Forward Looking Statements

This Quarterly Report on Form 10-Q and, in particular, this management's discussion and analysis contain or incorporate a number of forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"). Any statements contained in or incorporated by reference into this report that are not statements of historical fact should be considered forward-looking statements. You can identify these forward-looking statements by the use of the words "believes", "expects", "anticipates", "plans", "may", "will", "would", "intends", "estimates" and other similar expressions, whether in the negative or affirmative. These forward-looking statements are based on current expectations, estimates, forecasts and projections about the industry and markets in which we operate and management's beliefs and assumptions, and should be read in conjunction with our condensed consolidated financial statements and notes to condensed consolidated financial statements included in this report. We cannot guarantee that we actually will achieve the plans, intentions or expectations disclosed in the forward-looking statements made. There are a number of important risks and uncertainties that could cause our actual results to differ materially from those indicated by such forward-looking statements. These risks and uncertainties include, without limitation, those set forth under the heading "Risk Factors" of this Quarterly Report on Form 10-Q. We do not intend to update publicly any forward-looking statements whether as a result of new information, future events or otherwise.

Acquisition of Corporate Express

In July 2008, we acquired Corporate Express N.V. ("Corporate Express"), a Dutch office products distributor with operations in North America, Europe and Australia, through a tender offer for all of its outstanding capital stock. The acquisition of Corporate Express establishes a contract business in Europe and Canada and increases our contract business in the United States. The acquisition also extends our geographic reach to Australia and New Zealand. As a result of the acquisition, we have operations in 27 countries.

The aggregate cash purchase price of 2.8 billion Euros (approximately $4.4 billion, net of cash acquired) for the capital stock of Corporate Express and for our repayment of most of Corporate Express' debt was funded primarily with the sale of notes under our Commercial Paper Program, which is backstopped by our 2008 Agreement, and additional funds from our 2008 Term Credit Facility, our existing Revolving Credit Facility (each as defined below), and our available cash and short-term investments.

At the time the tender offer was fully settled on July 23, 2008, we had acquired more than 99% of the outstanding capital stock of Corporate Express. We intend by the end of fiscal year 2009 to acquire the remaining capital of Corporate Express by means of a compulsory acquisition procedure in accordance with the Dutch Civil Code. In July 2008, we also acquired all of the outstanding 8.25% Senior Subordinated Notes due July 1, 2014 and all of the outstanding 7.875% Senior Subordinated Notes due March 1, 2015 of Corporate Express U.S. Finance Inc., a wholly owned subsidiary of Corporate Express.

The operating results of Corporate Express have been included in the condensed consolidated financial statements since July 2, 2008, the date we declared the terms of the tender offer unconditional. The Corporate Express results are reported in Staples' North American Delivery and International Operations for segment reporting.

Results of Operations

We have provided below an overview of our operating results as well as a summary of our consolidated performance and details of our segment performance. In order to enhance comparability between our 2007 and 2008 results, certain operational measures for fiscal 2008 are accompanied by a presentation of such measure after removing the impact of the Corporate Express acquisition. Management is using such adjusted operational measures in the initial post acquisition period to evaluate our pre-acquisition operating results against prior year results and our operating plan. This adjusted information supplements and is not intended to represent measures that are calculated or presented in accordance with disclosures required by accounting principles generally accepted in the United States.

As we have begun the integration of Corporate Express, it has become difficult to accurately isolate the impact of the Corporate Express operations from our overall business. Accordingly, the following information discussing our results after removing the impact of the Corporate Express acquisition is not exact and represents our best estimate. In the coming quarters, as the integration of Corporate Express proceeds, it will become increasingly difficult to accurately quantify the impact of the Corporate Express operations on our overall results, and we'll soon no longer be able, or consider it meaningful, to provide financial information or any related discussion of our business after removing the impact of Corporate Express.

