Management's Discussion and Analysis of
Financial Condition and Results of Operations

Eleven Months Ended January 31, 1998 and February 1, 1997

Net Sales from Continuing Operations

Consolidated net sales increased 27.6% to $2,837,111,000 in the eleven months ended January 31, 1998 from $2,224,203,000 in the same eleven-month period in the prior year. Net sales for the Company's North America Office Products' segment increased 27.4% to $1,782,078,000 from $1,398,889,000 in the same eleven-month period in the prior year, primarily reflecting internal growth and 15 acquisitions completed in fiscal 1997 including the acquisition of DDI that was effective November 26, 1997. Net sales for the International Office Products segment increased 29.8% to $409,220,000 in the eleven months ended January 31, 1998 from $315,243,000 in the same eleven-month period in the prior year primarily reflecting acquisition revenue. The Company acquired ten International Office Product companies in fiscal 1997. Net sales for the Company's Desktop Software segment increased 38.5% to $392,750,000 in the eleven months ended January 31, 1998 from $283,624,000 in the same eleven-month period in the prior year, primarily reflecting internal growth. Net sales for Other Products and Services' segment increased 12.9% to $261,812,000 in the eleven months ended January 31, 1998 from $231,814,000 in the same eleven-month period in the prior year.

International operations accounted for 23.7% of total sales or $671,567,000 in the eleven-month period ended January 31, 1998 and 22.9% of total sales or $509,734,000 in the same eleven-month period in the prior year. The Company has expanded its international operations in Germany, Italy and Canada and entered markets in Ireland and Switzerland in the eleven months ended January 31, 1998.

Gross Profit from Continuing Operations

Cost of sales includes merchandise, occupancy and delivery costs. Consolidated gross profit as a percentage of sales was 24.0% for the eleven months ended January 31, 1998 compared to 23.8% for the same period in the prior year. The North America Office Products segment's gross profit percentage increased to 27.1% for the eleven months ended January 31, 1998 from 25.6% for the same period in the prior year reflecting increased vendor rebates as a result of improved programs. This gross profit increase was offset by lower International Office Product gross margins reflecting competitive pressures.

Warehouse Operating and Selling Expenses from Continuing Operations

Warehouse operating and selling expenses primarily include labor and administrative costs associated with operating regional warehouses and sales offices, selling expenses including commissions related to the Company's direct sales force, and warehouse consolidation and relocation costs and expenses. Warehouse operating and selling expenses decreased as a percentage of sales to 16.6% in the eleven months ended January 31, 1998 from 16.9% in the same eleven-month period in the prior year. This decrease is primarily attributable to the Company's efforts to leverage and streamline its operations, including the elimination of redundant facilities and positions.

Corporate General and Administrative Expenses from Continuing Operations

Corporate general and administrative expenses include expenses incurred to provide corporate oversight and support for regional operations and depreciation for the corresponding assets. Corporate general and administrative expenses increased to $71,325,000 in the eleven months ended January 31, 1998 from $58,005,000 in the eleven-month period in the prior year reflecting the Company's expanded operations. As a percentage of net sales, corporate general and administrative expenses decreased slightly to 2.5% from 2.6% of net sales.

Amortization of Intangibles from Continuing Operations

Intangibles amortization expense primarily reflects goodwill and capitalized software amortization expense. Amortization expense increased to $22,158,000 in the eleven months ended January 31, 1998 from $14,520,000 in the same eleven-month period in the prior year reflecting the Company's investment in its proprietary computer software applications and its acquisition activity.

Merger and Other Nonrecurring Charges from Continuing Operations

During the eleven-month period ended January 31, 1998, the Company recorded $11,337,000 in net merger and other nonrecurring charges including $4,485,000 of transaction costs incurred by DDI in connection with its merger with the Company and for the planned reduction of 295 employees and the closure of 25 facilities. During the eleven-month period ended February 1, 1997, the Company recorded $8,407,000 in net merger and other non-recurring charges primarily in conjunction with the acquisitions of NIMSA, Sofco, and HMI.

