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. Staples, Inc. and its subsidiaries ("we", "our" or "us") 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.

Results of Operations

Major contributors to our first quarter of 2012 results, as compared to the results for the first quarter of 2011, are reviewed in detail in the Consolidated Performance and Segment Performance discussions and are summarized below:

• On a consolidated basis, we generated $6.1 billion in sales, a decline of 1.1%;

• North American Delivery's sales increased 1.7%, and business unit income rate increased to 7.9% from 7.8%;

• North American Retail's sales decreased 0.2%, comparable store sales were flat and business unit income rate decreased to 7.2% from 7.6%;

• International Operations' sales decreased 8.0%, including the unfavorable impact of foreign exchange rates, and business unit (loss) income rate decreased to (1.5)% from 0.7%;

• Net income attributed to Staples, Inc. for the first quarter of 2012 was $187.1 million or $0.27 per diluted share compared to $198.2 million or $0.28 per diluted share for the first quarter of 2011. Net income for the first quarter of 2012 included $19.1 million of expenses, net of tax, or $0.03 per diluted share associated with headcount reductions and a legal settlement; and

• Our quarterly income tax rate was 32.5% compared to 34.5%.

To drive our long-term success, we continue to invest in strategic initiatives, including technology products and services, copy and print services, and facility and breakroom supplies, while maintaining our focus on customer service and expense control. Our results for the first quarter of 2012 reflect our investments in these initiatives as we evolve to meet the changing needs of our customers, as well as the expenses we incurred to drive long-term profit improvement.

Outlook

We remain committed to the full year 2012 outlook that was previously disclosed in our Annual Report on Form 10-K for the year ended January 28, 2012.

Consolidated Performance

First Quarter of 2012 Compared to the First Quarter of 2011

Sales: Sales for the first quarter of 2012 were $6.1 billion, a decrease of 1.1% from the first quarter of 2011. Our sales decline for the first quarter of 2012 reflects the negative impact of foreign exchange rates of $56.3 million and a decrease in our Australian and European businesses, partially offset by growth in our North American Delivery business.

Gross Profit: Gross profit as a percentage of sales was 26.4% for the first quarter of 2012 compared to 26.5% for the first quarter of 2011. The decrease in gross profit rate for the first quarter of 2012 was primarily due to a decline in profitability in International Operations, driven by lower product margins and deleverage of fixed costs on declining sales, partially offset by supply chain efficiencies.

Selling, General and Administrative Expenses: Selling, general and administrative expenses were 20.9% of sales for the first quarter of 2012 compared to 20.6% of sales for the first quarter of 2011. This increase reflects expenses of $28.3 million associated with headcount reductions and the legal settlement of a contractual dispute associated with the acquisition of Corporate Express N.V. ("Corporate Express"), partially offset by a reduction in marketing expenses.

Amortization of Intangibles: Amortization of intangibles was $15.3 million for the first quarter of 2012 compared to $17.3 million for the first quarter of 2011, primarily reflecting the amortization of Corporate Express related tradenames, customer relationships and noncompetition agreements. Amortization of intangibles resulting from our acquisition of Corporate Express was $12.6 million for the first quarter of 2012 and $14.3 million for the first quarter of 2011.

Interest Income: Interest income was $1.7 million for the first quarter of 2012 compared to $2.5 million for the first quarter of 2011. The decrease in interest income for the first quarter of 2012 was primarily due to a decrease in U.S. cash balances and lower weighted-average international interest rates, partially offset by higher international cash balances.

Interest Expense: Interest expense decreased to $42.3 million for the first quarter of 2012 from $48.8 million for the first quarter of 2011. This decrease was primarily due to a reduction in debt balances resulting from the repayment of the $500 million, 7.75% Notes (the "April 2011 Notes") on April 1, 2011 and the paydown and refinancing of foreign debt and liquidity facilities. We previously used interest rate swap agreements to convert a portion of our fixed rate debt obligations into variable rate obligations. In September 2011, we terminated all of our existing interest rate swap agreements and are amortizing the gains related to the cash received over the term of the related debt agreements. This amortization reduced interest expense by $6.0 million for the first quarter of 2012. In the first quarter of 2011, the interest rate swap agreements reduced interest expense by $7.2 million.

