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 pending merger with CenturyTel;

• the effects of changes in both general and local economic conditions on 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 cable operators and wireless providers;

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

• the effect of changes in the legal, regulatory and legislative environments and the impact of compliance with regulatory mandates, including pending and future federal and state access and USF proceedings;

• 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 and regulatory proceedings or legislation impacting 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 our 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

Background

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 serve a small number of wireless customers acquired under our mobile virtual network operator arrangement with Sprint Nextel.

We also provide wholesale services primarily to wireline and wireless carriers. Services offered include switched access, special access, intelligent network database, collocation, resale switched access lines, pay telephone, unbundled network elements, high speed data services and billing and collection services.

Sale of Logistics Business

On March 12, 2009, we completed the sale of our wholly owned subsidiary, Embarq Logistics, Inc. Consequently, the financial results of Embarq Logistics' third party wholesale distribution operations, which previously comprised the Logistics business segment, are now reported as discontinued operations for all periods presented pursuant to SFAS No. 144, Accounting for Impairment or Disposal of Long Lived Assets. See Note 2, Discontinued Operations, of the Condensed Notes to Consolidated Financial Statements (Unaudited) for additional information. A commercial agreement was also completed whereby the buyer will provide certain logistics and supply chain services to our telecommunications operations. While there is no minimum purchase obligation associated with this agreement, we agreed to continue to purchase certain products and services exclusively from the buyer. Based on our requirements in the 2008 fourth quarter, costs over the four-year term of this agreement may approximate $450 million.

Pending Merger with CenturyTel

On October 26, 2008, Embarq and CenturyTel 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. 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 have incurred and may continue to incur additional costs including, but not limited to potential asset impairments; employee retention and severance costs; and other merger and integration costs.

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.

Operations

Consistent with the past several years, we continued to experience overall declines in telecommunications net operating revenues during the 2009 first quarter. Historically, these overall declines have resulted from voice revenue reductions driven by switched access line losses, somewhat offset by growth in data and high-speed Internet revenue. In recent quarters, voice revenue declines and line loss trends have been comparatively worse. The partial offset of voice revenue declines from growth in data services and high-speed Internet revenue is expected to continue based on recent results and trends; however, the amount of offset may be reduced in the future due to declining rates of growth for these services.

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

                                                  Access Lines                   Line Gain (Loss) for Quarter Ended              Line Loss for Twelve Months Ended
                                        March 31, 2009    March 31, 2008      March 31, 2009             March 31, 2008                    March 31, 2009
Primary                                          3,453             3,883       (84 )       (2.4 )%         (84 )     (2.1 )%            (430 )                 (11.1 )%
Additional                                         224               289       (17 )       (7.1 )%         (16 )     (5.2 )%             (65 )                 (22.5 )%

Total Consumer                                   3,677             4,172      (101 )       (2.7 )%        (100 )     (2.3 )%            (495 )                 (11.9 )%
Business                                         1,740             1,861       (39 )       (2.2 )%         (15 )     (0.8 )%            (121 )                  (6.5 )%
Wholesale                                          135               159        (4 )       (2.9 )%          (5 )     (3.0 )%             (24 )                 (15.1 )%

Total                                            5,552             6,192      (144 )       (2.5 )%        (120 )     (1.9 )%            (640 )                 (10.3 )%

We believe the increased rate of access line losses in 2009 is partially attributable to worsening general and local economic conditions in the markets we serve. These conditions may contribute to an increasing number of consumer customers choosing to rely solely on wireless services rather than the traditional home phone service. The slowdown in economic activity for business customers, including increased business closures and higher unemployment has contributed to increased business line losses in 2009. In addition, increased competition in the market place has continued to compel certain consumer and business customers to select alternative communication methods such as VoIP.

Despite the growing access line losses, we have continued to have success in selling additional services to help mitigate the effect of the losses. As of March 31, 2009, our overall high-speed Internet subscriber base increased 8% to 1.5 million subscribers as compared to the same period in 2008. Additionally, our overall satellite video subscribers, a service we offer through various sales agency agreements, increased 43% to 310 thousand subscribers.
Consequently, our average revenue per household, or ARPH, increased 1.8% for the year to date period ended March 31, 2009. 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.

