Edgar Filing: LINENS N THINGS INC

As Filed Pursuant to Rule 424(b)(1)
Registration No. 333-89250

3,300,000 Shares

[LINENS 'N THINGS LOGO]
LINENS 'N THINGS, INC.

Common Stock
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We are selling 3,300,000 shares of common stock.

Our common stock is listed on The New York Stock Exchange under the symbol
"LIN." The last reported sale price on June 17, 2002 was $31.10 per share.

The underwriters have an option to purchase a maximum of 495,000 additional
shares to cover over-allotments of shares.

INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE 8.

UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS LINENS 'N THINGS
-------- ------------- ----------------

Per Share......................................... $30.90 $1.65 $29.25

Total............................................. $101,970,000 $5,445,000 $96,525,000

Delivery of the shares of common stock will be made on or about June 21,
2002.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

CREDIT SUISSE FIRST BOSTON

LEHMAN BROTHERS ROBERTSON STEPHENS

SUNTRUST ROBINSON HUMPHREY BNY CAPITAL MARKETS, INC.

The date of this prospectus is June 18, 2002.

[INSIDE FRONT COVER]

[ONE PICTURE OF STORE FRONT AND THREE PICTURES OF INSIDE OF STORE DISPLAYING
LINENS 'N THINGS PRODUCTS.]

PURPOSE

Our purpose is to make people's lives more enjoyable by making their homes
more beautiful, comfortable, organized and efficient.

TABLE OF CONTENTS

Page
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PROSPECTUS SUMMARY.................... 1
RISK FACTORS.......................... 8
FORWARD-LOOKING STATEMENTS............ 12
USE OF PROCEEDS....................... 13
PRICE RANGE OF COMMON STOCK........... 14
DIVIDEND POLICY....................... 14
CAPITALIZATION........................ 15
SELECTED CONSOLIDATED FINANCIAL AND
OTHER DATA.......................... 16
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 18
BUSINESS.............................. 26
MANAGEMENT............................ 33

Page
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PRINCIPAL STOCKHOLDERS................ 35
DESCRIPTION OF CAPITAL STOCK.......... 37
SHARES ELIGIBLE FOR FUTURE SALE....... 39
MATERIAL U.S. FEDERAL INCOME AND
ESTATE TAX CONSIDERATIONS FOR
NON-U.S. HOLDERS.................... 40
UNDERWRITING.......................... 44
NOTICE TO CANADIAN RESIDENTS.......... 46
LEGAL MATTERS......................... 47
INDEPENDENT PUBLIC ACCOUNTANTS........ 47
WHERE YOU CAN FIND MORE INFORMATION... 47
INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS.......................... F-1

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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.

LINENS 'N THINGS(R), LNT(R) AND LNT HOME(TM) ARE OUR TRADEMARKS AND SERVICE
MARKS. THIS PROSPECTUS ALSO INCLUDES TRADEMARKS, SERVICE MARKS AND TRADE NAMES
OWNED BY OTHER COMPANIES. ALL TRADEMARKS, SERVICE MARKS AND TRADE NAMES INCLUDED
IN THIS PROSPECTUS ARE THE PROPERTY OF THEIR RESPECTIVE OWNERS.

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(This page has been left blank intentionally.)

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and may not contain all the information that may be
important to you. You should read the entire prospectus, as well as the
information incorporated by reference, before making an investment decision.
When used in this prospectus, the terms "we," "our" and "us" refer to Linens 'n
Things, Inc. and its consolidated subsidiaries, unless otherwise specified.
Beginning with 1999, our fiscal year has consisted of the 52 or 53 weeks ending
on the Saturday nearest December 31 of each year. Prior to 1999, our fiscal year
was based on a calendar year. The 1999, 2000 and 2001 fiscal years were 52-week
years; the 2002 fiscal year is a 53-week year.

OUR BUSINESS

We are a leading, national home furnishings retailer selling fashion home
textiles, housewares and home accessories in a superstore format. We believe we
have distinguished ourselves through our broad selection of high quality, brand
name home furnishings offered at exceptional everyday values and our
knowledgeable and guest-friendly service. Our target customer, or guest, is a
woman between the ages of 25 and 55 who is fashion and brand conscious, has a
good to better income, and focuses on the home as a reflection of her
individuality.

We are committed to providing our guests with a one-stop shopping
destination for their home furnishings needs by offering a broad and deep
selection of high quality brand name "linens" (bedding, towels, window
treatments and table linens) and "things" (housewares, home and decorative
accessories and seasonal items) with a "won't be undersold" everyday low pricing
strategy. Our stores carry over 25,000 stock keeping units, or SKUs. Nationally
recognized brand names we sell include All-Clad, Braun, Calphalon, Croscill,
Cuisinart, Henckels, Krups, Laura Ashley, Nautica Home, OXO, Royal Velvet,
Wamsutta, Waverly and Yankee Candle. We also sell merchandise under our own
private label, which complements our offering of brand name products by
combining quality and value in a range of product offerings.

From our founding in 1975 through the late 1980's, we operated a chain of
stores ranging from 7,500 to 10,000 gross square feet in size. In 1990, we
introduced our superstore format, which features an efficient racetrack layout
and currently averages 35,000 gross square feet. We have developed various store
size formats, generally ranging from 25,000 to 50,000 gross square feet, which
allow us flexibility to match the size of our stores with the market potential
of each location. From 1990 through 1998, we closed most of our smaller format
stores and implemented the superstore format in our new stores. Our stores are
located predominantly in power strip centers adjacent to complementary
broad-based retail chains.

As of March 30, 2002, we operated 337 stores in 43 states and 11 stores in
four Canadian provinces. In 2001, we generated $1.8 billion in revenues and
$134.4 million of adjusted EBITDA (EBITDA adjusted to reflect the elimination of
$41.8 million in pre-tax non-comparable charges we recorded in 2001). We have
grown revenues and adjusted EBITDA at compound annual growth rates of 21.2% and
24.3%, respectively, since 1996.

We estimate that we have a 2 1/2% share of the approximately $70 billion
portion of the U.S. home furnishings market in which we operate. We believe this
market is highly fragmented and under-penetrated by the fast-growing specialty
retail segment of which we are a part. This affords us significant opportunity
to grow our market share by further penetrating those geographic markets in
which we currently operate and by expanding into additional geographic markets
where we now have little or no presence.

OUR COMPETITIVE STRENGTHS

brand selection than traditional retailers that sell home furnishings. We carry
virtually all of the national home furnishings brand names carried by major
department stores, as well as many other products and brands. Many national
brands we carry are not available at mass merchandisers or off-price retailers.
Our everyday low price strategy is to set our prices below regular department
store prices and comparable with or slightly below department store sale prices.
We believe these strategies enhance our reputation as a value leader and build
guest loyalty, while providing a one-stop shopping destination for our guests'
home furnishings needs.

WE PROVIDE SUPERIOR GUEST SERVICE AND SHOPPING CONVENIENCE. Our mission is
to exceed our guests' expectations in every store, every day. To enhance guest
satisfaction and loyalty, we strive to provide knowledgeable sales assistance
and enthusiastic guest service. We offer competitive wages and on-going training
and personnel development in order to attract and retain qualified, motivated
employees committed to providing superior service. Our stores feature a
racetrack layout, enabling the guest to visualize and purchase fully coordinated
and accessorized ensembles. Our store format saves our guests time by having
merchandise visible and accessible on the selling floor. We have a toll-free
guest service line to respond to guest inquiries and to take orders for
products, and in 2001 we expanded our e-commerce capability to feature over
10,000 SKUs through our web site.

WE HAVE DEVELOPED HIGHLY INTEGRATED INVENTORY AND SUPPLY CHAIN
MANAGEMENT. We operate highly integrated inventory and supply chain systems.
Our centralized merchandising management team continually develops and refines
product assortment and utilizes an automated replenishment system to maintain
in-stock positions of core products in our stores. We are in the process of
expanding the authority of individual store managers to influence their in-stock
position and to make local decisions on inventory as a means of supplementing
our centralized replenishment strategy. Our centralized distribution network
enables us to process and ship merchandise to our stores quickly and
efficiently. Operating our own distribution centers has reduced our average
freight expense and improved our information flow. In addition, it has reduced
back-room tasks at the store level, allowing us to re-deploy resources to the
selling floor.

WE HAVE AN EXPERIENCED SENIOR MANAGEMENT TEAM WITH A PROVEN TRACK
RECORD. The nine members of our senior management team have an average of more
than eight years experience with us and more than 17 years in the retail
industry. During the latter half of 2001, we made a number of key changes and
additions to our senior management team. We hired a new chief merchandising
officer with 25 years of experience in retail. We also hired a new chief
information officer and promoted two of our key managers to lead our store
operations and our supply chain operations. We believe that the breadth and
strength of our senior management will contribute to our ability to continue to
grow our company successfully.

OUR GROWTH STRATEGY

Our growth strategy is to continue to expand our store base, while
enhancing our operating performance through increased comparable store sales,
improved operating margins and greater operating efficiency.

CONTINUE EXPANDING OUR STORE BASE. Through a disciplined store opening
program, we plan to increase our market share in our existing geographic markets
and to penetrate new geographic markets where we believe we can become a leading
operator of specialty home furnishing stores. From the end of 1996 to the end of
2001, we increased our gross square footage at a 20.4% compound annual growth
rate to approximately 12 million square feet by growing our store base from 169
stores to 343 stores. During 2002, we expect to open approximately 50 new
stores, seven of which were open as of March 30, 2002. We believe the superstore
concept contributes to the growth of the home furnishings market and that
significant opportunity exists to expand our footprint and capture market share.
We select markets for new stores based on demographic factors such as income
levels, population and number of households. We generally seek to operate stores
in geographic trading areas with approximately 200,000 people within a ten-mile
radius and with demographic characteristics that match our target profile.
Because of our flexible store size format, we are also able to enter into and
operate in smaller markets where specialty home
2

furnishing retailers are often under-represented. Based on our criteria for
targeting new store opportunities, we believe the potential exists to more than
double our current number of stores.

INCREASE OUR COMPARABLE STORE SALES. We intend to increase our comparable
store sales by attracting more first-time guests to our stores, and by
increasing the frequency of visits per guest and the dollar amount of each guest
transaction. We believe that the best method to accomplish these goals is to
improve upon and emphasize our reputation as a superior one-stop shopping
destination for home furnishings. We continually introduce new merchandise
categories to create a varied product portfolio that we believe will attract new
guests and increase guest visits. For example, in 2001, we introduced specialty
foods, casual furniture and seasonal outdoor furniture. We also improved and
expanded our selection of wall decor and decorative accessories. In 2001, we
added Yankee Candle and Nautica Home to our already powerful brand name line-up.
We periodically re-style our stores to incorporate new merchandise offerings and
to emphasize our fastest growing product categories.

In addition to offering a wide selection of brand name merchandise, we have
been increasing our sales of proprietary merchandise that is manufactured
exclusively for us, most of which we sell under our LNT Home label. Our guests
have responded well to the value and quality of our proprietary offerings, sales
of which have more than doubled in the last five years and which exceeded 10% of
our total sales in 2001. Most of this merchandise has filled categories not well
served by national brands such as specialty bedding and seasonal products. We
believe the LNT Home name promotes brand awareness and guest loyalty, further
enhancing our comparable store sales.

EXPAND OUR OPERATING MARGIN AND IMPROVE EFFICIENCY. We are committed to
increasing our operating margin by improving our gross margin and by leveraging
our selling, general and administrative, or SG&A, expenses. We believe there are
opportunities to increase gross margin by maximizing our purchasing power,
increasing the penetration of our proprietary merchandise and optimizing the use
of our centralized distribution network and management information systems. We
anticipate that these improvements to gross margin will be partially offset by
initiatives to increase comparable store sales. Our investments in centralized
distribution and in-store technology have resulted in more efficient inventory
procedures at the store level, enabling our sales associates to better service
our guests. We believe that capitalizing on these opportunities will allow us to
maintain low operating costs and improve operating efficiencies. Overall, we
believe that our operating margin can improve through leveraging our SG&A cost
structure as we continue to grow our store base and seek to increase comparable
store sales.

RECENT INITIATIVES

During the fourth quarter of 2001, we formulated certain strategic
initiatives designed to improve operating performance and profitability. In
December 2001, we committed to the accelerated closing of 17 stores that did not
meet our performance objectives. These 17 stores generated approximately 4% of
our net sales in 2001 and are geographically dispersed. In the first quarter of
2002, we began implementing our store closing plan, which included notifying
third-party landlords and initiating negotiations and discussions for the early
termination of leases which had expiration dates beyond one year. The first of
these stores was closed in February 2002, and we expect to close most of these
stores by the end of 2002, or shortly thereafter.

In addition, we have undertaken specific initiatives designed to strengthen
our comparable store sales:

- We are upgrading our core textile offerings and expanding our selection
of specialty textile products while increasing marketing support for our
textile lines.

- We are improving our in-stock position through increased investment in
core merchandise and enhancements to our inventory management system. We
are also giving our store managers increased control over their inventory
position to enable them to better respond to local trends.

- We are making additional investments in guest service by increasing
selling floor hours by approximately 10%, re-directing the focus of our
sales associates more toward the guest, and expanding our sales associate
training program.
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We are a Delaware corporation with principal executive offices located at 6
Brighton Road, Clifton, New Jersey 07015. Our telephone number at that address
is (973)778-1300. We maintain a web site at www.lnt.com.

We are not incorporating by reference in this prospectus any material from
our web site. The reference to our web site is an inactive textual reference to
the uniform resource locator (URL) and is for your reference only.
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Store numbers and square footage shown in this prospectus as of a
particular date reflect all stores open on that date, including stores
identified for closing pursuant to our store closing plan.

THE OFFERING

Common stock offered by us.... 3,300,000 shares

Over-allotment option granted
by us......................... 495,000 shares

Common stock outstanding after
this offering................. 44,011,868 shares

Use of proceeds............... We plan to use the net proceeds from this
offering to repay outstanding balances under
our revolving credit facility and additional
lines of credit for our U.S. operations, and
any remainder for general corporate purposes.

NYSE symbol................... "LIN"

Unless we otherwise indicate, all share information in this prospectus is
based on the number of shares of our common stock outstanding as of April 30,
2002, and excludes 4,365,603 shares subject to options granted to certain
officers, directors and employees (at a weighted average exercise price of
$23.02 per share) and 122,458 shares of restricted stock units granted to
certain officers and directors pursuant to our equity compensation plans.

Unless we otherwise indicate, the information in this prospectus does not
take into account the sale of up to 495,000 shares of common stock which the
underwriters have the option to purchase from us to cover over-allotments.

SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA

The following tables present our summary consolidated financial and other
data. The Statement of Operations Data and Cash Flow Data for the fiscal years
ended January 1, 2000, December 30, 2000 and December 29, 2001 and the Balance
Sheet Data as of December 30, 2000 and December 29, 2001 have been derived from
our audited consolidated financial statements which appear elsewhere in this
prospectus. The Balance Sheet Data as of January 1, 2000 is derived from our
audited consolidated financial statements not presented herein. The Statement of
Operations Data, Cash Flow Data and Balance Sheet Data as of and for the
thirteen weeks ended March 31, 2001 and March 30, 2002 are derived from our
unaudited consolidated financial statements which appear elsewhere in this
prospectus. The unaudited consolidated financial statements include all
adjustments, consisting of only normal recurring adjustments, necessary to state
fairly the data included therein in accordance with generally accepted
accounting principles. Interim results may not be indicative of results for the
remainder of the year. The selected historical financial data may not be
indicative of our future performance. The financial data should be read in
connection with "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this prospectus. Beginning with
1999, our fiscal year has consisted of the 52 or 53 weeks ending the Saturday
nearest December 31 of each year. Prior to 1999, our fiscal year was based on a
calendar year. The 1999, 2000 and 2001 fiscal years were 52-week years; the 2002
fiscal year is a 53-week year.

FISCAL YEAR ENDED THIRTEEN WEEKS ENDED
---------------------------------------- -------------------------
JANUARY 1, DECEMBER 30, DECEMBER 29, MARCH 31, MARCH 30,
2000 2000 2001(1) 2001 2002
---------- ------------ ------------ ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)

STATEMENT OF OPERATIONS DATA:
Net sales..................................... $1,300,632 $1,572,576 $1,823,803 $379,245 $456,911
Cost of sales, including buying and
distribution costs.......................... 772,453 929,305 1,081,259 228,543 275,712
---------- ---------- ---------- -------- --------
Gross profit.................................. 528,179 643,271 742,544 150,702 181,199
Selling, general and administrative
expenses.................................... 443,627 536,179 652,058 142,535 172,204
Restructuring and asset impairment charge..... -- -- 34,006 -- --
Litigation charge............................. -- -- 4,000 -- --
---------- ---------- ---------- -------- --------
Operating profit.............................. 84,552 107,092 52,480 8,167 8,995

Interest income............................... (368) (198) (27) (27) (4)
Interest expense.............................. 411 2,139 3,897 597 679
---------- ---------- ---------- -------- --------
Interest expense, net......................... 43 1,941 3,870 570 675
---------- ---------- ---------- -------- --------
Income before income taxes.................... 84,509 105,151 48,610 7,597 8,320
Provision for income taxes.................... 32,457 40,214 18,861 2,904 3,180
---------- ---------- ---------- -------- --------
Net income.................................... $ 52,052 $ 64,937 $ 29,749 $ 4,693 $ 5,140
========== ========== ========== ======== ========
Earnings per share -- Basic................... $ 1.32 $ 1.63 $ 0.73 $ 0.12 $ 0.13
========== ========== ========== ======== ========
Earnings per share -- Diluted................. $ 1.27 $ 1.60 $ 0.72 $ 0.11 $ 0.12
========== ========== ========== ======== ========
Weighted-average shares outstanding --Basic... 39,339 39,785 40,508 40,335 40,645
========== ========== ========== ======== ========
Weighted-average shares
outstanding -- Diluted...................... 40,907 40,712 41,193 41,325 41,703
========== ========== ========== ======== ========
SUPPLEMENTAL EARNINGS PER SHARE DATA:
Diluted earnings per share before
non-comparable items(2)..................... $ 1.27 $ 1.60 $ 1.36 $ 0.11 $ 0.12
========== ========== ========== ======== ========

FISCAL YEAR ENDED THIRTEEN WEEKS ENDED
---------------------------------------- -------------------------
JANUARY 1, DECEMBER 30, DECEMBER 29, MARCH 31, MARCH 30,
2000 2000 2001(1) 2001 2002
(DOLLARS IN THOUSANDS) ---------- ------------ ------------ ----------- -----------
(UNAUDITED)

CASH FLOW DATA:
Net cash flows from (used in) operating
activities.................................. $ 69,577 $ 54,119 $ 44,258 $(45,096) $ 2,019
Net cash flows used in investing activities... (70,129) (70,405) (100,028) (18,588) (25,742)
Net cash flows from financing activities...... 3,665 9,183 32,689 28,587 18,352

BALANCE SHEET DATA (AS OF END OF PERIOD):
Cash and cash equivalents..................... $ 45,751 $ 38,524 $ 15,437 $ 3,502 $ 10,064
Working capital............................... 181,380 226,694 228,078 232,806 217,811
Total assets.................................. 679,916 821,557 927,439 836,827 984,789
Total debt.................................... -- 3,903 29,675 27,321 47,094
Shareholders' equity.......................... 383,962 458,994 498,215 471,960 504,433

OTHER DATA:
Gross profit margin........................... 40.6% 40.9% 40.7% 39.7% 39.7%
EBITDA(3)..................................... $ 111,073 $ 139,524 $ 92,593 $ 17,561 $ 19,448
Adjusted EBITDA(4)............................ 111,073 139,524 134,430 17,561 19,448
Total gross square footage (000's)............ 7,925 9,836 11,980 10,238 12,208
Number of stores (at end of period)........... 230 283 343 293 348
Increase (decrease) in comparable store net
sales(5).................................... 5.4% 3.7% (2.4)% (1.8)% 2.6%

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(1) 2001 operating results include a pre-tax restructuring and asset impairment
charge of $37.8 million ($23.7 million after-tax), of which $34.0 million is
included as restructuring and asset impairment charge and $3.8 million is
recorded in cost of sales, and a pre-tax charge of $4.0 million ($2.5
million after-tax) related to the settlement of litigation in California.

(2) 2001 supplemental earnings per share data excludes pre-tax non-comparable
items of $41.8 million ($26.2 million after-tax), or $0.64 per common share
on a diluted basis.

(3) EBITDA represents earnings before net interest expense, income taxes,
depreciation and amortization. EBITDA is presented because management
believes it is a widely accepted financial indicator used by certain
investors and analysts to analyze and compare companies on the basis of
operating performance. EBITDA as presented may not be comparable to
similarly titled measures reported by other companies since not all
companies necessarily calculate EBITDA in an identical manner and,
therefore, it is not necessarily an accurate means of comparison between
companies. EBITDA is not intended to represent cash flows for the period or
funds available for management's discretionary use, nor has it been
represented as an alternative to operating income as an indicator of
operating performance. EBITDA should not be considered in isolation or as a
substitute for other measures of performance or cash flows prepared in
accordance with generally accepted accounting principles.

(4) Adjusted EBITDA represents EBITDA adjusted to eliminate the following
non-comparable charges: (a) the $37.8 million restructuring and asset
impairment charge in the fourth quarter of 2001 and (b) the $4.0 million
litigation charge in the second quarter of 2001.

(5) Comparable store percentages are based on net sales, and stores are
considered comparable beginning on the first day of the month following the
13th full month of sales.

RISK FACTORS

The value of an investment in our common stock will be subject to
significant risks inherent in our business. You should carefully consider the
risks and uncertainties described below, together with all of the other
information included in this prospectus, before purchasing our common stock.

RISKS RELATED TO OUR BUSINESS

WE MAY NOT BE SUCCESSFUL IN OPENING AND OPERATING NEW STORES PROFITABLY.

We plan to open a significant number of new stores as part of our growth
strategy. From the end of 1996 through the end of 2001, we increased the number
of our stores from 169 to 343. In 2002, we expect to open approximately 50 new
stores. There are many risks inherent in our store expansion strategy, and we
cannot assure you that we will be able to achieve our expansion goals. Our
ability to grow our store base and operate our new stores profitably will be
affected by many factors, including:

- our ability to identify and secure favorable sites for our new stores in
well-trafficked areas and to negotiate satisfactory rent and other lease
terms;

- the competition for favorable store sites;

- the presence of other complementary retail outlets at the locations where
we open our new stores;

- the proximity of our competitors' stores;

- the impact on sales at our existing stores if we locate new stores in the
same market;

- our ability to invest in and expand our distribution, information
technology, management and logistics infrastructure to support a
continually increasing store base;

- our ability to attract and retain good and experienced store managers and
store personnel for our new stores; and

- acceptance of our new stores in markets where we have limited or no
existing presence.