Other Expense: Other expense was $0.3 million for the first quarter of 2012 compared to $0.2 million for the first quarter of 2011. These amounts primarily reflect foreign exchange losses recorded in the respective periods.

Income Taxes: Our tax rate was 32.5% for the first quarter of 2012 compared to 34.5% for the first quarter of 2011. Our effective tax rate in any year is impacted by the geographic mix of earnings. The earnings generated primarily by our entities in Australia, Canada, Hong Kong and the Netherlands contributed to the foreign tax rate differential impacting the effective tax rate.

Segment Performance

We have three reportable segments: North American Delivery, North American Retail and International Operations. Our North American Delivery segment consists of the U.S. and Canadian businesses that sell and deliver office products and services directly to customers and businesses and includes Staples Advantage, Staples.com and Quill.com. Our North American Retail segment consists of the U.S. and Canadian businesses that operate stores that sell office products and services. Our International Operations segment consists of businesses that operate stores and that sell and deliver office products and services directly to customers and businesses in 24 countries in Europe, Australia, South America and Asia.

Business unit income excludes stock-based compensation, interest and other expense, non-recurring items and the impact of changes in accounting principles (see reconciliation of total business unit income to consolidated income before taxes in Note J in the Notes to the Condensed Consolidated Financial Statements).

First Quarter of 2012 Compared to the First Quarter of 2011

The following tables provide a summary of our sales and business unit income by
reportable segment for the first quarter of 2012 and 2011:

                                                                                April 28, 2012     April 30, 2011
                                             (Amounts in thousands)
                                                 13 Weeks Ended                    Increase
                                                                                  (Decrease)          Increase
                                                                                     From               From
                                       April 28, 2012       April 30, 2011        Prior Year         Prior Year
Sales:
North American Delivery              $      2,555,071     $      2,511,646            1.7  %              2.0 %
North American Retail                       2,323,831            2,328,085           (0.2 )%              0.7 %
International Operations                    1,225,923            1,333,207           (8.0 )%              3.9 %
Total segment sales                  $      6,104,825     $      6,172,938           (1.1 )%              1.9 %



                                            (Amounts in thousands)
                                                13 Weeks Ended                April 28, 2012     April 30, 2011
                                      April 28, 2012      April 30, 2011        % of Sales         % of Sales
Business Unit Income (Loss):
North American Delivery              $     200,959      $        196,850            7.9  %              7.8 %
North American Retail                      166,955               177,349            7.2  %              7.6 %
International Operations                   (18,770 )               9,524           (1.5 )%              0.7 %
Business unit income                 $     349,144      $        383,723            5.7  %              6.2 %

North American Delivery: Sales increased 1.7% for the first quarter of 2012. This increase was driven by organic sales growth offset slightly by the negative impact of foreign exchange rates of $4.7 million. Our sales growth was favorably impacted by an increase in facilities and breakroom supplies, copy and print services, and promotional products. This growth was partially offset by a modest decline in paper.

Business unit income as a percentage of sales increased to 7.9% for the first quarter of 2012 from 7.8% for the first quarter of 2011, driven by operational efficiencies and continued expense control in supply chain, which were mostly offset by costs associated with headcount reductions and the legal settlement of a contractual dispute associated with the acquisition of Corporate Express, as well as lower product margins.

North American Retail: Sales decreased 0.2% for the first quarter of 2012.
This decrease was the result of the negative impact of foreign exchange rates of $10.9 million mostly offset by an increase in non-comparable sales for new stores opened in the last twelve months. Comparable store sales were flat. Comparable store sales reflect positive performance in tablets, copy and print services, e-readers and mobiles phones and accessories, offset by a continued decline in software and desktop computers.

Business unit income as a percentage of sales decreased to 7.2% for the first quarter of 2012 from 7.6% for the first quarter of 2011, as a result of costs associated with headcount reductions, the legal settlement associated with the acquisition of Corporate Express, and investments in labor and new initiatives. These expenses were partially offset by reduced marketing and depreciation expense.

