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Staples.com Third Quarter Revenue Increases Nearly 500 Percent

FRAMINGHAM, Mass.--(BUSINESS WIRE)--Nov. 16, 1999--Staples Inc. (NASDAQ:SPLS) today announced that Staples.com, the company's e-commerce business that provides office supplies and services over the Internet, reported revenues of close to $24 million for the third quarter of 1999, which ended October 30, 1999, up nearly 500 percent from the more than $4 million reported for the same period in the prior year, and up 54 percent from the $15.6 million reported for the second quarter 1999. The business reported a net loss of $2.8 million for the third quarter, compared with a loss of $0.1 million for the same quarter in the prior year.

"Our Internet business has surpassed our own expectations this quarter and we are on our way to becoming the online destination for small business - the place where business does business," said Staples Chairman and Chief Executive Officer Thomas G. Stemberg. "We continue to expand our reach and develop online relationships with our target small business customer."

On November 9, 1999, Staples shareholders approved the company's plans to create a separate stock, Staples.com Stock, to reflect the performance of its e-commerce businesses. Staples.com Stock includes the operations of all three of the company's e-commerce sites: www.staples.com, www.quillcorp.com and www.stapleslink.com (formerly Staples Network Advantage Plus or S.N.A.P.).

"We've only just begun to tap into our true potential with e-commerce," said Jeanne B. Lewis, president of Staples.com. "The Staples.com Stock gives us the ability to turn our ideas and visions into actions and aggressively seize opportunities to become the preeminent e-tailer of office supplies and services." -0-

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                                            Q1'99    Q2'99    Q3'99

Sales                                        421%     455%     493%
(increase over prior year)

Sales                                         50%      34%      54%
(increase over previous quarter)

Gross Profit Rate                             23%      23%      23%
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    CORPORATE HIGHLIGHTS

    During the quarter, Staples.com:

--Named Jeanne B. Lewis, former executive vice president of marketing for Staples Inc., to the position of president for Staples.com;

--Ranked #1 in its space by small business, Staples.com's core target customer, in MediaMetrix's latest ranking;

--Launched its first major advertising campaign, "Your Online Office Manager," specifically for Staples.com, including a national network television spot;

--Developed its online Business Solutions Center to provide small businesses with access to services they need to run their offices, including free intranet services from HotOffice.com, domain name registration from register.com, Web site hosting and tools from Concentric Network Corporation, payroll services from Staples InterPay, cellular phones and service plans from Point.com, printing services from the online Staples Copy Center and communications services from Staples Communications;

--Completed its sixth major site enhancement, integrating its back end into the front end system, giving customers access to real time inventory visibility and account information;

--Added more than 25,000 SKUs to accommodate special order capabilities; and

--Launched StaplesLink.com, an enhanced e-commerce site for its contract and commercial customers.

About Staples.com

Staples.com is Staples' e-commerce business that sells office supplies and services to the business customer via the Internet. In November 1999, Staples shareholders approved the company's plans to create a separate stock, Staples.com Stock, to reflect the performance of its e-commerce businesses. Staples.com Stock includes the operations of all three of the company's e-commerce sites: www.staples.com, www.quillcorp.com and www.stapleslink.com. The division's mission is to be the online destination for small business - the place where business does business. More information about the company is available at http://www.staples.com.

Certain information presented within this news release may constitute forward-looking statements. Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors, which are discussed in our most recent Proxy Statement on file with the Securities and Exchange Commission. *T

                              STAPLES.COM
                       Statements of Operations
                     (Dollar Amounts in Thousands)

                                   (Unaudited)         (Unaudited)
                                 13 Weeks Ended      39 Weeks Ended
                               Oct. 30,  Oct. 31,  Oct. 30,  Oct. 31,
                                 1999      1998      1999      1998

Sales                        $ 23,979   $  4,046   $ 51,281  $  9,104
Cost of goods sold
 and occupancy costs           18,474      2,969     39,471     6,675
  Gross profit                  5,505      1,077     11,810     2,429

Operating and other expenses:
 Operating and selling          6,384        446     13,470     1,058
 General and administrative     3,720        785      8,963     1,682
 Interest and other
  expense, net                     64          9        115        10
  Total operating and
   other expenses              10,168      1,240     22,548     2,750

  Loss before income taxes     (4,663)      (163)   (10,738)     (321)
Income tax benefit             (1,819)       (64)    (4,188)     (118)
  Net loss                   $ (2,844)  $    (99)  $ (6,550) $   (203)

Pro forma:
 Historical net loss                                         $   (203)
 Provision for income taxes
  on previously untaxed
  earnings of pooled
  S-Corporation income                                            (12)
 Pro forma net loss                                          $   (191)

    See notes to group interim financial statements.