We cannot assure you that our new stores will meet our internal financial
operating targets or that we will be able to operate our new stores profitably.
We also cannot assure you that the operating results of our new stores will be
comparable to the operating results of our existing stores.

We first opened stores in Canada in 2000, and as of March 30, 2002 we
operated 11 stores in four provinces. This market has different competitive
conditions, customer preferences and spending patterns than our existing markets
in the United States, which may cause our new stores in Canada to be less
productive than our existing U.S. stores.

COMPETITIVE FACTORS COULD REDUCE OUR SALES AND PROFITABILITY.

The market for home textiles, housewares and home accessories is highly
fragmented and intensely competitive. We compete with many different types of
retailers, including department stores, mass merchandisers and discounters,
specialty retail stores, mail order and other retailers. Some of our competitors
sell many of the same products and brands that we sell. Many of our competitors
have substantially greater financial and other resources, including, in some
cases, more profitable store economics or better name recognition. Increased
competition by existing or future competitors, including aggressive price
competition, could result in the need to reduce our prices or increase our
spending and could result in a decrease in our sales and profitability and
require a change in our operating strategies.

DUE TO THE SEASONALITY OF OUR BUSINESS, OUR ANNUAL RESULTS WOULD BE ADVERSELY
AFFECTED IF OUR SALES DURING THE FOURTH QUARTER WERE SUBSTANTIALLY BELOW
EXPECTATIONS.

Our business is subject to substantial seasonal variations. Historically,
we have realized a significant portion of our net sales and substantially all of
our earnings for the year during the third and fourth quarters, with a majority
of sales and earnings for these quarters realized in the fourth quarter. During
2001, approximately 32% of our sales and 57% of our net income (prior to
after-tax non-comparable charges of $2.5 million in the second quarter and $23.7
million in the fourth quarter) were generated in the fourth quarter. Our
quarterly results of operations may also fluctuate significantly as a result of
a variety of other factors, including the timing of new store openings, holiday
spending patterns and general economic conditions. We believe this is the
typical pattern associated with our segment of the retail industry, and we
expect this pattern will continue in the future. In anticipation of our peak
selling season, we substantially increase our inventory levels and hire a
significant number of part-time employees. If for any reason our sales during
the fourth quarter were substantially below expectations, our results of
operations for the full year would be materially adversely affected.

WEAK ECONOMIC CONDITIONS MAY SIGNIFICANTLY IMPACT DISCRETIONARY CONSUMER
SPENDING AND REDUCE OUR SALES AND PROFITABILITY.

Most of the products we sell are not consumer necessities. Purchases of our
merchandise are largely dependent upon discretionary spending by our guests. A
number of external economic factors affect the purchases by our guests of the
type of merchandise we offer, including:

- consumer confidence in future economic conditions;

- unemployment levels;

- general economic and business conditions;

- interest rates; and

- hostilities and acts of terrorism around the world.

Decreases in consumer confidence and consumer spending could adversely
impact our sales and results of operations. Reduced consumer spending may also
require increased markdowns and increased promotional expenses, which would
adversely impact our results of operations.

DECREASES IN OUR COMPARABLE STORE SALES MAY ADVERSELY AFFECT OUR RESULTS OF
OPERATIONS.

We currently publicly report comparable store sales on an annual and
quarterly basis. Our comparable store sales have fluctuated in the past on both
an annual and quarterly basis, and we expect that this will continue in the
future. A variety of factors affect comparable store sales, including:

- calendar shifts in holiday periods;

- our sales events and other promotional activities;

- changes in merchandise mix;

- guest acceptance of our regular and seasonal merchandise selections;

- sales and other promotional events sponsored by our competitors; and

- weather conditions.

The fluctuations in our comparable store sales may significantly affect our
results of operations from quarter to quarter, and decreases in comparable store
sales could have a material adverse effect on our results of operations.

THE LOSS OF THE SERVICES OF ONE OR MORE OF OUR SENIOR EXECUTIVES COULD ADVERSELY
AFFECT OUR FINANCIAL PERFORMANCE AND OUR GROWTH.

Our success is largely dependent on the efforts and abilities of our senior
executive group. The loss of the services of one or more of our key executives
could adversely impact our financial performance and our ability to execute our
growth strategy.

A DISRUPTION IN THE OPERATION OF OUR DISTRIBUTION CENTERS WOULD IMPACT OUR
ABILITY TO DELIVER MERCHANDISE TO OUR STORES, WHICH COULD ADVERSELY IMPACT OUR
SALES AND OUR RESULTS OF OPERATIONS.

Our inventory is generally shipped by our suppliers to one of our three
distribution centers, which are located in Greensboro, North Carolina,
Swedesboro, New Jersey and, beginning in the second quarter 2002, Shepardsville,
Kentucky. At our distribution centers, the merchandise is processed, sorted and
shipped to our stores. Events such as fire or other catastrophic events, any
malfunction or disruption of our centralized information systems, or shipping
problems may result in delays or disruptions in the timely distribution of
merchandise to our stores, which could adversely impact our sales and our
results of operations.

OUR OPERATIONS AND GROWTH DEPEND ON EXTERNAL FUNDING SOURCES THAT MAY NOT BE
AVAILABLE ON FAVORABLE TERMS.

Our normal operations and our growth require adequate capital, the
availability of which depends on our ability to generate cash flow from
operations, borrow funds on satisfactory terms and raise funds in the capital
markets. We may need additional capital at various times to fund our working
capital needs and our growth. Our inability to obtain adequate capital on
favorable terms could have an adverse effect on our results of operations and on
our growth.

WE RELY HEAVILY ON OUR MANAGEMENT INFORMATION SYSTEMS AND ANY PROBLEMS WITH
THOSE SYSTEMS COULD IMPACT OUR FLOW OF PRODUCT AND INFORMATION AND ADVERSELY
AFFECT OUR OPERATING PRODUCTIVITY AND RESULTS OF OPERATIONS.

We rely upon our existing management information systems in operating and
monitoring all aspects of our business, including sales, warehousing,
distribution, purchasing, inventory control, merchandise planning and
replenishment, and our financial systems. The bulk of our management information
systems are centrally located at our headquarters, with offsite backup at other
locations. Any extended disruption in the operation of our management
information systems, or our failure to continue to invest in and upgrade,
integrate and spend capital on our information systems infrastructure as our
business and store base expands, could have an adverse effect on operating
productivity and results of operations.

A DISRUPTION IN THE MANUFACTURE OR DELIVERY TO US OF GOODS BY FOREIGN VENDORS
COULD DECREASE OUR SALES AND PROFITABILITY.

A significant portion of our merchandise is currently sourced by us or by
our domestic suppliers from foreign vendors. Although we believe substitute
merchandise would be available to us, a disruption or increase in the cost of
the manufacture or shipment to us of foreign-sourced products could decrease our
sales and profitability. Factors that may affect the manufacture or shipment to
us of imported merchandise include:

- political unrest, terrorist activities, war or other hostilities;

- strikes and labor problems;

- economic upheaval;

- import duties and quotas; and

- loss or change in "most favored nation" status of the United States with
a particular foreign country.
10

OUR PROFITABILITY WOULD BE ADVERSELY AFFECTED IF OUR MERCHANDISE SELECTIONS DO
NOT MATCH THE PURCHASING PREFERENCES OF OUR GUESTS.

The retail industry is subject to changing merchandise trends and consumer
preferences. We cannot assure you that our merchandise selections will
accurately reflect the preferences of our guests at any given time. If we
miscalculate the market for our merchandise or the purchasing preferences of our
guests, we may be required to sell a significant amount of our inventory at
discounted prices or even below cost, adversely affecting our profitability.

OUR RECENTLY ANNOUNCED STORE CLOSINGS MAY COST MORE THAN WE ANTICIPATE.

In December 2001, we committed to the accelerated closing of 17
under-performing stores. In the first quarter of 2002, we began implementing our
store closing plan, which included notifying third-party landlords and
initiating negotiations and discussions for early termination of leases which
had expiration dates beyond one year. The average remaining lease term for the
17 stores is approximately seven years. The first of these stores was closed in
February 2002 and we expect to close most of these stores by the end of 2002, or
shortly thereafter. We cannot assure you that the costs for these store closings
will not exceed the amounts that we have estimated.

RISKS RELATING TO OWNING OUR COMMON STOCK

THE MARKET PRICE OF OUR COMMON STOCK MAY BE VOLATILE AND COULD DECLINE
SIGNIFICANTLY.

Stocks of many public companies that have not met their targeted goals or
the expectations of the public market analysts or investors have suffered
substantial price declines. Our results of operations in future periods may be
below our goals or the market's expectations. If this happens, the price of our
common stock could decline significantly. The stock market in recent years has
also experienced substantial price and volume volatility which has often been
unrelated to the operating performance of companies, including changes in market
valuations of companies in the home furnishings industry. These factors, as well
as general economic and market conditions, may adversely affect the market price
of our common stock. See "Price Range of Common Stock."

WE HAVE CHARTER AND BYLAW PROVISIONS THAT COULD DELAY OR PREVENT A CHANGE IN
CONTROL, EVEN IF IT WOULD BE BENEFICIAL TO YOU.

Our certificate of incorporation, bylaws and Delaware corporate law contain
provisions that could delay, prevent or deter a merger, acquisition, tender
offer, proxy contest or other transaction that might otherwise result in our
stockholders receiving a premium over the market price for their common stock
and which could depress the market price of our common stock. In addition,
certain of these provisions could delay or make more difficult the removal of
incumbent directors. See "Description of Capital Stock."

FORWARD-LOOKING STATEMENTS

Certain statements contained in or incorporated by reference in this
prospectus are forward-looking statements within the meaning of The Private
Securities Litigation Reform Act of 1995. The statements appear in a number of
places in this prospectus and the documents incorporated herein by reference and
may be identified by such forward-looking terminology as "anticipate,"
"estimate," "expect," "believe," "may," "will," "could," "intend," "plan,"
"target" and similar terms or variations of such terms. All information and
statements regarding our outlook for the future constitute forward-looking
statements. All our forward-looking statements are based on our current
expectations, assumptions, estimates and projections and involve certain
significant risks and uncertainties. Actual results may differ materially from
the forward-looking statements contained in or incorporated by reference in this
prospectus. Important factors that may cause actual results to differ materially
from such forward-looking statements are included in the "Risk Factors" section
of this prospectus, as well as in the periodic reports we file with the SEC. You
are urged to consider all such factors. In light of the uncertainty inherent in
these forward-looking statements, you should not consider their inclusion to be
a representation that these forward-looking matters will be achieved. We assume
no obligation to update any of these forward-looking statements to reflect
actual results, changes in assumptions or changes in other factors affecting
these forward-looking statements.

USE OF PROCEEDS

We estimate that the net proceeds from this offering will be approximately
$96.1 million after deducting the underwriting discounts and commissions and
estimated offering expenses. If the underwriters' over-allotment option is
exercised in full, we estimate that the net proceeds from this offering will be
approximately $110.6 million after deducting the underwriting discounts and
commissions and estimated offering expenses. We intend to use the net proceeds
of this offering to repay outstanding balances under our revolving credit
facility and additional lines of credit for our U.S. operations. We intend to
use the remaining proceeds, if any, for general corporate purposes. As of May
24, 2002, the aggregate outstanding balance under our revolving credit facility
and additional lines of credit for our U.S. operations was approximately $109.1
million, bearing interest at a blended annual rate of 2.4%. For more
information, see "Capitalization." Pending the application of the net proceeds
from this offering, we expect to invest the net proceeds in short-term
interest-bearing securities.

PRICE RANGE OF COMMON STOCK

Our common stock is listed and traded on the New York Stock Exchange under
the symbol "LIN." The following table sets forth the high and low sales prices
per share of our common stock on the New York Stock Exchange for the fiscal
quarterly periods presented below.

HIGH LOW
2000 ------ ------

First Quarter............................................... $34.38 $17.94
Second Quarter.............................................. $35.94 $23.19
Third Quarter............................................... $36.38 $23.88
Fourth Quarter.............................................. $33.50 $20.00
2001
First Quarter............................................... $37.88 $24.81
Second Quarter.............................................. $32.76 $24.00
Third Quarter............................................... $28.16 $17.37
Fourth Quarter.............................................. $25.91 $17.72
2002
First Quarter............................................... $32.55 $24.17
Second Quarter (through June 17, 2002)...................... $37.35 $28.60

The closing sale price of our common stock on June 17, 2002 was $31.10. As
of April 30, 2002 there were 387 holders of record of our common stock. This
does not reflect persons or entities who hold their stock in nominee or "street"
name through various brokerage firms.

DIVIDEND POLICY

We have never declared or paid any cash dividends on our common stock. We
currently intend to retain all earnings for the operation and expansion of our
business and do not anticipate paying any dividends on our common stock in the
foreseeable future. Our credit facility currently limits our ability to pay
dividends.

CAPITALIZATION

The following table sets forth our consolidated capitalization as of March
30, 2002:

- on an actual basis; and

- as adjusted to reflect the net proceeds from the sale of 3,300,000 shares
of our common stock in this offering and the application of the net
proceeds to repay outstanding balances under our revolving credit
facility and additional lines of credit for our U.S. operations.

You should read this table in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and our consolidated
financial statements and the related notes and the other financial information
included in this prospectus.

AS OF MARCH 30, 2002
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)

Cash and cash equivalents................................... $ 10,064 $ 70,269
Short-term debt(1)(2)....................................... 47,094 11,154
Shareholders' equity:
Preferred stock, $0.01 par value; 1,000,000 shares
authorized; none issued and outstanding................ -- --
Common stock, $0.01 par value; 135,000,000 shares
authorized; 40,923,574 shares issued and 40,674,378
shares outstanding..................................... 409 442
Additional paid-in capital................................ 246,350 342,462
Retained earnings......................................... 265,075 265,075
Accumulated other comprehensive loss...................... (412) (412)
Treasury stock, at cost; 249,196 shares................... (6,989) (6,989)
-------- --------
Total shareholders' equity............................. 504,433 600,578
-------- --------
Total capitalization................................. $551,527 $611,732
======== ========

---------------
(1) In addition to this short-term debt, as of March 30, 2002, we are committed
to future minimum rental payments, excluding lease obligations for closed
stores and stores planned to be closed, which aggregate approximately $2.1
billion. We also have fully executed leases for stores planned to open in
2002 and 2003, which are not included above.

(2) Our short-term borrowings outstanding fluctuate and reflect the seasonal
nature of our business. As of March 30, 2002, the aggregate outstanding
balance under our revolving credit facility and additional lines of credit
for our U.S. operations was $35.9 million, and the outstanding balance of
borrowings for our Canadian operations from additional lines of credit was
$11.2 million. We do not anticipate using any of the net proceeds from this
offering to repay borrowings from additional lines of credit for our
Canadian operations.

SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

The following tables present our selected consolidated financial and other
data. The Statement of Operations Data and Cash Flow Data for the fiscal years
ended January 1, 2000, December 30, 2000 and December 29, 2001 and the Balance
Sheet Data as of December 30, 2000 and December 29, 2001 have been derived from
our audited consolidated financial statements which appear elsewhere in this
prospectus. The Statement of Operations Data and Cash Flow Data for the fiscal
year ended December 31, 1997 and December 31, 1998 and the Balance Sheet Data as
of December 31, 1997, December 31, 1998 and January 1, 2000 have been derived
from our audited consolidated financial statements which are not included
herein. The Statement of Operations Data, Cash Flow Data and Balance Sheet Data
as of and for the thirteen weeks ended March 31, 2001 and March 30, 2002 are
derived from our unaudited consolidated financial statements which appear
elsewhere in this prospectus. The unaudited consolidated financial statements
include all adjustments, consisting of only normal recurring adjustments,
necessary to state fairly the data included therein in accordance with generally
accepted accounting principles. Interim results may not be indicative of results
for the remainder of the year. The selected historical financial data may not be
indicative of our future performance. The financial data should be read in
connection with "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this prospectus. Beginning with
1999, our fiscal year has consisted of the 52 or 53 weeks ending the Saturday
nearest December 31 of each year. Prior to 1999, our fiscal year was based on a
calendar year. The 1999, 2000 and 2001 fiscal years were 52-week years; the 2002
fiscal year is a 53-week year.

FISCAL YEAR ENDED THIRTEEN WEEKS ENDED
---------------------------------------------------------------------- -------------------------
DECEMBER 31, DECEMBER 31, JANUARY 1, DECEMBER 30, DECEMBER 29, MARCH 31, MARCH 30,
1997 1998 2000 2000 2001(1) 2001 2002
(IN THOUSANDS, EXCEPT PER ------------ ------------ ---------- ------------ ------------ ----------- -----------
SHARE DATA) (UNAUDITED)

STATEMENT OF OPERATIONS
DATA:
Net sales................. $874,224 $1,066,194 $1,300,632 $1,572,576 $1,823,803 $379,245 $456,911
Costs of sales, including
buying and distribution
costs................... 527,924 639,138 772,453 929,305 1,081,259 228,543 275,712
-------- ---------- ---------- ---------- ---------- -------- --------
Gross profit.............. 346,300 427,056 528,179 643,271 742,544 150,702 181,199
Selling, general and
administrative
expenses................ 300,793 365,068 443,627 536,179 652,058 142,535 172,204
Restructuring and asset
impairment charge....... -- -- -- -- 34,006 -- --
Litigation charge......... -- -- -- -- 4,000 -- --
-------- ---------- ---------- ---------- ---------- -------- --------
Operating profit.......... 45,507 61,988 84,552 107,092 52,480 8,167 8,995
Interest income........... (392) (570) (368) (198) (27) (27) (4)
Interest expense.......... 1,405 653 411 2,139 3,897 597 679
-------- ---------- ---------- ---------- ---------- -------- --------
Interest expense, net..... 1,013 83 43 1,941 3,870 570 675
-------- ---------- ---------- ---------- ---------- -------- --------
Income before income
taxes................... 44,494 61,905 84,509 105,151 48,610 7,597 8,320
Provision for income
taxes................... 18,704 23,843 32,457 40,214 18,861 2,904 3,180
-------- ---------- ---------- ---------- ---------- -------- --------
Net income................ $ 25,790 $ 38,062 $ 52,052 $ 64,937 $ 29,749 $ 4,693 $ 5,140
======== ========== ========== ========== ========== ======== ========
Per share of common stock:
Net income -- Basic....... $ 0.67 $ 0.98 $ 1.32 $ 1.63 $ 0.73 $ 0.12 $ 0.13
======== ========== ========== ========== ========== ======== ========
Net income -- Diluted..... $ 0.65 $ 0.94 $ 1.27 $ 1.60 $ 0.72 $ 0.11 $ 0.12
======== ========== ========== ========== ========== ======== ========
Weighted-average shares
outstanding -- Basic.... 38,578 38,895 39,339 39,785 40,508 40,335 40,645
======== ========== ========== ========== ========== ======== ========
Weighted-average shares
outstanding -- Diluted... 39,537 40,407 40,907 40,712 41,193 41,325 41,703
======== ========== ========== ========== ========== ======== ========
SUPPLEMENTAL EARNINGS PER
SHARE DATA:
Diluted earnings per share
before non-comparable
items(2)................ $ 0.65 $ 0.94 $ 1.27 $ 1.60 $ 1.36 $ 0.11 $ 0.12
======== ========== ========== ========== ========== ======== ========

FISCAL YEAR ENDED THIRTEEN WEEKS ENDED
---------------------------------------------------------------------- -------------------------
DECEMBER 31, DECEMBER 31, JANUARY 1, DECEMBER 30, DECEMBER 29, MARCH 31, MARCH 30,
1997 1998 2000 2000 2001(1) 2001 2002
------------ ------------ ---------- ------------ ------------ ----------- -----------
(DOLLARS IN THOUSANDS) (UNAUDITED)

CASH FLOW DATA:
Net cash flows from (used
in) operating
activities.............. $ 57,305 $ 43,549 $ 69,577 $ 54,119 $ 44,258 $(45,096) $ 2,019
Net cash flows used in
investing activities.... (35,355) (46,272) (70,129) (70,405) (100,028) (18,588) (25,742)
Net cash flows (used in)
from financing
activities.............. (8,982) 5,479 3,665 9,183 32,689 28,587 18,352
BALANCE SHEET DATA (AS OF
END OF PERIOD):
Cash and cash
equivalents............. $ 39,882 $ 42,638 $ 45,751 $ 38,524 $ 15,437 $ 3,502 $ 10,064
Working capital........... 123,375 154,893 181,380 226,694 228,078 232,806 217,811
Total assets.............. 472,099 560,844 679,916 821,557 927,439 836,827 984,789
Total debt................ -- -- -- 3,903 29,675 27,321 47,094
Shareholders' equity...... 280,035 323,576 383,962 458,994 498,215 471,960 504,433
OTHER DATA:
Gross profit margin....... 39.6% 40.0% 40.6% 40.9% 40.7% 39.7% 39.7%
EBITDA(3)................. $ 63,485 $ 83,296 $ 111,073 $ 139,524 $ 92,593 $ 17,561 $ 19,448
Adjusted EBITDA(4)........ 63,485 83,296 111,073 139,524 134,430 17,561 19,448
Total gross square footage
(000's)................. 5,493 6,487 7,925 9,836 11,980 10,238 12,208
Number of stores (at end
of period).............. 176 196 230 283 343 293 348
Increase (decrease) in
comparable store net
sales(5)................ 6.6% 8.3% 5.4% 3.7% (2.4)% (1.8)% 2.6%

(2) 2001 supplemental earnings per share data excludes pre-tax non-comparable
items of $41.8 million ($26.2 million after-tax), or $0.64 per common share
on a diluted basis.

(5) Comparable store percentages are based on net sales, and stores are
considered comparable beginning on the first day of the month following the
13th full month of sales.

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of financial condition and results of
operations should be read in conjunction with "Selected Consolidated Financial
and Other Data" and "Consolidated Financial Statements" and the accompanying
notes.

GENERAL

We are a leading, national home furnishings retailer selling home textiles,
housewares and home accessories. As of March 30, 2002, we operated 337 stores in
43 states and 11 stores in four Canadian provinces. Our current stores average
approximately 35,000 gross square feet in size and are located predominantly in
power strip centers adjacent to complementary broad-based retail chains. Our
business strategy is to offer a broad selection of high quality, brand name home
furnishings merchandise at exceptional everyday values, provide superior guest
service and maintain low operating costs.

