(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file these reports), and (2) has been subject to these filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one):

Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ¨ No x


	As of June 30, 2008			As of December 31, 2007			As of September 30, 2008			As of December 31, 2007
	(Unaudited)						(Unaudited)
*Assets*
Current assets
Cash and equivalents	$	50		$	69		$	83		$	69
Accounts receivable, net of allowance for doubtful accounts of $57 and $60		581			616
Accounts receivable, net of allowance for doubtful accounts of $55 and $60								548			616
Inventories, net		119			138			116			138
Deferred tax assets		78			76			96			76
Prepaid expenses and other current assets		87			87			86			87

Total current assets		915			986			929			986
Gross property, plant and equipment		20,949			20,802			21,031			20,802
Accumulated depreciation		(13,360	)		(13,054	)		(13,523	)		(13,054	)

Net property, plant and equipment		7,589			7,748			7,508			7,748
Goodwill		27			27			27			27
Prepaid pension asset		130			108			186			108
Other assets		45			32			44			32

Total	$	8,706		$	8,901		$	8,694		$	8,901

*Liabilities and Stockholders’ Equity*
Current liabilities
Current maturities of long-term debt	$	82		$	99		$	2		$	99
Accounts payable		337			387			303			387
Payroll and employee benefits		146			208			218			264
Accrued income taxes		68			27			40			27
Accrued operating taxes		105			97			110			97
Deferred revenue		189			202			190			202
Accrued interest		59			56			137			56
Other current liabilities		94			122			75			66

Total current liabilities		1,080			1,198			1,075			1,198
Noncurrent liabilities
Long-term debt		5,888			5,779			5,838			5,779
Deferred income taxes		1,114			1,130			1,166			1,130
Benefit plan obligations		318			320			317			320
Other noncurrent liabilities		217			210			230			210

Total noncurrent liabilities		7,537			7,439			7,551			7,439
Stockholders’ equity
Preferred stock, $.01 par value; 200 shares authorized; no shares issued		—			—			—			—
Common stock, $.01 par value; 1,250 shares authorized; 153.8 and 153.1 shares issued; 144.2 and 153.1 shares outstanding		2			2
Common stock, $.01 par value; 1,250 shares authorized; 153.9 and 153.1 shares issued; 142.1 and 153.1 shares outstanding								2			2
Paid-in capital		(214	)		(231	)		(199	)		(231	)
Retained earnings		832			623			894			623
Accumulated other comprehensive income (loss)		(130	)		(130	)		(129	)		(130	)
Treasury stock, 9.6 and no shares held in treasury		(401	)		—
Treasury stock, 11.8 and no shares held in treasury								(500	)		—

Total stockholders’ equity		89			264			68			264

Total	$	8,706		$	8,901		$	8,694		$	8,901

See accompanying Condensed Notes to Consolidated Financial Statements (Unaudited)

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)


	Quarters Ended June 30,						Year to Date June 30,						Quarters Ended September 30,						Year to Date September 30,
	2008			2007			2008			2007			2008			2007			2008			2007
*Net Operating Revenues*
Service revenues	$	1,407		$	1,454		$	2,840		$	2,912		$	1,377		$	1,446		$	4,217		$	4,358
Product revenues		142			151			280			282			148			148			428			430

Total net operating revenues		1,549			1,605			3,120			3,194			1,525			1,594			4,645			4,788

*Operating Expenses*
Cost of services		381			404			771			821			421			417			1,192			1,238
Cost of products		132			142			270			269			137			149			407			418
Selling, general and administrative		361			395			719			799			362			405			1,081			1,204
Depreciation		247			264			498			534			252			260			750			794

Total operating expenses		1,121			1,205			2,258			2,423			1,172			1,231			3,430			3,654

*Operating Income*		428			400			862			771			353			363			1,215			1,134
Interest expense		100			111			204			220			101			108			305			328
Other (income) expense, net		(1	)		—			(2	)		—			(1	)		(2	)		(3	)		(2	)

*Income Before Income Taxes*		329			289			660			551			253			257			913			808
Income tax expense		123			113			242			215			93			100			335			315

*Net Income*	$	206		$	176		$	418		$	336		$	160		$	157		$	578		$	493

Amendments to and remeasurement of employee benefit plans, net of tax		—			(196	)		—			(196	)		—			(1	)		—			(197	)
Amortization of employee benefit plans prior service cost and actuarial losses, net of tax		—			(4	)		(1	)		(6	)		(2	)		—			(3	)		(6	)
Amortization of cash flow derivatives, net of tax		—			1			1			2			1			1			2			3

*Comprehensive Income, Net of Tax*	$	206		$	375		$	418		$	536		$	161		$	157		$	579		$	693

*Earnings per Common Share*
Basic	$	1.40		$	1.16		$	2.79		$	2.23		$	1.12		$	1.02		$	3.92		$	3.25

Diluted	$	1.38		$	1.15		$	2.76		$	2.20		$	1.11		$	1.01		$	3.88		$	3.21

*Weighted Average Common Shares Outstanding*
Basic		146.8			151.8			149.7			151.0			142.6			152.8			147.4			151.6
Potentially dilutive shares under equity incentive plans		2.0			1.8			1.7			2.0
Potentially dilutive shares under incentive plans														1.4			1.7			1.6			1.9

Diluted		148.8			153.6			151.4			153.0			144.0			154.5			149.0			153.5

See accompanying Condensed Notes to Consolidated Financial Statements (Unaudited)


	Year to Date June 30,						Year to Date September 30,
	2008			2007			2008			2007
*Operating Activities*
Net income	$	418		$	336		$	578		$	493
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		498			534			750			794
Provision for losses on accounts receivable		49			37			77			67
Deferred and noncurrent income taxes		(21	)		(52	)		15			(18	)
Stock-based compensation expense		22			30			35			46
Net losses (gains) on sales of assets		(9	)		(7	)		(9	)		(7	)
Other, net		26			22			40			32
Changes in assets and liabilities:
Accounts receivable		(14	)		(26	)		(3	)		(72	)
Inventories and other current assets		(4	)		(30	)		(13	)		(17	)
Accounts payable and other current liabilities		(98	)		(146	)		(18	)		(24	)
Noncurrent assets and liabilities, net		(24	)		7			(79	)		(67	)

Net cash provided by operating activities		843			705			1,373			1,227

*Investing Activities*
Capital expenditures		(360	)		(371	)		(532	)		(566	)
Proceeds from construction reimbursements		4			5			6			7
Proceeds from sales of assets		2			18			10			19

Net cash used by investing activities		(354	)		(348	)		(516	)		(540	)

*Financing Activities*
Principal payments on long-term debt		(19	)		(462	)		(99	)		(747	)
Borrowings under revolving credit agreement		790			585			1,075			925
Repayments under revolving credit agreement		(680	)		(455	)		(1,015	)		(760	)
Proceeds from common stock issued		10			98			13			105
Repurchase of common stock		(390	)		(2	)		(500	)		(2	)
Dividends paid to stockholders		(208	)		(174	)		(306	)		(271	)
Tax effects of stock-based compensation		—			21			1			24
Other, net		(11	)		(7	)		(12	)		(4	)

Net cash used by financing activities		(508	)		(396	)		(843	)		(730	)

*Decrease in Cash and Equivalents*		(19	)		(39	)
*Increase (Decrease) in Cash and Equivalents*								14			(43	)
*Cash and Equivalents at Beginning of Period*		69			53			69			53

*Cash and Equivalents at End of Period*	$	50		$	14		$	83		$	10

See accompanying Condensed Notes to Consolidated Financial Statements (Unaudited)


	Preferred Stock		Common Stock		Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total Stockholders’ Equity			Preferred Stock		Common Stock		Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total Stockholders’ Equity
January 1, 2008 Balance	$	—	$	2	$	(231	)	$	623		$	(130	)	$	—		$	264		$	—	$	2	$	(231	)	$	623		$	(130	)	$	—		$	264
Net income		—		—		—			418			—			—			418			—		—		—			578			—			—			578
Dividends to shareholders ($1.375 per share)		—		—		—			(209	)		—			—			(209	)
Dividends to shareholders ($2.0625 per share)																					—		—		—			(307	)		—			—			(307	)
Common stock issued		—		—		10			—			—			—			10			—		—		13			—			—			—			13
Stock-based compensation expense		—		—		22			—			—			—			22			—		—		35			—			—			—			35
Tax effects of stock-based compensation																					—		—		1			—			—			—			1
Restricted stock units surrendered for tax withholding		—		—		(15	)		—			—			—			(15	)		—		—		(17	)		—			—			—			(17	)
Amortization of (net of tax):
Employee benefit plans prior service cost and actuarial losses		—		—		—			—			1			—			1			—		—		—			—			3			—			3
Cash flow derivative		—		—		—			—			(1	)		—			(1	)		—		—		—			—			(2	)		—			(2	)
Repurchase of common stock		—		—		—			—			—			(401	)		(401	)		—		—		—			—			—			(500	)		(500	)

June 30, 2008 Balance	$	—	$	2	$	(214	)	$	832		$	(130	)	$	(401	)	$	89
September 30, 2008 Balance																				$	—	$	2	$	(199	)	$	894		$	(129	)	$	(500	)	$	68

See accompanying Condensed Notes to Consolidated Financial Statements (Unaudited)

The information in this Form 10-Q has been prepared according to Securities and Exchange Commission (SEC) rules and regulations. The consolidated interim financial statements of Embarq Corporation (Embarq) reflect all adjustments, consisting only of normal recurring accruals needed to fairly present Embarq’s consolidated financial position, results of operations and cash flows.

Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States were condensed or omitted. As a result, these consolidated financial statements should be read along with Embarq’s Annual Report on Form 10-K for the year ended December 31, 2007. Operating results for the 2008 year to date period do not necessarily represent the results that may be expected for the year ending December 31, 2008.

Embarq was incorporated in 2005 under the laws of Delaware and was formerly a wholly owned subsidiary of Sprint Nextel Corporation (Sprint Nextel). On May 17, 2006, Sprint Nextel spun-off its local communications business and product distribution operations, thereby establishing Embarq as a separate, stand-alone company.