Overview

We produced fairly stable results for the third quarter of 2008 despite the challenging economic environment. Excluding sales of $1.96 billion related to Corporate Express, our consolidated sales declined 3.4% in the third quarter of 2008. Major contributors to the third quarter of 2008 results (as compared to the results for the third quarter of 2007) are reviewed in detail in the Consolidated Performance and Segment Performance discussions and are summarized below:

† On a consolidated basis including Corporate Express, we reached $6.95 billion in sales, with sales growth of 34.5%.
† North American Retail's comparable store sales declined 8% and business unit income rate fell to 10.3% from 11.1%, as negative comparable store sales drove deleverage in rent and occupancy expenses and labor. Despite these economic challenges, we achieved excellent customer service and continued to invest in our "EasyWay" service model.
† North American Delivery sales grew 61.1% as a result of the acquisition of Corporate Express. Excluding sales of $1.07 billion related to Corporate Express, sales declined 0.9% on lower sales to existing customers, partially offset by successful customer acquisition and retention efforts and excellent customer service. Business unit income rate declined from 10.9% to 8.8%. Excluding the results of Corporate Express, business unit income increased to 12.3%.
† International Operations sales grew 127.2%. Excluding sales of $886 million related to Corporate Express, sales declined 1.1% in US dollars and grew 0.4% in local currency. Business unit income rate increased to 3.5% from 3.3% and increased to 3.4% excluding the results of Corporate Express.
† We now operate 2,216 stores worldwide. We had a net addition of 30 stores in North America and a net closure of 5 stores in International Operations.

While maintaining our focus on expense control, we are also continuing to invest in new strategic initiatives and customer service programs to ensure our long term success, despite the current weak economic climate. These strategic initiatives include:

† Implementing a series of retail store business initiatives to drive productivity; including improving the profitability of technology sales, boosting sales of high margin copy and EasyTech services, and reducing the size of our primary "Dover" store format to 18,000 square feet from 20,000 square feet;
† Continued differentiation through our own brand products; and
† Cross-channel initiatives to encourage customers to spend more overall by shopping both Staples' retail and delivery channels.

For our customer service programs, our North American and European delivery businesses have focused on the "Perfect Order" program to improve product availability, ensure accuracy of orders, improve warehouse performance and productivity of our delivery trucks, and reduce product returns, resulting in fewer trips per order and higher customer satisfaction and retention. In our North American Retail business, our selling models are designed to train associates to provide solutions for small business customers and drive attachment selling, while also providing incentives for store associates to provide great customer service.

Outlook

The economic environment remains challenging, and we expect it to remain so for the foreseeable future. Despite this difficult environment, we expect to achieve stable performance through customer service, customer retention and acquisition efforts, expense management and focused integration of Corporate Express. We will endeavor to provide as much transparency as possible; however, as a result of the difficulty in forecasting sales in the current environment, we will not provide specific sales and earnings guidance for the fourth quarter of 2008 and for 2009. To the extent we have clear visibility, we will provide guidance on factors that will influence profitability, such as anticipated synergies from the Corporate Express integration, integration and restructuring expense, amortization of intangibles and interest expense. We expect the following:

† Corporate Express integration synergies building to $300 million annually over a three year integration period;
† Integration and restructuring expense of $10 to $15 million for the fourth quarter of 2008 and $50 to $70 million for 2009;
† Amortization of intangibles of $30 to $35 million for the fourth quarter of 2008 and $110 to $120 million for 2009; and
† Net interest expense of $60 to $70 million for the fourth quarter of 2008 and $220 to $250 million for 2009.

Consolidated Performance:

Net income for the third quarter of 2008 was $156.7 million, or $0.22 per diluted share, compared to $274.5 million or $0.38 per diluted share for the third quarter of 2007. Net income for year-to-date 2008 was $519.2 million, or $0.73 per diluted share, compared to $662.5 million, or $0.92 per diluted share, for year-to-date 2007. Our results for the third quarter and year-to-date 2008 include the results of the newly acquired Corporate Express business since its acquisition on July 2, 2008. Our results for the third quarter and year-to-date 2008 also include pretax integration and restructuring costs of $132.3 million and $132.4 million, respectively, and total net interest expense before taxes of $54.5 million and $65.2 million, respectively, which substantially relates to our acquisition financing. Our results reflect our continuing focus on our strategy of driving profitable sales growth, improving profit margins and increasing asset productivity while operating in a difficult economic environment. We continue to work to deliver on our "Easy" brand promise to make buying office products easy for our customers in order to differentiate us from our competitors. Our commitment to customer service, our focus on higher margin Staples brand products, our continued focus on customer acquisition and retention efforts, and expense control were key contributors to sustaining our performance in the third quarter of 2008, despite the negative impact of a weakened economy on our customers and our organic sales growth.