International Operations: Sales decreased 8.0% for the first quarter of 2012. This decrease was the result of the negative impact of foreign exchange rates of $40.7 million and decreased sales in our Australian and European businesses, including a 6% decrease in comparable store sales in Europe.

Business unit (loss) income as a percentage of sales decreased to (1.5)% for the first quarter of 2012 from 0.7% for the first quarter of 2011. This decline reflects costs associated with headcount reductions across our International businesses, as well as deleverage of fixed costs in our European retail and Australian businesses and the legal settlement associated with the acquisition of Corporate Express and, to a lesser extent, declines in European product margins.

Critical Accounting Policies and Significant Estimates

Our condensed consolidated financial statements have been prepared in accordance with U.S. GAAP. 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 2011 Annual Report on Form 10-K, filed on February 29, 2012, in Note A of the Notes to the Consolidated Financial Statements and in the Critical Accounting Policies and Significant Estimates section of Management's Discussion and Analysis of Financial Condition and Results of Operations. There have been no material changes to our significant accounting policies as disclosed in that report.

Liquidity and Capital Resources

Cash Flows

Cash provided by operations was $146.9 million for the first quarter of 2012 compared to $210.3 million for the first quarter of 2011, a decrease of $63.4 million. The decrease was primarily due to a year-over-year decline in net income adjusted for non-cash expenses and an increase in cash used for working capital purposes, primarily related to the timing of income tax payments.

Cash used in investing activities was $52.1 million for the first quarter of 2012 compared to $62.6 million for the first quarter of 2011, a decrease of $10.5 million. The decrease was due to lower capital spending, primarily driven by a reduction in system-related investments and the timing of spending on store remodels.

Cash used in financing activities was $161.4 million for the first quarter of 2012 compared to $710.7 million for the first quarter of 2011, a reduction of $549.3 million. The decrease was primarily due to the repayment of the $500 million April 2011 Notes in the first quarter of 2011. The decrease was also partly due to lower spending on share repurchases as we spent $92.5 million in the first quarter of 2012 to repurchase 5.9 million shares under our share repurchase plan, compared with $147.0 million spent in first quarter of 2011 to buy 7.1 million shares, a decrease of $54.5 million. In the first quarter of 2012, the Company paid shareholders an $0.11 per share cash dividend for a total of $74.7 million, an increase from the $0.10 per share for a total of $70.9 million paid in the first quarter of 2011.

Sources of Liquidity

To cover seasonal fluctuations in cash flows and to support our various growth initiatives, we utilize cash generated from operations and borrowings available under our credit agreement with Bank of America, N.A., as Administrative Agent and other lending institutions named therein (the "November 2014 Revolving Credit Facility"). The November 2014 Revolving Credit Facility provides for a maximum borrowing of $1.0 billion, which pursuant to an accordion feature may be increased to $1.5 billion upon our request and the agreement of the lenders participating in the increase. We also have a commercial paper program ("Commercial Paper Program") that allows us to issue up to $1.0 billion of unsecured commercial paper notes from time to time. The November 2014 Revolving Credit Facility serves as a backstop to the Commercial Paper Program. At April 28, 2012, there were no outstanding borrowings under either the November 2014 Revolving Credit Facility or the Commercial Paper Program, and we did not borrow under either during the first quarter of 2012.

We also have various other lines of credit under which we may borrow a maximum of $309.0 million, and under which $174.1 million of borrowings were outstanding as of April 28, 2012.

At April 28, 2012, we had approximately $2.3 billion in total cash and funds available through credit agreements, which consisted of $1.1 billion of available credit and $1.2 billion of cash and cash equivalents. Of the $1.2 billion in cash and cash equivalents, approximately $818.4 million is held in jurisdictions outside the United States. While there could be tax consequences if such amounts were moved out of these jurisdictions or repatriated to the United States, we currently intend to use most of the cash and cash equivalents held outside of the United States to finance the current operations of our foreign businesses and their initiatives. The determination of the amount of the unrecognized deferred tax liability related to the undistributed earnings is not practicable because of the complexities associated with its hypothetical calculation.