Embarq provides a suite of integrated communications 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 local service territories in 18 states. Embarq also provides wholesale access to its local network and other ~~wholesale~~ communications services primarily to ~~other carriers,~~wireline and wireless ~~providers and correctional institutions.~~carriers. Through its Logistics segment, Embarq engages in wholesale product distribution, logistics and configuration services.

As of ~~June~~September 30, 2008, Embarq had approximately 1817 thousand active employees. Approximately 34% of these employees were represented by unions subject to collective bargaining agreements. Of the union-represented employees, approximately ~~48%~~43% have collective bargaining agreements that will expire within one year. There were no material changes related to any employee collective bargaining agreements during the year to date period ended ~~June~~September 30, 2008.

The accompanying consolidated financial statements reflect all the accounts of Embarq and its wholly owned subsidiaries. All intercompany transactions have been eliminated.

The consolidated financial statements were prepared using accounting principles generally accepted in the United States. These principles require management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses. Actual results could differ from those estimates.

Certain prior year amounts have been reclassified to conform to the current year presentation. These reclassifications had no effect on the results of operations or stockholders’ equity as previously reported.

Embarq records federal and state Universal Service Fund (USF) surcharges on a gross basis. The total amount of surcharges recorded in net operating ~~revenue~~revenues for the quarter and year to date periods ended ~~June~~September 30, 2008 and 2007, were as follows:

In order to better align organizational resources with Embarq’s business needs as well as to improve its overall cost structure, Embarq has taken various steps, including both voluntary and involuntary reductions in its workforce. Related to these reductions, Embarq recognized the following ~~severance charges (credits):~~charges:


	Quarter Ended June 30,					Year to Date June 30,					Quarter Ended September 30,				Year to Date September 30,
	2008			2007		2008			2007		2008		2007		2008		2007
	*(millions)*										*(millions)*
Severance											$	53	$	33	$	58	$	49
Contractual early retirement benefits (also see Note 5)												13		—		13		—

Total											$	66	$	33	$	71	$	49

Cost of services
Telecommunications segment	$	(2	)	$	1	$	(1	)	$	3	$	49	$	21	$	48	$	24

Selling, general and administrative
Telecommunications segment		4			1		6			12		16		10		22		22
Logistics segment		—			—		—			1		1		2		1		3

Subtotal		4			1		6			13		17		12		23		25

Total severance charges	$	2		$	2	$	5		$	16
Total											$	66	$	33	$	71	$	49

On an annual basis, Embarq performs an analysis of the remaining life depreciation rates. Depreciation rates for various digital switching equipment, digital loop carrier equipment and high-speed Internet equipment were adjusted during 2008 and 2007, which resulted in depreciation expense being reduced by the following:


	Quarters Ended June 30,				Year to Date June 30,				Quarters Ended September 30,				Year to Date September 30,
	2008		2007		2008		2007		2008		2007		2008		2007
Depreciation expense reduction (millions)	$	12	$	11	$	24	$	23	$	14	$	11	$	38	$	34
Basic and diluted earning per share	$	0.05	$	0.04	$	0.10	$	0.09		0.06		0.04		0.16		0.14

Shares of common stock repurchased by Embarq are reflected as treasury stock on the trade date and are carried at cost, including any direct third-party fees. Embarq uses the weighted average cost method for the issue of common stock from treasury. In the event shares are not retired and subsequently issued from treasury, paid-in capital will increase for any gains and paid-in capital, or retained earnings in the event of a deficit in paid-in capital, will decrease for any losses.

Embarq replicated or otherwise arranged for replacement of certain facilities, systems, infrastructure and personnel related to functions historically performed by Sprint Nextel and successfully completed the exit of all remaining transitional agreements ~~in May 2008.~~during the 2008 second quarter.

No significant spin-off expenditures were incurred during the year to date period ended ~~June~~September 30, 2008. Embarq incurred the following ~~spin~~ spin-off related charges and capital expenditures for the quarter and year to date period ended ~~June~~September 30, 2007:


	Quarter		Year to Date		Quarter		Year to Date
	*(millions)*				*(millions)*
Spin-off related charges	$	8	$	17	$	4	$	21
Capital expenditures		2		6		2		8

On January 1, 2008, Embarq adopted Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements, for its financial assets and liabilities. Embarq’s adoption of SFAS No. 157 did not impact its financial position, results of operations, liquidity or disclosures as there are no financial assets or liabilities that are measured at fair

value on a recurring basis. In accordance with FASB Staff Position (FSP) No. 157-2, Effective Date of FASB Statement No. 157, Embarq elected to defer until January 1, 2009, the adoption of SFAS No. 157 for all nonfinancial assets and liabilities that are not recognized or disclosed at fair value in the financial statements on a recurring basis. This includes goodwill and nonfinancial long-lived assets that are measured at fair value in impairment testing and asset retirement obligations initially measured at fair value. The adoption of SFAS No. 157 for those nonfinancial assets and liabilities within the scope of FSP 157-2 is not expected to have a material impact on Embarq’s financial position, results of operations or liquidity.

Emerging Issues Task Force (EITF), 03-6-1,Determining Whether Instruments Granted in Share-based Payment Transactions are Participating Securities.This standard concluded that unvested share-based payment awards that contain a nonforfeitable right to receive dividends, whether paid or unpaid, are participating securities and should be included in the computation of earnings per share pursuant to the two-class method prescribed under SFAS No. 128,Earnings per Share. This standard is effective for fiscal years beginning after December 15, 2008 with early adoption prohibited. Embarq is evaluating the impact of this standard but does not believe it will have a material impact on basic or diluted earnings per share.

Seven former manufactured gas plant sites have been identified that may have been owned or operated by entities acquired by Embarq’s subsidiary, Centel Corporation (Centel), before that company was acquired by Sprint Nextel. These sites are not currently owned or operated by either Sprint Nextel or Embarq. On three sites, Embarq and the current landowners are working with the EPA pursuant to administrative consent orders. Expenditures pursuant to the orders are not expected to be material. On five sites, including the three sites where the EPA is involved, Centel has entered into agreements with other potentially responsible parties to share costs. Further, Sprint Nextel has agreed to indemnify Embarq for most of any eventual liability arising from all seven of these sites.

In December 2007, a group of retirees filed a putative class action lawsuit in the United States District Court for the District of Kansas, challenging the decision to make certain modifications to Embarq’s retiree benefits programs generally effective January 1, 2008. See Note 5, Employee Benefit ~~Plans.~~Plans, for additional information. Defendants include Embarq Corporation, certain of its benefits plans, its Employee Benefits Committee and its plan administrator. Additional defendants include Sprint Nextel and certain of its benefits plans. In addition, a complaint in arbitration has been filed by 15 former Centel executives, similarly challenging the benefits changes. Embarq and other defendants intend to vigorously contest these claims and charges.

In addition, Embarq is subject to various other lawsuits, regulatory proceedings against Embarq and other claims typical for a business enterprise. While it is not possible to determine the ultimate disposition of each of these proceedings and whether they will be resolved consistent with Embarq’s expectations, Embarq expects that the outcome of these proceedings, individually or in the aggregate, will not have a material adverse effect on its financial condition, results of operations or liquidity.

During the 2008 second quarter, ~~2008,~~ Embarq entered into a seven year outsourcing agreement for traffic monitoring services and technical support for its voice network operations. ~~Certain Embarq employees are expected to become employees of the vendor during the third quarter when the arrangement is expected to become effective.~~ Embarq’s contractual obligation, based on expected call traffic volume, is estimated to be approximately $27 million annually, which will ~~also~~ be reflected as cost of services in the Consolidated Statements of Operations and Comprehensive Income (Unaudited).

During 2008, Embarq increased outstanding borrowings under its credit agreement by ~~$110~~$60 million ~~entirely~~ through net advances on the revolving credit facility. Additionally, Embarq made ~~$19~~$99 million in scheduled principal payments.

As of ~~June~~September 30, 2008, Embarq’s long-term debt had a carrying value of approximately ~~$6.0~~$5.8 billion and a fair value of approximately ~~$5.7~~$4.9 billion. This fair value was computed based on observable market transactions and through discounted cash flow analysis using market-based credit spreads.

Embarq records deferred income taxes based on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax basis.

The differences that caused Embarq’s effective income tax rates to vary from the 35% federal statutory rate for income taxes related to continuing operations were as follows:


	Year to Date June 30,						Year to Date September 30,
	2008			2007			2008			2007
	*(millions)*						*(millions)*
Income tax expense at the federal statutory rate	$	231		$	193		$	320		$	283
Effect of:
State income taxes, net of federal income tax effect		9			22			14			31
Other, net		2			—			1			1

Income tax expense	$	242		$	215		$	335		$	315

Effective income tax rate		36.7	%		39.0	%		36.7	%		39.0	%

InDuring the 2007 fourth quarter, ~~of 2007,~~ Embarq modified its legal entity structure, which resulted in a reduction of state income tax expense. Also, a ~~favorable negotiated~~ state income tax settlement induring the 2008 first quarter ~~of 2008~~ reduced state income tax expense for 2008 by $5 million.


	Quarter Ended June 30, 2008						Quarter Ended June 30, 2007						Quarter Ended September 30, 2008						Quarter Ended September 30, 2007
	Pension Benefits			Other Post- retirement Benefits			Pension Benefits			Other Post- retirement Benefits			Pension Benefits			Other Post- retirement Benefits			Pension Benefits			Other Post- retirement Benefits
	*(millions)*												*(millions)*
Service cost	$	14		$	2		$	14		$	2		$	12		$	2		$	13		$	2
Interest cost		50			4			49			9			52			4			51			4
Expected return on plan assets		(68	)		(1	)		(66	)		(1	)		(71	)		—			(67	)		—
Amortization of transition benefit														—			(1	)		—			(1	)
Amortization of prior service cost (benefit)		3			(13	)		4			(15	)		3			(14	)		4			(19	)
Amortization of actuarial losses		8			3			10			4			9			4			15			3
Contractual retirement benefits														13			—			—			—

Net cost (benefit)	$	7		$	(5	)	$	11		$	(1	)	$	18		$	(5	)	$	16		$	(11	)


													Year to Date September 30, 2008						Year to Date September 30, 2007
													Pension Benefits			Other Post- retirement Benefits			Pension Benefits			Other Post- retirement Benefits
													*(millions)*
Service cost													$	40		$	6		$	41		$	6
Interest cost														153			12			148			22
Expected return on plan assets														(208	)		(2	)		(198	)		(2	)
Amortization of transition benefit														—			(1	)		—			(1	)
Amortization of prior service cost (benefit)														9			(40	)		12			(48	)
Amortization of actuarial losses														26			10			35			11
Contractual retirement benefits														13			—			—			—

Net cost (benefit)													$	33		$	(15	)	$	38		$	(12	)

For the year to date period ended September 30, 2008, the actual loss on the pension plan’s assets has been approximately (17)%. Net periodic benefit cost for 2008 assumes an annualized expected return on plan trust assets of 8.5%. Exclusive of other assumption changes, if this large difference between expected and actual return on plan trust assets for 2008 is sustained, net periodic benefit cost for 2009 will increase.