Sales: Sales for the third quarter of 2008 were $6.95 billion, an increase of 34.5% from the third quarter of 2007. Sales for year-to-date 2008 were $16.91 billion, an increase of 20.4% from year-to-date 2007. Our sales growth for the third quarter and year-to-date 2008 reflects sales of $1.96 billion and $2.63 billion, respectively, from the Corporate Express business. Excluding the sales from Corporate Express, sales decreased 3.4% for the third quarter and increased 1.7% for year-to-date 2008. The 3.4% decline for the third quarter of 2008 was substantially driven by an 8% decrease in comparable store sales in our North American Retail business and, to a much lesser degree, the negative impact of foreign exchange rates of $52.2 million. This sales decline was partially offset by sales from new stores opened in our North American Retail business. The 1.7% sales growth for year-to-date 2008 was primarily driven by the following three factors, in order of magnitude: increased sales from new stores opened, the positive impact of foreign exchange rates of $195.9 million, and organic growth in our delivery businesses. This growth was partially offset by a 6% decrease in comparable store sales in our retail businesses.

Gross Profit: Gross profit as a percentage of sales was 26.8% for the third quarter of 2008 and 27.1% for year-to-date 2008 compared to 29.1% for the third quarter of 2007 and 28.5% for year-to-date 2007. Our gross profit rate for the third quarter and year-to-date 2008 was negatively impacted by 2.4% and 1.2%, respectively, due to the inclusion of the results of Corporate Express, whose gross profit rate is lower than our existing businesses. The negative impact of Corporate Express on our gross profit rate for the third quarter was offset primarily by improved product margins in our North American businesses and, to a lesser extent, supply chain improvements in all our segments substantially offset by deleverage in fixed occupancy costs on a decrease in comparable store sales in North American Retail. For year-to-date 2008, the net decrease in gross profit rate primarily reflects deleverage in fixed occupancy costs on a decrease in comparable store sales in North American Retail, partially offset by improved product margins in our North American businesses and, to a lesser extent, supply chain improvements in all of our segments.

Selling, General and Administrative Expenses: Selling, general and administrative expenses were 18.9% of sales for the third quarter and 20.4% of sales for year-to-date 2008 compared to 20.8% for the third quarter of 2007 and 21.1% for year-to-date 2007. Selling, general and administrative expenses as a percentage of sales for the third quarter and year-to-date 2008 includes a 1.2% and 0.8% improvement, respectively, related to the inclusion of the results of Corporate Express, whose selling, general and administrative expense rate is lower than our existing businesses. The net decrease in selling, general and administrative expenses for the third quarter, after adjusting for the improvement from Corporate Express, was primarily driven by the $38.0 million charge related to the California wage and hour class action lawsuits included in the prior year and, to a lesser extent, decreased marketing expenses in all our businesses, partially offset by deleverage in labor on a decrease in comparable store sales in our North American Retail business. The net increase in selling, general and administrative expenses for year-to-date 2008, after adjusting for the improvement from Corporate Express, primarily reflects deleverage in labor, partially offset by the $38.0 million charge related to the California wage and hour class action lawsuits included in the prior year and, to a lesser extent, decreased marketing expenses in all of our businesses. Our results continue to reflect our ongoing focus on expense control in a challenging economic environment.

Integration and Restructuring Costs: Integration and restructuring costs were $132.3 million and $132.4 million for the third quarter and year-to-date 2008, respectively. These expenses reflect costs associated with the integration of Corporate Express with the Company's pre-existing business and the consolidation of certain operations of the Company. Included in integration and restructuring costs for the third quarter and year-to-date 2008 is a $123.8

million charge related to the write-down of indefinite lived intangible tradenames associated with our European catalog business. The tradename write-down was the result of our decision to move toward one global brand with the acquisition of Corporate Express, eliminating, over time, the legacy brands used in the European catalog business. For the third quarter of 2008, integration and restructuring costs also include $7.4 million of consulting fees, $0.6 million of travel related expenses and a $0.5 million charge for employee retention costs.

Amortization of Intangibles: Amortization of intangibles was $28.0 million for the third quarter of 2008 and $46.4 million for year-to-date 2008 compared to $4.4 million for the third quarter of 2007 and $11.7 million for year-to-date 2008, reflecting the amortization of certain tradenames, customer relationships and noncompetition agreements. Amortization expense relating to the intangibles resulting from our acquisition of Corporate Express was $24.5 million and $34.9 million for the third quarter and year-to-date 2008, respectively.

