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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, 1999

                       Commission File Number 001-15699

                               ----------------

                        Concentra Operating Corporation

            (Exact name of Registrant as specified in its charter)

                Nevada                                75-282260
    (State or other jurisdiction of               (I.R.S. Employer
    incorporation or organization)               Identification No.)

5080 Spectrum Drive, Suite 400 -- West                  75001
                 Tower                               (Zip code)
            Addison, Texas
    (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 [_] No [X]

  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, 2000, 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 Managed Care, Inc., a Delaware corporation, which, as
of March 15, 2000, had outstanding 25,672,748 shares 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, 1999

                                     INDEX

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                                 PART I
Item 1 Business..........................................................    1
Item 2 Properties........................................................   24
Item 3 Legal Proceedings.................................................   24
Item 4 Submission of Matters to a Vote of Security Holders...............   24

                                 PART II
Item 5 Market for Registrant's Common Equity and Related Stockholder
 Matters.................................................................   24
Item 6 Selected Financial Data...........................................   24
Item 7 Management's Discussion and Analysis of Financial Condition and
 Results of Operations...................................................   25
Item 7A Quantitative and Qualitative Disclosures About Market Risk.......   37
Item 8 Financial Statements and Supplementary Data.......................   37
Item 9 Changes in and Disagreements with Accountants on Accounting and
 Financial Disclosure....................................................   37

                                PART III
Item 10 Directors and Executive Officers of the Registrant...............   38
Item 11 Executive Compensation...........................................   41
Item 12 Security Ownership of Certain Beneficial Owners and Management...   47
Item 13 Certain Relationships and Related Transactions...................   49

                                 PART IV
Item 14 Exhibits, Financial Statement Schedule, and Reports on Form 8-K..   51
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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--Risk Factors," Item 7. "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Item 1.
"Business." 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.
Important factors that could cause actual results to differ materially from
the forward-looking statements we make in this Report are in this Report,
including under the headings Item 1. "Business--Risk Factors," Item 7.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Item 1. "Business." 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. Description of Merger

  On August 17, 1999, Concentra Managed Care, Inc. ("CMC") merged with Yankee
Acquisition Corp. ("Yankee"), a corporation formed by Welsh, Carson, Anderson
& Stowe ("WCAS"), a 14.9% stockholder of CMC. As a result of the merger,
41,056,966 shares of CMC common stock were converted to $16.50 per share in
cash. The remaining 6,343,203 shares held by Yankee were not converted. WCAS
acquired approximately 86%, funds managed by Ferrer Freeman Thompson & Co.
("Ferrer Freeman") acquired approximately 7%, and other investors acquired
approximately 7% of the post-merger shares of common stock of CMC, Concentra
Operating Corporation's parent company, for $16.50 per share. Simultaneous
with the right to receive cash for shares, Yankee merged with and into CMC and
CMC contributed all of its operating assets, liabilities and shares in its
subsidiaries, including Concentra Health Services, Inc., Concentra Managed
Care Services, Inc. and Concentra Preferred Systems, Inc., with the exception
of $110.0 million of 14% Senior Discount Debentures due 2010 and $327.7
million of 6.0% and 4.5% Convertible Subordinated Notes, to the Registrant,
Concentra Operating Corporation ("Concentra Operating") or (the "Company"), a
wholly-owned subsidiary of CMC, in exchange for 1,000 shares of Concentra
Operating common stock. The 6.0% and 4.5% Convertible Subordinated Notes were
substantially retired during the third quarter of 1999 as a result of the
merger. The merger was accounted for as a recapitalization transaction, with
no changes to the basis of assets, liabilities or shares in its subsidiaries,
including Concentra Health Services, Inc. and Concentra Managed Care Services,
Inc.

  The merger transaction was valued at approximately $1.1 billion, including
the refinancing of $327.7 million of the 6.0% and 4.5% convertible
subordinated notes that were tendered during the third quarter of 1999. To
finance the acquisition of CMC, WCAS, Ferrer Freeman, and the other investors
invested approximately $423.7 million in equity financing, including the value
of shares already owned by WCAS, and $110.0 million of 14%

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Senior Discount Debentures due 2010 with warrants issued by CMC exercisable
for its common shares. Concentra Operating received from various lenders
$375.0 million in term loans, a $100.0 million revolving credit facility to
replace the pre-merger revolving credit facility and $190.0 million of 13%
Series A Senior Subordinated Notes due 2009. Concentra Operating's excess cash
balances funded merger and financing related fees and expenses and related
employee stock option exercises and cancellation payments.

  Concentra Operating incurred $18.0 million of deferred financing fees for
the issuance of the merger-related financing and recorded a non-recurring
charge of $54.4 million in the third quarter of 1999 incurred primarily for
fees, expenses and other non-recurring charges associated with the merger.
Through December 31, 1999, Concentra Operating paid approximately $17.9
million for professional fees and services, $14.5 million for employee-related
stock option exercises and cancellations, $10.5 million for a WCAS transaction
fee for advisory and consulting services provided in connection with the
merger and the related financing, of $1.5 million of other personnel-related
costs, and $1.8 million of other non-recurring charges, and used $5.5 million
for non-cash deferred compensation expense related to the accelerated vesting
and issuance of 210,000 shares of restricted stock. At December 31, 1999,
approximately $2.7 million of the non-recurring charge remains for
professional fees and services and other non-recurring items incurred in
connection with the merger.

B. General

  We are the largest company dedicated primarily to serving the occupational
healthcare market. We provide initial treatment for approximately 5% of
workplace injuries in the United States and perform non-injury occupational
healthcare services for over 80,000 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 and are compensated for our services on a non-
risk-bearing, fee-for-service or percentage-of-savings basis. Less than 0.5%
of our revenues are dependent on Medicare or Medicaid reimbursement.

  Our services reduce the customer's 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.

  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 occupational healthcare and group health
markets, we also provide cost containment services to the auto insurance
market as well as social security disability advocacy services to the long-
term disability insurance market. In 1999, we generated revenues of $681.4
million.

  With healthcare costs rising, 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 214 owned and managed
occupational healthcare centers, located in 63 markets in 32 states as of
March 15, 2000. As a primary starting point for the provision of

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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 1999, revenues from healthcare
services represented approximately 48% of our total revenues.

  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 1999, revenues from specialized
cost containment services represented approximately 30% of our total revenues.

  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 1999, revenues from field case management services
represented approximately 22% of our total revenues.

C. 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 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.

 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

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through the purchase of commercial insurance from private insurance companies,
participation in state-run insurance funds or employer self-insurance.

  According to the Workers' Compensation Monitor data published in the 1998
Workers' Compensation Year Book, total workers' compensation costs to
employers in the United States were estimated to be approximately $92.7
billion in 1996. 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
2000, 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, 2000, 24 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").

  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;


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  .  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 providers of healthcare through
intervention and on-going review of proposed services and services actually
provided. Healthcare and insurance companies originally developed managed care
techniques to stem the rising costs of group healthcare. 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.

  Workers' compensation cost containment services include 2 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 services;

  .  preferred provider organization network access;

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  .  independent medical examinations; and

  .  peer reviews.

  Field case management services involve:

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

  .  facilitating 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.

Group Health Cost Containment Services

  According to the Health Insurance Association of America, private health
insurance claims payments were estimated to be approximately $281.7 billion in
1995. All healthcare payors have out-of-network exposure due to healthcare
claims that are outside their coverage area or network either as a matter of
choice on the part of the insured 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-use,
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 broad access to preferred provider networks.

D. Concentra's 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
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 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 to assist customers
in containing costs related to out-of-network group health medical charges.
CPS is the market leader

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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 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 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.

E. 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.

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Healthcare Services

 Occupational Healthcare Centers

  Our 214 occupational healthcare centers at March 15, 2000, 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 1999, approximately 50% of all patient visits to our centers were for
the treatment of injuries or illnesses and 50% were for substance abuse
testing, physical examinations and other non-injury occupational healthcare
services.

  Each of our centers 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 our occupational
healthcare centers under agreements with the physician groups, 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 our physician
groups with respect to the 393 affiliated physicians as of January 31, 2000,
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;

  .  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.

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  The physician groups operate in accordance with annual budgets established
in consultation with us. The management agreements between the physician
groups and our company provide that in no event shall we have any obligation
to supply out of our funds working capital 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 occupational healthcare centers, we
also retain ultimate authority to determine the type of equipment used in the
centers, the number of medical personnel for each center 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.

 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 revenues. We currently
manage 13 joint ventures through which we operate 34 centers. In addition, we
have entered into 3 management agreements through which we operate 6 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 and 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.

  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.

  For 1999, revenues from healthcare services represented approximately 48% of
our total revenues.

                                       9
<PAGE>

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 services;

  .  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, cost containment services to payors of automobile accident
medical claims and social security disability advocacy services to payors of
long term disability claims.

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

  .  the increasing 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.

 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;

  .  other specialized audit and bill review processes; and

  .  access to a nationwide preferred provider organization network.

                                      10
<PAGE>

  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 four transmission methods to aid the exchange of bill data;

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

  .  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 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.

 First Report of Injury

  Through First Notice Systems, 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
Systems 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.

                                      11
<PAGE>

 Telephonic Case Management

  This service provides for short-duration (30 to 90 days) for 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 act as a referral
source of appropriate cases to our field case management offices.

 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 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 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 1, 2000, Focus's national network includes
approximately 221,600 individual providers and over 3,100 hospitals covering
50 states and the District of Columbia.

 Independent Medical Exams

  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 13 of our service locations and, upon completion, prepare reports
describing their findings.


                                      12
<PAGE>

 Peer Reviews

  Peer review services are provided by a physician, therapist, chiropractor or
other 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 1999, revenues from specialized cost containment services represented
approximately 30% of our total revenues.

Field Case Management Services

  We provide field case management services to the workers' compensation
insurance industry through nurse 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 in 81
offices in 50 states, the District of Columbia and Canada. 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 and
therefore is referred out by the local adjuster to our marketer. 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;

  .  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;

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

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

  For 1999, revenues from field case management services represented
approximately 22% of our total revenues.

F. Customers

  Our occupational healthcare centers currently serve more than 90,000
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 3% of our total revenue in
1999. 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 revenues
are dependent on Medicare or Medicaid reimbursement.

                                      13
<PAGE>

G. 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 360 full-time sales and
marketing personnel, or their part-time equivalent.

  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.

H. 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.

I. 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 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.

                                      14
<PAGE>

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;

  .  our information systems; and

  .  the prices at which we offer our services.

J. 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 substantially completed the implementation of a wide area network,
or WAN, in each market in which we provide healthcare services. When the
implementation is complete, 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 our operations in the market. Creating
a WAN in each market allows the centers in the market to share information and
thereby improve center and physician efficiencies and enhance customer
service. We are linking each market WAN into a nationwide WAN in order to
create 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, in the future, may license 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 newly-developed Integrated Case Management Software System aids and
speeds up the daily tasks of our field and telephonic 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 and will be fully 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

                                      15
<PAGE>

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 development and
implementation of the Integrated Case Management Software System will allow
for shared data in situations in which multiple case managers are working on a
case. The Integrated Case Management Software System will also create better
customer access to information and allow 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. 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' 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'
client preference profile that is created at the time of CPS' 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.

K. Government Regulation

General

  As a provider of healthcare management and cost containment 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.

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

                                      16
<PAGE>

and where those services will be provided and attempt to contain medical costs
associated with workers' compensation claims. At present, 24 of the states in
which we do business have implemented treatment specific fee schedules that
set maximum reimbursement levels for healthcare services. Of the states in
which we do business, 8 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

  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 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.

  At least 7 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.


                                      17
<PAGE>

  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.

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.

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.

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
centers to be in violation

                                      18
<PAGE>

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.

L. 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 revenues 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."

M. Insurance

  We and our physician groups maintain medical malpractice insurance in the
amount of $1.0 million per incident and $3.0 million annual aggregate per
provider, subject to an annual aggregate limit in the amount 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 an errors and omissions liability insurance
policy covering all aspects of our managed care services. This policy has
limits of $1.0 million per claim and $3.0 million annual aggregate.

  In addition, we maintain $1.0 million per occurrence and $3.0 million annual
aggregate of general liability insurance and an umbrella policy that provides
excess insurance coverage for medical malpractice and for errors and omissions
in the amount of $30.0 million in the aggregate.

N. Employees

  We had approximately 8,800 employees at March 15, 2000. None of our
employees is subject to a collective bargaining agreement. 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.

O. Risk Factors

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

  As of December 31, 1999, our consolidated indebtedness was approximately
$567.7 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 $3.8 million and
interest payments related to the Company's debt of approximately $68.0
million.

  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.

                                      19
<PAGE>

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, 1999 were 1.75 to 1.00 and
5.50 to 1.00, respectively. We were in compliance with these ratios at
December 31, 1999, with a debt service ratio of approximately 2.33 to 1.00 and
a leverage ratio of approximately 5.35 to 1.00. On March 21, 2000, Concentra
Operating amended its $475 million credit agreement with a consortium of banks
(the "Credit Facility"). Under the terms of the amended agreement, the
financial compliance ratios have been modified to allow the Company to satisfy
an increased leverage ratio requirement and a decreased interest coverage
ratio requirement. 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. Company management believes the amended
agreement will enable Concentra to meet the terms of the financial compliance
ratios for the foreseeable future. These ratios become more restrictive in
future quarters. 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.


                                      20
<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 consist of our management not having enough time to focus on
managing all aspects of our business and operations, our response time to
customer inquiries to increase, our customer service to decline 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 revenues 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 suits 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

                                      21
<PAGE>

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
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.


                                      22
<PAGE>

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

  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 statutory anti-referral provisions, known as 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.

  At least 7 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 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 reinterpreted or amended, 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.

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
that may be terminated by either party upon 90 days notice. While we have
historically maintained a good relationship with the licensor, we cannot
assure you that the licensor will not terminate this software license or that
the licensor will continue the license on its existing terms. We are currently
negotiating an extension of this software license. Although we believe that
alternative 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

                                      23
<PAGE>

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."

ITEM 2. PROPERTIES

  As of March 15, 2000, 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. Eleven of our offices are leased from Colonial Realty Trust,
of which Lois E. Silverman, a former director of Concentra, is a trustee and
beneficiary. 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 aware of 1 consolidated lawsuit that was originally filed in
3 suits by alleged stockholders of CMC relating to CMC's merger with Yankee.
All 3 lawsuits were filed in the Chancery Court for New Castle County,
Delaware. Each lawsuit named CMC, its directors and Yankee as defendants. The
plaintiffs in each lawsuit sought to represent a putative class of all public
holders of CMC common stock. The lawsuits sought among other things,
preliminary and permanent injunctive relief prohibiting consummation of the
merger, unspecified damages, attorneys' fees and other relief. Prior to the
merger, CMC reached an agreement in principle to settle such litigation. In
connection with the settlement, CMC amended the proxy statement mailed to its
stockholders to disclose prior to the merger the relationship between CMC,
WCAS and the individuals affiliated with WCAS. In return, CMC, WCAS and their
respective affiliates, officers, directors and other representatives have been
released from all claims of the class. Under the terms of the settlement, the
defendants agreed to pay up to $325,000 in court-awarded attorney's fees and
expenses. On March 17, 2000, the Delaware court entered a final judgment
dismissing all claims in accordance with the settlement.

  The Company is party to certain other claims and litigation in the ordinary
course of business. Other than as described in the preceding paragraph, 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

  During the fourth quarter of 1999, no matter was submitted to a vote of
security holders.