During the 2008 third quarter, Embarq recognized $13 million in additional pension costs related to contractual early retirement benefits for certain participants affected by workforce reductions. In addition, during this quarter Embarq made a contribution to its pension plan’s trust of $61 million related to the 2007 plan year.

During the 2008 first quarter, Embarq became aware of transactions that involved the inadvertent receipt of funds by the plan sponsors from the assets of the defined benefit pension plans in which Embarq’s employees and retirees currently participate, and in which they participated before the spin-off. These transactions, which began in 2002 and continued through March 2008, require payments to the plans’ trusts. With respect to the period following the spin-off, Embarq paid amounts owed to its plan’s trust of approximately $14 million in the 2008 second quarter. For the period before the spin-off,

the Embarq plan’s trust may receive additional funds from the Sprint Nextel plan’s trust or Sprint Nextel related to these transactions. As of October 29, 2008, Sprint Nextel has not confirmed its intentions with respect to the ultimate disposition of the pre-spin-off amount. Accordingly, no amounts have been reflected in the accompanying Consolidated Balance Sheet (unaudited) as of September 30, 2008. The eventual outcome is not expected to have a material adverse effect on Embarq’s financial condition, results of operations or liquidity.

During the 2007 second quarter, ~~of 2007,~~ Embarq amended its other postretirement medical and life insurance plans to eliminate medical coverage and Medicare premium subsidies for Medicare-eligible retirees and Medicare-eligible beneficiaries and cap the maximum amount of life insurance benefits through the company-sponsored plan for qualified retirees at $10 thousand, effective January 1, 2008. In addition, effective September 1, 2007, Embarq eliminated company-provided life insurance coverage for retirees who also have benefits through a separate subsidiary company-sponsored plan.

In March 2008, Embarq became aware of transactions that involved the inadvertent receipt of funds by the plan sponsors from the assets of the defined benefit pension plans in which Embarq’s employees and retirees currently participate, and in which they participated before the spin-off. These transactions, which began in 2002 and continued through March 2008, require payments to the plans’ trusts. With respect to the period following the spin-off, Embarq paid all amounts owed to its plan’s trust. For the period before the spin-off, the Embarq plan’s trust may receive additional funds from the pre-spin-off plan or pre-spin-off plan sponsor related to these transactions. While it is not possible for Embarq to determine the ultimate disposition of the pre-spin-off amount and whether it will be resolved consistent with current expectations, the eventual outcome is not expected to have a material adverse effect on Embarq’s financial condition, results of operations or liquidity.

On May 1, 2008, approximately 20 thousand restricted stock units were granted to non-employee members of the board of directors as part of their annual compensation program. These awards had a fair value of $43.08 per restricted stock unit resulting in approximately $1 million in compensation expense that will be recognized over the one year vesting term.

On February 27, 2008, approximately 0.4 million restricted stock units were granted to certain non-executive employees as part of Embarq’s 2007 short-term incentive program. The total award was based on the achievement of performance objectives under the 2007 short-term incentive program. These awards had a fair value of $42.91 per restricted stock unit and will vest in full on December 1, 2008.

On March 2, 2008, approximately 0.9 million stock options and 0.4 million restricted stock units were granted to executive officers and other executive level employees as part of Embarq’s 2008 long-term incentive program. The stock options will vest 34% on March 2, 2009, and 33% will vest on each of March 2, 2010 and 2011. The restricted stock units contain market and performance provisions and will vest on March 2, 2011. The restricted stock units ultimately issued could increase up to 200% of the initial number of awards granted or be reduced to zero depending on Embarq’s performance. The fair value was $6.24 per stock option and $41.94 per restricted stock unit.

The significant assumptions used to calculate the fair value for the 2008 annual stock option grant were as follows:

Total compensation expense related to all of the awards noted above was $40.8 million, which is expected to be recognized over a weighted average vesting period of 2.0 years.

Embarq has two segments, Telecommunications and Logistics. The Telecommunications segment provides 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 within Embarq’s local service territories in 18 states. The Telecommunications segment also provides wholesale access to Embarq’s local network and other ~~wholesale~~ communications services primarily to ~~other carriers,~~wireline and wireless ~~providers and correctional institutions.~~carriers. The Logistics segment engages in wholesale product distribution, logistics and configuration services.

Embarq manages its segments to the operating income level. Items, such as interest, other income and expense and income taxes are managed at the consolidated level. The reconciliation of operating income to net income is shown in the accompanying Consolidated Statements of Operations and Comprehensive Income (Unaudited).


	Quarter Ended June 30, 2008						Quarter Ended June 30, 2007						Quarter Ended September 30, 2008							Quarter Ended September 30, 2007
	Telecommunications		Logistics		Consolidated		Telecommunications		Logistics		Consolidated		Telecommunications		Logistics			Consolidated		Telecommunications		Logistics			Consolidated
	*(millions)*												*(millions)*
Voice	$	994	$	—	$	994	$	1,071	$	—	$	1,071	$	960	$	—		$	960	$	1,051	$	—		$	1,051
Data		199		—		199		188		—		188		202		—			202		195		—			195
High-speed Internet		137		—		137		121		—		121		138		—			138		124		—			124
Other		77		—		77		74		—		74		77		—			77		76		—			76

Service revenues		1,407		—		1,407		1,454		—		1,454		1,377		—			1,377		1,446		—			1,446
Product revenues		32		110		142		28		123		151		31		117			148		27		121			148

Total net operating revenues	$	1,439	$	110	$	1,549	$	1,482	$	123	$	1,605	$	1,408	$	117		$	1,525	$	1,473	$	121		$	1,594

Operating income	$	424	$	4	$	428	$	396	$	4	$	400	$	355	$	(2	)	$	353	$	365	$	(2	)	$	363


	Year to Date June 30, 2008						Year to Date June 30, 2007						Year to Date September 30, 2008						Year to Date September 30, 2007
	Telecommunications		Logistics		Consolidated		Telecommunications		Logistics		Consolidated		Telecommunications		Logistics		Consolidated		Telecommunications		Logistics			Consolidated
	*(millions)*												*(millions)*
Voice	$	2,018	$	—	$	2,018	$	2,155	$	—	$	2,155	$	2,978	$	—	$	2,978	$	3,206	$	—		$	3,206
Data		397		—		397		377		—		377		599		—		599		572		—			572
High-speed Internet		270		—		270		237		—		237		408		—		408		361		—			361
Other		155		—		155		143		—		143		232		—		232		219		—			219

Service revenues		2,840		—		2,840		2,912		—		2,912		4,217		—		4,217		4,358		—			4,358
Product revenues		55		225		280		50		232		282		86		342		428		77		353			430

Total net operating revenues	$	2,895	$	225	$	3,120	$	2,962	$	232	$	3,194	$	4,303	$	342	$	4,645	$	4,435	$	353		$	4,788

Operating income	$	860	$	2	$	862	$	770	$	1	$	771	$	1,215	$	—	$	1,215	$	1,135	$	(1	)	$	1,134

Embarq’s supplemental cash flow information and non-cash activities were as follows:


	Year to Date June 30,					Year to Date September 30,
	2008			2007		2008			2007
	*(millions)*					*(millions)*
Supplemental Cash Flow Information
Cash paid for interest, net of amounts capitalized	$	201		$	221	$	227		$	252
Cash paid for income taxes		209			290	$	293		$	340
Non-Cash Activities
Capital expenditure accrual	$	(16	)	$	15	$	(14	)	$	9
Cash held in escrow from the sale of assets		10			5		10			5
Pending settlement of repurchases of common stock		11			—
Proceeds due from sale of assets							6			—
Dividends accrued		1			—		1			—
Extinguishment of debt		—			3		—			3
Issuance of treasury stock to the Employee Stock Purchase Plan		—			2		—			2

On October 14, 2008, Embarq ~~repurchased 1.7 million~~announced that its board of directors declared a dividend of $0.6875 per share payable on December 31, 2008 to stockholders of record on December 10, 2008.

On October 26, 2008, Embarq entered into an Agreement and Plan of Merger (Merger Agreement) whereby CenturyTel, Inc. (CenturyTel) will acquire Embarq in a stock-for-stock transaction, which is expected to be tax-free to Embarq shareholders. Under the terms of the Merger Agreement, Embarq shareholders will receive 1.37 CenturyTel shares for each share of common stock ~~for a total~~owned. Completion of ~~$78 million, representing an average price~~this transaction is subject to approval by the shareholders of ~~$44.65 per share.~~both companies; various regulatory approvals, including expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act and authorization by the Federal Communications Commission (FCC) and certain state regulatory bodies; as well as other customary closing conditions. Subject to these requirements, the transaction is expected to close during the 2009 second quarter. In conjunction with this transaction, Embarq may incur additional costs prior to closing including, but not limited to, potential impairments of duplicate system development efforts and technology; employee retention and severance costs; and other merger and integration costs.

