SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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                                    FORM 10-K
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         Annual Report Pursuant to Section 13 or 15(d) of the Securities
                              Exchange Act of 1934
                   For the Fiscal Year Ended December 30, 2000

                                (No Fee Required)

                         Commission File Number 1-12381

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                             Linens 'n Things, Inc.
                             ----------------------
             (Exact name of registrant as specified in its charter)

            Delaware                                     22-3463939
            --------                                     ----------
(State or other jurisdiction of                       (I.R.S. Employer
incorporation or organization)                       Identification No.)

             6 Brighton Road
           Clifton, New Jersey                         07015
           -------------------                         -----
(Address of principal executive offices)            (Zip Code)

       Registrant's telephone number, including area code: (973) 778-1300
                                                           --------------

           Securities Registered Pursuant to Section 12(b) of the Act:

      Title of Each Class              Name of Each Exchange on Which Registered
       ----------------                ----------------------------------------
 Common Stock, $0.01 par value                    New York Stock Exchange

           Securities Registered Pursuant to Section 12(g) of the Act:

                                      None

Indicate  by check  mark  whether  the  Registrant:  (1) has filed  all  reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
Registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.

                                Yes   X                              No
                                   -----                                --

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of Registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form  10-K.   ______

The  aggregate  market  value of  voting  stock  held by  non-affiliates  of the
Registrant  on March 15,  2001,  based on the closing sale price on the New York
Stock Exchange on such date, was  approximately  $1,371  million.  The number of
outstanding  shares of the  Registrant's  common stock,  $0.01 par value,  as of
March 15, 2001 was 40,496,624.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the  Registrant's  Annual Report to Shareholders for the fiscal year
ended December 30, 2000 are incorporated by reference into Part II, and portions
of the Registrant's  Proxy Statement for the 2001 Annual Meeting of Shareholders
are incorporated by reference into Part III.


<PAGE>

<TABLE>
<CAPTION>


                                Table of Contents

Form 10-K
Item No.       Name of Item                                                                                 Page
-------        ------------                                                                                 ----
<S>                                                                                                         <C>
                                     PART I
Item 1.        Business..................................................................................    3
Item 2.        Properties................................................................................   11
Item 3.        Legal Proceedings.........................................................................   12
Item 4.        Submission of Matters to a Vote of
                   Security Holders......................................................................   12

                                     PART II
Item 5.        Market for Registrant's Common Equity
                   and Related Stockholder Matters.......................................................   13
Item 6.        Selected Financial Data...................................................................   13
Item 7.        Management's Discussion and Analysis of
                   Financial Condition and Results of
                   Operations............................................................................   13
Item 7A.       Quantitative and Qualitative Disclosures
                     about Market Risk...................................................................   13
Item 8.        Financial Statements and Supplementary
                   Data..................................................................................   14
Item 9.        Changes in and Disagreements with
                   Accountants on Accounting and Financial
                   Disclosure............................................................................   14

                                    PART III
Item 10.       Directors and Executive Officers of
                   the Registrant........................................................................   15
Item 11.       Executive Compensation....................................................................   15
Item 12.       Security Ownership of Certain Beneficial
                   Owners and Management.................................................................   15
Item 13.       Certain Relationships and Related
                   Transactions..........................................................................   15

                                     PART IV
Item 14.       Exhibits, Financial Statement Schedules, and Reports on Form 8-K..........................   16

</TABLE>

<PAGE>


                                     PART I

ITEM 1.  BUSINESS

General
-------

      Linens 'n Things,  Inc.  and its  subsidiaries  ("Linens 'n Things" or the
"Company")  is one of the  leading,  national  large  format  retailers  of home
textiles,  housewares and home accessories operating 283 stores in 40 states and
three Canadian provinces as of fiscal year end 2000. The Company's current store
prototype  ranges  between  35,000 and 40,000 gross square feet in size and such
stores are located in strip  centers  and, to a lesser  extent,  in malls and as
stand-alone  stores.  The  Company's  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.

      Linens 'n Things'  extensive  selection of over 28,000 stock keeping units
("SKUs") in its superstores is driven by the Company's  commitment to offering a
broad and deep selection of high quality,  brand name "linens"  (e.g.,  bedding,
towels  and  pillows)  and  "things"  (e.g.,  housewares  and home  accessories)
merchandise.  Brand  names  sold  by the  Company  include  Wamsutta,  Croscill,
Waverly,  Laura  Ashley,  Royal  Velvet,  Braun,  Krups,  All-Clad,   Cuisinart,
Calphalon  and  Henckels.  The  Company  also  sells  an  increasing  amount  of
merchandise under its own private label, LNT Home  (approximately 10% of sales),
which is designed to supplement the Company's offering of brand name products by
offering high quality  merchandise  at value prices.  The Company's  merchandise
offering is coupled with a "won't be undersold" everyday low pricing strategy.

      From its founding in 1975 through the late 1980's,  the Company operated a
chain of traditional  stores ranging  between 7,500 and 10,000 gross square feet
in size.  Beginning in 1990, the Company introduced its superstore format, which
has evolved  from 20,000  gross  square feet in size to its current size ranging
from 30,000 to 60,000 gross square feet. This  superstore  format offers a broad
merchandise  selection in a more visually appealing,  guest friendly format. The
Company's  introduction of superstores has resulted in the closing or relocation
of most of the Company's  traditional  stores through fiscal year end 2000. As a
result of superstore  openings and  traditional  store  closings,  the Company's
gross square footage has increased from 2.9 million to 9.8 million over the last
six years.  Meanwhile,  the Company's  store base  increased 95% from 145 to 283
during this period.

      As part of this strategy,  the Company instituted  centralized  management
and operating programs and invested  significant capital in its distribution and
management  information  systems  infrastructure  in order to control  operating
expenses as the Company grows. In addition,  as part of its strategic initiative
to capitalize on customer demand for one-stop shopping destinations, the Company
has balanced  its  merchandise  mix from being driven  primarily by the "linens"
side of its business to a fuller selection of "linens" and "things." The Company
estimates  that the "things" side of its business has  increased  from less than
10% of net sales in fiscal 1991 to approximately 40% in fiscal 2000.

      The Company was a wholly  owned  subsidiary  of CVS  Corporation  ("CVS"),
formerly  Melville  Corporation,  until November 26, 1996, when CVS completed an
initial public  offering  ("IPO") of 13,000,000  shares of the Company's  common
stock,  on a  pre-split  basis.  Immediately  subsequent  to the IPO,  CVS owned
approximately  32.5% of the Company's  common stock,  having retained  6,267,758
shares,  on a pre-split basis.  During 1997, CVS sold  substantially  all of its
remaining shares of the Company's common stock in a public offering. At December
31, 1997,  CVS held no shares of the Company's  common stock.  Unless  otherwise
indicated,   all  share   information  is  adjusted  to  reflect  the  Company's
two-for-one  common  stock split  effected in May 1998.