                                    PART II

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

  As a result of the 1999 merger and our recapitalization in August 1999,
neither Concentra Operating nor CMC has publicly held shares outstanding.

ITEM 6. SELECTED FINANCIAL DATA

  Selected Financial Data is included in this Form 10-K in Note 13, Selected
Financial Data, to the Company's Consolidated Financial Statements on page F-
23.

                                      24
<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.

Recapitalization Transaction

  On August 17, 1999, Concentra Managed Care, Inc. ("CMC") merged with Yankee
Acquisition Corp. ("Yankee"), a corporation formed by Welsh, Carson, Anderson
& Stowe ("WCAS"), a 14.9% stockholder of CMC. As a result of the merger,
41,056,966 shares of CMC common stock were converted to $16.50 per share in
cash. The remaining 6,343,203 shares held by Yankee were not converted. WCAS
acquired approximately 86%, funds managed by Ferrer Freeman Thompson & Co.
("Ferrer Freeman") acquired approximately 7%, and other investors acquired
approximately 7% of the post-merger shares of common stock of CMC, Concentra
Operating's parent company, for $16.50 per share. Simultaneous with the right
to receive cash for shares, Yankee merged with and into CMC and CMC
contributed all of its operating assets, liabilities and shares in its
subsidiaries, including Concentra Health Services, Inc., Concentra Managed
Care Services, Inc. and Concentra Preferred Systems, Inc., with the exception
of $110 million of 14% Senior Discount Debentures due 2010 and $327.7 million
of 6.0% and 4.5% Convertible Subordinated Notes, to Concentra Operating, a
wholly-owned subsidiary of CMC. The 6.0% and 4.5% Convertible Subordinated
Notes were substantially retired during the third quarter of 1999 as a result
of the merger. The merger was accounted for as a recapitalization transaction,
with no changes to the basis of assets, liabilities or shares in its
subsidiaries, including Concentra Health Services, Inc. and Concentra Managed
Care Services, Inc.

  The merger transaction was valued at approximately $1.1 billion, including
the refinancing of $327.7 million of the 6.0% and 4.5% convertible
subordinated notes that were tendered during the third quarter. To finance the
acquisition of CMC, WCAS, Ferrer Freeman, and the other investors invested
approximately $423.7 million in equity financing, including the value of
shares already owned by WCAS, and $110.0 million of 14% senior discount
debentures due 2010 with warrants issued by CMC exercisable for its common
shares. Concentra Operating received from various lenders $375.0 million in
term loans, a $100.0 million revolving credit facility to replace the pre-
merger revolving credit facility and $190.0 million of 13% series A senior
subordinated notes due 2009. Concentra Operating excess cash balances funded
merger and financing related fees and expenses and related employee stock
option exercises and cancellation payments.

  Concentra Operating incurred $18.0 million of deferred financing fees for
the issuance of the merger-related financing and recorded a non-recurring
charge of $54.4 million in the third quarter of 1999 incurred primarily

                                      25
<PAGE>

for fees, expenses and other non-recurring charges associated with the merger.
Through December 31, 1999, we paid approximately $17.9 million for
professional fees and services, $14.5 million for employee-related stock
option exercises and cancellations, $10.5 million for a WCAS transaction fee
for advisory and consulting services provided to us in connection with the
merger and the related financing, $1.5 million of other personnel-related
costs and $1.8 million of other non-recurring charges, and used $5.5 million
for non-cash deferred compensation expense related to the accelerated vesting
and issuance of 210,000 shares of restricted stock. At December 31, 1999,
approximately $2.7 million of the non-recurring charge remains for
professional fees and services and other non-recurring items incurred in
connection with the merger.

Overview

  CMC was formed on August 29, 1997 through the merger of OccuSystems, Inc.
and CRA Managed Care, Inc. That merger was a tax-free stock for stock exchange
accounted for as a pooling-of-interests. As discussed above, following the
1999 merger with Yankee, CMC contributed all of its assets and shares in its
subsidiaries, including Concentra Health Services, Inc. and Concentra Managed
Care Services, Inc., to Concentra Operating, a wholly-owned subsidiary of CMC.

  Throughout this report, we refer to Concentra Health Services, Inc. as
Health Services and Concentra Managed Care Services, Inc. as Managed Care
Services. The following represents a discussion and analysis of the operations
of CMC through August 17, 1999 and of Concentra Operating from August 18, 1999
through December 31, 1999. CMC and Concentra Operating are presented together,
since they represent the same reporting entity for the periods presented.

  Through Health Services, we manage occupational healthcare centers at which
we provide support personnel, marketing, information systems, and management
services to our affiliated physicians. Health Services, and the joint ventures
which Health Services controls, own all of the operating assets of our
occupational healthcare centers, including leasehold interests and medical
equipment. At our centers, we generate net patient service revenues primarily
from the diagnosis, treatment and management of work-related injuries and
illnesses and from other occupational healthcare services, such as employment-
related physical examinations, drug and alcohol testing, functional capacity
testing and other related programs. For the years ended December 31, 1997,
1998 and 1999, Health Services derived 63.5%, 63.1%, and 63.3% of its net
revenues from the treatment of work-related injuries and illnesses,
respectively, and 36.5%, 36.9% and 36.7% of its net revenues 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 organized professional corporations that hire
licensed physicians and physical therapists to provide medical services to our
centers' patients. 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.
Specifically:

  .  Health Services can at all times establish or effect change in the
     nominee shareholder;

  .  Health Services can cause a change in the nominee shareholder an
     unlimited number of times;

  .  Health Services has sole discretion without cause to establish or change
     the nominee shareholder;

  .  Health Services and each physician group would incur no more than a
     nominal cost to cause a change in the nominee shareholder; and

  .  neither Health Services nor the physician groups are subject to any
     significant adverse impact upon a change in the nominee shareholder.

  The management fees we collect from each physician group are calculated as
collected revenue net of compensation, benefits and other expenses incurred by
the groups.


                                      26
<PAGE>

  Through Managed Care Services, we provide specialized cost containment and
field case management services designed to reduce costs associated with
workers' compensation, disability and automobile accident coverage. Managed
Care Services earns most of its revenues on a fee-for-service or percentage-
of-savings basis. The specialized cost containment services we provide include
our:

  .  out-of-network bill review services;

  .  first-report-of-injury, utilization management, precertification and
     concurrent review;

  .  retrospective medical bill review;

  .  telephonic case management;

  .  preferred provider organizations, or preferred provider organization
     network access;

  .  independent medical examinations; and

  .  peer reviews.

  We have designed each service to reduce the cost of workers' compensation
claims, automobile accident injury claims and group health claims.

  On February 24, 1998, we merged CMC with Preferred Payment Systems, Inc. in
a pooling-of-interests transaction. This merger significantly expanded our
presence in the out-of-network group health bill review market. Preferred
Payment Systems, now operating as Concentra Preferred Systems, Inc. ("CPS"),
is a nationwide provider of specialized cost containment and outsourcing
services for healthcare payors. In the first quarter of 1998, we recorded a
non-recurring charge of $12.6 million primarily associated with our merger
with Preferred Payment Systems. Managed Care Services has also experienced
significant growth in its specialized cost containment services by virtue of
the acquisitions of:

  .  Focus Healthcare Management, Inc. on April 2, 1996;

  .  Prompt Associates, Inc. on October 29, 1996;

  .  First Notice Systems, Inc. on June 4, 1997;

  .  About Health, Inc. by Preferred Payment Systems in a two-step
     transaction on August 1, 1997 and October 31, 1997; and

  .  other smaller acquisitions.

  Our field case management services involve 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 their return to work. Our field case
management gross profit margins deteriorated in the second half of 1998 and we
reorganized field case management services in the fourth quarter of 1998. The
reorganization was designed to improve efficiency through facility
consolidations and related headcount reductions. In connection with our
reorganization, we recorded a non-recurring charge of $20.5 million related to
the reorganization, settling claims on 6 expired contracts and for the write-
off of assets, including customer lists, the value of the trained workforce
and furniture and fixtures we acquired from an insurance carrier associated
with a contract which we subsequently determined to be unprofitable. We
believe that the current size of our field case management office network is
sufficient to serve the needs of our nationwide customers. As a result, we
anticipate opening only a few new field case management offices per year if
client needs in selected regions require it. We would, however, examine the
possibility of acquiring additional field case management offices or
businesses if an appropriate strategic opportunity were to arise.


                                      27
<PAGE>

  The following table provides certain information concerning our service
locations:

<TABLE>
<CAPTION>
                                                   Year Ended December 31,
                                                   ---------------------------
                                                    1997      1998      1999
                                                   --------  --------  -------
<S>                                                <C>       <C>       <C>
Service locations at the end of the period:
Occupational healthcare centers(1)...............       140       156      209
Cost containment services offices(2).............        83        85       61
Field case management offices(3).................       123        89       81
Occupational healthcare centers acquired during
 the period(4)...................................        22        12       53
Occupational healthcare centers developed during
 the period......................................         8         4      --
Number of affiliated physicians at the end of the
 period..........................................       252       278      362
Occupational healthcare centers--same market
 revenue growth(5)...............................      11.0%     11.4%     8.1%
</TABLE>
--------
(1) Does not include the assets of the occupational healthcare centers which
    were acquired and subsequently divested or consolidated into existing
    centers within the same market during the period.
(2) The decline in cost containment services offices in 1999 is primarily due
    to a facility consolidation in the fourth quarter of 1999.
(3) The decline in field case management offices in 1998 is primarily due to
    the fourth quarter of 1998 reorganization which included facility
    consolidations. The 1999 decline is primarily due to a facility
    consolidation in the fourth quarter of 1999.
(4) Represents occupational healthcare centers which were acquired during each
    period presented and not subsequently divested.
(5) Occupational healthcare centers same market revenue growth sets forth the
    aggregate net change in revenue 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 acquisitons of additional centers).

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

Revenues

  Our total revenues increased 11.5% in 1999 to $681.4 million from $611.1
million in 1998. Health Services' revenues increased 27.2% in 1999 to $330.1
million from $259.5 million in 1998. Managed Care Services' revenues decreased
0.1% in 1999 to $351.3 million as specialized cost containment revenues
increased 11.1% in 1999 to $204.1 million from $183.7 million in 1998, and
field case management revenues 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 which include:

  .  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; and

  .  effects of weather conditions on national injuries.

  We anticipate that the same market revenue growth will stabilize at current
levels.


                                      28
<PAGE>

  The increase in specialized cost containment revenue is largely attributable
to growth in:

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

  .  preferred provider organization network access fees;

  .  first report of injury services; and

  .  telephonic case management services in existing locations.

  The decrease in field case management 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 lessor 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 has increasingly provided a portion
of its services under a "task-based" approach, where the customer selects the
specific tasks field case management performs. This new approach has caused a
reduction in the billable hours per case and has thereby decreased field case
management revenue. We anticipate billable hours per case will continue to
decrease with the continued increase in the portion of the Company's services
being provided under a "task-based" approach, although this decrease and its
corresponding decrease in revenue may be somewhat mitigated or overcome by
increases in case volume as demand for this new approach increases.

  Our total contractual allowances, related to Health Services and CPS, offset
against revenues during the years ended December 31, 1999 and 1998 were $27.8
million and $16.1 million, respectively.

Cost of Services

  Our total cost of services increased 13.9% in 1999 to $534.5 million from
$469.3 million in 1998. Health Services' cost of sales increased 31.8% in 1999
to $265.1 million from $201.2 million in 1998 while Managed Care Services'
cost of services increased 0.5% in 1999 to $269.4 million from $268.1 million
in 1998.

  Our 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 while Managed Care Services' gross profit margin
decreased slightly to 23.3% in 1999 compared to 23.7% in 1998.

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

  .  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; and

  .  an acceleration in the roll-out of patient tracking and billing systems
     into the medical centers, which resulted in additional depreciation
     expenses 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. We will continue to pursue acquisitions of
clinics in 2000 that complement our existing centers.

                                      29
<PAGE>

  Managed Care Services' gross profit margins decreased slightly in 1999 due
primarily to a slowdown in field case management revenue and a decrease in
provider bill review and claims review gross profit margins, partially offset
by an increase in specialized cost containment services revenue which has
historically had higher gross profit margins than field case management.

  Provider bill review gross profit margins decreased primarily due to:

  .  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; and

  .  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.

  We expect the gross profit margin for provider bill review to continue to be
negatively affected for 2000 due to the impact of certain pricing concessions
and due to an increase in software maintenance fees associated with a third
party software supplier. We continue to review procedures and systems for
provider bill review services to identify and resolve small variances in
customer payments. We also regularly review the status of accounts receivable
and adjust our reserves as necessary. We do not anticipate that these
adjustments will have a material negative impact on future gross profit
margins or liquidity.

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.

  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 consisted of the following (amounts
in thousands):

<TABLE>
   <S>                                                                <C>
   Goodwill, amortization period of 25 years......................... $322,699
   Customer lists, amortization period of 7 years....................    1,087
   Assembled workforce, amortization period of 5 years...............    1,198
                                                                      --------
   Total intangible assets, weighted average amortization period of
    24.9 years....................................................... $324,984
                                                                      ========
</TABLE>

Non-Recurring Charge

  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.
Through December 31, 1999, we had paid approximately $5.6 million

                                      30
<PAGE>

for professional fees and services, $2.7 million in costs associated with
personnel reductions, $0.8 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 indebtedness retired and $1.5 million of other non-
recurring costs. At December 31, 1999, approximately $0.5 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 Managed Care
Services 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,
1999, we had incurred approximately $7.4 million in charges for the write-off
of assets related to the acquired contract and paid $3.9 million in costs
associated with personnel reductions, $1.0 million in costs associated with
settling claims on other expired contracts, $4.5 million in facility
consolidations and $0.2 million of other non-recurring costs. At December 31,
1999, approximately $3.5 million of the non-recurring charge remains,
primarily related to remaining facility lease obligations with terms expiring
through November 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 merger. Through December 31, 1999, we had paid
approximately $17.9 million for professional fees and services, including
legal, accounting and regulatory fees, $14.5 million for employee related
stock option exercises and cancellations, $10.5 million for a Welsh Carson
transaction fee for advisory and consulting services provided to us in
connection with the merger and related financing, $1.5 million of other
personnel-related costs, and $1.8 million of other non-recurring charges and
incurred approximately $5.5 million in non-cash charges for deferred
compensation expense related to the accelerated vesting and issuance of
210,000 shares of restricted stock. At December 31, 1999, approximately $2.7
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.

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. We expect interest expense to be approximately
$68 million in 2000 as a result of our increased borrowings being outstanding
for a full year and, to a lesser extent, because of the interest rate increase
under the terms of our recently amended Credit Facility. See "Liquidity and
Capital Resources."

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, and the payment to Preferred Payment Systems' dissenting
shareholders.


                                      31
<PAGE>

Other, net

  Other income increased $0.4 million in 1999 to $0.4 million in other income
from $44,000 in other expense in 1998. Other income and expense, net primarily
relates 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 merger
in 1999 and the Preferred Payment Systems merger in 1998. We expect to
continue to provide for taxes at an effective tax rate of approximately 46%
for next year as the increase in interest expense and goodwill amortization
from the change in the amortization period to 25 years results in lower pre-
tax earnings while expense items not deductible for tax, such as goodwill and
non-deductible meals and entertainment, result in a higher tax provision.