We have reviewed the accompanying consolidated balance sheet of Embarq Corporation and subsidiaries (the “Company”) as of ~~June~~September 30, 2008, the related consolidated statements of operations and comprehensive income for the three-month and ~~six-month~~nine-month periods ended ~~June~~September 30, 2008 and 2007, the related consolidated statements of cash flows for the ~~six-month~~nine-month periods ended ~~June~~September 30, 2008 and 2007, and the related consolidated statement of stockholders’ equity for the ~~six-month~~nine-month period ended ~~June~~September 30, 2008. These consolidated financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to the consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of ~~Embarq Corporation and subsidiaries (the “Company”)~~the Company as of December 31, 2007, and the related consolidated statements of operations and comprehensive income, cash flows and stockholders’ equity for the year then ended (not presented herein); and in our report dated February 28, 2008, we expressed an unqualified opinion on those consolidated financial statements. Our report on the consolidated financial statements and the related financial statement schedule refers to the adoption of the provisions of FASB Interpretation No. 47,Accounting for Conditional Asset Retirement Obligations, as of December 31, 2005. Also, as discussed in Note 6 to the consolidated financial statements, the Company adopted the provisions of Statement of Financial Accounting Standards No. 158,Employers Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R), as of December 31, 2006. Lastly, as discussed in Note 5 to the consolidated financial statements, the Company adopted the provisions of FASB Interpretation No. 48,Accounting for Uncertainty in Income Taxes- an Interpretation of FASB Statement No. 109, as of January 1, 2007. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2007, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

~~Item 2.~~

~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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:

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 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;

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.

On October 26, 2008, we entered into the Merger Agreement whereby CenturyTel will acquire us in a stock-for-stock transaction, which is expected to be tax-free to our shareholders. Under the terms of the Merger Agreement, our shareholders will receive 1.37 CenturyTel shares for each share of common stock owned. Completion of this transaction is subject to approval by the shareholders of both companies, various federal and state regulatory approvals as well as other customary closing conditions. Subject to these requirements, the transaction is expected to close during the 2009 second quarter. In conjunction with this transaction, we may incur additional costs prior to closing including, but not limited to, potential impairments of duplicate system development efforts and technology; employee retention and severance costs; and other merger and integration costs.

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 existing wireless customers acquired under our mobile virtual network operator arrangement with Sprint Nextel; however, as part of our orderly transition away from providing these services, we have curtailed most sales activities.

We also provide wholesale services primarily to ~~other carriers,~~wireline and wireless ~~providers and correctional institutions.~~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.

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.

Consistent with the past several years, we have continued to experience overall declines in telecommunications net operating ~~revenue~~revenues during 2008. 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. We believe these recent trends are partially the result of general and local economic conditions in the markets we serve. 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 decline in the future due to expected reduced rates of growth for these products and services.

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


	Lines Served	Quarterly Line Loss								Annual Line Loss
	June 30, 2008	June 30, 2008				June 30, 2007				June 30, 2008				June 30, 2007				Access Lines		Line Loss for Quarter Ended								Line Loss for Twelve Months Ended
	*(thousands)*																	September 30, 2008	September 30, 2007	September 30, 2008				September 30, 2007				September 30, 2008
Primary	3,755	(128	)	(3.3	)%	(109	)	(2.6	)%	(370	)	(9.0	)%	(300	)	(6.8	)%	3,636	4,026	(119	)	(3.2	)%	(99	)	(2.4	)%	(390	)	(9.7	)%
Additional	274	(15	)	(5.2	)%	(18	)	(5.1	)%	(62	)	(18.5	)%	(74	)	(18.0	)%	258	319	(16	)	(5.8	)%	(17	)	(5.1	)%	(61	)	(19.1	)%

Total Consumer	4,029	(143	)	(3.4	)%	(127	)	(2.8	)%	(432	)	(9.7	)%	(374	)	(7.7	)%	3,894	4,345	(135	)	(3.4	)%	(116	)	(2.6	)%	(451	)	(10.4	)%
Business	1,841	(20	)	(1.1	)%	(13	)	(0.7	)%	(55	)	(2.9	)%	(28	)	(1.5	)%	1,815	1,887	(26	)	(1.4	)%	(9	)	(0.5	)%	(72	)	(3.8	)%
Wholesale	152	(7	)	(4.4	)%	(8	)	(4.3	)%	(24	)	(13.6	)%	(32	)	(15.4	)%	144	171	(8	)	(5.3	)%	(5	)	(2.8	)%	(27	)	(15.8	)%

Total	6,022	(170	)	(2.7	)%	(148	)	(2.2	)%	(511	)	(7.8	)%	(434	)	(6.2	)%	5,853	6,403	(169	)	(2.8	)%	(130	)	(2.0	)%	(550	)	(8.6	)%

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 at ~~June~~September 30, 2007, were adjusted by ~~158~~162 thousand access lines to reflect this change.

Consumer switched access line losses represent the most significant portion of our losses. These losses were primarily attributed to an increasing overlap of cable operators within our local service territories offering VoIP, as well as an increasing number of customers choosing to discontinue traditional wireline phone service to rely solely on wireless services.

Product substitution among our offerings also contributes to our access line losses. Certain of our business access line losses result from the conversion to our data services. These substitutions result in a reduction in the number of switched access lines we serve, but do not represent a loss of the customer relationship.

For the year to date period ended ~~June~~September 30, 2008, our high-speed Internet subscribers increased to approximately 1.4 million subscribers, which is an increase of ~~18%~~14% as compared to the same period in 2007, while associated revenue increased ~~14%~~13%.

Demand during the quarter for data services continued to be strong. Our data services consist mainly of dedicated circuits connecting other carriers’ networks to their customers’ locations, wireless carriers’ cell towers to mobile switching centers or business customers to our network. Revenue associated with these services increased 5% for the year to date period ended ~~June~~September 30, 2008, compared to the same period in 2007.

Satellite video service is also a growing element of our bundled service ~~offers~~offerings that we currently offer through sales agency relationships with various satellite video service providers. As of ~~June~~September 30, 2008, we had ~~239~~284 thousand satellite video service subscribers, compared to ~~178~~190 thousand as of ~~June~~September 30, 2007.

To measure our success in our consumer bundling initiatives as well as attracting and retaining high value customers, average monthly revenue per household (ARPH) is a measure that we closely monitor. This measure is calculated by dividing ~~one sixth of year to date~~average monthly consumer revenue by average primary consumer access lines.


	Year to Date June 30,				Difference					Year to Date September 30,				Difference
	2008		2007		Amount			%		2008		2007		Amount			%
Consumer revenue (millions)	$	1,297	$	1,345	$	(48	)	(3.6	)%	$	1,916	$	2,003	$	(87	)	(4.3	)%
Average primary consumer access lines (thousands)		3,862		4,207		(345	)	(8.2	)%		3,762		4,130		(368	)	(8.9	)%

ARPH	$	55.97	$	53.28	$	2.69		5.0	%	$	56.59	$	53.89	$	2.70		5.0	%

Our telecommunications net operating revenues and operating expenses include amounts that are affected by regulation, including intercarrier compensation received from or paid to other carriers for originating and terminating traffic on each other’s networks. The following table reflects information about the minute-driven components of our intercarrier compensation that could be impacted by the proposed FCC order:

We replicated or otherwise arranged for replacement of certain facilities, systems, infrastructure and personnel related to functions historically performed by Sprint Nextel and successfully completed the exit of all remaining transitional agreements in May 2008.

No significant spin-off expenditures were incurred during the year to date period ended ~~June~~September 30, 2008. We incurred the following ~~spin~~ spin-off related charges and capital expenditures for the quarter and year to date periods ended ~~June~~September 30, 2007:


	Quarter		Year to Date		Quarter		Year to Date
	*(millions)*				*(millions)*
Spin-off related charges	$	8	$	17	$	4	$	21
Capital expenditures		2		6		2		8

We operate in an industry that has been and continues to be subject to intense competition in conjunction with regulatory and legislative ~~change.~~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 proposed FCC order regarding changes 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.

In recent months, 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 may adversely impact the financial health of our customers, vendors and partners.

For us, the principal immediate impact has been limited to a decline in our pension plan’s assets of approximately $615 million for the year to date period ended September 30, 2008.

On January 1, 2008, we adopted ~~Statement of Financial Accounting Standards (SFAS)~~SFAS No. 157,Fair Value Measurements, for our financial assets and liabilities. Our adoption of SFAS No. 157 did not impact our financial position, results of operations, liquidity or disclosures as there are no financial assets or liabilities that are measured at fair value on a recurring basis. In accordance with ~~FASB Staff Position (FSP)~~FSP 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 not recognized or disclosed at fair value in the financial statements on a recurring basis. This includes goodwill and nonfinancial long-lived assets that are measured at fair value in impairment testing and asset retirement obligations initially measured at fair value. The adoption of SFAS No. 157 for those nonfinancial assets and liabilities within the scope of FSP 157-2 is not expected to have a material impact on our financial position, results of operations or liquidity.

EITF 03-6-1,Determining Whether Instruments Granted in Share-based Payment Transactions are Participating Securities. This standard concluded that unvested share-based payment awards that contain a nonforfeitable right to receive dividends, whether paid or unpaid, are participating securities and should be included in the computation of earnings per share pursuant to the two-class method prescribed under SFAS No. 128. This standard is effective for fiscal years beginning after December 15, 2008 with early adoption prohibited. We are evaluating the impact of this standard but do not believe it will have a material impact on basic or diluted earnings per share.


	Quarters Ended June 30,				Year to Date June 30,				Quarters Ended September 30,						Year to Date September 30,
	2008		2007		2008		2007		2008			2007			2008		2007
	*(millions)*								*(millions)*
Net Operating Revenues
Telecommunications segment	$	1,439	$	1,482	$	2,895	$	2,962	$	1,408		$	1,473		$	4,303	$	4,435
Logistics segment		110		123		225		232		117			121			342		353

Total net operating revenues	$	1,549	$	1,605	$	3,120	$	3,194	$	1,525		$	1,594		$	4,645	$	4,788

Operating Income
Telecommunications segment	$	424	$	396	$	860	$	770	$	355		$	365		$	1,215	$	1,135
Logistics segment		4		4		2		1		(2	)		(2	)		—		(1	)

Total operating income	$	428	$	400	$	862	$	771	$	353		$	363		$	1,215	$	1,134

Net Income	$	206	$	176	$	418	$	336	$	160		$	157		$	578	$	493

Our Telecommunications segment consists of regulated local phone companies serving approximately 65.9 million access lines primarily in 18 states as of ~~June~~September 30, 2008. 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 wholesale access to our local network and other ~~wholesale~~ communications services primarily to ~~other carriers,~~wireline and wireless ~~providers and correctional institutions.~~carriers.