                              STAPLES.COM
                            Balance Sheets
                     (Dollar Amounts in Thousands)

                                               October 30,
                                                   1999    January 30,
                                               (Unaudited)    1999
ASSETS
Current Assets:
   Cash and cash equivalents                     $  --        $  --
   Prepaid expenses and other current assets        --          1,033
    Total current assets                            --          1,033

Equipment:
   Equipment                                       7,237        1,072
   Less accumulated depreciation                     445           58
    Net equipment                                  6,792        1,014

Other Assets:
   Investments                                    25,665         --
    Total other assets                            25,665         --
                                                 $32,457      $ 2,047

LIABILITIES AND GROUP EQUITY
Current Liabilities:
   Inter-group payable to Staples Group          $ 4,281      $  --
   Accrued expenses and other current liabilities  1,679           85
    Total current liabilities                      5,960           85

Group equity                                      26,497        1,962
                                                 $32,457      $ 2,047

 See notes to interim financial statements.


                              STAPLES.COM
                       Statements of Cash Flows
                     (Dollar Amounts in Thousands)

                                                    (Unaudited)
                                                  39 Weeks Ended
                                              October 31,  October 31,
                                                  1999         1998
Operating Activities:
 Net income                                      $ (6,550)   $   (203)
 Adjustments to reconcile
  net income to net cash
  used in operating activities:
  Depreciation and amortization                       387        --
  Change in assets and liabilities:
  (Increase)/Decrease in prepaid
   expenses and other assets                        1,033        (850)
  Increase in inter-group payable                    --          --
  Increase in accounts payable, accrued
   expenses and other current liabilities           1,594           1
                                                    3,014        (849)
Net cash used in operating activities              (3,536)     (1,052)

Investing Activities:
 Acquisition of property and equipment             (6,165)       (712)
 Purchase of long-term investments                (23,756)       --
 Net cash used in investing activities            (29,921)       (712)

Financing Activities:
 Proceeds from borrowings                           3,536       1,052
 Capital contributions from Staples Group          29,921         712
 Net cash provided by/
  (used in) financing activities                   33,457       1,764

Net decrease in cash and cash equivalents            --          --
Cash and cash equivalents at beginning of period     --          --
Cash and cash equivalents at end of period       $   --      $   --

 See notes to group interim financial statements.


                    STAPLES, INC. AND SUBSIDIARIES
                   Consolidated Statements of Income
           (Dollar Amounts in Thousands, Except Share Data)

                             (Unaudited)             (Unaudited)
                           13 Weeks Ended          39 Weeks Ended
                       October 30  October 31, October 30, October 31,
                           1999        1998        1999        1998

Sales                 $ 2,393,811 $ 1,899,770 $ 6,305,987 $ 5,046,086
Cost of goods sold
 and occupancy costs    1,799,564   1,431,596   4,762,428   3,849,207
 Gross profit             594,247     468,174   1,543,559   1,196,879

Operating and
 other expenses:
 Operating and selling    340,263     264,575     926,320     719,957
 Pre-opening                4,570       4,011      13,977      11,595
 General and
  administrative           89,497      79,958     263,747     218,138
 Amortization
  of goodwill               3,060         901       8,318       2,752
 Merger-related and
  integration costs          --          --          --        41,000
 Interest and other
  expense, net              5,162       4,372      10,554      14,960
  Total operating
   and other expenses     442,552     353,817   1,222,916   1,008,402


 Income before
  income taxes            151,695     114,357     320,643     188,477
Income tax expense         59,161      45,171     125,051      74,502
 Net income before
  minority interest        92,534      69,186     195,592     113,975
Minority interest            --          --          --           135
 Net income              $ 92,534    $ 69,186   $ 195,592   $ 114,110

Basic earnings
 per common share
 Historical net income
  per common share         $ 0.20      $ 0.16      $ 0.42      $ 0.27

Diluted earnings
 per common share
 Historical net income
  per common share         $ 0.20      $ 0.15      $ 0.41      $ 0.26

Pro forma:
 Historical net income                                      $ 114,110
 Provision for
  income taxes on
  previously untaxed
  earnings of pooled
  S-Corporation income                                          1,814
 Pro forma net income                                       $ 112,296

Basic earnings
 per common share
 Pro forma net income
  per common share                                             $ 0.27

Diluted earnings
 per common share
 Pro forma net income
  per common share                                             $ 0.26

Number of shares
 used in computing
 historical and
 pro forma basic
 net income per
 common share         460,547,504 426,183,678 461,933,928 423,056,732

Number of shares
 used in computing
 historical and
 pro forma diluted
 net income per
 common share         472,344,107 469,768,126 475,059,118  466,194,189

 See notes to consolidated financial statements.