Results of Operations for the Years Ended December 31, 1998 and 1997

Revenues

  Our total revenues increased 24.9% in 1998 to $611.1 million from $489.3
million in 1997. Health Services' revenues increased 24.9% in 1998 to $259.5
million from $207.7 million in 1997. Managed Care Services' revenues increased
24.8% in 1998 to $351.6 million from $281.6 million in 1997, as our
specialized cost containment revenues increased 28.6% in 1998 to $183.7
million from $142.9 million in 1997 and our field case management revenues
increased 21.0% in 1998 to $167.8 million from $138.7 million in 1997.

  Health Services' revenue growth was due to:

  .  our acquisition of 16 occupational healthcare centers;

  .  our management of an additional 4 occupational healthcare centers
     pursuant to a management contract acquired in the fourth quarter of
     1997;

  .  an increase in business in our existing markets;

  .  development of sites in new markets; and

  .  an increase in our consulting and other ancillary services.

  Managed Care Services' specialized cost containment revenue growth was
largely attributable to:

  .  the growth of Preferred Payment Systems through its acquisition of About
     Health, First Notice Systems and other immaterial entities; and

  .  the growth in retrospective medical bill review, telephonic case
     management and claims reviews services in our existing service
     locations.

  Managed Care Services' field case management revenue growth was primarily
due to the business we generated from two field case management acquisitions
and the continued growth in revenues from our existing service locations.

  Our total contractual allowances offset against revenues during the years
ended December 31, 1998 and 1997 were $16.1 million and $14.7 million,
respectively.

                                      32
<PAGE>

Cost of Services

  Our total cost of services increased 25.9% in 1998 to $469.3 million from
$372.6 million in 1997. Health Services' cost of services increased 29.5% in
1998 to $201.2 million from $155.4 million in 1997, while Managed Care
Services' cost of services increased 23.4% in 1998 to $268.1 million from
$217.3 million in 1997.

  Our total gross profit margins decreased slightly to 23.2% in 1998 compared
to 23.8% in 1997. Health Services' gross profit margins decreased to 22.5% in
1998 compared to 25.2% in 1997, while Managed Care Services' gross profit
margins increased to 23.7% in 1998 compared to 22.9% in 1997.

  Health Services' gross profit margins decreased principally because of:

  .  an acceleration in the roll-out of patient tracking and billing systems
     into our occupational healthcare centers;

  .  increased spending on marketing and facility improvements; and

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

  Managed Care Services recognized improvement in gross profit margins
primarily because of a shift in its revenue mix towards specialized cost
containment services, including the services provided by Preferred Payment
Systems, About Health, and First Notice Systems. Revenues from these services
have historically had higher gross profit margins than revenues derived from
field case management. Although gross profit margins improved slightly in
1998, they were negatively affected by a decrease in provider bill review
gross profit margins and a slow down in the growth of field case management
revenues and resulting gross profit margins. The provider bill review gross
profit margins decrease was due primarily to start-up costs, pricing
concessions on new customers and an increase in the level of uncollectible
accounts receivable charges.

General and Administrative Expenses

  Our general and administrative expenses increased 13.8% in 1998 to $45.3
million from $39.8 million in 1997, or 7.4% and 8.1% as a percentage of
revenue for 1998 and 1997, respectively. The increase in general and
administrative expenses in 1998 were due primarily to the continued investment
in our Information Services and Technology Group and in our accounting and
administrative personnel.

Amortization of Intangibles

  Our amortization of intangibles increased 37.4% in 1998 to $8.1 million from
$5.9 million in 1997, or 1.3% and 1.2% as a percentage of revenues for 1998
and 1997, respectively. This increase was the result of amortizing additional
intangible assets such as:

  .  goodwill;

  .  customer lists and assembled workforces primarily associated with the
     purchases of First Notice Systems and About Health by Preferred Payment
     Systems;

  .  certain occupational healthcare centers from Vencor, Inc.; and

  .  various smaller acquisitions by Health Services.

Non-recurring Charge

  We recorded non-recurring charges for the years ended December 31, 1998 and
1997 of $33.1 million and $38.6 million, respectively.


                                      33
<PAGE>

  In the first quarter of 1998, we recorded a non-recurring charge of $12.6
million because of our merger of Preferred Payment Systems. The utilization of
this charge through December 31, 1998, was approximately:

  .  $5.1 million for professional fees and services;

  .  $2.4 million in costs associated with personnel reductions;

  .  $0.7 million in facility consolidations and closings;

  .  $1.6 million associated with the write-off of deferred financing fees on
     Preferred Payment; and

  .  $1.3 million of other non-recurring costs.

  In the fourth quarter of 1998, we recorded a non-recurring charge of $20.5
million primarily associated with our reorganization of Managed Care Services.
The utilization of this charge through December 31, 1998 was approximately:

  .  $7.4 million in charges related to the recognition of an impairment loss
     on the intangible related to an acquired contract;

  .  $2.5 million in costs associated with personnel reductions; and

  .  $1.1 million in facility consolidations.

  Our reorganization plan for Managed Care Services, including headcount
reductions and facility consolidations, was developed between early September
and the end of October 1998. We carried out the reorganization plan in late
October and early November 1998 with the headcount reductions of 168 employees
completed and most of the facility consolidations completed or underway in the
fourth quarter of 1998. The restructuring plan has not changed significantly
from our original estimate since most of the actions were completed or
underway by December 31, 1998.

  In the third quarter of 1997, we recorded a non-recurring charge of $38.6
million associated with the merger of CRA and OccuSystems. We finalized our
merger and transition plan during the third quarter of 1997 with much of the
detailed planning occurring in August and September 1997, prior to the end of
the quarter. The merger and transition plan was approved by senior management
in September 1997 and we identified all significant actions to be taken,
including reductions in duplicative personnel. The utilization of this charge
through December 31, 1998, was 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

  .  $2.4 million of other charges.

Interest Expense

  Our interest expense increased $5.4 million in 1998 to $18.0 million from
$12.7 million in 1997 due primarily to our higher outstanding borrowings under
our existing credit facilities to finance acquisitions and the issuance of our
4.5% convertible subordinated notes, offset by the repayment of borrowings
under our existing credit facility and debt assumed in our merger with
Preferred Payment Systems.


                                      34
<PAGE>

Interest Income

  Our interest income increased $2.4 million in 1998 to $4.7 million from $2.3
million in 1997 due principally the increase in our investment of excess cash
as a result of the receipt of $223.6 million in net proceeds from the issuance
of our 4.5% convertible subordinated notes after the payment of:

  .  approximately $122.0 million of outstanding borrowings under our
     existing credit facility;

  .  debt assumed in the merger of Preferred Payment Systems; and

  .  the payment to Preferred Payment Systems dissenting shareholders.

Other Expense, Net

  Our other expense, net primarily consisted of minority investors earnings in
consolidated affiliates of $0.5 million and amortization of start-up costs of
$0.3 million in 1997, partially offset by earnings in unconsolidated
affiliates.

Provision for Income Taxes

  Our provision for income taxes in 1998 and 1997 was $19.3 million and $11.1
million, respectively. On a pro forma basis, giving effect to the Preferred
Payment Systems merger, our provision for income taxes in 1998 and 1997 would
have been $19.3 million and $13.9 million, respectively. This would have
resulted in pro forma effective tax rates of 46.2% and 65.9%, respectively.
Excluding the tax effects of our non-recurring charges in the third quarter of
1997, the first quarter of 1998 and the fourth quarter of 1998, the pro forma
effective tax rate would have been 41.0% for 1998 and 39.3% for 1997.

Seasonality

  Our business is seasonal in nature. Patient visits at our Health Services'
medical centers are 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, Managed
Care Services' field case management revenues are 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 revenues when compared to our
second and third quarters.

Impact Of The Year 2000

  In prior years, we discussed the nature and progress of our plans to become
Year 2000 ready. In late 1999, we completed our remediation and testing of our
systems. As a result of those planning and implementation efforts, we have not
experienced any significant disruptions in mission critical information
technology and non-information technology systems and believe those systems
successfully responded to the Year 2000 date change. We are not aware of any
material problems resulting from Year 2000 issues, either with our products,
our internal systems, or the products and services of third parties.

  The total cost of implementing our Year 2000 Program was $3.9 million. These
costs were not significantly different from our current planned investment for
information technology, and therefore, did not have a material adverse effect
on our long-term results of operations, liquidity or consolidated financial
position. We made capital and noncapital investments in the Information
Services and Technology Group of approximately $32.0 million in 1998 and
approximately $34.7 million in 1999. Of this investment, our Year 2000 Program
Office incurred expenses of approximately $2.1 million through December 31,
1999, primarily associated with the engagement of outside consultants to
assist in the inventory, assessment and remediation of Year 2000 affected
areas. Any

                                      35
<PAGE>

remaining expense relating to other remediation efforts will be charged to
expense as incurred. We will continue to monitor our mission critical computer
applications and those of our suppliers and vendors throughout the year 2000
to ensure that any latent Year 2000 matters that may arise are addressed
promptly.

Liquidity and Capital Resources

  Cash flows generated from operations were $28.3 million, $34.9 million and a
net use of $0.5 million for the years ended December 31, 1999, 1998 and 1997,
respectively. During 1999, working capital used $2.5 million of cash primarily
due to an increase in accounts receivable of $19.2 million, offset by a
decrease in prepaid expenses and income taxes of $8.7 million and an increase
in accounts payable, accrued expenses and income taxes of $13.0 million.
Accounts receivable increased primarily due to continued revenue growth, while
accounts payable, accrued expenses and income taxes increased due to the
timing of payments. Within the next twelve months, it is anticipated that
approximately $4.5 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 $1.8 million of fees and other expenses related to the merger, $0.6
million of employee-related costs, $0.7 million of facility related costs,
$1.3 million of costs associated with settling claims on certain expired
contracts and $0.1 million of other costs.

  We used net cash of $55.2 million in connection with acquisitions and $36.0
million of cash to purchase property and equipment during 1999, the majority
of which was spent on new computer hardware and software technology, partially
offset by $15.5 million provided by the sale of marketable securities.

  Cash flows used by financing activities of $39.4 million in 1999 was due
primarily to the payment of fees and expenses related to the merger and
deferred finance fees related to the merger financing.

  Our capital and non-capital investment in the Information Services and
Technology Group was approximately $34.7 million in 1999. We incur capital
expenditures in the ordinary course of business for the purposes of
information services and technology, improvements to leased facilities and
equipment purchases necessary to support our growth. We currently anticipate
that total capital expenditures over the next 12 months will be consistent
with the past two years. We also do not anticipate any unusual material
capital expenditures.

  We were in compliance with our covenants, including our financial covenant
ratio tests, in 1999. On March 21, 2000, Concentra and its lenders amended its
Credit Facility. Under the terms of the amended agreement, the financial
compliance ratios have been 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. We believe the amended
agreement will enable Concentra to meet the terms of the financial compliance
ratios for the foreseeable future. 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 will be capitalized as deferred financing costs and
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 requires
us to pay that indebtedness. Such an acceleration would also constitute an
event of default under the indenture relating to the 13% Series A Subordinated
Notes and could also result in an acceleration of the 13% Series A
Subordinated Notes before the indenture otherwise requires us to pay the
notes.

  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 at least the next 12
months. 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

                                      36
<PAGE>

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 aware of 1 consolidated lawsuit that was originally filed in
3 suits by alleged stockholders of CMC relating to CMC's merger with Yankee.
All 3 lawsuits were filed in the Chancery Court for New Castle County,
Delaware. Each lawsuit named CMC, its directors and Yankee as defendants. The
plaintiffs in each lawsuit sought to represent a putative class of all public
holders of CMC common stock. The lawsuits sought among other things,
preliminary and permanent injunctive relief prohibiting consummation of the
merger, unspecified damages, attorneys' fees and other relief. Prior to the
merger, CMC reached an agreement in principle to settle such litigation. In
connection with the settlement, and prior to the merger, CMC amended the proxy
statement mailed to its stockholders to disclose the relationship between CMC,
WCAS and the individuals affiliated with WCAS. In return, CMC, WCAS and their
respective affiliates, officers, directors and other representatives have been
released from all claims of the class. Under the terms of the settlement, the
defendants agreed to pay up to $325,000 in court-awarded attorney's fees and
expenses. On March 17, 2000, the Delaware court entered a final judgment
dismissing all claims in accordance with the settlement.

  The Company is party to certain other claims and litigation in the ordinary
course of business. Other than as described in the preceding paragraph, 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 interest rates. In
order to manage this risk under the Credit Facility, we have entered into an
interest rate hedge. 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. For
more information on the interest rate hedge, see Note 5 in the audited
consolidated financial statements of the Company on page F-12.

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.

                                      37
<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 CMC. They have served in these positions with Concentra
Operating since August 17, 1999.

Concentra

  Executive officers of Concentra Operating and CMC 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 CMC 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........  41 Director, President and Chief Executive Officer
Thomas E. Kiraly........  40 Executive Vice President, Chief Financial Officer and Treasurer
James M. Greenwood......  39 Executive Vice President Corporate Development
Richard A. Parr II......  41 Executive Vice President, General Counsel and Secretary
W. Tom Fogarty, M.D.....  52 Senior Vice President and Chief Medical Officer
Bradley T. Harslem......  48 Senior Vice President and Chief Information Officer
Paul B. Queally.........  35 Chairman and Director
John K. Carlyle.........  44 Director
Carlos Ferrer...........  45 Director
D. Scott Mackesy........  31 Director
Steven E. Nelson........  45 Director and President of Concentra Preferred Systems, Inc.
Andrew M. Paul..........  43 Director
</TABLE>

  Daniel J. Thomas has served as a Director of CMC since January 1998 and of
Concentra Operating since August 17, 1999. He has served as President and
Chief Executive Officer of Concentra since September 1998, and he served as
President and Chief Operating Officer of CMC from January 1998 until September
1998. He served as Executive Vice President and President of the Practice
Management Services subsidiary of CMC 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.

  Thomas E. Kiraly has served as Executive Vice President, Chief Financial
Officer and Treasurer of CMC 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 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

                                      38
<PAGE>

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 CMC since February 1998 and as Senior Vice President of
Corporate Development of CMC 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 CMC 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 CMC 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.

  Bradley T. Harslem has served as Senior Vice President and Chief Information
Officer of CMC since December 1999. Prior to joining CMC, Mr. Harslem served
as Chief Information Officer and Chief Outbound Operations Officer for ITI
Marketing Services in Omaha, from December 1996 until its sale to APAC
Customer Services, where he served as Chief Information Officer until November
1999. From December 1993 until November 1996, Mr. Harslem served as Chief
Information Officer for Greyhound Lines in Dallas. Prior to Greyhound, he
worked for 18 years at American Airlines in both the Marketing and Sales
Technology departments. Mr. Harslem's last positions at American Airlines
included Vice President of Operations for the SABRE Travel Information Network
and Vice President of SABRE Computer Services.

  Paul B. Queally has served as a director and the Chairman of CMC and
Concentra Operating since August 17, 1999. He has served as a managing member
or general partner of the respective sole general partner of 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 Chairman of New American
Healthcare Corp and a director of Medcath, Inc. and several private companies.

  John K. Carlyle has served as a Director of CMC since August 1997, as a
director of Concentra Operating since August 17, 1999 , and as Chairman of CMC
from September 1998 until August 17, 1999. Mr. Carlyle also served as Chairman
of the Board of Directors of CMC from August 1997 to January 1998. Mr. Carlyle
is currently President and 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. Mr. Carlyle has served as a director of National Surgery
Centers, Inc., an owner and operator of free standing, multi-specialty
ambulatory surgery centers, since 1991. He also serves as a director of
several other private companies.