<PAGE>

Executive  Officers and Certain Key Personnel
---------------------------------------------

      The  following  table  sets  forth  information  regarding  the  executive
officers of the Company:

<TABLE>
<CAPTION>

      Name                               Age   Position
      ----                               ---   --------
      <S>                                 <C>  <C>
      Norman Axelrod..................... 48   Chairman and Chief Executive Officer
      Steven B. Silverstein.............. 41   President
      William T. Giles................... 41   Senior Vice President, Chief Financial Officer
      Hugh J. Scullin.................... 52   Senior Vice President, Store Operations, Real Estate and
                                               Construction
      Brian D. Silva .................... 44   Senior Vice President, Human Resources and
                                               Corporate Secretary

</TABLE>

<PAGE>


      Mr. Axelrod has been Chief Executive Officer of the Company since 1988 and
was elected to the additional  position of Chairman of the Board of Directors of
the Company effective as of January 1997. Prior to joining Linens 'n Things, 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 Linens 'n Things 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 most recently,  was promoted to President in 2001.  Prior to
joining Linens 'n Things, 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.

      Mr. Giles joined  Linens 'n Things 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 most recently,  was promoted to
Senior Vice President,  Chief Financial  Officer in 2000. From 1981 to 1990, Mr.
Giles was with  PriceWaterhouse  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.  Scullin  joined  Linens 'n Things  in 1989 as Vice  President,  Store
Operations. Mr. Scullin has been Senior Vice President,  Store Operations,  Real
Estate and Construction  since 1994. From 1978 to 1987, Mr. Scullin held various
management  positions with The Gap, Inc.,  including Zone Vice President at both
The Gap and Banana  Republic from 1984 to 1987.  From 1987 to 1989,  Mr. Scullin
was Vice President of Stores with Alcott and Andrews. Mr. Scullin graduated from
St. Joseph's University with a B.S. in Marketing Management.

      Mr.  Silva  joined  Linens  'n  Things  in 1995 as Vice  President,  Human
Resources  and was  promoted  to Senior  Vice  President,  Human  Resources  and
Corporate  Secretary in 1997.  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.

The following table sets forth information  regarding another key manager of the
Company:


      Name                                Age  Position

      Matthew J. Meaney.................. 54   Chief Information Officer

      Mr. Meaney joined Linens 'n Things in 1991 as Vice  President,  Management
Information  Systems and was promoted to Chief Information Officer in 2000. From
1985 to 1991,  Mr. Meaney was Vice President of Management  Information  Systems
for Laura Ashley,  Inc. Mr. Meaney received a B.S. in Economics from St. Peter's
College and an M.B.A. in Finance from Seton Hall University.



<PAGE>


Business Strategy

      The Company's  business strategy is to offer a broad and deep selection of
high quality,  brand name merchandise at exceptional  everyday  values,  provide
superior  guest  service and maintain low operating  costs.  Key elements of the
Company's business strategy are:

      Offer a Broad  Selection  of Quality Name Brands at  Exceptional  Everyday
Values. Linens 'n Things' merchandising strategy is to offer the largest breadth
of selection in high quality,  brand name fashion home textiles,  housewares and
home accessories at exceptional  everyday values. The Company offers over 28,000
SKUs across six  departments,  including  bath,  home  accessories,  housewares,
storage, top of the bed and window treatments. The Company is one of the largest
retailers  of brand names,  including  Wamsutta,  Laura  Ashley,  Royal  Velvet,
Croscill, Braun, Krups, All-Clad, Cuisinart, Calphalon and Henckels. The Company
also sells an increasing  amount of merchandise under its own private label, LNT
Home,  which is  designed to  supplement  the  Company's  offering of brand name
products by offering high quality merchandise at value prices.

      Merchandise  and  sample  brands  offered  in each  major  department  are
highlighted below:

<TABLE>
<CAPTION>

           Department                          Items Sold                                 Sample Brands
           ----------                          ----------                                 -------------
      <S>                      <C>                                              <C>
      Bath                     Towels, shower curtains, waste baskets,          Fieldcrest, Wamsutta, Martex, Royal
                               hampers, bathroom rugs and wall hardware         Velvet and Springmaid

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

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

      Storage                  Closet-related items (such as hangers,           Rubbermaid and Closetmaid
                               organizers and shoe racks)

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

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

</TABLE>


      Provide Superior Guest Service and Shopping Convenience.  To enhance guest
satisfaction   and  loyalty,   Linens  'n  Things  strives  to  provide  prompt,
knowledgeable sales assistance and enthusiastic guest service.  Linens 'n Things
emphasizes  competitive  wages,  training and personnel  development in order to
attract and retain  well-qualified,  highly  motivated  employees  committed  to
providing  superior  guest  service.  Linens 'n Things also endeavors to provide
more  knowledgeable  sales  associates  by providing  training  through  various
programs which include management  training,  daily sales associate meetings and
in-store product seminars.

       In addition,  the Company has taken  initiatives  to enhance the speed of
its guest service,  including  enhancing credit card authorization and upgrading
its point-of-sale ("POS") system. The Company has also transferred the inventory
and  receiving  responsibilities  from the  stores to the  distribution  centers
thereby  allowing  associates to direct their focus to the selling floor,  which
has enhanced the guest's shopping experience. The Company provides gift registry
services in its stores nationwide to further serve its guests.  The Company also
offers the convenience of an electronic gift card to its guests.

      The  Company's  superstore  format is  designed  to save the guest time by
having  merchandise  visible and  accessible  on the selling floor for immediate
purchase. The Company believes its knowledgeable sales staff and efficient guest
service,  together with the Company's  liberal return policy,  create a positive
shopping experience that engenders guest loyalty.

      In response to growing  consumer use of the Internet,  the Company greatly
expanded its e-commerce capability located at its website,  linensnthings.com in
fiscal 2000. The website  features on-line access to the Company's gift registry
and allows our guests to purchase many of the Company's  most popular items from
the convenience of their homes.

      Maintain Low  Operating  Costs.  A cornerstone  of the Company's  business
strategy is its  commitment  to maintain  low  operating  costs.  In addition to
savings realized through sales volume efficiencies, operational efficiencies are
expected to be achieved  through the  streamlining of the Company's  centralized
merchandising  structure,  the use of integrated management  information systems
and the utilization of the distribution centers.

