CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

We make forward-looking statements in this document. These forward-looking statements relate to our outlook or expectations for earnings, revenues, expenses, asset quality or other future financial or business performance, strategies or expectations, or the impact of legal, regulatory or supervisory matters on our business, results of operations or financial condition. Specifically, forward-looking statements may include:

• statements relating to our plans, intentions, expectations, objectives or goals;

• statements relating to our future economic performance, business prospects, revenue, income and financial condition and any underlying assumptions relating to those statements; and

• statements preceded by, followed by or that include the words "estimate," "plan," "project," "forecast," "intend," "expect," "anticipate," "believe," "seek," "target" or similar expressions.

These statements reflect our management's judgment based on currently available information and involve a number of risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. With respect to these forward-looking statements, our management has made assumptions regarding, among other things, customer growth and retention, pricing, operating costs, network usage, technology and the economic and regulatory environment.

Future performance cannot be ensured. Actual results may differ materially from those in the forward-looking statements. Some factors that could cause our actual results to differ include, but are not limited to:

• the uncertainties related to, and the impact of, our proposed merger with CenturyTel;

• the effects of changes in both general and local economic conditions in the markets we serve, which can impact demand for our products and services; customer purchasing decisions; collectability of revenue; and required levels of capital expenditures related to new construction of residences and businesses;

• volatility and other market conditions in the equity and credit markets, including impacts on the stability of banks and other financial institutions;

• the effects of vigorous competition in the markets in which we operate, including access line loss to wireless providers and cable operators;

• the impact of new, emerging and competing technologies on our business;

• the effect of changes in the legal and regulatory environment and the impact of compliance with regulatory mandates, including the proposed FCC order regarding changes to intercarrier compensation and federal USF support;

• potential fluctuations in our financial performance, including revenues, capital expenditures and operating expenses;

• the impact of any adverse change in the ratings assigned to our debt by ratings agencies on the cost of financing or the ability to raise additional financing if needed;

• the effects of mergers, consolidations or other unexpected developments in the industries relevant to our operations;

• the failure to realize expected improvement in operating efficiencies;

• the costs and business risks associated with the development of new products and services;

• the uncertainties related to our investments in networks, systems and other businesses;

• the uncertainties related to the implementation of our business strategies;

• the inability of third parties to perform to our requirements under agreements related to our business operations;

• our ownership of or ability to license technology that may be necessary to expand our business offerings;

• restrictions in our patent agreement with Sprint Nextel;

• unexpected adverse results of legal proceedings involving our company;

• the impact of equipment failure or other breaches of network or information technology security;

• potential work stoppages;

• a determination by the IRS that the spin-off from Sprint Nextel should be treated as a taxable transaction; and

• other risks referenced in this Annual Report on Form 10-K, including in Part I, Item 1A, "Risk Factors", and from time to time in other filings of ours with the SEC.

You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of this document. Except as required by law, we undertake no obligation to publicly update or release any revisions to these forward-looking statements to reflect any events or circumstances after the date of this document or to reflect the occurrence of unanticipated events.

OVERVIEW

Merger with CenturyTel

On October 26, 2008, Embarq and CenturyTel, a Louisiana corporation, entered into a merger agreement whereby a wholly owned subsidiary of CenturyTel, will merge with and into us. As a result of the merger, we will continue as a wholly owned subsidiary of CenturyTel. Pursuant to the merger agreement, at the effective date of the merger, each share of our common stock, par value $0.01 per share, will be converted into the right to receive 1.37 shares of CenturyTel common stock, par value $1.00 per share, plus cash in lieu of fractional shares. It is expected that the merger will qualify as a tax-free reorganization for U.S. Federal income tax purposes. In conjunction with this transaction, we may incur additional costs prior to closing including, but not limited to, potential impairments of duplicate systems and technology; employee retention and severance costs; and other merger and integration costs.

On January 23, 2009, we entered into an amendment to modify our existing credit agreement. See Note 12, Subsequent Events, of the Notes to the Consolidated Financial Statements for additional information. The amendment will only become effective upon consummation of the merger with CenturyTel and the satisfaction of other customary conditions; will reduce the size of the revolving credit facility to $800 million from its existing $1.5 billion; and will replace CenturyTel's previously arranged $800 million bridge facility.

On January 27, 2009, our shareholders and those of CenturyTel, approved the matters required to complete the transaction as proposed in the merger agreement. Completion of the merger is now subject to approval by the FCC and various state regulatory agencies as well as other customary closing conditions. Subject to these requirements, the transaction is expected to close during the 2009 second quarter.