Operating Profit from Continuing Operations

Consolidated operating profit increased 47.2% to $104,789,000 or 3.7% of net sales for the eleven months ended January 31, 1998 compared to operating profit of $71,141,000 or 3.2% of net sales in the same period of the prior year. Before merger and other nonrecurring charges, operating profit increased 46.0% to $116,126,000 in the eleven months ended January 31, 1998 from $79,548,000 in the comparable prior period due largely to internal growth and improved operating efficiencies. Before merger and other nonrecurring charges, operating profit for the Company's North America Office Products segment increased 47.4% to $129,834,000, or 7.3% of related net sales in the eleven months ended January 31, 1998, from $88,072,000, or 6.3% of related net sales in the same eleven-month period in the prior year, primarily reflecting internal growth, acquisitions, enhanced vendor programs and improved operating efficiencies. Before merger and other nonrecurring charges, operating loss for the International Office Products segment increased 21.4% to $3,459,000, or 0.8% of related net sales in the eleven months ended January 31, 1998, from an operating loss of $2,849,000, or 0.9% of related net sales in the same eleven-month period in the prior year primarily reflecting improved performance in Australia, offset by an operating loss in the United Kingdom.

Before merger and other nonrecurring charges, operating profit for the Company's Desktop Software segment increased 49.5% to $28,234,000, or 7.2% of Desktop Software net sales for the eleven months ended January 31, 1998 from $18,891,000, or 6.6% of related net sales, in the same eleven-month period in the prior year reflecting internal growth. Before merger and other nonrecurring charges, operating profit for Other Products and Services' segment increased 12.4% to $13,014,000, or 5.0% of Other Products and Services' net sales for the eleven months ended January 31, 1998, from $11,581,000, or 5.0% of Other Products and Services' net sales in the same eleven-month period last year primarily reflecting an acquisition in the second quarter of fiscal 1997.

Before merger and nonrecurring charges, international operating profit increased 114.0% to 2.0% of international net sales from 1.2% of international net sales in the same eleven-month period in the prior year primarily reflecting expanded international operations and improved operating performance in Australia and Canada, partially offset by the United Kingdom operational loss.

Interest Expense from Continuing Operations

Net interest expense of $34,014,000 in the eleven months ended January 31, 1998 increased from $17,958,000 in the same eleven-month period in the prior year. This increase reflects increased borrowings under the Senior Credit Facility and the sale in June 1996 of $325,000,000 aggregate principal amount of the Company's 41/2% Convertible Notes due July 1, 2000 (the "Convertible Notes"). The proceeds from the sale of the Convertible Notes and borrowings under the Senior Credit Facility were used to fund acquisitions and provide additional working capital required as a result of increased business and for general corporate purposes.

Minority Interest

Minority interest income of $1,319,000 in the eleven months ended January 31, 1998 compares to income of $1,314,000 in the same eleven-month period in the prior year, reflecting a 47.6% minority interest in Corporate Express Australia and a 49.0% minority interest in Corporate Express United Kingdom through June 1997. The Company acquired a majority ownership interest in Corporate Express Australia in May 1995 and a majority ownership interest in Corporate Express United Kingdom in December 1995. In June 1997, the Company acquired the remaining 49.0% ownership interest in Corporate Express United Kingdom.

Discontinued Operations

Income from discontinued operations, net of tax, of $3,355,000 reflects the operating results of the same-day delivery business for the eleven months ended January 31, 1998 and compares to net income of $4,645,000 in the prior eleven-month period. These results reflect poor performance at several delivery locations and expenses related to integration projects partially offset by the cost savings from the elimination of redundant personnel.

Net Income

Net income of $44,404,000 in the eleven months ended January 31, 1998 increased 24.4% from net income of $35,707,000 in the same eleven-month period in the prior year. This increase reflects the increased profits from the Company's North America Office Products and Desktop Software operations, the lower merger and other nonrecurring charges recorded in the current eleven-month fiscal period and corporate expense leverage offset in part by higher goodwill amortization. The Company experienced an effective tax rate of 44.2% in the fiscal 1997 period compared to 44.0% in the same eleven-month period in the prior year. The tax rate for both periods reflects certain non-deductible merger costs and certain non-deductible goodwill.