Growth Strategy
---------------

      Superstore Expansion.  The Company operates in a large,  highly-fragmented
industry and has a market share of  approximately  two percent of the  industry.
The Company's expansion strategy is to increase market share in existing markets
and to  penetrate  new  markets in which the  Company  believes  it can become a
leading  operator of home furnishings  superstores.  Markets for new superstores
are selected on the basis of demographic factors, such as income, population and
number of households.  The Company's  stores are located  predominantly in power
strip centers and, to a lesser extent, in malls and as stand-alone  stores.  The
Company  generally  seeks to operate  stores in the United  States and Canada in
geographic  trading areas of 200,000  persons within a ten-mile  radius and with
demographic characteristics that match the Company's target profile.

      During 2000, the Company opened its first stores in Canada. By fiscal year
end 2000, the Company operated six stores in three Canadian provinces.

      The  following  table  sets forth  information  concerning  the  Company's
expansion program during the past five years:

<TABLE>
<CAPTION>

         Fiscal                                    Square Footage (in 000's)            Store Count
          Year          Openings       Closings    Begin Year      End Year       Begin Year     End Year
          ----          --------       --------    ----------      --------       ----------     --------
           <S>              <C>           <C>         <C>            <C>             <C>            <C>
           1996             36            22          3,691          4,727           155            169
           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

</TABLE>

               Increase  Productivity  of Existing  Store  Base.  The Company is
      committed to increasing its net sales per square foot,  inventory turnover
      ratio and return on invested  capital.  The Company believes the following
      initiatives will best position it to achieve these goals:

               Enhance  Merchandise Mix and Presentation.  The Company continues
      to explore  opportunities  to increase  sales in its "things"  merchandise
      without  sacrificing  market share or guest image in the "linens"  side of
      the business. The Company expects these opportunities to positively impact
      net sales per square  foot,  the average net sale per guest and  inventory
      turnover,  since  "things"  merchandise  tends to be more  impulse  driven
      merchandise  as  compared to the  "linens"  portion of the  business.  The
      Company is  consistently  introducing  new  products  that it expects will
      increase sales and generate additional guest traffic.

               In  addition,  the  Company  intends to  continue  improving  its
      merchandising presentation techniques,  space planning and store layout to
      further  improve the  productivity  of its existing and future  superstore
      locations. The Company periodically restyles its stores to incorporate new
      offerings  and  realigns  its store  space with its growth  segments.  The
      Company expects that the addition of in-store guest services, such as gift
      registry, will further improve its store productivity.

               Increase  Operating  Efficiencies.  As  part of its  strategy  to
      increase  operating  efficiencies,  the Company has  invested  significant
      capital  in  building  a   centralized   infrastructure,   including   two
      distribution  centers  and  a  management  information  system,  which  it
      believes will allow it to maintain low  operating  costs as it pursues its
      superstore  expansion strategy.  In 1995, the Company began full operation
      of its first distribution  center in Greensboro,  North Carolina.  In June
      1999,  the Company began  operation of its second  distribution  center in
      southern New Jersey. Management believes that the increased utilization of
      the distribution centers has resulted in lower average freight costs, more
      efficient scheduling of inventory shipments to the stores, better in-stock
      positions and improved  information  flow.  The Company  believes that the
      transfer of inventory  receiving  responsibilities  from the stores to the
      distribution  centers  allows the store sales  associates  to direct their
      focus to the sales floor,  thereby  increasing the level of guest service.
      The warehouse  portion of the  distribution  centers  provides the Company
      flexibility  to manage  safety stock and  inventory  flow.  The  Company's
      ability  to  effectively  manage  its  inventory  is  also  enhanced  by a
      centralized  merchandising  management team and its management information
      systems  which  allow the  Company to more  accurately  monitor and better
      balance inventory levels and improve in-stock positions in its stores.

Industry
--------

      According to Industry  Reports,  total  industry sales of products sold in
the Company's  stores,  which primarily  includes home textiles,  housewares and
decorative  furnishings  categories,  were  estimated  to be over $75 billion in
2000.  The  market  for  home  furnishings  is  large,   highly-fragmented   and
competitive.  Specialty  superstores are one of the fastest growing  channels of
distribution  in this market.  In fiscal 2000,  the Company  estimates  that the
three largest  specialty  superstore  retailers of fashion home textiles  (which
includes the Company,  Bed Bath & Beyond, Inc. and Home Place of America,  Inc.)
had aggregate sales  representing only  approximately 6% of the industry's total
unit sales.

      The Company competes with many different types of retailers that sell many
or most of the items sold by the  Company,  including  department  stores,  mass
merchandisers,  specialty  retail stores and other  retailers.  Linens 'n Things
generally classifies its competition as follows:

      Department Stores: This category includes national and regional department
stores  such as J.C.  Penney  Company  Inc.,  Sears,  Roebuck  and Co.,  Dillard
Department  Stores,  Inc., and the department store chains operated by Federated
Department  Stores,  Inc. and The May Department Store Company.  These retailers
offer name brand  merchandise  as well as their own private  label  furnishings.
Department stores also offer certain designer merchandise, such as Ralph Lauren,
which is not generally  distributed  through the specialty and mass  merchandise
distribution  channels.  In general,  the department stores offer a more limited
selection of  merchandise  than the Company.  The prices  offered by  department
stores during off-sale periods generally are significantly  higher than those of
the Company and during on-sale periods are comparable to or slightly higher than
those of the Company.

      Mass  Merchandisers:  This category  includes  companies  such as Wal-Mart
Stores,  Inc.,  the Target  Stores  division  of Target  Corporations  and Kmart
Corporation.  Fashion home furnishings  generally represent only a small portion
of the  total  merchandise  sales in these  stores.  The  Company's  competitive
advantage  is that  these  stores  generally  offer a more  limited  merchandise
selection  with fewer high quality name brands and lower quality  merchandise at
lower price points. In addition,  these mass  merchandisers  typically have more
limited customer service staffing than the Company.

      Specialty  Stores/Retailers:  This  category  includes  large  format home
furnishings  retailers including Bed Bath & Beyond, Inc., Home Place of America,
Inc., Home Goods, a division of TJX Companies, Inc. and smaller format retailers
such as Crate & Barrel,  Lechters,  Inc. and  Williams-Sonoma,  Inc. The Company
estimates that the large format stores range in size from  approximately  25,000
to 70,000 gross square feet and offer a home furnishings  merchandise  selection
of approximately 15,000 to 40,000 SKUs. These retailers attempt to develop loyal
customers and increase  customer traffic by providing a single outlet to satisfy
the  customer's  household  needs.  The smaller  format  retailers are typically
smaller in size than the large format  superstores and offer a narrow assortment
within a specific niche.  The smaller format  retailers  generally range in size
from 2,000 to 20,000 gross square feet.

      Other  Retailers:  This category  includes mail order  retailers,  such as
Spiegel  Inc.  and   Domestications,   off-price   retailers,   such  as  Kohl's
Corporation,  the T.J. Maxx and Marshall's divisions of the TJX Companies,  Inc.
and local "mom and pop" retail  stores.  Both mail order  retailers  and smaller
local  retailers  generally  offer  a more  limited  selection  of  merchandise.
Off-price  retailers  typically  offer  close-out  or out of season  name  brand
merchandise at competitive prices.