                    STAPLES, INC. AND SUBSIDIARIES
                      Consolidated Balance Sheets
           (Dollar Amounts in Thousands, Except Share Data)

                                            October 30,
                                               1999        January 30,
                                            (Unaudited)       1999
ASSETS
Current Assets:
 Cash and cash equivalents                 $    90,164    $   357,993
 Short-term investments                          1,211         17,428
 Merchandise inventories                     1,534,439      1,340,432
 Receivables, net                              433,123        221,836
 Deferred income taxes                          47,374         75,261
 Prepaid expenses
  and other current assets                      67,192         51,150
  Total current assets                       2,173,503      2,064,100

Property and Equipment:
 Land and buildings                            309,326        231,378
 Leasehold improvements                        427,329        372,451
 Equipment                                     498,333        400,225
 Furniture and fixtures                        288,219        239,755
  Total property and equipment               1,523,207      1,243,809
 Less accumulated depreciation
  and amortization                             492,036        403,520
  Net property and equipment                 1,031,171        840,289

Other Assets:
 Lease acquisition costs,
  net of amortization                           70,613         75,127
 Investments                                    25,665           --
 Goodwill, net of amortization                 378,093        148,201
 Deferred income taxes                          31,335         28,735
 Other                                          25,265         22,814
  Total other assets                           530,971        274,877
                                           $ 3,735,645    $ 3,179,266

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
 Accounts payable                          $   935,855    $   794,427
 Accrued expenses and
  other current liabilities                    538,793        438,311
 Debt maturing within one year                  21,832         32,594
  Total current liabilities                  1,496,480      1,265,332

Long-Term Debt                                 492,910        205,015
Other Long-Term Obligations                     58,515         52,033
Stockholders' Equity:
 Preferred stock, $ 01
 par value-authorized
 5,000,000 shares;
 no shares issued                                 --             --
 Common stock, $ 0006
 par value-authorized
 1,500,000,000 shares;
 issued 467,201,085 at
 October 30, 1999 and
 461,538,061 shares
 at January 30, 1999                               280            277
 Additional paid-in capital                  1,109,883      1,043,194
 Cumulative foreign currency
  translation adjustments                       (9,791)       (11,675)
 Unrealized gain on investments                  1,138              7
 Retained earnings                             828,914        633,321
 Less: treasury stock at cost,
 10,269,153 shares at
 October 30, 1999 and 488,922
 shares at January 30, 1999                   (242,684)        (8,238)
  Total stockholders' equity                 1,687,740      1,656,886
                                           $ 3,735,645    $ 3,179,266

 See notes to consolidated financial statements.


                    STAPLES, INC. AND SUBSIDIARIES
                 Consolidated Statements of Cash Flows
                     (Dollar Amounts in Thousands)

                                                       (Unaudited)
                                                     39 Weeks Ended
                                               October 30, October 31,
                                                   1999        1998
Operating Activities:
 Net income                                      $ 195,592  $ 114,110
 Adjustments to reconcile net income to net cash
  used in operating activities:
  Minority interest                                   --         (135)
  Depreciation and amortization                    126,020     89,682
  Merger-related and integration costs                --       41,000
  Expense from 401K and PARS stock contribution     13,633      6,351
  Deferred income tax expense/(benefit)             24,630    (23,388)
  Change in assets and liabilities,
  net of companies acquired
  using purchase accounting:
  Increase in merchandise inventories             (150,260)  (177,353)
  Increase in receivables                         (184,997)   (74,394)
  (Increase)/Decrease in prepaid
   expenses and other assets                       (30,274)     4,501
  Increase in accounts payable, accrued
   expenses and other current liabilities          160,175    150,228
  Increase in other long-term obligations            5,146      7,267
                                                   (35,927)    23,759
Net cash provided by operating activities         159,665    137,869

Investing Activities:
 Acquisition of property and equipment            (251,114)  (254,140)
 Acquisition of businesses, net of cash acquired  (241,940)      --
 Proceeds from sales and maturities
  of short-term investments                         32,836     11,356
 Purchase of short-term investments                (16,651)    (6,899)
 Proceeds from sales and maturities
  of long-term investments                            --       18,995
 Purchase of long-term investments                 (23,756)    (2,545)
 Acquisition of lease rights                          (130)   (37,705)
 Other                                               2,170      2,994
 Net cash used in investing activities            (498,585)  (267,944)

Financing Activities:
 Proceeds from sale of capital stock                30,191     41,998
 Proceeds from borrowings                          745,501     26,171
 Payments on borrowings                           (470,164)   (53,598)
 Purchase of dissenting
  shareholder S-Corporation stock                     --      (48,102)
 Purchase of treasury stock                       (234,446)    (8,057)
 Dividends to shareholders
  of acquired S-Corp                                  --      (15,904)
 Net cash provided by/(used in)
  financing activities                              71,082    (57,492)

 Effect of exchange rate changes on cash                 9        124

Net decrease in cash and cash equivalents         (267,829)  (187,443)
Cash and cash equivalents at beginning of period   357,993    381,088
Cash and cash equivalents at end of period       $  90,164  $ 193,645

 See notes to consolidated financial statements.
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