Interest income: Interest income decreased to $5.4 million for the third quarter of 2008 and $23.1 million for year-to-date 2008 from $8.7 million for the third quarter of 2007 and $34.9 million for year-to-date 2007. The decrease in interest income for the third quarter and year-to-date 2008 is primarily due to a decrease in our average cash and short-term investment portfolio resulting from our acquisition of Corporate Express, combined with a decrease in interest rates.

Interest expense: Interest expense increased to $59.9 million for the third quarter of 2008 and $88.3 million for year-to-date 2008 from $8.5 million for the third quarter of 2007 and $30.7 million for year-to-date 2007. The increase in interest expense for the third quarter and year-to-date 2008 is primarily due to borrowings under our Commercial Paper Program, our 2008 Agreement, our Revolving Credit Facility and the 2008 Term Credit Facility (each as defined below) relating to our acquisition of Corporate Express, slightly offset by the impact of the repayment of our $200.0 million 7.125% senior notes in August 2007. We use interest rate swap agreements to convert our fixed rate debt obligations into variable rate obligations. Excluding the impact of our interest rate swap agreements, interest expense would have been $60.8 million for the third quarter of 2008 and $90.5 million for year-to-date of 2008 compared to $7.6 million for the third quarter of 2007 and $29.1 million for year-to-date 2007.

Miscellaneous expense: Miscellaneous expense was $2.8 million for the third quarter and $3.2 million year-to-date 2008, compared to miscellaneous income of $0.01 million for the third quarter of 2007 and miscellaneous expense of $1.5 million for year-to-date 2007. These amounts primarily reflect foreign exchange gains and losses recorded in the respective periods.

Income Taxes: Our effective tax rate was 51.6% and 40.9% for the third quarter and year-to-date 2008, respectively, compared to 36.0% for the third quarter and year-to-date 2007. The increase in our effective tax rate in 2008 was due to the establishment of a reserve of $57.0 million related to foreign tax credits expected to expire. We continue to develop plans to minimize our tax expense considering the tax attributes of the combined entity. As a result of our tax planning it is possible that we could reverse a portion or all of this reserve in future periods. Our effective tax rate from operations for the third quarter and year-to-date 2008 remains at 34.5%. The decrease in the effective tax rate from operations compared to the prior year was due to geographical changes in the mix of earnings, primarily attributable to the acquisition of Corporate Express.

Segment Performance:

Our business is comprised of three segments: North American Retail, North American Delivery and International Operations. Our North American Retail segment consists of the U.S. and Canadian business units that operate office products stores. The North American Delivery segment consists of the U.S. and Canadian business units that sell and deliver office products and services directly to customers and businesses, and includes Staples Business Delivery, Quill and Contract (including Corporate Express). The International Operations segment consists of business units (including Corporate Express) that operate office products stores and that sell and deliver office products and services directly to customers and businesses in 25 countries in Europe, Asia, Australia and South America.

In connection with our acquisition of Corporate Express, we allocated assets of $3.90 billion and $3.09 billion to the North American Delivery and International Operations segments, respectively. The Corporate Express assets include goodwill and intangible assets of $3.35 billion, of which $2.22 billion and $1.14 billion were allocated to the North American Delivery and International Operations segments, respectively.

The following tables provide a summary of our sales and business unit income by reportable segment. Business unit income excludes integration and restructuring costs, stock-based compensation, interest and other expense, income taxes, non-recurring items and the impact of changes in accounting principles (see reconciliation of total segment income to consolidated income before income taxes and minority interest in Note I to the Condensed Consolidated Financial Statements included in this report):

                                                                 November 1,
                                                                    2008
                                   (Amounts in thousands)         Increase       November 3,
                                       13 Weeks Ended            (Decrease)         2007
                                November 1,      November 3,        From        Increase From
                                    2008            2007         Prior Year      Prior Year
Sales:
North American Retail           $  2,599,204    $   2,750,884           (5.5 )%           3.2 %
North American Delivery            2,783,195        1,727,141           61.1 %           14.7 %
International Operations           1,568,534          690,326          127.2 %           17.8 %
Total sales                     $  6,950,933    $   5,168,351           34.5 %            8.7 %