	Quarters Ended June 30,								Difference					Quarters Ended September 30,								Difference
(millions)	2008		% of Revenues		2007		% of Revenues		$ / Percent					2008		% of Revenues		2007		% of Revenues		$			Percent
Net operating revenues
Voice	$	994	69	%	$	1,071	72	%	$	(77	)	(7	)%	$	960	68	%	$	1,051	71	%	$	(91	)	(9	)%
Data		199	14	%		188	13	%		11		6	%		202	14	%		195	13	%		7		4	%
High-speed Internet		137	10	%		121	8	%		16		13	%		138	10	%		124	8	%		14		11	%
Other		77	5	%		74	5	%		3		4	%		77	6	%		76	6	%		1		1	%

Service revenues		1,407	98	%		1,454	98	%		(47	)	(3	)%		1,377	98	%		1,446	98	%		(69	)	(5	)%
Product revenues		32	2	%		28	2	%		4		14	%		31	2	%		27	2	%		4		15	%

Total net operating revenues		1,439	100	%		1,482	100	%	$	(43	)	(3	)%		1,408	100	%		1,473	100	%	$	(65	)	(4	)%
Operating expenses
Costs of services		381	27	%		404	27	%		(23	)	(6	)%		422	30	%		417	28	%		5		1	%
Costs of products		33	2	%		33	2	%		—		—	%		30	2	%		41	3	%		(11	)	(27	)%
Selling, general and administrative		355	25	%		387	26	%		(32	)	(8	)%		350	25	%		393	27	%		(43	)	(11	)%
Depreciation		246	17	%		262	18	%		(16	)	(6	)%		251	18	%		257	17	%		(6	)	(2	)%

Total operating expenses		1,015	71	%		1,086	73	%		(71	)	(7	)%		1,053	75	%		1,108	75	%		(55	)	(5	)%

Operating income	$	424	29	%	$	396	27	%	$	28		7	%	$	355	25	%	$	365	25	%	$	(10	)	(3	)%

Capital expenditures	$	181			$	188			$	(7	)	(4	)%	$	172			$	195			$	(23	)	(12	)%

Switched access lines (thousands)		6,022				6,533				(511	)	(7.8	)%		5,853				6,403				(550	)	(8.6	)%

Switched access minutes of use (millions)		6,370				7,066				(696	)	(10	)%		6,145				6,909				(764	)	(11	)%

High-speed Internet subscribers (thousands)		1,364				1,156				208		18	%		1,388				1,216				172		14	%


	Year to Date June 30,								Difference					Year to Date September 30,								Difference
(millions)	2008		% of Revenues		2007		% of Revenues		$ / Percent					2008		% of Revenues		2007		% of Revenues		$			Percent
Net operating revenues
Voice	$	2,018	70	%	$	2,155	73	%	$	(137	)	(6	)%	$	2,978	69	%	$	3,206	72	%	$	(228	)	(7	)%
Data		397	14	%		377	13	%		20		5	%		599	14	%		572	13	%		27		5	%
High-speed Internet		270	9	%		237	8	%		33		14	%		408	9	%		361	8	%		47		13	%
Other		155	5	%		143	4	%		12		8	%		232	6	%		219	5	%		13		6	%

Service revenues		2,840	98	%		2,912	98	%		(72	)	(2	)%		4,217	98	%		4,358	98	%		(141	)	(3	)%
Product revenues		55	2	%		50	2	%		5		10	%		86	2	%		77	2	%		9		12	%

Total net operating revenues		2,895	100	%		2,962	100	%		(67	)	(2	)%		4,303	100	%		4,435	100	%		(132	)	(3	)%
Operating expenses
Costs of services		770	27	%		821	28	%		(51	)	(6	)%		1,192	28	%		1,238	28	%		(46	)	(4	)%
Costs of products		66	2	%		63	2	%		3		5	%		96	2	%		104	2	%		(8	)	(8	)%
Selling, general and administrative		703	24	%		779	26	%		(76	)	(10	)%		1,053	25	%		1,172	26	%		(119	)	(10	)%
Depreciation		496	17	%		529	18	%		(33	)	(6	)%		747	17	%		786	18	%		(39	)	(5	)%

Total operating expenses		2,035	70	%		2,192	74	%		(157	)	(7	)%		3,088	72	%		3,300	74	%		(212	)	(6	)%

Operating income	$	860	30	%	$	770	26	%	$	90		12	%	$	1,215	28	%	$	1,135	26	%	$	80		7	%

Capital expenditures	$	360			$	370			$	(10	)	(3	)%	$	532			$	565			$	(33	)	(6	)%

Switched access minutes of use (millions)		13,253				14,642				(1,389	)	(9	)%		19,398				21,550				(2,152	)	(10	)%

Net operating revenues decreased ~~$43~~$65 million for the quarter and decreased ~~$67~~$132 million for the year to date period ended ~~June~~September 30, 2008, compared to the same periods in 2007. Variances in individual categories of revenue are discussed below.

Voice revenues include monthly recurring fees for local service, enhanced calling features and long distance. Additionally, voice revenues include 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 ~~$77~~$91 million for the quarter and decreased ~~$137~~$228 million for the year to date period ended ~~June~~September 30, 2008, compared to the same periods in 2007.

Data revenues represent data network services sold to business customers and special access services sold to other carriers. Data revenues increased ~~$11~~$7 million for the quarter and increased ~~$20~~$27 million for the year to date period ended ~~June~~September 30, 2008, compared to the same periods in 2007. The following table lists the major drivers of these changes:


	Increase (Decrease)				Increase (Decrease)
	Quarter		Year to Date		Quarter		Year to Date
	*(millions)*				*(millions)*
Special access revenue	$	7	$	15	$	5	$	20
Other		4		5		2		7

Total increase	$	11	$	20
Total change					$	7	$	27

High-speed Internet revenues increased ~~$16~~$14 million for the quarter and increased ~~$33~~$47 million for the year to date period ended ~~June~~September 30, 2008, compared to the same periods in ~~2007. These increases are~~2007 due to ~~an 18%~~a 14% increase in ~~subscribers at June 30, 2008, compared to June 30, 2007.~~subscribers.

Other service revenues ~~mainly includes~~consist primarily of professional services, intelligent network database services, billing and collection services, wireless services and sales ~~of services through various sales~~ agency ~~relationships, including~~commissions, principally from our satellite video service offering. Other service revenues increased $3$1 million for the quarter and increased ~~$12~~$13 million for the year to date period ended ~~June~~September 30, 2008, compared to the same periods in 2007. ~~These increases were~~The year to date increase was primarily related to wireless ~~and professional services revenue.~~services.

Product revenues are derived mainly from sales of customer premises equipment, or CPE, which is communications equipment that resides at a business customer’s location for the management of voice and data networks and applications. Sales of high-speed Internet equipment to our customers also are reflected in product revenues. Product revenues increased $4 million for the quarter and increased $5$9 million for the year to date period ended ~~June~~September 30, 2008, compared to the same periods in 2007.

Costs of services 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 and various operating taxes. Cost of services ~~decreased $23~~increased $5 million for the quarter and decreased ~~$51~~$46 million for the year to date period ended ~~June~~September 30, 2008, compared to the same periods in 2007. The following table lists the major drivers of these changes:


	Increase (Decrease)						Increase (Decrease)
	Quarter			Year to Date			Quarter			Year to Date
	*(millions)*						*(millions)*
Network labor, benefits and severance charges	$	(5	)	$	(24	)	$	27		$	10
High-speed Internet service costs, primarily due to web hosting		(3	)		(9	)		(3	)		(12	)
Long-distance costs primarily related to purchased minutes of use		(7	)		(8	)
Long-distance costs, primarily related to purchased minutes of use								(8	)		(16	)
Intercarrier compensation		(4	)		(7	)		1			(6	)
Federal and state USF assessments								(4	)		(9	)
Operating taxes and settlements								(2	)		(8	)
Other costs		(4	)		(3	)		(6	)		(5	)

Total decrease	$	(23	)	$	(51	)
Total change							$	5		$	(46	)

Costs of products ~~was comparable~~decreased $11 million for the quarter and ~~increased $3~~decreased $8 million for the year to date period ended ~~June~~September 30, 2008, compared to the same periods in 2007. The 2008 cost ~~increase is primarily related~~decrease results from fewer new high-speed Internet customers and wireless additions as compared to ~~the product revenue increases noted above as well as~~2007, offset partially by adjustments to the carrying value of wireless handsets in 2008.

Selling, general and administrative (SGA) costs, includes 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 ~~$32~~$43 million for the quarter and decreased ~~$76~~$119 million for the year to date period ended ~~June~~September 30, 2008, compared to the same periods in 2007. The following table lists the major drivers of these changes:


	Increase (Decrease)						Increase (Decrease)
	Quarter			Year to Date			Quarter			Year to Date
	*(millions)*						*(millions)*
Labor and benefits costs	$	(16	)	$	(41	)	$	(27	)	$	(71	)
Severance charges		3			(6	)
Severance and other related charges								6			—
Spin-off related charges		(8	)		(17	)		(4	)		(21	)
Systems and process improvement initiatives		(10	)		(19	)		(1	)		(20	)
Other		(1	)		7			(17	)		(7	)

Total decrease	$	(32	)	$	(76	)
Total change							$	(43	)	$	(119	)

SGA costs include charges for estimated bad debt expense. The reserve for bad debt requires management’s judgment and is based on many factors. Bad debt expense increased to approximately ~~1.7%~~1.8% of net operating revenues in the year to date period ended ~~June~~September 30, 2008, compared to ~~1.2%~~1.5% for the same period in 2007. The increase is partially due to additional expense associated with our wireless offering and current economic factors.

Depreciation expense decreased ~~$16~~$6 million for the quarter and decreased ~~$33~~$39 million for the year to date period ended ~~June~~September 30, 2008, compared to the same periods in 2007. The following table lists the major drivers of these changes:

Through our Logistics segment, we procure, configure, service and distribute equipment, materials and supplies to the communications industry. The products that we offer include outside plant, ~~business communication systems,~~ telephones and accessories and network access equipment from leading manufacturers.