  Carlos Ferrer has served as a director of CMC 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 Sicor, Inc. and several private companies and is Chairman of the
Board of Trustees of the Cancer Research Institute.

                                      39
<PAGE>

  D. Scott Mackesy has served as a director of CMC and Concentra Operating
since August 17, 1999. He has served as an employee 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.

  Steven E. Nelson has served as a director of CMC and Concentra Operating
since August 17, 1999. He has served as President of Concentra Preferred
Systems since August 1997. Prior to August 1997, Mr. Nelson served as
President and Chief Executive Officer of Preferred Payment Systems, Inc. since
1990.

  Andrew M. Paul has served as a director of CMC and Concentra Operating since
August 17, 1999. He has served as a managing member or general partner of the
respective sole general partners of WCAS and other associated investment
partnerships since 1984. He is a director of Centennial Healthcare
Corporation, Accredo Health, Incorporated and several private companies.

Section 16(a) Beneficial Ownership Reporting Compliance

  Neither Concentra Operating nor CMC 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 no longer
requires the Company's Directors, executive officers and persons who own more
than 10% of the Company's Common Stock to file reports of holdings and
transactions in Common Stock with the Securities and Exchange Commission.
Based on Company records and other information with respect to the period
during which the common stock of CMC was registered pursuant to Section 12 of
the Exchange Act, the Company believes that all applicable Section 16(a)
reporting requirements were complied with for all transactions which occurred
in 1999.

                                      40
<PAGE>

ITEM 11. EXECUTIVE COMPENSATION

 Summary Compensation Table

  The following table summarizes the compensation paid to CMC's and Concentra
Operating's Chief Executive Officer, CMC's former Chief Executive Officer, and
the four most highly compensated executive officers of CMC and Concentra
Operating other than the Chief Executive Officer and the former Chief
Executive Officer who were serving as executive officers at the end of fiscal
year 1999 during (a) fiscal year 1999 and 1998 by Concentra, and (b) fiscal
year 1997 by CMC and its predecessors, CRA Managed Care, Inc. or OccuSystems,
Inc. 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.......  1999    400,000      200,000          --       191,918(5)
  President and Chief
   Executive             1998    294,241          --       250,000        3,276(6)
  Officer, Director      1997    248,807       65,000      130,000          198

James M. Greenwood.....  1999    270,000       80,000          --       165,341(7)
  Executive Vice
   President of          1998    247,495          --       250,000        3,250
  Corporate Development  1997    212,974       52,500       85,000          198

Richard A. Parr II.....  1999    250,000       70,000          --        52,281(8)
  Executive Vice
   President,            1998    230,000          --        30,000        5,718
  General Counsel and
   Secretary             1997    212,879       52,500       50,000          198

Thomas E. Kiraly (12)..  1999    138,462       25,000       89,803           74
  Executive Vice
   President, Chief      1998        --           --           --           --
  Financial Officer and
   Treasurer             1997        --           --           --           --

W. Tom Fogarty, M.D....  1999    260,000       40,000          --        84,062(9)
  Senior Vice President
   and Chief             1998    240,000          --        30,000        3,416
  Medical Officer        1997    223,671       55,000       75,000          864

Donald J. Larson.......  1999    575,000          --           --       187,043(10)
  Former Chairman,
   President and         1998    434,540          --           --         5,161(11)
  Chief Executive
   Officer               1997    320,204      116,500      100,000        3,200

Joseph F. Pesce (12)...  1999    156,587          --           --       940,159(13)
  Former Chief           1998    289,221          --       230,000        9,243
  Financial Officer      1997    245,096       86,500      130,000       12,720
</TABLE>
--------
(1) Salaries for the currently employed named executives officers effective
    January 1, 2000, are $400,000 for Mr. Thomas, $0 for Mr. Pesce, $270,000
    for Mr. Greenwood, $260,000 for Dr. Fogarty, $250,000 for Mr. Parr and
    $225,000 for Mr. Kiraly.
(2) Bonuses paid during August 1999 were related to activities performed by
    the individual in connection with the merger and were paid at the time of
    the closing of the merger.
(3) Represents long-term awards of options and restricted stock.
(4) Amounts shown represent, to the extent that the named executive officer
    participated in the Employee Stock Purchase and the 401(k) Plans, (a) the
    purchase discount on shares of CMC common stock purchased pursuant to
    CMC's Employee Stock Purchase Plan, (b) CMC's matching provision under
    CMC's 401(k) Plan and (c) premiums paid by Concentra for group term life
    insurance that is taxable compensation to the named executive officers.
(5) Amount includes payment of $191,285 for cancellation of 477,000 options at
    an option price of $19.50 to $33.8750.
(6) 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.

                                      41
<PAGE>

(7) Amount includes payment of $164,575 for cancellation of 352,000 options at
    an option price of $19.50 to $32.6250.
(8) Amount includes payments of $51,260 for cancellation of 115,000 options at
    an option price of $23.1250 to $32.6250.
(9) Amount includes payment of $83,975 for cancellation of 112,000 options at
    an option price of $19.50 to $32.6250.
(10) Amount includes payment of $5,251 for continuation of medical benefits,
     and $160,592 for transfer of cash surrender value of split dollar life
     insurance policy.
(11) Excludes payments totaling $1,354,092 paid to Mr. Larson in connection
     with his resignation from CMC as its Chairman, President and Chief
     Executive Officer in September of 1997 comprised of salary continuation
     payments of $1,150,000, transfer of the cash surrender value of a split-
     dollar life insurance policy of $168,592, consulting fees of $25,000 and
     other benefits of $10,500.
(12) On May 7, 1999, Mr. Kiraly began employment with us. Effective May 25,
     1999, Mr. Kiraly replaced Mr. Pesce as our Chief Financial Officer.
(13) Amount includes payment of $58,738 for transfer of cash surrender value
     of split dollar life insurance policy and $825,000 severance.

Option and Restricted Stock Grants in 1999

  The following tables set forth certain information concerning grants by CMC
of stock options and restricted stock to each of the named executive officers
during 1999. 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 Value
                                                                         at Assumed Annual
                                                                          Rates of Stock
                          Number of   % of Total                               Price
                         Securities    Options                           Appreciation for
                         Underlying   Granted to  Exercise or               Option Term
                           Options   Employees in Base Price  Expiration      ($)(2)
                         Granted (1) Fiscal Year   ($/Share)     Date      5%       10%
                         ----------- ------------ ----------- ---------- ------- ---------
<S>                      <C>         <C>          <C>         <C>        <C>     <C>
Daniel J. Thomas........      --          --           --          --        --        --
James M. Greenwood......      --          --           --          --        --        --
Richard A. Parr II......      --          --           --          --        --        --
Thomas E. Kiraly........   89,803       12.85%       16.50     8/17/09   931,864 2,361,527
W. Tom Fogarty, M.D.....      --          --           --          --        --        --
Donald J. Larsen........      --          --           --          --        --        --
Joseph F. Pesce.........      --          --           --          --        --        --
</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 common stock and a price at which it can be sold.


                                      42
<PAGE>

             Long-Term Incentive Plans-Awards in Last Fiscal Year

<TABLE>
<CAPTION>
                                                                                                  Potential
                                                                                              Realizable Value
                                                                                              at Assumed Annual
                                                                                               Rates of Stock
                                                                                                    Price
                               Number of                                                      Appreciation for
                         Securities Underlying                                                   Option Term
                           Awards Granted (#)         Performance    % of Total     Exercise       ($)(1)
                         --------------------------  Period Until  Options Granted   Price    -----------------
                           Stock        Restricted   Maturation or  to Employees   of Options
                          Options         Stock        Payout(2)   in Fiscal Year  ($/Shares)   5%       10%
                         ------------  ------------  ------------- --------------- ---------- ------- ---------
<S>                      <C>           <C>           <C>           <C>             <C>        <C>     <C>
Daniel J. Thomas........          --            --           --           --           --         --        --
James M. Greenwood......          --            --           --           --           --         --        --
Richard A. Parr II......          --            --           --           --           --         --        --
Thomas E. Kiraly........       89,803             0    1999-2007        12.85%       16.50    931,864 2,361,527
W. Tom Fogarty, M.D. ...          --            --           --           --           --         --        --
Donald J. Larson........          --            --           --           --           --         --        --
Joseph F. Pesce.........          --            --           --           --           --         --        --
</TABLE>
--------
(1) These amounts represent certain assumed rates of appreciation only. Actual
    gains, if any, on stock option exercises will depend upon the future
    market for Concentra common stock and a price at which it can be sold.
(2) The vesting of awards will be as described under footnote(1) of Long-Term
    Incentive Plans-Awards in Last Fiscal Year.

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

  The named executive officers and other key employees of the Company have
been granted new options to acquire up to 10.5% of CMC common stock at a price
per share equal to $16.50 under CMC's 1999 Stock Option and Restricted Stock
Purchase Plan. Some of these new options are non-qualified and vest 20% per
year over a five year period; other options vest upon the achievement of
certain performance criteria.

  The following table provides information about option exercises by the named
executive officers during 1999 and the value realized by them (whether through
CMC or one of its predecessors). The table also provides information about the
number and value of options held by the named executive officers at
December 31, 1999.

<TABLE>
<CAPTION>
                                                        Number of Securities
                                                       Underlying Unexercised     Value of Unexercised
                                                          Options At Fiscal       In-The-Money Options
                            Shares                          Year End (#)        At Fiscal Year End ($)(2)
                         Acquired on       Value      ------------------------- -------------------------
Name                     Exercise (#) Realized ($)(1) Exercisable Unexercisable Exercisable Unexercisable
----                     ------------ --------------- ----------- ------------- ----------- -------------
<S>                      <C>          <C>             <C>         <C>           <C>         <C>
Daniel J. Thomas........   225,000       2,262,500        --            --          --              --
James M. Greenwood......    24,750         408,375        --            --          --              --
Richard A. Parr II......       --              --         --            --          --              --
Thomas E. Kiraly........       --              --         --         89,803         --        1,481,750
W. Tom Fogarty, M.D.....    53,300         508,400        --            --          --              --
Donald J. Larson........       --              --         --            --          --              --
Joseph F. Pesce.........   105,547       1,191,785        --            --          --              --
</TABLE>
--------
(1) Market value of underlying securities based on the closing price of CMC's
    common stock on the Nasdaq Stock Market on the date of exercise, August
    17, 1999 at $16.50 per share, minus the exercise price.
(2) Market value of securities underlying in-the-money options based on the
    closing price of CMC's common stock on August 17, 1999 (the last trading
    day of the fiscal year) on the Nasdaq Stock Market of $16.50.


                                      43
<PAGE>

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 1999.

Other Compensation Arrangements

Employment Agreements

  Each of Daniel J. Thomas, Thomas E. Kiraly, James M. Greenwood, Richard A.
Parr II, W. Tom Fogarty, M.D. and Bradley T. Harslem have entered into
employment agreements between such individuals and CMC. 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 CMC and
     participation in any employee benefit plan adopted by us for our
     employees;

  .  each agreement provides for a severance payment in the event of (1)
     termination by CMC 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. Greenwood, Kiraly, Parr, Fogarty and
     Harslem; provided, however, if termination by Concentra occurs on or
     before August 17, 2000, each agreement provides for a severance payment
     consisting of 2 1/2 year's base salary for Mr. Thomas and two years'
     base salary for each of Messrs. Greenwood, Kiraly, Parr, Fogarty and
     Harslem.

Compensation Plans

1999 Long-Term Incentive Plan

General

  CMC'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 CMC and its subsidiaries and
the interests of our stockholders by providing an opportunity to selected
employees and officers of CMC and its subsidiaries and to other persons
providing services to CMC and its subsidiaries to purchase CMC 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 CMC 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 CMC.

                                      44
<PAGE>

  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 of CMC's Board of Directors (the "Compensation
Committee"), consisting entirely of "Non-Employee Directors" within the
meaning of the Securities Exchange Act of 1934, 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, 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 will not be entitled to a deduction for federal
income tax purposes with respect to the issuance of an incentive stock option,
the transfer

                                      45
<PAGE>

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 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.

  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 ordinary be deductible by Concentra in the same year,
provided that Concentra 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

  CMC has a defined contribution retirement plan which complies with Section
401(k) of the Code. Substantially all employees of CMC and its subsidiaries,
including certain officers and directors of Concentra Operating, who have
completed six months of service are eligible to participate in the Concentra
Managed Care, Inc. 401(k) Plan. Generally, employees may contribute amounts up
to a maximum of 15% of the employee's compensation. Under the plan, CMC has
the option of matching up to 50% of the participants' pretax contributions up
to a maximum of 6% of compensation. For each of 1998 and 1999, CMC elected to
match 50% of up to 4% of compensation.

Employee Stock Purchase Plan

  Until March 2, 1999, CMC maintained an Employee Stock Purchase Plan that
permitted substantially all employees to acquire CMC 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. Periods were

                                      46
<PAGE>

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 CMC administered the
Employee Stock Purchase Plan. On March 2, 1999, CMC terminated the Employee
Stock Purchase Plan. The final period for which participating employees
acquired shares of CMC's common stock began on January 1, 1999 and ended March
2, 1999.

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 CMC common stock for $0.01 per
Warrant granted to holders of CMC's 14% Senior Discount Debentures, the
Company had, as of December 31, 1999, issued or assumed from its predecessors
or acquired companies options or warrants to purchase an aggregate of 850,263
shares of common stock pursuant to separate agreements between the Company and
the holders thereof. The 850,263 options that are currently outstanding have
an average exercise price of $6.37 per share, and are subject to various
vesting provisions.

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

Compensation Committee Interlocks and Insider Participation

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

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

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

  All of the issued and outstanding capital stock of Concentra Operating is
owned by CMC. The table below contains information regarding the beneficial
ownership of CMC's common stock as of March 15, 2000, by

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

  .  each director of CMC,

  .  each executive officer, and

  .  all directors and officers as a group.

  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

                                      47
<PAGE>

respect to the CMC common shares shown as beneficially owned. The percentage
ownership of each stockholder is calculated based on 25,672,748 shares
outstanding as of March 15, 2000.

<TABLE>
<CAPTION>
                                                                        Beneficial Ownership
                                                                        ---------------------
                 Name                                                     Amount   Percentage
                 ----                                                   ---------- ----------
<S>                                                                     <C>        <C>
Welsh, Carson, Anderson & Stowe VIII, L.P.(1).......................... 16,889,066   65.79%
  320 Park Avenue, Suite 2500
  New York, NY 10022
Health Care Capital Partners L.P.(2)...................................  1,854,545    7.22
  c/o Ferrer Freeman Thompson & Co.
  The Mill
  10 Glenville Street
  Greenwich, CT 06831
California State Teachers' Retirement System...........................  1,322,473    5.15
  c/o Welsh, Carson, Anderson & Stowe
  320 Park Avenue, Suite 2500
  New York, NY 10022
Paul B. Queally(3)..................................................... 16,394,343   63.86
  c/o Welsh, Carson, Anderson & Stowe
  320 Park Avenue, Suite 2500
  New York, NY 10022
Carlos Ferrer(4).......................................................  1,854,545    7.22
  c/o Ferrer Freeman Thompson & Co.
  The Mill
  10 Glenville Street
  Greenwich, CT 06831
D. Scott Mackesy(5).................................................... 16,384,170   63.82
  c/o Welsh, Carson, Anderson & Stowe
  320 Park Avenue, Suite 2500
  New York, NY 10022
Andrew M. Paul(6)...................................................... 16,440,848   64.04
  c/o Welsh, Carson, Anderson & Stowe
  320 Park Avenue, Suite 2500
  New York, NY 10022
John K. Carlyle........................................................        --        *
Daniel J. Thomas.......................................................     33,000       *
Thomas E. Kiraly.......................................................        --        *
James M. Greenwood.....................................................      8,250       *
Richard A. Parr II.....................................................     15,000       *
W. Tom Fogarty, M.D....................................................     50,000       *
Bradley T. Harslem.....................................................        --        *
Steven E. Nelson.......................................................     18,182       *
All directors and executive officers as a group (12 individuals)....... 18,455,164   71.89
</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.

