this Item 8 are included in this Form 10-K beginning on
page F-1.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

     Not applicable.

                                       36
<PAGE>

                                   PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Directors and Executive Officers

Concentra Operating

     The directors and executive officers of Concentra Operating are identical
to and hold identical positions as the persons identified below as directors and
executive officers of Concentra Holding. They have served in these positions
with Concentra Operating since August 17, 1999.

Concentra Holding

     Executive officers of Concentra Operating and Concentra Holding are elected
annually by the board of directors and serve until successors are duly elected
and qualified. There are no arrangements or understandings between any officer
and any other person under to which the officer was selected, and there are no
family relationships between any of our executive officers or directors. The
names, ages and positions of the executive officers and directors of Concentra
Operating and Concentra Holding are listed below along with their business
experience during at least the past 5 years.

<TABLE>
<CAPTION>
  Name                                       Age                         Position
  ----                                       ---           -----------------------------------
<S>                                          <C>    <C>
Daniel J. Thomas..........................    42    Director, President and Chief Executive Officer
William H. Comte..........................    48    Executive Vice President and Chief Operating Officer
Thomas E. Kiraly..........................    41    Executive Vice President, Chief Financial Officer and Treasurer
James M. Greenwood........................    40    Executive Vice President Corporate Development
Richard A. Parr II........................    42    Executive Vice President, General Counsel and Secretary
W. Tom Fogarty, M.D.......................    53    Senior Vice President and Chief Medical Officer
Paul B. Queally...........................    37    Chairman and Director
John K. Carlyle...........................    45    Director
Carlos A. Ferrer..........................    47    Director
D. Scott Mackesy..........................    32    Director
Steven E. Nelson..........................    46    Director
</TABLE>

     Daniel J. Thomas has served as a Director of Concentra Holding since
January 1998 and of Concentra Operating since August 17, 1999. He has served as
President and Chief Executive Officer of Concentra Holding since September 1998,
and he served as President and Chief Operating Officer of Concentra Holding from
January 1998 until September 1998. He served as Executive Vice President of
Concentra Holding and President of Concentra Health Services, Inc. from August
1997 until January 1998. He served as a director of OccuSystems, Inc.
("OccuSystems") and as its President and Chief Operating Officer from January
1997 to August 1997. From April 1993 through December 1996, Mr. Thomas served as
OccuSystems' Executive Vice President and Chief Operating Officer. Prior to
joining OccuSystems in 1993, Mr. Thomas served in various capacities with
Medical Care International, Inc., most recently as its Senior Vice President and
Divisional Director. Mr. Thomas is a certified public accountant.

     William H. Comte has served as Executive Vice President and Chief Operating
Officer of Concentra Holding since December 4, 2000. Prior to joining Concentra
Holding, Mr. Comte served as President and Chief Executive Officer for Premier
Practice Management, an operator of physician practices, in San Diego,
California from 1995 until December 2000. From 1992 until 1994, Mr. Comte served
as Senior Vice President Medical Center Division of HealthSouth Corporation in
Birmingham, Alabama. Mr. Comte served as President and Chief Executive Officer
for Dr. John T. McDonald Health Systems, Inc., in Miami, Florida from 1985 until
1992. Mr. Comte received his Master of Business Administration - Health
Administration from the University of Miami and a Bachelor of Science in
Business Administration from Villanova University in Villanova, Pennsylvania.

     Thomas E. Kiraly has served as Executive Vice President, Chief Financial
Officer and Treasurer of Concentra Holding since May 25, 1999. Prior to that
time, Mr. Kiraly served as the principal accounting and financial officer of BRC
Holdings, Inc. from December 1988 to May 1999. BRC Holdings, Inc., based in
Dallas, Texas, was a diversified provider of specialized information systems and
services to healthcare institutions and local governments

                                       37
<PAGE>

and was acquired in February 1999 by Affiliated Computer Services, Inc., another
Dallas, Texas based provider of information services. During his tenure at BRC
Holdings, Inc., Mr. Kiraly held the titles of Executive Vice President and Chief
Financial Officer from March 1994 through May 1999 and Vice President of Finance
from December 1988 through March 1994. Prior to that time, Mr. Kiraly was a
Senior Management Consultant with Touche Ross & Co., a predecessor to Deloitte &
Touche L.L.P., a national accounting firm, from May 1985 until December 1988.

     James M. Greenwood has served as Executive Vice President of Corporate
Development of Concentra Holding since February 1998 and as Senior Vice
President of Corporate Development of Concentra Holding from August 1997 to
February 1998. He served as OccuSystems' Chief Financial Officer from 1993 when
he joined OccuSystems as a Vice President until August 1997. Mr. Greenwood
served as a Senior Vice President of OccuSystems since May 1994. From 1988 until
he joined OccuSystems in 1993, Mr. Greenwood served in numerous positions with
Bank One, Texas, N.A., and its predecessors, most recently as Senior Vice
President and Manager of Mergers and Acquisitions.

     Richard A. Parr II has served as Executive Vice President, General Counsel
and Secretary of Concentra Holding since August 1997. He served as OccuSystems'
Executive Vice President, General Counsel and Secretary from August 1996 to
August 1997. Prior to joining OccuSystems, Mr. Parr served as Vice President and
Assistant General Counsel of OrNda HealthCorp, a national hospital management
company, from April 1993 through August 1996 and as Associate General Counsel of
OrNda HealthCorp from September 1991 through March 1993.

     W. Tom Fogarty, M.D. has served as Senior Vice President and Chief Medical
Officer of Concentra Holding since August 1997. He served as OccuSystems' Senior
Vice President and Chief Medical Officer from September 1995 to August 1997.
From 1993 to September 1995, Dr. Fogarty served as Vice President and Medical
Director of OccuSystems. From 1992 to 1993, he served as a Regional Medical
Director of OccuSystems and, from 1985 until 1992, as a medical director of one
of OccuSystems' centers.

     Paul B. Queally has served as a director and the Chairman of Concentra
Holding and Concentra Operating since August 17, 1999. He has served as a
managing member or general partner of the respective sole general partner of
Welsh, Carson, Anderson & Stowe VIII, L.P. ("WCAS") and other associated
investment partnerships since February 1996. Prior to joining WCAS in February
1996, Mr. Queally held various positions, including, most recently, General
Partner, at The Sprout Group, a private equity affiliate of Donaldson, Lufkin &
Jenrette, since 1987. He is a director of United Surgical Partners
International, Medcath, Inc. and several private companies.

     John K. Carlyle has served as a Director of Concentra Holding since August
1997, as a director of Concentra Operating since August 17, 1999, and as
Chairman of Concentra Holding from September 1998 until August 17, 1999. Mr.
Carlyle also served as Chairman of the Board of Directors of Concentra Holding
from August 1997 to January 1998. Mr. Carlyle is currently CEO of MAGELLA
Healthcare Corporation, a private physician practice management company devoted
to the area of neonatology and perinatology. Mr. Carlyle served as OccuSystems'
Chairman and Chief Executive Officer from January 1997 until August 1997. He
joined OccuSystems in 1990 as its President and served in that capacity until
December 1996. Mr. Carlyle served as the Chief Executive Officer and a director
of OccuSystems from 1991 until August 1997. He also serves as a director of
several other private companies.

     Carlos A. Ferrer has served as a director of Concentra Holding and
Concentra Operating since August 17, 1999. He has served as a member of the
general partner of Ferrer Freeman Thompson & Co. since 1995. Prior to 1995 he
was employed by Credit Suisse First Boston Corporation, as a Managing Director
responsible for the firm's investment banking activities in the healthcare
industry. He is a director of several private companies and is Chairman of the
Board of Trustees of the Cancer Research Institute.

     D. Scott Mackesy has served as a director of Concentra Holding and
Concentra Operating since August 17, 1999. He has served as a principal of WCA
Management Corporation, an affiliate of WCAS, since 1998. Prior to joining WCAS
in 1998, Mr. Mackesy was employed from 1992 to 1998 by Morgan Stanley Dean
Witter & Co., most recently as a Vice President in its investment research
department. Mr. Mackesy is a director of several private companies.

     Steven E. Nelson has served as a director of Concentra Holding and
Concentra Operating since August 17, 1999. He currently serves as President of
HealthNetwork Systems, LLC, a private provider of PPO network management
services to the payor and PPO industries. Mr. Nelson served as President of
Concentra Preferred

                                       38
<PAGE>

Systems from March 1997 to June 2000. Prior to March 1997, he served as
President and Chief Executive Officer of Preferred Payment Systems, Inc. since
1990.

Section 16(a) Beneficial Ownership Reporting Compliance

     Neither Concentra Operating nor Concentra Holding has any class of equity
securities registered pursuant to Section 12 of the Securities Exchange Act of
1934 (the "Exchange Act"). Consequently, Section 16(a) of the Exchange Act does
not require Concentra Operating's or Concentra Holdings' Directors, executive
officers and persons who own more than 10% of Concentra Holdings' Common Stock
to file reports of holdings and transactions in Common Stock with the Securities
and Exchange Commission.

ITEM 11.  EXECUTIVE COMPENSATION

   Summary Compensation Table

     The following table summarizes the compensation paid to Concentra Holding's
and Concentra Operating's Chief Executive Officer and the four most highly
compensated executive officers of Concentra Holding and Concentra Operating
other than the Chief Executive Officer who were serving as executive officers at
the end of fiscal year 2000 during (a) fiscal year 2000 and 1999 by Concentra
Holding and Concentra Operating, and (b) fiscal year 1998 by Concentra Holding.
These executive officers are referred to as the named executive officers.

<TABLE>
<CAPTION>
                                                                                         Long-term
                                                                                        Compensation
                                                                                      Awards Securities
                                                                                         Underlying         All Other
                                                           Annual Compensation          Options/SARS      Compensation
                                                      -----------------------------   -----------------   ------------
Name and Principal Position                           Year   Salary (1)   Bonus (2)         (#)(3)             (4)
---------------------------                           ----   ----------   ---------   -----------------   ------------
<S>                                                   <C>    <C>          <C>         <C>                 <C>
Daniel J. Thomas..................................    2000    $ 394,199    $     --          369,057       $   3,267  (5)
     President and Chief Executive                    1999      400,000     200,000               --         191,918  (6)
     Officer, Director                                1998      294,241          --          250,000           3,276  (7)

James M. Greenwood................................    2000      270,029          --          216,344           3,291
     Executive Vice President of                      1999      270,000      80,000               --         165,341  (8)
     Corporate Development                            1998      247,495          --          250,000           3,250

Thomas E. Kiraly..................................    2000      264,829          --           37,500             197
     Executive Vice President, Chief                  1999      138,462      25,000           89,803              74
     Financial Officer and Treasurer                  1998           --          --               --              --

Richard A. Parr II................................    2000      250,035          --           59,813           3,315
     Executive Vice President,                        1999      250,000      70,000               --          52,281  (9)
     General Counsel and Secretary                    1998      230,000          --           30,000           5,718

W. Tom Fogarty, M.D...............................    2000      260,102          --           80,174           3,700
     Senior Vice President and Chief                  1999      260,000      40,000               --          84,062 (10)
     Medical Officer                                  1998      240,000          --           30,000           3,416
</TABLE>

___________
(1)  Salaries for the named executives officers effective January 1, 2001, are
     $400,000 for Mr. Thomas, $300,000 for Mr. Kiraly, $280,000 for Mr.
     Greenwood, $272,500 for Dr. Fogarty, and $262,500 for Mr. Parr.
(2)  Bonuses paid during August 1999 were related to activities performed by the
     individual in connection with the merger of Concentra Inc. and Yankee
     Acquisition Corp. and were paid at the time of the closing of the merger.
(3)  Figures for 1998 represent long-term awards of options and restricted
     stock. Figures for 2000 represent awards of options only.

                                       39
<PAGE>

(4)  Amounts shown represent, to the extent that the named executive officer
     participated in Concentra Holding's employee stock purchase and the 401(k)
     plans, (a) the purchase discount on shares of Concentra Holding common
     stock purchased pursuant to the employee stock purchase plan, (b) Concentra
     Holding's matching provision under its 401(k) plan and (c) premiums paid by
     Concentra Holding for group term life insurance that is taxable
     compensation to the named executive officers.

(5)  Excludes relocation-related costs and benefits totaling $203,355.46 paid to
     Mr. Thomas in 2000 associated with his relocation from Boston,
     Massachusetts to Dallas, Texas.

(6)  Amount includes payment of $191,285 for cancellation of 477,000 options at
     an option price of $19.50 to $33.8750.

(7)  Excludes relocation-related costs and benefits totaling $158,709 paid to
     Mr. Thomas in 1998 associated with his relocation from Dallas, Texas to
     Boston, Massachusetts.

(8)  Amount includes payment of $164,575 for cancellation of 352,000 options at
     an option price of $19.50 to $32.6250.

(9)  Amount includes payments of $51,260 for cancellation of 115,000 options at
     an option price of $23.1250 to $32.6250.

(10) Amount includes payment of $83,975 for cancellation of 112,000 options at
     an option price of $19.50 to $32.6250.

Option and Restricted Stock Grants in 2000

     The following tables set forth certain information concerning grants by
Concentra Holding of stock options and restricted stock to each of the named
executive officers during 2000. In accordance with the rules of the Securities
and Exchange Commission, the potential realizable values under such options are
shown based on assumed rates of annual compound stock price appreciation of 5%
and 10% over the full option term from the date the option was granted.

                       Option Grants in Last Fiscal Year

<TABLE>
<CAPTION>
                                                                                                    Potential Realizable
                                            Number of     % of Total                                  Value at Assumed
                                           Securities      Options                                  Annual Rates of Stock
                                           Underlying     Granted to    Exercise or                Price Appreciation for
                                             Options     Employees in    Base Price   Expiration     Option Term ($)(2)
                                           Granted (1)    Fiscal Year   (Per Share)      Date          5%          10%
                                           -----------   -------------  -----------   ----------   ----------  -----------
<S>                                        <C>           <C>            <C>           <C>          <C>         <C>
Daniel J. Thomas.........................      369,057        20.00%       $16.50        3/7/10     3,829,616    9,705,000
James M. Greenwood.......................      216,344        11.73%        16.50        3/7/10     2,244,950    5,689,144
Thomas E. Kiraly.........................       37,500         1.99%        16.50        3/7/10       389,128      986,128
Richard A. Parr II.......................       59,813         3.24%        16.50        3/7/10       620,665    1,572,887
W. Tom Fogarty, M.D......................       80,174         4.35%        16.50        3/7/10       831,946    2,108,316
</TABLE>

____________
(1)  The vesting of each option is cumulative, and no vested portion will expire
     until the expiration of the option. For vesting determination purposes,
     these options are divided into four classes, with Class I representing 40%
     of the grant, Class II representing 40% of the grant, Class III
     representing 10% of the grant, and Class IV representing 10% of the grant.
     Class I options vest over a five year period, with 20% of the Class I
     option vesting and becoming exercisable on January 1 in each of 2000, 2001,
     2002, 2003, and 2004. The vesting of Class II, Class III, and Class IV
     options is based on the level of attainment of earnings before interest,
     taxes, depreciation, and amortization (EBITDA) growth objectives.

(2)  These amounts represent certain assumed rates of appreciation only and are
     based on an original fair market value of $16.50 per share. Actual gains,
     if any, on stock option exercises will depend upon the future market for
     Concentra Holding common stock and a price at which it can be sold.

                                       40
<PAGE>

             Long-Term Incentive Plans-Awards in Last Fiscal Year

<TABLE>
<CAPTION>
                                                                                                        Potential Realizable
                                    Number of                                                             Value at Assumed
                              Securities Underlying                                                    Annual Rates of Stock
                                Awards Granted (#)      Performance      % of Total       Exercise     Price Appreciation for
                              ----------------------   Period Until    Options Granted      Price        Option Term ($)(2)
                                Stock     Restricted   Maturation or    to Employees     of Options    ----------------------
                               Options       Stock       Payout(1)     in Fiscal Year    (Per Share)       5%          10%
                              ---------   ----------   -------------   ---------------   -----------   ---------    ---------
<S>                           <C>         <C>          <C>             <C>               <C>           <C>          <C>
Daniel J. Thomas............    369,057        --         2000-2007           20.00%        $ 16.50    3,829,616    9,705,000
James M. Greenwood..........    216,344        --         2000-2007           11.73%          16.50    2,244,950    5,689,144
Thomas E. Kiraly............     37,500        --         2000-2007            1.99%          16.50      389,128      986,128
Richard A. Parr II..........     59,813        --         2000-2007            3.24%          16.50      620,665    1,572,887
W. Tom Fogarty, M.D. .......     80,174        --         2000-2007            4.35%          16.50      831,946    2,108,316
</TABLE>

____________
(1)  The vesting of awards will be as described under footnote (1) of Option
     Grants in Last Fiscal Year.
(2)  These amounts represent certain assumed rates of appreciation only and are
     based on an original fair market value of $16.50 per share. Actual gains,
     if any, on stock option exercises will depend upon the future market for
     Concentra Holding common stock and a price at which it can be sold.

     Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-end Option
and Restricted Stock Values

     The following table provides information about option exercises by the
named executive officers during 2000 and the value realized by them. The table
also provides information about the number and value of options held by the
named executive officers at December 31, 2000.

<TABLE>
<CAPTION>
                                                                         Number of Securities
                                                                        Underlying Unexercised
                                                                           Options At Fiscal          Value of Unexercised
                                           Shares                             Year End (#)            In-The-Money Options
                                         Acquired on      Value       --------------------------    At Fiscal Year End ($)(1)
Name                                     Exercise (#)  Realized ($)   Unexercisable  Exercisable   Unexercisable   Exercisable
----                                     -----------   ------------   -------------  -----------   -------------   -----------
<S>                                      <C>           <C>            <C>            <C>           <C>             <C>
Daniel J. Thomas.......................       --            --             311,057        58,000         --             --
James M. Greenwood.....................       --            --             182,344        34,000         --             --
Thomas E. Kiraly.......................       --            --             106,583        20,000         --             --
Richard A. Parr II.....................       --            --              50,413         9,400         --             --
W. Tom Fogarty, M.D. ..................       --            --              67,574        12,600         --             --
</TABLE>

___________
(1)  Fair market value of securities underlying in-the-money options based on
     the most recent third-party sale of Concentra Holding's common stock at
     $16.50 per share. Neither Concentra Holding nor Concentra Operating has any
     class of equity securities registered pursuant to Section 12 of the
     Exchange Act.

Compensation of Directors

     Concentra Operating. None of the directors of Concentra Operating received
any remuneration from Concentra Operating for their attendance at board and
committee meetings during 2000.

Other Compensation Arrangements

Employment Agreements

     Each of Daniel J. Thomas, William H. Comte, Thomas E. Kiraly, James M.
Greenwood, Richard A. Parr II, and W. Tom Fogarty, M.D. have entered into
employment agreements between such individuals and Concentra Holding. The
principal terms of these employment agreements are as follows:

     .    each agreement has a term of 2 years, subject to automatic renewal for
          additional one-year terms, unless terminated in accordance with the
          agreement's terms;

     .    each agreement provides for compensation consisting of base salary
          amounts, bonuses at the discretion of the board of directors of
          Concentra Holding and participation in any employee benefit plan
          adopted by us for our employees;

                                       41
<PAGE>

     .    each agreement provides for a severance payment in the event of (1)
          termination by Concentra Holding without cause, or (2) resignation by
          the employee for good reason; consisting of two years' base salary for
          Mr. Thomas and 1 year's base salary for Messrs. Comte, Greenwood,
          Kiraly, Parr, and Fogarty.