                                   (Amounts in thousands)
                                       13 Weeks Ended            November 1,     November 3,
                                November 1,     November 30,        2008            2007
                                    2008            2007         % of Sales      % of Sales
Business Unit Income:
North American Retail           $    267,558    $     305,869           10.3 %           11.1 %
North American Delivery              246,206          187,450            8.8 %           10.9 %
International Operations              55,624           23,064            3.5 %            3.3 %
Business unit income                 569,388          516,383            8.2 %           10.0 %
Stock-based compensation             (47,399 )        (50,078 )          (.7 )%          (1.0 )%
Integration and
restructuring costs                 (132,282 )              -           (1.9 )%             - %
Impact of wage and hour
settlement                                 -          (38,000 )            - %           (0.7 )%
Total segment income            $    389,707    $     428,305            5.6 %            8.3 %

                                                                 November 1,
                                                                    2008
                                   (Amounts in thousands)         Increase       November 3,
                                       39 Weeks Ended            (Decrease)         2007
                                November 1,      November 3,        From        Increase From
                                    2008            2007         Prior Year      Prior Year
Sales:
North American Retail           $  7,095,568    $   7,225,679           (1.8 )%           3.5 %
North American Delivery            6,469,487        4,896,999           32.1 %           15.2 %
International Operations           3,345,152        1,925,562           73.7 %           17.4 %
Total sales                     $ 16,910,207    $  14,048,240           20.4 %            9.1 %

                                   (Amounts in thousands)
                                       39 Weeks Ended            November 1,     November 3,
                                November 1,      November 3,        2008            2007
                                    2008            2007         % of Sales      % of Sales
Business Unit Income:
North American Retail           $    546,342    $     652,252            7.7 %            9.0 %
North American Delivery              583,023          507,380            9.0 %           10.4 %
International Operations              94,364           42,954            2.8 %            2.2 %
Business unit income               1,223,729        1,202,586            7.2 %            8.6 %
Stock-based compensation            (134,196 )       (133,196 )         (0.8 )%          (0.9 )%
Integration and
restructuring costs                 (132,445 )              -           (0.8 )%             - %
Impact of wage and hour
settlement                                 -          (38,000 )            - %           (0.3 )%
Total segment income            $    957,088    $   1,031,390            5.7 %            7.3 %

North American Retail: Sales decreased 5.5% for the third quarter of 2008 and 1.8% for year-to-date 2008. The decrease in the third quarter is primarily due to an 8% decrease in comparable store sales, reflecting a reduction in average order size and, to a lesser extent, reduced traffic. Foreign exchange rates had a negative impact of $36.4 million. This decline was partially offset by non-comparable sales for new stores opened in the past 12 months. The slight decrease in sales for year-to-date 2008 primarily reflects a 7% decrease in comparable stores, substantially offset by non-comparable sales for new stores opened in the past 12 months and, to a lesser extent, the positive impact of foreign exchange rates of $60.9 million. Our comparable store sales decrease in the third quarter and year-to-date 2008 reflects a significant decline in the performance of non-consumable products including business machines, furniture and computer peripherals, followed by a modest decline in consumables, which was driven by core office supplies. For year-to-date 2008, our decrease in consumable sales was slightly offset by positive performance in ink and toner. We added 30 stores to the North American store base in the third quarter of 2008. As of November 1, 2008, the North American store base included 1,832 open stores compared to 1,715 stores as of November 3, 2007 and 1,738 stores as of February 2, 2008.

Business unit income as a percentage of sales decreased to 10.3% for the third quarter of 2008 and 7.7% for year-to-date 2008 from 11.1% for the third quarter of 2007 and 9.0% for year-to-date 2007. The decrease in business unit income as a percentage of sales for the third quarter and year-to-date 2008 primarily reflects deleverage in fixed costs resulting from a decrease in comparable store sales and, to a lesser extent, deleverage in labor in order to maintain our customer service standards. These negative factors were partially offset by increased product margin rates and to a lesser extent, in order of magnitude, reduced marketing spend, supply chain improvements and our focus on expense control.

North American Delivery: Sales increased 61.1% for the third quarter of 2008 and 32.1% for year-to-date 2008 compared to the third quarter and year-to-date 2007. Excluding non-comparable sales from Corporate Express of $1.07 billion and $1.43 billion for the third quarter and year-to-date 2008, respectively, . . .