Merchandising
-------------

      The Company offers quality home textiles,  housewares and home accessories
at exceptional  everyday values. The Company's strategy consists of a commitment
to  offer  a  breadth  and  depth  of  selection  and to  create  a  merchandise
presentation that makes it easy to shop in a visually pleasing environment.  The
stores  feature  a  "racetrack"  layout,  enabling  the guest to  visualize  and
purchase fully coordinated and accessorized  ensembles.  Seasonal merchandise is
featured at the front of every store to create  variety  and  excitement  and to
capitalize on key selling seasons including spring,  back-to-school  and holiday
events.

      The Company's extensive  merchandise  offering of over 28,000 SKUs enables
its  guests to select  from a wide  assortment  of  styles,  brands,  colors and
designs  within  each of the  Company's  major  product  lines.  The  Company is
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. The Company's 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. The Company believes that the uniform  application
of its everyday low price policy is essential to  maintaining  the  integrity of
its strategy.  This is an important  factor in establishing  its reputation as a
price leader and in helping to build guest  loyalty.  In  addition,  the Company
offers,  on a regular basis,  "special"  merchandise  which it obtains primarily
through opportunistic  purchasing to enhance its high value perception among its
guests.

Customer Service
----------------

          Linens 'n Things  treats  every  customer  as a guest.  The  Company's
philosophy  supports  enhancing the guest's  entire  shopping  experience and it
believes that all elements of service differentiate it from the competition.  To
facilitate  the  ease  of  shopping,   the  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.  This  philosophy is designed to encourage guest loyalty as well as to
continually develop knowledgeable  Company associates.  The entire store team is
hired and  trained  to be highly  visible in order to assist  guests  with their
selections.  The ability to assist guests has been  augmented by the transfer of
inventory receiving  responsibilities from the stores, allowing sales associates
to focus on the sales  floor.  Sophisticated  management  systems  that  provide
efficient  guest service and liberal return  procedures are geared toward making
each guest's visit a convenient, efficient and pleasant experience.

Advertising
-----------

       Advertising programs are focused on building and strengthening the Linens
'n Things brand and image.  Because of the Company's  commitment to  exceptional
everyday values,  advertising  vehicles are aggressively used in positioning the
Company among new and existing guests by communicating  value, breadth and depth
of selection.  The Company focuses its  advertising  programs during key selling
seasons such as back-to-school and holidays.

      To reach its guests,  the Company primarily uses full color flyers to best
represent the full range of offerings in the stores.  These are  supplemented by
on-going direct  marketing  initiatives.  In addition,  the Company utilizes its
proprietary  marketing database to track the buying habits of its guests.  Grand
opening  promotional  events are used to support new stores,  with more emphasis
placed on those located in new markets.

Purchasing and Suppliers
------------------------

      The merchandising mix for each store is generally  selected by the central
buying staff.  The Company  purchases its merchandise from  approximately  1,000
suppliers.  Springs Industries,  Inc., through its various operating  companies,
supplied  approximately  10% of the Company's total purchases in fiscal 2000. In
fiscal 2000, the Company  purchased a significant  number of products from other
key suppliers.  Due to its breadth and depth of selection,  the Company is often
one of the largest  customers for certain of its vendors.  The Company  believes
that this buying power and its ability to make centralized  purchases  generally
allow it to acquire products at favorable terms.

Distribution
------------

      The Company  operates two  distribution  centers.  The first is located in
Greensboro, North Carolina and began operation in 1995 and the second is located
in southern New Jersey and began  operation in June 1999.  The Company  believes
the  utilization of the centralized  distribution  centers has resulted in lower
average freight expense,  more timely control of inventory  shipments to stores,
better  in-stock   positions  and  improved   information   flow.  In  addition,
transferring  inventory  receiving  responsibilities  from  the  stores  to  the
distribution  centers  allows the sales  associates to direct their focus to the
selling floor,  thereby enhancing the guests' shopping  experience.  The Company
believes strong distribution support for its stores is a critical element to its
growth  strategy and is central to its ability to maintain a low cost  operating
structure.

        The  Company  manages  the  distribution   process  centrally  from  its
corporate  headquarters.   Purchase  orders  issued  by  Linens  'n  Things  are
electronically  transmitted  to all of  its  suppliers.  The  Company  plans  to
continue  its  efforts  to ship as much  merchandise  through  the  distribution
centers as possible to ensure all benefits of the Company's  logistics  strategy
are  fully  leveraged.  Continued  growth  will  also  facilitate  new  uses  of
Electronic  Data  Interchange  technologies  between  Linens 'n  Things  and its
suppliers to exploit the most  productive  and  beneficial use of its assets and
resources.  In order to realize greater efficiency,  the Company also uses third
party delivery services to ship its merchandise from the distribution centers to
its stores.

<PAGE>

Management Information Systems
------------------------------

        Over  the  last  several  years,   the  Company  has  made   significant
investments in technology to improve guest service, gain efficiencies and reduce
operating  costs.  Linens  'n Things  has  installed  a  customized  IBM  AS/400
management  information  system,  which  integrates  all  major  aspects  of the
Company's  business,  including  sales,  distribution,   purchasing,   inventory
control,  merchandise  planning and  replenishment  and financial  systems.  The
Company  utilizes  POS  terminals  with  price  look-up  capabilities  for  both
inventory and sales transactions on a SKU basis,  which the Company  continually
upgrades.  Information  obtained  daily  by  the  system  results  in  automatic
inventory replenishment in response to specific requirements of each store.

      The  Company  believes  its  management  information  systems  have  fully
integrated the Company's  stores,  headquarters  and distribution  process.  The
Company continually evaluates and upgrades its management information systems to
enhance the  quantity,  quality  and  timeliness  of  information  available  to
management.

Store Management and Operations
-------------------------------

      The Company places a strong emphasis on its people,  their development and
their  opportunity  for  advancement,  particularly  at  the  store  level.  The
Company's  commitment  to  maintaining a high  internal  promotion  rate is best
exemplified  through  the  practice  of  opening  each new store with a seasoned
management  team. As a result,  the majority of General  Managers  opening a new
store have significant experience with the Company. Additionally, the 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,
complemented at the associate level through  in-store  product  seminars and POS
register training  materials.  The Company believes that its policy of promoting
from  within,  as well as the  opportunities  for  advancement  generated by its
ongoing  store  expansion  program,  serve as  incentives  to attract and retain
quality individuals.

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

Inflation and Seasonality
-------------------------

      The  Company  does  not  believe  that its  operating  results  have  been
materially  affected  by  inflation  during  the  past  year.  There  can  be no
assurance, however, that the Company's operating results will not be affected by
inflation in the future.

