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

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.

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, and subsequently paid off, 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 aggregate cash purchase price for the capital stock of Corporate Express and for the repayment of most of Corporate Express' debt was 2.8 billion Euros (approximately $4.4 billion, net of cash acquired).

The operating results of Corporate Express have been included in our 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 our 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.

As we have progressed with the integration of Corporate Express into the Staples business, it has become difficult to isolate accurately the impact of the Corporate Express operations from our overall business. Therefore, we will no longer provide detailed financial information or any related discussion of our business after removing the impact of the Corporate Express business.

Overview

We produced fairly stable results for the first quarter of 2009 despite the challenging economic environment. Our consolidated sales increased 19.1% for the first quarter of 2009, driven by our acquisition of Corporate Express. Major contributors to our results for the first quarter of 2009 (compared to the results for the first quarter of 2008) are reviewed in detail in the Consolidated Performance and Segment Performance discussions and are summarized below:

† On a consolidated basis, we generated $5.8 billion in sales, with sales growth of 19.1 %.

† North American Delivery sales grew 40.6%, including the impact of our acquisition of Corporate Express. Business unit income rate declined to 6.6% from 9.5%, primarily as a result of including the lower margin Corporate Express

business.

† North American Retail's comparable store sales declined 8%, while business unit income rate increased to 7.3% from 7.0%, as deleverage in fixed occupancy costs and labor driven by negative comparable store sales were more than offset by increased product margin rates and our ongoing focus on expense control.

† International Operations' sales grew 60.3% and 75.6% in local currency, including the impact of our acquisition of Corporate Express. Business unit income rate decreased to 1.7% from 3.2%.

† We now operate 2,246 stores worldwide, with a net addition of 28 stores during the first quarter of 2009.

† Operating cash flow increased to $438 million from $299 million in 2008.

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:

† Continued differentiation through the expansion of our own brand product line;

† Cross-channel initiatives to encourage customers to spend more overall by shopping both Staples' retail and delivery channels;

† "Share of wallet" initiatives to sell a broader array of non-core office products to our customers, including cleaning and break room supplies, copy and print services and promotional products; and

† Retail initiatives to drive sales; including increasing our focus on technology products and services, boosting sales of high margin copy and print services and gaining market share in key categories like ink and toner.

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 rewarding store associates who provide great customer service.

Outlook

The global recession has created declines in demand for office products, which we expect to continue for the foreseeable future. While we expect sales and earnings to continue to be negatively impacted, we have been able to partially offset these declines through our 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 fiscal year 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, depreciation expense, amortization of intangibles and net 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 $90 million to $110 million for 2009;

†          Depreciation expense of $430 million to $440 million for 2009;

†          Amortization of intangibles of $100 million to $110 million for 2009;
and

†          Net interest expense of $235 million to $245 million for 2009

Consolidated Performance

Net income attributed to the controlling interests ("Net income") for the first quarter of 2009 was $143.0 million or $0.20 per diluted share compared to $212.3 million or $0.30 per diluted share for 2008. Our results for the first quarter of 2009 include the results of the Corporate Express business, which was acquired on July 2, 2008. Our results for the first quarter of

2009 also include integration and restructuring costs of $12.4 million, net of taxes ($0.02 per diluted share) and total interest expense of $39.6 million, net of taxes ($0.06 per diluted share), which substantially relates to our acquisition financing.

Our results reflect our continued 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, customer acquisition and retention efforts, tightening of expenses, and managing working capital and capital spending were key contributors to sustaining our performance during the first quarter of 2009, despite the negative impact of a weakened economy on our customers and our organic sales growth.

Sales: Sales for the first quarter of 2009 were $5.8 billion, an increase of 19.1% from the first quarter of 2008. Our sales growth for 2009 is mainly attributed to our acquisition of Corporate Express, offset by the negative impact of foreign exchange rates of $230.0 million, an 8% decrease in comparable store sales in our North American Retail business, as well as lower sales to existing customers in our North American Delivery business.