Officer Loan Program

     Pursuant to an Officer Loan Program adopted by the compensation committee
of Concentra Holding's Board of Directors (the "Compensation Committee"),
Concentra Holding may from time to time make loans to certain officers of
Concentra Holding and its subsidiaries designated by the Compensation Committee
to purchase stock of Concentra Holding. All loans are secured by a pledge of the
shares being purchased. Each loan bears interest, payable monthly, at the
Applicable Federal Rate published by the Internal Revenue Service. As of March
15, 2001, there is outstanding under the Officer Loan Program a total of
$3,180,000 from all participants, including the following amounts from the named
executive officers: Mr. Thomas, $400,000; Mr. Kiraly, $300,000; Mr. Parr,
$400,000; and Dr. Fogarty, $400,000; and from Mr. Nelson, $200,000.

Life Insurance

     Concentra Holding pays the premiums for second-to-die life insurance
policies on the lives of the named executive officers and their respective
spouses in the following face amounts: Mr. Thomas, $2,000,000; Mr. Greenwood,
$1,000,000; Mr. Kiraly, $1,000,000; Mr. Parr, $1,000,000; and Dr. Fogarty,
$1,000,000. Upon the death of both insureds under each such policy, an amount
equal to the premiums paid by Concentra Holding will be paid to Concentra
Holding, with the remaining proceeds going to the second-to-die decedent's
estate.

Compensation Plans

1999 Long-Term Incentive Plan

General

     Concentra Holding's board and stockholders approved its 1999 Stock Option
and Restricted Stock Purchase Plan (the "1999 Stock Plan") in August 1999. The
purpose of the 1999 Stock Plan is to promote the interests of Concentra Holding
and its subsidiaries and the interests of our stockholders by providing an
opportunity to selected employees and officers of Concentra Holding and its
subsidiaries and to other persons providing services to Concentra Holding and
its subsidiaries to purchase Concentra Holding common stock. By encouraging such
stock ownership, we seek to attract, retain and motivate such employees and
other persons and to encourage such employees and other persons to devote their
best efforts to our business and financial success. Under the 1999 Stock Plan,
we may grant incentive stock options and non-qualified stock options and
restricted stock purchase awards to purchase an aggregate of up to 3,750,000
shares of Concentra Holding common stock. The following summary describes the
principal features of the 1999 Stock Plan and is qualified in its entirety by
reference to the specific provisions of the 1999 Stock Plan, which is filed as
an exhibit to this Report.

Description of 1999 Stock Plan

     Shares and Options Subject to Plan. The 1999 Stock Plan provides for the
grant of options or awards to purchase an aggregate 3,750,000 shares of common
stock, either in the form of incentive stock options intended to meet the
requirements of Section 422 of the Internal Revenue Code of 1986 (the "Code") or
nonqualified stock options or restricted stock purchase awards. The 1999 Stock
Plan includes provisions for adjustment of the number of shares of common stock
available for grant of award thereunder and in the number of shares of common
stock underlying outstanding options in the event of any stock splits, stock
dividends or other relevant changes in the capitalization of Concentra Holding.

     Eligibility. Under the 1999 Stock Plan, employees, including officers, are
eligible to receive grants of either incentive stock options structures to
qualify under Section 422 of the Code, or nonqualified stock options and
restricted stock purchase awards, both of which are not intended to meet the
requirements of Code Section 422. Non-employee directors are eligible to be
granted only nonqualified options and awards.

     Administration. Administration of the 1999 Stock Plan has been delegated to
the Compensation Committee, which consists entirely of "Non-Employee Directors"
within the meaning of the Securities Exchange Act of 1934,

                                       42
<PAGE>

and "outside directors" within the meaning of the Code. The Compensation
Committee, within the parameters of the 1999 Stock Plan, has authority to
determine to whom options and awards are granted. All questions of
interpretation or application of the 1999 Stock Plan are determined by the
Compensation Committee, whose decisions are final and binding upon all
participants.

     Terms of Options and Awards. Each option or award granted will be evidenced
by a stock option or restricted stock purchase agreement.

     The Compensation Committee will fix the term and vesting provisions of all
options granted pursuant to the 1999 Stock Plan.

     The exercise price of incentive stock options may not be less than 100% of
the fair market value of the shares of common stock, as determined by the board
or the Compensation Committee, as the case may be, on the date the option is
granted. The exercise price of non-qualified stock options may not be less than
100% of the fair market value of the shares of common stock on the date the
option is granted. In addition, the aggregate fair market value of the shares of
stock with respect to which incentive stock options are exercisable for the
first time by an optionee during any calendar year shall not exceed $100,000. In
addition, no incentive stock option shall be granted to an optionee who owns
more than 10% of the total combined voting power for all classes of stock of
Concentra Holding, unless the exercise price is at least 110% of the fair market
value of the shares of common stock and the exercise period does not exceed 5
years.

     Restricted stock purchase awards granted under the 1999 Stock Plan will be
in such amounts and at such times as determined by the Compensation Committee.
The purchase price, as well as the vesting provisions, of such awards shall be
determined by the Compensation Committee and the purchase price may be equal to,
less than or more than the fair market value of the shares of common stock to be
awarded.

     Term of the 1999 Stock Plan. The 1999 Stock Plan will continue in effect
until August 17, 2009 unless terminated prior to such date by the board.

Certain Federal Income Tax Consequences of the 1999 Stock Plan

     The tax consequences of incentive stock options, non-qualified stock
options and restricted stock purchase awards are quite complex. Therefore, the
description of tax consequences set forth below is necessarily general in nature
and does not purport to be complete. Moreover, statutory provisions are subject
to change, as are their interpretations, and their application may vary in
individual circumstances. Finally, the tax consequences under applicable state
and local income tax laws may not be the same as under the federal income tax
laws.

     Incentive stock options granted pursuant to the 1999 Stock Plan are
intended to qualify as "incentive stock options" within the meaning of Section
422 of the Code. If an optionee does not dispose of the shares acquired pursuant
to exercise of an incentive stock option within one year after the transfer of
such shares to the optionee and within 2 years from grant of the option such
optionee will recognize no taxable income as a result of the grant or exercise
of such option. However, for alternative minimum tax purposes the optionee will
recognize as an item of tax preference the difference between the fair market
value of the shares received upon exercise and the exercise price. Any gain or
loss that is subsequently recognized upon a sale or exchange of the shares may
be treated by the optionee as long-term capital gain or loss, as the case may
be. Concentra Holding will not be entitled to a deduction for federal income tax
purposes with respect to the issuance of an incentive stock option, the transfer
of shares upon exercise of the option or the ultimate disposition of such shares
provided the holding period requirements are satisfied.

     If shares received upon exercise of an incentive stock option are disposed
of prior to satisfaction of the holding period requirements, the optionee
generally will recognize taxable ordinary income, in the year in which such
disqualifying disposition occurs, in an amount equal to the lesser of (1) the
excess of the fair market value of the shares on the date of exercise over the
exercise price, and (2) the gain recognized on such disposition. Such amount
will ordinarily be deductible by Concentra Holding for federal income tax
purposes in the same year, provided that the company satisfies certain federal
income tax information reporting requirements. In addition, the excess, if any,
of the amount realized by the exercise of the incentive stock option will be
treated as capital gain, long-term or short-term, depending on whether, after
exercise of the option, the shares were held for more than one year.

                                       43
<PAGE>

     Non-qualified stock options may be granted under the 1999 Stock Plan. An
optionee generally will not recognize any taxable income upon grant of a
non-qualified stock option. The optionee will recognize taxable ordinary income,
at the time of exercise of such option, in an amount equal to the excess of the
fair market value of the shares on the date of exercise over the exercise price.
Such amount will ordinarily be deductible by Concentra Holding in the same year,
provided that Concentra Holding satisfies certain federal income tax information
reporting requirements. Any gain or loss that is subsequently recognized by the
optionee upon a sale or exchange of the shares will be capital gain or loss,
long-term or short-term, depending on whether, after the exercise of the option,
the shares were held for more than one year prior to such sale or exchange.

     Restricted stock purchase awards may also be granted pursuant to the 1999
Stock Plan. A recipient of a restricted stock purchase award generally will not
recognize taxable income upon the purchase of shares of restricted stock, unless
he or she makes a timely election under Section 83(b) of the Code. Such a
recipient, however, would recognize taxable ordinary income and the holding
period for such shares would commence at the time that such shares become
vested, in an amount equal to the excess of the fair market value of the shares
at the time over the purchase price paid for such shares. If, on the other hand,
the recipient makes a timely election under Section 83(b), he or she would
recognize taxable ordinary income and the holding period for such shares would
commence at the time of purchase, in an amount equal to the excess of the fair
market value of the shares at that time, determined without regard to any
transfer restrictions imposed on the shares, vesting provisions or any
restrictions imposed by the securities laws, over the purchase price paid for
such shares. In either case, Concentra should be entitled to a deduction in an
amount equal to the ordinary income recognized by the recipient in the same year
that the recipient recognized such income, provided that the company satisfies
certain federal income tax information reporting requirements. Any gain or loss
that is subsequently recognized by the recipient upon a sale or exchange of the
shares will be capital gain or loss, long-term or short-term, depending on
whether the shares were held for more than one year prior to such sale or
exchange.

401(k) Plan

     Concentra Holding has a defined contribution retirement plan which complies
with Section 401(k) of the Code (the "401(k) Plan"). Substantially all employees
of Concentra Holding and its subsidiaries, including certain officers and
directors of Concentra Operating, who have completed 1,000 hours of service as
of their first anniversary date and attained age 21 are eligible to participate
in the 401(k) Plan. Generally, employees may contribute amounts up to a maximum
of 15% of the employee's compensation. Under the plan, Concentra Holding has the
option of matching a portion of the participants' pretax contributions. For each
of 1999 and 2000, Concentra Holding elected to match 50% participants' pretax
contributions of up to 4% of compensation.

Other Outstanding Options and Warrants

     In addition to the options and awards granted under the 1999 Stock Plan,
and warrants to purchase 1,595,407 shares of Concentra Holding common stock for
$0.01 per warrant granted to holders of Concentra Holding's 14% Senior Discount
Debentures, Concentra Holding had, as of December 31, 2000, issued or assumed
from its predecessors or acquired companies options or warrants to purchase an
aggregate of 630,404 shares of common stock pursuant to separate agreements
between Concentra Holding and the holders thereof. The 630,404 options that are
currently outstanding have an average exercise price of $8.02 per share, and are
subject to various vesting provisions.

     Unexercised options and warrants, and their exercise price, are subject to
adjustment if Concentra Holding issues common stock for a price per share less
than the exercise price or if there is a subdivision or consolidation of
Concentra Holding's common stock, the payment of a stock dividend or other
increase or decrease in the number of shares of Concentra Holding's common stock
outstanding, and Concentra Holding does not receive compensation therefor. In
addition, the number (and type) of securities subject to an option or warrant
are subject to adjustment if Concentra Holding is party to a merger or
consolidation.

Compensation Committee Interlocks and Insider Participation

     John K. Carlyle, who served as Concentra Holding's non-employee Chairman
until August 17, 1999, has served as a member of the Compensation Committee
since December, 1998.

                                       44
<PAGE>

     Mr. Queally is a managing member and Mr. Mackesy is a principal of the sole
general partner of WCAS. Because of these affiliations, Messrs. Queally and
Mackesy may be deemed to have a material interest in the matters described under
Item 13 "Certain Relationships and Related Transactions--Equity Investor
Agreements."

Compensation Committee Report on Executive Compensation

Executive Compensation Philosophy

     The Compensation Committee is composed entirely of outside directors. The
Compensation Committee is responsible for setting and administering the policies
and programs that govern both annual compensation and stock ownership programs
for the executive officers of the Concentra Holding and Concentra Operating. The
Company's executive compensation policy is based on principles designed to
ensure that an appropriate relationship exists between executive pay and
corporate performance, while at the same time motivating and retaining executive
officers.

Executive Compensation Components

     The key components of the Company's compensation program are base salary,
an annual incentive award and equity participation. These components are
administered with the goal of providing total compensation that is competitive
in the marketplace, rewards successful financial performance and aligns
executive officers' interests with those of stockholders. The Compensation
Committee reviews each component of executive compensation on an annual basis.

     Base Salary

     Base salaries for executive officers are set at levels the Compensation
Committee believes to be sufficient to attract and retain qualified executive
officers. Base pay increases are provided to executive officers based on an
evaluation of each executive's performance, as well as the performance of the
Company as a whole. Although the Compensation Committee does not establish a
specific formula or target to determine base salaries, the Compensation
Committee considers the financial performance of the Company as compared to
service industry companies with similar earnings.

     In this regard, the Compensation Committee primarily considers EBITDA
growth and to a lesser degree revenue growth. The Compensation Committee also
considers the success of the executive officers in developing and executing the
Company's strategic plans, developing management employees and exercising
leadership.

     The Compensation Committee does not currently intend to award compensation
that would result in a limitation on the deductibility of a portion of such
compensation pursuant to Section 162(m) of the Internal Revenue Code of 1986, as
amended; however, the Compensation Committee may in the future decide to
authorize compensation in excess of the limits of Section 162(m) if it
determines that such compensation is in the best interests of the Company.

     Annual Bonus

     The Compensation Committee believes that a significant proportion of total
cash compensation for executive officers should be subject to attainment of
specific Company financial performance criteria. This approach creates a direct
incentive for executive officers to achieve desired performance goals and places
a significant percentage of each executive officer's compensation at risk.
Consequently, at the beginning of each year, the Compensation Committee
establishes potential bonuses for executive officers based on the Company's
achievement of certain EBITDA. The Compensation Committee established annual
bonus potential for 2000 of up to 50% of base salaries, based upon the Company's
achievement of predetermined EBITDA criteria and including a discretionary
component. The Compensation Committee established the potential bonuses and
EBITDA criteria based on the Compensation Committee's judgment as to desirable
financial results for the Company and the appropriate percentage of compensation
which should be based on the attainment of such results. As reflected in the
Summary Compensation Table under "Executive Compensation," no bonuses were paid
to the named executive officers during 2000.

     Stock Options and Other Equity Participation

     The Compensation Committee believes that equity participation is a key
component of the Company's executive compensation program. Stock options and
other equity participation are granted to executive officers primarily based on
the officer's actual and potential contribution to the Company's growth and
profitability and the practices of service

                                       45
<PAGE>

industry companies with similar earnings. Option grants are designed to retain
executive officers and motivate them to enhance stockholder value by aligning
the financial interests of executive officers with those of stockholders. Stock
options also provide an effective incentive for management to create shareholder
value over the long term, because the full benefit of the compensation package
cannot be realized unless an appreciation in the price of the Company's common
stock occurs over a number of years.

     Options to purchase common stock of Concentra Holding were granted to
certain of the named executive officers in 2000 and are reflected in the
information provided under "Compensation of Executive Officers." For vesting
purposes, the options are divided into four classes, all of which expire ten
years from the date of grant. Class I options (approximately 40% of each award)
vest cumulatively in five annual installments of 20%. Class II, Class III, and
Class IV options vest upon the earlier to occur of nine years from the date of
grant, or Concentra Holding's achievement of prescribed EBITDA goals.

     The Compensation Committee granted options based on its judgment that the
amount was appropriate and desirable considering the executive officer's
potential contribution to the Company, as well as the number of options
outstanding and granted in previous years. The assessment of potential
contribution was based on the Compensation Committee's subjective evaluation of
such executive officer's ability, skills, efforts, and leadership.

Compensation of Chief Executive Officer

     Consistent with the executive compensation policy and components described
above, the Compensation Committee determined the salary, bonus and stock options
received by Daniel J. Thomas, President and Chief Executive Officer of the
Company, for services rendered in 2000. Mr. Thomas received a base salary of
$380,000 for 2000. The Compensation Committee did not establish a specific
target or formula to determine Mr. Thomas's salary. Mr. Thomas also received an
award of options to purchase 369,057 shares of Concentra Holding common stock.
The Compensation Committee determined the compensation granted to Mr. Thomas
based on its judgment that the amounts were appropriate and desirable in light
of his actual and potential contribution to the Company. The assessment of
actual and potential contribution was based on the Compensation Committee's
subjective evaluation of Mr. Thomas's abilities, skills, efforts, and
leadership.

Summary

     The Compensation Committee believes that the executive compensation
policies and programs described in this Report serve the interests of the
stockholders and the Company. Pay delivered to executives is intended to be
linked to, and to be commensurate with, Company performance and stockholder
expectations. We will continue to monitor the effectiveness and appropriateness
of each of the compensation components to reflect changes in the business
environment.

                                         The Compensation Committee
                                             Paul B. Queally, Chairman
                                             John K. Carlyle
                                             Carlos A. Ferrer


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     All of the issued and outstanding capital stock of Concentra Operating is
owned by Concentra Holding. The table below contains information regarding the
beneficial ownership of Concentra Holding's common stock as of March 15, 2001,
by:

 .    each stockholder who owns beneficially 5% or more of Concentra Holding's
     common stock,

 .    each director of Concentra Holding,

 .    each executive officer, and

 .    all directors and officers as a group.

                                       46
<PAGE>

     The number of shares beneficially owned by each stockholder, director or
officer is determined according to the rules of the Securities and Exchange
Commission, and the information is not necessarily indicative of beneficial
ownership for any other purpose. Under current rules, beneficial ownership
includes any shares as to which the individual or entity has sole or shared
voting power or investment power. As a consequence, several persons may be
deemed to be the "beneficial owners" of the same shares. Unless otherwise noted
in the footnotes to this table, each of the stockholders named in this table has
sole voting and investment power with respect to the Concentra Holding common
shares shown as beneficially owned. The percentage ownership of each stockholder
is calculated based on 25,970,083 shares outstanding as of March 15, 2001.

<TABLE>
<CAPTION>
                                                                         Beneficial Ownership
                                                                         --------------------
                            Name                                         Amount    Percentage
                            ----                                         ------    ----------
<S>                                                                   <C>          <C>
Welsh, Carson, Anderson & Stowe VIII, L.P.(1)......................   $16,889,066      65.03%
     320 Park Avenue, Suite 2500
     New York, NY 10022
Health Care Capital Partners L.P.(2)...............................     1,854,545       7.14
     c/o Ferrer Freeman Thompson & Co.
     The Mill
     10 Glenville Street
     Greenwich, CT 06831
California State Teachers' Retirement System.......................     1,322,473       5.09
     c/o Welsh, Carson, Anderson & Stowe
     320 Park Avenue, Suite 2500
     New York, NY 10022
Paul B. Queally(3).................................................    16,394,343      63.13
     c/o Welsh, Carson, Anderson & Stowe
     320 Park Avenue, Suite 2500
     New York, NY 10022
Carlos Ferrer(4)...................................................     1,854,545       7.14
     c/o Ferrer Freeman Thompson & Co.
     The Mill
     10 Glenville Street
     Greenwich, CT 06831
D. Scott Mackesy(5)................................................    16,384,170      63.09
     c/o Welsh, Carson, Anderson & Stowe
     320 Park Avenue, Suite 2500
     New York, NY 10022
John K. Carlyle....................................................            --          *
Daniel J. Thomas...................................................        57,242          *
William H. Comte...................................................            --          *
Thomas E. Kiraly...................................................        18,182          *
James M. Greenwood.................................................         8,250          *
Richard A. Parr II.................................................        39,242          *
W. Tom Fogarty, M.D................................................        74,242          *
Steven E. Nelson...................................................        30,303          *
All directors and executive officers as a group (12 individuals)...    18,558,193      71.45
</TABLE>

_____________
*    Less than one percent.

(1)  Certain of the shares reflected as owned by Welsh, Carson, Anderson & Stowe
     VIII, L.P. are owned of record by WCAS Healthcare Partners, L.P. (60,606).
     An aggregate of 515,604 shares included as owned by Welsh, Carson, Anderson
     & Stowe VIII, L.P. are owned beneficially and of record by (a) the
     individuals who are members of the limited liability company that serves as
     its sole general partner: Bruce K. Anderson, Russell L. Carson, Priscilla
     A. Newman, Anthony J. de Nicola, Thomas E. McInerney, Andrew M. Paul, Paul
     B. Queally, Jonathan M. Rather, Lawrence B. Sorrell, Laura M. Van Buren and
     Patrick J. Welsh, and (b) individuals employed by its investment adviser,
     including, Mr. Mackesy. These individuals may be deemed to share beneficial
     ownership of the remaining shares owned by Welsh, Carson, Anderson & Stowe,
     VIII, L.P. In addition, Russell L. Carson and Patrick J. Welsh, as general
     partners of the limited liability partnership that serves as the sole
     general partner of WCAS Healthcare Partners, L.P., may also be deemed to
     share beneficial ownership of the shares held by that entity. However, all
     such individuals disclaim beneficial ownership of such shares.