      The  Company's  business is subject to  substantial  seasonal  variations.
Historically,  the Company has realized a  significant  portion of its net sales
and substantially all of its net income for the year during the third and fourth
quarters.  The  Company's  quarterly  results of operations  may also  fluctuate
significantly as a result of a variety of other factors, including the timing of
new store openings.  The Company believes this is the general pattern associated
with its segment of the retail  industry and expects 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.

Employees
---------

      As of  December  30,  2000,  the  Company  employed  approximately  12,200
individuals of whom approximately  5,600 were full-time employees and 6,600 were
part-time employees.  None of the Company's employees is represented by a union,
and the Company believes that it has a good relationship with its employees.

Competition
-----------

      The  Company  believes  that it will  continue  to face  competition  from
retailers in all four of the categories referred to in "Business--Industry." The
home textiles industry is becoming  increasingly  competitive and as the Company
expands  into new  markets,  it faces new  competitors.  The  visibility  of the
Company may encourage additional  competitors or existing competitors to imitate
the Company's format and methods.

<PAGE>

      The  Company  believes  that the  ability to compete  successfully  in its
markets is determined 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.  The
Company  believes  that it is 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 the Company to compete  favorably  will not be adopted by  companies
having greater financial and other resources than the Company.

Trade Names and Service Marks
-----------------------------

      The Company uses the "Linens 'n Things" and "LNT" names as trade names and
as service marks in connection with retail services.  The Company has registered
the "Linens 'n Things" and "LNT" logos as trademarks  and service marks with the
United  States  Patent and  Trademark  Office.  The  Company  has also filed for
registration  with the Canada Patent and Trademark Office.  Management  believes
that the name  "Linens  'n  Things" is an  important  element  of the  Company's
business.

Forward-Looking Statements
--------------------------

         This  Form  10-K  (including  the  information  incorporated  herein by
reference) contains forward-looking statements within the meaning of The Private
Securities  Litigation  Reform Act of 1995. The statements were made a number of
times and have been identified by such forward-looking  terminology as "expect,"
"believe," "may," "will,"  "intend,"  "plan," "target" or similar  statements or
variations  of such  terms.  Such  forward-looking  statements  are based on our
current expectations,  assumptions,  estimates and projections about our Company
and involve certain  significant  risks and  uncertainties  including  levels of
sales, store traffic,  acceptance of product offerings and fashions, the success
of our new business concepts and seasonal concepts, the success of our new store
openings,  competitive  pressures  from other home  furnishings  retailers,  the
success  of the  Canadian  expansion,  availability  of  suitable  future  store
locations and schedule of store  expansion.  These and other  important  factors
that may cause actual  results to differ  materially  from such  forward-looking
statements  are  included  in  the  "Risk  Factors"  section  of  the  Company's
Registration  Statement  on Form S-1 as filed with the  Securities  and Exchange
Commission  on May 29, 1997,  and may be contained in  subsequent  reports filed
with the Securities and Exchange Commission.  You are urged to consider all such
factors.  In  light  of  the  uncertainty   inherent  in  such   forward-looking
statements,  you should not consider their inclusion to be a representation that
such forward-looking matters will be achieved. The Company assumes no obligation
for updating any such  forward-looking  statements  to reflect  actual  results,
changes   in   assumptions   or  changes  in  other   factors   affecting   such
forward-looking statements.


<PAGE>


ITEM 2.  PROPERTIES

      As of  December  30,  2000 the Company  operated  283 retail  stores in 40
states and three Canadian  provinces.  The Company  currently  leases all of its
existing  stores and expects that its policy of leasing  rather than owning will
continue as it expands.  The Company's  leases  provide for original lease terms
that  generally  range from 10 to 20 years and certain of the leases provide for
renewal options that range from 5 to 15 years at increased rents. Certain of the
leases  provide for scheduled  rent  increases and certain of the leases provide
for contingent rent (based upon store sales exceeding stipulated  amounts).  CVS
guarantees  the leases of certain  stores  that were  entered  into prior to the
Company's 1996 IPO. Following the IPO, CVS no longer entered into commitments to
guarantee future leases on behalf of the Company.

      The Company owns its  distribution  center in Greensboro,  North Carolina.
The Company  leases its corporate  headquarters  in Clifton,  New Jersey and its
distribution center in southern New Jersey.

      The table  below sets forth the number of stores  located in each state in
the United States as of December 30, 2000:

<TABLE>
<CAPTION>

State                 Number of Stores    State                 Number of Stores
-----                 ----------------    -----                 ----------------
<S>                            <C>        <C>                             <C>
Alabama                        1          Nebraska                        2
Arizona                        7          Nevada                          2
Arkansas                       1          New Hampshire                   4
California                    33          New Jersey                     11
Colorado                       5          New Mexico                      3
Connecticut                    9          New York                       17
Florida                       22          North Carolina                  9
Georgia                       11          Ohio                            7
Idaho                          1          Oklahoma                        2
Illinois                      17          Oregon                          4
Indiana                        3          Pennsylvania                    7
Kansas                         3          Rhode Island                    1
Kentucky                       1          South Carolina                  1
Louisiana                      2          Tennessee                       3
Maine                          3          Texas                          27
Maryland                       4          Utah                            3
Massachusetts                  9          Virginia                       11
Michigan                       9          Washington                      9
Minnesota                      6          West Virginia                   1
Missouri                       5          Wisconsin                       1

</TABLE>

      The table below sets forth the number of stores  located in each  province
in Canada as of December 30, 2000:

      Province                            Number of Stores
      --------                            ----------------
      Alberta                                      3
      British Columbia                             2
      Ontario                                      1


<PAGE>


ITEM 3.  LEGAL PROCEEDINGS

      The Company is involved in various claims and legal actions arising in the
ordinary  course  of  business.  In the  opinion  of  management,  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 is a defendant  in a  California  state  court  litigation
brought  as a class  action on behalf of  certain  managers  of  Company  stores
located  in  California  seeking  overtime  pay as well as a claim  for  accrued
vacation pay on behalf of certain former employees. In the event such claims for
vacation pay are determined adversely to the Company,  management of the Company
does not believe such claims, if so adversely determined,  would have a material
adverse  effect on the  Company's  financial  position,  liquidity or results of
operations.  At the present time,  there has been no determination of the number
of any actual class. Nor has there been any determination of the extent to which
overtime pay may or may not be owed.  Accordingly,  the Company is not presently
in a position to estimate with any degree of  certainty,  the range of potential
exposure represented by this litigation.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      No matters were submitted to a vote of security  holders during the fourth
quarter ended December 30, 2000.