Pending Sale of Logistics Business

On January 29, 2009, we entered into an agreement to sell our wholly owned subsidiary, Embarq Logistics, and will enter into a four-year commercial services agreement for the buyer to provide certain logistics and supply chain services for our telecommunications operations. The transaction is expected to close during the 2009 first quarter subject to customary closing conditions and completion of the buyer's financing arrangements. As a result, Embarq Logistics' third party wholesale distribution operations, which comprised the Logistics segment, will likely be presented as discontinued operations in future consolidated financial statements.

Upon consummation of the transaction, the majority of employees, net working capital and all distribution center assets supporting the business will be transferred to the buyer in exchange for cash and other contingent consideration. We expect to recognize an estimated pre tax loss on disposal, as well as severance and benefit plan curtailments, of approximately $30 million to $40 million from this transaction.

Operations

We provide a suite of integrated communications services to consumer and business customers primarily in our local service territories in 18 states. Our service and product offerings include local and long distance voice, data, high-speed Internet, satellite video, professional services and communications equipment. In addition, we continue to serve the remaining wireless customers acquired under our mobile virtual network operator arrangement.

We also provide wholesale services primarily to wireline and wireless service providers. Services offered include switched access, special access, intelligent network database, collocation, resale switched access lines, paystation services, UNEs, high speed data services and billing and collection services.

Through our Logistics segment, we engage in wholesale product distribution, logistics and configuration services.

Our mission is to profitably serve targeted customers through simple solutions and a customer experience that satisfies their personal and business needs. Our strategy for success in the marketplace has five key elements: 1) innovate in everything we do, 2) drive productivity and cost efficiency, 3) win and retain targeted customers, 4) drive value though the delivery of broadband services and
5) explore and pursue growth opportunities complementary to our core business.

The following table reflects information about our switched access lines (thousands):

                                             Access Lines December 31,       Difference 2008 vs. 2007           Difference 2007 vs. 2006
                                             2008        2007      2006       Amount              %              Amount              %
Primary                                       3,537       3,967    4,288           (430 )          (10.8 )%           (321 )           (7.5 )%
Additional                                      241         305      371            (64 )          (21.0 )%            (66 )          (17.8 )%

Total Consumer                                3,778       4,272    4,659           (494 )          (11.6 )%           (387 )           (8.3 )%
Business                                      1,779       1,876    1,905            (97 )           (5.2 )%            (29 )           (1.5 )%
Wholesale                                       139         164      190            (25 )          (15.2 )%            (26 )          (13.7 )%

Total                                         5,696       6,312    6,754           (616 )           (9.8 )%           (442 )           (6.5 )%

Beginning in 2008, we no longer include in our business switched access line counts those lines that support our internal administrative and operational activities. Accordingly, the business access line counts above for 2007 and 2006 were reduced by 162 thousand and 154 thousand access lines to reflect this change.

Consumer switched access line losses represent the most significant portion of our losses. We believe the increased rate of access line losses in 2008 is partially attributable to worsening general and local economic conditions in the markets we serve causing an increasing number of customers to choose to discontinue traditional home phone service to rely solely on wireless services. The overlap of cable operators within our local service territories offering VoIP also continues to have an impact.

Despite the growing consumer access line losses, we have continued to have success in selling additional services to help mitigate the effect of the losses. In 2008, our overall high-speed Internet subscriber base increased 11% to 1.4 million subscribers. Additionally, our overall satellite video subscribers, a service we offer through various sales agency agreements, increased 49% to 297 thousand subscribers. Consequently, our average revenue per household, or ARPH, increased 4% in 2008. This measure, which is calculated by dividing average monthly consumer revenue by average primary access lines served, is useful in measuring our success in bundling initiatives and attracting and retaining high value customers.

                                                                       Difference
                                                  2008      2007     Amount      %
      Consumer revenue (millions)                $ 2,518   $ 2,655   $  (137 )   (5 )%
      Average primary access lines (thousands)     3,755     4,128      (373 )   (9 )%

      ARPH                                       $ 55.88   $ 53.60   $  2.28      4 %

Business and wholesale data services have also continued to mitigate the affect of access line losses and declining switched access minutes of use. Our data services consist mainly of dedicated circuits connecting other carriers networks to their customers' locations; wireless service providers' cell towers to mobile switching centers; or business customers to our network. Revenues from these services increased 5% in 2008.

Overall, our net operating revenues declined 4% in 2008. To offset the effect of these declines, we continued to diligently manage our costs and gain efficiencies and productivity. These efforts have proven successful in maintaining our profitability and driving an increase in earnings and cash flow in 2008.