                                       47
<PAGE>

(2)  Certain of the shares reflected as owned by Health Care Capital Partners,
     L.P. are owned beneficially and of record by Health Care Executive Partners
     L.P. (73,675). Carlos A. Ferrer, David A. Freeman and Robert T. Thompson
     are the only members of the limited liability company that serves as the
     sole general partner of Health Capital Partners, L.P. and Health Care
     Executive Partners, L.P. These individuals may be deemed to share
     beneficial ownership of the shares owned of record by these entities.
     However, such individuals disclaim beneficial ownership of any such shares.
(3)  Certain of the shares reflected as owned by Mr. Queally are owned of record
     by Welsh, Carson, Anderson & Stowe VIII, L.P. (16,312,856) and WCAS
     Healthcare Partners, L.P. (60,606). Mr. Queally disclaims beneficial
     ownership of such shares.
(4)  The shares reflected as owned by Mr. Ferrer are owned of record by Health
     Care Capital Partners, L.P. (1,780,870) and Health Care Executive Partners
     L.P. (73,675). Mr. Ferrer disclaims beneficial ownership of such shares.
(5)  Certain of the shares reflected as owned by Mr. Mackesy are owned of record
     by Welsh, Carson, Anderson & Stowe VIII, L.P. (16,312,856) and WCAS
     Healthcare Partners, L.P. (60,606). Mr. Mackesy disclaims beneficial
     ownership of such shares.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Equity Investor Agreements

   Stockholders Agreement

     Welsh, Carson, Anderson & Stowe VIII, L.P. ("WCAS"), investors affiliated
with WCAS (the "WCAS Investors"), certain management investors, and affiliates
of Ferrer Freeman Thompson & Co., LLC ("FFT"), and Concentra Holding are parties
to a stockholders agreement. The stockholders agreement does not provide for any
agreements among the WCAS Investors, the management investors, and FFT with
respect to voting of shares or management of Concentra Holding. The stockholders
agreement provides for:

     .    limitations on the transfer of shares owned by the investors;

     .    tag-along rights for FFT, the management investors, and the WCAS
          Investors, other than WCAS, to participate in proposed dispositions of
          Concentra Holding common stock by WCAS;

     .    in the event that WCAS receives a third party offer to purchase a
          significant portion of the outstanding Concentra Holding common stock,
          WCAS may require FFT, the WCAS Investors and the management investors
          to accept the offer and sell their shares of Concentra Holding to the
          third party; and

     .    preemptive rights to the investors to participate, on a pro rata basis
          according to their ownership of Concentra Holding capital stock, in
          equity offerings of Concentra Holding with certain customary
          exceptions.

   Registration Rights Agreement

     At the same time they executed the stockholders agreement, the WCAS
Investors, the management investors, FFT and Concentra Holding are also parties
to a registration rights agreement. The registration rights agreement gives the
investors rights to require Concentra Holding to register their shares of
Concentra Holding capital stock under the Securities Act and to include, upon
request, their shares in any other registration of shares by Concentra Holding.

Discount Debentures

     WCAS Capital Partners III, L.P., an investment partnership affiliated with
WCAS, owns $83.9 million face amount of 14% senior discount debentures due 2010
of Concentra Holding and warrants to acquire 619,356 shares of Concentra Holding
common stock for $42.7 million. Messrs. Queally and Paul, who are members of the
general partner of WCAS Capital Partners III, L.P., may be deemed to control
WCAS Capital Partners III, L.P.

                                       48
<PAGE>

Other Related-Party Transactions

     W. Tom Fogarty, M.D., an executive officer of Concentra Holding and
Concentra Operating, is the President, a director and a member of Occupational
Health Centers of the Southwest, P.A., or OHCSW, and several other physician
groups. We have entered into a 40-year management agreement with each of the
physician groups. OHCSW paid approximately $190.6 million in management fees to
the Company in 2000 under its management agreement.

     Concentra Holding has entered into employment agreements with Daniel J.
Thomas, William H. Comte, James M. Greenwood, Thomas E. Kiraly, Richard A. Parr
II, and W. Tom Fogarty, M.D. In addition, Messrs. Thomas, Kiraly, Parr, and
Fogarty participate in an Officer Loan Program whereby Concentra Holding has
loaned money to each such named executive officer to enable him to purchase
stock of Concentra Holding. Finally, the Company pays the premiums for
second-to-die life insurance policies on the lives of the named executive
officers and their respective spouses. See Item 11 "Executive
Compensation--Other Compensation Arrangements" for a discussion of these
agreements and arrangements.

     CPS is party to a Joint Marketing Agreement with HealthNetwork Systems LLC,
a provider of PPO network management services to the payor and PPO industries.
Steven E. Nelson, a Director of Concentra Operating and of Concentra Holding, is
the President and Chief Executive Officer of HealthNetwork Systems LLC. Mr.
Nelson, Mr. Thomas, Mr. Queally and Mr. Mackesy are investors in HNS. CPS paid
HNS approximately $497,000 in 2000 pursuant to the Joint Marketing Agreement.

     Concentra Operating provides certain administrative services to Em3
Corporation ("Em3"), a company with shareholders who include Concentra Holding's
primary shareholders and certain members of Concentra Operating's management
team, including the named executive officers. These services include the leasing
of certain employees, providing office space, access to certain of Concentra
Operating's software and systems and other administrative services. Em3 paid
Concentra Operating $1.4 million for these services during the twelve-month
period ending December 31, 2000.

     Management believes that the transactions referred to above are in the
ordinary course of business of Concentra Holding, Concentra Operating and their
subsidiaries and are upon fair and reasonable terms no less favorable than could
be obtained in comparable arm's length transactions with unaffiliated parties.

                                       49
<PAGE>

                                    Part IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K

(a)  1. Consolidated Financial Statements

     The following consolidated financial statements of the Company are included
in Item 8.

     Report of Independent Public Accountants                              F-1
     Consolidated Balance Sheets-December 31, 2000 and 1999                F-2
     Consolidated Statements of Operations-Years Ended December 31,
       2000, 1999 and 1998                                                 F-3
     Consolidated Statements of Cash Flows-Years Ended December 31,
       2000, 1999 and 1998                                                 F-4
     Consolidated Statements of Stockholder's Equity-Years
       Ended December 31, 1998, 1999 and 2000                              F-5
     Notes to Consolidated Financial Statements                            F-6

     2. Financial Statement Schedule

     The financial statement schedule, Supplemental Schedule II--Valuation and
Qualifying Accounts, is filed with this report and appears on page S-1.

     The Report of Independent Public Accountants on Schedule is filed with this
report and appears on page S-2.

     All other schedules for which provision is made in Regulation S-X of the
Securities and Exchange Commission are not required under the related
instructions or are not applicable and, therefore, have been omitted.

     3. Exhibits:

     The following is a list of exhibits filed as part of the Form 10-K:

Exhibit
 Number                                      Description
 ------                                      -----------
    2.1    Agreement and Plan of Reorganization dated August 29, 1997, among CRA
             Managed Care, Inc. and OccuSystems, Inc. and the Registrant
             (incorporated by reference as Exhibit 2.1 to Concentra Holding's
             Annual Report on Form 10-K for the year ended December 31, 1997).

    2.2    Agreement and Plan of Merger dated February 24, 1998, among Concentra
             Inc., formerly known as Concentra Managed Care, Inc. ( "Concentra
             Holding ") and Preferred Payment Systems, Inc. (incorporated by
             reference to Exhibit 2.2 to Concentra Holding's Annual Report on
             Form 10-K for the year ended December 31, 1997).

    2.3    Agreement and Plan of Merger dated March 2, 1999, between Yankee
             Acquisition Corp. and Concentra Holding (incorporated by reference
             to Exhibit 2.1 to Concentra Holding's Current Report on Form 8-K
             filed on March 3,1999).

    2.4    Amended and Restated Agreement and Plan of Merger dated March 24,
             1999, between Yankee Acquisition Corp. and Concentra Holding
             (incorporated by reference to Exhibit 2.1 to Concentra Holding's
             Current Report on Form 8-K filed on July 14, 1999).

   *3.1    Articles of Incorporation of Concentra Operating Corporation
             ("Concentra Operating ").

   *3.2    Amended and Restated By-Laws of Concentra Operating.

                                       50
<PAGE>

   *3.3    Articles of Incorporation of Concentra Management Services, Inc.

   *3.4    Amended and Restated By-Laws of Concentra Management Services, Inc.

   *3.5    Amended and Restated Certificate of Incorporation of Concentra
             Preferred Systems, Inc.

   *3.6    Amended and Restated By-Laws of Concentra Preferred Systems, Inc.

   *3.7    Amended and Restated Certificate of Incorporation of First Notice
             Systems, Inc.

   *3.8    Amended and Restated By-Laws of First Notice Systems, Inc.

   *3.9    Amended and Restated Charter of Focus Healthcare Management, Inc.

  *3.10    Amended and Restated By-Laws of Focus Healthcare Management, Inc.

  *3.11    Amended and Restated Articles of Incorporation of CRA Managed Care of
             Washington, Inc.

  *3.12    Amended and Restated By-Laws of CRA Managed Care of Washington, Inc.

  *3.13    Articles of Incorporation of CRA-MCO, Inc.

  *3.14    Amended and Restated By-Laws of CRA-MCO, Inc.

  *3.15    Amended and Restated Articles of Incorporation of Drug-Free
             Consortium, Inc.

  *3.16    Amended and Restated By-Laws of Drug-Free Consortium, Inc.

  *3.17    Articles of Organization of Concentra Managed Care Services, Inc.

  *3.18    Amended and Restated By-Laws of Concentra Managed Care Services, Inc.

  *3.19    Amended and Restated Articles of Incorporation of Concentra Health
             Services, Inc.

  *3.20    Amended and Restated By-Laws of Concentra Health Services, Inc.

  *3.21    Agreement and Declaration of Trust of Concentra Managed Care Business
             Trust.

                                       51
<PAGE>

  *3.22    Agreement of Limited Partnership of OccuCenters I, L.P.

  *3.23    Amended and Restated Articles of Incorporation of OCI Holdings, Inc.

  *3.24    Amended and Restated By-Laws of OCI Holdings, Inc.

  *3.25    Amended and Restated Articles of Incorporation of Hillman Consulting,
             Inc.

  *3.26    Amended and Restated By-Laws of Hillman Consulting, Inc.

   *4.1    Indenture dated as of August 17, 1999, between Concentra Operating
             and United States Trust Company of New York, as Trustee, relating
             to the 13% Senior Subordinated Notes due 2009.

   *4.2    Indenture dated as of August 17, 1999, between Concentra Holding and
             United States Trust Company of New York, as Trustee, relating to
             the 14% Senior Discount Debentures due 2010.

    4.3    Indenture dated as of December 24, 1996, between OccuSystems, Inc.
             ("OccuSystems") and United States Trust Company of New York, as
             Trustee, (the "OccuSystems Indenture") relating to the 6%
             Convertible Subordinated Notes due 2001 (incorporated by reference
             to Exhibit 4.1 to OccuSystems' Registration Statement on Form S-3
             filed on January 31, 1997).

    4.4    First Supplemental Indenture dated as of August 29, 1997, between
             OccuSystems, Concentra Holding and United States Trust Company of
             New York, as Trustee, relating to the 6% Convertible Subordinated
             Notes due 2001 (incorporated by reference to Exhibit 4.2 to
             Concentra Holding's Annual Report on Form 10-K for the year ended
             December 31, 1997).

   *4.5    Second Supplemental Indenture dated as of August 17, 1999, between
             Concentra Holding and United States Trust Company of New York, as
             Trustee, relating to the 6% Convertible Subordinated Notes due
             2001.

   *4.6    Warrant Agreement dated as of August 17, 1999, by and among Concentra
             Holding and the several persons named on Schedule I thereto.

    4.7    Form of 13% Series B Senior Subordinated Notes due 2009 of Concentra
             Operating (included in Exhibit 4.1).

    4.8    Form of 14% Senior Discount Debentures due 2010 of Concentra Holding
             (included in Exhibit 4.2).


                                       52
<PAGE>

    4.9    Form of 6% Convertible Subordinated Notes due 2001 of Concentra
             Holding (included in Exhibit 4.3).

   4.10    Form of Warrant to acquire Concentra Holding common stock (included
             in Exhibit 4.6).

  *4.11    Registration Rights Agreement dated as of August 17, 1999 by and
             among Concentra Operating, the Guarantors set forth on the
             signature pages thereof, and Donaldson, Lufkin & Jenrette
             Securities Corporation, Chase Securities, Inc., Credit Suisse First
             Boston Corporation, Deutsche Bank Securities, Inc. and Fleet
             Securities, Inc., as initial purchasers.

  *4.12    Registration Rights Agreement dated as of August 17, 1999 by and
             among Concentra Holding, and the persons named in Schedules I and
             II thereto.

  *10.1    Purchase Agreement dated August 17, 1999, by and among Concentra
             Operating, the Guarantors set forth on the signature pages thereof,
             and Donaldson, Lufkin & Jenrette Securities Corporation, Chase
             Securities, Inc., Credit Suisse First Boston Corporation, Deutsche
             Bank Securities, Inc. and Fleet Securities, Inc., as initial
             purchasers, relating to the issuance and sale of $190,000,000
             aggregate principal amount of Concentra Operating's 13% Senior
             Subordinated Notes due 2009, Series A.

  *10.2    Credit Agreement dated as of August 17, 1999, among Concentra
             Holding, Concentra Operating, the Several Lenders from time to time
             parties thereto, The Chase Manhattan Bank, as Administrative Agent,
             Credit Suisse First Boston and Fleet National Bank, as Co-
             Documentation Agents, and DLJ Capital Funding, Inc., as Syndication
             Agent.

   10.3    Credit Facility Agreement dated as of August 17, 1999, by and among
             Concentra Holding, Concentra Operating, the Several Lenders from
             time to time parties thereto, The Chase Manhattan Bank, as
             Administrative Agent, Credit Suisse First Boston and Fleet National
             Bank, as co-Documentation Agents and DLJ Capital Funding, Inc., as
             Syndication Agent, Amended and Restated as of March 21, 2000
             (incorporated by reference to Exhibit 10.3 to Concentra Operating's
             Annual Report on Form 10-K for the year ended December 31, 1999).

  *10.4    Purchase Agreement dated August 17, 1999, by and among Concentra
             Holding and the several persons named on Schedule I thereto,
             relating to the issuance and sale of $110,000,000 aggregate face
             amount of Concentra Holding's 14% Senior Discount Debentures due
             2010 and Warrants to acquire Concentra Holding common stock.

++*10.5    Concentra Managed Care, Inc. 1999 Stock Option and Restricted Stock
             Purchase Plan.

 ++10.6    Concentra Managed Care, Inc. 1997 Long-Term Incentive Plan
             (incorporated by reference to Appendix G to the Joint Proxy
             Statement/Prospectus forming a part of Concentra Holding's
             Registration Statement on Form S-4 filed on July 31, 1997).

 ++10.7    CRA Managed Care, Inc. ("CRA") 1994 Non-Qualified Stock Option Plan
             for Non-Employee Directors (incorporated by reference to Exhibit
             10.3 to CRA's Registration Statement on Form S-1 filed on March 17,
             1995).

                                       53
<PAGE>

   ++10.8   CRA Managed Care, Inc. 1994 Non-Qualified Time Acceleration
             Restricted Stock Option Plan (incorporated by reference to Exhibit
             10.5 to CRA's Registration Statement on Form S-1 filed on March 17,
             1995).

   ++10.9  OccuSystems, Inc. 1995 Long-Term Incentive Plan (incorporated by
             reference to Exhibit 10.10 to OccuSystems' Registration Statement
             on Form S-1 filed on May 8, 1995).

  ++10.10  First Amended and Restated OccuSystems, Inc. and its Subsidiaries and
             Affiliates Stock Option and Restricted Stock Purchase Plan dated
             April 28, 1992 (incorporated by reference to Exhibit 10.11 to
             OccuSystems' Registration Statement on Form S-1 filed on May 8,
             1995).

 ++*10.11  Employment Agreement dated as of August 17, 1999, between Concentra
             Holding and W. Tom Fogarty.

 ++*10.12  Employment Agreement dated as of August 17, 1999, between Concentra
             Holding and James M. Greenwood.

 ++*10.13  Employment Agreement dated as of August 17, 1999, between Concentra
             Holding and Richard A. Parr II.

 ++*10.14  Employment Agreement dated as of August 17, 1999, between Concentra
             Holding and Daniel J. Thomas.

 ++*10.15  Employment Agreement dated as of August 17, 1999, between Concentra
             Holding and Thomas E. Kiraly.

++**10.16  Employment Agreement dated as of December 4, 2000, between Concentra
             Holding and William H. Comte.

    10.17  Indemnification Agreement dated as of September 17, 1997, between
             Concentra Holding and Daniel J. Thomas (identical agreements were
             executed between Concentra Holding and each of the following:
             Joseph F. Pesce, Richard A. Parr II, James M. Greenwood, W. Tom
             Fogarty, Kenneth Loffredo, Mitchell T. Rabkin, George H. Conrades,
             Robert A. Ortenzio, Lois E. Silverman, Paul B. Queally, John K.
             Carlyle) (incorporated by reference to Exhibit 10.17 to Concentra
             Holding's Annual Report on Form 10-K for the year ended December
             31, 1997).

    10.18  Indemnification Agreement dated as of May 13, 1998, between Concentra
             Holding and Hon. Willis D. Gradison, Jr. (identical agreements
             executed between Concentra Holding and Stephen Read (dated December
             16, 1997), Richard D. Rehm, M.D. (dated May 13, 1998), Eliseo Ruiz
             III (dated May 11, 1998), Scott Henault (dated September 17, 1997),
             Darla Walls (dated December 16, 1997), Jeffrey R. Luber (dated
             December 16, 1997) and Martha Kuppens (dated December 16, 1997))
             (incorporated by Reference to Exhibit 10.3 to Concentra Holding's
             Quarterly Report on Form 10-Q for the quarter ended June 30, 1998).

                                       54
<PAGE>

   10.19   Occupational Medicine Center Management and Consulting Agreement
             dated as of December 31, 1993, between Concentra Health Services,
             Inc. (formerly OccuCenters, Inc.) ("CHS") and Occupational Health
             Centers of Southwest, P.A., a Texas professional association
             (incorporated by reference to Exhibit 10.6 to OccuSystems' Annual
             Report on Form 10-K for the year ended December 31, 1995).

   10.20   Occupational Medicine Center Management and Consulting Agreement
             dated as of December 31, 1993, between CHS and Occupational Health
             Centers of Southwest, P.A., an Arizona professional association
             (incorporated by reference to Exhibit 10.7 to OccuSystems' Annual
             Report on Form 10-K for the year ended December 31, 1995).

   10.21   Occupational Medicine Center Management and Consulting Agreement
             dated as of December 31, 1993, between CHS and Occupational Health
             Centers of New Jersey, a New Jersey professional association
             (incorporated by reference to Exhibit 10.8 to OccuSystems'
             Registration Statement on Form S-1 filed on March 28, 1996).

  *10.22   Stockholders Agreement dated as of August 17, 1999 by and among
             Concentra Holding and the several persons named in Schedules I and
             II thereto.