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires our
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts and timing of
revenues and of expenses during the reporting period. Our management believes
the following critical accounting policies involve significant estimates and
judgments inherent in the preparation of the consolidated financial statements.

Valuation of Inventory: Inventories are valued using the lower of cost or
market value, determined by the retail inventory method, or RIM. Under RIM, the
valuation of inventories at cost and the resulting gross margins are calculated
by applying a calculated cost-to-retail ratio to the retail value of
inventories. RIM is an averaging method that is used in the retail industry due
to its practicality. Inherent in the RIM calculation are certain significant
management judgments and estimates including, among others, merchandise mark-on,
mark-up, markdowns and shrinkage based on historical experience between the
dates of physical inventories, which significantly impacts the ending inventory
valuation at cost.

Sales Returns: We estimate future sales returns and, when material, record
a provision in the period that the related sales are recorded based on
historical information. Should actual returns differ from our estimates, we may
be required to revise estimated sales returns.

Impairment of Assets: We periodically evaluate long-lived assets and
goodwill for indicators of impairment. Our judgments regarding the existence of
impairment indicators are based on market conditions and operational
performance. Future events could cause us to conclude that impairment indicators
exist and that the value of long-lived assets and goodwill is impaired.

Store Closure Costs: We record estimated store closure costs, such as
fixed asset write-offs, estimated lease commitment costs net of sublease income,
markdowns for inventory that will be sold below cost, and other miscellaneous
store closing costs, in the period in which our management determines to close a
store. Such estimates may be subject to change should actual costs differ.

CONSOLIDATED RESULTS OF OPERATIONS

The following table sets forth the percentage of net sales for certain
items included in our consolidated statements of operations for the periods
indicated:

FISCAL YEAR ENDED
-----------------------------
JAN. 1, DEC. 30, DEC. 29,
2000 2000 2001
------- -------- --------

PERCENTAGE OF NET SALES
Net sales................................................... 100.0% 100.0% 100.0%
Cost of sales, including buying and distribution costs...... 59.4 59.1 59.3
Gross profit................................................ 40.6 40.9 40.7
Selling, general and administrative expenses................ 34.1 34.1 35.7
Restructuring and asset impairment charge................... -- -- 1.9
Litigation charge........................................... -- -- 0.2
Operating profit............................................ 6.5 6.8 2.9
Interest expense, net....................................... 0.0 0.1 0.2
Income before income taxes.................................. 6.5 6.7 2.7
Provision for income taxes.................................. 2.5 2.6 1.1
Net income.................................................. 4.0% 4.1% 1.6%

NON-COMPARABLE ITEMS

Our 2001 results were impacted by the non-comparable items described below,
which reduced our operating income by $41.8 million and net income by $26.2
million, as follows:

Restructuring and Asset Impairment Charge

During the fourth quarter of 2001, we formulated a strategic initiative
designed to improve store performance and profitability. This initiative calls
for the closing of 17 stores which did not meet our performance objectives.
These 17 stores generated approximately 4% of our total net sales in 2001 and
are geographically dispersed. As of March 30, 2002, we had closed two of these
stores and we expect to close most of these stores by the end of 2002, or
shortly thereafter. We expect the closing of these 17 stores to increase future
diluted earnings per share by approximately $0.07 on an annualized basis.

In connection with this initiative, we recorded a pre-tax restructuring and
asset impairment charge of $37.8 million ($23.7 million after-tax) in the fourth
quarter of 2001. Certain amounts of the restructuring and asset impairment
charge are based upon estimates and may be subject to change in future periods.
Of the $37.8 million, $34.0 million is included in restructuring and asset
impairment charge and $3.8 million is recorded in cost of sales. The estimated
after-tax cash portion of the charge is approximately $15.2 million and the
after-tax non-cash portion of the charge is approximately $8.5 million.

We recorded a pre-tax reserve of $20.5 million for estimated lease
commitments for stores to be closed. This reserve is included in accrued
expenses. The reserve considers estimated sublease income. Since all of the
stores were leased, we will not be responsible for the disposal of property
other than fixtures. We recorded a pre-tax reserve of $9.5 million for fixed
asset impairments for these stores. The fixed asset impairments represent
fixtures and leasehold improvements. We recorded this charge as a reduction of
property and equipment. We recorded a pre-tax reserve of $4.0 million for other
estimated miscellaneous store closing costs. We recorded a pre-tax reserve of
$3.8 million in cost of sales for estimated inventory markdowns below cost for
the stores to be closed.

Litigation Charge

We had been named as a defendant in California litigation in which the
court certified the case as a class action on behalf of certain managers of our
stores located in California seeking overtime pay, together with class action
claims on behalf of certain former employees seeking accrued vacation pay. In
the second quarter of 2001, we recorded a pre-tax charge of $4.0 million ($2.5
million after-tax) related to settlement payments, attorneys' fees, and
estimated expenses of administering a settlement. In October 2001, the court
gave preliminary approval to a settlement of these claims and an order granting
final approval of a settlement was signed in December 2001. We admitted no
liability in connection with the settlement. We have completed payment of all
settlement amounts.

The following table shows the pro forma effect of non-comparable items on
the year ended December 29, 2001.

NON- EXCLUDING
AS COMPARABLE NON-COMPARABLE
REPORTED ITEMS ITEMS
-------- ---------- --------------
(IN MILLIONS, EXCEPT PER SHARE DATA)

Net sales........................................ $1,823.8 -- $1,823.8
Gross profit..................................... 742.5 (3.8) 746.3
Selling, general and administrative expenses..... 652.0 -- 652.0
Restructuring and asset impairment charge........ 34.0 34.0 --
Litigation charge................................ 4.0 4.0 --
-------- ------ --------
Operating profit................................. 52.5 (41.8) 94.3
Interest expense, net............................ 3.9 -- 3.9
-------- ------ --------
Income before income taxes....................... 48.6 (41.8) 90.4
Provision for income taxes....................... 18.9 (15.6) 34.5
-------- ------ --------
Net income....................................... $ 29.7 $(26.2) $ 55.9
======== ====== ========
Basic earnings per share......................... $ 0.73 $(0.65) $ 1.38
======== ====== ========
Diluted earnings per share....................... $ 0.72 $(0.64) $ 1.36
======== ====== ========

To provide a more meaningful comparison of operating performance between
financial reporting periods, the remaining consolidated results of operations
discussion excludes the impact of non-comparable items in fiscal 2001.

THIRTEEN WEEKS ENDED MARCH 30, 2002 COMPARED WITH THIRTEEN WEEKS ENDED MARCH 31,
2001

Net Sales. Our net sales for the thirteen weeks ended March 30, 2002
increased 20.5% to $456.9 million, up from $379.2 million for the same period
last year. The increase in net sales is primarily the result of new store
openings since March 31, 2001. As of March 30, 2002, we operated 348 stores,
including 11 stores in Canada, as compared with 293 stores, including seven
stores in Canada, as of March 31, 2001. Store square footage increased 19.2% to
12,208,000 as of March 30, 2002, compared with 10,238,000 as of March 31, 2001.
During the thirteen weeks ended March 30, 2002, we opened seven stores and
closed two stores as compared with opening 11 stores and closing one store
during the same period last year.

Comparable store net sales increased 2.6% for the thirteen weeks ended
March 30, 2002 compared with a decline of 1.8% for the same period last year.
The increase in comparable store net sales for the thirteen weeks ended March
30, 2002 is primarily attributed to an increase in customer traffic. We believe
our sales results also reflect the steady progress being made on our strategic
operating initiatives, which include improvements of in-stock inventory
positions and improvements in our textile business. Sales also benefitted from
the consistently good performance of our functional housewares business.

Gross Profit. In addition to the cost of inventory sold, we include our
buying and distribution expenses in our cost of sales. Buying expenses include
all direct and indirect costs to procure merchandise. Distribution expenses
include the cost of operating our distribution centers and freight expense
related to transporting merchandise. Our gross profit for the thirteen weeks
ended March 30, 2002 was $181.2 million, or 39.7% of net sales, compared with
$150.7 million, or 39.7% of net sales, for the same period last year. Gross
profit was impacted by an improvement in initial mark-on as a result of product
mix and the leveraging of our buying power, offset in part by start-up costs
related to our third distribution center as well as higher markdowns related to
SKU management during our clearance event in January 2002.

Selling, General and Administrative Expenses. Our selling, general and
administrative, or SG&A, expenses consist of store selling expenses, occupancy
costs, advertising expenses and corporate office expenses. SG&A expenses for the
thirteen weeks ended March 30, 2002 were $172.2 million, or 37.7% of net sales,
compared with $142.5 million, or 37.6% of net sales, for the same period last
year. The increase as a percentage of net sales is attributable to a slight
de-leveraging of occupancy costs, and a greater investment in store payroll as a
result of our initiatives to improve our overall guest service levels. This
increase was partially offset by the leverage of corporate office expenses.

Operating Profit. Operating profit for the thirteen weeks ended March 30,
2002 was $9.0 million, or 2.0% of net sales, compared with $8.2 million, or 2.2%
of net sales, for the same period last year.

Interest Expense, Net. Net interest expense for the thirteen weeks ended
March 30, 2002 increased to $675,000 from $570,000 during the same period last
year. The increase in net interest expense was due to a higher net average loan
balance for the thirteen weeks ended March 30, 2002 compared with the same
period last year, in order to fund our operations, offset in part by lower
interest rates.

Income Taxes. Our income tax expense was $3.2 million for the thirteen
weeks ended March 30, 2002, compared with $2.9 million for the same period last
year. Our effective tax rate was 38.2% for both the thirteen weeks ended March
30, 2002 and March 31, 2001.

Net Income. As a result of the factors described above, net income for the
thirteen weeks ended March 30, 2002 was $5.1 million, or $0.12 per share on a
diluted basis, compared with $4.7 million, or $0.11 per share on a diluted basis
for the same period last year.

FISCAL YEAR ENDED DECEMBER 29, 2001 COMPARED WITH FISCAL YEAR ENDED DECEMBER 30,
2000

Net Sales. Our net sales for 2001 were $1,823.8 million, an increase of
16.0% over 2000 sales of $1,572.6 million, primarily as a result of new store
openings. At year end 2001 we operated 343 stores, including 11 stores in
Canada, as compared with 283 stores, including six stores in Canada, at year end
2000. Store square footage increased 21.8% to 11,980,000 as of December 29, 2001
compared with 9,836,000 as of December 30, 2000. We opened 63 stores and closed
three stores in 2001 as compared with opening 57 stores and closing four stores
in fiscal 2000.

Comparable store net sales declined 2.4% in 2001 compared with an increase
of 3.7% in 2000. Our average net sales per store was $5.8 million in 2001
compared to $6.2 million in 2000. The decline in comparable store net sales and
average net sales per store in 2001 was primarily attributable to a decline in
consumer traffic due to the slowing economy as well as the performance of our
newer comparable stores opened in 2000, the results of which were below our 2001
sales targets.

Our core business strategy is to offer a broad and deep selection of high
quality brand name "linens" and "things" merchandise. We have balanced our
merchandise mix from being driven primarily by the "linens" side of our business
to a fuller selection of "linens" and "things." We estimate that the "things"
side of our business has increased from less than 10% of net sales in 1991 to
over 40% in 2001. For 2001, net sales of "linens" merchandise increased
approximately 10% over the prior year, while net sales of "things" merchandise
increased approximately 20% over the prior year. The greater increase in net
sales for "things" merchandise primarily resulted from the continued expansion
of our product categories within the "things" business.
21

Gross Profit. Our gross profit for 2001 was $746.3 million, or 40.9% of
net sales, compared with $643.3 million, or 40.9% of net sales, in 2000. Gross
profit as a percentage of net sales was impacted by an improvement in initial
mark-on as a result of product mix and the increased penetration of our
proprietary products, which represented over 10% of total net sales in 2001, as
well as lower average freight expenses. This was offset by an increase in
markdowns primarily as a result of an increase in promotional activity.

Selling, General and Administrative Expenses. Our SG&A expenses for 2001
were $652.0 million, or 35.7% of net sales, as compared with $536.2 million, or
34.1% of net sales, in 2000. The increase as a percentage of net sales is
attributable to the de-leveraging in our operating expenses, primarily occupancy
costs, reflecting lower sales productivity. This increase was partially offset
by the leveraging of corporate office expenses.

Operating Profit. Operating profit for 2001 was $94.3 million, or 5.2% of
net sales, down from $107.1 million, or 6.8% of net sales for 2000.

Interest Expense, Net. Net interest expense in 2001 increased to $3.9
million from $1.9 million in 2000 due to a higher net average loan balance than
in 2000 to fund our operations.

Income Taxes. Income tax expense for 2001 was $34.5 million, compared with
$40.2 million for 2000. Our effective tax rate was 38.2% in 2001 and in 2000.

Net Income. As a result of the factors described above, our net income for
2001, excluding non-comparable items, was $55.9 million, or $1.36 per share on a
diluted basis, compared with $64.9 million, or $1.60 per share on a diluted
basis in 2000.

FISCAL YEAR ENDED DECEMBER 30, 2000 COMPARED WITH FISCAL YEAR ENDED JANUARY 1,
2000

Net Sales. Our net sales for 2000 were $1,572.6 million, an increase of
20.9% over 1999 sales of $1,300.6 million, primarily as a result of new store
openings as well as comparable store net sales increases. At year end 2000, we
operated 283 stores as compared with 230 stores at year end 1999. Store square
footage increased 24.1% to 9,836,000 as of December 30, 2000 compared with
7,925,000 as of January 1, 2000. Comparable store net sales increased 3.7% in
2000 compared with 5.4% in 1999. Comparable store net sales were driven
predominantly by higher consumer traffic. We opened 57 stores and closed four
stores in 2000 as compared with opening 43 stores and closing nine stores in
1999.

Our average net sales per store was $6.2 million in 2000 and 1999. For the
year ended 2000, net sales of "linens" merchandise increased approximately 18%
over the prior year, while net sales of "things" merchandise increased
approximately 25% over the prior year. The greater increase in net sales for
"things" merchandise primarily resulted from the continued expansion in this
product category.

Gross Profit. Our gross profit for 2000 was $643.3 million, or 40.9% of
net sales, compared with $528.2 million, or 40.6% of net sales, in 1999. This
increase as a percentage of net sales resulted from overall improved selling
mix, increased penetration of seasonal and proprietary product and improvements
in buying. In addition, we had lower freight and related distribution costs as a
percentage of net sales as a result of the leveraging of our centralized
distribution network.

Selling, General and Administrative Expenses. Our SG&A expenses for 2000
were $536.2 million, or 34.1% of net sales, compared with $443.6 million, or
34.1% of net sales, in 1999. Corporate office and promotional expenses were
leveraged, which were offset by investments in store payroll in order to
continue to improve our guest service levels.

Operating Profit. Operating profit for 2000 increased to $107.1 million,
or 6.8% of net sales, up from $84.6 million, or 6.5% of net sales for 1999.

Interest Expense, Net. Net interest expense in 2000 increased to $1.9
million from $43,000 for 1999. This increase was due to higher net average loan
balances and higher interest rates during 2000.

Income Taxes. Income tax expense for 2000 was $40.2 million, compared with
$32.5 million for 1999. Our effective tax rate was 38.2% in 2000 compared with
38.4% in 1999.
22

Net Income. As a result of the factors described above, our net income for
2000 was $64.9 million, or $1.60 per share on a diluted basis, compared with
$52.1 million or $1.27 per share on a diluted basis in 1999.

LIQUIDITY AND CAPITAL RESOURCES

Our capital requirements are primarily for new store expenditures, new
store inventory purchases and seasonal working capital. These requirements have
been funded through a combination of internally generated cash flows from
operations, credit extended by suppliers and short-term borrowings.

We have available a $150 million senior revolving credit facility agreement
with third-party institutional lenders which expires October 20, 2003. Our
credit facility allows for up to $40 million in borrowings from additional lines
of credit outside of the credit facility. Interest on all borrowings is
determined based upon several alternative rates stipulated in the credit
facility, including a fixed margin above the LIBOR rate. Our credit facility
contains certain financial covenants, including those relating to the
maintenance of a minimum tangible net worth, a minimum fixed charge coverage
ratio, and a maximum leverage ratio. As of March 30, 2002, we were in compliance
with the terms of our credit facility. Our credit facility also limits, among
other things, the amount of cash dividends we may pay. Under our credit
facility, the amount of dividends that we may pay may not exceed $50 million
plus on a cumulative basis an amount equal to 50% of our consolidated net income
for each fiscal quarter commencing with the third fiscal quarter of 2000. We
have never paid cash dividends and do not anticipate paying cash dividends in
the future. At various times throughout 2001 and 2000, we borrowed against our
credit facility for seasonal working capital needs. As of March 30, 2002, we had
$47.1 million in borrowings under the credit facility and the additional lines
of credit at a weighted average interest rate of 2.8%. We also had $22.9 million
of letters of credit outstanding as of March 30, 2002, which were primarily used
for merchandise purchases. We are not obligated under any formal or informal
compensating balance requirements.

We are currently in discussions with our lenders regarding a proposed
amendment to our credit facility that would extend the term and make certain
other changes, conditioned on the closing of this offering.

Net cash provided by operating activities for the thirteen weeks ended
March 30, 2002 was $2.0 million compared with net cash used in operating
activities of $45.1 million for the same period last year. The change in net
cash flows from operating activities was primarily attributable to the timing of
inventory receipts within the quarter which impacted the timing of vendor
payments. Net cash provided by operating activities is our principal source of
liquidity and therefore a decline in demand for our product offerings could
impact the availability of funds for store expansion.

Net cash used in investing activities for the thirteen weeks ended March
30, 2002 was $25.7 million, compared with $18.6 million for the same period last
year. The increase in net cash used in investing activities was due primarily to
capital expenditures related to our third distribution center, which is expected
to be fully operational by the end of the second quarter 2002. We currently
estimate capital expenditures will be approximately $75 million to $80 million
in 2002, primarily for an estimated 50 new stores (seven of which had been
opened as of March 30, 2002), store remodels, our third distribution center and
system enhancements.

Net cash provided by financing activities for the thirteen weeks ended
March 30, 2002 was $18.4 million compared with $28.6 million for the same period
last year. The decrease was primarily due to the improvement in cash flows
provided by operating activities which reduced the need for short-term
borrowings, partially offset by higher capital expenditures.

We regularly review and evaluate our liquidity and capital needs. We
experience peak periods for our cash needs during the course of our fiscal year.
These peak periods generally occur during the second quarter and fourth quarter.
As our business continues to grow and our current store expansion plan is
implemented, such peak periods may require increases in the amounts available
under our credit facility

from those currently existing and/or other debt or equity funding. We currently
believe we would have access to additional debt and/or capital markets funding
as we may require. We currently believe that our cash flows from operations,
credit extended by suppliers, our existing credit facilities, additional lines
of credit, and such other or additional debt or capital markets funding as we
may seek to obtain, will be sufficient to fund our currently expected capital
expenditure, working capital and non-acquisition business expansion requirements
for at least the next 12 to 18 months.

We lease the majority of our retail stores under non-cancelable operating
leases. The leases generally contain renewal options for periods ranging from 5
to 15 years and require us to pay costs such as real estate taxes and common
area maintenance. Contingent rentals are paid based on a percentage of gross
sales. Net rental expense for all operating leases was as follows (in
thousands):

FISCAL YEAR ENDED
--------------------------------
1999 2000 2001
-------- -------- --------

Minimum rentals.................................... $102,612 $126,286 $158,614
Contingent rentals................................. 212 151 184
-------- -------- --------
102,824 126,437 158,798
Less: sublease rentals........................... 1,614 1,617 2,032
-------- -------- --------
$101,210 $124,820 $156,766
======== ======== ========

At the end of 2001, the future minimum rental payments required under our
operating leases and the future minimum sublease rentals, excluding lease
obligations for closed stores and stores planned to be closed, were as follows
(in thousands):

FISCAL YEAR
-----------

2002........................................................ $ 165,610
2003........................................................ 163,471
2004........................................................ 159,964
2005........................................................ 156,534
2006........................................................ 154,837
Thereafter.................................................. 1,234,837
----------
$2,035,253
----------
Total future minimum sublease rentals....................... $ 25,267
==========

As of March 30, 2002, our aggregate operating lease commitments totaled
approximately $2.1 billion. The year end 2001 and March 30, 2002 numbers do not
include fully executed leases for stores we plan to open in 2002 and 2003.

MARKET RISK DISCLOSURE

We continuously evaluate the market risk associated with our financial
instruments. Market risks relating to our operations result primarily from
changes in interest rates and foreign exchange rates. We do not engage in
financial transactions for trading or speculative purposes.

Interest Rate Risk

Our financial instruments include cash and cash equivalents and short-term
borrowings. Our obligations are short-term in nature and generally have less
than a 30-day commitment. We are exposed to interest rate risks primarily
through borrowings under our credit facility. Interest on all borrowings is
based upon several alternative rates stipulated in our credit facility,
including a fixed margin above the LIBOR rate. As of December 29, 2001, we had
$29.7 million in borrowings under our credit facility and additional lines of
credit at an average interest rate of 3.1% (see note 7 to the consolidated
financial statements for the 2001 fiscal year). As of March 30, 2002, we had
$47.1 million in borrowings under our credit facility

and additional lines of credit at an average interest rate of 2.8%. We believe
that our interest rate risk is minimal as a hypothetical 10% increase or
decrease in interest rates in the associated debt's variable rate as of March
30, 2002 would not materially affect our results of operations or cash flows. We
do not use derivative financial instruments in our investment portfolio.

Foreign Currency Risk

We enter into some purchase obligations outside of the United States, which
are predominantly settled in U.S. dollars. Therefore, we have only minimal
exposure to foreign currency exchange risks. We do not hedge against foreign
currency risks and believe that our foreign currency exchange risk is
immaterial.

We operated 11 stores in Canada as of March 30, 2002. We believe our
foreign currency translation risk is minimal, as a hypothetical 10%
strengthening or weakening of the U.S. dollar relative to the Canadian dollar as
of March 30, 2002 would not materially affect our results of operations or cash
flows.

INFLATION

We do not believe that our operating results have been materially affected
by inflation during the preceding three years. There can be no assurance,
however, that our operating results will not be affected by inflation in the
future.