<PAGE>


                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

      Linens 'n Things'  common stock is listed on the New York Stock  Exchange.
Its trading symbol is LIN. At December 30, 2000 there were  approximately  7,300
beneficial shareholders.  The high and low trading price of the Company's common
stock for each quarter is as follows:

       For Fiscal 2000                         High     Low
       ---------------                         ----     ---
       First Quarter....................      $34 3/8   $17 15/16
       Second Quarter...................       35 15/16  23 3/16
       Third Quarter....................       36 3/8    23 7/8
       Fourth Quarter...................       33 1/2    20

      For Fiscal 1999                          High     Low
      ---------------                          ----     ---
       First Quarter....................      $48 1/4   $34 3/16
       Second Quarter...................       52 1/16   37 5/8
       Third Quarter....................       49 1/2    30 5/8
       Fourth Quarter...................       41 7/16   22 7/16


      The Company paid no dividends on its common stock in fiscal 2000 and 1999.
Management  of the Company  currently  intends to retain its earnings to finance
the growth and  development  of its business and does not  currently  anticipate
paying  cash  dividends  in the  foreseeable  future.  The payment of any future
dividends will be at the discretion of the Company's Board of Directors and will
depend  upon,  among other  things,  the future  earnings,  operations,  capital
requirements and financial condition of the Company, satisfying all requirements
under its bank financing agreement and such other factors as the Company's Board
of Directors may consider relevant. In addition,  the Company's revolving credit
facility currently limits the amount of cash dividends.

ITEM 6.  SELECTED FINANCIAL DATA

         The  information  required by this Item is incorporated by reference to
the Five-Year  Financial  Summary  appearing on page 18 of the Company's  Annual
Report to Shareholders for the fiscal year ended December 30, 2000.

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

         The  information  required by this Item is incorporated by reference to
pages 19 through  22 of the  Company's  Annual  Report to  Shareholders  for the
fiscal year ended December 30, 2000.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      Market risks relating to the Company's  operations  result  primarily from
changes in  interest  rates and foreign  exchange  rates.  The Company  does not
engage in financial transactions for trading or speculative purposes.

      In the normal course of operations,  the Company is exposed to market risk
arising  from  adverse  changes in  interest  rates.  The  Company is exposed to
interest rate risks primarily  through  borrowings under the $140 million senior
revolving credit facility agreement (the "Credit  Agreement").  The Company does
not hedge these interest rate risks. As of December 30, 2000, the Company had no
borrowings under the Credit Agreement and had $3.9 million in borrowings against
the uncommitted lines of credit at a variable rate.

      The Company  enters into some purchase  obligations  outside of the United
States, which are predominately settled in U.S. dollars and, therefore, has only
minimal exposure to foreign currency  exchange risks. The Company does not hedge
against foreign currency risks and believes that foreign currency  exchange risk
is immaterial.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The financial  statements  and financial  information  required by this
Item are  incorporated  by  reference  to pages 23 through  34 of the  Company's
Annual Report to Shareholders for the fiscal year ended December 30, 2000. These
financial  statements  are indexed under Item  14(a)(1).  See also the financial
statement schedule that is included herein and is indexed under Item 14(a)(2).

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

      There were no disagreements between the Company and its independent public
accountants on matters of accounting principles or practices for fiscal 2000.

<PAGE>

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

      The information  required by this Item concerning the Company's  directors
is  incorporated  by reference to the Company's  Proxy Statement to be mailed to
shareholders for the Company's 2001 Annual Meeting of Shareholders.

      The information  required by this Item concerning the Company's  executive
officers is  contained  in Part I, Item 1,  "Business - Executive  Officers  and
Certain Key Personnel."

         The  information  required  by this Item with  respect  to  Section  16
reporting is  incorporated by reference to the Company's Proxy Statement for the
Company's 2001 Annual Meeting of Shareholders,  under the heading "Section 16(a)
Beneficial Ownership Reporting Compliance."

ITEM 11.  EXECUTIVE COMPENSATION

         The  information  required by this Item is incorporated by reference to
the Company's Proxy Statement for the 2001 Annual Meeting of Shareholders, under
the headings  "Director  Compensation - Attendance;  Committees"  and "Executive
Compensation",  other than  information  included  therein under the subcaptions
"Report on Compensation of Executive Officers" and "Performance Graph" which are
not incorporated herein.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The  information  required by this Item is incorporated by reference to
the Company's Proxy Statement for the 2001 Annual Meeting of Shareholders, under
the heading "Beneficial Ownership of Common Stock."

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

          Not applicable.

<PAGE>


                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K


(a)   The following documents are filed as part of this Report.

1.    Financial Statements:

      The following  Financial  Statements are  incorporated by reference to the
Company's  Annual Report to Shareholders  for the fiscal year ended December 30,
2000:

<TABLE>
<CAPTION>
                                                                                     Pages in Annual Report
                                                                                          to Shareholders
                                                                                     -----------------------
<S>                                                                                              <C>
Consolidated Statements of Operations -
for the fiscal years ended December 30, 2000, January 1, 2000 and December 31, 1998......        23

Consolidated Balance Sheets -
as of December 30, 2000 and January 1, 2000..............................................        24

Consolidated Statements of Shareholders' Equity -
for the fiscal years ended December 30, 2000, January 1, 2000 and December 31, 1998......        25

Consolidated Statements of Cash Flows -
for the fiscal years ended December 30, 2000, January 1, 2000 and December 31, 1998......        26

Notes to Consolidated Financial Statements...............................................        27 through 33

Management's Responsibility for Financial Reporting......................................        33

Independent Auditors' Report.............................................................        34

</TABLE>

2.    Schedules:

      The supplementary income statement schedule is included in this Report.

3.    Exhibits:

      The Exhibits on the  accompanying  Exhibit  Index are filed as part of, or
incorporated by reference into, this Annual Report on Form 10-K.


<PAGE>


                                  EXHIBIT INDEX
   Exhibit
   Number      Description
   -------     -----------

     3.1       Amended and Restated Certificate of Incorporation, as amended 1,3
     3.2       By-Laws of the Registrant 1
     4         Specimen Certificate of Common Stock 1
     10.1      Transitional Services Agreement between the Registrant and CVS
               Corporation 1
     10.2      Stockholder Agreement between the Registrant and
               CVS Corporation 1
     10.3      Tax Disaffiliation Agreement between the Registrant and
               CVS Corporation 1
     10.4      Credit Agreement dated as of March 31, 1998 among the Registrant
               Bank of New York and the lenders signatory thereto, as amended
               1, 4
     10.5      Employment Agreement with Norman Axelrod *6
     10.6      Employment Agreement with Steven B. Silverstein *6
     10.7      Employment Agreement with Hugh J. Scullin *6
     10.8      Employment Agreement with Brian Silva *6
     10.9      Employment Agreement with William Giles *6
     10.10     1996 Incentive Compensation Plan *1
     10.11     1996 Non-Employee Director Stock Plan *1
     10.12     Supplemental Executive Retirement Plan *5
     10.13     Split - Dollar Agreement between the Registrant and
               Norman Axelrod *5
     10.14     Split - Dollar Collateral Assignment between the Registrant
               and Norman Axelrod *5
     10.15     2000 Stock Award & Incentive Plan 8
     10.16     Credit Agreement dated as of October 20, 2000 among the
               Registrant, Fleet Bank and the lenders signatory thereto 7
     11        Computation of Net Income Per Common Share 2
     13        Annual Report to Shareholders for 2000 fiscal year**
     21        List of Subsidiaries 2
     23a       Consent of KPMG LLP 2

--------------------------------------------------------------------------------
1     Incorporated  by  reference  to the  Exhibits  filed  with  the  Company's
      Registration  Statement on Form S-1 (No.  333-12267),  which  Registration
      Statement became effective on November 26, 1996.