  *10.23   Registration Rights Agreement dated as of August 17, 1999 by and
             among Concentra Holding and the several persons named in Schedules
             I and II thereto.

    12.1   Statements re Computation of Ratios (included in the financial
             statements of Concentra Operating).

  **21.1   Subsidiaries of Concentra Operating.

   *23.2   Consent of Arthur Andersen LLP.

_____________
 *  Incorporated by reference to the Registrants' Registration Statement on Form
    S-4, initially filed on November 12, 1999.
**  Filed herewith.
++  Indicates that Exhibit is a management contract or compensatory plan or
    arrangement.

(b) Reports on Form 8-K.

    Form 8-K dated November 1, 2000 regarding the Company's press release
announcing the Company's earnings for the nine months ended September 30, 2000.

                                       55
<PAGE>

                                  SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) 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, on the 27th day of
March, 2001.

                                Concentra Operating Corporation


                                By:              /s/ Thomas E. Kiraly
                                   ---------------------------------------------
                                                     Thomas E. Kiraly
                                     Executive Vice President, Chief Financial
                                    Officer and Treasurer (Principal Financial
                                                 and Accounting Officer)

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated.

<TABLE>
<CAPTION>
               Signature                                 Title                          Date
               ---------                                 -----                          ----
<S>                                        <C>                                     <C>
         /s/ Daniel J. Thomas              President, Chief Executive Officer      March 27, 2001
---------------------------------------
           Daniel J. Thomas                  and Director (Principal
                                             Executive Officer)

         /s/ Thomas E. Kiraly              Executive Vice President, Chief         March 27, 2001
---------------------------------------
           Thomas E. Kiraly                  Financial Officer and
                                             Treasurer (Principal Financial
                                             and Accounting Officer)

          /s/ Paul B. Queally              Chairman and Director                   March 27, 2001
---------------------------------------
            Paul B. Queally


          /s/ John K. Carlyle              Director                                March 27, 2001
---------------------------------------
            John K. Carlyle


           /s/ Carlos Ferrer               Director                                March 27, 2001
---------------------------------------
             Carlos Ferrer


         /s/ D. Scott Mackesy              Director                                March 27, 2001
---------------------------------------
           D. Scott Mackesy


         /s/ Steven E. Nelson              Director                                March 27, 2001
---------------------------------------
           Steven E. Nelson

</TABLE>

                                       56
<PAGE>

                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholder and Board of Directors of Concentra Operating Corporation:

     We have audited the accompanying consolidated balance sheets of Concentra
Operating Corporation (a Nevada corporation and a wholly-owned subsidiary of
Concentra Inc.) and subsidiaries (the "Company") as of December 31, 2000 and
1999, and the related consolidated statements of operations, cash flows and
stockholder's equity (deficit) for each of the three years in the period ended
December 31, 2000. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

     We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Concentra Operating
Corporation and subsidiaries as of December 31, 2000 and 1999, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States.

     As explained in Note 3 in the notes to consolidated financial statements,
effective January 1, 2000, the Company changed its method of revenue recognition
for its post payment bill review services.

     As explained in Note 5 in the notes to consolidated financial statements,
the Company changed its method of accounting for its derivatives which include
the interest rate collar arrangements.

                                        /s/ Arthur Andersen LLP
                                        ----------------------------------------

                                        ARTHUR ANDERSEN LLP

Dallas, Texas
February 14, 2001

                                      F-1
<PAGE>

                        CONCENTRA OPERATING CORPORATION
                          CONSOLIDATED BALANCE SHEETS
                     (in thousands, except share amounts)

<TABLE>
<CAPTION>
                                                                                    December 31
                                                                                -------------------
                                                                                  2000       1999
                                                                                --------   --------
<S>                                                                             <C>        <C>
                                   ASSETS

Current Assets:
     Cash and cash equivalents                                                  $  6,549   $ 14,371
     Accounts receivable, net                                                    160,418    156,239
     Prepaid expenses and other current assets                                    14,608     15,118
     Prepaid and deferred income taxes                                            10,071     13,556
                                                                                --------   --------
          Total current assets                                                   191,646    199,284

Property and equipment, net                                                      109,110    104,068
Goodwill and other intangible assets, net                                        323,162    324,984
Other assets                                                                      32,937     25,768
                                                                                --------   --------
          Total assets                                                          $656,855   $654,104
                                                                                ========   ========

                    LIABILITIES AND STOCKHOLDER'S EQUITY

Current Liabilities:
     Revolving credit facility                                                  $    --    $  4,000
     Current portion of long-term debt                                             5,228      3,805
     Accounts payable                                                              4,916     11,319
     Accrued expenses                                                             33,668     41,352
     Accrued payroll and related expenses                                         31,605     29,097
                                                                                --------   --------
          Total current liabilities                                               75,417     89,573

Long-term debt, net                                                              556,334    559,942
Deferred income taxes                                                             19,743     17,439
Other liabilities                                                                 31,846     26,423
Fair value of hedging arrangements                                                 9,586        --
Commitments and contingencies (see Note 9)                                           --         --
                                                                                --------   --------
          Total liabilities                                                      692,926    693,377

Stockholder's Equity (Deficit):
   Common stock--$.01 par value; 10,000 authorized and 1,000 shares
     issued and outstanding                                                          --         --
   Paid-in capital                                                                13,476      4,525
   Retained deficit                                                              (49,547)   (43,798)
                                                                                --------   --------
          Total stockholder's equity (deficit)                                   (36,071)   (39,273)
                                                                                --------   --------
          Total liabilities and stockholder's equity (deficit)                  $656,855   $654,104
                                                                                ========   ========
</TABLE>

       The accompanying notes are an integral part of these consolidated
                             financial statements.

                                      F-2
<PAGE>

                        CONCENTRA OPERATING CORPORATION
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                (in thousands)

<TABLE>
<CAPTION>
                                                                                  Years Ended December 31,
                                                                              --------------------------------
                                                                                2000        1999        1998
                                                                              --------    --------    --------
<S>                                                                           <C>         <C>         <C>
Revenue:
   Health Services                                                            $399,660    $330,064    $259,481
   Specialized Cost Containment                                                210,746     204,084     183,734
   Field Case Management                                                       141,755     147,264     167,841
                                                                              --------    --------    --------
          Total revenue                                                        752,161     681,412     611,056

Cost of Services:
   Health Services                                                             321,784     265,083     201,181
   Specialized Cost Containment                                                143,031     137,293     123,294
   Field Case Management                                                       128,609     132,113     144,822
                                                                              --------    --------    --------
          Total cost of services                                               593,424     534,489     469,297
                                                                              --------    --------    --------

             Total gross profit                                                158,737     146,923     141,759

General and administrative expenses                                             66,491      65,291      45,326
Amortization of intangibles                                                     14,628      12,960       8,119
Non-recurring charges                                                               --      54,419      33,114
                                                                              --------    --------    --------
             Operating income                                                   77,618      14,253      55,200

Interest expense                                                                68,932      35,779      18,021
Interest income                                                                   (803)     (2,900)     (4,659)
Loss on change in fair value of hedging arrangements                             9,586          --          --
Other, net                                                                        (725)       (391)         44
                                                                              --------    --------    --------
             Income (loss) before income taxes and cumulative effect of
                accounting change                                                  628     (18,235)     41,794
Provision for income taxes                                                       4,362       8,269      19,308
                                                                              --------    --------    --------
             Income (loss) before cumulative effect of accounting change        (3,734)    (26,504)     22,486
Cumulative effect of accounting change, net of tax                               2,817          --          --
                                                                              --------    --------    --------

             Net income (loss)                                                $ (6,551)   $(26,504)   $ 22,486
                                                                              ========    ========    ========
</TABLE>

       The accompanying notes are an integral part of these consolidated
                             financial statements.

                                      F-3
<PAGE>

                        CONCENTRA OPERATING CORPORATION
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (in thousands)

<TABLE>
<CAPTION>
                                                                                     Years Ended December 31,
                                                                                ----------------------------------
                                                                                  2000        1999          1998
                                                                                --------    ---------    ---------
<S>                                                                             <C>
Operating Activities:
   Net income (loss)                                                            $ (6,551)   $ (26,504)   $  22,486
   Adjustments to reconcile net income (loss) to net cash provided by
      operating activities:
        Depreciation of property and equipment                                    25,889       22,282       14,805
        Amortization and write-off of intangibles                                 14,628       12,960        8,119
        Loss on change in fair value of hedging arrangements                       9,586           --           --
        Cumulative effect of accounting change                                     2,817           --           --
        Write-off of fixed assets                                                    238          402           --
        Gain on sale of assets                                                      (100)          --           --
        Merger related stock plan compensation expense                                --       14,555           --
        Write-off of contract intangibles                                             --           --        7,416
        Amortization of deferred compensation                                         --           --          805
   Changes in assets and liabilities:
        Accounts receivable, net                                                  (6,309)     (19,171)     (19,765)
        Prepaid expenses and other assets                                         (1,657)      10,760          219
        Accounts payable and accrued expenses                                        308       12,989          864
                                                                                --------    ---------    ---------
        Net cash provided by operating activities                                 38,849       28,273       34,949
                                                                                --------    ---------    ---------
Investing Activities:
   Purchase of property and equipment                                            (30,901)     (35,953)     (34,187)
   Acquisitions, net of cash acquired                                             (9,737)     (55,234)     (18,070)
   Proceeds from sale of property and equipment and other                            400           --          440
   Proceeds from the licensing of internally-developed software                    1,625           --           --
   Sale of investments                                                                --       15,523           --
   Purchase of investments                                                            --           --      (15,523)
                                                                                --------    ---------    ---------
        Net cash used in investing activities                                    (38,613)     (75,664)     (67,340)
                                                                                --------    ---------    ---------
Financing Activities:
   Borrowings (payments) under revolving credit facility, net                     (4,000)       4,000      (49,000)
   Repayments of long-term debt                                                   (3,141)      (2,142)     (49,581)
   Payment of deferred financing costs                                            (1,681)     (18,000)      (6,411)
   Proceeds from the issuance of long-term debt                                      764      565,701      230,000
   Repayment of long-term debt and other merger payments                              --     (577,077)          --
   Merger related stock option and warrant payments                                   --      (14,427)          --
   Net proceeds from the issuance of common stock under employee
      stock purchase and option plans                                                 --        2,579       14,403
   Payments to dissenting shareholders                                                --           --      (15,047)
   Dividends and distributions to shareholders                                        --           --       (2,809)
                                                                                --------    ---------    ---------
        Net cash provided by (used in) financing activities                       (8,058)     (39,366)     121,555
                                                                                --------    ---------    ---------

Net Increase (Decrease) in Cash and Cash Equivalents                              (7,822)     (86,757)      89,164
Cash and Cash Equivalents, beginning of year                                      14,371      101,128       11,964
                                                                                --------    ---------    ---------
Cash and Cash Equivalents, end of year                                          $  6,549    $  14,371      101,128
                                                                                ========    =========    =========

Supplemental Disclosure of Cash Flow Information:
   Interest paid                                                                $ 69,732    $  26,621    $  13,912
   Income taxes paid                                                            $    858    $   2,700    $  15,961
   Conversion of notes payable into common stock                                $     --    $      --    $  10,094
   Liabilities and debt assumed in acquisitions                                 $  7,191    $  19,039    $   8,386
   Net asset contribution from parent                                           $     --    $ 590,156    $      --
</TABLE>

       The accompanying notes are an integral part of these consolidated
                             financial statements.

                                      F-4
<PAGE>

                        CONCENTRA OPERATING CORPORATION
                CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
                     (in thousands, except share amounts)

<TABLE>
<CAPTION>
                                                     $0.01 Par Value
                                                       Common Stock
                                                  ---------------------
                                                                                         Other                 Stockholder's
                                                     Number                Paid-in   Comprehensive  Retained       Equity
                                                   of Shares     Value     Capital       Income      Deficit     (Deficit)
                                                  -----------   -------   ---------     ---------   ---------  -------------
<S>                                               <C>           <C>       <C>        <C>            <C>        <C>
Balance, December 31, 1997                         43,567,686   $   436   $ 257,022     $      --   $ (51,017)    $ 206,441

   Unrealized gain on marketable securities                --        --          --            60          --            60
   Common stock issued in connection with
     acquisitions                                     430,750         4       3,408            --          30         3,442
   Common stock issued under employee stock
     purchase and option plans and related tax
     benefit                                          841,260         9      14,394            --          --        14,403
   Amortization of deferred compensation                   --        --         805            --          --           805
   Conversion of notes payable into common
     stock                                          2,735,387        27      10,067            --          --        10,094
   Dividends and shareholder distributions by
     pooled companies                                      --        --          --            --      (2,809)       (2,809)
   Payments to dissenting shareholders               (470,671)       (5)    (15,042)           --          --       (15,047)
   Net income                                              --        --          --            --      22,486        22,486
                                                  -----------   -------   ---------     ---------   ---------  -------------
Balance, December 31, 1998                         47,104,412       471     270,654            60     (31,310)      239,875

   Common stock issued under employee stock
     purchase and option plans and related tax
     benefit                                          295,757         3       2,435            --          --         2,438
   Amortization of deferred compensation                   --        --         435            --          --           435
   Unrealized loss on marketable securities                --        --          --           (87)         --           (87)
   Elimination of predecessor balance             (47,400,169)     (474)   (273,524)           27      14,016      (259,955)
   Net equity contribution from parent company          1,000        --     590,156            --          --       590,156
   Distribution to parent company                          --        --    (585,631)           --          --      (585,631)
   Net loss                                                --        --          --            --     (26,504)      (26,504)
                                                  -----------   -------   ---------     ---------   ---------  -------------
Balance, December 31, 1999                              1,000        --       4,525            --     (43,798)      (39,273)

   Amortization of deferred compensation                   --        --          --            --         802           802
   Restricted stock retirement                             --        --        (508)           --          --          (508)
   Tax benefits contributed by parent company
     (see Note 7)                                          --        --       9,459            --          --         9,459
   Net loss                                                --        --          --            --      (6,551)       (6,551)
                                                  -----------   -------   ---------     ---------   ---------  ------------
Balance, December 31, 2000                              1,000   $    --   $  13,476     $      --   $ (49,547)    $ (36,071)
                                                  ===========   =======   =========     =========   =========  ============
</TABLE>

      The accompanying notes are an integral part of these consolidated
                             financial statements

                                      F-5
<PAGE>

                        CONCENTRA OPERATING CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(1)  Basis of Presentation

     On August 29, 1997, Concentra Inc. ("Concentra Holding") was formed by the
merger (the "1997 Merger ") of CRA Managed Care, Inc. ( "CRA ") and Occusystems,
Inc. ( "OccuSystems "). As a result of the 1997 Merger, CRA changed its name to
Concentra Managed Care Services, Inc. ( "Managed Care Services ") and
OccuCenters, Inc., the operating subsidiary of OccuSystems, changed its name to
Concentra Health Services, Inc. ( "Health Services ").

     On August 17, 1999, Concentra Holding merged (the "1999 Merger") with
Yankee Acquisition Corp. ("Yankee"), a corporation formed by Welsh, Carson,
Anderson & Stowe VIII, L.P. ("WCAS"), a 14.9% stockholder of Concentra Holding.
As a result of the 1999 Merger, 41.1 million outstanding shares of Concentra
Holding common stock were converted to cash. The remaining 6.3 million shares
held by Yankee were not converted. WCAS acquired approximately 86%, funds
managed by Ferrer Freeman Thompson & Co., LLC ("FFT") acquired approximately 7%,
and other investors acquired approximately 7% of the post-merger shares of
common stock of Concentra Holding, Concentra Operating Corporation's parent
company. Simultaneous with the right to receive cash for shares, Yankee merged
with and into Concentra Holding, the surviving entity, and Concentra Holding
contributed all of its operating assets, liabilities, and shares in its
subsidiaries, including Health Services, Managed Care Services and Concentra
Preferred Systems, Inc., with the exception of $110.0 million of 14% Senior
Discount Debentures and $327.7 million of 6.0% and 4.5% Convertible Subordinated
Notes to Concentra Operating Corporation (the "Company" or "Concentra
Operating"), a wholly-owned subsidiary of Concentra Holding in exchange for
1,000 shares of Concentra Operating common stock. To finance the acquisition of
Concentra Holding, WCAS, FFT and other investors invested approximately $423.7
in equity financing and $110.0 million of 14% Senior Discount Debentures. This
additional debt is not guaranteed by Concentra Operating. The 1999 Merger was
valued at approximately $1.1 billion, including refinancing Concentra Holding's
existing debt that was tendered in the third quarter of 1999, and was accounted
for as a recapitalization transaction, with no changes to the historical cost
basis of Concentra Holding's and Concentra Operating's assets or liabilities.

     The accompanying consolidated financial statements as of December 31, 2000,
and for each of the three years ended December 31, 2000, and related footnotes
reflect the operating results of Concentra Holding through August 17, 1999 and
of Concentra Operating thereafter. Concentra Holding and Concentra Operating are
presented together through August 17, 1999 since they represent the same
reporting entity for the periods presented. Earnings per share has not been
reported for all periods presented, as Concentra Operating is a wholly-owned
subsidiary of Concentra Holding and has no publicly held shares.

     Concentra Operating is a leading provider of healthcare management and cost
containment services to the workers' compensation, auto insurance and disability
insurance markets. Concentra Operating is also a leading provider of
out-of-network medical claims review to the group health marketplace and
performs non-injury healthcare services.

(2)  Summary of Significant Accounting Policies

  (a) Consolidation

     The consolidated financial statements include the accounts of all
subsidiaries and joint ventures in which a controlling interest is held,
including Health Services, Managed Care Services and Concentra Preferred
Systems, Inc. Investments in certain joint ventures where the Company owns less
than a 51% interest are accounted for on an equity basis and, accordingly,
consolidated income includes the Company's share of their income. For joint
ventures where the Company owns a 51% interest or more, minority interests of
$18.6 million and $15.2 million were included in other liabilities at December
31, 2000 and 1999, respectively. All significant intercompany accounts and
transactions are eliminated in consolidation.

       Physician and physical therapy services are provided at the Health
Services centers under management agreements with affiliated physician
associations (the "Physician Groups"), which are independently organized
professional corporations that hire licensed physicians and physical therapists
to provide medical services to the centers' patients. The management agreements
have 40-year terms and provide for the wide array of services that Health
Services offers to the physician groups, such as: providing nurses and other
medical support personnel, practice and facilities management, billing and
collection, accounting, tax and financial management, human resource management,
risk management, and marketing and information-based services. Health Services
has a

                                      F-6
<PAGE>

                        CONCENTRA OPERATING CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

nominee shareholder relationship with the Physician Groups as defined in EITF
97-2, Application of APB Opinion No. 16 and FASB Statement No. 94 to Physician
Practice Entities, and as a result, the financial statements of the Physician
Groups are consolidated. The Company's management fees from the Physician Groups
are calculated as collected revenue net of compensation, benefits and other
expenses incurred by the Physician Groups.

  (b) Cash and Cash Equivalents

     The Company considers all highly liquid debt instruments purchased with
original maturities of three months or less to be cash equivalents. The carrying
amount approximates fair value due to the short maturity of those instruments.

  (c) Revenue Recognition

     The Company recognizes revenue primarily as services have been rendered,
based on time and expenses incurred or as task-based projects are completed and
customers are obligated to pay. A certain portion of the Company's revenue is
derived from fee schedule auditing which is based on the number of charges
reviewed and a percentage of savings achieved for the Company's customers. In
these circumstances, the customer is obligated to pay the Company when the
services have been rendered and the savings identified. During the fee schedule
audit process (i.e., medical bill review), each bill reviewed and audited is
returned to the customer accompanied by an Explanation of Benefit ("EOB"). The
EOB details the total savings with respect to the bill being reviewed as well as
the amount owed to the Company as a percentage of savings identified and the
line charge associated with the bill being reviewed.