SEASONALITY

Our business is subject to substantial seasonal variations. Historically,
we have realized a significant portion of our net sales and net income during
the third and fourth quarters of our fiscal year. Our quarterly results of
operations may also fluctuate significantly as a result of a variety of other
factors, including the timing of new store openings. We believe this is the
general pattern associated with our segment of the retail industry and expect
this pattern will continue in the future. Consequently, comparisons between
quarters are not necessarily meaningful and the results for any quarter are not
necessarily indicative of future results.

RECENT ACCOUNTING PRONOUNCEMENTS

At a recent meeting of the FASB Emerging Issues Task Force, or EITF, a
consensus was reached with respect to the issue of "Accounting for Certain Sales
Incentives," including point of sale coupons, rebates and free merchandise. The
consensus included a conclusion that the value of such sales incentives that
result in a reduction of the price paid by the customer should be netted against
sales and not classified as a sales or marketing expense. In April 2001, the
EITF delayed the effective date for this consensus to 2002. We already include
such sales incentives as a reduction of sales and record free merchandise in
cost of goods sold as required by the new EITF consensus.

In June 2001, FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS No. 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. This statement requires that the fair value
of a liability for an asset retirement obligation be recognized in the period in
which it is incurred if a reasonable estimate of fair value can be made. This
statement will be effective for us in fiscal 2003. We are currently evaluating
SFAS No. 143 but do not anticipate that the effects of the new pronouncement
would have a material impact on our financial statements.

In August 2001, FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS No. 144 supercedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," but retains many of its fundamental provisions. SFAS No. 144
also expands the scope of discontinued operations to include more disposal
transactions, and will impact the presentation of future store closings, if any.
SFAS No. 144 was effective for us for the first quarter of fiscal 2002. The
implementation of SFAS No. 144 did not have a significant impact on our
financial statements, as the impairment assessment under SFAS No. 144 is
predominantly unchanged from SFAS No. 121.

BUSINESS

OVERVIEW

OUR COMPETITIVE STRENGTHS

WE OFFER A BROAD SELECTION OF QUALITY BRANDS AT EXCEPTIONAL EVERYDAY
VALUES. Our merchandising strategy is to offer a wide variety of high quality,
brand name fashion home textiles, housewares and home accessories at exceptional
everyday values. Our superstore format enables us to offer broader product and
brand selection than traditional retailers that sell home furnishings. We carry
virtually all of the national home furnishings brand names carried by major
department stores, as well as many other products and brands. Many national
brands we carry are not available at mass merchandisers or off-price retailers.
Our everyday low price strategy is to set our prices below regular department
store prices and comparable with or slightly below department store sale prices.
We believe these strategies enhance our reputation as a value leader and build
guest loyalty, while providing a one-stop shopping destination for our guests'
home furnishings needs.

knowledgeable sales assistance and enthusiastic guest service. We offer
competitive wages and on-going training and personnel development in order to
attract and retain qualified, motivated employees committed to providing
superior service. Our stores feature a racetrack layout, enabling the guest to
visualize and purchase fully coordinated and accessorized ensembles. Our store
format saves our guests time by having merchandise visible and accessible on the
selling floor. We have a toll-free guest service line to respond to guest
inquiries and to take orders for products, and in 2001 we expanded our
e-commerce capability to feature over 10,000 SKUs through our web site.

OUR GROWTH STRATEGY

decorative accessories. In 2001, we added Yankee Candle and Nautica Home to our
already powerful brand name line-up. We periodically re-style our stores to
incorporate new merchandise offerings and to emphasize our fastest growing
product categories.

PRODUCTS AND MERCHANDISING

We offer fashion home textiles, housewares and home accessories at
exceptional everyday values. Our extensive merchandise offering of over 25,000
SKUs enables our guests to select from a wide assortment of styles, brands,
colors and designs within each of our major product lines. We are committed to
maintaining a consistent in-stock inventory position. This presentation of
merchandise enhances the guest's impression of a dominant selection of
merchandise in an easy-to-shop environment. Our broad and deep merchandise
offering is coupled with everyday low prices that are generally below regular
department store prices and comparable with or slightly below department store
sale prices. We believe that the uniform application of our everyday low price
policy is essential to maintaining the integrity of our pricing strategy. This
is an important factor in establishing our reputation as a value leader and in
helping to build guest loyalty.

Merchandise and sample brands offered in each of our major categories are
highlighted below:

CATEGORY ITEMS SOLD SAMPLE BRANDS
-------------------- ------------------------------ ------------------------------

Top of the Bed Sheets, comforters, comforter Croscill, Fieldcrest, Laura
covers, bedspreads, bed Ashley, Nautica, Springmaid,
pillows, blankets and mattress Wamsutta and Waverly
pads

Housewares Cookware, cutlery, kitchen All-Clad, Black & Decker,
gadgets, small electric Braun, Calphalon, Circulon,
appliances (such as blenders Cuisinart, Farberware,
and coffee grinders), Henckels, KitchenAid, Krups
dinnerware, flatware and and OXO
glassware

Bath Towels, shower curtains, waste Fieldcrest, Martex, Royal
baskets, hampers, bathroom Velvet, Springmaid and
rugs and wall hardware Wamsutta

Home Accessories Decorative pillows, napkins, Laura Ashley, Umbra, Waverly
tablecloths, placemats, lamps, and Yankee Candle
gifts, picture frames, candles
and framed art

Window Treatment Curtains, valances and window Croscill, Laura Ashley,
hardware Wamsutta and Waverly

Storage and Cleaning Closet-related items (such as Euro-Pro, Hoover, Rowenta and
hangers, organizers and shoe Rubbermaid
racks), cleaning and laundry
care products

CUSTOMER SERVICE

We treat every customer as a guest, and our philosophy is to enhance each
guest's entire shopping experience in order to encourage guest loyalty. To
facilitate the ease of shopping, our assisted self-service culture is
complemented by trained department specialists, zoned floor coverage, product
information displays and videos, self-demonstrations and in-store product
seminars. The entire store team is trained to be highly visible in order to
assist guests with their selections. Our ability to assist our guests has been
enhanced by the transfer of inventory receiving functions from our stores to our
distribution centers, which allows our sales associates to direct their focus to
the selling floor. We offer a liberal return policy and are focused on making
each guest's visit a convenient, efficient and pleasant experience.

MARKETING AND ADVERTISING

Our advertising programs communicate, build and strengthen our brand and
image. Because of our commitment to exceptional everyday values, advertising
vehicles are aggressively used to highlight value, breadth and depth of
selection. We focus our advertising efforts on key selling seasons such as
back-to-school and holidays.

To reach our guests we primarily use full color flyers to best represent
the full range of offerings in our stores. These are supplemented by other
on-going direct marketing initiatives. In addition, we utilize our proprietary
marketing database to track the buying habits of our guests. Grand opening
promotional events are designed to support new stores, particularly those
located in new markets.

PURCHASING AND SUPPLIERS

We purchase our merchandise from approximately 1,000 suppliers. Springs
Industries, Inc., through its various operating companies, supplied
approximately 10% of our total purchases in 2001. In 2001, we purchased a
significant number of products from other key suppliers. We are often one of the
largest

customers for certain of our vendors. We believe that this buying power and our
ability to make centralized purchases generally allows us to acquire products on
favorable terms.

COMPANY OPERATIONS

Distribution. We currently operate three distribution centers. Our
Greensboro, North Carolina facility began operation in 1995, and our Swedesboro,
New Jersey facility began operation in 1999. We expect our third distribution
center located in Shepardsville, Kentucky to be fully operational by the end of
the second quarter 2002. Our use of centralized distribution centers has
resulted in lower average freight expense, more timely control of inventory
shipments to stores, and improved information flow. We believe strong
distribution support for our stores is a critical element to our growth strategy
and is central to our ability to maintain a low cost operating structure.

We manage the distribution process centrally from our corporate
headquarters. We transmit purchase orders electronically to nearly all of our
suppliers. We plan to continue our efforts to ship as much merchandise through
our distribution centers as possible to ensure all benefits of our logistics
strategy are fully leveraged. Our continued growth will also facilitate new uses
of electronic data interchange technologies between us and our suppliers to
exploit the most productive and beneficial use of our assets and resources. In
order to realize greater efficiency, we also use third-party delivery services
to ship our merchandise from our distribution centers to our stores.

Management Information Systems. Over the last several years, we have made
significant investments in technology to improve guest service, gain
efficiencies and reduce operating costs. We have installed a customized IBM
AS/400 management information system, which integrates all major aspects of our
business, including sales, distribution, purchasing, inventory control,
merchandise planning and replenishment and financial systems. We also utilize
hand-held scanners with inventory status and price look-up capabilities, which
allow our sales associates to remain accessible to our guests on the selling
floor. Information we obtain from our management information systems results in
automatic inventory replenishment in response to the specific requirements of
each store, thereby improving in-stock positions and enhancing guest service.

We believe our management information systems have fully integrated our
stores, headquarters and distribution process. We continually evaluate and
upgrade our management information systems to enhance the quantity, quality and
timeliness of information available to our management.

Store Management and Operations. We place a strong emphasis on our people,
their development and their opportunity for advancement, and we are committed to
maintaining a high internal promotion rate. Our practice is to open each new
store with a seasoned management team which usually includes managers who have
significant experience with us. Additionally, our structured management training
program requires that each new manager learn all facets of the business within
the framework of a fully operational store. This program includes, among other
things, product knowledge, merchandise presentation, business and sales
perspective, employee relations and manpower planning. This is complemented at
the sales associate level with in-store product seminars and store systems
training. We believe that our policy of promoting from within, as well as the
opportunities for advancement from our store expansion program, serve as
incentives to attract and retain quality individuals.

Our stores are open seven days a week, generally from 9:30 a.m. to 9:30
p.m. Monday through Saturday and 11:00 a.m. to 6:00 p.m. on Sunday, unless
affected by local laws.

Private Label Charge Card. In April 2002, we launched our private label
charge card program. The intent of this program is to build guest loyalty.
Through a points program, our guests receive enhanced value by using the card.
The program also allows us to provide consistent and effective communication
with our guests, while increasing our information base of our guests' purchasing
patterns. Subject to customary exceptions, credit risk is borne by GE Card
Services, a top issuer of private label credit cards.

PROPERTIES

Our corporate headquarters is located at 6 Brighton Road in Clifton, New
Jersey. As of March 30, 2002 we operated 348 stores in the United States and
Canada. Our superstores generally range in size from 25,000 to 50,000 gross
square feet and currently average 35,000 square feet. Our stores are
predominantly located in power strip centers containing other complementary
broad-based retail chains.

We currently lease all of our existing stores and expect that our policy of
leasing rather than owning will continue as we expand. Our leases provide for
original lease terms that generally range from 10 to 20 years and most of the
leases provide for one or more renewal options ranging from 5 to 15 years at
increased rents. Some leases provide for scheduled rent increases and some
leases provide for contingent rent (based upon store sales exceeding stipulated
amounts). CVS Corporation, formerly our parent company, guarantees certain store
leases we entered into prior to our 1996 initial public offering.

We own our distribution center in Greensboro, North Carolina, which is
approximately 330,000 square feet. We lease our distribution centers in
Swedesboro, New Jersey, which is approximately 260,000 square feet, and in
Shepardsville, Kentucky, which is approximately 600,000 square feet. Both the
New Jersey and Kentucky distribution centers can be expanded.

The table below sets forth the locations of our stores as of March 30,
2002:

NUMBER
LOCATION OF STORES
-------- ---------

Alabama 4
Arizona 7
Arkansas 3
California 43
Colorado 6
Connecticut 12
Florida 26
Georgia 13
Idaho 1
Illinois 17
Indiana 5
Kansas 3
Kentucky 2
Louisiana 3
Maine 3
Maryland/D.C. 4

NUMBER
LOCATION OF STORES
-------- ---------

Massachusetts 12
Michigan 10
Minnesota 6
Missouri 5
Montana 1
Nebraska 2
Nevada 2
New Hampshire 5
New Jersey 13
New Mexico 3
New York 21
North Carolina 9
North Dakota 1
Ohio 11
Oklahoma 2
Oregon 5

NUMBER
LOCATION OF STORES
-------- ---------

Pennsylvania 9
Rhode Island 1
South Carolina 2
Tennessee 4
Texas 32
Utah 3
Vermont 1
Virginia 11
Washington 10
West Virginia 1
Wisconsin 3
CANADA
Alberta 3
British Columbia 4
Manitoba 1
Ontario 3

The following table sets forth information concerning our expansion program
during the past five years:

TOTAL SQUARE FOOTAGE
(IN THOUSANDS) STORE COUNT
FISCAL STORE STORE --------------------- ---------------------
YEAR OPENINGS CLOSINGS BEGIN YEAR END YEAR BEGIN YEAR END YEAR
------ -------- -------- ---------- -------- ---------- --------

1997 25 18 4,727 5,493 169 176
1998 32 12 5,493 6,487 176 196
1999 43 9 6,487 7,925 196 230
2000 57 4 7,925 9,836 230 283
2001 63 3 9,836 11,980 283 343

EMPLOYEES

We employ approximately 7,000 full-time and 9,000 part-time employees. The
number of part-time employees fluctuates based on seasonal needs. We believe
that we have a good relationship with our employees.

TRADEMARKS AND SERVICE MARKS

We use the "Linens 'n Things" and "LNT Home" names as trademarks and as
service marks in connection with retail services. We have registered the "Linens
'n Things" and "LNT" marks with the United States Patent and Trademark Office
and the "Linens 'n Things" mark with the Canadian Intellectual Property Office.
We believe that the name "Linens 'n Things" is an important element of our
business. We are not aware of any claims of infringement or challenges to our
right to use any of our marks in the United States or Canada.

COMPETITION

The segment of the U.S. home furnishings market in which we operate
generated approximately $70 billion in sales in 2001. This market is
highly-fragmented and intensely competitive. We compete with many different
types of retailers, including department stores, mass merchandisers and
discounters, specialty retail stores, mail order and other retailers. Some of
our competitors sell many of the same items and brands that we sell. We believe
that our ability to compete successfully in our markets is influenced by several
factors, including price, breadth and quality of product selection, in-stock
availability of merchandise, effective merchandise presentation, guest service
and superior store locations. We believe that we are well-positioned to compete
on the basis of these factors. Nevertheless, there can be no assurance that any
or all of the factors that enable us to compete favorably will not be adopted by
companies having greater financial and other resources than we do.

LEGAL PROCEEDINGS

We are involved in various claims and legal actions arising in the ordinary
course of business. We believe that the ultimate disposition of these matters
will not have a material adverse effect on our consolidated financial position,
results of operations or liquidity.

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table provides information about our executive officers and
directors as of April 30, 2002:

NAME AGE POSITION
---- --- --------

Norman Axelrod....................... 49 Chairman of the Board and Chief Executive
Officer
Steven B. Silverstein................ 42 President
Audrey Schlaepfer.................... 47 Executive Vice President, Chief Merchandising
Officer
William T. Giles..................... 42 Senior Vice President, Chief Financial Officer
Brian D. Silva....................... 45 Senior Vice President, Human Resources and
Administration and Corporate Secretary
Philip E. Beekman(1)................. 70 Director
Harold F. Compton(1)(2)(3)........... 54 Director
Morton E. Handel(1)(3)............... 68 Director
Stanley P. Goldstein(2).............. 67 Director

---------------
(1) Member of Audit Committee

(2) Member of Compensation Committee

(3) Member of Nominating Committee

Mr. Axelrod has been our Chief Executive Officer since 1988 and was elected
to the additional position of Chairman of our board of directors effective as of
January 1997. Prior to joining us, Mr. Axelrod held various management positions
at Bloomingdale's from 1976 to 1988 including: Buyer; Divisional Merchandise
Manager; Vice President/Merchandise Manager; and Senior Vice President/ General
Merchandise Manager. Mr. Axelrod earned his B.S. from Lehigh University and his
M.B.A. from New York University.

Mr. Silverstein joined us in 1992 as Vice President, General Merchandise
Manager, was promoted to Senior Vice President, General Merchandise Manager in
1993, was promoted to Executive Vice President, Chief Merchandising Officer in
1998 and was promoted to President in 2001. Prior to joining us, Mr. Silverstein
held various management positions at Bloomingdale's from 1985 to 1992 including
Merchandise Vice President of Home Textiles. He received his B.A. from Cornell
University and his M.B.A. from Wharton Business School.

Ms. Schlaepfer joined us in 2001 as Executive Vice President and Chief
Merchandising Officer. Prior to joining us, Ms. Schlaepfer held various
management positions at Warner Bros. from 1994 to 2001 including: Vice President
of Home, Accessories and Gallery; Senior Vice President of Hard Goods; and
Executive Vice President of Merchandising. Prior to joining Warner Bros. in
1994, Ms. Schlaepfer held several positions at Macy's including Vice President
of Merchandising in Private Label Home Furnishings. Ms. Schlaepfer earned her
B.A. from Queens College C.U.N.Y. and her M.B.A. from New York University.

Mr. Giles joined us in 1991 as Assistant Controller, was promoted to Vice
President, Finance and Controller in 1994, was promoted to Vice President, Chief
Financial Officer in 1997 and was promoted to Senior Vice President, Chief
Financial Officer in 2000. From 1981 to 1990, Mr. Giles was with Price
Waterhouse LLP. From 1990 to 1991, Mr. Giles held the position of Director of
Financial Reporting with Melville Corporation. Mr. Giles is a certified public
accountant and member of the American Institute of Certified Public Accountants.
He graduated from Alfred University with a B.A. in Accounting and Management.

Mr. Silva joined us in 1995 as Vice President, Human Resources, was
promoted to Senior Vice President, Human Resources and Corporate Secretary in
1997 and most recently, assumed the role of

Senior Vice President, Human Resources and Administration and Corporate
Secretary in 2002. Mr. Silva was Assistant Vice President, Human Resources at
The Guardian, an insurance and financial services company, from 1986 to 1995. He
holds an M.A. in Organizational Development from Columbia University and an M.S.
in Human Resources Management from New York Institute of Technology. Mr. Silva
received his B.A. from St. John's University.

Mr. Beekman has been a director since 1997. Mr. Beekman is President of Owl
Hollow Enterprises, Inc., a consulting and investment company. From 1986 to
1994, Mr. Beekman was Chairman of the Board and CEO of Hook SupeRx, Inc., a
retail drug store chain. Prior to that he was President and Chief Operating
Officer of Seagram Company Limited. Mr. Beekman is also a director of General
Chemical Group, Inc., Kendle International Inc., Panavision, Inc. and Sunbeam
Corporation.

Mr. Compton has been a director since 1998. Mr. Compton is President and
Chief Executive Officer of CompUSA Inc. Mr. Compton joined CompUSA in 1994 as
Executive Vice President-Operations, becoming Executive Vice President and Chief
Operating Officer in 1995 and President of CompUSA Stores in 1996.

Mr. Handel has been a director since 2000. He has served as Chairman of the
Board of Marvel Enterprises Inc. since 1999. From 1997 to 2001, Mr. Handel was
President, CEO and a director of Ranger Industries, Inc., formerly Coleco
Industries, Inc. Between 1974 and 1990 Mr. Handel held various executive
management positions at Coleco Industries, Inc. including Chairman and CEO. Mr.
Handel is also a director of Concurrent Computer Corp and a regent of the
University of Hartford.

Mr. Goldstein has been a director since 1996. Mr. Goldstein was Chairman of
the Board of CVS Corporation, formerly Melville Corporation, until he retired in
1999, and prior to May 1998 was Chairman of the Board and CEO of CVS
Corporation. Mr. Goldstein co-founded Consumer Value Stores, a retail drug
chain, in 1963. Mr. Goldstein is also a director of CVS Corporation and
Footstar, Inc. Mr. Goldstein is also on the Board of Overseers of The Wharton
School of the University of Pennsylvania.

THE BOARD OF DIRECTORS

Our board of directors currently consists of five members and is divided
into three classes of approximately equal size. Directors are generally elected
for three year terms on a staggered term basis, so that each year the term of
office of one class will expire and the terms of office of the other classes
will extend for additional periods of one and two years respectively.

BOARD COMMITTEES

We currently have an Audit Committee, a Compensation Committee and a
Nominating Committee.

The Audit Committee functions as a communication point among non-Audit
Committee directors, internal auditors, the independent auditors and our
management as their duties relate to financial accounting, reporting and
internal controls. The Audit Committee assists our board of directors in
fulfilling its responsibility with respect to accounting policies, internal
controls, financial and operating controls, standards of corporate conduct and
performance, reporting practices and sufficiency of auditing. The members of the
Audit Committee are Philip E. Beekman (Chairman), Harold F. Compton and Morton
E. Handel.

The Compensation Committee determines and administers compensation for our
senior officers and other key members of our management, including salary and
incentive based plans. The members of the Compensation Committee are Stanley P.
Goldstein (Chairman) and Harold F. Compton.

The Nominating Committee considers and determines suitable nominees to our
board of directors. The members of the Nominating Committee are Harold F.
Compton (Chairman) and Morton E. Handel.

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information known to us regarding
the beneficial ownership of our common stock as of April 30, 2002 and as
adjusted to reflect the sale of common stock in this offering by:

- each person or entity known to us that beneficially owns more than 5% of
our common stock;

- each of our executive officers;

- each member of our board of directors; and

- all of our directors and executive officers as a group.

Beneficial ownership is determined in accordance with the rules of the SEC.
In computing the number of shares beneficially owned by a person and the
percentage of ownership held by that person, shares of common stock subject to
options held by that person that are currently exercisable or will become
exercisable within 60 days after April 30, 2002 are deemed outstanding, while
these shares are not deemed outstanding for computing percentage ownership of
any other person. Unless otherwise indicated in the footnotes below, the persons
and entities named in the table have sole voting and investment power with
respect to all shares beneficially owned. The address for each director and
executive officer is c/o Linens 'n Things, Inc., 6 Brighton Road, Clifton, New
Jersey 07015.

The percentages of common stock beneficially owned disclosed below are
based on 40,711,868 shares of our common stock outstanding as of April 30, 2002
and 44,011,868 shares of our common stock outstanding following this offering.