A summary, as of April 28, 2012, of balances available under our credit agreements and debt outstanding is presented below (in thousands):

                                                     April 28, 2012
                                         Available Credit      Debt Outstanding
October 2012 Notes                      $                -    $          329,761
January 2014 Notes                                       -             1,521,812
November 2014 Revolving Credit Facility          1,000,000                     -
Lines of credit                                    134,830               174,102
Other notes and capital leases                           -                 8,372
Total                                   $        1,134,830    $        2,034,047

At April 28, 2012, there had not been a material change to the information regarding the maturity of contractual obligations disclosed in the subsection entitled "Contractual Obligations and Commercial Commitments" of the Management's Discussion and Analysis of Financial Condition and Results of Operations on page B-11 of our 2011 Annual Report on Form 10-K. We do not have any off-balance sheet financing arrangements as of April 28, 2012, nor did we utilize any during the first quarter of 2012.

We expect that our cash generated from operations, together with our current cash, funds available under our existing credit agreements and other alternative sources of financing, will be sufficient to fund our planned capital expenditures and other operating cash needs for at least the next twelve months.

Uses of Capital

As a result of our financial position, in addition to investing in our existing businesses and pursuing strategic acquisitions and partnerships, we also expect to continue to return capital to our shareholders through a cash dividend program and our share repurchase program. Depending on our credit metrics and our liquidity position, we may repurchase our public notes in the open market or through privately negotiated transactions.

Capital expenditures were $52.1 million in the first quarter of 2012 compared to $62.6 million in the first quarter of 2011, a decrease of $10.5 million. However, for the full year 2012, we do not expect material changes in capital spending compared with 2011. We are not planning on opening a significant number of new stores in 2012 but will instead focus on improving the productivity of existing stores. We expect the source of funds for our capital expenditures to come from operating cash flows.

We may use capital to engage in strategic acquisitions or joint ventures in markets where we currently have a presence and in new geographic markets that could become significant to our business in future years. However, we do not expect to rely on acquisitions to achieve our targeted growth plans. We consider many types of acquisitions for their strategic and other benefits. In the past, excluding the Corporate Express acquisition, we have focused on smaller acquisitions designed to align with our existing businesses to drive long-term growth. We expect to continue this strategy and target such acquisitions when opportunities are presented and fit within our financial structure.

We paid a first quarter of 2012 cash dividend of $0.11 per share on April 12, 2012 to stockholders of record on March 23, 2012. We expect the total value of quarterly cash dividend payments for fiscal 2012 to be $0.44 per share. While it is our intention to continue to pay quarterly cash dividends for the remainder of 2012 and beyond, any decision to pay future cash dividends will be made by our Board of Directors and will depend upon our earnings, financial condition and other factors.

From time to time, we repurchase our common stock pursuant to programs approved by our Board of Directors. On September 13, 2011, we announced a new repurchase program had been approved by the Board of Directors (the "2011 Repurchase Plan"). Under this plan, we are authorized to repurchase up to $1.5 billion of common stock in both open market and privately negotiated transactions. The 2011 Repurchase Plan has no expiration date and may be suspended or discontinued at any time. In the first quarter of 2012, we spent $92.5 million to repurchase 5.9 million shares under the 2011 Repurchase Plan. As of April 28, 2012, we have spent a total of $275.0 million to repurchase 18.5 million shares under the 2011 Repurchase Plan, and therefore, the remaining repurchase authorization was $1.2 billion as of that date. We consider several factors in determining whether and when to execute share repurchases, including our current and projected operating results, capital expenditure requirements, acquisitions or other strategic initiatives, our capacity leverage and cost of borrowings and the market price of our common stock.

Inflation and Seasonality

While neither inflation nor deflation has had, nor do we expect them to have, a material impact upon our operating results, there can be no assurance that our business will not be affected by inflation or deflation in the future. We believe that our business is somewhat seasonal, with sales and profitability historically higher during the second half of our fiscal year due to the back-to-school, holiday and January back-to-business seasons.