     Health Services consists of two primary components: (i) workers'
compensation injury care and related services; and (ii) non-injury healthcare
services related to employer needs or statutory requirements. The workers'
compensation injury care and related services' provider reimbursement methods
vary on a state-by-state basis. Of the 32 states in which the Company currently
operates occupational healthcare centers, 23 have fee schedules pursuant to
which all healthcare providers are uniformly reimbursed. The fee schedules are
set by each state and generally prescribe the maximum amounts that may be
reimbursed for a designated procedure. In the eight states without fee
schedules, healthcare providers are reimbursed based on usual, customary and
reasonable fees charged in the particular state in which the services are
provided. Billing for services in states with fee schedules are included in
revenue net of allowance for estimated differences between list prices and
allowable fee schedule rates. Adjustments to the allowance based on final
payment from the states are recorded upon settlement. The Company records the
net revenue amount as accounts receivable.

     Insurance claims are screened by the Company prior to the customer's
internal review procedures to determine if the claims should be further
negotiated or are payable by the customer. During the customer's review process,
some claims have pre-existing PPO or HMO arrangements, or other pre-existing
conditions and disqualifying situations. When these situations occur, a refund
(chargeback) is requested for the amounts paid (invoiced) on these claims. The
Company's policies are to record a sales allowance as an offset to revenue and
accounts receivable based upon the historical tracking of discounts and
chargebacks at the time the claims are modeled. A portion of the allowance for
doubtful accounts attributable to this revenue is based on historical experience
of ineligible claims that are either charged back or given a negotiated
discount. Concentra Operating utilizes several methods to project unpresented
discounts and chargebacks including a tracking of the actual experience of
contractual discounts. Other factors that affect collectibility and bad debts
for each service line are also evaluated and additional allowance amounts are
provided as necessary.

     The Company's total contractual provision offset against revenue during the
years ended December 31, 2000, 1999 and 1998, was $31.5 million, $27.8 million
and $16.1 million, respectively. Allowance for bad debts accounts on the
Company's accounts receivable at December 31, 2000 and 1999, were $17.7 million
and $19.4 million, respectively.

     Accounts receivable at December 31, 2000 and 1999, include $6.5 million and
$9.4 million, respectively, of unbilled accounts receivable relating to services
rendered during the period but not invoiced until after the period-end. These
unbilled accounts receivable relate primarily to Field Case Management services,
which are billed on an

                                      F-7
<PAGE>

                        CONCENTRA OPERATING CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

hourly basis, whereby the Company has not yet provided a sufficient amount of
services to warrant the generation of an invoice. The customers are obligated to
pay for the services once performed, except in the case of task-based projects,
as discussed above. The Company estimates unbilled accounts receivable by
tracking and monitoring its historical experience.

  (d) Property and Equipment

     Property and equipment are recorded at cost or fair market value at the
date of acquisition and were comprised of the following, as of December 31 (in
thousands):

<TABLE>
<CAPTION>
                                                              2000       1999
                                                            --------   --------
     <S>                                                    <C>        <C>
     Land                                                   $  2,775   $  2,775
     Buildings and improvements                                6,746      6,749
     Leasehold improvements                                   45,929     39,092
     Furniture and equipment                                  51,702     45,975
     Computer hardware and software                           93,975     78,321
                                                            --------   --------
                                                             201,127    172,912
     Accumulated depreciation and amortization               (92,017)   (68,844)
                                                            --------   --------
                                                            $109,110   $104,068
                                                            ========   ========
</TABLE>

     The Company provides for depreciation on property and equipment using
straight-line and accelerated methods by charges to operations in amounts that
allocate the cost of depreciable assets over their estimated lives as follows:

          Asset Classification                   Estimated Useful Life
          --------------------                   ---------------------
          Buildings and improvements             30-40 Years
          Leasehold improvements                 The shorter of the life of
                                                     lease or asset life
          Furniture and fixtures                 7 Years
          Office and computer equipment          3-7 Years

  (e) Intangible Assets

     The value of goodwill, assembled workforces and customer lists are recorded
at cost at the date of acquisition. Through December 31, 1998, goodwill,
including any excess arising from earn-out payments, was being amortized on a
straight-line basis over 30 to 40-year periods in accordance with Accounting
Principles Board Opinion No. 17 ("APB No. 17"), "Intangible Assets." Effective
January 1, 1999, the Company changed its policy, on a prospective basis, with
respect to the amortization of goodwill. All existing and future goodwill will
be amortized on a straight-line basis over a period not to exceed 25 years. Had
the Company adopted this policy at the beginning of 1998, pre-tax amortization
expense for 1998 would have increased by approximately $3.3 million. As of
December 31, 2000, net intangible assets consisted of goodwill, customer lists
and assembled workforce. The Company believes that the life of the core
businesses acquired and the delivery of occupational healthcare services is
indeterminate and likely to exceed 25 years. The assembled workforces and
customer lists are being amortized on a straight-line basis over five and
seven-year periods, respectively. As of December 31, 2000 and 1999, the Company
has recorded accumulated amortization on intangible assets of $65.1 million and
$50.4 million, respectively.

     Subsequent to an acquisition, the Company continually evaluates whether
later events and circumstances have occurred that indicate that the remaining
balance of goodwill may not be recoverable or that the remaining useful life may
warrant revision. When factors indicate that goodwill should be evaluated for
possible impairment, the Company uses an estimate of each related operating
unit's undiscounted cash flows over the remaining life of the goodwill and
compares it to each operating unit's goodwill balance to determine whether the
goodwill is recoverable or if impairment exists, in which case an adjustment is
made to the carrying value of the asset to reduce it to its fair value based
upon the present value of the future cash flows. When an adjustment is required
the Company evaluates the remaining goodwill amortization using the factors
outlined in APB No. 17. The Company recorded no goodwill impairment charges
during 2000, 1999 or 1998.

                                      F-8
<PAGE>

                        CONCENTRA OPERATING CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

     Net intangible assets consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                                      December 31,
                                                                 ----------------------
                                                                    2000         1999
                                                                 ---------    ---------
     <S>                                                         <C>          <C>
     Goodwill, amortization period of 25 years                   $ 321,649    $ 322,699
     Customer lists, amortization period of 7 years                    797        1,087
     Assembled workforce, amortization period of 5 years               716        1,198
                                                                 ---------    ---------
     Total intangible assets                                     $ 323,162    $ 324,984
                                                                 =========    =========
</TABLE>

  (f) Deferred Finance Costs

     The Company had capitalized costs associated primarily with the 6% and 4.5%
convertible subordinated notes (see Note 5) and indebtedness related to the
Preferred Payment Systems, Inc. acquisition (see Note 4) and was amortizing
these as interest expense over the life of the notes. Included in other assets
at December 31, 1998 were deferred finance costs, net of accumulated
amortization, of $7.6 million. The remaining deferred finance costs, net of
accumulated amortization, of $7.2 million were written off by Concentra Holding
subsequent to the 1999 Merger as an extraordinary loss upon the retirement of
this debt (see Note 5).

     In conjunction with the issuance of certain 1999 Merger indebtedness, the
Company incurred $18.0 million in deferred finance costs, consisting primarily
of underwriting fees. Additionally, as part of the amendment of our credit
facility in March 2000, the Company was required to pay a fee of $1.7 million to
its lenders. The Company has capitalized these costs and is amortizing them on a
straight-line basis over the life of the indebtedness. Deferred finance costs,
net of accumulated amortization, of $16.0 million and $17.3 million were
included in other assets at December 31, 2000 and 1999, respectively.

  (g) Investments in Joint Ventures

     Investments in the net assets of joint ventures accounted for under the
equity method amounted to $4.1 million and $4.0 million at December 31, 2000 and
1999, respectively. For the years ended December 31, 2000 and 1999, revenue for
these entities was $7.2 million and $6.5 million, gross profit was $1.5 million
and $1.2 million, and net income was $0.4 million and $0.2 million,
respectively. Total assets for the joint ventures were $4.5 million as of
December 31, 2000 and 1999.

  (h) Self-Insurance

     The Company is partially insured for workers' compensation, physician
medical malpractice, liability, automobile and certain employee health benefits.
The Company's self-insurance retention liability on a per claim basis ranges
from $50,000 to $500,000. Liabilities in excess of these amounts are the
responsibility of the insurer. The Company's policy is to accrue amounts up to
the insurance carriers' reserve requirements on a claim-by-claim basis and an
estimate for claims incurred but not yet reported.

  (i) Foreign Currency Translation

     All assets and liabilities of the Company's Canadian offices are translated
at the year-end exchange rate, while revenue and expenses are translated at the
average exchange rate for the year. Cumulative translation adjustments were
immaterial for the years ended December 31, 2000, 1999 and 1998.

  (j) Use of Estimates

     The preparation of financial statements in accordance with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.

                                      F-9
<PAGE>

                        CONCENTRA OPERATING CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

  (k) Income Taxes

     The Company provides for income taxes under the liability method in
accordance with Statement of Financial Accounting Standards No. 109 ("SFAS
109"), "Accounting for Income Taxes." SFAS 109 requires the recognition of
deferred tax liabilities and assets for the expected future tax consequences of
temporary differences between the financial statement carrying amounts and the
tax basis of assets and liabilities.

  (l) Reclassifications

     Certain reclassifications have been made in the 1999 and 1998 financial
statements to conform to classifications used in 2000.

(3)  Recent Accounting Pronouncements

     In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101 provides additional guidance in applying generally accepted
accounting principles for revenue recognition in financial statements. New
implementation guidance issued by the SEC in the fourth quarter of 2000 requires
the Company to recognize revenue from its post payment bill review services
effectively on a cash basis. Prior to adoption of this standard, the Company
recognized this revenue as savings were identified for our clients. The
cumulative charge recognized in 2000 from this change in accounting principle
was $2.8 million, net of tax effect. Pro forma net income (loss), assuming the
new revenue recognition standard was applied retroactively, are as follows:

<TABLE>
<CAPTION>
                                              2000      1999       1998
                                            --------  --------   -------
          <S>                               <C>       <C>        <C>
          Net income (loss):
                    As reported             $(6,551)  $(26,504)  $22,486
                    Pro forma               $(3,734)  $(29,321)  $22,486
</TABLE>

<TABLE>
<CAPTION>
                                                  Quarters Ended
                                     ----------------------------------------
                                                    (unaudited)
                                     March 31,  June 30,  Sept. 30,  Dec. 31,
                                       2000       2000       2000      2000
                                     ---------  --------  ---------  --------
          <S>                        <C>        <C>       <C>        <C>
          Net income (loss):
                    As reported         $1,068    $1,144     $  805  $ (9,568)
                    Pro forma           $1,860    $1,223     $3,323  $(10,140)
</TABLE>

(4)  Recent Acquisitions and Non-recurring Charges

     Health Services acquired eight centers in five transactions in 2000 and 53
centers in 20 transactions in 1999. The Company paid approximately $9.7 million
and $52.5 million, net of cash acquired, and recorded approximately $13.4
million and $59.2 million for goodwill in 2000 and 1999, respectively. No
contingent consideration exists related to these transactions. Effective March
1, 2001, Health Services acquired the assets of Industrial Health Care Company
("IHC") for approximately $15.0 million in cash and 75,750 shares of Concentra
Holding's common stock. IHC was a privately held operator of seven occupational
health centers and several on-site offices for large employers located
throughout Connecticut. All of the acquisitions have been accounted for using
the purchase method of accounting and, accordingly, the purchase price has been
allocated to the tangible and intangible assets acquired and liabilities assumed
based on the estimated fair values at the dates of acquisition. Some of those
estimates are preliminary and subject to further adjustment.

                                      F-10
<PAGE>

                        CONCENTRA OPERATING CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

     As discussed in Note 1, Concentra Holding was formed on August 29, 1997 by
the merger of CRA and OccuSystems. The Company recorded a non-recurring charge
of $38.6 million in the third quarter of 1997 associated with this 1997 Merger.
The charge was completely utilized as of December 31, 1998 as follows:
approximately $11.6 million for professional fees and services, $16.2 million in
costs associated with personnel reductions and the consolidation of CRA's and
OccuSystems' employee benefits, $5.9 million in facility consolidations and
closings, $2.5 million for the write-off of start-up costs and $2.3 million of
other charges.

     On February 24, 1998, the Company acquired all of the outstanding common
stock of Preferred Payment Systems, Inc. ("PPS") of Naperville, Illinois, in
exchange for approximately 7,100,000 shares of Concentra Holding's common stock,
the assumption of PPS options totaling approximately 580,000 shares of Concentra
Holding's common stock, the payment of approximately $15.0 million in cash to
dissenting PPS shareholders and the assumption of approximately $49.0 million of
debt, which was repaid at the time of this merger transaction. This merger was
accounted for as a pooling of interests. PPS, founded in 1990, is a provider of
retrospective bill review services for the group healthcare market. In the first
quarter of 1998, the Company recorded a non-recurring charge of $12.6 million
primarily associated with the merger of PPS. Through December 31, 2000, the
Company paid approximately $5.6 million for professional fees and services, $2.7
million in costs associated with personnel reductions, $1.0 million in facility
consolidations and closings, $1.5 million associated with the write-off of
deferred financing fees on PPS indebtedness retired, and $1.5 million of other
non-recurring costs. At December 31, 2000 and 1999, approximately $0.3 million
and $0.5 million, respectively, of the non-recurring charge remains primarily
related to remaining facility lease obligations.

     In the fourth quarter of 1998, the Company recorded a non-recurring charge
of $20.5 million primarily associated with the reorganization of our Field Case
Management division to improve efficiency through facility consolidations and
related headcount reductions, an impairment loss on the intangible asset related
to an acquired contract, and costs associated with settling claims on other
expired contracts. Through December 31, 2000, the Company incurred approximately
$7.4 million in charges for the write-off of assets related to the acquired
contract, and paid $3.8 million in costs associated with personnel reductions,
$1.2 million in costs associated with settling claims on other expired
contracts, $4.9 million in facility consolidations and $0.4 million of other
non-recurring costs. At December 31, 2000, approximately $2.8 million of the
non-recurring charge remains primarily related to remaining facility lease
obligations and costs associated with settling claims on certain other expired
contracts.

     In the third quarter of 1999, the Company recorded a non-recurring charge
of $54.4 million primarily for fees, expenses and other non-recurring charges
associated with the 1999 Merger. Through December 31, 2000, the Company paid
approximately $29.4 million for professional fees and services, including legal,
accounting and regulatory fees, $21.7 million in costs related to personnel
reductions, $0.7 million in facility consolidations and closings and $1.8
million of other non-recurring charges. At December 31, 2000, approximately $0.8
million of the non-recurring charge remains for professional fees and services
and other non-recurring items incurred in connection with the merger.

                                      F-11
<PAGE>

                        CONCENTRA OPERATING CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

     The following are rollforwards of the non-recurring charges recorded by the
Company in 1998, 1999 and 2000 (in thousands):

<TABLE>
<CAPTION>
                                                  Beginning    Charged To                 End
                                                   Of Year       Income       Usage     Of Year
                                                  ---------    ----------    -------    -------
        <S>                                       <C>          <C>          <C>         <C>
        Third Quarter 1997 Charge
             1998                                   $ 7,527     $     --    $ (7,527)   $    --

        First Quarter 1998 Charge
             1998                                   $    --     $ 12,600    $(11,128)   $ 1,472
             1999                                     1,472           --      (1,025)       447
             2000                                       447           --        (179)       268

        Fourth Quarter 1998 Charge
             1998                                   $    --     $ 20,514    $(11,046)   $ 9,468
             1999                                     9,468           --      (5,956)     3,512
             2000                                     3,512           --        (727)     2,785

        Third Quarter 1999 Charge
             1999                                   $    --     $ 54,419    $(51,687)   $ 2,732
             2000                                     2,732           --      (1,960)       772

        Total
             1998                                   $ 7,527     $ 33,114    $(29,701)   $10,940
             1999                                    10,940       54,419     (58,668)     6,691
             2000                                     6,691           --      (2,866)     3,825
</TABLE>

(5) Revolving Credit Facility and Long-Term Debt

     The Company's long-term debt as of December 31, 2000 and 1999 consists of
the following:

<TABLE>
<CAPTION>
                                                          December 31,
                                                      --------------------
                                                        2000        1999
                                                      --------    --------
                                                         (in thousands)
     <S>                                              <C>         <C>
     Term Facilities:
          Tranche B due 2006                          $246,875    $248,750
          Tranche C due 2007                           123,438     124,375
     13.0% Senior Subordinated Notes due 2009          190,000     190,000
     Other                                               1,249         622
                                                      --------    --------
                                                       561,562     563,747
        Less: Current maturities                        (5,228)     (3,805)
                                                      --------    --------
     Long-term debt, net                              $556,334    $559,942
                                                      ========    ========
</TABLE>

     The Company had no revolving credit borrowings at December 31, 2000 and
$4.0 million at December 31, 1999. As of December 31, 2000 and 1999, accrued
interest was $11.6 million and $12.4 million, respectively.

     On August 17, 1999, the Company entered into a $475 million credit
agreement (the "Credit Facility") with a consortium of banks, providing for $375
million in term loans and a $100 million revolving credit facility (the
"Revolving Credit Facility"). The $375 million in term loans were issued as a
$250 million term loan (the "Tranche B Term Loan") and a $125 million term loan
(the "Tranche C Term Loan") bearing interest, at the Company's option, at the
Applicable Base Rate ("ABR"), as defined, plus 2.25% and 2.50%, respectively, or
the one, two, three, or six month Eurodollar Rate, as defined, plus 3.25% and
3.50%, respectively. The Tranche B Term Loan matures on June 30, 2006, and
requires quarterly principal payments of $0.6 million through June 30, 2005, and
$58.8 million for each of the remaining four quarters. The Tranche C Term Loan
matures on June 30, 2007, and requires quarterly principal payments of $0.3
million through June 30, 2006, and $29.1 million for each of the remaining four
quarters. The Revolving Credit Facility provides for borrowing up to $100
million and matures on August 17, 2005.

                                      F-12
<PAGE>

                        CONCENTRA OPERATING CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Under the terms of this agreement, the Revolving Credit Facility bears interest,
at the Company's option, at ABR plus 1.75% or the Eurodollar Rate plus 2.75%.

     On March 21, 2000, the Company and its lenders amended the Credit Facility.
Under the terms of the amended agreement, the financial compliance ratios were
modified to allow for increased leverage through September 2003 and decreased
interest coverage through September 2004, as compared to the original agreement.
In order to receive these amended ratios, the amended agreement provides for an
interest rate increase of 0.75% on outstanding borrowings under the Credit
Facility. Under the terms of the amended Credit Facility, the Tranche B Term
Loan and Tranche C Term Loan bear interest, at the Company's option, at the ABR,
as defined, plus 3.00% and 3.25%, respectively, or the Eurodollar Rate, as
defined, plus 4.00% and 4.25%, respectively. Interest on borrowings under the
amended Revolving Credit Facility is payable, at the Company's option, at ABR
plus 2.50% or the Eurodollar Rate plus 3.50%. As a part of the amendment, the
Company was also required to pay a fee of $1.7 million to lenders approving the
amendment. The amendment fee was capitalized as deferred financing costs and
will be amortized over the remaining life of the Credit Facility. A failure to
comply with these and other financial compliance ratios could cause an event of
default under the Credit Facility which could result in an acceleration of the
related indebtedness before the terms of that indebtedness otherwise require the
Company to pay that indebtedness. Such an acceleration would also constitute an
event of default under the indentures relating to the $190 million 13% Senior
Subordinated Notes (the "13% Subordinated Notes") and could also result in an
acceleration of the 13% Subordinated Notes before the indentures otherwise
require the Company to pay the notes.