SHARES BENEFICIALLY OWNED
----------------------------------------------
PERCENT OWNED PERCENT
PRIOR TO THIS OWNED AFTER THIS
NAME NUMBER OFFERING OFFERING
---- --------- ------------- ----------------

5% STOCKHOLDERS:
FMR Corp.(1)................................ 4,311,400 10.6% 9.8%
PRIMECAP Management Company(2).............. 4,149,000 10.2 9.4
Wachovia Corporation(3)..................... 3,005,618 7.4 6.8
Putnam Investments, Inc.(4)................. 2,512,753 6.2 5.7
Vanguard Horizon Funds -- Vanguard Capital
Opportunity Fund(5)....................... 2,300,000 5.7 5.2
Citigroup Inc.(6)........................... 2,121,328 5.2 4.8
American Express Company(7)................. 2,101,256 5.2 4.8

DIRECTORS AND EXECUTIVE OFFICERS:
Norman Axelrod(8)(9)........................ 648,300 1.6 1.5
Steven B. Silverstein(8)(10)................ 197,595 * *
William T. Giles(8)......................... 92,541 * *
Brian D. Silva(8)........................... 47,459 * *
Stanley P. Goldstein(8)..................... 37,208 * *
Phillip E. Beekman(8)....................... 30,408 * *
Harold F. Compton(8)........................ 15,362 * *
Morton E. Handel(8)......................... 6,129 * *
Audrey Schlaepfer........................... -- * *
All directors and executive officers as a
group..................................... 1,075,002 2.6% 2.4%

---------------
* Less than 1% of the outstanding shares of common stock

(1) Pursuant to an amended Schedule 13G dated February 14, 2002, FMR Corp. has
sole voting power with respect to 41,800 shares, and sole dispositive power
with respect to 4,311,400 shares. Edward C.

Johnson 3d and Abigail P. Johnson have sole dispositive power with respect
to 4,311,400 shares. The address for FMR Corp., Edward C. Johnson 3d and
Abigail P. Johnson is 82 Devonshire Street, Boston, Massachusetts 02109.

(2) Pursuant to an amended Schedule 13G dated November 30, 2001, PRIMECAP
Management Company has sole voting power with respect to 1,849,000 shares,
and sole dispositive power with respect to 4,149,000 shares. The address
for PRIMECAP Management Company is 225 South Lake Avenue #400, Pasadena,
California 91101.

(3) Pursuant to a Schedule 13G dated February 13, 2002, Wachovia Corporation
has sole voting power with respect to 2,946,171 shares, sole dispositive
power with respect to 2,714,304 shares, shared voting power with respect to
12,885 shares, and shared dispositive power with respect to 277,228 shares.
The address for Wachovia Corporation is One Wachovia Center, Charlotte,
North Carolina 28288.

(4) Pursuant to an amended Schedule 13G dated October 9, 2000, Putnam
Investments, Inc. has shared voting power with respect to 173,800 shares
and shared dispositive power with respect to 2,512,753 shares; Putnam
Investment Management, Inc. has shared dispositive power with respect to
1,808,800 shares; and The Putnam Advisory Company, Inc. has shared voting
power with respect to 173,800 shares and shared dispositive power with
respect to 703,953 shares. The address for Putnam Investments, Inc., Putnam
Investment Management, Inc. and The Putnam Advisory Company, Inc. is One
Post Office Square, Boston, Massachusetts 02109.

(5) Pursuant to an amended Schedule 13G dated February 12, 2002, Vanguard
Horizon Funds -- Vanguard Capital Opportunity Fund has sole voting power
and shared dispositive power with respect to 2,300,000 shares. The address
for Vanguard is 100 Vanguard Blvd., Malvern, Pennsylvania 19355.

(6) Pursuant to an amended Schedule 13G dated January 23, 2002, Salomon
Brothers Holding Company Inc. has shared voting power and shared
dispositive power with respect to 2,060,228 shares; Salomon Smith Barney
Holdings Inc. has shared voting power and shared dispositive power with
respect to 2,062,218 shares; and Citigroup Inc. has shared voting power and
shared dispositive power with respect to 2,121,328 shares. The address for
Salomon Brothers Holding Company Inc. and Salomon Smith Barney Holdings
Inc. is 388 Greenwich Street, New York, New York 10013. The address for
Citigroup is 399 Park Avenue, New York, New York 10043.

(7) Pursuant to a Schedule 13G dated December 31, 1999, American Express
Company and the American Express Financial Corporation each has shared
voting power and shared dispositive power with respect to 2,101,256 shares.
The address for American Express Company is American Express Tower, 200
Vesey Street, New York, New York 10285 and the address for American Express
Financial Corporation is IDS Tower 10, Minneapolis, Minnesota 55440.

(8) Includes shares subject to stock options that were exercisable as of April
30, 2002 or that will become exercisable within 60 days thereafter, as
follows: Mr. Axelrod, 432,674; Mr. Beekman, 21,400; Mr. Goldstein, 21,400;
Mr. Compton, 12,000; Mr. Handel, 4,667; Mr. Silverstein, 128,966; Mr.
Giles, 61,680; and Mr. Silva, 14,585; and all directors and executive
officers as a group, 697,372. Also includes shares held in trust pursuant
to long-term incentive plan deferred stock awards, as follows: Mr. Axelrod,
38,077 shares; Mr. Silverstein, 17,278 shares; Mr. Giles, 10,009 shares;
and Mr. Silva, 8,970 shares.

(9) Includes 400 shares held by Mr. Axelrod's minor children, as to which
shares Mr. Axelrod disclaims beneficial ownership.

(10) Includes 800 shares held by Mr. Silverstein's minor children, as to which
shares Mr. Silverstein disclaims beneficial ownership.

DESCRIPTION OF CAPITAL STOCK

The following description is a summary of the terms of our capital stock.
This description is not complete and is subject to the applicable provisions of
Delaware law and our certificate of incorporation and bylaws.

GENERAL

Our authorized capital stock consists of 135,000,000 shares of common
stock, par value $0.01 per share and 1,000,000 shares of preferred stock, par
value $0.01 per share.

As of April 30, 2002, there were 40,711,868 shares of our common stock
issued and outstanding and there were no shares of preferred stock outstanding.
All outstanding shares of common stock are, and those issued in this offering
will be, validly issued, fully paid and nonassessable. As of April 30, 2002, we
held 249,196 shares of our common stock in treasury.

As of April 30, 2002, 8,716,707 shares of our common stock were reserved
for issuance pursuant to outstanding stock options and existing benefit plans.

The transfer agent for our common stock is EquiServe Trust Company, N.A.
EquiServe's principal executive offices are located at P.O. Box 43010,
Providence, Rhode Island 02940-3010.

COMMON STOCK

Each holder of our common stock is entitled to one vote per share on all
matters submitted to a vote of stockholders, including the election of
directors. There are no cumulative voting rights for the election of our
directors. Under Delaware law, the approval of the holders of a majority of all
outstanding stock is required to effect a merger of us, the disposition of all
or substantially all of our assets or for certain other actions. Our certificate
of incorporation prohibits removal of directors by the stockholders, except for
cause with the affirmative vote of the holders of not less than a majority of
the total voting power of all outstanding voting securities voting as a class.

Our certificate of incorporation prohibits the taking of stockholder action
by written consent in lieu of a meeting, and generally permits special meetings
of stockholders to be called only by our board of directors, our Chairman of the
Board, President or Secretary. The affirmative vote of 80% of the total voting
power of all outstanding securities voting as a class is required to amend any
provision of our certificate of incorporation, other than those provisions
relating to our name, registered agent, purpose or authorized stock.

Upon our liquidation or dissolution, the holders of our common stock will
be entitled to share ratably in the assets legally available for distribution to
stockholders after payment of liabilities and subject to the prior rights of any
holders of preferred stock then outstanding. Subject to the preferential rights
of holders of any outstanding shares of preferred stock, the holders of common
stock are entitled to share ratably in any dividends, declared and paid by our
board of directors out of legally available funds. Holders of common stock have
no conversion, sinking fund, redemption, preemptive or subscription rights. The
rights, preferences and privileges of holders of our common stock are subject to
the rights of the holders of shares of any series of preferred stock which we
may issue in the future.

PREFERRED STOCK

Our board of directors has the authority, subject to any limitations
prescribed by law, to issue preferred stock in one or more series and to fix the
rights, preferences, privileges and restrictions thereof, including dividend
rights, dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares constituting
any series or the designation of such series, without further vote or action by
our stockholders. The issuance of preferred stock may have the effect of
delaying, deferring or preventing a change in control of us without further
action by our

stockholders and may adversely affect the voting and other rights of the holders
of our common stock. We have never issued any preferred stock and we have no
current plans to issue preferred stock.

DELAWARE LAW

We are subject to the "business combination" provisions contained in
Section 203 of the Delaware General Corporation Law. In general, such provisions
prohibit a publicly held Delaware corporation from engaging in various "business
combination" transactions with any "interested stockholder" for a period of
three years after the date of the transaction in which the person became an
"interested stockholder," unless (i) the transaction is approved by the board of
directors prior to the date the "interested stockholder" obtained such status,
(ii) upon consummation of the transaction which resulted in the stockholder
becoming an "interested stockholder," the "interested stockholder" had owned at
least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced, or (iii) on or subsequent to such date the "business
combination" is approved by the board of directors and at an annual or special
meeting of stockholders by the affirmative vote of at least 66 2/3% of the
outstanding voting stock which is not owned by the "interested stockholder." A
"business combination" is defined to include mergers, asset sales and other
transactions resulting in financial benefit to a stockholder. In general, an
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years, did own) 15% or more of a corporation's
voting stock. The statute could prohibit or delay mergers or other takeover or
change in control attempts and, accordingly, may discourage attempts to acquire
us.

SHARES ELIGIBLE FOR FUTURE SALE

We cannot predict the effect, if any, that market sales of shares of our
common stock or the availability of shares of our common stock for sale will
have on the market price of our common stock prevailing from time to time.
Nevertheless, sales of substantial amounts of our common stock in the public
market could adversely affect the market price of our common stock and could
impair our future ability to raise capital through the sale of our equity
securities.

Upon the completion of this offering, we will have outstanding 44,011,868
shares of our common stock, assuming no exercise of outstanding options and no
exercise of the underwriters' over-allotment option. We have reserved 8,716,707
shares of common stock for issuance upon exercise of options granted or to be
granted under our stock option plans and existing benefit plans for employees
and directors, of which options to purchase 4,365,603 shares are outstanding,
net of cancellations. The grant of options to purchase shares of common stock
under our stock option plans is conditional on our having available a sufficient
number of shares of capital stock authorized for issuance.

The 3,300,000 shares to be sold in this offering, plus any shares sold upon
exercise of the underwriters' over-allotment option and any shares of our common
stock purchased under our stock option plans, will be freely tradable without
restriction or further registration under the Securities Act, unless purchased
in this offering by our "affiliates," as that term is defined in Rule 144 under
the Securities Act. Any shares purchased by an affiliate of ours, including
shares acquired upon exercise of stock options, may not be resold except
pursuant to an effective registration statement or an applicable exemption from
registration, including an exemption under Rule 144 of the Securities Act,
pursuant to which the affiliate will be entitled to sell in any three-month
period a number of shares that does not exceed the greater of:

- 1% of our then outstanding shares of the common stock, or approximately
407,119 shares, as of April 30, 2002; or

- the average weekly trading volume in our common stock during the four
calendar weeks preceding the filing of a notice of the sale on Form 144
with the SEC.

Sales pursuant to Rule 144 are subject to requirements relating to the manner of
sale, notice and availability of public information about us.

We have filed registration statements on Form S-8 under the Securities Act
to register approximately 11,559,618 shares of common stock issuable under our
stock plans. Shares issued under our stock plans pursuant to those registration
statements are eligible for resale in the public market without restriction,
subject to Rule 144 limitations applicable to affiliates and to lock-up
agreements described below.

Our directors, executive officers and certain other officers have entered
into the lock-up agreements described in "Underwriting."

MATERIAL U.S. FEDERAL INCOME AND ESTATE TAX CONSIDERATIONS
FOR NON-U.S. HOLDERS

The following is a general discussion of the material U.S. federal income
and estate tax consequences of the ownership and disposition of our common stock
by a non-U.S. holder that acquires our common stock pursuant to this offering.
As used in this discussion, the term "non-U.S. holder" means a beneficial owner
of our common stock that is not, for U.S. federal income tax purposes:

- an individual who is a citizen or resident of the United States;

- a corporation or partnership created or organized in or under the laws of
the United States, or of any political subdivision of the United States,
other than a partnership treated as foreign under U.S. Treasury
regulations;

- an estate whose income is subject to U.S. federal income taxation
regardless of its source; or

- a trust, in general, if a U.S. court is able to exercise primary
supervision over the administration of the trust and one or more U.S.
persons have authority to control all substantial decisions of the trust.

An individual may be treated as a resident of the United States in any
calendar year for U.S. federal income tax purposes, instead of a nonresident,
by, among other ways, being present in the United States on at least 31 days in
that calendar year and for an aggregate of at least 183 days during a three-year
period ending in the current calendar year. For purposes of this calculation,
you would count all of the days present in the current year, one-third of the
days present in the immediately preceding year and one-sixth of the days present
in the second preceding year. Residents are taxed for U.S. federal income tax
purposes in the same manner as U.S. citizens.

This discussion does not consider:

- U.S. state or local or non-U.S. tax consequences;

- specific facts and circumstances that may be relevant to a particular
non-U.S. holder's tax position, including the fact that in the case of a
non-U.S. holder that is a partnership, the U.S. tax consequences of
holding and disposing of our common stock may be affected by certain
determinations made at the partner level;

- the tax consequences for the stockholders, partners, or beneficiaries of
a non-U.S. holder;

- special tax rules that may apply to particular non-U.S. holders, such as
financial institutions, insurance companies, tax-exempt organizations,
certain former citizens or former long-term residents of the United
States, broker-dealers, and traders in securities; or

- special tax rules that may apply to a non-U.S. holder that holds our
common stock as part of a "straddle," "hedge," "conversion transaction,"
"synthetic security," or other integrated investment.

The following discussion is based on provisions of the Internal Revenue
Code of 1986, as amended (the "Code"), existing and proposed U.S. Treasury
regulations and administrative and judicial interpretations, all as in effect as
of the date hereof, and all of which are subject to change, retroactively or
prospectively. The following summary assumes that a non-U.S. holder holds our
common stock as a capital asset within the meaning of Section 1221 of the Code.

EACH NON-U.S. HOLDER SHOULD CONSULT A TAX ADVISOR REGARDING THE U.S.
FEDERAL, STATE, LOCAL, AND NON-U.S. INCOME AND OTHER TAX CONSEQUENCES OF OWNING
AND DISPOSING OF OUR COMMON STOCK.

DISTRIBUTIONS ON COMMON STOCK

We do not anticipate paying dividends on our common stock in the
foreseeable future. See "Dividend Policy" above. In the event, however, that we
make cash distributions on our common stock, such

distributions generally will constitute dividends for U.S. federal income tax
purposes to the extent paid from our current or accumulated earnings and
profits, as determined under U.S. federal income tax principles.

Dividends paid to a non-U.S. holder that are not effectively connected with
the non-U.S. holder's conduct of a U.S. trade or business will be subject to
U.S. withholding tax at a 30% rate, or if a tax treaty applies, a lower rate
specified by the treaty. Non-U.S. holders should consult their tax advisors
regarding their entitlement to benefits under a relevant income tax treaty.

Under applicable U.S. Treasury regulations, for purposes of the withholding
discussed above and for purposes of determining the applicability of a tax
treaty rate:

- a non-U.S. holder that claims the benefit of an applicable income tax
treaty rate generally will be required to satisfy certain certification
and other requirements;

- in the case of common stock held by a foreign partnership, the
certification requirement will generally be applied to the partners of
the partnership and the partnership will be required to provide certain
information;

- in the case of common stock held by a foreign trust, the certification
requirement will generally be applied to the trust or the beneficial
owners of the trust depending on whether the trust is a "foreign complex
trust," "foreign simple trust," or "foreign grantor trust" as defined in
the U.S. Treasury regulations; and

- look-through rules will apply for tiered partnerships, foreign simple
trusts, and foreign grantor trusts.

A non-U.S. holder that is a foreign partnership or a foreign trust is urged
to consult its own tax advisor regarding its status under U.S. federal income
tax law and the certification requirements applicable to it.

A non-U.S. holder that is eligible for a reduced rate of U.S. federal
withholding tax under an income tax treaty may obtain a refund or credit of any
excess amounts withheld by filing an appropriate claim for a refund with the
U.S. Internal Revenue Service (the "IRS").

Dividends that are effectively connected with a non-U.S. holder's conduct
of a trade or business in the United States and, if an income tax treaty
applies, attributable to a permanent establishment in the United States, are
taxed on a net income basis at the regular graduated U.S. federal income tax
rates and in the manner applicable to U.S. persons. In such cases, we will not
have to withhold U.S. federal withholding tax if the non-U.S. holder complies
with applicable certification and disclosure requirements. In addition, a
"branch profits tax" may be imposed at a 30% rate, or a lower rate under an
applicable income tax treaty, on dividends received by a foreign corporation
that are effectively connected with the conduct of a trade or business in the
United States.

GAIN ON DISPOSITION OF COMMON STOCK

A non-U.S. holder generally will not be subject to U.S. federal income tax
on gain recognized on a disposition of our common stock unless:

- the gain is effectively connected with the non-U.S. holder's conduct of a
trade or business in the United States or, alternatively, if an income
tax treaty applies, is attributable to a permanent establishment
maintained by the non-U.S. holder in the United States. In these cases,
the gain will be taxed on a net income basis at the regular graduated
rates and in the manner applicable to U.S. persons and, if the non-U.S.
holder is a foreign corporation, the "branch profits tax" described above
may also apply;

- the non-U.S. holder is an individual who is present in the United States
for 183 days or more in the taxable year of the disposition and meets
certain other requirements. In such case, the non-U.S. holder will be
subject to a flat 30% tax on its net gain, if any, from the sale or other
disposition of all such non-U.S. holder's capital assets sold or
otherwise disposed of during the taxable year; or
41

- we are or have been a "U.S. real property holding corporation" for U.S.
federal income tax purposes at any time during the shorter of the
five-year period ending on the date of disposition or the period that the
non-U.S. holder held our common stock. Generally, a corporation is a
"U.S. real property holding corporation" if the fair market value of its
"U.S. real property interests" equals or exceeds 50% of the fair market
value of: (i) its United States real property interests, (ii) its
interests in real property located outside the United States, and (iii)
any other of its assets that are used or held for use in a trade or
business. The tax relating to stock in a "U.S. real property holding
corporation" generally will not apply to a non-U.S. holder whose
holdings, actually or constructively, at all times during the applicable
period, constituted 5% or less of our common stock, provided that our
common stock was "regularly traded on an established securities market
within the meaning of Section 897(c)(3) of the Code." We believe that we
have not been and are not currently, and we do not anticipate becoming in
the future, a "U.S. real property holding corporation" for U.S. federal
income tax purposes. However, if we are or were to become a "U.S. real
property holding corporation" for U.S. federal income tax purposes and a
non-U.S. holder owned directly or indirectly more than 5% of our common
stock during the period described above or our common stock is not
"regularly traded on an established securities market," then such non-
U.S. holder would generally be subject to a U.S. federal income tax as
though the non-U.S. holder was engaged in a business in the United States
and the gain or loss was effectively connected with this business.

FEDERAL ESTATE TAX

Common stock owned or treated as owned by an individual who is a non-U.S.
holder (as specially defined for U.S. federal estate tax purposes) at the time
of death will be included in the individual's gross estate for U.S. federal
estate tax purposes, unless an applicable estate tax or other treaty provides
otherwise and, therefore, may be subject to U.S. federal estate tax.

INFORMATION REPORTING AND BACKUP WITHHOLDING TAX

We must report annually to the IRS and to each non-U.S. holder the amount
of dividends paid to that holder and the tax withheld from those dividends.
These reporting requirements apply regardless of whether withholding was reduced
or eliminated by an applicable tax treaty. Copies of the information returns
reporting those dividends and withholding may also be made available to the tax
authorities in the country in which the non-U.S. holder is a resident under the
provisions of an applicable income tax treaty or agreement.

Under some circumstances, U.S. Treasury regulations require additional
information reporting and backup withholding on reportable payments on common
stock. The gross amount of dividends paid to a non-U.S. holder that fails to
certify its non-U.S. holder status in accordance with the applicable U.S.
Treasury regulations generally will be reduced by backup withholding at the
applicable rate (currently 30%).

The payment of the proceeds of the sale or other disposition of common
stock by a non-U.S. holder to or through the U.S. office of any broker, U.S. or
non-U.S., generally will be reported to the IRS and reduced by backup
withholding, unless the non-U.S. holder either certifies its status as a
non-U.S. holder under penalties of perjury or otherwise establishes an
exemption. The payment of the proceeds of the disposition of common stock by a
non-U.S. holder to or through a non-U.S. office of a non-U.S. broker will not be
reduced by backup withholding or reported to the IRS, unless the non-U.S. broker
has certain enumerated connections with the United States. In general, the
payment of proceeds from the disposition of common stock by or through a
non-U.S. office of a broker that is a U.S. person or has certain enumerated
connections with the United States will be reported to the IRS, but will not be
subject to backup withholding, unless the broker receives a statement from the
non-U.S. holder that certifies its status as a non-U.S. holder under penalties
of perjury or the broker has documentary evidence in its files that the holder
is a non-U.S. holder.

Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules from a payment to a non-U.S. holder can be refunded or
credited against the non-U.S. holder's U.S. federal income tax liability, if
any, provided that the required information is furnished to the IRS in a timely
manner. These backup withholding and information reporting rules are complex and
non-U.S. holders are urged to consult their own tax advisors regarding the
application of these rules to them.

THE FOREGOING DISCUSSION OF U.S. FEDERAL INCOME AND ESTATE TAX
CONSIDERATIONS IS NOT TAX ADVICE. ACCORDINGLY, EACH PROSPECTIVE NON-U.S. HOLDER
SHOULD CONSULT ITS OWN TAX ADVISER WITH RESPECT TO THE FEDERAL, STATE, LOCAL AND
NON-U.S. TAX CONSEQUENCES OF THE OWNERSHIP AND DISPOSITION OF OUR COMMON STOCK.

UNDERWRITING

Under the terms and subject to the conditions contained in an underwriting
agreement dated June 17, 2002, we have agreed to sell to the underwriters named
below, for whom Credit Suisse First Boston Corporation is acting as
representative, the following respective numbers of shares of common stock:

NUMBER
UNDERWRITER OF SHARES
----------- ---------

Credit Suisse First Boston Corporation...................... 2,029,500
Lehman Brothers Inc. ....................................... 330,000
Robertson Stephens, Inc. ................................... 297,000
SunTrust Capital Markets, Inc. ............................. 198,000
BNY Capital Markets, Inc. .................................. 198,000
First Union Securities, Inc. ............................... 198,000
NatCity Investments, Inc. .................................. 49,500
---------
Total.................................................. 3,300,000
=========

The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults the
purchase commitments of non-defaulting underwriters may be increased or the
offering may be terminated.

