Gross Profit

Consolidated gross profit for the three months ended September 30, 2006, was $487.9 million or 46.1% of net sales and operating revenues, compared with $568.1 million or 47.6% of net sales and operating revenues in the corresponding prior year period, resulting in a 14.1% decrease in gross profit and a 1.5 percentage point decrease in our gross margin rate. For the nine months ended September 30, 2006, gross profit dollars decreased $120.5 million, while the gross margin rate declined 2.3 percentage points to 47.2% from 49.5% in the corresponding 2005 period. These decreases were primarily the result of inventory liquidation in our closing stores; a mix change toward lower gross margin products, including higher relative sales of wireless prepaid and upgrade handsets and lower margin accessories; and more aggressive promotional activity in prior quarters. The decrease in gross

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margin rate was partially offset by the change in the manner in which we began recognizing income associated with sales of prepaid wireless airtime in 2006, as discussed above.

Gross Profit

Consolidated gross profit for the three months ended June 30, 2006, was $519.5 million or 47.2% of net sales and operating revenues, compared with $554.2 million or 50.7% of net sales and operating revenues in the corresponding prior year period, resulting in a 6.3% decrease in gross profit and a 3.5 percentage point decrease in our gross margin rate. For the six months ended June 30, 2006, gross profit dollars decreased $40.3 million, while the gross margin rate declined 2.8 percentage points to 47.8% from 50.6% in the corresponding 2005 period. These decreases were primarily the result of inventory liquidation in our closing stores, a mix change toward lower gross margin products and more aggressive promotional activity. The decrease in gross margin rate was partially offset by the change in the manner in which we began recognizing income associated with sales of prepaid wireless airtime in 2006, as discussed above.

The remaining liquidation of inventory in our turnaround plan locations closing after June 30, 2006, could negatively impact our third quarter gross margin.

Gross Profit

Consolidated gross profit for the three months ended March 31, 2006, was $560.6 million or 48.3% of net sales and operating revenues, compared with $566.2 million or 50.4% of net sales and operating revenues in the corresponding prior year period, resulting in a 1.0% decrease in gross profit and a 2.1 percentage point decrease in our gross profit percentage. These decreases were primarily the result of a mix change toward lower gross margin products, the discounting of our inventory and our lower gross margin kiosk channel. The decrease in gross margin was partially offset by the change in the manner in which we recognize income associated with sales of prepaid wireless airtime, as discussed above.

We expect that gross profit in 2006 will continue to be influenced by an ongoing shift in our merchandise mix, as well as by higher sales from lower-margin sales channels. In addition, we anticipate our gross margin will be adversely affected by our on-going efforts to update our inventory under our turnaround program. For further discussion of the expected financial impact of our turnaround program on our 2006 anticipated gross profit, see “Financial Impact of Turnaround Program” below.

Gross Profit

For the quarter ended September 30, 2005, gross profit dollars increased $11.3 million; however, the gross margin rate declined 290 basis points to 47.6% from 50.5% in the corresponding 2004 period. For the nine months ended September 30, 2005, gross profit dollars increased $39.1 million; however, the gross margin rate declined 130 basis points to 49.5% from 50.8% in the corresponding 2004 period. These decreases in gross margin rate from the prior periods were primarily due to the following factors.

We improved the quality of our inventory by aggressively marking down end-of-life inventory in a significant clearance event that began in September 2005. A mix change toward our lower gross margin sales channels, such as our kiosks and dealers, also contributed to the overall decrease in our gross margin rate. Additionally, our merchandise mix among platforms shifted due to significant growth of MP3 players and digital imaging products, as well as prepaid airtime refills, within the lower gross margin personal electronics platform and the service platform, respectively.

We anticipate that our gross margin rate during 2005 will be lower compared to 2004. We expect that an unfavorable impact from changes in sales channel mix and merchandise mix toward lower margin platforms, such as personal electronics, will outweigh the favorable impact from our vendor consolidation efforts, use of private brands, and other techniques we use to increase gross margin.