     The ABR, as defined, and the Eurodollar Rate, as defined, were 9.5% and
6.4%, respectively, at December 31, 2000 and 8.5% and 6.0%, respectively, at
December 31, 1999. Commitment fees on the unused revolver borrowings are at 0.5%
per annum. The weighted-average interest rates for the borrowings under the
Tranche B Term Loan were 10.6% and 9.3% and under the Tranche C Term Loan were
10.8% and 9.7% at December 31, 2000 and 1999, respectively. The weighted-average
interest rate for the borrowings under the Revolving Credit Facility was 8.9% at
December 31, 1999.

     The Credit Facility requires the Company to enter into interest rate hedge
agreements for the purpose of reducing the effect of interest rate fluctuations
on a certain portion of the Credit Facility. On May 17, 2000, the Company
amended its interest rate collar agreement that converts $200 million of certain
variable rate debt to fixed rates. This agreement expires November 17, 2004.
Under the new agreement, the Company generally pays and receives the three month
LIBOR rate (the "Swap Rate") to and from the counterparty on the notional amount
subject to the following limitations: the minimum rate the Company pays is 6.3%
when the Swap Rate is less than 5.9%; the maximum rate the Company pays is 6.3%,
unless the Swap Rate is greater than 7.5% and less than 8.5%; and, if the Swap
Rate is greater than 8.5%, the Company pays 8.5% until November 17, 2002. After
November 17, 2002 through the maturity of the agreement, there is no maximum
rate the Company pays if the Swap Rate exceeds 7.5%.

     The Company entered into an additional interest rate collar agreement on
May 17, 2000. This agreement converts $100 million of certain variable rate debt
to fixed rates and expires on May 17, 2005. Under the terms of this agreement,
the Company generally pays and receives the Swap Rate to and from the
counterparty on the notional amount subject to the following restrictions: the
minimum rate the Company pays is 7.05% when the Swap Rate is less than 6.0%; the
maximum rate the Company pays is 7.05%, unless the Swap Rate is greater than
8.25%. Through the maturity of the agreement, there is no maximum rate the
Company pays if the Swap Rate exceeds 8.25%.

     In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"), as amended, which is effective for fiscal
years beginning after June 15, 2000, unless adopted earlier. SFAS 133
establishes additional accounting and reporting standards for derivative
instruments and hedging activities and requires that an entity recognize the
fair value of all hedging arrangements as assets or liabilities in the financial
statements. It also requires the recognition of changes in the fair value of
these derivatives. These market value adjustments are to be included either in
the income statement or other comprehensive income (equity), depending on the
nature of the hedged transaction.

     The Company has adopted SFAS 133, and, as a result, subsequent changes in
the fair value of its interest rate hedging arrangements, including the
Company's interest rate collar agreements, will be recognized each period in
earnings. All earnings adjustments resulting from changes in the fair values of
the interest rate collars are non-cash

                                      F-13
<PAGE>

                        CONCENTRA OPERATING CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

charges or credits and do not impact cash flows from operations or operating
income. There have been, and may continue to be, periods with significant non-
cash increases or decreases to the Company's earnings relating to the change in
the fair value of the interest rate collars. Further, if the Company holds each
of these collars to maturity (2004 and 2005), the earnings adjustments will
offset each other on a cumulative basis and will ultimately equal zero. Through
December 31, 2000, the Company has reduced its interest expense by $0.6 million
through net cash received from the counterparty payments under these collars.

     The $190 million 13% Series A Senior Subordinated Notes due August 15, 2009
are general unsecured indebtedness with semi-annual interest payments due on
February 15 and August 15 commencing on February 15, 2000. The Company can
redeem the 13% Subordinated Notes on or after August 15, 2004 at 106.5% of the
principal amount with the redemption premium decreasing annually to 100.0% of
the principal amount on August 15, 2008. The 13% Subordinated Notes are
guaranteed on a joint and several basis by each and every wholly-owned
subsidiary, the results of which are consolidated in the results of the Company.
These wholly-owned subsidiaries comprise the only direct and indirect
subsidiaries of the Company. The guarantees are full and unconditional, and the
Company is a holding company with no assets or operations separate from the
investments in these subsidiaries. As a result, separate financial statements of
the Company's subsidiaries are not provided.

     The Credit Facility and the 13% Subordinated Notes contain certain
customary covenants, including, without limitation, restrictions on the
incurrence of indebtedness, the sale of assets, certain mergers and
acquisitions, the payment of dividends on the Company's capital stock, the
repurchase or redemption of capital stock, transactions with affiliates,
investments, capital expenditures and changes in control of the Company. Under
the Credit Facility, the Company is also required to satisfy certain financial
covenant ratio tests including leverage ratios, interest coverage ratios and
fixed charge coverage ratios. The Company was in compliance with its covenants,
including its financial covenant ratio tests, in 2000. These ratio tests become
more restrictive for future periods. The Company's ability to be in compliance
with these more restrictive ratios will be dependent on its ability to increase
its cash flows over current levels. The Company's obligations under the Credit
Facility are secured by a pledge of stock in the Company's subsidiaries and a
pledge of the Company's and its subsidiaries' assets.

     In December 1996, the Company issued $97.8 million of 6.0% convertible
subordinated notes due 2001. On September 17, 1997, the Company entered into a
$100 million senior credit facility with a syndicate of 5 banks. On February 23,
1998, the Company signed an amendment to expand the Company's borrowing capacity
under the senior credit facility to $200 million under similar terms and
conditions in order to finance the repayment of debt associated with its
acquisition of PPS. On February 24, 1998, the Company acquired PPS and retired
$49 million of PPS' outstanding indebtedness. PPS' 5.0% convertible subordinated
notes due August 2006 converted into 2,721,904 shares of Concentra Holding
common stock. In March and April 1998, the Company issued $230 million 4.5%
convertible subordinated notes due 2003 and the senior credit facility borrowing
capacity was reduced to the original $100 million amount. On August 17, 1999,
the senior credit facility was replaced with the Revolving Credit Facility and
substantially all of the 6.0% and 4.5% convertible subordinated notes were
retired through debt tender offers during the year in connection with the 1999
Merger.

(6)  Financial Instruments

     The carrying amounts of cash and cash equivalents, accounts receivable,
other current assets, and accounts payable, approximate fair value because of
the short maturity of those instruments. The fair value of the Company's
borrowings under the Credit Facility was $333.2 million and $343.2 million, as
of December 31, 2000 and 1999, respectively. The fair value of the Company's 13%
Subordinated Notes was $168.2 million and $172.9 million at December 31, 2000
and 1999, respectively. As determined by estimating the amount the Company would
pay or receive to terminate the interest swap agreement, the carrying amount of
the interest rate collar agreements at December 31, 2000 was a $9.6 million
liability. The carrying amount at December 31, 1999 was not material. The fair
values of the financial instruments were determined utilizing available market
information. The use of different market assumptions or estimation methodologies
could have a material effect on the estimated fair value amounts.

     The financial instrument that potentially subjects the Company to
concentrations of credit risk is accounts receivable. Mitigating factors related
to the Company's accounts receivable are that they are spread over a large
customer base and various product lines the Company offers. Further, the Company
does monitor the financial

                                      F-14
<PAGE>

                        CONCENTRA OPERATING CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

performance and credit worthiness of its large customers, and regularly reviews
outstanding accounts receivable balances.

(7)  Income Taxes

     The provision (benefit) for income taxes consists of the following for the
years ended December 31 (in thousands):

<TABLE>
<CAPTION>
                                               2000       1999      1998
                                             -------    -------   -------
          <S>                                <C>        <C>       <C>
          Current:
               Federal                       $(1,050)   $ 9,050   $11,252
               State                           2,858      1,811     1,369
                                             -------    -------   -------
                                               1,808     10,861    12,621

          Deferred:
               Federal                         2,279     (2,139)    5,961
               State                             275       (453)      726
                                             -------    -------   -------
                                               2,554     (2,592)    6,687
                                             -------    -------   -------
          Total                              $ 4,362    $ 8,269   $19,308
                                             =======    =======   =======
</TABLE>

     Significant items included in deferred tax liabilities and deferred tax
assets were as follows at December 31 (in thousands):

<TABLE>
<CAPTION>
                                                               2000      1999
       <S>                                                   -------   -------
       Deferred tax assets:                                  <C>       <C>
       Allowance for doubtful accounts                       $ 6,066   $ 7,523
       Tax benefit from parent company                         4,504       --
       Fair value of hedging arrangements                      3,761       --
       Accrued self insurance                                  1,617     1,666
       Non-recurring accruals and reserves                     1,535     2,427
       Acquired goodwill                                       1,310     1,310
       Other                                                   1,733     2,749
                                                             -------   -------
            Deferred tax assets                              $20,526   $15,675
                                                             =======   =======

       Deferred tax liabilities:
       Goodwill                                              $10,713   $ 8,130
       Software development costs                              7,955     7,256
       Accounts receivable mark-to-market                        532     1,064
       Other                                                   1,895     1,855
                                                             -------   -------
            Deferred tax liabilities                         $21,095   $18,305
                                                             =======   =======
</TABLE>

     A reconciliation of the federal statutory rate to the Company's effective
tax rate was as follows for the years ended December 31 (in thousands):

<TABLE>
<CAPTION>
                                                               2000       %        1999       %       1998       %
                                                             --------   -----    --------   -----   --------   -----
<S>                                                          <C>        <C>      <C>        <C>     <C>        <C>
Tax provision (benefit) at federal statutory rate            $    220    35.0    $ (6,382)  (35.0)  $ 14,628    35.0
Non-deductible goodwill                                         2,429   386.8       2,121    11.6      1,149     2.8
State taxes (net of federal effect)                             1,950   310.5        (770)   (4.2)     1,766     4.2
Non-deductible non-recurring charges and acquisition
   costs                                                          --      --       12,893    70.7      1,815     4.3
Other items, net                                                 (237)  (37.7)        407     2.2        (50)   (0.1)
                                                             --------   -----    --------   -----   --------   -----
                                                             $  4,362   694.6    $  8,269    45.3   $ 19,308    46.2
                                                             ========   =====    ========   =====   ========   =====
</TABLE>

                                      F-15
<PAGE>

                        CONCENTRA OPERATING CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

     These financial statements reflect a tax provision for the Company as if it
filed its own tax return. The Company, however, is included in the consolidated
tax return of Concentra Holding. The Company's deferred tax asset reflects the
tax benefit of losses generated by Concentra Holding, as this deferred tax asset
was contributed to the Company in 2000 by Concentra Holding.

(8)  Stockholder Rights Plan

     Shortly after the 1997 Merger, on September 17, 1997, Concentra Holding's
Board of Directors declared, pursuant to a rights agreement (the "Rights
Agreement"), a dividend distribution of one common share purchase right
("Right") for each outstanding share of Concentra Holding's common stock. Each
Right entitled the registered holder to purchase from Concentra Holding one
thousandth of a share of Series A Junior Participating Preferred Stock, par
value $.01 per share (the "Junior Preferred Shares"), of Concentra Holding at a
price per share to be determined by the Board of Directors with the advice of
its financial advisor about the long-term prospects for the Company's value (the
"Purchase Price"), subject to adjustment. Each thousandth of a Junior Preferred
Share would be economically equivalent to one share of Concentra Holding's
common stock. The Purchase Price was expected to be significantly higher than
the trading price of the common stock. Therefore, the dividend would have no
initial value and no impact on the consolidated financial statements of the
Company. Simultaneous with the 1999 Merger, all rights under the Rights
Agreement were terminated at no cost to the Company.

(9)  Commitments and Contingencies

     The Company leases certain corporate office space, operating and medical
facilities, and office and medical equipment under various non-cancelable
operating and capital lease agreements. Certain facility leases require the
Company to pay increases in operating costs and real estate taxes. The Company
made rental payments of $0.4 million, $0.7 million and $0.7 million to Colonial
Realty Trust, a real estate company owned by a shareholder and board member of
the Company until the 1999 Merger, for each of the years ended December 31,
2000, 1999 and 1998, respectively.

     The following is a schedule of rent expense by major category for the years
ended December 31 (in thousands):

<TABLE>
<CAPTION>
                                                 2000      1999      1998
                                               -------   -------   -------
          <S>                                  <C>       <C>       <C>
          Facilities                           $29,801   $26,952   $22,307
          Office equipment                       3,793     3,680     3,091
          Automobiles                            2,297     2,754     3,647
                                               -------   -------   -------
          Total rent expense                   $35,891   $33,386   $29,045
                                               =======   =======   =======
</TABLE>

     The following is a schedule of future minimum lease payments under
noncancelable operating leases for the years ending December 31 (in thousands):

<TABLE>
                <S>                                         <C>
                2001                                        $ 33,210
                2002                                          28,066
                2003                                          23,417
                2004                                          15,017
                2005                                           8,079
                Thereafter                                    11,233
                                                            --------
                                                            $119,022
                                                            ========
</TABLE>

     The Company is party to certain claims and litigation initiated in the
ordinary course of business. The Company is not involved in any legal proceeding
that it believes will result, individually or in the aggregate, in a material
adverse effect upon its financial condition or results of operations.

                                      F-16
<PAGE>

                        CONCENTRA OPERATING CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(10) Employee Benefit Plans

   (a) Concentra 401(k) Plan

     The Company has a defined contribution plan (the "Concentra 401(k) Plan")
pursuant to which employees who are at least 21 years of age and who have
completed at least six months of service are eligible to participate. Effective
January 1, 2001, employees who are 21 years of age and who have completed 1,000
hours of service within a 12 month period are immediately eligible to
participate in the Concentra 401(k) Plan. Participants in the Concentra 401(k)
Plan may not contribute more than the lesser of a specified statutory amount or
15% of his or her pretax total compensation. The Concentra 401(k) Plan permits,
but does not require, additional matching contributions of up to 50% of
participants' pretax contributions up to a maximum of 6% of compensation by the
Company. Employees are 100% vested in their own contributions while Company
contributions vest 20% per year with employees being fully vested after 5 years.
The Company made matching contributions of 50% of each participant's pretax
contributions up to 4% of compensation in 2000, 1999 and 1998.

   (b) Health Services 401(k) Plan

     Health Services' defined contribution plan (the "HS 401(k) Plan") merged
into the Concentra 401(k) Plan as of July 1, 1998. The HS 401(k) Plan had
similar terms to those of the Concentra 401(k) Plan. There were no matching
contributions under the plan in 1998.

   (c) PPS 401(k) Plan

     PPS' defined contribution plan (the "PPS 401(k) Plan") merged into the
Concentra 401(k) Plan as of August 1, 1998. The PPS 401(k) Plan had similar
terms to those of the Concentra 401(k) Plan. For the seven-month period in 1998,
PPS elected to match 25% of employee contributions up to 7% of gross earnings.

     The Company has expensed $3.5 million, $2.7 million and $1.5 million for
the years ended December 31, 2000, 1999 and 1998, respectively, for matching
contributions to the Concentra 401(k) and PPS 401(k) Plans.

(11) Stock Purchase Plan and Stock Option Plans

     All information presented below relates to Concentra Holding stock and
stock option activity.

   (a) Employee Stock Purchase Plan

     Until March 2, 1999, Concentra Holding maintained an Employee Stock
Purchase Plan that permitted substantially all employees to acquire up to
500,000 shares of Concentra Holding common stock at the end of each specified
period at a purchase price of 85% of the lower of the fair market value of the
stock on the first or last business day of the purchase period. Purchase periods
were semi-annual and began on January 1 and July 1 of each year. Employees were
allowed to designate up to 15% of their base compensation for the purchase of
common stock. The Option and Compensation Committee of the board of directors
administered the Employee Stock Purchase Plan. On March 2, 1999, Concentra
Holding terminated the Employee Stock Purchase Plan. The final period for which
participating employees acquired shares of Concentra Holding's common stock
began on January 1, 1999 and ended March 2, 1999.

     Concentra Holding issued the following shares of common stock under the
employee stock purchase plans during 1998 and 1999:

<TABLE>
<CAPTION>
                                                                  Weighted
                                                    Number     Average Price
         Purchase Periods Ended                    of Shares     Per Share
         ----------------------                    ---------   -------------
         <S>                                       <C>         <C>
         June 30, 1998                                64,587      $ 22.10
         December 31, 1998                           160,512      $  9.08
         March 2, 1999                                63,358      $  8.55
</TABLE>

                                      F-17
<PAGE>

                        CONCENTRA OPERATING CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

   (b) Concentra 1997 Long-Term Incentive Plan

     Concentra Holding historically has granted awards with respect to shares
under Concentra Holding's 1997 Long-Term Incentive Plan (the "1997 Incentive
Plan"). The awards under the 1997 Incentive Plan include: (i) incentive stock
options qualified as such under U.S. federal income tax laws, (ii) stock options
that do not qualify as incentive stock options, (iii) stock appreciation rights
("SARs"), (iv) restricted stock awards and (v) performance units.

     During 1998, the Company granted restricted stock for 48,000 shares of
common stock under the 1997 Incentive Plan which were valued at $1.4 million
based upon the market value of the shares at the time of issuance. The
restricted stock grants vest 25% per year beginning January 1, 2002. If the
Company's financial performance exceeds certain established performance goals,
however, the vesting of these shares could accelerate whereby 33 1/3% the shares
could become vested on January 1, 2000, and each year thereafter. For the years
ended December 31, 2000, 1999 and 1998, the Company recorded amortization of
$0.8 million, $0.4 million and $0.8 million, respectively, in connection with
the deferred compensation associated with the restricted stock grants. During
1998, the Company also granted 3,570 shares of restricted stock to outside
directors that vest over one year.

     After the 1997 Merger, no additional awards were made under the former CRA
and OccuSystems stock option plans and only that number of shares of common
stock issuable upon exercise of awards granted under the former CRA and
OccuSystems stock option plans as of the 1997 Merger were reserved for issuance
by Concentra Holding.

     During 1999, the Company granted 10,000 options under the 1997 Incentive
Plan. There were 1,416,289 options exercised and 4,436,997 options canceled
under the 1997 Incentive Plan, primarily in connection with the 1999 Merger.
Simultaneous with the 1999 Merger, no additional awards will be made under the
1997 Incentive Plan. Only that number of shares of Concentra Holding stock
issuable upon exercise of awards granted under the 1997 Incentive Plan as of the
1999 Merger were reserved for issuance by Concentra Holding. During 2000, 68,250
options were canceled and no options were exercised under the 1997 Incentive
Plan.

   (c) Concentra 1999 Long-Term Incentive Plan

     Concentra Holding's board and stockholders approved its 1999 Stock Option
and Restricted Stock Purchase Plan ("the 1999 Stock Plan") in August 1999. The
1999 Stock Plan provides for the grant of options or awards to purchase an
aggregate 3,750,000 shares of Concentra Holding common stock, either in the form
of incentive stock options qualified as such under the U.S. Federal Income Tax
Laws, nonqualified stock options or restricted stock purchase awards. The 1999
Stock Plan includes provisions for adjustment of the number of shares of common
stock available for grant of award thereunder and in the number of shares of
common stock underlying outstanding options in the event of any stock splits,
stock dividends or other relevant changes in the capitalization of Concentra
Holding. Under the 1999 Stock Plan, employees, including officers, are eligible
to receive grants of either incentive stock options or nonqualified stock
options and restricted stock purchase awards. Non-employee directors are
eligible to be granted only nonqualified options and awards.

     The exercise price of incentive stock options may not be less than 100% of
the fair market value of the shares of common stock, as determined by Concentra
Holding's board of directors or the compensation committee, as the case may be,
on the date the option is granted. The exercise price of non-qualified stock
options may not be less than 100% of the fair market value of the shares of
Concentra Holding common stock on the date the option is granted. In addition,
the aggregate fair market value of the shares of stock with respect to which
incentive stock options are exercisable for the first time by an optionee during
any calendar year shall not exceed $100,000. In addition, no incentive stock
option shall be granted to an optionee who owns more than 10% of the total
combined voting power for all classes of stock of Concentra Holding, unless the
exercise price is at least 110% of the fair market value of the shares of
Concentra Holding's common stock and the exercise period does not exceed 5
years.