                                      48
<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.
(6) Certain of the shares reflected as owned by Mr. Paul are owned of record
    by Welsh, Carson, Anderson & Stowe VIII, L.P. (16,312,856) and WCAS
    Healthcare Partners, L.P. (60,606). Mr. Paul disclaims beneficial
    ownership of such shares.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Equity Investor Agreements

 Purchase Agreement

  In connection with its investment in Yankee, Ferrer Freeman entered into a
subscription agreement to purchase 1,854,545 shares of Yankee's Class A common
stock immediately prior to the merger, representing approximately 7% of
Yankee's outstanding capital stock. The Class A common stock of Yankee is
identical in all respects to Yankee's common stock except that the holders of
Class A common stock are entitled to elect one member to Yankee's board of
directors. In the merger, these shares of Yankee's Class A common stock were
converted into an equal number of shares of Class A common stock of CMC with
the same rights as Yankee's Class A common stock prior to the merger.

  In connection with their investment in Yankee, the WCAS investors and the
other investors entered into a subscription agreement to purchase 23,821,953
shares of Yankee's common stock immediately prior to the merger, representing
approximately 93% of Yankee's outstanding capital stock. In the merger, these
shares of Yankee's common stock were converted into an equal number of shares
of CMC common stock with the same rights as Yankee's common stock prior to the
merger.

 Stockholders Agreement

  The WCAS investors, the other investors, Ferrer Freeman and CMC also entered
into a stockholders agreement. The stockholders agreement does not provide for
any agreements with the WCAS investors, the other investors, and Ferrer
Freeman with respect to voting of shares or management of CMC. The
stockholders agreement provides for:

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

  .  tag along rights for Ferrer Freeman, the other investors, and the WCAS
     investors, other than WCAS, to participate in proposed dispositions of
     CMC common stock by WCAS;

  .  in the event that WCAS receives a third party offer to purchase a
     significant portion of the outstanding CMC common stock, WCAS may
     require Ferrer Freeman, the WCAS investors and the other investors to
     accept the offer and sell their shares of CMC to the third party; and

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

                                      49
<PAGE>

 Registration Rights Agreement

  At the same time they executed the stockholders agreement, the WCAS
investors, the other investors, Ferrer Freeman and CMC entered into a
registration rights agreement. The registration rights agreement gives the
investors rights to require CMC to register their shares of CMC capital stock
under the Securities Act and to include, upon request, their shares in any
other registration of shares by CMC.

The Merger and Discount Debentures

  WCAS controlled Yankee prior to the merger. Messrs. Queally and Paul, who
are members of the general partner of Welsh Carson, may be deemed to have
controlled Yankee prior to the merger. For a description of the merger see
Item 1. "Business," and Item 7 "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

  In addition, WCAS Capital Partners III, L.P., an investment partnership
affiliated with WCAS, bought $83.9 million face amount of 14% senior discount
debentures due 2010 of Concentra and warrants to acquire 619,356 shares of
Concentra common stock for $42.7 million at the time of the merger. 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.

Other Related Party Transactions

  Lois E. Silverman, who was a director of CMC until August 17, 1999, is one
of the trustees and beneficiaries of Colonial Realty Trust, which leases 12
offices to CMC and its subsidiaries for an annual aggregate consideration of
$700,000. We believe that the rental rates paid to Colonial Realty Trust are
fair market rental rates.

  W. Tom Fogarty, M.D., an executive officer of CMC 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 $161,347,000 in management fees to the Company in
1999 under its management agreement.

  CMC has entered into employment agreements with Daniel J. Thomas, James M.
Greenwood, Thomas E. Kiraly, Richard A. Parr II, W. Tom Fogarty, M.D and
Bradley T. Harslem. See Item 11 "Executive Compensation--Other Compensation
Arrangements" for a discussion of the terms of these agreements.

                                      50
<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.

<TABLE>
   <S>                                                                     <C>
   Report of Independent Public Accountants............................... F-1
   Consolidated Balance Sheets-December 31, 1998 and 1999................. F-2
   Consolidated Statements of Operations-Years Ended December 31, 1997,
    1998 and 1999......................................................... F-3
   Consolidated Statements of Cash Flows-Years Ended December 31, 1997,
    1998 and 1999......................................................... F-4
   Consolidated Statements of Stockholders' Equity (Deficit)-Years Ended
    December 31, 1997, 1998 and 1999...................................... F-5
   Notes to Consolidated Financial Statements............................. F-6
</TABLE>

  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:

<TABLE>
<CAPTION>
 Exhibit
 Number                               Description
 -------                              -----------
 <C>     <S>
    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 CMC'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
          Managed Care, Inc. ("CMC") and Preferred Payment Systems, Inc.
          (incorporated by reference to Exhibit 2.2 to CMC'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 CMC (incorporated by reference to Exhibit 2.1
          to CMC'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 CMC (incorporated by
          reference to Exhibit 2.1 to CMC's Current Report on Form 8-K filed
          on July 14, 1999).

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

   *3.2  Amended and Restated By-Laws of COC.

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

   *3.4  Amended and Restated By-Laws of Concentra Management Services, Inc.
</TABLE>

                                      51
<PAGE>

<TABLE>
 <C>    <S>
   *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 Prompt Associates,
         Inc.

   *3.8 Amended and Restated By-Laws of Prompt Associates, Inc.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

   *4.1 Indenture dated as of August 17, 1999, between COC 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 CMC 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, CMC 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 CMC'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 CMC
         and United States Trust Company of New York, as Trustee, relating to
         the 6% Convertible Subordinated Notes due 2001.
</TABLE>


                                       52
<PAGE>

<TABLE>
 <C>     <S>
     4.6 Indenture dated as of March 16, 1998, between CMC and ChaseBank of
          Texas, N.A., as Trustee, (the "Concentra Indenture") relating to the
          4.5% Convertible Subordinated Notes due 2003 (incorporated by
          reference to Exhibit 4.1 to CMC's Current Report on Form 8-K filed on
          March 30, 1998).

    *4.7 First Supplemental Indenture dated as of August 17, 1999, between CMC
          and Chase Bank of Texas, N.A., as Trustee, relating to the 4.5%
          Convertible Subordinated Notes due 2003.

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

     4.9 Form of 13% Series B Senior Subordinated Notes due 2009 of COC
          (included in Exhibit 4.1).

    4.10 Form of 14% Senior Discount Debentures due 2010 of CMC (included in
          Exhibit 4.2).

    4.11 Form of 6% Convertible Subordinated Notes due 2001 of CMC (included in
          Exhibit 4.3).

    4.12 Form of 4.5% Convertible Subordinated Notes due 2003 of CMC (included
          in Exhibit 4.4).

    4.13 Form of Warrant to acquire CMC common stock (included in Exhibit 4.8).

   *4.14 Registration Rights Agreement dated as of August 17, 1999 by and among
          COC, 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.

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

   *10.1 Purchase Agreement dated August 17, 1999, by and among COC, 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
          COC's 13% Senior Subordinated Notes due 2009, Series A.

   *10.2 Credit Agreement dated as of August 17, 1999, among CMC, COC, 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
          CMC, COC, 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.

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

                                       53
<PAGE>

<TABLE>
 <C>       <S>
    ++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 CMC and W.
            Tom Fogarty.

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

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

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

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

 ++**10.16 Employment Agreement dated as of December 7, 1999, between CMC and
            Bradley T. Harslem.

     10.17 Indemnification Agreement dated as of September 17, 1997, between
            CMC and Daniel J. Thomas (identical agreements were executed
            between CMC 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 CMC'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 CMC and
            Hon. Willis D. Gradison, Jr. (identical agreements executed between
            CMC 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 CMC's Quarterly Report on Form 10-Q
            for the quarter ended June 30, 1998).


   **10.19 Amended and Restated Software License Agreement dated as of May 1,
            1999, between Concentra Managed Care Services, Inc. and HNC
            Insurance Solutions (confidential treatment requested).

     10.20 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).

     10.21 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).

     10.22 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).

    *10.23 Stockholders Agreement dated as of August 17, 1999 by and among CMC
            and the several persons named in Schedules I and II thereto.
</TABLE>

                                       54
<PAGE>

<TABLE>
 <C>     <S>
  *10.24 Registration Rights Agreement dated as of August 17, 1999 by and among
          CMC 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 COC.

   *23.2 Consent of Arthur Andersen LLP.

  **27.1 Financial Data Schedule.
</TABLE>
--------
 * 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.

Reports On Form 8-K

  During the quarter ended December 31, 1999, the Registrant filed no Current
Reports on Form 8-K.

                                       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 30th day
of March, 2000.

                                          Concentra Operating Corporation

                                                  /s/ Thomas E. Kiraly
                                          By: _________________________________
                                                      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   March 30, 2000
______________________________________  Officer and Director
           Daniel J. Thomas             (Principal Executive
                                        Officer)

       /s/ Thomas E. Kiraly            Executive Vice President,    March 30, 2000
______________________________________  Chief Financial Officer
          Thomas E. Kiraly              and Treasurer (Principal
                                        Financial and Accounting
                                        Officer)

       /s/ Paul B. Queally             Chairman and Director        March 30, 2000
______________________________________
           Paul B. Queally

       /s/ John K. Carlyle             Director                     March 30, 2000
______________________________________
           John K. Carlyle

        /s/ Carlos Ferrer              Director                     March 30, 2000
______________________________________
            Carlos Ferrer

       /s/ D. Scott Mackesy            Director                     March 30, 2000
______________________________________
           D. Scott Mackesy

      /s/ Steven E. Nelson             Director                     March 30, 2000
______________________________________
           Steven E. Nelson

       /s/ Andrew M. Paul              Director                     March 30, 2000
______________________________________
            Andrew M. Paul
</TABLE>

                                      56
<PAGE>

                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Concentra Operating Corporation:

  We have audited the accompanying consolidated balance sheets of Concentra
Operating Corporation, Inc. (a Nevada corporation) as of December 31, 1998 and
1999, and the related consolidated statements of operations, cash flows and
stockholders' equity (deficit) for each of the three years in the period ended
December 31, 1999. 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, Inc. as of December 31, 1998 and 1999, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.

                                          /s/ Arthur Andersen LLP

                                          ARTHUR ANDERSEN LLP

Boston, Massachusetts
March 21, 2000

                                      F-1
<PAGE>

                        CONCENTRA OPERATING CORPORATION

                          CONSOLIDATED BALANCE SHEETS
                      (in thousands, except share amounts)

<TABLE>
<CAPTION>
                                                              December 31,
                                                            ------------------
                                                              1998      1999
                                                            --------  --------
<S>                                                         <C>       <C>
                          ASSETS
Current Assets:
  Cash and cash equivalents................................ $101,128  $ 14,371
  Marketable securities....................................    5,000       --
  Accounts receivable, net.................................  127,615   156,239
  Prepaid expenses and other current assets................   19,075    15,118
  Prepaid and deferred income taxes........................   14,019    13,556
                                                            --------  --------
    Total current assets...................................  266,837   199,284
Property and equipment, net................................   85,926   104,068
Goodwill, net..............................................  275,172   322,699
Assembled workforce and customer lists, net................    2,781     2,285
Marketable securities......................................   10,583       --
Other assets...............................................   15,495    25,768
                                                            --------  --------
                                                            $656,794  $654,104
                                                            ========  ========
      LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
  Revolving credit facility................................ $    --   $  4,000
  Current portion of long-term debt........................       55     3,805
  Accounts payable.........................................   13,098    20,637
  Accrued expenses.........................................   22,276    31,195
  Accrued payroll and related expenses.....................   25,973    29,097
  Accrued and deferred income taxes........................    3,565     8,180
                                                            --------  --------
    Total current liabilities..............................   64,967    96,914
Long-term debt, net of current portion.....................  327,870   559,942
Deferred income taxes......................................   13,575    17,439
Other liabilities..........................................   10,507    19,082
Commitments and Contingencies (see Note 9)
Stockholders' Equity (Deficit):
  Common stock--$.01 par value; 100,000,000 and 10,000
   authorized, 47,104,412 and 1,000 shares issued and
   outstanding, respectively...............................      471       --
Paid-in capital............................................  270,654     4,525
Accumulated other comprehensive income--unrealized gain on
 marketable securities.....................................       60       --
Retained deficit...........................................  (31,310)  (43,798)
                                                            --------  --------
    Total stockholders' equity (deficit)...................  239,875   (39,273)
                                                            --------  --------
                                                            $656,794  $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,
                                                   ----------------------------
                                                     1997      1998      1999
                                                   --------  --------  --------
<S>                                                <C>       <C>       <C>
REVENUE:
Health Services................................... $207,676  $259,481  $330,064
Managed Care Services:
  Specialized cost containment....................  142,919   183,734   204,084
  Field case management...........................  138,723   167,841   147,264
                                                   --------  --------  --------
    Total Managed Care Services...................  281,642   351,575   351,348
                                                   --------  --------  --------
    Total revenue.................................  489,318   611,056   681,412
COST OF SERVICES:
Health Services...................................  155,376   201,181   265,083
Managed Care Services:
  Specialized cost containment....................  100,012   123,294   137,293
  Field case management...........................  117,251   144,822   132,113
                                                   --------  --------  --------
    Total Managed Care Services...................  217,263   268,116   269,406
                                                   --------  --------  --------
    Total cost of services........................  372,639   469,297   534,489
                                                   --------  --------  --------
    Total gross profit............................  116,679   141,759   146,923
General and administrative expenses...............   39,831    45,326    65,291
Amortization of intangibles.......................    5,908     8,119    12,960
Non-recurring charges.............................   38,625    33,114    54,419
                                                   --------  --------  --------
    Operating income..............................   32,315    55,200    14,253
Interest expense..................................   12,667    18,021    35,779
Interest income...................................   (2,297)   (4,659)   (2,900)
Other, net........................................      883        44      (391)
                                                   --------  --------  --------
Income (loss) before income taxes.................   21,062    41,794   (18,235)
Provision for income taxes........................   11,062    19,308     8,269
                                                   --------  --------  --------
Net income (loss)................................. $ 10,000  $ 22,486  ($26,504)
                                                   ========  ========  ========
</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,
                                                ------------------------------
                                                  1997       1998      1999
                                                ---------  --------  ---------
<S>                                             <C>        <C>       <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).............................  $  10,000  $ 22,486  $ (26,504)
Adjustments to reconcile net income to net
 cash provided by (used in) operating
 activities:
  Depreciation of property and equipment......     10,630    14,805     22,282
  Amortization and write-off of intangibles...      5,908     8,119     12,960
  Amortization of deferred compensation.......        562       805        --
  Amortization and write-off of start-up
   costs......................................      2,845       --         --
  Earnings in unconsolidated subsidiaries, net
   of distributions...........................       (192)      (98)       (44)
  Amortization of deferred finance costs and
   debt discount..............................        777     1,699      2,098
  Write-off of fixed assets...................        --        --         402
  Merger related stock plan compensation
   expense....................................        --        --      14,555
  Write-off of contract intangibles...........        --      7,416        --
Change in assets and liabilities, excluding
 effects of acquisitions:
  Accounts receivable.........................    (27,003)  (19,765)   (19,171)
  Prepaid expenses and other assets...........    (16,326)   (1,480)     8,662
  Accounts payable, accrued expenses and
   income taxes...............................     12,312       962     13,033
                                                ---------  --------  ---------
   Net cash provided by (used in) operating
    activities................................       (487)   34,949     28,273
                                                ---------  --------  ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Acquisitions, net of cash acquired..........   (103,291)  (18,070)   (55,234)
  Purchase of property and equipment..........    (25,535)  (34,187)   (35,953)
  Purchase of investments.....................        --    (15,523)       --
  Sale of investments.........................     12,045       --      15,523
  Proceeds from sale of property and equipment
   and other..................................        626       440        --
                                                ---------  --------  ---------
   Net cash used in investing activities......   (116,155)  (67,340)   (75,664)
                                                ---------  --------  ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Borrowings (payments) under revolving credit
   facilities, net............................     43,300   (49,000)     4,000
  Proceeds from the issuance of long-term
   debt.......................................     26,489   230,000    565,701
  Payment of deferred financing costs.........       (596)   (6,411)   (18,000)
  Repayments of long-term debt................     (5,071)  (49,581)    (2,142)
  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...............................     10,023    14,403      2,579
  Payments to dissenting shareholders.........        --    (15,047)       --
  Dividends and distributions to
   shareholders...............................     (3,760)   (2,809)       --
                                                ---------  --------  ---------
   Net cash provided by (used in) financing
    activities................................     70,385   121,555    (39,366)
                                                ---------  --------  ---------
NET INCREASE (DECREASE) IN CASH AND CASH
 EQUIVALENTS..................................    (46,257)   89,164    (86,757)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR..     58,221    11,964    101,128
                                                ---------  --------  ---------
CASH AND CASH EQUIVALENTS, END OF YEAR........  $  11,964  $101,128  $  14,371
                                                =========  ========  =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
 INFORMATION:
  Interest paid...............................  $  11,941  $ 13,912  $  26,621
  Income taxes paid...........................  $  12,305  $ 15,961  $   2,700
  Conversion of notes payable into common
   stock......................................  $     691  $ 10,094        --
  Liabilities and debt assumed in
   acquisitions...............................  $  13,242  $  8,386  $  19,039
  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 STOCKHOLDERS' EQUITY (DEFICIT)
                      (in thousands, except share amounts)