Spin-Off from Sprint Nextel

In December 2004, Sprint Nextel announced its intention to spin-off their local communications business and product distribution operations from their other businesses in a tax-free transaction. On May 17, 2006, the date of the spin-off, in exchange for, and as a condition to, the transfer of assets and the assumption of liabilities described below, we (1) issued to Sprint Nextel 149.1 million shares of our common stock and (2) issued to Sprint Nextel $4.5 billion of Embarq senior notes and (3) transferred to Sprint Nextel $2.1 billion in cash. In exchange for, and contemporaneously with, the issuance of our common stock and transfer of debt and cash, Sprint Nextel transferred the Embarq assets, at historical cost, consisting of Sprint Nextel's local communications

No significant spin-off related expenditures were incurred during 2008. We incurred the following spin-off related charges and capital expenditures:

                                               For the Years Ended December 31,
                                                 2007                 2006
                                                          (millions)
     Spin-off related charges                $          26      $             116
     Spin-off related capital expenditures              12                     96

Approximately $67 million of the 2006 spin-off related capital expenditures were incurred by Sprint Nextel on our behalf before the spin-off. The resulting property, plant and equipment were transferred to us at spin-off. Accordingly, these capital expenditures are not reflected in our reported capital expenditures in 2006.

Industry Environment

We operate in an industry that has been and continues to be subject to intense competition, as well as regulatory and legislative changes. Given these factors, as well as the trend toward consolidation in the industry, we routinely assess the implications of these industry factors on our operations. These assessments, along with regulatory and legislative developments such as the ongoing FCC activities related to intercarrier compensation and federal USF support, may impact the future valuation of our long-lived assets and could have a material effect on our business, results of operations, financial condition and liquidity.

Economic Conditions

During 2008, general economic conditions in the United States have worsened; significant declines in values have occurred in the global equity, debt and derivative markets; and banks and other financial institutions have come under duress prompting government interventions. The diminished availability of credit and liquidity resulting from these conditions has and may continue to adversely impact the financial health of our customers, vendors and partners. For us, the principal immediate impacts have been limited to accelerated reductions in switched access lines; a decline in the value of our pension plan's assets of approximately $1 billion, see Note 6, Employee Benefit Plans, of the Notes to Consolidated Financial Statements for additional information; and lower capital expenditure requirements due to reduced levels of new construction activity in the markets we serve.

Critical Accounting Policies

The fundamental objective of financial reporting is to provide useful information that allows a reader to understand our business activities. To aid in that understanding, management has identified our critical accounting policies. These policies are considered critical because they have the potential to have a material impact on our consolidated financial statements, and because they require judgments and estimation due to the uncertainty involved in measuring, at a specific point in time, events that are continuous in nature.

Revenue Recognition Policies

Net operating revenue is recognized in accordance with SAB No. 104, Revenue Recognition. We collect fees for fixed rate services, such as local, unlimited long distance, high-speed Internet and certain data services, in advance and defer revenue recognition until these services are provided to the customer. Variable rate billing services, including minute driven long distance, data and access revenue, are billed in arrears. We have multiple billing cycles spread throughout each month resulting in trade accounts receivables and deferred revenue balances at the end of each reporting period. In the event that the variable rate usage data is not available at the end of a reporting period, we estimate revenue based on historic usage and other relevant factors.

Revenue for bundled services is allocated to an individual unit of accounting based on the relative fair value of each individual service when it is regularly sold on a stand-alone basis as prescribed by EITF Issue No. 00-21, Revenue Arrangements with Multiple Deliverables. Cash incentives given to customers are recognized as reductions to revenue ratably over the average life of the customer in accordance with EITF 01-9, Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor's Product), and other applicable guidance. Service activation and installation fees are deferred and amortized on a straight-line basis over the average life of the customer.

Net operating revenues include certain revenue reserves for billing disputes and errors and returns on product sales. These reserves require management's judgment and are based on many factors including historical trending, contract and tariff interpretations and developments during the resolution process.

If the revenue reserve as a percentage of our net operating revenues were to be increased by 10 basis points, our net operating revenues would be reduced by $6 million for 2008 and $3 million for 2007.

Allowance for Doubtful Accounts

Allowance for doubtful accounts represents the estimate of accounts receivable that are deemed to be uncollectible. This allowance typically reflects our best estimates based on historic credit losses and aged account receivable balances at the end of the reporting period. These estimates are subject to management's judgment based on payment terms, industry norms and recognition of current economic indicators and may be increased to include the entire accounts receivable balance when specific collection risk exists.