	Quarters Ended June 30,								Difference					Quarters Ended September 30,										Difference
(millions)	2008		% of Revenues		2007		% of Revenues		$ / Percent					2008			% of Revenues		2007			% of Revenues		$			Percent
Net operating revenues	$	110	100	%	$	123	100	%		(13	)	(11	)%	$	117		100	%	$	121		100	%		(4	)	(3	)%
Operating expenses
Costs of products and services		99	90	%		109	89	%		(10	)	(9	)%		106		91	%		108		89	%		(2	)	(2	)%
Selling, general and administrative		6	5	%		8	6	%		(2	)	(25	)%		12		10	%		12		11	%		—		—	%
Depreciation and amortization		1	1	%		2	2	%		(1	)	(50	)%
Depreciation															1		1	%		3		2	%		(2	)	(67	)%

Total operating expenses		106	96	%		119	97	%		(13	)	(11	)%		119		102	%		123		102	%		(4	)	(3	)%

Operating income	$	4	4	%	$	4	3	%	$	—		—	%	$	(2	)	(2	)%	$	(2	)	(2	)%	$	—		—	%


	Year to Date June 30,								Difference					Year to Date September 30,									Difference
(millions)	2008		% of Revenues		2007		% of Revenues		$ / Percent					2008		% of Revenues		2007			% of Revenues		$			Percent
Net operating revenues	$	225	100	%	$	232	100	%		(7	)	(3	)%	$	342	100	%	$	353		100	%		(11	)	(3	)%
Operating expenses
Costs of products and services		205	91	%		206	89	%		(1	)	—	%		311	91	%		314		89	%		(3	)	(1	)%
Selling, general and administrative		16	7	%		20	9	%		(4	)	(20	)%		28	8	%		32		9	%		(4	)	(13	)%
Depreciation and amortization		2	1	%		5	2	%		(3	)	(60	)%
Depreciation															3	1	%		8		2	%		(5	)	(63	)%

Total operating expenses		223	99	%		231	100	%		(8	)	(3	)%		342	100	%		354		100	%		(12	)	(3	)%

Operating income	$	2	1	%	$	1	—	%	$	1		100	%	$	—	—	%	$	(1	)	—	%	$	1		100	%

Capital expenditures	$	—			$	1			$	(1	)	(100	)%	$	—			$	1				$	(1	)	(100	)%

Revenues from the Logistics segment decreased ~~$13~~$4 million for the quarter and decreased $7$11 million for the year to date period ended ~~June~~September 30, 2008, compared to the same periods in 2007. These declines were primarily related to reductions in customer spending resulting from adverse general economic factors partially offset by revenue related to a supply contract that originated in the 2007 third ~~quarter of 2007.~~quarter. Services associated with this contract are expected to be phased out over the next several quarters.

Cost of products and services includes costs of equipment sold and other operating taxes. These costs decreased ~~$10~~$2 million for the quarter and decreased $1$3 million for the year to date period ended ~~June~~September 30, 2008, compared to the same periods in 2007. The drivers of these changes are directly associated with the revenue factors noted ~~above.~~above as well as reductions in inventory reserves related to exited markets that occurred in 2007.

Selling, general and administrative expense ~~decreased $2 million~~was comparable for the quarter and decreased $4 million for the year to date period ended ~~June~~September 30, 2008, compared to the same periods in 2007. This decrease was primarily related to a decrease in severance charges and ongoing labor and benefits costs, as well as a gain related to the sale of a distribution facility.

Depreciation expense decreased $2 million for the quarter and decreased $5 million for the year to date period ended September 30, 2008, compared to the same periods in 2007. This decrease was primarily related to software acquired in previous years becoming fully depreciated early in 2008.


	Quarters Ended June 30,					Year to Date June 30,					Quarters Ended September 30,						Year to Date September 30,
	2008			2007		2008			2007		2008			2007			2008			2007
	*(millions)*										*(millions)*
Interest expense	$	100		$	111	$	204		$	220	$	101		$	108		$	305		$	328
Other (income) expense, net		(1	)		—		(2	)		—		(1	)		(2	)		(3	)		(2	)
Income tax expense		123			113		242			215		93			100			335			315

Interest expense decreased ~~$11~~$7 million for the quarter and decreased ~~$16~~$23 million for the year to date period ended ~~June~~September 30, 2008, compared to the same periods in 2007. This decrease is primarily due to the reduction of debt outstanding under our credit agreement as well as declines ofin the effective interest ~~rates~~rate related to these ~~borrowings. Our effective interest rate on long-term debt decreased~~borrowings to ~~7.0%~~3.5% for the year to date period ended ~~June~~September 30, 2008, as compared to ~~7.2%~~5.9% for the same period in 2007. See “Liquidity and Capital Resources” below for more information about our financing activities.

Income tax expense ~~increased $10~~decreased $7 million for the quarter and increased ~~$27~~$20 million for the year to date period ended ~~June~~September 30, 2008, compared to the same periods in 2007. This ~~increase~~variance was primarily the result of income before income taxes increasing $40 million for the quarter and $109 million for the year to date period ended June 30, 2008, compared to the same periods in 2007. This increase was a result of the various factors discussed in the sections above, partially offset by reduced state income taxes resulting from a favorable negotiated settlement in 2008 and the modification of our legal entity structure in the 2007 fourth ~~quarter of 2007.~~quarter.

~~We manage~~The capital allocation of internally generated funds among reinvestment in our business, deleveraging our balance sheet and return of funds to shareholders is our primary focus in managing our liquidity and capital resource ~~needs primarily through managing the capital allocation of internally generated funds.~~

~~The following table summarizes our decrease in cash and equivalents for the year to date periods ended June 30, 2008 and 2007:~~

~~Net cash provided by operating activities increased $138 million in the year to date period ended June 30, 2008, compared to the same period in 2007, based on the following:~~

The changes in cash from operations as detailed in the table above were impacted by the drivers discussed in “Results of Operations,” as well as the timing of certain working capital and income tax requirements.

~~Net cash used by investing activities increased $6 million in the year to date period ended June 30, 2008, compared to the same period in 2007.~~

Capital expenditures account for the majority of our investing activities. Our capital expenditures primarily fund new service addresses, increased network capacity and regulatory mandates; internal infrastructure; new capabilities; and sales success based expenditures primarily related to growth in high-speed Internet and data services. Capital expenditures of $360 million in the year to date period ended June 30, 2008, decreased $11 million from the same period in 2007. The following table shows the major drivers of these changes:

Proceeds from sales of assets decreased $16 million in the year to date period ended June 30, 2008, compared to the same period in 2007. This decrease was primarily related to proceeds received in the first quarter of 2007 related to the sales of rural telephone exchanges in the fourth quarter of 2006.

Net cash used by financing activities increased $112 million in the year to date period ended June 30, 2008, compared to the same period in 2007. The following table shows the major drivers of this change:

We currently expect capital expenditures, net of proceeds from construction reimbursements, for 2008 to be approximately $740 million. We continue to review capital expenditure requirements and will adjust spending and capital investment in response to operational needs, customer demand and changes in the levels of new construction activity in the markets we serve.needs.

Since our spin-off in 2006, cash provided by operating activities has been more than sufficient to fund our ongoing capital investment requirements, repay scheduled maturities on outstanding debt and pay regular quarterly dividends to stockholders. As a result, we have been able to increase our dividend payouts, make discretionary payments on outstanding debt and ~~initiate the stock~~ repurchase ~~program approved by~~$500 million of our ~~board of directors in early 2008. For 2008 and the next few years, despite the impact of continuing access line losses and increased competition,~~common stock. Through 2010 we believe cash provided by operating activities will continue to be ~~sufficient~~adequate to fund our capital investment requirements, dividend payouts at current levels ~~the approved stock repurchase program~~ and scheduled debt maturities ~~on debt for the remainder~~aggregating only $4 million from 2008 through 2010.

In addition, as of ~~2008 and subsequent years (which are $80 million in 2008 and $2 million in both 2009 and 2010).~~

Our total indebtedness at June 30, 2008, was approximately $6.0 billion, consisting of $4.5 billion in senior notes, $880 million in direct borrowings under our credit agreement and $605 million of other debt. As of JuneSeptember 30, 2008, we had approximately ~~$0.9~~$1.0 billion of availability under our $1.5 billion revolving credit facility, which ~~reflects direct borrowings of $520 million and issued letters of credit of $32 million. The credit agreement~~ expires in ~~2011,~~May 2011. The revolving credit facility is diversified among 23 financial institutions, with no single lender accounting for more than 9% of the outstanding commitments. We believe these arrangements are satisfactory and ~~the initial tranches of our notes mature in 2013.~~ adequately mitigate lender risk.

We are in compliance with all applicable financial covenants associated with our borrowings.

~~We may also incur additional indebtedness from time to time for general corporate purposes, including working capital requirements and capital expenditures.~~ Regulatory restrictions and the terms of our indebtedness ~~however,~~ limit our ability to ~~incur~~enter into additional ~~indebtedness,~~financing arrangements, raise capital through our subsidiaries, pledge the stock of our subsidiaries, encumber our assets or the assets of our subsidiaries, or cause our subsidiaries to guarantee our indebtedness. Additionally, the Merger Agreement limits the amount by which we can increase our outstanding indebtedness.

We expect to pay regular quarterly dividends. Thus far, in 2008 we have paid ~~two~~three quarterly dividends of $0.6875 per common share ~~each.~~each and we have declared a dividend of $0.6875 per common share to be paid on December 31, 2008 to shareholders of record at the close of business on December 10, 2008. Our ability to fund a regular quarterly dividend will be impacted by our ability to generate cash from operations. The declaration, amount and timing of future dividends will be at the discretion of our board of directors, and will depend upon many factors, including our financial condition, results of operations, growth prospects, funding requirements, applicable law, limitations on per share amounts pursuant to the Merger Agreement and other factors our board of directors deems relevant.