Gross Profit: Gross profit as a percentage of sales was 26.2% for the first quarter of 2009 compared to 28.1% for the first quarter of 2008. The decrease in gross profit rate for 2009 was primarily driven by the inclusion of the results of Corporate Express, whose gross profit rate was lower than our pre-existing businesses and, to a lesser extent, deleverage in fixed occupancy costs in our North American Retail business, partially offset by increased buying synergies in all of our businesses and, to a lesser extent, product margin rates in North American Retail.

Selling, General and Administrative Expenses: Selling, general and administrative expenses were 20.6% of sales for the first quarter of 2009 compared to 21.4% for the first quarter of 2008. The decrease in selling, general and administrative expenses as a percentage of sales for 2009 was primarily driven by the inclusion of the results of Corporate Express, whose selling, general and administrative expense rate was lower than our pre-existing businesses. The decrease also reflects reduced marketing expenses which were partially offset by deleverage in labor 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 represent the costs associated with the integration of the acquired Corporate Express business with our pre-existing business and the consolidation of certain operations. Integration and restructuring costs were $19.0 million for the first quarter of 2009, including an $11.7 million charge related to asset write-downs for assets whose use was expected to be limited as a result of the acquisition, $5.1 million of consulting and travel fees, and a $2.2 million charge for employee retention and relocation costs.

Amortization of Intangibles:Amortization of intangibles was $21.9 million for the first quarter of 2009 compared to $4.2 million for the first quarter of 2008, reflecting the amortization of certain tradenames, customer relationships and noncompetition agreements. Amortization expense relating to intangibles resulting from our acquisition of Corporate Express for the first quarter of 2009 was $14.1 million.

Interest Income: Interest income decreased to $1.7 million for the first quarter of 2009 from $11.5 million for the first quarter of 2008. The decrease in interest income for the first quarter of 2009 is primarily due to a decrease in our average cash balance resulting from the use of cash to acquire Corporate Express.

Interest Expense: Interest expense increased to $60.5 million for the first quarter of 2009 from $7.3 million for the first quarter of 2008. The increase in interest expense for 2009 is primarily due to borrowings under our January 2009 Notes, our March 2009 Notes, our commercial paper program, our 2008 Agreement and our Revolving Credit Facility, (each as defined in "Sources of Liquidity") relating to our acquisition of Corporate Express. We use interest rate swap agreements to convert a portion of our fixed rate debt obligations into variable rate obligations. Excluding the impact of our interest rate swap agreements, interest expense would have been $61.5 million for the first quarter of 2009 and $7.2 million for the first quarter of 2008.

Miscellaneous Income (Expense): Miscellaneous expense was $3.6 million for the first quarter of 2009 compared to miscellaneous income of $0.2 million for the first quarter of 2008. These amounts primarily reflect foreign exchange gains and losses recorded in the respective periods.

Income Taxes: Our effective tax rate was 34.5% for the first quarter of 2009 and 35.0% for the first quarter of 2008. The decrease in the effective tax rate from the first quarter of 2008 to the first quarter of 2009 was due to geographical changes in the mix of earnings.

Segment Performance

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

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, non-recurring items and the impact of changes in accounting principles (see reconciliation of total segment income to consolidated income before taxes in Note K in the Notes to the Condensed Consolidated Financial Statements):

                                                         May 2, 2009
                                                          Increase
                             (Amounts in thousands)      (Decrease)      May 3, 2008
                                 13 Weeks Ended             From        Increase From
                           May 2, 2009    May 3, 2008    Prior Year      Prior Year
Sales:
North American Delivery    $  2,418,358   $  1,720,491          40.6 %            8.0 %
North American Retail         2,188,335      2,408,501          (9.1 )%           1.9 %
International Operations      1,210,866        755,562          60.3 %           19.4 %
Total Segment Sales        $  5,817,559   $  4,884,554          19.1 %            6.4 %