As of December 31, 2008 and 2007, if the allowance for doubtful accounts as a percentage of accounts receivable were increased by 100 basis points, bad debt expense would increase by $6 million in 2008 and $7 million for 2007 and 2006.

Property, Plant and Equipment (PP&E) and Intangibles

PP&E and definite lived intangibles are evaluated for impairment whenever indicators of impairment arise. Accounting standards require that if an impairment indicator is present, we must assess whether the carrying amount of the asset is unrecoverable by estimating the sum of the future undiscounted cash flows, excluding interest costs, expected to result from the asset. Impairment is recognized based on the fair value of the asset if the carrying amount is in excess of the recoverable amount.

In estimating future cash flows, we use our internal business forecasts. We develop our forecasts based on recent data for existing products and services, planned timing of new products and services, and other industry and economic factors.

Depreciable Lives of Assets

Estimates and assumptions are used in setting depreciable lives and testing for recoverability of our long lived assets. Assumptions are based on internal studies of use, industry data on lives, recognition of technological advancements and understanding of business strategy. We perform annual internal studies to confirm the appropriateness of depreciation rates for each group of assets. These studies utilize models, which take into account actual usage, physical wear and tear, replacement history, assumptions about technology evolution and in certain instances actuarially-determined probabilities to calculate remaining lives of our asset base.

If our studies had resulted in a depreciable rate that was 5% higher or lower than those used in the preparation of our consolidated financial statements, recorded depreciation expense would have been impacted by the following:

For the Years Ended December 31, 2008 2007 2006

Income Taxes

Current income tax expense represents the amount of income taxes paid or currently payable to various taxing jurisdictions in which we operate. Inherent in the current provision for income taxes are estimates and judgments regarding the interpretations of tax regulations, the tax class life assigned to assets, and the timing of deferred tax asset and liability realization. The amount of income taxes we ultimately pay is subject to ongoing audits by federal and state taxing authorities. Our estimate for the potential outcome for any uncertain tax issues is highly judgmental. We believe we have adequately provided for any foreseeable outcome related to these matters. However, our future results may include adjustments to our estimated tax liabilities in the period the assessments are made or resolved. As a result, our effective tax rate may fluctuate on a quarterly basis.

As of December 31, 2008 2007 2006

Actual income taxes could vary from estimates due to changes in income tax laws, significant changes in the jurisdictions in which we operate or our ability to generate sufficient future taxable income.

Employee Benefit Plan Assumptions

Retirement benefits are significant costs of doing business yet represent obligations that will be settled in the future. Retirement benefit accounting is intended to reflect the recognition of the future benefit costs over the employee's expected tenure with us based on the terms of the benefit plans and the related investment and funding decisions. The accounting standards require that management make assumptions regarding such variables as the return on assets, the discount rate and future health care costs. These assumptions are subject to changing market conditions. Changes in these key assumptions can have a significant impact on the respective benefit obligations and related net periodic benefit cost.

The following represents our discount rate as of the following measurement dates, based on a hypothetical portfolio of bonds rated AA- or better that produces a cash flow which matches the projected benefit payments of the plan:

As of December 31, 2008 2007 2006 Discount rate 6.4 % 6.3 % 6.1 %

If the discount rates used in determining the December 31, 2008 and 2007 projected benefit obligation were 10 basis points lower, it would have generated a $38 million and $39 million increase in the projected benefit obligation and a $3 million increase in our benefit costs in each year.

The long-term expected return on plan assets was determined by considering both historical and forward-looking estimates of the expected long-term returns for a portfolio invested according to the pension trust's target investment policy. These estimates were developed using independent data and were corroborated by comparison to benchmarks. If the assumption regarding the expected long-term return on plan assets for 2008 or 2007 of 8.5% were 25 basis points lower, our pension expense in each year would have been $8 million higher.

In determining postretirement medical and life insurance benefit obligations, assumptions are made concerning the cost of health care, including medical inflation and discount rates. As a result of the design of our postretirement medical and life insurance plans, movements in the assumed medical inflation or discount rate would not significantly impact the accumulated postretirement benefit obligation or related benefit costs. See Note 6, Employee Benefit Plans, of the Notes to Consolidated Financial Statements, for additional information on the plan and related assumptions.

Adoption of SFAS No. 157

On January 1, 2008, we adopted SFAS No. 157, Fair Value Measurements, for our financial assets and liabilities. Our adoption of SFAS No. 157 did not impact . . .