<TABLE>
<CAPTION>
                          $ 0.01 Par Value
                            Common Stock
                          ------------------
                            Number             Paid-in   Comprehensive Retained   Stockholders'
                           of Shares   Value   Capital      Income     Deficit   Equity (Deficit)
                          -----------  -----  ---------  ------------- --------  ----------------
<S>                       <C>          <C>    <C>        <C>           <C>       <C>
Balance, December 31,
 1996...................   40,425,590  $ 404  $ 234,316      $--       $(56,574)    $ 178,146
Common stock issued in
 connection with
 acquisitions...........    2,162,995     22     11,441       --           (969)       10,494
Common stock issued
 under employee stock
 purchase and option
 plans and related tax
 benefit................      897,530      9     10,013       --            --         10,022
Amortization of deferred
 compensation...........          --     --         562       --            --            562
Conversion of notes
 payable into Common
 stock..................       81,571      1        690       --            --            691
Dividends and
 shareholder
 distributions by pooled
 companies..............          --     --         --        --         (3,474)       (3,474)
Net income..............          --     --         --        --         10,000        10,000
                          -----------  -----  ---------      ----      --------     ---------
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
Change in value --
 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)
                          ===========  =====  =========      ====      ========     =========
</TABLE>

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

                                      F-5
<PAGE>

                        CONCENTRA OPERATING CORPORATION

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) Recapitalization Transaction

  On August 17, 1999, Concentra Managed Care, Inc., a Delaware corporation
("CMC") merged (the "1999 Merger") with Yankee Acquisition Corp. ("Yankee"), a
corporation formed by Welsh, Carson, Anderson & Stowe ("WCAS"), a 14.9%
stockholder of CMC. As a result of the 1999 Merger, 41,056,966 outstanding
shares of CMC common stock were converted to $16.50 per share in cash. The
remaining 6,343,203 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 CMC, Concentra Operating
Corporation's parent company, for $16.50 per share. Simultaneous with the
right to receive cash for shares, Yankee merged with and into CMC, the
surviving entity, and CMC contributed all of its operating assets,
liabilities, and shares in its subsidiaries, including Concentra Health
Services, Inc., Concentra Managed Care Services, Inc. and Concentra Preferred
Systems, Inc., with the exception of $110.0 million of 14% Senior Discount
Debentures due 2010 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 CMC in exchange for 1,000
shares of Concentra Operating common stock. The net contribution by CMC
totaled $590.2 million. The 6.0% and 4.5% Convertible Subordinated Notes were
substantially retired during the third quarter of 1999 as a result of the 1999
Merger. The 1999 Merger was accounted for as a recapitalization transaction,
with no changes to the basis of assets or liabilities.

  The 1999 Merger was valued at approximately $1.1 billion, including the
refinancing of $327.7 million of the 6.0% and 4.5% Convertible Subordinated
Notes that were tendered during the quarter. To finance the acquisition of
CMC, WCAS, FFT and other investors invested approximately $423.7 in equity
financing, including the value of shares already owned by WCAS, and $110.0
million of 14% Senior Discount Debentures due 2010 with warrants issued by CMC
exercisable into its common shares. This additional debt is not guaranteed by
Concentra Operating. Concentra Operating received from various lenders $375.0
million in term loans, a $100.0 million revolving credit facility to replace
the pre-merger revolving credit facility and $190.0 million of 13% Series A
Senior Subordinated Notes due 2009. Concentra Operating's excess cash balances
funded merger and financing related fees and expenses and related employee
stock option exercises and cancellation payments. Concentra Operating incurred
$18.0 million of deferred financing fees for the issuance of the 1999 Merger
related financing, consisting primarily of underwriting fees.

(2) Basis of Presentation

  On August 29, 1997, CMC 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"). The 1997 Merger was a tax-free stock for stock exchange accounted
for as a pooling of interests.

  The accompanying consolidated financial statements as of December 31, 1999,
and for each of the 3 years ended December 31, 1999 and related footnotes
reflect the operating results of CMC through August 17, 1999 and of Concentra
Operating from August 18, 1999, through December 31, 1999. CMC and Concentra
Operating are presented together through August 17, 1999 since they represent
the same reporting entity. Earnings per share has not been reported for all
periods presented, as Concentra Operating is a wholly-owned subsidiary of CMC
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

                                      F-6
<PAGE>

                        CONCENTRA OPERATING CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

provider of out-of-network medical claims review to the group health
marketplace and performs non-injury healthcare services.

(3) Summary of Significant Accounting Policies

 (a) Consolidation

  The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. 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. 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 organized professional corporations that
hire licensed physicians and physical therapists to provide medical services
to the centers' patients. Health Services has a 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. Specifically:

  .  Health Services can at all times establish or effect change in the
     nominee shareholder;

  .  Health Services can cause a change in the nominee shareholder an
     unlimited number of times;

  .  Health Services has sole discretion as to the choice of a new nominee
     shareholder;

  .  Health Services has sole discretion without cause to establish or change
     the nominee shareholders;

  .  Health Services and the Physician Groups would incur no more than a
     nominal cost to cause a change in the nominee shareholder; and,

  .  Neither Health Services nor the Physician Groups are subject to any
     significant adverse impact upon a change in the nominee shareholder.

  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
revenues are derived from fee schedule auditing which is based on the number
of charges reviewed and based on 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.

  The Company's Health Services division's services consist of 2 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

                                      F-7
<PAGE>

                        CONCENTRA OPERATING CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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 9 states without fee
schedules, healthcare providers are reimbursed based on usual, customary and
reasonable ("UCR") fees charged in the particular state in which the services
are provided. Billing for services in states with fee schedules are included
in revenues 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.

  The Company's total contractual allowances offset against revenues during
the years ended December 31, 1999, 1998 and 1997 were $27.8 million, $16.1
million and $14.7 million, respectively. Allowance for doubtful accounts on
the Company's accounts receivable at December 31, 1998, and 1999 were $17.2
million and $19.4 million, respectively.

  Insurance claims are screened by certain Concentra Operating subsidiaries
prior to the insurance company's internal review procedures to determine if
the claims should be further negotiated or are payable by the insurance
company. During the insurance company'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 revenues 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 which 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 collectability and bad debts
for each service line are also evaluated and additional allowance amounts are
provided as necessary.

  Accounts receivable at December 31, 1998 and 1999 include $4.5 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 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 were comprised of the following as of December 31,
(in thousands):

<TABLE>
<CAPTION>
                                                               1998      1999
                                                              -------  --------
   <S>                                                        <C>      <C>
   Land......................................................   2,775     2,775
   Buildings and improvements................................   6,814     6,749
   Leasehold improvements....................................  31,280    37,941
   Computer hardware and software............................  56,838    82,657
   Furniture and equipment...................................  40,439    44,087
                                                              -------  --------
   Property and equipment, at cost........................... 138,146   174,209
   Accumulated depreciation and amortization................. (52,220)  (70,141)
                                                              -------  --------
                                                              $85,926  $104,068
                                                              =======  ========
</TABLE>

                                      F-8
<PAGE>

                        CONCENTRA OPERATING CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  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:

<TABLE>
<CAPTION>
     Asset Classification                                 Estimated Useful Life
     --------------------                                 ---------------------
     <S>                                                 <C>
     Furniture and fixtures............................. 7 Years
     Office and computer equipment...................... 3-7 Years
     Buildings and improvements......................... 30-40 Years
     Leasehold improvements............................. The shorter of the life
                                                         of lease or asset life
</TABLE>

 (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 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, 1999,
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 over five- and seven-year periods, respectively. As of
December 31, 1998 and 1999, the Company has recorded accumulated amortization
on intangible assets of $37.9 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.

  As of December 31, 1999, net intangible assets consisted of the following
(in thousands):

<TABLE>
   <S>                                                                 <C>
   Goodwill, amortization period of 25 years.........................  $322,699
   Customer lists, amortization period of 7 years....................     1,087
   Assembled workforce, amortization period of 5 years...............     1,198
                                                                       --------
   Total intangible assets, weighted average amortization period 24.9
    years............................................................  $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
PPS 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 CMC subsequent to the 1999 Merger as an
extraordinary loss upon the retirement of this debt (see Note 5).

                                      F-9
<PAGE>

                        CONCENTRA OPERATING CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  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. The Company has capitalized these costs and is
amortizing them over the life of the notes. Deferred finance costs, net of
accumulated amortization, of $17.3 million were included in other assets at
December 31, 1999.

 (g) Investments in Joint Ventures

  Investments in the net assets of joint ventures accounted for under the
equity method amounted to $3.9 million and $4.0 million at December 31, 1998
and 1999, respectively. For the year ending December 31, 1998 and 1999,
revenue for these entities was $5.7 million and $6.5 million, gross profit was
$0.9 million and $1.2 million, and net income was $0.3 million and $0.2
million, respectively. Total assets for the joint ventures were $4.3 million
and $4.5 million as of December 31, 1998 and 1999, respectively.

 (h) Self-Insurance

  The Company is partially insured for workers' compensation, physician
medical malpractice, automobile and certain employee health benefits. The
Company's self-insurance retention liability on a per claim basis ranges from
$100,000 to $250,000. 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) Deferred Start-up Costs

  Prior to the 1997 Merger, Health Services capitalized the start-up costs
associated with the internal development of its medical centers until
operational and would amortize these costs over a three-year period. The
American Institute of Certified Public Accountants issued Statement of
Position 98-5, "Accounting for Start Up Costs" in April 1998, to change the
accounting and reporting treatment of start-up costs to require start-up costs
to be expensed as incurred. As a result of this pending change in accounting
principle, the Company wrote-off deferred start-up costs of approximately $2.5
million and included this in the third quarter of 1997 non-recurring charges.

 (j) Foreign Currency Translation

  All assets and liabilities of the Company's Canadian offices are translated
at the year-end exchange rate, while revenues and expenses are translated at
the average exchange rate for the year. Cumulative translation adjustments
were immaterial for the years ended December 31, 1997, 1998, and 1999.

 (k) Use of Estimates

  The preparation of financial statements in accordance with generally
accepted accounting principles 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 revenues and expenses during the reporting
period. Actual results could differ from those estimates.

 (l) Recent Accounting Pronouncements

  The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130")
effective in the second quarter of 1998. SFAS 130 establishes standards for
reporting comprehensive income and its components in the consolidated
financial statements. The Company's reported net income for the years ended
December 31, 1998, and 1999 does not differ materially from comprehensive
income as defined in SFAS 130.

                                     F-10
<PAGE>

                        CONCENTRA OPERATING CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

  In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101, as amended by SAB No. 101(a), is effective for all
periods beginning after March 15, 2000. SAB 101 requires that companies
conform their revenue recognition practices to the requirements therein during
the second quarter of calendar year 2000 through recording a cumulative net of
tax effect of the change in accounting. The Company has not completed the
analysis to determine the effect that SAB 101 will have on its financial
statements.

  In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting
for Derivative Instruments and Hedging Activities." The Statement establishes
accounting and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at its
fair value. SFAS 133 is effective for fiscal years beginning after June 15,
1999. In June 1999, FASB issued Statement of Financial Accounting Standards
No. 137 ("SFAS 137"), "Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133--an
amendment of FASB Statement No. 133." This Statement has delayed the effective
date of SFAS 133 until fiscal years beginning after June 15, 2000. The Company
does not expect the adoption of this statement to have a material impact on
its financial position or results of operations.

(4) Recent Acquisitions and Non-recurring Charges

  The Company, through its Health Services division, acquired 53 clinics in 20
acquisitions in 1999. The Company paid approximately $52.5 million, net of
cash acquired, and recorded approximately $59.2 million for goodwill and $0.3
million for assembled workforces and customer lists. No contingent
consideration exists related to these transactions.

  As discussed in Note 2, CMC 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 CMC's common stock, the
assumption of PPS options totaling approximately 580,000 shares of CMC'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,
1999, the Company paid approximately $5.6 million for professional fees and
services, $2.7 million in costs associated with personnel reductions, $0.8
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, 1998 and 1999,
approximately $1.5 million and $0.5 million, respectively, of the non-
recurring charge remains primarily related to remaining facility lease
obligations. The Company's pro forma net income for the year ended December
31, 1997, was $7.2 million and has been calculated as if the merger of PPS had
been subject to federal and state income taxes for the entire period, based
upon an effective tax rate indicative of the statutory rates in effect. Prior
to its merger, PPS elected to be taxed as an S corporation, and accordingly,
was not subject to federal and state income taxes in certain jurisdictions.