                                                       Year to Date March 31,         Difference
                                                        2009            2008       Amount        %
Consumer revenue (millions)                         $        596    $        656   $   (60 )    (9.1 )%
Average primary consumer access lines (thousands)          3,503           3,926      (423 )   (10.8 )%

ARPH                                                $      56.71    $      55.70   $  1.01       1.8 %

Business and wholesale data services have also continued to mitigate the effect of declining voice revenues resulting from access line losses and declining switched access minutes of use. Our data services consist mainly of dedicated circuits connecting other carrier's 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 3% during the year to date period ended March 31, 2009 compared to the same period in 2008. This rate of growth for our data services is considerably lower than that experienced during recent quarters. We believe this trend is also partially attributable to worsening economic conditions.

Overall, our net operating revenues declined 8% in the year to date period ended March 31, 2009 as compared to the same period 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 cash flow.

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, including pending and future federal and state access and USF proceedings, 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

Since mid-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 had and may continue to have adverse impacts on the financial health of our customers, vendors and partners. For us, the primary impacts have been some acceleration in switched access line losses; a decline in the value of our pension plan's assets, see Note 6, Employee Benefit Plans, of the Condensed Notes to Consolidated Financial Statements (Unaudited) for additional information; and lower capital expenditure requirements due to reduced levels of new construction activity in the markets we serve.

Adoption of New Accounting Pronouncements

FSP EITF 03-6-1, Determining Whether Instruments Granted in Share-based Payment Transactions are Participating Securities - On January 1, 2009, we adopted this standard, which required us to begin including unvested share-based payment awards that contain a nonforfeitable right to receive dividends, whether paid or unpaid, as participating securities in the computation of basic earnings per share. As required by this standard, 2008 earnings per share data and weighted average shares outstanding were retroactively adjusted to conform to the provisions of this standard. See Note 1, Background and Basis of Presentation, of the Condensed Notes to Consolidated Financial Statements (Unaudited) for additional information.

FSP SFAS No. 132(R)-1, Employers Disclosures about Postretirement Benefit Plan Assets - On January 1, 2009, we adopted this standard, which expands the disclosures required by SFAS No. 132(R), Employers' Disclosures about Pensions and Other Postretirement Benefits, to discuss the assumptions and risks used to compute fair value of each category of plan assets. As we use a year end measurement date to value plan assets, all disclosures required by this standard will initially be adopted as of December 31, 2009.

SFAS No. 141(R), Business Combinations - On January 1, 2009, we adopted this standard, which maintains the fundamental guidance provided under SFAS No. 141, Business Combinations, but requires the acquirer to recognize all acquired assets and liabilities, including goodwill, at fair value at the acquisition date as opposed to the announcement date. In addition, the standard requires most transaction related costs to be expensed as incurred as well as provides expanded disclosure requirements for such transactions in the financial statements. Prior to completing the pending merger with CenturyTel, we do not expect the adoption of this standard to have a material impact on our financial position, results of operations or liquidity.

FSP SFAS No. 157-2, Effective Date of FASB Statement No. 157 - We elected to defer until January 1, 2009 the adoption of SFAS No. 157 for all nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis. The adoption of SFAS No. 157 for those nonfinancial assets and liabilities within the scope of FSP SFAS No. 157-2 did not have a material impact on our financial position, results of operations or liquidity.

Recently Issued Accounting Pronouncements

FSP SFAS No. 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments - This standard amends SFAS No. 107, Disclosures about Fair Value of Financial Instruments, and APB Opinion No. 28, Interim Financial Reporting, to require disclosures about the fair value of financial instruments for interim periods. Although we have historically provided most of these disclosures in our interim financial statements, we will formally adopt this standard for periods ending after June 15, 2009.

FSP SFAS No. 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly - This standard clarifies the application of SFAS No. 157, Fair Value Measurements, when the volume and activity of the asset and liability has significantly decreased and reemphasizes that fair value is the price that would be received to sell an asset or pay a liability in an orderly transaction between market participants at the measurement date. In addition, it requires additional disclosures noting the inputs and valuation techniques used for all assets and liabilities measured at fair value and the major security types for any debt or equity securities. We will adopt this standard for periods ending after June 15, 2009. We do not expect the adoption of this standard to have a material impact on our financial position, results of operations or liquidity.

RESULTS OF OPERATIONS

As of March 31, 2009, our operations consisted of regulated local phone companies serving approximately 5.6 million access lines primarily in 18 states. We provide a suite of integrated communication services including local and long distance voice, data, high-speed Internet, satellite video, professional services and communications equipment to consumer and business customers primarily in our local service territories. We also provide access to our local network and other wholesale communications services primarily to other carriers, wireless providers and correctional institutions.