We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to 495,000 additional shares at the initial public offering price
less the underwriting discounts and commissions. The option may be exercised
only to cover any over-allotments of common stock.

The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a selling concession of $1.00 per share. The
underwriters and selling group members may allow a discount of $0.10 per share
on sales to other broker/dealers. After the initial public offering the
representative may change the public offering price and concession and discount
to broker/dealers.

The following table summarizes the compensation and estimated expenses we
will pay:

PER SHARE TOTAL
-------------------------------- --------------------------------
WITHOUT WITH WITHOUT WITH
OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT
-------------- -------------- -------------- --------------

Underwriting discounts and
commissions paid by us..... $1.65 $1.65 $5,445,000 $6,261,750
Expenses payable by us....... $0.12 $0.10 $ 380,000 $ 380,000

Because more than 10% of the proceeds of this offering, not including
underwriting compensation, will be received by entities who are affiliated with
National Association of Securities Dealers, Inc. members who are participating
in this offering, this offering is being conducted in compliance with the NASD
Conduct Rule 2710(c)(8).

We have agreed that we will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the SEC a
registration statement under the Securities Act relating to, any shares of our
common stock or securities convertible into or exchangeable or exercisable for
any shares of our common stock, or publicly disclose the intention to make any
offer, sale, pledge, disposition or filing, without the prior written consent of
Credit Suisse First Boston Corporation for a period of 90 days after the date of
this prospectus.

Our directors, executive officers and certain other officers have agreed
that they will not offer, sell, contract to sell, pledge or otherwise dispose
of, directly or indirectly, any shares of our common stock or securities
convertible into or exchangeable or exercisable for any shares of our common
stock, enter into a transaction that would have the same effect, or enter into
any swap, hedge or other arrangement that transfers, in whole or in part, any of
the economic consequences of ownership of our common stock, whether

any of these transactions are to be settled by delivery of our common stock or
other securities, in cash or otherwise, or publicly disclose the intention to
make any offer, sale, pledge or disposition, or to enter into any transaction,
swap, hedge or other arrangement, without, in each case, the prior written
consent of Credit Suisse First Boston Corporation for a period of 90 days after
the date of this prospectus.

We have agreed to indemnify the underwriters against liabilities under the
Securities Act, or contribute to payments that the underwriters may be required
to make in that respect.

Certain of the underwriters or their affiliates have provided from time to
time, and may in the future provide, investment banking, lending, financial
advisory and other related services for us. They have received customary fees
and commissions for these transactions. Fleet National Bank, an affiliate of
Robertson Stephens, Inc. is administrative agent under our credit facility. The
Bank of New York, an affiliate of BNY Capital Markets, Inc. is syndication agent
under our credit facility. In addition, affiliates of Credit Suisse First Boston
Corporation and SunTrust Capital Markets, Inc. are expected to become lenders
under our credit facility pursuant to the proposed amendment to the facility.

In connection with the offering the underwriters may engage in stabilizing
transactions, over-allotment transactions, syndicate covering transactions, and
penalty bids in accordance with Regulation M under the Exchange Act.

- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.

- Over-allotment involves sales by the underwriters of shares in excess of
the number of shares the underwriters are obligated to purchase, which
creates a syndicate short position. The short position may be either a
covered short position or a naked short position. In a covered short
position, the number of shares over-allotted by the underwriters is not
greater than the number of shares that they may purchase in the
over-allotment option. In a naked short position, the number of shares
involved is greater than the number of shares in the over-allotment
option. The underwriters may close out any covered short position by
either exercising their over-allotment option and/or purchasing shares in
the open market.

- Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions. In determining the source of shares to
close out the short position, the underwriters will consider, among other
things, the price of shares available for purchase in the open market as
compared to the price at which they may purchase shares through the
over-allotment option. If the underwriters sell more shares than could be
covered by the over-allotment option, a naked short position, the
position can only be closed out by buying shares in the open market. A
naked short position is more likely to be created if the underwriters are
concerned that there could be downward pressure on the price of the
shares in the open market after pricing that could adversely affect
investors who purchase in the offering.

- Penalty bids permit the representative to reclaim a selling concession
from a syndicate member when the common stock originally sold by the
syndicate member is purchased in a stabilizing or syndicate covering
transaction to cover syndicate short positions.

These stabilizing transactions, syndicate covering transactions and penalty bids
may have the effect of raising or maintaining the market price of our common
stock or preventing or retarding a decline in the market price of the common
stock. As a result the price of our common stock may be higher than the price
that might otherwise exist in the open market. These transactions may be
effected on The New York Stock Exchange or otherwise and, if commenced, may be
discontinued at any time.

A prospectus in electronic format may be made available on the web sites
maintained by one or more of the underwriters participating in this offering, or
selling group members, if any, who may participate in this offering. The
representative may agree to allocate a number of shares to underwriters and
selling group members for sale to their online brokerage account holders.
Internet distributions will be allocated by the underwriters and selling group
members that will make internet distributions on the same basis as other
allocations.

NOTICE TO CANADIAN RESIDENTS

RESALE RESTRICTIONS

The distribution of our common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are made. Any resale of our common stock in Canada must
be made under applicable securities laws which will vary depending on the
relevant jurisdiction, and which may require resales to be made under available
statutory exemptions or under a discretionary exemption granted by the
applicable Canadian securities regulatory authority. Canadian purchasers are
advised to seek legal advice prior to any resale of our common stock.

REPRESENTATIONS OF PURCHASERS

By purchasing our common stock in Canada and accepting a purchase
confirmation a purchaser is representing to us and the dealer from whom the
purchase confirmation is received that

- the purchaser is entitled under applicable provincial securities laws to
purchase the common stock without the benefit of a prospectus qualified
under those securities laws,

- where required by law, that the purchaser is purchasing as principal and
not as agent, and

- the purchaser has reviewed the text above under Resale Restrictions.

RIGHTS OF ACTION -- ONTARIO PURCHASERS ONLY

Under Ontario securities legislation, a purchaser who purchases a security
offered by this prospectus during the period of distribution will have a
statutory right of action for damages, or while still the owner of the shares,
for rescission against us in the event that this prospectus contains a
misrepresentation. A purchaser will be deemed to have relied on the
misrepresentation. The right of action for damages is exercisable not later than
the earlier of 180 days from the date the purchaser first had knowledge of the
facts giving rise to the cause of action and three years from the date on which
payment is made for the shares. The right of action for rescission is
exercisable not later than 180 days from the date on which payment is made for
the shares. If a purchaser elects to exercise the right of action for
rescission, the purchaser will have no right of action for damages against us.
In no case will the amount recoverable in any action exceed the price at which
the shares were offered to the purchaser and if the purchaser is shown to have
purchased the securities with knowledge of the misrepresentation, we will have
no liability. In the case of an action for damages, we will not be liable for
all or any portion of the damages that are proven to not represent the
depreciation in value of the shares as a result of the misrepresentation relied
upon. These rights are in addition to, and without derogation from, any other
rights or remedies available at law to an Ontario purchaser. The foregoing is a
summary of the rights available to an Ontario purchaser. Ontario purchasers
should refer to the complete text of the relevant statutory provisions.

ENFORCEMENT OF LEGAL RIGHTS

All of our directors and officers as well as the experts named herein may
be located outside of Canada and, as a result, it may not be possible for
Canadian purchasers to effect service of process within Canada upon us or those
persons. All or a substantial portion of our assets and the assets of those
persons may be located outside of Canada and, as a result, it may not be
possible to satisfy a judgment against us or those persons in Canada or to
enforce a judgment obtained in Canadian courts against us or those persons
outside of Canada.

TAXATION AND ELIGIBILITY FOR INVESTMENT

Canadian purchasers of our common stock should consult their own legal and
tax advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and about the eligibility of the common
stock for investment by the purchaser under relevant Canadian legislation.

RELATIONSHIP WITH AFFILIATES OF CERTAIN UNDERWRITERS

We are in compliance with the terms of our credit facility with affiliates
of Robertson Stephens, Inc. and BNY Capital Markets, Inc. The decision of
Robertson Stephens, Inc. and BNY Capital Markets, Inc. to distribute our shares
of common stock was not influenced by their respective affiliates that are our
lenders and those affiliates had no involvement in determining whether or when
to distribute our shares of common stock under this offering or the terms of
this offering. Robertson Stephens, Inc. and BNY Capital Markets, Inc. will not
receive any benefit from this offering other than their share of the
underwriting discounts and commissions paid by us.

LEGAL MATTERS

The validity of the common stock will be passed upon for us by Pitney,
Hardin, Kipp & Szuch LLP, Morristown, New Jersey. Certain legal matters
regarding the common stock will be passed upon for the underwriters by Dewey
Ballantine LLP, New York, New York.

INDEPENDENT PUBLIC ACCOUNTANTS

Our consolidated balance sheets as of December 29, 2001 and December 30,
2000, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the years in the three-year period ended
December 29, 2001, have been included and incorporated by reference herein and
in the registration statement in reliance upon the report of KPMG LLP,
independent accountants, included and incorporated by reference herein, and upon
the authority of said firm as experts in accounting and auditing.

With respect to the unaudited interim financial information as of and for
the thirteen weeks ended March 30, 2002 and March 31, 2001, included and
incorporated by reference herein, the independent accountants have reported that
they applied limited procedures in accordance with professional standards for a
review of such information. However, their separate report included and
incorporated by reference herein, states that they did not audit and they do not
express an opinion on that interim financial information. Accordingly, the
degree of reliance on their report on such information should be restricted in
light of the limited nature of the review procedures applied. The accountants
are not subject to the liability provisions of Section 11 of the Securities Act
of 1933 for their report on the unaudited interim financial information because
that report is not a "report" or a "part" of the registration statement prepared
or certified by the accountants within the meaning of Sections 7 and 11 of the
Securities Act of 1933.

WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly and special reports, proxy statements and other
information with the SEC under the Exchange Act. You may read and copy this
information at the following locations of the SEC:

Public Reference Room Midwest Regional Office
450 Fifth Street, N.W. 500 West Madison Street
Room 1024 Suite 1400
Washington, DC 20549 Chicago, Illinois 60661

You may also obtain copies of this information at prescribed rates by mail
from the Public Reference Section of the SEC, 450 Fifth Street, N.W., Room 1024,
Washington, DC 20549.

The SEC also maintains a web site that contains reports, proxy statements
and other information about issuers, like us, who file electronically with the
SEC. The address of that site is www.sec.gov.

You can also inspect reports, proxy statements and other information about
our company at the offices of the New York Stock Exchange, 20 Broad Street, New
York, New York 10005.

We have filed with the SEC a registration statement on Form S-3 under the
Securities Act with respect to our common stock. This prospectus does not
contain all of the information set forth in the

registration statement and the exhibits and schedules to the registration
statement. For further information with respect to us and our common stock, we
refer you to our registration statement and the exhibits and schedules filed as
a part of the registration statement. Each statement in this prospectus relating
to a contract or document filed as an exhibit is qualified in all respects by
the filed exhibit.

The SEC allows us to "incorporate by reference" information we file with
the SEC into this prospectus. This means that we can disclose important
information to you by referring you to another document filed separately by us
with the SEC. The information incorporated by reference is considered to be part
of this prospectus, except for any information that is superseded by information
that is included in subsequent incorporated documents or by information that is
included directly in this prospectus.

This prospectus incorporates by reference the documents listed below that
we have previously filed with the SEC and that are not included in or delivered
with this document. They contain important information about us and our
financial condition.

- Our Annual Report on Form 10-K for the fiscal year ended December 29,
2001.

- Our Quarterly Report on Form 10-Q for the thirteen-weeks ended March 30,
2002.

- Our Current Report on Form 8-K filed March 26, 2002.

- Our Current Report on Form 8-K filed June 17, 2002.

We incorporate by reference additional documents that we may file with the
SEC between the date of this prospectus and the date of the termination of this
offering pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act.

You may request a copy of these filings at no cost, excluding any exhibits
to those documents unless the exhibit is specifically incorporated by reference
as an exhibit to this prospectus. You can obtain documents incorporated by
reference in this prospectus by requesting them in writing or by telephone from
us at the following address:

Linens 'n Things, Inc.
6 Brighton Road
Clifton, New Jersey 07015
(973) 778-1300
Attention: Investor Relations

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
LINENS 'N THINGS, INC.

AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF LINENS 'N THINGS, INC. AND
SUBSIDIARIES FOR THE THREE YEARS ENDED DECEMBER 29, 2001, DECEMBER 30, 2000,
JANUARY 1, 2000

Independent Auditors' Report................................ F-2
Consolidated Statements of Operations....................... F-3
Consolidated Balance Sheets................................. F-4
Consolidated Statements of Shareholders' Equity............. F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7

UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF LINENS 'N THINGS, INC. AND
SUBSIDIARIES FOR THE THIRTEEN WEEKS ENDED MARCH 30, 2002 AND MARCH 31, 2001

Independent Auditors' Review Report......................... F-21
Consolidated Statements of Operations....................... F-22
Consolidated Balance Sheets................................. F-23
Consolidated Statements of Cash Flows....................... F-24
Notes to Consolidated Financial Statements.................. F-25

F-1

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders
Linens 'n Things, Inc.

We have audited the accompanying consolidated balance sheets of Linens 'n
Things, Inc. and Subsidiaries as of December 29, 2001 and December 30, 2000, and
the related consolidated statements of operations, shareholders' equity and cash
flows for each of the years in the three-year period ended December 29, 2001.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Linens 'n
Things, Inc. and Subsidiaries as of December 29, 2001 and December 30, 2000, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 29, 2001 in conformity with accounting
principles generally accepted in the United States of America.

KPMG LLP

New York, New York
January 30, 2002

F-2

LINENS 'N THINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
DECEMBER 29, 2001, DECEMBER 30, 2000 AND JANUARY 1, 2000

FISCAL YEAR ENDED
------------------------------------------
DECEMBER 29, DECEMBER 30, JANUARY 1,
2001 2000 2000
------------ ------------ ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NET SALES............................................. $1,823,803 $1,572,576 $1,300,632
Cost of sales, including buying and distribution
costs............................................... 1,081,259 929,305 772,453
---------- ---------- ----------
GROSS PROFIT.......................................... 742,544 643,271 528,179
Selling, general and administrative expenses.......... 652,058 536,179 443,627
Restructuring and asset impairment charge............. 34,006 -- --
Litigation charge..................................... 4,000 -- --
---------- ---------- ----------
OPERATING PROFIT...................................... 52,480 107,092 84,552
Interest income....................................... (27) (198) (368)
Interest expense...................................... 3,897 2,139 411
---------- ---------- ----------
Interest expense, net................................. 3,870 1,941 43
---------- ---------- ----------
Income before income taxes............................ 48,610 105,151 84,509
Provision for income taxes............................ 18,861 40,214 32,457
---------- ---------- ----------
NET INCOME............................................ $ 29,749 $ 64,937 $ 52,052
========== ========== ==========
Per share of common stock:
Basic
Net income....................................... $ 0.73 $ 1.63 $ 1.32
Weighted-average shares outstanding.............. 40,508 39,785 39,339
Diluted
Net income....................................... $ 0.72 $ 1.60 $ 1.27
Weighted-average shares outstanding.............. 41,193 40,712 40,907

See accompanying notes to consolidated financial statements.
F-3

LINENS 'N THINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
DECEMBER 29, 2001 AND DECEMBER 30, 2000

DECEMBER 29, DECEMBER 30,
2001 2000
------------ ------------
(IN THOUSANDS,
EXCEPT SHARE AMOUNTS)

ASSETS
CURRENT ASSETS:
Cash and cash equivalents.............................. $ 15,437 $ 38,524
Accounts receivable.................................... 40,835 31,508
Inventories............................................ 492,307 437,258
Prepaid expenses and other current assets.............. 15,691 13,233
Current deferred taxes................................. 23,524 12,127
-------- --------
TOTAL CURRENT ASSETS...................................... 587,794 532,650
Property and equipment, net............................ 312,403 262,409
Goodwill, net of accumulated amortization of $9,064 at
December 29, 2001 and $8,214 at December 30, 2000..... 18,126 18,977
Deferred charges and other non-current assets, net..... 9,116 7,521
-------- --------
TOTAL ASSETS.............................................. $927,439 $821,557
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable....................................... $180,840 $183,473
Accrued expenses and other current liabilities......... 149,201 118,580
Short-term borrowings.................................. 29,675 3,903
-------- --------
TOTAL CURRENT LIABILITIES................................. 359,716 305,956
Deferred income taxes and other long-term
liabilities........................................... 69,508 56,607
SHAREHOLDERS' EQUITY:
Preferred stock, $0.01 par value; 1,000,000 shares
authorized; none issued and outstanding............... -- --
Common stock, $0.01 par value; 135,000,000 shares
authorized; 40,872,008 shares issued and 40,624,374
shares outstanding at December 29, 2001; 40,173,441
shares issued and 40,059,126 shares outstanding at
December 30, 2000..................................... 409 402
Additional paid-in capital............................. 245,234 231,547
Retained earnings...................................... 259,935 230,186
Accumulated other comprehensive (loss) income.......... (417) 289
Treasury stock, at cost; 247,634 shares at December 29,
2001 and 114,315 shares at December 30, 2000.......... (6,946) (3,430)
-------- --------
TOTAL SHAREHOLDERS' EQUITY................................ 498,215 458,994
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................ $927,439 $821,557
======== ========

See accompanying notes to consolidated financial statements.
F-4

LINENS 'N THINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 29, 2001, DECEMBER 30, 2000 AND JANUARY 1, 2000

FOREIGN
COMMON STOCK ADDITIONAL CURRENCY
------------------- PAID-IN RETAINED TRANSLATION TREASURY
SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENTS STOCK TOTAL
---------- ------ ---------- -------- ----------- -------- --------
(IN THOUSANDS, EXCEPT NUMBER OF SHARES)

BALANCE AT DECEMBER 31,
1998...................... 39,037,948 $391 $211,378 $113,197 $ -- $(1,390) $323,576
Net income.................. -- -- -- 52,052 -- -- 52,052
Common stock issued under
stock incentive plans..... 463,978 5 9,373 -- -- -- 9,378
Purchase of treasury
stock..................... (23,144) -- -- -- -- (1,044) (1,044)
---------- ---- -------- -------- ----- ------- --------
BALANCE AT JANUARY 1,
2000...................... 39,478,782 396 220,751 165,249 -- (2,434) 383,962
Net income.................. -- -- -- 64,937 -- -- 64,937
Currency translation
adjustment................ -- -- -- -- 289 -- 289
--------
Comprehensive earnings...... 65,226
Common stock issued under
stock incentive plans..... 618,182 6 10,796 -- -- -- 10,802
Purchase of treasury
stock..................... (37,838) -- -- -- -- (996) (996)
---------- ---- -------- -------- ----- ------- --------
BALANCE AT DECEMBER 30,
2000...................... 40,059,126 402 231,547 230,186 289 (3,430) 458,994
Net income.................. -- -- -- 29,749 -- -- 29,749
Currency translation
adjustment................ -- -- -- -- (706) -- (706)
--------
Comprehensive earnings...... 29,043
Common stock issued under
stock incentive plans..... 698,567 7 13,687 -- -- -- 13,694
Purchase of treasury
stock..................... (133,319) -- -- -- -- (3,516) (3,516)
---------- ---- -------- -------- ----- ------- --------
BALANCE AT DECEMBER 29,
2001...................... 40,624,374 $409 $245,234 $259,935 $(417) $(6,946) $498,215
========== ==== ======== ======== ===== ======= ========

See accompanying notes to consolidated financial statements.
F-5

LINENS 'N THINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 29, 2001, DECEMBER 30, 2000 AND JANUARY 1, 2000

FISCAL YEAR ENDED
----------------------------------------
DECEMBER 29, DECEMBER 30, JANUARY 1,
2001 2000 2000
------------ ------------ ----------
(IN THOUSANDS)

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................................. $ 29,749 $ 64,937 $ 52,052
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................ 40,113 32,432 26,521
Deferred income taxes................................ (6,025) 5,075 3,784
Loss on disposal of assets........................... 1,335 807 868
Federal tax benefit from common stock issued under
stock incentive plans.............................. 3,671 4,480 4,669
Restructuring and asset impairment charge............ 37,837 -- --
Changes in assets and liabilities:
(Increase) decrease in accounts receivable......... (9,364) (10,663) 1,978
Increase in inventories............................ (59,720) (94,450) (71,292)
Increase in prepaid expenses and other current
assets.......................................... (1,532) (2,470) (1,551)
Increase in deferred charges and other non-current
assets.......................................... (2,060) (2,489) (1,062)
(Decrease) increase in accounts payable............ (2,510) 38,556 29,130
Increase in accrued expenses and other
liabilities..................................... 12,764 17,904 24,480
--------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES................. 44,258 54,119 69,577
--------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment..................... (100,028) (70,405) (70,129)
--------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from common stock issued under stock incentive
plans................................................ 10,023 6,322 4,709
Purchase of treasury stock.............................. (3,516) (996) (1,044)
Increase in short-term borrowings....................... 26,182 3,857 --
--------- -------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES................. 32,689 9,183 3,665
--------- -------- --------
Effect of exchange rate changes on cash and cash
equivalents............................................. (6) (124) --
Net (decrease) increase in cash and cash equivalents...... (23,087) (7,227) 3,113
Cash and cash equivalents at beginning of year............ 38,524 45,751 42,638
--------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................. $ 15,437 $ 38,524 $ 45,751
========= ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
CASH PAID DURING THE YEAR FOR:
Interest (net of amounts capitalized)................... $ 4,059 $ 2,500 $ 747
Income taxes............................................ $ 23,514 $ 25,102 $ 20,889

See accompanying notes to consolidated financial statements.
F-6

LINENS 'N THINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 29, 2001, DECEMBER 30, 2000 AND JANUARY 1, 2000

1. BUSINESS

Linens 'n Things, Inc. and its subsidiaries (collectively the "Company")
operate in one segment, the retail industry, and had 343 stores in 43 states
across the United States and four Provinces in Canada as of the fiscal year
ended December 29, 2001. The Company's stores emphasize a broad assortment of
home textiles, housewares and home accessories, carrying both national brand and
private label goods.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The consolidated financial statements include those of Linens 'n Things,
Inc. and its wholly-owned subsidiaries. All significant inter-company balances
and transactions have been eliminated.

Fiscal Periods

The Company utilizes a 52/53-week period ending on the Saturday nearest the
last day of December. Accordingly, fiscal 2001, 2000 and 1999 were 52-week
periods, which ended on December 29, 2001, December 30, 2000 and January 1,
2000, respectively.