2     Filed with this Form 10-K.

3     Incorporated  by  reference  to a Current  Report on Form 8-K dated May 6,
      1999.

4     Incorporated  by  reference  to a Current  Report on Form 8-K dated  March
      31, 1998.

5     Incorporated  by reference to a Current Report on Form 8-K dated March 27,
      2000.

6     Incorporated  by reference to a Current Report on Form 8-K dated March 29,
      2001.

7     Incorporated  by reference to a Current  Report on Form 8-K dated November
      6, 2000.

8     Incorporated  by reference to a  Registration  Statement on Form S-8 dated
      August 2, 2000.

--------------------------------------------------------------------------------
*     Management contract or compensatory plan or arrangement.

**    With the  exception of the  information  incorporated  by reference to the
      Annual Report to  Shareholders in Items 6, 7, and 8 of Part II and Item 14
      of Part IV of this Form 10-K,  the Annual  Report to  Shareholders  is not
      deemed filed as part of this Form 10-K.



(b)   Reports on Form 8-K:

      The  Company  filed a Current  Report on Form 8-K dated  November 6, 2000,
      concerning  the Credit  Agreement  with Fleet Bank and the  lenders  party
      thereto.

      The  Company  filed a Current  Report on Form 8-K dated  November 6, 2000,
      concerning  the  posting  of  significant  corporate  information  on  its
      website.


<PAGE>


                                   SIGNATURES


      Pursuant  to the  requirements  of Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
behalf by the undersigned thereunto duly authorized.


                                      Linens 'n Things, Inc.
                                      (Registrant)

                                      By: /s/NORMAN AXELROD
                                         -----------------------
                                         Norman Axelrod
                                         Chairman and  Chief Executive Officer
Dated:  March 29, 2001


      Pursuant to the requirements of the Securities  Exchange Act of 1934, this
Report has been signed below on behalf of the  Registrant in the  capacities and
on the dates indicated.

<TABLE>
<CAPTION>

                     Signature                                     Title                             Date
                     ---------                                     -----                             ----
               <S>                                      <C>                                       <C>

              /s/ Norman Axelrod                        Chairman and Chief                        March 29, 2001
------------------------------------------              Executive Officer
              Norman Axelrod


              /s/ Philip E. Beekman                     Director                                  March 29, 2001
---------------------------------------------
              Philip E. Beekman


              /s/ Harold F. Compton                     Director                                  March 29, 2001
---------------------------------------------
              Harold F. Compton

              /s/ Stanley P. Goldstein                  Director                                  March 29, 2001
---------------------------------------------
              Stanley P. Goldstein


              /s/ Morton E. Handel                      Director                                  March 29, 2001
---------------------------------------------
              Morton E. Handel


              /s/ William T. Giles                      Senior Vice President,                    March 29, 2001
---------------------------------------------           Chief Financial Officer
              William T. Giles                          (Principal Financial Officer and
                                                         Principal Accounting Officer


</TABLE>

<PAGE>

<TABLE>
<CAPTION>

         Five-Year Financial Summary (in thousands, except per share and selected operating data)

Fiscal Year Ended                                        December         January          December       December 31,  December 31,
                                                         30, 2000          1, 2000         31, 1998           1997         1996
----------------------------------------------------- ---------------- --------------- ----------------- --------------- -----------
<S>                                                        <C>             <C>               <C>               <C>          <C>
Income statement data:
   Net sales..........................................     $1,572,576      $1,300,632        $1,066,194        $874,224     $696,107
   Operating profit...................................        107,092          84,552            61,988          45,507       30,683
   Net income ........................................         64,937          52,052            38,062          25,790       15,039
   Net income per share - basic1......................       $   1.63        $   1.32          $   0.98         $  0.67      $  0.39
   Basic weighted average shares
       outstanding1...................................         39,785          39,339            38,895          38,578       38,536
   Net income per share - diluted1....................       $   1.60        $   1.27          $   0.94         $  0.65      $  0.39
   Diluted weighted average shares
        outstanding1..................................         40,712          40,907            40,407          39,537       38,558

Balance sheet data:
   Total assets.......................................      $ 821,557       $ 679,916         $ 560,844        $472,099     $423,957
   Working capital....................................        226,694         181,380           154,893         123,375      113,582
   Total long-term debt...............................             --              --                --              --       13,500
   Shareholders' equity...............................      $ 458,994       $ 383,962         $ 323,576        $280,035     $249,727

Selected operating data:
   Number of stores...................................            283             230               196             176          169
   Total gross square footage (000's).................          9,836           7,925             6,487           5,493        4,727
   Increase in comparable store net sales.............           3.7%            5.4%              8.3%            6.6%         1.1%


</TABLE>

1   Unless  otherwise  stated,  all references to common shares  outstanding and
    income  per  share  in  the  consolidated  financial  statements,  notes  to
    consolidated financial statements,  and management's discussion and analysis
    of financial condition and results of operations are adjusted to reflect the
    Company's two-for-one common stock split effected in May 1998.

<PAGE>


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


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

                               Dec. 30,     Jan. 1,     Dec. 31,
Fiscal Year Ended                2000        2000         1998
------------------------------ --------- -- -------- -- ---------

Percentage of net sales
Net sales......................  100.0%      100.0%       100.0%
Cost of sales, including
buying and distribution costs..    59.1        59.4      60.0
                               ---------    --------    ---------
Gross profit...................    40.9        40.6      40.0
Selling, general and
administrative  expenses.......    34.1        34.1      34.2
                               ---------    --------    ---------
Operating profit...............     6.8         6.5       5.8
Interest expense, net..........     0.1         0.0       0.0
                               ---------    --------    ---------
Income before income taxes.....     6.7         6.5       5.8
Provision for income taxes.....     2.6         2.5       2.2
                               ---------    --------    ---------
Net income.....................    4.1%        4.0%       3.6%


Fiscal Year Ended  December 30, 2000  Compared With Fiscal Year Ended January 1,
2000

Net Sales

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

The  Company's  average net sales per store was $6.2  million in fiscal 2000 and
fiscal 1999. For the fiscal 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

Gross  profit for  fiscal  2000 was $643.3  million,  or 40.9% of net sales,  as
compared  with  $528.2  million,  or 40.6% of net sales,  in fiscal  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,  the Company had lower freight and related  distribution
costs,  as  a  percentage  of  sales,  from  the  leveraging  of  the  Company's
centralized distribution network.