     The Company granted 1,916,257 and 698,840 options and canceled 65,713 and
89,961 options under the 1999 Stock Plan in 2000 and 1999, respectively.
Restricted stock purchase awards granted under the 1999 Stock Plan will continue
in effect until August 17, 2009, unless terminated prior to such date by the
Board.

                                      F-18
<PAGE>

                        CONCENTRA OPERATING CORPORATION
            NOTES TO CONSOLIDATED FINANCIAL STATEMENT - (Continued)

     A summary of the status for all outstanding options at December 31, 1998,
1999 and 2000, and changes during the years then ended is presented in the table
below:

<TABLE>
<CAPTION>
                                                                  Weighted
                                                    Number      Average Price
                                                  of Shares       Per Share
                                                 -----------    -------------
     <S>                                         <C>            <C>
     Balance, December 31, 1997                    5,721,787       $  18.46
          Granted                                  2,945,570          21.43
          Exercised                                 (696,473)          6.77
          Canceled                                (1,277,335)         24.53
                                                  ----------       --------
     Balance, December 31, 1998                    6,693,549          20.21
          Granted                                    708,840          16.43
          Exercised                               (1,416,289)          6.13
          Canceled                                (4,526,958)         27.11
                                                  ----------       --------
     Balance, December 31, 1999                    1,459,142          10.60
          Granted                                  1,916,257          16.50
          Exercised                                       --             --
          Canceled                                  (134,822)          9.89
                                                 -----------       --------
     Balance, December 31, 2000                    3,240,577       $  14.12
                                                 ===========       ========
</TABLE>

     The weighted average fair market value of options granted in 2000, 1999 and
1998 were $4.52, $4.31 and $21.95, respectively. There are no exercisable
options outstanding as of December 31, 1999 and 667,324 exercisable options
outstanding as of December 31, 2000. A further breakdown of the outstanding
options at December 31, 2000 is as follows:

<TABLE>
<CAPTION>
                                                                   Weighted
                                                        Weighted    Average
                                             Number of   Average  Contractual
     Range of Exercise Prices                 Options     Price   Life (Years)
     ------------------------                ---------  --------  ------------
     <S>                                     <C>        <C>       <C>
     $0.00-$4.65                               156,654   $  0.36        6.30
     $8.06-$11.50                              617,750      8.09        7.79
     $16.50                                  2,466,173     16.50        9.14
                                             ---------   -------      ------
                                             3,240,577   $ 14.12        8.74
                                             =========   =======      ======
</TABLE>

(d)  SFAS 123, Accounting for Stock-Based Compensation, Disclosures

     The Company accounts for these plans under APB No. 25, under which no
compensation cost has been recognized related to stock option grants. Had
compensation cost for these plans been determined consistent with Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), the Company's net income and pro forma net income
would have been reduced to the following supplemental pro forma amounts (in
thousands):

<TABLE>
<CAPTION>
                                                   2000      1999       1998
                                                 -------   --------   -------
     <S>                                         <C>       <C>        <C>
     Net income (loss):
          As reported                            $(6,551)  $(26,504)  $22,486
          Supplemental pro forma                 $(7,216)  $(28,229)  $ 8,864
</TABLE>

                                      F-19
<PAGE>

                        CONCENTRA OPERATING CORPORATION
            NOTES TO CONSOLIDATED FINANCIAL STATEMENT - (Continued)

     Because the method of accounting under SFAS 123 has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.
Additionally, the 1999 and 1998 pro forma amounts include $102,000 and $509,000,
respectively, related to purchase discounts offered on employee stock purchase
plans. The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option pricing model with the following assumptions used
for grants in 2000, 1999 and 1998, respectively:

<TABLE>
<CAPTION>
                                                             2000     1999     1998
                                                            ------   ------   ------
     <S>                                                    <C>      <C>      <C>
     Risk-free interest rates                                 6.11%    6.08%    5.18%
     Expected volatility                                      0.00%    0.00%   78.91%
     Expected dividend yield                                    --       --       --
     Expected weighted average life of options in years        5.0      5.0      3.0
</TABLE>

(12) Segment Information

     Operating segments represent components of the Company's business that are
evaluated regularly by key management in assessing performance and resource
allocation. The Company has determined that its current reportable segments
consist of its Health Services, Specialized Cost Containment and Field Case
Management groups.

     Health Services provides specialized injury and occupational healthcare
services to employers through its network of health centers. Health Services
delivers primary and rehabilitative care, including the diagnosis, treatment and
management of work-related injuries and illnesses. Health Services also provides
a full complement of non-injury, employment-related health services, including
physical examinations, pre-placement substance abuse testing, job-specific
return to work evaluations and other related programs. Health Services owns all
the operating assets of the occupational healthcare centers, including leasehold
interests and medical equipment.

     Specialized Cost Containment services include first report of injury,
utilization management (pre-certification and concurrent review), retrospective
medical bill review, telephonic case management, specialized preferred provider
organization network access, independent medical examinations, peer reviews and
out-of-network bill review services. These services are designed to reduce the
cost of workers' compensation claims, automobile accident injury claims and
group health claims.

     Field Case Management provides services involving case managers and nurses
working on a one-on-one basis with injured employees and their various
healthcare professionals, employers and insurance company adjusters to assist in
maximizing medical improvement and, where appropriate, to expedite the return to
work.

     Revenue from individual customers, revenue between business segments, and
revenue, operating profit and identifiable assets of foreign operations are not
significant.

                                      F-20
<PAGE>

                        CONCENTRA OPERATING CORPORATION
            NOTES TO CONSOLIDATED FINANCIAL STATEMENT - (Continued)

     The Company's statements of operations on a segment basis for the years
ended December 31, 2000, 1999 and 1998, were as follows (in thousands):

<TABLE>
<CAPTION>
                                                             2000       1999       1998
                                                           --------   --------   --------
<S>                                                        <C>        <C>        <C>
Revenue:
     Health Services                                       $399,660   $330,064   $259,481
     Specialized Cost Containment                           210,746    204,084    183,734
     Field Case Management                                  141,755    147,264    167,841
                                                           --------   --------   --------
                                                            752,161    681,412    611,056
Gross profit:
     Health Services                                         77,876     64,981     58,300
     Specialized Cost Containment                            67,715     66,791     60,440
     Field Case Management                                   13,146     15,151     23,019
                                                           --------   --------   --------
                                                            158,737    146,923    141,759
Operating income /(1)/:
     Health Services                                         45,098     34,405     34,415

     Specialized Cost Containment                            47,548     46,826        --
     Field Case Management                                    5,230      5,599        --
                                                           --------   --------   --------
                                                             52,778     52,425     20,785

     Corporate general and administrative expenses           20,258     18,158        --
     Non-recurring charges                                      --      54,419        --
                                                           --------   --------   --------
                                                             77,618     14,253     55,200

Interest expense                                             68,932     35,779     18,021
Interest income                                                (803)    (2,900)    (4,659)
Loss on change in fair value of hedging arrangements          9,586        --         --
Other, net                                                     (725)      (391)        44
                                                           --------   --------   --------
Income (loss) before income taxes and cumulative
     effect of accounting change                                628    (18,235)    41,794
Provision for income taxes                                    4,362      8,269     19,308
                                                           --------   --------   --------
Income (loss) before cumulative effect of accounting
     change                                                  (3,734)   (26,504)    22,486
Cumulative effect of accounting change, net of tax            2,817        --         --
                                                           --------   --------   --------
Net income (loss)                                          $ (6,551)  $(26,504)  $ 22,486
                                                           ========   ========   ========
</TABLE>

/(1)/ Prior to 1999, corporate-level general and administrative expenses were
      reported in the Health Services, Specialized Cost Containment and Field
      Case Management groups based on where general and administrative
      activities were incurred. In addition, general and administrative expenses
      for the Specialized Cost Containment and Field Case Management groups were
      not separately reported prior to 1999. Therefore, the Company did not make
      allocations of corporate level and managed care level general and
      administrative expenses in 1998. Beginning in 1999, the corporate function
      has been separately reported.

                                      F-21
<PAGE>

                        CONCENTRA OPERATING CORPORATION
            NOTES TO CONSOLIDATED FINANCIAL STATEMENT - (Continued)

      The Company's segment depreciation and amortization, capital expenditures
and identifiable assets for the years ended December 31, 2000, 1999 and 1998 are
as follows (in thousands):

<TABLE>
<CAPTION>
                                                                                  2000       1999       1998
                                                                                --------   --------   --------
     <S>                                                                        <C>        <C>        <C>
     Depreciation and amortization:
          Health Services                                                       $ 22,516   $ 18,965   $ 11,372
          Specialized Cost Containment and Field Case Management                  17,067     15,505     11,552
          Corporate                                                                  934        772         --
                                                                                --------   --------   --------
                                                                                $ 40,517   $ 35,242   $ 22,924
                                                                                ========   ========   ========
     Capital expenditures:
          Health Services                                                       $ 14,685   $ 20,274   $ 19,235
          Specialized Cost Containment and Field Case Management /(2)/            15,706     15,679     14,952
          Corporate(2)                                                               510         --         --
                                                                                --------   --------   --------
                                                                                $ 30,901   $ 35,953   $ 34,187
                                                                                ========   ========   ========
     Identifiable assets:
          Health Services                                                       $398,552   $386,885   $309,419
          Specialized Cost Containment and Field Case Management /(2)/           219,511    267,219    347,375
          Corporate(2)                                                            38,792         --         --
                                                                                --------   --------   --------
                                                                                $656,855   $654,104   $656,794
                                                                                ========   ========   ========
</TABLE>

/(2)/ Depreciation and amortization, capital expenditures and identifiable
      assets are not separately reported within the Specialized Cost Containment
      and Field Case Management groups. In addition, corporate-level capital
      expenditures and identifiable assets were not separately reported prior to
      2000.

      Management utilizes multiple indicators and views to measure segment
performance and to allocate resources to the segments. The primary indicators
are pretax income along with cash flows and overall economic returns. The
Company is managed among multiple product lines within each segment. Although
the operational organization of the Company will remain consistent, management
believes a change in its historical segment reporting beginning in 2001 is
necessary to better reflect the current underlying nature of the Company's
operations. Under this revised segment reporting approach, the Health Services
group will continue to be reported separately, consistent with past reporting.
The other two existing segments, Specialized Cost Containment and Field Case
Management, will be realigned into two new segment groups: Network Services and
Care Management Services. These two new segments will reflect the realignment of
certain product lines in order to establish a better understanding of the
Company's care management services and network services businesses.

      Network Services provides specialized preferred provider organization
network access, retrospective medical bill review, out-of-network group health
bill review and first report of injury services.

      Care Management Services reflects the Company's professional services
aimed at curtailing the cost of workers' compensation claims through field case
management, telephonic case management, independent medical examinations and
utilization management (precertification and concurrent review).

                                      F-22
<PAGE>

                        CONCENTRA OPERATING CORPORATION
            NOTES TO CONSOLIDATED FINANCIAL STATEMENT - (Continued)

     As a result of the above changes, effective January 1, 2001, the Company
will prospectively report segment performance on its Health Services, Network
Services and Care Management Services groups. Had these segments been reported
in this manner historically, the Company's Statement of Operations on a segment
basis for the years ended December 31, 2000, 1999 and 1998 would have been
stated as follows:

<TABLE>
<CAPTION>
                                                          2000        1999        1998
                                                        --------    --------    --------
<S>                                                     <C>         <C>         <C>
Revenue:
     Health Services                                    $399,660    $330,064    $259,481
     Network Services                                    162,596     158,022     135,805
     Care Management Services                            189,905     193,326     215,770
                                                        --------    --------    --------
                                                         752,161     681,412     611,056
Gross profit:
     Health Services                                      77,876      64,981      58,300
     Network Services                                     61,855      62,288      54,431
     Care Management Services                             19,006      19,654      29,028
                                                        --------    --------    --------
                                                         158,737     146,923     141,759
Operating income /(1)/:
     Health Services                                      45,098      34,405      34,415

     Network Services                                     44,690      45,568          --
     Care Management Services                              8,088       6,857          --
                                                        --------    --------    --------
                                                          52,778      52,425      20,785

     Corporate general and administrative expenses        20,258      18,158          --
     Non-recurring charges                                   --       54,419          --
                                                        --------    --------    --------
                                                          77,618      14,253      55,200

Interest expense                                          68,932      35,779      18,021
Interest income                                             (803)     (2,900)     (4,659)
Loss on change in fair value of hedging arrangements       9,586          --          --
Other, net                                                  (725)       (391)         44
                                                        --------    --------    --------
Income (loss) before income taxes and cumulative
      effect of accounting change                            628     (18,235)     41,794
Provision for income taxes                                 4,362       8,269      19,308
                                                        --------    --------    --------
Income (loss) before cumulative effect of accounting
      change                                              (3,734)    (26,504)     22,486
Cumulative effect of accounting change, net of tax         2,817          --          --
                                                        --------    --------    --------
Net income (loss)                                       $ (6,551)   $(26,504)   $ 22,486
                                                        ========    ========    ========
</TABLE>

/(1)/ Prior to 1999, corporate-level general and administrative expenses were
      reported in the Health Services, Network Services and Care Management
      Services groups based on where general and administrative activities were
      incurred. In addition, general and administrative expenses for the Network
      Services and Care Management Services groups were not separately reported
      prior to 1999. Therefore, the Company did not make allocations of
      corporate level and managed care level general and administrative expenses
      in 1998. Beginning in 1999, the corporate function has been separately
      reported.

                                      F-23
<PAGE>

                        CONCENTRA OPERATING CORPORATION
            NOTES TO CONSOLIDATED FINANCIAL STATEMENT - (Continued)

     Had Network Services and Care Management Services been reported separately
historically, the Company's segment depreciation and amortization, capital
expenditures and identifiable assets for the years ended December 31, 2000, 1999
and 1998 would have been stated as follows (in thousands):

<TABLE>
<CAPTION>

                                                                    2000        1999        1998
                                                                  --------    --------    --------
    <S>                                                           <C>         <C>         <C>
    Depreciation and amortization:
       Health Services                                            $ 22,516    $ 18,965    $ 11,372
       Network Services and Care Management Services /(2)/          17,067      15,505      11,552
       Corporate /(2)/                                                 934         772          --
                                                                  --------    --------    --------
                                                                  $ 40,517    $ 35,242    $ 22,924
                                                                  ========    ========    ========
    Capital expenditures:
       Health Services                                            $ 14,685    $ 20,274    $ 19,235
       Network Services and Care Management Services /(2)/          15,706      15,679      14,952
       Corporate/(2)/                                                  510          --          --
                                                                  --------    --------    --------
                                                                  $ 30,901    $ 35,953    $ 34,187
                                                                  ========    ========    ========
    Identifiable assets:
       Health Services                                            $398,552    $386,885    $309,419
       Network Services and Care Management Services /(2)/         219,511     267,219     347,375
       Corporate/(2)/                                               38,792          --          --
                                                                  --------    --------    --------
                                                                  $656,855    $654,104    $656,794
                                                                  ========    ========    ========
</TABLE>

/(2)/ Depreciation and amortization, capital expenditures and identifiable
      assets are not separately reported within Network Services and Care
      Management Services groups. In addition, corporate-level capital
      expenditures and identifiable assets were not separately reported prior
      to 2000.

(13) Related Party Transactions

     W. Tom Fogarty, M.D., an executive officer of Concentra Holding and
Concentra Operating, is the President, a director and a member of Occupational
Health Centers of the Southwest, P.A., or OHCSW, and several other physician
groups. We have entered into a 40-year management agreement with each of the
physician groups. OHCSW paid approximately $190.6 million, $161.3 million and
$119.1 million in management fees to the Company in the years ended December 31,
2000, 1999 and 1998, respectively, under its management agreement.

     Concentra Operating provides certain administrative services to Em3
Corporation ("Em3"), a company with shareholders who include Concentra Holding's
primary shareholders and certain members of Concentra Operating's management
team. These services include the leasing of certain employees, providing office
space, access to certain Concentra Operating's software and systems and other
administrative services. Em3 paid Concentra Operating $1.4 million for these
services during the twelve-month period ending December 31, 2000.

     CPS is party to a Joint Marketing Agreement with HealthNetwork Systems LLC,
a provider of PPO network management services to the payor and PPO industries.
Steven E. Nelson, a Director of Concentra Operating and of Concentra Holding, is
the President and Chief Executive Officer of HealthNetwork Systems LLC. Mr.
Nelson, Daniel J. Thomas, a Director, President and Chief Executive Officer of
the Company, Paul B. Queally, a director of the Company, and D. Scott Mackesy, a
director of the Company, are investors in HNS. CPS paid HNS approximately
$497,000 in 2000 pursuant to the Joint Marketing Agreement.

                                      F-24
<PAGE>

                        CONCENTRA OPERATING CORPORATION
            NOTES TO CONSOLIDATED FINANCIAL STATEMENT - (Continued)

(14) Selected Financial Data

<TABLE>
<CAPTION>
                                                             Years Ended December 31,
                                            -------------------------------------------------------------
                                               2000         1999         1998         1997         1996
                                            ---------    ---------    ---------    ---------    ---------
                                                                    (in thousands)
<S>                                         <C>          <C>         <C>           <C>          <C>
Statement of Operations Data:
Revenue                                     $ 752,161    $ 681,412    $ 611,056    $ 489,318    $ 372,683
Gross profit                                  158,737      146,923      141,759      116,679       82,755
Non-recurring charges/(1)/                         --       54,419       33,114       38,625          964
Operating income                               77,618       14,253       55,200       32,315       45,194
Loss on change in fair value of hedging
  arrangements/(2)/                             9,586           --           --           --           --
Income (loss) before taxes and cumulative
effect of accounting change                       628      (18,235)      41,794       21,062       41,476
Provision for income taxes                      4,362        8,269       19,308       11,062       13,437
Income (loss) before cumulative effect of
  accounting change                            (3,734)     (26,504)      22,486       10,000       28,039
Cumulative effect of accounting change,
  net of tax/(2)/                               2,817           --           --           --           --
Net income (loss)                           $  (6,551)   $ (26,504)   $  22,486    $  10,000    $  28,039

Balance Sheet Data:
Working capital                             $ 116,229    $ 109,711    $ 201,870    $  36,754    $ 116,439
Total assets                                  656,855      654,104      656,794      482,533      367,900
Total debt                                    561,562      567,747      327,925      206,600      142,229
Total stockholder's equity (deficit)        $ (36,071)   $ (39,273)   $ 239,875    $ 206,441    $ 178,146
</TABLE>

/(1/)  See Note 4, Recent Acquisitions and Non-recurring Charges.
/(2)/  See Note 3, Recent Accounting Pronouncements.

                                      F-25
<PAGE>

                        CONCENTRA OPERATING CORPORATION
            NOTES TO CONSOLIDATED FINANCIAL STATEMENT - (Continued)

(15) Selected Quarterly Operating Results (Unaudited)

     The following table sets forth certain unaudited quarterly results of
operations for the years ended 31, 2000, and 1999. In management's opinion, this
unaudited information has been prepared on the same basis as the annual
financial statements and includes all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the information for
the quarters presented, when read in conjunction with the financial statements
and notes thereto included elsewhere in this document. The operating results for
any quarter are not necessarily indicative of results for any subsequent
quarter. Amounts are stated in thousands.