Revenue Recognition

The Company recognizes revenue at the time of sale of merchandise to its
customers. Provisions for estimated future sales returns when material are
recorded in the period that the related sales are recorded. The Company
determines the amount of provision based on historical information. Sales
discounts, coupons and other similar incentives are recorded as a reduction of
sales revenue in the period when the related sales are recorded.

Inventories

Inventories consist of finished goods merchandise purchased from domestic
and foreign vendors and are carried at the lower of cost or market; cost is
determined by the retail inventory method of accounting. Amounts are removed
from inventory at the average cost method.

Deferred Rent

The Company accrues for scheduled rent increases contained in its leases on
a straight-line basis over the non-cancelable lease term.

Store Opening and Closing Costs

New store opening costs are charged to expense as incurred. In the event a
store is closed before its lease has expired, the remaining lease obligation,
less anticipated sublease rental income and asset impairment charges related to
improvements and fixtures and other miscellaneous closing costs is provided for
in the period in which management determines to close a store.

For fiscal 2001, the Company recorded a pre-tax restructuring and asset
impairment charge of $37.8 million related to the accelerated closing of 17
under-performing stores (see Note 3 to the Consolidated Financial Statements).
For fiscal 2000 and 1999, all expenditures related to store closings had been
made and therefore, there were no reserves for store closings at the end of
fiscal 2000 or 1999.

F-7

LINENS 'N THINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Financial Instruments

Cash and cash equivalents, accounts receivable, accounts payable and
accrued expenses are reflected in the consolidated financial statements at
carrying values which approximate fair value due to the short-term nature of
these instruments. The carrying value of the Company's borrowings approximates
the fair value based on the current rates available to the Company for similar
instruments.

Cash and Cash Equivalents

Cash equivalents are considered, in general, to be those securities with
maturities of three months or less when purchased.

Property and Equipment

Property and equipment are stated at cost. Depreciation is computed on a
straight-line basis over the estimated useful lives of the assets (40 years for
buildings and 5 to 15 years for furniture, fixtures and equipment). Capitalized
software costs are amortized on a straight-line basis over their estimated
useful lives of 3 to 5 years, beginning in the year placed in service. Leasehold
improvements are amortized over the shorter of the related lease term or the
economic lives of the related assets.

Maintenance and repairs are charged directly to expense as incurred. Major
renewals or replacements are capitalized after making the necessary adjustments
to the asset and accumulated depreciation accounts of the items renewed or
replaced.

Impairment of Long-Lived Assets

Long-lived assets, including fixed assets and goodwill, are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. If events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable, the Company estimates the undiscounted future cash flows to result
from the use of the asset and its ultimate disposition. If the sum of the
undiscounted cash flows is less than the carrying value, the Company recognizes
an impairment loss, measured as the amount by which the carrying value exceeds
the fair value of the asset. Fair value would generally be determined by market
value. Assets to be disposed of are reported at the lower of the carrying amount
or fair value less costs to sell.

Deferred Charges

Deferred charges, principally beneficial leasehold costs, are amortized on
a straight-line basis, generally over the remaining life of the leasehold
acquired.

Goodwill

Prior to fiscal 2002, the excess of acquisition costs over the fair value
of net assets acquired was amortized on a straight-line basis over 32 years.
Beginning in fiscal 2002, the Company will adopt SFAS No. 142, "Goodwill and
Intangible Assets" which no longer permits the amortization of goodwill.

Cost of Sales

In addition to the cost of inventory sold, the Company includes its buying
and distribution expenses in its cost of sales. Buying expenses include all
direct and indirect costs to procure merchandise. Distribution expenses include
the cost of operating the Company's distribution centers and freight expense
related to transporting merchandise.

F-8

LINENS 'N THINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Advertising Costs

The Company expenses the production costs of advertising at the
commencement date of the advertisement. Advertising costs were $49.7 million,
$39.6 million and $35.6 million for fiscal years 2001, 2000 and 1999,
respectively.

Income Taxes

Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in statutory tax rates is recognized in
income in the period that includes the enactment date.

Stock-Based Compensation

The Company grants stock options and restricted stock for a fixed number of
shares to employees. The exercise prices of the stock options are equal to the
fair market value of the underlying shares at the date of grant. The Company has
adopted the disclosure provisions of Statement of Financial Accounting Standards
No. 123 ("SFAS No. 123"), "Accounting for Stock-Based Compensation." In
accordance with the provisions of SFAS No. 123, the Company accounts for stock
option grants and restricted stock grants in accordance with Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees." Accordingly, the Company does not recognize compensation expense for
stock option grants and amortizes restricted stock grants at fair market value
over specified vesting periods.

Earnings Per Share

The Company presents earnings per share on a "basic" and "diluted" basis.
Basic earnings per share is computed by dividing net income by the
weighted-average number of shares outstanding during the period. Diluted
earnings per share is computed by dividing net income by the weighted-average
number of shares outstanding adjusted for dilutive common stock equivalents.

The calculation of basic and diluted earnings per share ("EPS") for fiscal
2001, 2000 and 1999 is as follows (in thousands, except per share amounts):

FISCAL YEAR ENDED
-----------------------------
2001 2000 1999
------- ------- -------

Net Income............................................ $29,749 $64,937 $52,052
======= ======= =======
Average Shares Outstanding:
Basic................................................. 40,508 39,785 39,339
Effect of outstanding stock options and restricted
stock grants..................................... 685 927 1,568
------- ------- -------
Diluted............................................... 41,193 40,712 40,907
======= ======= =======
Earnings per share:
Basic................................................. $ 0.73 $ 1.63 $ 1.32
======= ======= =======
Diluted............................................... $ 0.72 $ 1.60 $ 1.27
======= ======= =======

Options for which the exercise price was greater than the average market
price of common shares as of the fiscal years ended 2001, 2000 and 1999 were not
included in the computation of diluted earnings per

F-9

LINENS 'N THINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

share. These consisted of options totaling 1,495,000 shares, 1,543,000 shares
and 43,000 shares, respectively. Restricted stock grants excluded from the
computation of diluted earnings per share due to the application of the treasury
stock method were 13,000 shares, 20,000 shares and 3,000 shares for fiscal years
ended 2001, 2000 and 1999, respectively.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts and timing of
revenues and of expenses during the reporting period. The Company's management
believes the following critical accounting policies, among others, involve
significant estimates and judgments inherent in the preparation of the
consolidated financial statements. The Company estimates future sales returns
and, when material, records a provision in the period that the related sales are
recorded based on historical information. Should actual returns differ from the
Company's estimates, revisions to estimated sales return may be required. The
Company records estimated inventory shrink expense based upon historical
experience between the dates of physical inventories. Although inventory shrink
rates have not fluctuated significantly over the past several years, should
actual inventory shrink rates differ from the Company's estimates, revisions to
inventory shrink expense may be required. The Company records estimated store
closure costs in the period in which management determines to close a store.
Such estimates may be subject to change should actual results differ.

Reclassifications

Certain reclassifications were made to the fiscal 2000 and 1999
consolidated financial statements in order to conform to the fiscal 2001
presentation.

3. RESTRUCTURING AND ASSET IMPAIRMENT CHARGE

In connection with this initiative, the Company recorded a pre-tax
restructuring and asset impairment charge of $37.8 million ($23.7 million
after-tax) in the fourth quarter of fiscal 2001. Of the $37.8 million, $34.0
million is included in restructuring and asset impairment charge and $3.8
million is recorded in cost of sales. The estimated after-tax cash portion,
which will be paid in cash, is approximately $15.2 million and the after-tax
non-cash portion of the charge is approximately $8.5 million.

A pre-tax reserve of $20.5 million was established for estimated lease
commitments for stores to be closed. This reserve is included in accrued
expenses. The reserve considers estimated sublease income. All of the stores
were leased and as such, the Company will not be responsible for the disposal of
property other than fixtures. A pre-tax reserve of $9.5 million has been
recorded for fixed asset impairments for these stores. The fixed asset
impairments represent fixtures and leasehold improvements. This charge was
recorded as a reduction of property and equipment. Additionally, a pre-tax
reserve of $4.0 million has been established for other estimated miscellaneous
store closing costs. A pre-tax reserve of $3.8 million was recorded in cost of
sales for estimated inventory markdowns below cost for the stores to be closed.
F-10

LINENS 'N THINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4. ACCOUNTS RECEIVABLE

FISCAL YEAR ENDED
ACCOUNTS RECEIVABLE, CONSISTED ------------------
OF THE FOLLOWING (IN THOUSANDS): 2001 2000
-------------------------------- ------- -------

Credit card settlements due................................. $16,839 $ 9,489
Due from landlords and vendors.............................. 17,161 20,934
Other....................................................... 6,835 1,085
------- -------
$40,835 $31,508
======= =======

Due to the short-term nature and probability of collection, no allowance
for doubtful accounts was deemed necessary as of December 29, 2001 and December
30, 2000.

5. PROPERTY AND EQUIPMENT

FISCAL YEAR ENDED
PROPERTY AND EQUIPMENT CONSISTED --------------------
OF THE FOLLOWING (IN THOUSANDS): 2001 2000
-------------------------------- -------- --------

Land........................................................ $ 430 $ 430
Building.................................................... 4,760 4,760
Furniture, fixtures and equipment........................... 345,917 283,608
Leasehold improvements...................................... 96,154 83,480
Computer software........................................... 11,317 9,905
-------- --------
458,578 382,183
Less:
Accumulated depreciation and amortization................. 146,175 119,774
-------- --------
$312,403 $262,409
======== ========

6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

FISCAL YEAR ENDED
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES --------------------
CONSISTED OF THE FOLLOWING (IN THOUSANDS): 2001 2000
---------------------------------------------- -------- --------

Restructuring reserve....................................... $ 24,501 $ --
Other taxes payable......................................... 24,296 18,383
Income taxes payable........................................ 19,029 22,403
Salaries and employee benefits.............................. 15,522 16,834
Other....................................................... 65,853 60,960
-------- --------
$149,201 $118,580
======== ========

Included in "other" are miscellaneous store operating and corporate office
accrued expenses.

7. SHORT-TERM BORROWING ARRANGEMENTS

The Company has available a $150 million senior revolving credit facility
agreement (the "Credit Agreement") with third party institutional lenders,
expiring October 20, 2003. The Credit Agreement also allows for up to $40
million in borrowings from additional lines of credit outside of the Credit
Agreement. The Credit Agreement replaced the 1998 $90 million revolving line of
credit, which allowed for up to $25 million in borrowings from additional lines
of credit (the "1998 Credit Agreement"). Interest on all borrowings is
determined based upon several alternative rates as stipulated in the Credit
Agreement, including a fixed rate plus LIBOR based rate. The Credit Agreement
contains certain financial covenants,

F-11

LINENS 'N THINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

including those relating to the maintenance of a minimum tangible net worth, a
minimum fixed charge coverage ratio, and a maximum leverage ratio. At the end of
fiscal 2001, the Company was in compliance with the terms of the Credit
Agreement. The Credit Agreement also contains a covenant that limits the amount
of cash dividends, pursuant to which the amount of cash dividends may not exceed
the sum of $50 million plus on a cumulative basis an amount equal to 50% of the
consolidated net income for each fiscal quarter, commencing with the fiscal
quarter ending September 30, 2000. The Company has never paid cash dividends. At
various times throughout fiscal 2001 and 2000, the Company borrowed against the
Credit Agreement and the 1998 Credit Agreement for seasonal working capital
needs. At the end of fiscal 2001, the Company had $29.7 million of borrowings at
a weighted average interest rate of 3.1%. At the end of fiscal 2000, the Company
had $3.9 million of borrowings at a weighted average interest rate of 7.5%. In
addition, as of December 29, 2001 and December 30, 2000, the Company had $21.6
million and $22.3 million, respectively, of letters of credit outstanding, which
were primarily used for merchandise purchases. The Company is not obligated
under any formal or informal compensating balance requirements.

8. DEFERRED INCOME TAXES AND OTHER LONG-TERM LIABILITIES

FISCAL YEAR ENDED
DEFERRED INCOME TAXES AND OTHER LONG-TERM LIABILITIES ------------------
CONSISTED OF THE FOLLOWING (IN THOUSANDS): 2001 2000
----------------------------------------------------- ------- -------

Deferred income taxes....................................... $35,555 $30,198
Deferred rent............................................... 23,336 18,988
Other....................................................... 10,617 7,421
------- -------
$69,508 $56,607
======= =======

9. LEASES

The Company has non-cancelable operating leases, primarily for retail
stores, which expire through 2022. The leases generally contain renewal options
for periods ranging from 5 to 15 years and require the Company to pay costs such
as real estate taxes and common area maintenance. Contingent rentals are paid
based on a percentage of gross sales. Net rental expense for all operating
leases was as follows (in thousands):

FISCAL YEAR ENDED
--------------------------------
2001 2000 1999
-------- -------- --------

Minimum rentals.................................... $158,614 $126,286 $102,612
Contingent rentals................................. 184 151 212
-------- -------- --------
158,798 126,437 102,824
Less: sublease rentals........................... 2,032 1,617 1,614
-------- -------- --------
$156,766 $124,820 $101,210
======== ======== ========

F-12

LINENS 'N THINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

At fiscal year end 2001, the future minimum rental payments required under
operating leases and the future minimum sublease rentals excluding lease
obligations for closed stores and stores planned to be closed were as follows
(in thousands):

FISCAL YEAR
-----------

In addition, as of January 30, 2002, the Company had fully executed leases
for 44 stores planned to open in fiscal 2002.

10. STOCK INCENTIVE PLANS

The Company has adopted the 2000 Stock Award and Incentive Plan (the "2000
Plan") and the Broad-Based Equity Plan (collectively, the "Plans"). The 2000
Plan provides for the granting of options, restricted stock grants and other
stock-based awards (collectively, "awards") to key employees and non-officer
directors. The 2000 Plan replaces both the Company's 1996 Incentive Compensation
Plan (the "1996 Plan") and the 1996 Non-Employee Directors' Stock Plan (the
"Directors' Plan"). Therefore, no future awards will be made under the 1996 Plan
and the Directors' Plan, although outstanding awards under the 1996 Plan and the
Directors' Plan will continue to be in effect. Under the 2000 Plan, an aggregate
of 2,000,000 shares (plus any shares under outstanding awards under the 1996
Plan and the Directors' Plan which become available for further grants) is
available for issuance of awards. Under the Broad-Based Equity Plan a total of
4,000,000 shares are currently available for issuance of awards to regular full
time employees (excluding all executive officers).

Stock options under the Plans are granted with exercise prices at the fair
market value of the underlying shares at the date of grant. The right to
exercise options generally commences one to five years after the grant date, and
in all events, the options expire ten years after the grant date. Restrictions
on restricted stock grants lapse over vesting periods of up to five years.
Restricted stock grants are considered outstanding as of the grant date for
purposes of computing diluted EPS and are considered outstanding upon vesting
for purposes of computing basic EPS.

At fiscal year end 2001, 13,982 restricted stock grants were outstanding
under the 1996 Plan and the Directors' Plan. During fiscal 2001, 121,577
restricted stock grants were released, no restricted stock grants were awarded
and no restricted stock grants were canceled under the 1996 Plan and the
Directors' Plan.

At fiscal year end 2001, 113,134 restricted stock grants were outstanding
under the 2000 Plan. During fiscal 2001, 12,660 restricted stock grants were
released, 28,667 restricted stock grants were awarded and no restricted stock
grants were canceled.

At fiscal year end 2001, 2,145,581 stock options were outstanding under the
1996 Plan. During fiscal 2001, no stock options were granted, 471,787 stock
options were exercised and 44,339 stock options were canceled, and 1,168,287
stock options were exercisable at fiscal year end 2001 under the 1996 Plan. At
fiscal year end 2001, 54,800 stock options were outstanding under the Directors'
Plan. During fiscal 2001,

F-13

LINENS 'N THINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

no stock options were granted, no stock options were exercised and no stock
options were canceled, and 48,800 stock options were exercisable at fiscal year
end 2001 under the Directors' Plan.

At fiscal year end 2001, 1,194,508 stock options were outstanding under the
2000 Plan. During fiscal 2001, 704,658 stock options were granted, no stock
options were exercised and 1,150 stock options were canceled, and 125,750 stock
options were exercisable at fiscal year end 2001 under the 2000 Plan.

At fiscal year end 2001, 1,027,744 stock options were outstanding under the
Broad-Based Equity Plan. During fiscal 2001, 506,921 stock options were granted,
2,387 stock options were exercised and 62,325 stock options were canceled, and
137,946 stock options were exercisable at fiscal year end 2001 under the
Broad-Based Equity Plan.

The following tables summarize information about stock option transactions
for the Plans, the 1996 Plan and the Directors' Plan:

WEIGHTED-
NUMBER AVERAGE
OF SHARES EXERCISE PRICE
--------- --------------

BALANCE AT DECEMBER 31, 1998................................ 2,981,833 $16.39
Options granted............................................. 785,450 $31.52
Options exercised........................................... 390,038 $10.10
Options canceled............................................ 68,413 $18.48
--------- ------
BALANCE AT JANUARY 1, 2000.................................. 3,308,832 $20.71
--------- ------
Options granted............................................. 1,097,060 $21.77
Options exercised........................................... 537,449 $10.13
Options canceled............................................ 75,401 $27.18
--------- ------
BALANCE AT DECEMBER 30, 2000................................ 3,793,042 $22.43
--------- ------
Options granted............................................. 1,211,579 $18.83
Options exercised........................................... 474,174 $ 9.17
Options canceled............................................ 107,814 $25.22
--------- ------
BALANCE AT DECEMBER 29, 2001................................ 4,422,633 $22.91
--------- ------
Options Exercisable as of:
January 1, 2000........................................... 1,055,448 $12.25
December 30, 2000......................................... 1,212,408 $14.35
December 29, 2001......................................... 1,480,783 $21.08

F-14

LINENS 'N THINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

OPTIONS OUTSTANDING
---------------------------------------------
WEIGHTED-
AVERAGE
OUTSTANDING REMAINING
AS OF CONTRACTUAL WEIGHTED-
DECEMBER 29, LIFE AVERAGE
RANGE OF EXERCISE PRICE 2001 (IN YEARS) EXERCISE PRICE
----------------------- ------------ ----------- --------------

$ 7.75 - $ 9.75............................... 250,184 4.9 $ 7.83
$ 9.76 - $14.62............................... 9,300 5.3 $12.16
$14.63 - $19.50............................... 1,561,123 8.7 $18.42
$19.51 - $24.37............................... 1,042,773 8.8 $21.55
$24.38 - $29.25............................... 79,709 6.2 $26.86
$29.26 - $34.12............................... 1,448,444 7.4 $30.83
$34.13 - $39.00............................... 10,350 7.9 $36.32
$39.01 - $43.87............................... 13,850 7.4 $39.82
$43.88 - $48.75............................... 6,900 7.3 $44.88
--------- --- ------
TOTAL......................................... 4,422,633 8.0 $22.91
========= === ======

OPTIONS EXERCISABLE
------------------------------------
OUTSTANDING AS OF
RANGE OF DECEMBER 29, WEIGHTED-AVERAGE
EXERCISE PRICE 2001 EXERCISE PRICE
--------------- ----------------- ----------------

$ 7.75 - $ 9.75 250,184 $ 7.83
$ 9.76 - $14.62 9,300 $12.16
$14.63 - $19.50 454,239 $17.44
$19.51 - $24.37 253,221 $21.44
$24.38 - $29.25 41,609 $26.36
$29.26 - $34.12 455,481 $30.76
$34.13 - $39.00 4,750 $36.74
$39.01 - $43.87 7,500 $39.80
$43.88 - $48.75 4,499 $44.87
--------- ------
TOTAL 1,480,783 $21.08
========= ======

The fair value of each stock option grant and restricted stock grant is
estimated on the date of grant using the Black-Scholes option-pricing model
using the following assumptions for grants:

FISCAL YEAR ENDED
--------------------
2001 2000 1999
---- ---- ----

Expected life (years)....................................... 8.0 6.0 4.5
Expected volatility......................................... 49.9% 55.0% 45.0%
Risk-free interest rate..................................... 3.5% 5.1% 6.2%
Expected dividend yield..................................... 0.0% 0.0% 0.0%

The weighted-average fair value of options granted as of December 29, 2001,
December 30, 2000 and January 1, 2000 was $13.85, $14.39 and $12.10,
respectively. The weighted-average fair value of restricted stock granted as of
December 29, 2001, December 30, 2000 and January 1, 2000 was $15.04, $14.47 and
$13.19, respectively.

The Company applies APB No. 25 and related interpretations in accounting
for its stock-based compensation plans. Accordingly, no compensation cost has
been recognized in connection with stock

F-15

LINENS 'N THINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

options under these plans in the accompanying consolidated financial statements.
The compensation cost that has been charged against income for its restricted
stock grants was $3.6 million, $3.4 million and $2.0 million for fiscal years
2001, 2000 and 1999, respectively. Set forth below are the Company's net income
and net income per share presented "as reported" and as if compensation cost had
been recognized in accordance with the provisions of SFAS No. 123:

FISCAL YEAR ENDED
-----------------------
2001 2000 1999
----- ----- -----
(IN MILLIONS, EXCEPT
PER SHARE DATA)

NET INCOME:
As reported............................................... $29.7 $64.9 $52.1
Pro forma................................................. $23.3 $59.8 $49.3
NET INCOME PER SHARE OF COMMON STOCK:
Basic:
As reported............................................ $0.73 $1.63 $1.32
Pro forma.............................................. $0.58 $1.50 $1.25
Diluted:
As reported............................................ $0.72 $1.60 $1.27
Pro forma.............................................. $0.57 $1.47 $1.20

The effects of applying SFAS No. 123 in this pro forma disclosure are not
necessarily indicative of future amounts.

11. EMPLOYEE BENEFIT PLANS

The Company has a 401(k) savings plan. Company contributions to the plan
amounted to approximately $2.4 million, $2.2 million and $1.9 million for fiscal
years 2001, 2000 and 1999, respectively.

Effective July 1, 1999, the Company established a defined benefit
Supplemental Executive Retirement Plan ("SERP"). The SERP, which in part is
funded with the cash surrender values of certain life insurance policies,
provides eligible executives with supplemental pension benefits, in addition to
amounts received under the Company's other retirement plan. Under the terms of
the SERP, upon termination of employment with the Company, eligible participants
will be entitled to the benefit amount as defined under the SERP beginning at or
after age 55. The Company recorded expenses related to the SERP of approximately
$20,000 for fiscal 2001, $34,000 for fiscal 2000 and $34,000 for fiscal 1999.