                               (Amounts in thousands)
                                   13 Weeks Ended           May 2, 2009    May 3, 2008
                            May 2, 2009      May 3, 2008    % of Sales     % of Sales
Business Unit Income:
North American Delivery    $     160,629    $     163,262           6.6 %          9.5 %
North American Retail            160,451          168,242           7.3 %          7.0 %
International Operations          20,118           23,823           1.7 %          3.2 %
Business Unit Income             341,198          355,327           5.9 %          7.3 %
Stock-based compensation         (35,337 )        (33,362 )        (0.6 )%        (0.7 )%
Segment Income             $     305,861    $     321,965           5.3 %          6.6 %

North American Delivery: Sales increased 40.6% for the first quarter of 2009. The increase in sales was the result of non-comparable sales from our acquisition of Corporate Express and, to a lesser extent, the impact of our customer acquisition and retention efforts offset by lower spend from existing customers.

Business unit income as a percentage of sales was 6.6% for the first quarter of 2009 and 9.5% for the first quarter of 2008. The decrease in business unit income as a percentage of sales for the first quarter of 2009 was primarily due to the

inclusion of the results of Corporate Express, whose business unit income rate was lower than our pre-existing business. The decrease also reflects the unfavorable product mix as customers buy fewer discretionary products with higher margins and, to a lesser extent, deleverage in fixed expenses, partially offset by reduced marketing expense and, to a lesser extent, gross profit improvements driven by supply chain productivity and buying synergies.

North American Retail: Sales decreased 9.1% for the first quarter of 2009. The decrease in sales for the first quarter of 2009 primarily reflects an 8% decrease in comparable stores sales and the negative impact of foreign exchange rates of $99.8 million, partially offset by non-comparable sales for new stores opened in the past twelve months. Our comparable store sales decrease for the first quarter of 2009 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. Our decrease in consumable sales for the first quarter of 2009 was slightly offset by positive performance in technology services and ink and toner.

Business unit income as a percentage of sales increased to 7.3% for the first quarter of 2009 from 7.0% for the first quarter of 2008. The increase in business unit income as a percentage of sales for the first quarter of 2009 primarily reflects increased product margin rates and, to a lesser extent, reduced marketing spend, and our focus on expense control, partially offset by deleverage in fixed occupancy costs and, to a lesser extent, labor.

International Operations: Sales increased 60.3% and 75.6% in local currency for the first quarter of 2009. The increase for the first quarter of 2009 was largely the result of our acquisition of Corporate Express, partially offset by the negative impact of foreign exchange rates of $116.2 million, lower sales to existing customers in our delivery businesses and a 14% decrease in comparable store sales in Europe.

Business unit income as a percentage of sales decreased to 1.7% for the first quarter of 2009 from 3.2% for the first quarter of 2008. The decrease in business unit income during the first quarter of 2009 reflects a decrease in product margin rates, which more than offset buying synergies, and, to a lesser extent, deleverage of fixed expenses on lower sales volume, as well as an increase in amortization expense associated with the acquisition of Corporate Express. The decrease in business unit income as a percentage of sales was partially offset by the inclusion of the results of Corporate Express, whose business unit income is higher than our pre-existing business and, to a lesser extent, reduced marketing expenses and our focus on expense control.

Stock-Based Compensation: Stock-based compensation increased to $35.3 million for the first quarter of 2009 from $33.4 million for the first quarter of 2008. Stock-based compensation includes expenses associated with our employee stock purchase plans and the issuance of stock options, restricted shares and performance share awards.

Critical Accounting Policies and Significant Estimates

Our condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. Preparation of these statements requires management to make significant judgments and estimates. Some accounting policies have a significant impact on amounts reported in these financial statements. A summary of significant accounting policies and a description of accounting policies that are considered critical may be found in our 2008 Annual Report on Form 10-K, filed on March 11, 2009, in Note A of the Notes to the Condensed Consolidated Financial Statements and in the Critical Accounting Policies section of Management's Discussion and Analysis of Financial Condition and Results of Operations. There have been no material changes to the Accounting Policies or our application of the Accounting Policies, as disclosed in our 2008 Annual Report on Form 10-K filed on March 11, 2009.

Liquidity and Capital Resources

Cash Flows

Cash provided by operations was $438.2 million for the first quarter of 2009 compared to $299.2 million for the first quarter of 2008. The increase in operating cash flow from 2008 to 2009 is primarily due to improvements in working capital, partially offset by a decrease in net income adjusted for non-cash expenses.