                                                 Year to Date March 31,                    Difference
                                                    % of                   % of
(millions)                               2009     Revenues      2008     Revenues        $         Percent
Net operating revenues
Voice                                   $   916         68 %   $ 1,024         70 %   $   (108 )       (11 )%
Data                                        203         15 %       198         14 %          5           3 %
High-speed Internet                         143         11 %       133          9 %         10           8 %
Other                                        84          6 %       101          7 %        (17 )       (17 )%

Total net operating revenues              1,346        100 %     1,456        100 %   $   (110 )        (8 )%
Operating expenses
Costs of services and products              363         27 %       422         29 %        (59 )       (14 )%
Selling, general and administrative         329         24 %       348         24 %        (19 )        (5 )%
Depreciation                                244         18 %       250         17 %         (6 )        (2 )%

Total operating expenses                    936         69 %     1,020         70 %        (84 )        (8 )%

Operating income                        $   410         31 %   $   436         30 %   $    (26 )        (6 )%

Capital expenditures                    $   108                $   179                $    (71 )       (40 )%

Switched access lines (thousands)         5,552                  6,192                    (640 )     (10.3 )%

Switched access minutes of use
(millions)                                5,797                  6,883                  (1,086 )       (16 )%

High-speed Internet subscribers
(thousands)                               1,452                  1,340                     112           8 %

Net Operating Revenues

Net operating revenues decreased $110 million for the year to date period ended March 31, 2009, compared to the same period in 2008. Variances in individual categories of revenue are discussed below.

Voice

Voice revenues include monthly recurring fees for local service, enhanced calling features and long distance. Additionally, voice revenues include switched access and other wholesale services to other carriers to enable connectivity to our network as well as USF receipts and customer surcharges. Voice revenues declined $108 million during the year to date period ended March 31, 2009, compared to the same period in 2008. The following table lists the major drivers of these changes:

                                                                  Increase (Decrease)
                                                                      (millions)
Local voice revenues primarily due to access line
losses                                                           $                 (76 )
Long-distance voice revenues primarily due to access
line losses and yield declines                                                      (8 )
Switched access revenues primarily associated with
lower access minutes of use                                                        (13 )
USF receipts                                                                        (6 )
Other                                                                               (5 )

Total change                                                     $                (108 )

Data

Data revenues represent data network services sold to business customers and
special access services sold to other carriers. Data revenues increased $5
million during the year to date period ended March 31, 2009, compared to the
same period in 2008. The following table lists the major drivers of these
changes:



                                                      Increase (Decrease)
                                                          (millions)
         Special access revenue                      $                   3
         Ethernet and other business data services                       2

         Total change                                $                   5

High-speed Internet

High-speed Internet revenues increased $10 million during the year to date period ended March 31, 2009, compared to the same period in 2008 due to an 8% increase in subscribers.

Other

Other revenues consist primarily of professional services, intelligent network database services, billing and collection services, wireless services, product revenues derived mainly from sales of customer premises equipment and sales agency commissions, principally from our satellite video service offering. Other revenues decreased $17 million during the year to date period ended March 31, 2009, compared to the same period in 2008 due to decreased wireless and professional services revenues.

Costs of Services and Products

Costs of services and products include costs to operate and maintain the local network including employee-related costs directly supporting our network, costs directly associated with various service offerings, intercarrier compensation (such as access payments and reciprocal compensation), federal and state USF assessments, various operating taxes and equipment and employee-related costs associated with customer premise equipment and other product sales. Cost of services and products decreased $59 million during the year to date period ended March 31, 2009, compared to the same period in 2008. The following table lists the major drivers of these changes:

                                                                  Increase (Decrease)
                                                                      (millions)
Network labor, benefits and severance charges                    $                 (21 )
Cost of products sold                                                              (13 )
Long-distance costs primarily related to purchased
minutes of use                                                                     (14 )
Reduction in wireless service costs                                                 (5 )
Other                                                                               (6 )

Total change                                                     $                 (59 )

Selling, General and Administrative

Selling, general and administrative costs include costs associated with selling and marketing, customer service, information technology, bad debt expense, general corporate costs and all other employee-related costs. These costs decreased $19 million during the year to date period ended March 31, 2009, compared to the same period in 2008. The following table lists the major drivers of these changes:

                                                      Increase (Decrease)
                                                          (millions)
        Labor, benefits and severance charges        $                  (3 )
        System and process improvement initiatives                      (3 )
        Other, individually insignificant                              (13 )

        Total change                                 $                 (19 )

Depreciation

Depreciation expense decreased $6 million during the year to date period ended
March 31, 2009, compared to the same period in 2008. The following table lists
the major drivers of these changes:


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