F-16

LINENS 'N THINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

12. INCOME TAXES

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities were as follows (in
thousands):

FISCAL YEAR ENDED
------------------
2001 2000
------- -------

DEFERRED TAX ASSETS:
Employee benefits......................................... $ 6,955 $ 6,806
Inventories............................................... 4,525 5,596
Lease termination costs................................... 7,744 --
Other..................................................... 4,612 2,720
------- -------
TOTAL DEFERRED TAX ASSETS................................... 23,836 15,122
DEFERRED TAX LIABILITIES:
Property and equipment.................................... 35,867 33,193
------- -------
NET DEFERRED TAX LIABILITY.................................. $12,031 $18,071
======= =======

At December 29, 2001 and December 30, 2000, the net deferred tax liability
was included in the Company's consolidated balance sheet as follows (in
thousands):

FISCAL YEAR ENDED
--------------------
2001 2000
-------- --------

Current deferred taxes...................................... $ 23,524 $ 12,127
Deferred income taxes....................................... (35,555) (30,198)
-------- --------
Net deferred tax liability.................................. $ 12,031 $ 18,071
======== ========

Based on the anticipated reversal of deferred tax liabilities and the
Company's historical and current taxable income, management believes it is more
likely than not that the Company will realize the deferred tax assets.
Accordingly, no valuation allowance against deferred tax assets is considered
necessary.

The provision for income taxes comprised the following for:

FISCAL YEAR ENDED
-----------------------------
2001 2000 1999
------- ------- -------
(IN THOUSANDS)

CURRENT:
U.S. Federal........................................ $21,726 $30,401 $25,449
U.S. State.......................................... 2,728 3,868 3,224
Non U.S. ........................................... 432 871 --
------- ------- -------
24,886 35,140 28,673
------- ------- -------
DEFERRED:
U.S. Federal........................................ (5,917) 4,572 3,328
U.S. State.......................................... (759) 570 456
Non-U.S. ........................................... 651 (68) --
------- ------- -------
(6,025) 5,074 3,784
------- ------- -------
TOTAL................................................. $18,861 $40,214 $32,457
======= ======= =======

F-17

LINENS 'N THINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company has not provided for Federal income tax on the undistributed
income of its foreign subsidiaries because the Company intends to permanently
reinvest such income.

The following is a reconciliation between the statutory Federal income tax
rate and the effective rate for:

FISCAL YEAR ENDED
--------------------
2001 2000 1999
---- ---- ----

Effective tax rate.......................................... 38.8% 38.2% 38.4%
State income taxes, net of Federal benefit.................. (2.6) (2.7) (2.8)
Goodwill.................................................... (0.6) (0.3) (0.4)
Other....................................................... (0.6) (0.2) (0.2)
---- ---- ----
Statutory Federal income tax rate........................... 35.0% 35.0% 35.0%
==== ==== ====

13. COMMITMENTS AND CONTINGENCIES

The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, with the exception of
the matter discussed in the next paragraph, the ultimate disposition of these
matters will not have a material adverse effect on the Company's consolidated
financial position, results of operations or liquidity.

The Company had been named as a defendant in California litigation in which
the court certified the case as a class action on behalf of certain managers of
Company stores located in California seeking overtime pay, together with class
action claims on behalf of certain former employees seeking accrued vacation
pay. In the second quarter of fiscal 2001, the Company recorded a pre-tax charge
of $4.0 million ($2.5 million after-tax) related to the settlement payments,
attorneys' fees and estimated expenses of administering the settlement. On
October 24, 2001, the court gave preliminary approval to a settlement reached in
the case. An order granting final approval of class action settlement was signed
on December 19, 2001. The Company admitted no liability in connection with this
settlement. Payment of these amounts has been made in early fiscal 2002.

F-18

LINENS 'N THINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

14. SUMMARY OF QUARTERLY RESULTS (UNAUDITED)

The following quarterly financial data is unaudited, but in the opinion of
management, all adjustments (consisting of only normal recurring accruals)
necessary to present fairly the financial position of the Company for these
interim periods have been included.

FIRST SECOND THIRD FOURTH FISCAL
QUARTER QUARTER QUARTER QUARTER YEAR
-------- -------- -------- -------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

NET SALES
2001....................... $379,245 $387,715 $468,944 $587,899 $1,823,803
2000....................... $326,976 $339,655 $410,371 $495,574 $1,572,576
GROSS PROFIT
2001....................... 150,702 162,161 190,234 239,447(3) 742,544
2000....................... 128,301 139,683 166,086 209,201 643,271
NET INCOME
2001....................... 4,693 2,109(2) 14,705 8,242(4) 29,749
2000....................... 5,055 6,947 18,406 34,529 64,937
NET INCOME PER SHARE
Basic(1)
2001....................... $ 0.12 $ 0.05(2) $ 0.36 $ 0.20(4) $ 0.73
2000....................... $ 0.13 $ 0.18 $ 0.46 $ 0.86 $ 1.63
Diluted(1)
2001....................... $ 0.11 $ 0.05(2) $ 0.36 $ 0.20(4) $ 0.72
2000....................... $ 0.13 $ 0.17 $ 0.45 $ 0.84 $ 1.60

---------------
(1) Net income per share amounts for each quarter are required to be computed
independently and may not equal the amount computed for the fiscal year.

(2) Includes after-tax litigation charge of $2.5 million or $0.06 per share on a
fully diluted basis.

(3) Includes pre-tax restructuring charge of $3.8 million related to estimated
inventory markdowns below cost associated with the accelerated closing of 17
stores.

(4) Includes after-tax restructuring and asset impairment charge of $23.7
million or $0.58 per share on a fully diluted basis associated with the
accelerated closing of 17 stores.

F-19

LINENS 'N THINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

15. MARKET INFORMATION (UNAUDITED)

The Company's common stock is listed on the New York Stock Exchange. Its
trading symbol is LIN. The Company has not paid a dividend on its common stock.
The high and low trading price of the Company's common stock for each quarter is
as follows:

FOR FISCAL 2001 HIGH LOW
--------------- ------ ------

First Quarter............................................... $37.88 $24.81
Second Quarter.............................................. $32.76 $24.00
Third Quarter............................................... $28.16 $17.37
Fourth Quarter.............................................. $25.91 $17.72

FOR FISCAL 2000 HIGH LOW
--------------- ------ ------

At fiscal year end 2001, there were 8,994 beneficial shareholders.

F-20

INDEPENDENT AUDITORS' REVIEW REPORT

The Board of Directors and Shareholders
Linens 'n Things, Inc.:

We have reviewed the consolidated balance sheets of Linens 'n Things, Inc. and
Subsidiaries as of March 30, 2002 and March 31, 2001, and the related
consolidated statements of operations and cash flows for the thirteen weeks
ended March 30, 2002 and March 31, 2001. These consolidated financial statements
are the responsibility of the Company's management.

We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical review procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the United States of
America, the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.

Based on our review, we are not aware of any material modifications that should
be made to the consolidated financial statements referred to above for them to
be in conformity with accounting principles generally accepted in the United
States of America.

KPMG LLP

New York, New York
April 17, 2002

F-21

LINENS 'N THINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
THIRTEEN WEEKS ENDED MARCH 30, 2002 AND MARCH 30, 2001

THIRTEEN WEEKS ENDED
--------------------------
MARCH 30, MARCH 31,
2002 2001
----------- -----------
(IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
(UNAUDITED)

Net sales................................................... $456,911 $379,245
Cost of sales, including buying and distribution costs...... 275,712 228,543
-------- --------
Gross profit................................................ 181,199 150,702
Selling, general and administrative expenses................ 172,204 142,535
-------- --------
Operating profit............................................ 8,995 8,167
Interest income........................................... (4) (27)
Interest expense.......................................... 679 597
-------- --------
Interest expense, net....................................... 675 570
-------- --------
Income before income taxes.................................. 8,320 7,597
Provision for income taxes.................................. 3,180 2,904
-------- --------
Net income.................................................. $ 5,140 $ 4,693
======== ========
Per share of common stock:
Basic
Net income................................................ $ 0.13 $ 0.12
Weighted-average shares outstanding....................... 40,645 40,335
Diluted
Net income................................................ $ 0.12 $ 0.11
Weighted-average shares outstanding....................... 41,703 41,325

See accompanying notes to consolidated financial statements.
F-22

LINENS 'N THINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
THIRTEEN WEEKS ENDED MARCH 30, 2002 AND MARCH 30, 2001

MARCH 30, MARCH 31,
2002 2001
--------- ---------
(IN THOUSANDS, EXCEPT
SHARE AMOUNTS)
(UNAUDITED)

ASSETS
Current assets:
Cash and cash equivalents.............................. $ 10,064 $ 3,502
Accounts receivable.................................... 31,115 33,214
Inventories............................................ 549,700 475,465
Prepaid expenses and other current assets.............. 13,366 12,824
Current deferred taxes................................. 23,384 13,831
-------- --------
Total current assets...................................... 627,629 538,836
Property and equipment, net............................... 327,813 271,531
Goodwill, net............................................. 18,126 18,764
Deferred charges and other noncurrent assets, net......... 11,221 7,696
-------- --------
Total assets................................................ $984,789 $836,827
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable....................................... $237,765 $190,296
Accrued expenses and other current liabilities......... 124,959 88,413
Short-term borrowings.................................. 47,094 27,321
-------- --------
Total current liabilities................................. 409,818 306,030
Deferred income taxes and other long-term liabilities..... 70,538 58,837
Shareholders' equity:
Preferred stock, $0.01 par value; 1,000,000 shares
authorized; none issued and outstanding............... -- --
Common stock, $0.01 par value; 135,000,000 shares
authorized; 40,923,574 shares issued and 40,674,378
shares outstanding at March 30, 2002 and 40,622,506
shares issued and 40,508,191 shares outstanding at
March 31, 2001........................................ 409 406
Additional paid-in capital............................. 246,350 240,401
Retained earnings...................................... 265,075 234,879
Accumulated other comprehensive loss................... (412) (296)
Treasury stock, at cost; 249,196 shares at March 30, 2002,
and 114,315 shares at March 31, 2001................... (6,989) (3,430)
-------- --------
Total shareholders' equity................................ 504,433 471,960
-------- --------
Total liabilities and shareholders' equity.................. $984,789 $836,827
======== ========

See accompanying notes to consolidated financial statements.
F-23

LINENS 'N THINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
THIRTEEN WEEKS ENDED MARCH 30, 2002 AND MARCH 30, 2001

THIRTEEN WEEKS ENDED
----------------------
MARCH 30, MARCH 31,
2002 2001
--------- ---------
(IN THOUSANDS)
(UNAUDITED)

Cash flows from operating activities:
Net income.................................................. $ 5,140 $ 4,693
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization.......................... 10,453 9,394
Deferred income taxes.................................. 3,071 1,398
Loss on disposal of assets............................. 47 3
Federal tax benefit from common stock issued under
stock incentive plans................................. 147 3,979
Changes in assets and liabilities:
Decrease (increase) in accounts receivable............. 9,721 (1,715)
Increase in inventories................................ (57,404) (38,896)
Decrease (increase) in prepaid expenses and other
current assets........................................ 1,735 (941)
Increase in deferred charges and other noncurrent
assets................................................ (2,274) (6)
Increase in accounts payable........................... 56,931 6,988
Decrease in accrued expenses and other liabilities..... (25,548) (29,993)
-------- --------
Net cash provided by (used in) operating activities....... 2,019 (45,096)
-------- --------
Cash flows from investing activities:
Additions to property and equipment....................... (25,742) (18,588)
-------- --------
Cash flows from financing activities:
Proceeds from common stock issued under stock incentive
plans.................................................. 970 4,892
Increase in short-term borrowings......................... 17,425 23,695
Purchase of treasury stock................................ (43) --
-------- --------
Net cash provided by financing activities................. 18,352 28,587
-------- --------
Effect of exchange rate changes on cash and cash
equivalents............................................ (2) 75
Net decrease in cash and cash equivalents................. (5,373) (35,022)
Cash and cash equivalents at beginning of period.......... 15,437 38,524
-------- --------
Cash and cash equivalents at end of period.................. $ 10,064 $ 3,502
======== ========

See accompanying notes to consolidated financial statements.
F-24

LINENS 'N THINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THIRTEEN WEEKS ENDED MARCH 30, 2002 AND MARCH 30, 2001
(UNAUDITED)

1. BASIS OF PRESENTATION

The accompanying consolidated financial statements are unaudited. In the
opinion of management, the accompanying consolidated financial statements
contain all adjustments (consisting of only normal recurring accruals) necessary
to present fairly the financial position of the Company as of March 30, 2002 and
March 31, 2001 and the results of operations and cash flows for the respective
thirteen weeks then ended. Because of the seasonality of the specialty retailing
business, operating results of the Company on a quarterly basis may not be
indicative of operating results for the full year.

These consolidated financial statements should be read in conjunction with
the Company's audited consolidated financial statements (including the notes)
for the fiscal year ended December 29, 2001, included in the Company's Annual
Report on Form 10-K filed with the Securities and Exchange Commission. All
significant intercompany accounts and transactions have been eliminated.

2. EARNINGS PER SHARE

The calculation of basic and diluted earnings per share ("EPS") is as
follows:

THIRTEEN WEEK PERIOD
ENDED MARCH 30, 2002
----------------------------
INCOME SHARES EPS
------- ------- ------
(IN THOUSANDS, EXCEPT EPS)
(UNAUDITED)

Basic..................................................... $5,140 40,645 $0.13
Effect of outstanding stock option and deferred stock
grants.................................................. -- 1,058 --
------ ------ -----
Diluted................................................... $5,140 41,703 $0.12
====== ====== =====

THIRTEEN WEEK PERIOD
ENDED MARCH 31, 2001
----------------------------
INCOME SHARES EPS
------- ------- ------
(IN THOUSANDS, EXCEPT EPS)
(UNAUDITED)

Basic..................................................... $4,693 40,335 $0.12
Effect of outstanding stock option and deferred stock
grants.................................................. -- 990 --
------ ------ -----
Diluted................................................... $4,693 41,325 $0.11
====== ====== =====

Options for which the exercise price was greater than the average market
price of common shares for the period ended March 30, 2002 and March 31, 2001
were not included in the computation of diluted earnings per share. These
consisted of options totaling 1,401,000 shares and 33,250 shares for the
thirteen weeks ended March 30, 2002 and March 31, 2001, respectively. Deferred
stock grants excluded in the computation of diluted earnings per share due to
the application of the treasury stock method totaled 103 shares and 10,242
shares for the thirteen weeks ended March 30, 2002 and March 31, 2001,
respectively.

3. SHORT-TERM BORROWING ARRANGEMENTS

The Company has available a $150 million senior revolving credit facility
agreement (the "Credit Agreement") with third party institutional lenders
expiring October 20, 2003. The Credit Agreement also allows for up to $40
million of borrowings from additional lines of credit outside of the Credit
Agreement. Interest on all borrowings is determined based upon several
alternative rates as stipulated in the Credit Agreement, including a fixed
margin above LIBOR rate. The Credit Agreement contains certain financial
covenants, including those relating to the maintenance of a minimum tangible net
worth, a minimum fixed
F-25

LINENS 'N THINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

charge ratio, and a maximum leverage ratio. As of March 30, 2002, the Company
was in compliance with the terms of the Credit Agreement. The Credit Agreement
also contains a covenant that limits the amount of cash dividends pursuant to
which the amount of cash dividends may not exceed on a cumulative basis the sum
of $50 million plus on a cumulative basis an amount equal to 50% of the
consolidated net income for each fiscal quarter, commencing with the third
fiscal quarter of 2000. The Company has never paid cash dividends. As of March
30, 2002, the Company had $47.1 million in borrowings under the credit facility
and the additional lines of credit at a weighted average interest rate of 2.8%.
The Company also had $22.9 million of letters of credit outstanding as of March
30, 2002, which were primarily used for merchandise purchases. The Company is
not obligated under any formal or informal compensating balance requirements.

4. COMPREHENSIVE INCOME

Comprehensive income for the thirteen weeks ended March 30, 2002 and March
31, 2001 is as follows:

THIRTEEN WEEKS ENDED
----------------------
MARCH 30, MARCH 31,
2002 2001
--------- ---------
(IN THOUSANDS)
(UNAUDITED)

COMPREHENSIVE INCOME:
Net income.................................................. $5,140 $4,693
Other comprehensive income (loss) -- Foreign currency
translation adjustment.................................... 5 (585)
------ ------
Comprehensive income........................................ $5,145 $4,108
====== ======

5. RESTRUCTURING AND ASSET IMPAIRMENT CHARGE

During the fourth quarter of fiscal 2001, the Company developed and
committed to a strategic initiative designed to improve store performance and
profitability. This initiative calls for the closing of 17 under-performing
stores, which did not meet the Company's profit objectives. In connection with
this initiative, the Company recorded a pre-tax restructuring and asset
impairment charge of $37.8 million ($23.7 million after-tax) in the fourth
quarter of fiscal 2001. A pre-tax reserve of $20.5 million was established for
estimated lease commitments for stores to be closed. This reserve is included in
accrued expenses. The reserve considers estimated sublease income. All of the
stores were leased, and as such, the Company will not be responsible for the
disposal of property other than fixtures. A pre-tax reserve of $9.5 million was
recorded as a reduction in property and equipment for fixed asset impairments
for these stores. The fixed asset impairments represent fixtures and leasehold
improvements. A pre-tax reserve of $4.0 million was established for other
estimated miscellaneous store closing costs. Additionally, a pre-tax reserve of
$3.8 million was recorded in cost of sales for estimated inventory markdowns
below cost for the stores to be closed.

Certain components of the restructuring and asset impairment charge are
based upon estimates and may be subject to change in future periods. As of March
30, 2002, two stores have been closed and most of the other stores are expected
to be closed by the end of fiscal 2002.

F-26

LINENS 'N THINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following is a summary of activity of the reserve for the restructuring
and asset impairments charge as of March 30, 2002 ($ in millions):

RESERVE BALANCE 2002 RESERVE BALANCE
12/29/01 ACTIVITY 3/30/02
--------------- ----------- ---------------
(AUDITED) (UNAUDITED) (UNAUDITED)

Non-cash components:
Asset impairment......................... $ 9.5 $(0.7) $ 8.8
Inventory markdowns...................... 3.8 (0.7) 3.1
----- ----- -----
Sub-total.................................. 13.3 (1.4) 11.9
----- ----- -----
Cash components:
Lease commitments........................ 20.5 (0.4) 20.1
Other.................................... 4.0 (0.1) 3.9
----- ----- -----
Sub-total.................................. 24.5 (0.5) 24.0
----- ----- -----
Total...................................... $37.8 $(1.9) $35.9
===== ===== =====

The 2002 activity primarily consists of markdowns on inventory sold below
cost, the write-off of fixed assets and settlements for lease obligations.

6. GOODWILL AND OTHER INTANGIBLE ASSETS -- ADOPTION OF STATEMENT 142

In fiscal 2002, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets", ("SFAS No.
142"). Under SFAS No. 142, goodwill amortization ceases upon adoption of the new
standard and intangible assets with indefinite useful lives will no longer be
amortized. Had the application of the non-amortization provisions of SFAS No.
142 not been adopted, net income would have been reduced by approximately
$131,000 for the quarter ended March 30, 2002. SFAS No. 142 requires an initial
goodwill impairment assessment upon adoption and annual impairment tests
thereafter. The Company is required to perform and complete the initial
impairment test of goodwill by June 29, 2002.

F-27

LINENS 'N THINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Set forth below are the Company's net income and net income per share "as
reported" and as if amortization expense related to goodwill no longer being
amortized had not been expensed in accordance with the provisions of SFAS No.
142 ($ in thousands, except EPS):

FOR THE THIRTEEN WEEKS ENDED
--------------------------------
MARCH 30, 2002 MARCH 31, 2001
-------------- --------------
(UNAUDITED)

Reported net income:.................................... $5,140 $4,693
Add back: Goodwill amortization....................... -- 131
------ ------
Adjusted net income................................... $5,140 $4,824
====== ======
Basic earnings per share:
Reported net income................................... $ 0.13 $ 0.12
Goodwill amortization................................. -- --
------ ------
Adjusted net income................................... $ 0.13 $ 0.12
====== ======
Diluted earnings per share:
Reported net income................................... $ 0.12 $ 0.11
Goodwill amortization*................................ -- 0.01
------ ------
Adjusted net income................................... $ 0.12 $ 0.12
====== ======

---------------
* Impact for 2001 is less than $0.01 per share.

7. RECENT ACCOUNTING PRONOUNCEMENTS

At a recent meeting of the FASB Emerging Issues Task Force or EITF, a
consensus was reached with respect to the issue of "Accounting for Certain Sales
Incentives," including point of sale coupons, rebates and free merchandise. The
consensus included a conclusion that the value of such sales incentives that
result in a reduction of the price paid by the customer should be netted against
sales and not classified as a sales or marketing expense. In April 2001, the
EITF delayed the effective date for this consensus to 2002. The Company already
includes such sales incentives as a reduction of sales and records free
merchandise in cost of goods sold as required by the new EITF consensus.

In June 2001, FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations" ("SFAS No. 143"). SFAS No. 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. This statement requires that
the fair value of a liability for an asset retirement obligation be recognized
in the period in which it is incurred if a reasonable estimate of fair value can
be made. This statement is effective for the Company in fiscal 2003. The Company
is currently evaluating SFAS No. 143 but does not anticipate that the effects of
the new pronouncement would be a material impact on the Company's financial
statements.

In August 2001, FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" ("SFAS No. 144"). SFAS No. 144 supersedes
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" ("SFAS No. 121"), but retains many of its
fundamental provisions. SFAS No. 144 also expands the scope of discontinued
operations to include more disposal transactions, and will impact the
presentation of future store closings, if any. SFAS No. 144 was effective for
the Company for the first quarter of fiscal 2002. The implementation of SFAS No.
144 did not have a significant impact on the Company's financial statements, as
the impairment assessment under SFAS No. 144 is predominately unchanged from
SFAS No. 121.

8. RECLASSIFICATION

Certain reclassifications were made to the fiscal 2001 consolidated
financial statements in order to conform to the fiscal 2002 presentation.
F-28

[INSIDE BACK COVER]

[LOGO OF LINENS 'N THINGS]

[MAP SHOWING STORE LOCATIONS AND ONE PICTURE OF STORE FRONT]

MISSION:

Our mission is to exceed our guests' expectations in every store, every day.

LINENS 'N THINGS LOGO