Cash used in investing activities was $53.7 million for the first quarter of 2009 compared to $63.9 million for the first quarter of 2008. The decrease in cash used in investing activities from 2008 to 2009 is due to a reduction in capital expenditures during the first quarter of 2009, driven by lower spending on new stores and information systems.

Cash used in financing activities was $289.0 million for the first quarter of 2009 compared to $287.8 million for the first quarter of 2008. The change in cash used in financing activities from 2008 to 2009 is primarily related to the refinancing of the debt we entered into or assumed in connection with the Corporate Express acquisition, a change in our dividend program from annual to quarterly payments and the suspension of our share repurchase program as a result of our acquisition of Corporate Express. In the first quarter of 2009, our financing activities primarily consisted of repayments made on commercial paper and the Corporate Express U.S and European securitization programs, as well as the payment of our first quarterly dividend, offset by the proceeds from our $500 million aggregate principal notes due April 1, 2011 (the "March 2009 Notes"). In 2008, our financing cash flows primarily consisted of our annual dividend payment and the repurchase of 2.8 million shares under our share repurchase program.

Sources of Liquidity

We utilize cash generated from operations, short-term investments and our Revolving Credit Facility to cover seasonal fluctuations in cash flows and to support our various growth initiatives. At May 2, 2009, we had $1.67 billion in total cash and funds available through credit agreements, which consisted of $935.9 million of available credit and $738.4 million of cash and cash equivalents.

In connection with the acquisition of Corporate Express, we entered into the Credit Agreement, dated April 1, 2008, among Staples, Inc., Barclays Bank PLC, and the other lenders named therein, as amended (the "2008 Agreement") which served, along with our $750 million revolving credit facility with Bank of America N.A. and the other lenders named therein which matures in October 2011 (the "Revolving Credit Facility"), as a backstop to the commercial paper program. Subsequently, we refinanced the 2008 Agreement by issuing the March 2009 Notes and $1.5 billion aggregate principal amount of notes due January 15, 2014 (the "January 2009 Notes").

A summary, as of May 2, 2009, of balances available under our credit agreements and debt outstanding is presented below (amounts in thousands):

                                                     Available             Debt
                                                       Credit          Outstanding
2008 Agreement due July 2009                       $      500,000 (1)              -
Commercial Paper Program                                        -     $      665,923 (2)
Revolving Credit Facility effective through
October 2011                                              310,824                  -
September 2002 Notes due October 2012                           -            325,000
January 2009 Notes due January 2014                             -          1,500,000
March 2009 Notes due April 2011                                 -            500,000
Lines of credit                                           125,088                465
Other notes and capital leases                                  -            208,447
Total                                              $      935,912     $    3,199,835

(2)This obligation is backstopped by, and utilizes borrowing capacity of, $261.0 million of our 2008 Agreement and $406.4 million of our Revolving Credit Facility, and corresponding amounts are due in less than

one year. As of May 26, 2009, the commercial paper program is backstopped solely by the Revolving Credit Facility.

At May 2, 2009, as a result of offsetting changes to the maturity of contractual obligations, there had not been a material net change to the information regarding the maturity of contractual obligations disclosed in the subsection entitled "Sources of Liquidity" of the Management's Discussion and Analysis of Financial Condition and Results of Operations on page B-10 of our 2008 Annual Report on Form 10-K.

On March 3, 2009, we terminated and paid off all outstanding balances from the Corporate Express U.S. and European securitization programs we assumed upon the acquisition of Corporate Express.

On March 27, 2009, we issued the March 2009 Notes with a fixed interest rate of 7.75% payable semi-annually on April 1 and October 1 of each year commencing on October 1, 2009. The sale of the March 2009 Notes was made pursuant to the terms of an underwriting agreement (the "Underwriting Agreement"), dated March 27, 2009, with Barclays Capital Inc., Banc of America Securities LLC and HSBC Securities (USA) Inc., as representatives of the several underwriters named . . .