                                     F-11
<PAGE>

                        CONCENTRA OPERATING CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  In the fourth quarter of 1998, the Company recorded a non-recurring charge
of $20.5 million primarily associated with the reorganization of its Managed
Care Services 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, 1999, the Company utilized
approximately $7.4 million in charges related to an impairment loss on the
intangible asset related to an acquired contract, and paid $3.9 million in
costs associated with personnel reductions, $1.0 million in costs associated
with settling claims on other expired contracts and $4.5 million in facility
consolidations and $0.2 million of other non-recurring costs. At December 31,
1999, approximately $3.5 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, 1999, the Company paid
approximately $17.9 million for professional fees and services, including
legal, accounting and regulatory fees, $14.5 million for employee-related
stock option exercises and cancellations, $10.5 million for a WCAS transaction
fee for advisory and consulting services provided to the Company in connection
with the 1999 Merger and the related financing, $1.5 million of other
personnel-related costs, and $1.8 million of other non-recurring charges, and
used $5.5 million for non-cash charges for deferred compensation expense
related to the accelerated vesting and issuance of 210,000 shares of
restricted stock. At December 31, 1999, approximately $2.7 million of the non-
recurring charge remains for professional fees and services and other non-
recurring items incurred in connection with the merger.

  The following are rollforwards of the non-recurring charges recorded by the
Company in 1997, 1998 and 1999 (in thousands):
<TABLE>
<CAPTION>
                                          Beginning Charged To             End
                                           Of Year    Income    Usage    Of Year
                                          --------- ---------- --------  -------
   <S>                                    <C>       <C>        <C>       <C>
   Third quarter 1997
     1997................................  $   --    $38,625   $(31,098) $7,527
     1998................................    7,527       --      (7,527)    --
   First quarter 1998
     1998................................  $   --    $12,600   $(11,128) $1,472
     1999................................    1,472       --      (1,025)    447
   Fourth quarter 1998
     1998................................  $   --    $20,514   $(11,046) $9,468
     1999................................    9,468       --      (5,956)  3,512
   Third quarter 1999
     1999................................  $   --    $54,419   $(51,687) $2,732
   Total
     1997................................  $   --    $38,625   $(31,098) $7,527
     1998................................    7,527    33,114    (29,701) 10,940
     1999................................   10,940    54,419    (58,668)  6,691
</TABLE>

                                     F-12
<PAGE>

                        CONCENTRA OPERATING CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


(5) Revolving Credit Facilities and Long Term Debt
<TABLE>
<CAPTION>
                                                               December 31,
                                                             ------------------
                                                               1998      1999
                                                             --------  --------
                                                              (in thousands)
   <S>                                                       <C>       <C>
   Revolving credit borrowings.............................. $    --   $  4,000
   Term Facilities:
     Tranche B due 2006.....................................      --    248,750
     Tranche C due 2007.....................................      --    124,375
   13.0% Series A Senior Subordinated Notes due 2009........      --    190,000
   4.5% Convertible Subordinated Notes......................  230,000       --
   6.0% Convertible Subordinated Notes......................   97,750       --
   Other....................................................      175       622
                                                             --------  --------
                                                              327,925   567,747
   Less: Current maturities.................................      (55)   (7,805)
                                                             --------  --------
   Long-term debt, net of current maturities................ $327,870  $559,942
                                                             ========  ========
</TABLE>

  As of December 31, 1998 and 1999, accrued interest was $3.3 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. Interest on borrowings under the Revolving Credit
Facility are payable, at the Company's option, at ABR plus 1.75% or the
Eurodollar Rate plus 2.75%. The ABR, as defined, and the Eurodollar Rate, as
defined, were 8.5% and 6.1%, 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 Revolving Credit Facility
and the Tranche B and C Term Loans were 8.9%, 9.3% and 9.7%, respectively, at
December 31, 1999.

  The Credit Facility requires the Company to enter into interest rate swap
agreements for the purpose of reducing the effect of interest rate
fluctuations on a certain portion of the Credit Facility. The Company's
interest rate swap agreement converts $200 million of certain variable rate
debt to fixed rates and expires November 17, 2004 . The interest rate swap is
structured such that the Company generally pays and receives the 3 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
6.1% when the Swap Rate is less than 5.0%; the maximum rate the Company pays
is 6.0%, unless the Swap Rate is greater than 7.15% and less than 8.25%; and,
if the Swap Rate is greater than 8.25%, the maximum rate the Company pays is
8.25%. From November 17, 2002 through the maturity of the interest rate swap
agreement, there is no maximum rate the Company pays if the Swap Rate exceeds
7.15%. The impact of this transaction on our financial position and results of
operations is not material. Further, the carrying amount of the interest rate
swap agreement approximates its fair value, as determined by estimating the
amount the Company would pay or receive to terminate the agreement.

  The $190 million 13% Series A Senior Subordinated Notes (the "13%
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

                                     F-13
<PAGE>

                        CONCENTRA OPERATING CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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 by each and every wholly-owned
subsidiary, the results of which are consolidated in the results of the
Company, the guarantees are full and unconditional, and the Company has 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 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 1999. The Company's
obligations under the Credit Facility are secured by a pledge of stock in the
Company's subsidiaries.

  On March 21, 2000, Concentra and it lenders amended its Credit Facility.
Under the terms of the amended agreement, the financial compliance ratios have
been 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. The Company believes the amended
agreement will enable Concentra to meet the terms of the financial compliance
ratios for the foreseeable future. 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 will be capitalized as deferred financing costs and
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 requires
the Company to pay that indebtedness. Such an acceleration would also
constitute an event of default under the indenture relating to the 13%
Subordinated Notes and could also result in an acceleration of the 13%
Subordinated Notes before the indenture otherwise requires us to pay the
notes.

  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 CMC
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 Company's marketable securities are held as available for sale in
accordance with the provisions of Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities".

  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 6%
Convertible Subordinated Notes was $83.1 million as of December 31, 1998, and
the Company's 4.5% Convertible Subordinated Notes was $173.7 million as of
December 31, 1998. The fair value of the

                                     F-14
<PAGE>

                        CONCENTRA OPERATING CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Company's Convertible Subordinated Notes were determined utilizing the average
of the NASDAQ's bid and ask amounts as of the 1998 year end. The fair value of
the Company's borrowings under the Credit Facility was $343.2 million, as of
December 31, 1999. The fair value of the Company's 13% Subordinated Notes was
$172.9 million at December 31, 1999. Further, the carrying amount of the
interest rate swap agreement approximates its fair value, as determined by
estimating the amount the Company would pay or receive to terminate the
interest swap agreement. 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.

  Financial instruments that potentially subject the Company to concentrations
of credit risk are accounts receivable and marketable securities. 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 performance and credit
worthiness of its large customers, and regularly reviews outstanding accounts
receivable balances. Mitigating factors related to the Company's marketable
securities are that they are primarily U.S. government securities and
corporate bonds and notes, with strong credit ratings. The Company limits the
amount of its investment exposure as to institution, maturity and investment
type.

(7) Income Taxes

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

<TABLE>
<CAPTION>
                                                        1997     1998    1999
                                                       -------  ------- -------
     <S>                                               <C>      <C>     <C>
     Current:
       Federal........................................ $15,112  $11,252 $ 9,050
       State..........................................   3,968    1,369   1,811
                                                       -------  ------- -------
                                                        19,080   12,621  10,861
                                                       -------
     Deferred:
       Federal........................................  (6,873)   5,961  (2,139)
       State..........................................  (1,145)     726    (453)
                                                       -------  ------- -------
                                                        (8,018)   6,687  (2,592)
                                                       -------  ------- -------
     Total............................................ $11,062  $19,308 $ 8,269
                                                       =======  ======= =======
</TABLE>

  Significant items included in deferred tax liabilities and deferred tax
assets were as follows at December 31, (in thousands):
<TABLE>
<CAPTION>
                                                                1998    1999
                                                               ------- -------
   <S>                                                         <C>     <C>
   Deferred tax assets:
   Allowance for doubtful accounts............................ $ 5,752 $ 7,523
   Accrued vacation...........................................   1,117     651
   Accrued self insurance.....................................   1,220   1,666
   Acquired goodwill..........................................   1,310   1,310
   Non-recurring accruals and reserves........................   5,255   2,427
   Other......................................................   1,446   2,098
                                                               ------- -------
     Deferred tax assets...................................... $16,100 $15,677
                                                               ======= =======
   Deferred tax liabilities:
   Book to tax depreciation................................... $ 2,307 $   881
   Joint venture deferred liabilities.........................   1,280     --
   Goodwill, principally due to differences in amortization
    periods...................................................   4,758   8,130
   Accounts receivable mark-to-market.........................   1,596   1,064
   Software development costs.................................   4,864   7,256
   Other......................................................   1,331     974
                                                               ------- -------
     Deferred tax liabilities................................. $16,136 $18,305
                                                               ======= =======
</TABLE>

                                     F-15
<PAGE>

                        CONCENTRA OPERATING CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  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>
                                 1997      %     1998     %     1999     %
                                -------  -----  -------  ----  ------  -----
<S>                             <C>      <C>    <C>      <C>   <C>     <C>
Tax provision at federal
 statutory rate................ $ 7,372   35.0% $14,628  35.0% (6,382) (35.0)%
State taxes, net of federal
 income tax benefit............     925    4.4    1,766   4.2    (770)  (4.2)%
PPS S corporation status.......  (2,582) (12.3)     --    --      --     --
Non-deductible goodwill........   1,003    4.8    1,149   2.8   2,121   11.6%
Non-deductible non-recurring
 charges and acquisition
 costs.........................   4,064   19.3    1,815   4.3  12,893   70.7%
Other items, net...............     280    1.3      (50) (0.1)    407    2.2%
                                -------  -----  -------  ----  ------  -----
                                $11,062   52.5% $19,308  46.2% $8,269   45.3%
                                =======  =====  =======  ====  ======  =====
</TABLE>

  PPS' shareholders had elected S Corporation taxing status. Thus, PPS'
taxable income was taxed directly to its shareholders. PPS did pay state taxes
in Illinois, Pennsylvania, California and Utah based on its taxable income.
Effective with the merger with the Company, PPS' taxable income is included in
the Company's consolidated income tax returns.

(8) Stockholders' Equity

 Stockholder Rights Plan

  Shortly after the 1997 Merger, on September 17, 1997, CMC'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 CMC's common stock. Each Right entitled the registered
holder to purchase from CMC one thousandth of a share of Series A Junior
Participating Preferred Stock, par value $.01 per share (the "Junior Preferred
Shares"), of CMC 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 CMC'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-cancellable
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 $0.7 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, 1997, 1998, and 1999.

                                     F-16
<PAGE>

                        CONCENTRA OPERATING CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


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

<TABLE>
<CAPTION>
                                                          1997    1998    1999
                                                         ------- ------- -------
     <S>                                                 <C>     <C>     <C>
     Facilities......................................... $17,179 $22,307 $26,952
     Office equipment...................................   2,029   3,091   3,680
     Automobiles........................................   2,976   3,647   2,754
                                                         ------- ------- -------
     Total rent expense................................. $22,184 $29,045 $33,386
                                                         ======= ======= =======
</TABLE>

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

<TABLE>
     <S>                                                                <C>
     2000.............................................................. $ 31,680
     2001..............................................................   28,691
     2002..............................................................   25,655
     2003..............................................................   21,255
     2004..............................................................   12,957
     Thereafter........................................................   15,481
                                                                        --------
                                                                        $135,719
                                                                        ========
</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.

(10) Employee Benefit Plans

 (a) Concentra 401(k) Plan

  The Company has a defined contribution plan (the "Concentra 401(k) Plan"),
formerly the Managed Care Services 401(k) Plan (the "MCS 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.
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 both 1998 and 1999.

 (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 1997 and 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 year

                                     F-17
<PAGE>

                        CONCENTRA OPERATING CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

ended December 31, 1997 and the seven-month period in 1998, PPS elected to
match 25% of employee contributions up to 7% of gross earnings.

  The Company has expensed $1.1 million, $1.5 million, and $2.7 million for
the years ended December 31, 1997, 1998, and 1999, 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 CMC stock and stock option
activity.

 (a) Employee Stock Purchase Plan

  Until March 2, 1999, CMC maintained an Employee Stock Purchase Plan that
permitted substantially all employees to acquire up to 500,000 shares of CMC
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 administered the Employee Stock Purchase Plan. On
March 2, 1999, CMC terminated the Employee Stock Purchase Plan. The final
period for which participating employees acquired shares of CMC's common stock
began on January 1, 1999 and ended March 2, 1999.

  CMC issued the following shares of common stock under the employee stock
purchase plans for each of the following purchase periods:

<TABLE>
<CAPTION>
                                                                     Weighted
                                                          Number   Average Price
   Purchase Periods Ended                                of Shares   Per Share
   ----------------------                                --------- -------------
   <S>                                                   <C>       <C>
   December 31, 1996....................................   44,606     $22.18
   June 30, 1997........................................   50,056     $21.38
   December 31, 1997....................................   47,245     $24.86
   June 30, 1998........................................   64,587     $22.10
   December 31, 1998....................................  160,512     $ 9.08
   March 2, 1999........................................   63,358     $ 8.55
</TABLE>

 (b) Concentra 1997 Long-Term Incentive Plan

  CMC historically has granted awards with respect to shares under CMC'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.

  The number of shares of CMC common stock that may be subject to outstanding
awards under the 1997 Incentive Plan at any one time is equal to ten percent
of the total number of outstanding shares of CMC common stock (treating as
outstanding all shares of CMC common stock issuable within 60 days upon
exercise of stock options or conversion or exchange of outstanding, publicly-
traded convertible or exchangeable securities of CMC) minus the total number
of shares of Common Stock subject to outstanding awards under the 1997
Incentive Plan and any future stock-based plan for employees or directors of
the Company. At December 31, 1998, CMC was authorized to award grants of
approximately 5,019,000 shares under the 1997 Incentive Plan.

                                     F-18
<PAGE>

                        CONCENTRA OPERATING CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  During 1997, the Company granted restricted stock for 357,000 shares of
Common Stock under the 1997 Incentive Plan which were valued at approximately
$9.9 million based upon the market value of the shares at the time of
issuance. As of December 31, 1998, 93,000 shares of the restricted stock
granted in 1997, valued at $2.8 million, have been canceled due to forfeiture.
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% of the shares
could become vested on January 1, 2000 and each year thereafter. For the years
ended December 31, 1997 and 1998, the Company recorded amortization of $0.6
million and $0.8 million, respectively, in connection with the deferred
compensation associated with the restricted stock grants. During 1997 and
1998, the Company also granted 2,754 and 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 CMC.

  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 CMC stock issuable upon
exercise of awards granted under the 1997 Incentive Plan as of the 1999 Merger
were reserved for issuance by CMC.

 (c) Concentra 1999 Long-Term Incentive Plan

  Concentra'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 CMC 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. 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 the
Company'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 CMC 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 CMC, unless the
exercise price is at least 110% of the fair market value of the shares of
CMC's common stock and the exercise period does not exceed 5 years.

  The Company granted 698,840 options and canceled 89,961 options under the
1999 Stock Plan in 1999. 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-19
<PAGE>

                        CONCENTRA OPERATING CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  A summary of the status for all outstanding options at December 31, 1997,
1998, and 1999 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, 1996..........................  3,865,742     $13.59
     Granted..........................................  2,925,655      22.51
     Exercised........................................   (801,593)      9.02
     Canceled.........................................   (268,017)     20.71
                                                       ----------     ------
   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
                                                       ==========     ======
</TABLE>

  The weighted average fair market value of options granted in 1997, 1998,
1999 were $25.89, $21.95 and $4.31, respectively. There are no exercisable
options outstanding as of December 31, 1999. A further breakdown of the
outstanding options at December 31, 1999 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................................   188,263  $ 0.32      8.29
   $8.06-$11.50...............................   662,000    8.09      8.79
   $16.50.....................................   608,879   16.50      9.63
                                               ---------  ------      ----
                                               1,459,142  $10.60      9.08
                                               =========  ======      ====
</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>
                                                       1997    1998     1999
                                                      ------- ------- --------
   <S>                                                <C>     <C>     <C>
   Net income (loss):
     As reported..................................... $10,000 $22,486 $(26,504)
     Supplemental pro forma.......................... $ 3,612 $ 8,864 $(28,229)
</TABLE>

  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 1997, 1998, and 1999 pro forma amounts include $396,000,
$509,000 and $102,000,

                                     F-20
<PAGE>

                        CONCENTRA OPERATING CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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 1997, 1998 and 1999, respectively:

<TABLE>
<CAPTION>
                                                             1997   1998   1999
                                                             -----  -----  ----
   <S>                                                       <C>    <C>    <C>
   Risk-free interest rates.................................  5.50%  5.18% 6.08%
   Expected volatility...................................... 45.29% 78.91% 0.00%
   Expected dividend yield..................................   --     --    --
   Expected weighted average life of options in years.......   3.7    3.0   5.0
</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 reportable segments consist of
its Health Services, Specialized Cost Containment and Field Case Management
Groups.