<TABLE>
<CAPTION>
                                                                                     Quarters Ended
                                                                  -----------------------------------------------------
                                                                   March 31,    June 30,   September 30,   December 31,
                                                                     2000         2000         2000           2000
                                                                  ----------   ----------  -------------   ------------
<S>                                                               <C>          <C>         <C>             <C>
Revenue                                                           $  181,096   $  190,348     $  192,764      $ 187,953
Cost of services                                                     144,242      147,228        150,411        151,543
                                                                  ----------   ----------     ----------      ---------
     Gross profit                                                     36,854       43,120         42,353         36,410
General and administrative expenses                                   16,919       16,246         16,149         17,177
Amortization of intangibles                                            3,566        3,658          3,689          3,715
                                                                  ----------   ----------     ----------      ---------
     Operating income                                                 16,369       23,216         22,515         15,518
Other, net                                                            14,408       20,151         19,431         23,000
Provision (benefit) for income taxes                                     893        1,921          2,279           (731)
Cumulative effect of accounting change, net of tax                        --           --             --          2,817
                                                                  ----------   ----------     ----------      ---------
     Net income (loss)                                            $    1,068   $    1,144     $      805      $  (9,568)
                                                                  ==========   ==========     ==========      =========
<CAPTION>
                                                                                     Quarters Ended
                                                                  -----------------------------------------------------
                                                                   March 31,    June 30,   September 30,   December 31,
                                                                     1999         1999         1999           1999
                                                                  ----------   ----------  -------------   ------------
<S>                                                               <C>          <C>         <C>             <C>
Revenue                                                           $  155,411   $  174,088     $  176,658      $ 175,255
Cost of services                                                     123,737      130,204        138,988        141,560
                                                                  ----------   ----------     ----------      ---------
     Gross profit                                                     31,674       43,884         37,670         33,695
General and administrative expenses                                   14,420       16,841         15,957         18,073
Amortization of intangibles                                            3,038        3,115          3,342          3,465
Non-recurring charge                                                      --           --         54,419             --
                                                                  ----------   ----------     ----------      ---------
     Operating income (loss)                                          14,216       23,928        (36,048)        12,157
Other, net                                                             3,663        3,882          9,198         15,745
Provision (benefit) for income taxes                                   4,485        8,520         (3,176)        (1,560)
                                                                  ----------   ----------     ----------      ---------
     Net income (loss)                                            $    6,068   $   11,526     $  (42,070)     $  (2,028)
                                                                  ==========   ==========     ==========      =========
</TABLE>

                                      F-26
<PAGE>

                                                        Supplemental Schedule II

                        CONCENTRA OPERATING CORPORATION
                       Valuation and Qualifying Accounts
             For the Years Ended December 31, 2000, 1999 and 1998
                                (in thousands)

<TABLE>
<CAPTION>
                                                       Beginning    Charged                  Net Deductions    Ending
                                                        Balance    To Income  Acquisitions   From Reserves     Balance
                                                       ---------   ---------  ------------   --------------    -------
<S>                                                    <C>         <C>        <C>            <C>              <C>
Allowance for Doubtful Accounts
     1998                                              $  16,723   $  12,869    $   1,968        $  14,350    $ 17,210
     1999                                                 17,210      16,101        3,129           16,997      19,443
     2000                                                 19,443      18,888        1,695           22,293      17,733

Contractual Allowances
     1998                                              $   3,628   $  16,095    $      --        $  15,073     $ 4,650
     1999                                                  4,650      27,757          472           23,799       9,080
     2000                                                  9,080      31,550          570           34,040       7,160
</TABLE>

     Non-recurring charge breakout by major category was as follows:

<TABLE>
<CAPTION>
                                                      Professional      Facility       Personnel
                                                          Fees       Consolidations     Related       Other        Total
                                                      ------------   --------------    ---------    ---------    ---------
<S>                                                   <C>            <C>               <C>          <C>          <C>
Balance, December 31, 1997                               $  2,414        $     469     $   4,413    $     231    $   7,527

1998 Provision:
     First Quarter 1998 Charge                              5,200            2,100         2,400        2,900       12,600
     Fourth Quarter 1998 Charge                                --            5,836         3,817       10,861       20,514
                                                         --------        ---------     ---------    ---------    ---------
Total 1998 Provision                                        5,200            7,936         6,217       13,761       33,114
                                                         --------        ---------     ---------    ---------    ---------

1998 Usage:
     Third Quarter 1997 Charge                             (2,414)            (469)       (4,413)        (231)      (7,527)
     First Quarter 1998 Charge                             (5,136)            (746)       (2,355)      (2,891)     (11,128)
     Fourth Quarter 1998 Charge                                --           (1,140)       (2,490)      (7,416)     (11,046)
                                                         --------        ---------     ---------    ---------    ---------
Total 1998 Usage                                           (7,550)          (2,355)       (9,258)     (10,538)     (29,701)
                                                         --------        ---------     ---------    ---------    ---------

Balance, December 31, 1998                                     64            6,050         1,372        3,454       10,940

1999 Provision:
     Third Quarter 1999 Charge                             29,334            1,795        21,574        1,716       54,419

1999 Usage:
     First Quarter 1998 Charge                               (473)             (39)         (326)        (187)      (1,025)
     First Quarter 1998 Charge - Change in Estimates          434             (966)          281          251           --
     Fourth Quarter 1998 Charge                                --           (3,285)       (1,225)      (1,446)      (5,956)
     Third Quarter 1999 Charge                            (28,405)              --       (21,524)      (1,758)     (51,687)
                                                         --------        ---------     ---------    ---------    ---------
Total 1999 Usage                                          (28,444)          (4,290)      (22,794)      (3,140)     (58,668)
                                                         --------        ---------     ---------    ---------    ---------

Balance, December 31, 1999                                    954            3,555           152        2,030        6,691

2000 Usage:
     First Quarter 1998 Charge                                 (2)            (175)           --           (2)        (179)
     Fourth Quarter 1998 Charge                                --             (494)          (49)        (184)        (727)
     Third Quarter 1999 Charge                               (949)            (708)         (140)        (163)      (1,960)
     Third Quarter 1999 Charge - Change in Estimates          100             (499)           90          309           --
                                                         --------        ---------     ---------    ---------    ---------
Total 2000 Usage                                             (851)          (1,876)          (99)         (40)      (2,866)
                                                         --------        ---------     ---------    ---------    ---------

Balance, December 31, 2000                               $    103        $   1,679     $      53    $   1,990    $   3,825
                                                         ========        =========     =========    =========    =========

</TABLE>

                                      S-1
<PAGE>

             REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE

To Concentra Operating Corporation:

     We have audited in accordance with auditing standards generally accepted in
the United States, the consolidated financial statements of Concentra Operating
Corporation and have issued our report thereon dated February 14, 2001. Our
audit was made for the purpose of forming an opinion on the basic consolidated
financial statements taken as a whole. The schedule listed in the index of the
consolidated financial statement schedules is presented for the purpose of
complying with the Securities and Exchange Commission's rules and is not part of
the basic consolidated financial statements. This schedule has been subjected to
the auditing procedures applied in the audit of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.

                                               /s/ ARTHUR ANDERSEN LLP

                                               ARTHUR ANDERSEN LLP

Dallas, Texas
February 14, 2001

                                      S-2
<PAGE>

                               INDEX TO EXHIBITS

                          INCORPORATION BY REFERENCE

Exhibit
Number                                   Description
-------                                  -----------
    2.1   Agreement and Plan of Reorganization dated August 29, 1997, among CRA
            Managed Care, Inc. and OccuSystems, Inc. and the Registrant
            (incorporated by reference as Exhibit 2.1 to Concentra Holding's
            Annual Report on Form 10-K for the year ended December 31, 1997).

    2.2   Agreement and Plan of Merger dated February 24, 1998, among Concentra
            Inc., formerly known as Concentra Managed Care, Inc. ( "Concentra
            Holding ") and Preferred Payment Systems, Inc. (incorporated by
            reference to Exhibit 2.2 to Concentra Holding's Annual Report on
            Form 10-K for the year ended December 31, 1997).


    2.3   Agreement and Plan of Merger dated March 2, 1999, between Yankee
            Acquisition Corp. and Concentra Holding (incorporated by reference
            to Exhibit 2.1 to Concentra Holding's Current Report on Form 8-K
            filed on March 3, 1999).

    2.4   Amended and Restated Agreement and Plan of Merger dated March 24,
            1999, between Yankee Acquisition Corp. and Concentra Holding
            (incorporated by reference to Exhibit 2.1 to Concentra Holding's
            Current Report on Form 8-K filed on July 14, 1999).

   *3.1   Articles of Incorporation of Concentra Operating Corporation
            ("Concentra Operating")

   *3.2   Amended and Restated By-Laws of Concentra Operating.

   *3.3   Articles of Incorporation of Concentra Management Services, Inc.

   *3.4   Amended and Restated By-Laws of Concentra Management Services, Inc.

   *3.5   Amended and Restated Certificate of Incorporation of Concentra
            Preferred Systems, Inc.

   *3.6   Amended and Restated By-Laws of Concentra Preferred Systems, Inc.

   *3.7   Amended and Restated Certificate of Incorporation of First Notice
            Systems, Inc.

   *3.8   Amended and Restated By-Laws of First Notice Systems, Inc.

   *3.9   Amended and Restated Charter of Focus Healthcare Management, Inc.

  *3.10   Amended and Restated By-Laws of Focus Healthcare Management, Inc.

                                       1
<PAGE>

  *3.11   Amended and Restated Articles of Incorporation of CRA Managed Care of
            Washington, Inc.

  *3.12   Amended and Restated By-Laws of CRA Managed Care of Washington, Inc.

  *3.13   Articles of Incorporation of CRA-MCO, Inc.

  *3.14   Amended and Restated By-Laws of CRA-MCO, Inc.

  *3.15   Amended and Restated Articles of Incorporation of Drug-Free
            Consortium, Inc.

  *3.16   Amended and Restated By-Laws of Drug-Free Consortium, Inc.

  *3.17   Articles of Organization of Concentra Managed Care Services, Inc.

  *3.18   Amended and Restated By-Laws of Concentra Managed Care Services, Inc.

  *3.19   Amended and Restated Articles of Incorporation of Concentra Health
            Services, Inc.

  *3.20   Amended and Restated By-Laws of Concentra Health Services, Inc.

  *3.21   Agreement and Declaration of Trust of Concentra Managed Care Business
            Trust.

  *3.22   Agreement of Limited Partnership of OccuCenters I, L.P.

  *3.23   Amended and Restated Articles of Incorporation of OCI Holdings, Inc.

  *3.24   Amended and Restated By-Laws of OCI Holdings, Inc.

  *3.25   Amended and Restated Articles of Incorporation of Hillman Consulting,
            Inc.

  *3.26   Amended and Restated By-Laws of Hillman Consulting, Inc.

   *4.1   Indenture dated as of August 17, 1999, between Concentra Operating and
            United States Trust Company of New York, as Trustee, relating to the
            13% Senior Subordinated Notes due 2009.

   *4.2   Indenture dated as of August 17, 1999, between Concentra Holding and
            United States Trust Company of New York, as Trustee, relating to the
            14% Senior Discount Debentures due 2010.

                                       2
<PAGE>

    4.3   Indenture dated as of December 24, 1996, between OccuSystems, Inc.
            ("OccuSystems") and United States Trust Company of New York, as
            Trustee, (the "OccuSystems Indenture") relating to the 6%
            Convertible Subordinated Notes due 2001 (incorporated by reference
            to Exhibit 4.1 to OccuSystems' Registration Statement on Form S-3
            filed on January 31, 1997).

    4.4   First Supplemental Indenture dated as of August 29, 1997, between
            OccuSystems, Concentra Holding and United States Trust Company of
            New York, as Trustee, relating to the 6% Convertible Subordinated
            Notes due 2001 (incorporated by reference to Exhibit 4.2 to
            Concentra Holding's Annual Report on Form 10-K for the year ended
            December 31, 1997).

   *4.5   Second Supplemental Indenture dated as of August 17, 1999, between
            Concentra Holding and United States Trust Company of New York, as
            Trustee, relating to the 6% Convertible Subordinated Notes due 2001.

   *4.6   Warrant Agreement dated as of August 17, 1999, by and among Concentra
            Holding and the several persons named on Schedule I thereto.

    4.7   Form of 13% Series B Senior Subordinated Notes due 2009 of Concentra
            Operating (included in Exhibit 4.1).

    4.8   Form of 14% Senior Discount Debentures due 2010 of Concentra Holding
            (included in Exhibit 4.2).

    4.9   Form of 6% Convertible Subordinated Notes due 2001 of Concentra
            Holding (included in Exhibit 4.3).

   4.10   Form of Warrant to acquire Concentra Holding common stock (included in
            Exhibit 4.8).

  *4.11   Registration Rights Agreement dated as of August 17, 1999 by and among
            Concentra Operating, the Guarantors set forth on the signature pages
            thereof, and Donaldson, Lufkin & Jenrette Securities Corporation,
            Chase Securities, Inc., Credit Suisse First Boston Corporation,
            Deutsche Bank Securities, Inc. and Fleet Securities, Inc., as
            initial purchasers.

  *4.12   Registration Rights Agreement dated as of August 17, 1999 by and among
            Concentra Holding, and the persons named in Schedules I and II
            thereto.

                                       3
<PAGE>

   *10.1   Purchase Agreement dated August 17, 1999, by and among Concentra
             Operating, the Guarantors set forth on the signature pages thereof,
             and Donaldson, Lufkin & Jenrette Securities Corporation, Chase
             Securities, Inc., Credit Suisse First Boston Corporation, Deutsche
             Bank Securities, Inc. and Fleet Securities, Inc., as initial
             purchasers, relating to the issuance and sale of $190,000,000
             aggregate principal amount of Concentra Operating's 13% Senior
             Subordinated Notes due 2009, Series A.

   *10.2   Credit Agreement dated as of August 17, 1999, among Concentra
             Holding, Concentra Operating, the Several Lenders from time to time
             parties thereto, The Chase Manhattan Bank, as Administrative Agent,
             Credit Suisse First Boston and Fleet National Bank, as Co-
             Documentation Agents, and DLJ Capital Funding, Inc., as Syndication
             Agent.

    10.3   Credit Facility Agreement dated as of August 17, 1999, by and among
             Concentra Holding, Concentra Operating, the Several Lenders from
             time to time parties thereto, The Chase Manhattan Bank, as
             Administrative Agent, Credit Suisse First Boston and Fleet National
             Bank, as co-Documentation Agents and DLJ Capital Funding, Inc., as
             Syndication Agent, Amended and Restated as of March 21, 2000
             (incorporated by reference to Exhibit 10.3 to Concentra Operating's
             Annual Report on Form 10-K for the year ended December 31, 1999).

   *10.4   Purchase Agreement dated August 17, 1999, by and among Concentra
             Holding and the several persons named on Schedule I thereto,
             relating to the issuance and sale of $110,000,000 aggregate face
             amount of Concentra Holding's 14% Senior Discount Debentures due
             2010 and Warrants to acquire Concentra Holding common stock.

 ++*10.5   Concentra Managed Care, Inc. 1999 Stock Option and Restricted Stock
             Purchase Plan.

  ++10.6   Concentra Managed Care, Inc. 1997 Long-Term Incentive Plan
             (incorporated by reference to Appendix G to the Joint Proxy
             Statement/Prospectus forming a part of Concentra Holding's
             Registration Statement on Form S-4 filed on July 31, 1997).

  ++10.7   CRA Managed Care, Inc. ("CRA") 1994 Non-Qualified Stock Option Plan
             for Non-Employee Directors (incorporated by reference to Exhibit
             10.3 to CRA's Registration Statement on Form S-1 filed on March 17,
             1995).

  ++10.8   CRA Managed Care, Inc. 1994 Non-Qualified Time Acceleration
             Restricted Stock Option Plan (incorporated by reference to Exhibit
             10.5 to CRA's Registration Statement on Form S-1 filed on March 17,
             1995).

  ++10.9   OccuSystems, Inc. 1995 Long-Term Incentive Plan (incorporated by
             reference to Exhibit 10.10 to OccuSystems' Registration Statement
             on Form S-1 filed on May 8, 1995).

 ++10.10   First Amended and Restated OccuSystems, Inc. and its Subsidiaries and
             Affiliates Stock Option and Restricted Stock Purchase Plan dated
             April 28, 1992 (incorporated by reference to Exhibit 10.11 to
             OccuSystems' Registration Statement on Form S-1 filed on May 8,
             1995).

++*10.11   Employment Agreement dated as of August 17, 1999, between Concentra
             Holding and W. Tom Fogarty.

++*10.12   Employment Agreement dated as of August 17, 1999, between Concentra
             Holding and James M. Greenwood.

                                       4
<PAGE>

 ++*10.13  Employment Agreement dated as of August 17, 1999, between Concentra
             Holding and Richard A. Parr II.

 ++*10.14  Employment Agreement dated as of August 17, 1999, between Concentra
             Holding and Daniel J. Thomas.

 ++*10.15  Employment Agreement dated as of August 17, 1999, between Concentra
             Holding and Thomas E. Kiraly.

++**10.16  Employment Agreement dated as of December 4, 2000, between Concentra
             Holding and William H. Comte.

    10.17  Indemnification Agreement dated as of September 17, 1997, between
             Concentra Holding and Daniel J. Thomas (identical agreements were
             executed between Concentra Holding and each of the following:
             Joseph F. Pesce, Richard A. Parr II, James M. Greenwood, W. Tom
             Fogarty, Kenneth Loffredo, Mitchell T. Rabkin, George H. Conrades,
             Robert A. Ortenzio, Lois E. Silverman, Paul B. Queally, John K.
             Carlyle) (incorporated by reference to Exhibit 10.17 to Concentra
             Holding's Annual Report on Form 10-K for the year ended December
             31, 1997).

    10.18  Indemnification Agreement dated as of May 13, 1998, between Concentra
             Holding and Hon. Willis D. Gradison, Jr. (identical agreements
             executed between Concentra Holding and Stephen Read (dated December
             16, 1997), Richard D. Rehm, M.D. (dated May 13, 1998), Eliseo Ruiz
             III (dated May 11, 1998), Scott Henault (dated September 17, 1997),
             Darla Walls (dated December 16, 1997), Jeffrey R. Luber (dated
             December 16, 1997) and Martha Kuppens (dated December 16, 1997))
             (incorporated by Reference to Exhibit 10.3 to Concentra Holding's
             Quarterly Report on Form 10-Q for the quarter ended June 30, 1998).

    10.19  Occupational Medicine Center Management and Consulting Agreement
             dated as of December 31, 1993, between Concentra Health Services,
             Inc. (formerly OccuCenters, Inc.) ("CHS") and Occupational Health
             Centers of Southwest, P.A., a Texas professional association
             (incorporated by reference to Exhibit 10.6 to OccuSystems' Annual
             Report on Form 10-K for the year ended December 31, 1995).

    10.20  Occupational Medicine Center Management and Consulting Agreement
             dated as of December 31, 1993, between CHS and Occupational Health
             Centers of Southwest, P.A., an Arizona professional association
             (incorporated by reference to Exhibit 10.7 to OccuSystems' Annual
             Report on Form 10-K for the year ended December 31, 1995).

    10.21  Occupational Medicine Center Management and Consulting Agreement
             dated as of December 31, 1993, between CHS and Occupational Health
             Centers of New Jersey, a New Jersey professional association
             (incorporated by reference to Exhibit 10.8 to OccuSystems'
             Registration Statement on Form S-1 filed on March 28, 1996).

   *10.22  Stockholders Agreement dated as of August 17, 1999 by and among
             Concentra Holding and the several persons named in Schedules I and
             II thereto.

                                       5
<PAGE>

  *10.23   Registration Rights Agreement dated as of August 17, 1999 by and
             among Concentra Holding and the several persons named in Schedules
             I and II thereto.

  **12.1   Statements re Computation of Ratios (included in the financial
             statements of Concentra Operating).

  **21.1   Subsidiaries of Concentra Operating.

   *23.2   Consent of Arthur Andersen LLP.
____________
  *  Incorporated by reference to the Registrants' Registration Statement on
     Form S-4, initially filed on November 12, 1999.
**   Filed herewith.
++   Indicates that Exhibit is a management contract or compensatory plan or
     arrangement.

                                       6