On January 9, 2008, our board of directors authorized a program for the repurchase of our common stock for an aggregate purchase price of up to $500 million ~~until~~expiring June 30, 2009. ~~We anticipate purchasing shares either~~During the 2008 third quarter, this repurchase program was completed resulting in ~~the open market or through private transactions, depending on market conditions and other factors, in accordance with applicable securities laws. As~~a total repurchase of ~~July 25, 2008, we have repurchased 11.3~~11.8 million shares of common stock, ~~(representing~~ approximately 7%7.7% of our outstanding ~~shares) for a total~~shares as of ~~$479 million, representing~~the end of 2007, at an average price of ~~$42.31~~$42.41 per share.

In ~~connection with~~ the ~~spin-off, we established our own pension and other postretirement benefit plans. Our pension plans are funded in excess of current federal minimum requirements. Contributions during~~ 2008 ~~are currently expected to be approximately $75 million; however, the final determination of contribution levels will be made during the~~ third quarter, ~~based on projected~~we made a discretionary contribution of $61 million to our pension plan’s trust related to plan ~~assets, liabilities and other relevant information. See~~year 2007. In addition, as discussed in Note 5 ~~Employee Benefit Plans,~~ of the Condensed Notes to ~~the~~ Consolidated Financial Statements (Unaudited), during the 2008 second quarter, we made repayments to the trust of approximately $14 million. For the remainder of 2008, we do not expect to make any additional contributions. Historically, our pension plan has been funded in excess of the minimum levels required by federal law, and we have made discretionary contributions during each calendar year related to the preceding plan year based on projections of the plan’s assets, liabilities and other factors. Because of the solid funded status of our plan at the beginning of 2008, we do not expect minimum required contributions for ~~additional information. Contributions~~either plan year 2008 or 2009. For the year to ~~our other~~date period ended September 30, 2008, however, the plan’s assets have declined approximately $615 million, primarily due to negative market conditions. As a result, the funded status of the plan has declined, and we currently expect to make a larger discretionary contribution during 2009 related to plan year 2008 and may be required to make minimum required contributions in future years.

Our postretirement benefit plans are generally funded with contributions made based on benefits paid. During 2008, contributions to these plans, including medical and life insurance benefits, are expected to be approximately $30 million.

We currently expect 2008 capital expenditures, net of proceeds from construction reimbursements, to approximate $710 million, which would be $110 million less than 2007. We continue to review capital expenditure requirements and will adjust investments in ~~2008.~~

~~In December 2007, a group of retirees filed a putative class action lawsuit~~response to operational needs, customer demand and changes in the ~~United States District Court for~~levels of new construction activity in the District of Kansas, challenging certain modifications to our retiree benefit programs. See Note 2, Commitments and Contingencies, of the Condensed Notes to the Consolidated Financial Statements (Unaudited), for additional information.markets we serve.

Our total purchase obligations and other items as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2007, has increased by approximately ~~$195~~$230 million as of ~~June~~September 30, 2008. This increase is primarily related to a seven year outsourcing agreement for traffic monitoring services and technical support for our voice network ~~operations; beginning~~operations. Beginning in the 2008 third quarter, ~~2008,~~ we expect to incur expenses totaling approximately $27 million annually during the term of this ~~arrangement, which~~arrangement. The remaining increase is related to a five year multi-vendor network maintenance contract that will ~~be reflected as cost~~begin in 2009 with annual expenses of ~~services~~approximately $15 million.

The following table summarizes the change in cash and equivalents for the year to date periods ended September 30, 2008 and 2007:

Net cash provided by operating activities increased $146 million in the ~~Consolidated Statements~~year to date period ended September 30, 2008, compared to the same period in 2007 as a result of the following:

Net cash used by investing activities decreased $24 million in the year to date period ended September 30, 2008, compared to the same period in 2007.

Capital expenditures account for the majority of our investing activities. Our capital expenditures primarily fund new service addresses, increased network capacity and regulatory mandates; internal infrastructure; new capabilities; and sales success based expenditures primarily related to growth in high-speed Internet and data services. Our capital expenditures decreased $34 million for the year to date period ended September 30, 2008 as compared to the same period in 2007 due to expenditures in the following categories:

Proceeds from sales of assets were $10 million in the year to date period ended September 30, 2008, which was a decrease of $9 million compared to the same period in 2007. This decrease was primarily related to proceeds received in the 2007 first quarter related to the sales of rural telephone exchanges in the 2006 fourth quarter partially offset by proceeds received as part of the sale of certain network related assets during the 2008 third quarter.

Net cash used by financing activities increased $113 million in the year to date period ended September 30, 2008, compared to the same period in 2007 as a result of the following:

We do not participate in, secure or finance any unconsolidated special purpose entities.

We are susceptible to market risks related to changes in interest rates and do not purchase or hold any market risk sensitive financial instruments for trading purposes.

We are subject to interest rate risk primarily associated with our borrowings under our credit agreement. From time to time, we may consider entering into swap and other agreements to manage our exposure to interest rate changes on our debt.

Approximately ~~85%~~86% of our outstanding debt at ~~June~~September 30, 2008, is fixed-rate debt. While changes in interest rates impact the fair value of this debt, there is no impact on earnings and cash flows.

We perform interest rate sensitivity analyses on our variable-rate debt. These analyses indicate that a 1% change in interest rates would have an annual pre-tax impact of $9$8 million on the Consolidated Statements of Operations and Comprehensive Income (Unaudited) and Consolidated Statements of Cash Flows (Unaudited) at ~~June~~September 30, 2008. While earnings and cash flows are impacted as interest rates change, our variable-rate debt is not subject to changes in fair values.

We also perform a sensitivity analysis on the fair market value of our outstanding debt. A 10% decrease in market interest rates would cause an ~~increase of~~ approximately ~~$55~~$93 million increase in fair market value of our outstanding debt at ~~June~~September 30, 2008.

As required by Rule 13a-15(b) under the Securities Exchange Act, and in connection with the preparation of this quarterly report on Form 10-Q, our management, including the Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the design and operation of our disclosure controls and procedures. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer each concluded that the design and operation of the disclosure controls and procedures were effective as of ~~June~~September 30, 2008, in providing assurance that information required to be disclosed in reports we file or submit is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure and in providing reasonable assurance that the information is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

During the ~~second~~2008 third quarter, ~~of 2008,~~ there have been no changes that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

In December 2007, a group of retirees filed a putative class action lawsuit in the United States District Court for the District of Kansas, challenging the decision to make certain modifications to Embarq’s retiree benefits programs generally effective January 1, 2008. See Note 5, Employee Benefit Plans of the Condensed Notes to Consolidated Financial Statements (Unaudited). Defendants include Embarq Corporation, certain of its benefits plans, its Employee Benefits Committee and its plan administrator. Additional defendants include Sprint Nextel and certain of its benefits plans. In addition, a complaint in arbitration has been filed by 15 former Centel Corporation executives, similarly challenging the benefits changes. Embarq and other defendants intend to vigorously contest these claims and charges.

~~There~~Other than as set forth below, there have been no material changes to the risk factors, disclosed in Item 1A ~~to Part I~~ in our Annual Report on Form 10-K for the year ended December 31, 2007.

The FCC is expected to consider a proposed order, which, if adopted, could materially impact the amount of intercarrier compensation and USF support we receive.

The FCC is expected to consider a proposed order relating to intercarrier compensation and USF funding in its November 4, 2008 open meeting. While the proposed order has not been publicly released, through information obtained in meetings with members of the FCC staff and industry reports, the order is expected to address intercarrier compensation rates for interstate and intrastate terminating access, in addition to local traffic and potentially VoIP traffic. It is also likely that the FCC order will address some phase out of originating access over a ten year period. The phase in period for the proposed order’s intercarrier compensation rates of up to 10 years is not expected to commence until one year after adoption of an order. The proposed order will also suggest revisions to the federal USF contribution and distribution rules. The order is further expected to address the FCC’s current rules regarding compensation paid to ISPs by telecommunications companies for dial-up telephone calls to the ISPs.

As reported, the proposed order would reduce terminating intercarrier compensation rates, phased-in over a period of up to 10 years, to a unified rate substantially below historic levels, the impact of which would be partially offset by a reduction of our long distance cost of revenue (which includes access expense as a component). The proposed order includes a reduction from intrastate access rates to interstate access rates in the initial two years with additional reductions occurring over the remaining eight years of the plan. Further, we expect that the proposed order will provide local telecommunications companies with the ability to offset partially the impact of reduced intercarrier compensation revenues by increasing subscriber line charges, or SLCs, to their customers. However, due to widespread competition in many of the markets in which we operate, it may not be feasible for us to implement fully increased SLCs when the risk of additional customer churn due to increased pricing outweighs the potential benefit of additional revenue provided by a SLC. We expect that increased SLCs would negatively impact our rate of access line decline and accelerate cable and wireless substitution. While access minutes are declining and are expected to continue to decline, reductions in access revenue that would result from the proposed order would likely be material for the foreseeable future.

In addition to the impact to intercarrier compensation revenue, the proposed order could also negatively impact our continued ability to receive certain federal high-cost USF funding at current levels. We understand that the proposed order would require companies who wish to continue to receive high-cost USF funds in a “study area” (generally a company’s operations within one state) to commit to build out broadband capabilities, using wireline or wireless technology, to 100% of their customers in the study area over a five year period. If a company does not make the commitment, an alternative provider may be able to receive the support if it makes the broadband commitment and takes on the obligation to provide carrier of last resort service. We anticipate that our initial capital expenditures required to meet the 100% broadband capable requirement in all of our study areas would be substantial based on current cost estimates. While we understand that the proposed order provides that we would retain the high-cost USF support for any study area in which no other alternative provider makes the commitment, it is possible we could cease receiving high-cost USF support in one or more study areas.

In May 2008, the U.S. Court of Appeals for the D.C. Circuit directed the FCC to justify its rules regulating the compensation that telecommunications companies pay to ISPs for dial-up calls that ISPs receive from their customers. The Court has set a November 4, 2008 deadline after which the current FCC rules will be revoked. Through informal reports, we understand that it is expected that the proposed order also will include the FCC justification for the rules. However, if the current rules are revoked because the FCC fails to meet the Court’s deadline and the deadline is not extended or lifted, we will face substantially higher costs for terminating calls to ISPs. Because the revocation of the rules could significantly increase these costs for all local telecommunications companies, both large and small, we believe the FCC will attempt to mitigate this financial exposure for local telecommunications companies by responding to the Court’s directive.