  Health Services manages occupational healthcare centers at which it provides
support personnel, marketing, information systems and management services to
its affiliated physicians. 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 (precertification and concurrent review) retrospective
medical bill review, telephonic case management, preferred provider
organization ("PPO") network access, independent medical examinations
("IMEs"), peer reviews and hospital bill auditing. 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 health
care professionals, employers and insurance company adjusters to assist in
maximizing medical improvement and, where appropriate, to expedite the return
to work.

  The Health Services Group is managed separately and has different economic
characteristics from the Specialized Cost Containment and Field Case
Management groups, and is therefore shown as a separate reportable segment.
The Field Case Management Group and certain operating segments included in the
Specialized Cost Containment Group have similar economic characteristics and
may share the same management and/or locations. However, the Field Case
Management Group is reported as a separate segment for management reporting
purposes and it represents 49.3%, 47.7% and 41.9% of total Managed Care
Services revenue for the years ended December 31, 1997, 1998, and 1999,
respectively.

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

                                     F-21
<PAGE>

                        CONCENTRA OPERATING CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  The Company's Statements of Operations on a segment basis for the years
ended December 31, 1997, 1998 and 1999 were as follows (in thousands):

<TABLE>
<CAPTION>
                                                    1997      1998      1999
                                                  --------  --------  --------
<S>                                               <C>       <C>       <C>
Revenue:
  Health Services................................ $207,676  $259,481  $330,064
  Managed Care Services:
    Specialized cost containment.................  142,919   183,734   204,084
    Field case management........................  138,723   167,841   147,264
                                                  --------  --------  --------
    Total Managed Care Services..................  281,642   351,575   351,348
                                                  --------  --------  --------
                                                   489,318   611,056   681,412
Gross profit margins:
  Health Services................................   52,300    58,300    64,981
  Managed Care Services:
    Specialized cost containment.................   42,907    60,440    66,791
    Field case management........................   21,472    23,019    15,151
                                                  --------  --------  --------
    Total Managed Care Services..................   64,379    83,459    81,942
                                                  --------  --------  --------
                                                   116,679   141,759   146,923
Operating income (1):
  Health Services................................   12,273    34,415    34,405
  Managed Care Services:
    Specialized cost containment.................      --        --     46,826
    Field case management........................      --        --      5,599
                                                  --------  --------  --------
    Total Managed Care Services..................   20,042    20,785    52,425
  Corporate general and administrative...........      --        --     18,158
  Non-recurring charges..........................      --        --     54,419
                                                  --------  --------  --------
                                                    32,315    55,200    14,253
Interest expense.................................   12,667    18,021    35,779
Interest income..................................   (2,297)   (4,659)   (2,900)
Other expense, net...............................      883        44      (391)
                                                  --------  --------  --------
  Income before income taxes.....................   21,062    41,794   (18,235)
Provision for income taxes.......................   11,062    19,308     8,269
                                                  --------  --------  --------
Net income (loss)................................ $ 10,000  $ 22,486  $(26,504)
                                                  ========  ========  ========
</TABLE>
--------
(1) Prior to 1999, corporate-level general and administrative expenses were
    reported in the Health Services and Managed Care Services groups based on
    where general and administrative activities were incurred. In addition,
    general and administrative expenses for the Managed Care 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 1997 and 1998. Beginning in 1999, the corporate
    function has been separately reported.

                                     F-22
<PAGE>

                        CONCENTRA OPERATING CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  The Company's segment depreciation and amortization, capital expenditures
and identifiable assets for the years ended December 31, 1997, 1998, and 1999
are as follows (in thousands):

<TABLE>
<CAPTION>
                                                       1997     1998     1999
                                                     -------- -------- --------
   <S>                                               <C>      <C>      <C>
   Depreciation and amortization:
     Health Services................................ $  9,162 $ 11,372 $ 18,965
     Managed Care Services(2).......................    7,376   11,552   16,277
                                                     -------- -------- --------
                                                     $ 16,538 $ 22,924 $ 35,242
                                                     ======== ======== ========
   Capital expenditures:
     Health Services................................ $ 16,862 $ 19,235 $ 20,274
     Managed Care Services(2).......................    8,673   14,952   15,679
                                                     -------- -------- --------
                                                     $ 25,535 $ 34,187 $ 35,953
                                                     ======== ======== ========
   Identifiable assets:
     Health Services................................ $261,521 $309,419 $386,885
     Managed Care Services(2).......................  221,012  347,375  267,219
                                                     -------- -------- --------
                                                     $482,533 $656,794 $654,104
                                                     ======== ======== ========
</TABLE>
--------
(2) Depreciation and amortization, capital expenditures and identifiable
    assets is not separately reported within the Managed Care groups.

(13) Selected Financial Data

<TABLE>
<CAPTION>
                                              Year Ended December 31,
                                    --------------------------------------------
                                      1995     1996     1997     1998     1999
                                    -------- -------- -------- -------- --------
                                                   (in thousands)
<S>                                 <C>      <C>      <C>      <C>      <C>
Statement of Operations Data:
Revenues........................... $305,355 $372,683 $489,318 $611,056 $681,412
Gross profit.......................   62,435   82,755  116,679  141,759  146,923
Non-recurring charges(1)..............   898      964   38,625   33,114   54,419
Operating income...................   29,446   45,194   32,315   55,200   14,253
Income (loss) before taxes.........   24,246   41,476   21,062   41,794  (18,235)
Provision for income taxes.........    7,771   13,437   11,062   19,308    8,269
Net income (loss).................. $ 16,475 $ 28,039 $ 10,000 $ 22,486 $(26,504)
Balance Sheet Data:
Working capital.................... $ 21,971 $116,439 $ 36,754 $201,870 $102,370
Total assets.......................  188,530  367,900  482,533  656,794  654,104
Total debt.........................   34,639  142,229  206,600  327,925  567,747
Total stockholders' equity
 (deficit).........................  109,383  178,146  206,441  239,875  (39,273)
</TABLE>
--------
(1) See Note 4, Recent Acquisitions and Non-recurring Charges.

                                     F-23
<PAGE>

                        CONCENTRA OPERATING CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


(14) Selected Quarterly Operating Results (Unaudited)

  The following table sets forth certain unaudited quarterly results of
operations for each of the eight quarters in the period ended December 31,
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>
                                                 Quarter 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.....................    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 expense, 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)
                                  ======== ========   ========      ========

<CAPTION>
                                                 Quarter Ended
                                  --------------------------------------------
                                   March
                                    31,    June 30, September 30, December 31,
                                    1998     1998       1998          1998
                                  -------- -------- ------------- ------------
<S>                               <C>      <C>      <C>           <C>
Revenue.......................... $144,282 $157,501   $157,362      $151,911
Cost of services.................  109,898  116,633    118,660       124,106
                                  -------- --------   --------      --------
  Gross profit...................   34,384   40,868     38,702        27,805
General and administrative
 expenses........................   10,645   11,228     11,851        11,602
Amortization.....................    2,015    2,036      2,051         2,017
Non-recurring charge.............   12,600      --         --         20,514
                                  -------- --------   --------      --------
  Operating income (loss)........    9,124   27,604     24,800        (6,328)
Other expense, net...............    3,710    3,207      3,355         3,134
Provision (benefit) for income
 taxes...........................    4,567   10,236      9,000        (4,495)
                                  -------- --------   --------      --------
Net income (loss)................ $    847 $ 14,161   $ 12,445      $ (4,967)
                                  ======== ========   ========      ========
</TABLE>

                                     F-24
<PAGE>

                                                        Supplemental Schedule II

                          CONCENTRA MANAGED CARE, INC.
                       Valuation and Qualifying Accounts
              For the Years Ended December 31, 1997, 1998 and 1999
                                 (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
  1997..................  $ 9,978   $ 8,890     $7,797       $ 9,942     $16,723
  1998..................   16,723    12,869      1,968        14,350      17,210
  1999..................   17,210    16,101      3,129        16,997      19,443

Contractual Allowances
  1997..................  $ 1,653   $14,718     $  --        $12,743     $ 3,628
  1998..................    3,628    16,095        --         15,073       4,650
  1999..................    4,650    27,757        472        23,799       9,080
</TABLE>

  Non-recurring charge breakout by major category was as follows (in
thousands):

<TABLE>
<CAPTION>
                         Professional    Facility    Personnel
                             Fees     Consolidations  Related    Other     Total
                         ------------ -------------- ---------  --------  --------
<S>                      <C>          <C>            <C>        <C>       <C>
Balance December 31,
 1996...................   $    --       $   --      $    --    $    --   $    --
  Provision--Q3 97
   Charge...............     11,569        5,945       16,216      4,895    38,625
  Usage--Q3 97 Charge...     (9,155)      (5,476)     (11,803)    (4,664)  (31,098)
                           --------      -------     --------   --------  --------
Balance December 31,
 1997...................      2,414          469        4,413        231     7,527

1998 Provision:
  Q1 98 Charge..........      5,200        2,100        2,400      2,900    12,600
  Q4 98 Charge..........        --         5,836        3,817     10,861    20,514
                           --------      -------     --------   --------  --------
Total 1998 Provision....      5,200        7,936        6,217     13,761    33,114
                           --------      -------     --------   --------  --------

1998 Usage:
  Q3 97 Charge..........     (2,414)        (469)      (4,413)      (231)   (7,527)
  Q1 98 Charge..........     (5,136)        (746)      (2,355)    (2,891)  (11,128)
  Q4 98 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:
  Q3 1999 Charge........     29,334        1,795       21,574      1,716    54,419

1999 Usage:
  Q1 98 Charge..........       (473)         (39)        (326)      (187)   (1,025)
  Q1 98 Charge - Change
   in Estimates.........        434         (966)         281        251       --
  Q4 98 Charge..........        --        (3,285)      (1,225)    (1,446)   (5,956)
  Q3 99 Charge..........    (28,405)         --       (21,524)    (1,758)  (51,687)
                           --------      -------     --------   --------  --------
Total 1999 Usage........    (26,790)      (4,290)     (22,794)    (3,140)  (58,668)
                           --------      -------     --------   --------  --------

Balance December 31,
 1999...................   $    954      $ 3,555     $    152   $  2,030  $  6,691
                           ========      =======     ========   ========  ========
</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 financial statements of Concentra Operating Corporation
and have issued our report thereon dated March 21, 2000. Our audit was made
for the purpose of forming an opinion on the basic financial statements taken
as a whole. The schedule listed in the index of the 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 financial statements.
This schedule has been subjected to the auditing procedures applied in the
audit of the basic 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 financial statements taken as a whole.

                                          /s/ Arthur Andersen LLP

                                          ARTHUR ANDERSEN LLP

Boston, Massachusetts
March 21, 2000


                                      S-2
<PAGE>

                               INDEX TO EXHIBITS

                           INCORPORATION BY REFERENCE

<TABLE>
<CAPTION>
 Exhibit
 Number                               Description
 -------                              -----------
 <C>     <S>
    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 CMC'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
          Managed Care, Inc. ("CMC") and Preferred Payment Systems, Inc.
          (incorporated by reference to Exhibit 2.2 to CMC'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 CMC (incorporated by reference to Exhibit 2.1
          to CMC'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 CMC (incorporated by
          reference to Exhibit 2.1 to CMC's Current Report on Form 8-K filed
          on July 14, 1999).

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

   *3.2  Amended and Restated By-Laws of COC.

   *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 Prompt
          Associates, Inc.

   *3.8  Amended and Restated By-Laws of Prompt Associates, Inc.

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

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

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

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

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

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

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

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

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

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

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

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

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

  *3.22  Amended and Restated By-Laws of Concentra Health Services, Inc.
</TABLE>
<PAGE>

<TABLE>
 <C>    <S>
  *3.23 Agreement and Declaration of Trust of Concentra Managed Care Business
         Trust.

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

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

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

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

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

   *4.1 Indenture dated as of August 17, 1999, between COC 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 CMC 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, CMC 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 CMC'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 CMC
         and United States Trust Company of New York, as Trustee, relating to
         the 6% Convertible Subordinated Notes due 2001.

    4.6 Indenture dated as of March 16, 1998, between CMC and ChaseBank of
         Texas, N.A., as Trustee, (the "Concentra Indenture") relating to the
         4.5% Convertible Subordinated Notes due 2003 (incorporated by
         reference to Exhibit 4.1 to CMC's Current Report on Form 8-K filed on
         March 30, 1998).

   *4.7 First Supplemental Indenture dated as of August 17, 1999, between CMC
         and Chase Bank of Texas, N.A., as Trustee, relating to the 4.5%
         Convertible Subordinated Notes due 2003.

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

    4.9 Form of 13% Series B Senior Subordinated Notes due 2009 of COC
         (included in Exhibit 4.1).

   4.10 Form of 14% Senior Discount Debentures due 2010 of CMC (included in
         Exhibit 4.2).

   4.11 Form of 6% Convertible Subordinated Notes due 2001 of CMC (included in
         Exhibit 4.3).

   4.12 Form of 4.5% Convertible Subordinated Notes due 2003 of CMC (included
         in Exhibit 4.4).

   4.13 Form of Warrant to acquire CMC common stock (included in Exhibit 4.8).

  *4.14 Registration Rights Agreement dated as of August 17, 1999 by and among
         COC, 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.

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

  *10.1 Purchase Agreement dated August 17, 1999, by and among COC, 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 COC's
         13% Senior Subordinated Notes due 2009, Series A.
</TABLE>


                                       2
<PAGE>

<TABLE>
 <C>       <S>
     *10.2 Credit Agreement dated as of August 17, 1999, among CMC, COC, 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
            CMC, COC, 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.

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

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

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

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

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

 ++**10.16 Employment Agreement dated as of December 7, 1999, between CMC and
            Bradley T. Harslem.

     10.17 Indemnification Agreement dated as of September 17, 1997, between
            CMC and Daniel J. Thomas (identical agreements were executed
            between CMC 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 CMC'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 CMC and
            Hon. Willis D. Gradison, Jr. (identical agreements executed between
            CMC 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 CMC's Quarterly Report on Form 10-Q
            for the quarter ended June 30, 1998).
</TABLE>

                                       3
<PAGE>

<TABLE>
 <C>     <S>
 **10.19 Software License Agreement dated as of February 10, 1995, between CRA
          and CompReview, Inc. (confidential treatment granted).

   10.20 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).

   10.21 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).

   10.22 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).

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

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

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

  **21.1 Subsidiaries of COC.

  **27.1 Financial Data Schedule.
</TABLE>
--------
 * 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.

                                       4