The proposed order is the subject of substantial and on-going negotiation among the FCC Chairman and Commissioners, thus it is uncertain as to what matters will ultimately be addressed in any order that is adopted.


Delaware		20-2923630
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

5454 W. 110^th Street Overland Park, Kansas		66211
(Address of principal executive offices)		(Zip Code)


		Page Reference

Part I – Financial Information

Item 1.
Financial Statements		1

Consolidated Balance Sheets		1

Consolidated Statements of Operations and Comprehensive Income (Unaudited)		2

Consolidated Statements of Cash Flows (Unaudited)		3

Consolidated Statement of Stockholders’ Equity (Unaudited)		4

Condensed Notes to Consolidated Financial Statements (Unaudited)		5

Report of Independent Registered Public Accounting Firm		1112

Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations		1213

Item 3.
Quantitative and Qualitative Disclosures About Market Risk		2224

Item 4.
Controls and Procedures		2225

Part II – Other Information

Item 1.
Legal Proceedings		2326

Item 1A.
Risk Factors		2326

Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds		2327

Item 3.
Defaults Upon Senior Securities		2327

Item 4.
Submission of Matters to a Vote of Security Holders		2427

Item 5.
Other Information		2427

Item 6.
Exhibits		2527

Signatures		2729


	2008 Annual Grant
Underlying stock price	$	41.94
Exercise price	$	41.94
Expected volatility		30.8	%
Risk-free interest rate		2.9	%
Expected dividend yield		6.6	%
Expected term (years)		6.0


	Quarter Ended September 30, 2008
	Originating Traffic			Terminating Traffic
Revenues	Minutes	Rate		Minutes	Rate
	(millions)			(millions)
Interstate switched access	2,081	$	0.008	2,002	$	0.006
Intrastate switched access	996	$	0.022	1,066	$	0.027
Local interconnection	—	$	—	2,163	$	0.006

Expenses
Interstate switched access	685	$	0.008	685	$	0.008
Intrastate switched access	589	$	0.029	589	$	0.021
Local interconnection	—	$	—	3,049	$	0.001


Quarter Ended June 30, 2008	Total Number of Shares Purchased (1)	Average Price Paid per Share (2)		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (3)	Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plan or Program
April 1 through April 30	2,982,942	$	39.55	2,982,942	$	246,662,136
May 1 through May 31	1,639,768		45.12	1,639,768		172,679,789
June 1 through June 30	1,600,655		45.89	1,600,655		99,233,210

Total	6,223,365	$	42.64	6,223,365	$	99,233,210


	Quarter Ended June 30,				Year to Date June 30,
	2008		2007		2008		2007
	*(millions)*
Federal and state USF surcharges	$	21	$	24	$	42	$	46


	Quarter Ended September 30,				Year to Date September 30,
	2008		2007		2008		2007
	*(millions)*
Federal and state USF surcharges	$	22	$	23	$	64	$	69


	Year to Date June 30, 2008						Year to Date June 30, 2007
	Pension Benefits			Other Post- retirement Benefits			Pension Benefits			Other Post- retirement Benefits
	*(millions)*
Service cost	$	28		$	4		$	28		$	4
Interest cost		101			8			97			18
Expected return on plan assets		(137	)		(2	)		(131	)		(2	)
Amortization of prior service cost (benefit)		6			(26	)		8			(29	)
Amortization of actuarial losses		17			6			20			8

Net cost (benefit)	$	15		$	(10	)	$	22		$	(1	)


	Increase (Decrease)
	*(millions)*
Collections from customers	$	(62	)
Payments to employees and suppliers		99
Interest payments		20
Income tax payments, net		81

Total increase in cash provided by operating activities	$	138


	Increase (Decrease)
	*(millions)*
Network expansion and mandates	$	(46	)
Internal infrastructure		7
New capabilities		11
Sales success based		17

Total decrease in capital expenditures	$	(11	)


	Increase (Decrease)
	*(millions)*
Net changes in long-term debt	$	(423	)
Dividends paid to stockholders		34
Repurchase of common shares		388
Common stock issued		88
Other		25

Total increase in cash used by financing activities	$	112


	For	Withheld
Peter C. Brown	131,736,584	6,889,501
Steven A. Davis	137,409,712	1,216,373
Richard A. Gephardt	134,385,480	4,240,605
Thomas A. Gerke	137,392,496	1,233,589
John P. Mullen	137,421,602	1,204,483
William A. Owens	135,187,668	3,438,417
Dinesh C. Paliwal	136,617,202	2,008,883
Stephanie M. Shern	136,636,267	1,989,818
Laurie A. Siegel	136,627,515	1,998,570


Exhibit		Description

2.1*		Separation and Distribution Agreement (Incorporated by reference to Exhibit 2.1 to Amendment No. 4 to the Registration Statement on Form 10 (File No. 001-32732), filed with the Securities and Exchange Commission on May 2, 2006).

2.2*		Transition Services Agreement between Embarq Corporation (receiver) and Sprint Nextel Corporation (provider) dated as of January 20, 2006 (Incorporated by reference to Exhibit 2.2 to Amendment No. 3 to the Registration Statement on Form 10 (File No. 001-32732), filed with the Securities and Exchange Commission on April 28, 2006).

2.3*		Transition Services Agreement between Embarq Corporation (provider) and Sprint Nextel Corporation (receiver) dated as of January 20, 2006 (Incorporated by reference to Exhibit 2.3 to Amendment No. 3 to the Registration Statement on Form 10 (File No. 0001-32732), filed with the Securities and Exchange Commission on April 28, 2006.

2.4*		Tax Sharing Agreement dated as of May 17, 2006 by and among Sprint Nextel Corporation, Embarq Corporation and certain Embarq subsidiaries (Incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K (File No. 001-32732), filed with the Securities and Exchange Commission on May 18, 2006).

2.5*		Employee Matters Agreement dated as of May 17, 2006 between Sprint Nextel Corporation and Embarq Corporation (Incorporated by reference to Exhibit 2.2 to the Current Report on Form 8-K (File No. 001-32732), filed with the Securities and Exchange Commission on May 18, 2006).

2.6*		Patent Agreement dated as of May 17, 2006 by and between Sprint Nextel Corporation and Embarq Corporation (Incorporated by reference to Exhibit 2.5 to the Current Report on Form 8-K (File No. 001-32732), filed with the Securities and Exchange Commission on May 18, 2006).

2.7*		Trademark Assignment and License Agreement dated as of May 17, 2006, by and among Sprint Nextel Corporation, Embarq Corporation and certain Embarq subsidiaries (Incorporated by reference to Exhibit 2.3 to the Current Report on Form 8-K (File No. 001-32732), filed with the Securities and Exchange Commission on May 18, 2006).


Exhibit		Description

2.8*		Software and Proprietary Information Agreement dated as of May 17, 2006 by and between Embarq Corporation and Sprint Nextel Corporation (Incorporated by reference to Exhibit 2.4 to the Current Report on Form 8-K (File No. 001-32732), filed with the Securities and Exchange Commission on May 18, 2006).

3.1		Amended and Restated Certificate of Incorporation (Incorporated by reference to Exhibit 3.1 to Amendment No. 4 to the Registration Statement on Form 10 (File No. 001-32732), filed with the Securities and Exchange Commission on May 2, 2006).

3.2		Amended and Restated ~~Bylaws, as amended (Incorporated by reference to Exhibit 3.1 to the Current Report on Form~~ ~~8-K (File No. 001-32732), filed with the Securities and Exchange Commission on July 25, 2006).~~ Bylaws.

4.1		Indenture, dated as of May 17, 2006, by and between Embarq Corporation and J.P. Morgan Trust Company, National Association, a national banking association, as trustee (Incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K (File No. 001-32732), filed with the Securities and Exchange Commission on May 18, 2006).

4.2		6.738% Global Note due 2013 (Incorporated by reference to Exhibit 4.2 to the Registrant’s Annual Report on Form 10-K (File No. 001-32372), filed with the Securities and Exchange Commission on March 9, 2007).

4.3		7.082% Global Note due 2016 (Incorporated by reference to Exhibit 4.3 to the Registrant’s Annual Report on Form 10-K (File No. 001-32372), filed with the Securities and Exchange Commission on March 9, 2007).

4.4		7.995% Global Note due 2036 (Incorporated by reference to Exhibit 4.4 to the Registrant’s Annual Report on Form 10-K (File No. 001-32372), filed with the Securities and Exchange Commission on March 9, 2007).

4.5		Credit Agreement, dated May 10, 2006, by and among Embarq Corporation (borrower), the banks, financial institutions and other institutional lenders (initial lenders) and issuers of letters of credit (initial issuing banks) and Citibank, N.A., as administrative agent (Incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K (File No. 001-32732), filed with the Securities and Exchange Commission on May 11, 2006).

10.1		Amended and Restated Executive Severance Plan, including Form of Participation Agreement entered into between Embarq Corporation ~~2008 Equity Incentive Plan~~and the following executive officers: Harrison S. Campbell, William E. Cheek, Richard B. Green, E.J. Holland, Jr. and Claudia S. Toussaint.

10.2		Form of Indemnification Agreement entered into between Embarq Corporation and each of its directors and each of the following officers: Gene M. Betts, Harrison S. Campbell, William E. Cheek, Thomas A. Gerke, Richard B. Green, E.J. Holland, Jr., Dennis G. Huber, Thomas J. McEvoy and Claudia S. Toussaint (Incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K (File No. 001-32732), filed with the Securities and Exchange Commission on May ~~2, 2008)~~5, 2006).

10.3		Agreement Regarding Special Compensation and Post Employment Restrictive Covenants, dated December 12, 1995, by and between Sprint Corporation and Dennis G. Huber.

15.1		Letter Re Unaudited Interim Financial ~~Information~~Information.

31.1		Certification of Chief Executive Officer Pursuant to Securities Exchange Act of 1934 Rule 13a-14(a).

31.2		Certification of Chief Financial Officer Pursuant to Securities Exchange Act of 1934 Rule 13a-14(a).


~~Exhibit~~		~~Description~~

32.1		Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


		/s/ KPMG LLP

Kansas City, Missouri

October 29, 2008