Expenses

Selling,  general and  administrative  expenses  ("S,G&A")  for fiscal 2000 were
$536.2 million, or 34.1% of net sales, as compared with $443.6 million, or 34.1%
of net sales, in fiscal 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 for fiscal 2000  increased to $107.1  million,  or 6.8% of net
sales, up from $84.6 million, or 6.5% of net sales, during fiscal 1999.

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

<PAGE>

The Company's income tax expense for fiscal 2000 was $40.2 million,  as compared
with $32.5  million  during fiscal 1999.  The  Company's  effective tax rate was
38.2% in fiscal 2000 as compared with 38.4% in fiscal 1999.

Net Income

Net income for fiscal 2000 was $64.9  million,  or 4.1% of net sales as compared
with $52.1 million, or 4.0% of net sales in fiscal 1999.

Fiscal Year Ended January 1, 2000 Compared With Fiscal Year Ended
December 31, 1998

Net Sales

Net sales for fiscal  1999 were  $1,300.6  million,  an  increase  of 22.0% over
fiscal  1998  sales of  $1,066.2  million,  primarily  as a result  of new store
openings as well as comparable store net sales increases.  The Company opened 43
superstores  and closed nine stores in fiscal 1999,  as compared with opening 32
superstores  and closing 12 stores in fiscal 1998. At fiscal year end 1999,  the
Company operated 230 stores as compared with 196 stores at fiscal year end 1998.
Comparable  store net sales  increased 5.4% in fiscal 1999 compared with 8.3% in
fiscal  1998.  Comparable  store net sales were driven  predominately  by higher
consumer traffic.

The  Company's  average net sales per store  increased to $6.2 million in fiscal
1999 up from  $5.9  million  in fiscal  1998.  This  increase  was due to strong
comparable store net sales increases.  For the fiscal year ended 1999, net sales
of "linens" merchandise  increased  approximately 20% over the prior year, while
net sales of "things"  merchandise  increased  approximately  30% over the prior
year.  The greater  increase  in net sales for  "things"  merchandise  primarily
resulted from the continued  expansion of product categories within the "things"
business.

Gross Profit

Gross  profit for  fiscal  1999 was $528.2  million,  or 40.6% of net sales,  as
compared  with  $427.1  million,  or 40.0% of net sales,  in fiscal  1998.  This
increase as a  percentage  of net sales  resulted  from  improved  selling  mix,
improvements in buying,  and lower freight and related  distribution  costs from
the leveraging of the Company's distribution network.

Expenses

S,G&A expenses for fiscal 1999 were $443.6  million,  or 34.1% of net sales,  as
compared with $365.1 million,  or 34.2% of net sales, in fiscal 1998.  Occupancy
expenses  continued to leverage as a result of a 5.4% comparable store net sales
increase,  which was offset in part due to investments in store payroll in order
to provide better guest service.

Operating  profit for fiscal 1999  increased  to $84.6  million,  or 6.5% of net
sales, up from $62.0 million, or 5.8% of net sales, during fiscal 1998.

Net interest  expense in fiscal 1999  decreased  to $43,000 from $83,000  during
fiscal  1998.  This  decrease  was due to improved  earnings as well as improved
working capital management.

The Company's income tax expense for fiscal 1999 was $32.5 million,  as compared
with $23.8  million  during fiscal 1998.  The  Company's  effective tax rate was
38.4% in fiscal 1999 as compared with 38.5% in fiscal 1998.

Net Income

Net income for fiscal 1999 was $52.1  million,  or 4.0% of net sales as compared
with $38.1 million, or 3.6% of net sales in fiscal 1998.

Liquidity and Capital Resources

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

<PAGE>

On October 20, 2000, the Company  entered into a $140 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  uncommitted  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 uncommitted lines of credit (the "1998 Credit Agreement"). Under
the Credit  Agreement,  the amount of  borrowings  can be  increased  up to $150
million provided certain terms and conditions  contained in the Credit Agreement
are met. Interest on all borrowings is determined based upon several alternative
rates as stipulated in the Credit  Agreement,  including a fixed rate plus LIBOR
rate. The Credit Agreement 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. At the end of fiscal 2000,
the Company was in compliance with the terms of the Credit Agreement. At various
times  throughout  fiscal 2000 and 1999, the Company borrowed against the Credit
Agreement and the 1998 Credit  Agreement for seasonal  working capital needs. At
the end of fiscal 2000, the Company had no borrowings under the Credit Agreement
and had $3.9 million of borrowings  against the uncommitted  lines of credit. In
addition,  as of December  30,  2000 and January 1, 2000,  the Company had $10.7
million and $1.7 million,  respectively,  of letters of credit outstanding.  The
letters  of  credit  were  used  to  guarantee   payment  of  certain  insurance
obligations and to secure a foreign line of credit. The Company is not obligated
under any formal or informal compensating balance requirements.

Net cash  provided by  operating  activities  for the fiscal year ended 2000 was
$27.5 million as compared with $41.4 million for the same period in fiscal 1999.
This change was primarily a result of an increase in inventory.  The increase in
inventory levels over the prior year is a result of new store openings,  as well
as the Company's decision to maintain and improve its in-stock  position,  which
is consistent  with the Company's  focus on continuing to improve guest service.
The  increase  in  inventory  was  partially  offset by an  increase  in accrued
expenses due to the timing and settlement of vendor payments.  In addition,  the
Company reported a smaller change in accounts payable than the prior year due to
the timing and settlement of vendor payments.

Net cash used in investing  activities  for the fiscal year ended 2000 was $70.5
million,  as compared  with $70.1  million  for the same period in fiscal  1999.
Fiscal year 2000 included an increase in capital  expenditures  associated  with
the opening of 14 more  stores  this year versus last year,  which was offset by
capital expenditures incurred for the second distribution center in 1999.

Net cash  provided by  financing  activities  for the fiscal year ended 2000 was
$35.7  million  compared  with $31.9 million for the same period in fiscal 1999.
The increase was primarily attributable to an increase in short-term borrowings.

Management  currently  believes that the Company's  cash flows from  operations,
credit extended by suppliers,  the Credit Agreement and the uncommitted lines of
credit will be sufficient to fund anticipated  capital  expenditures and working
capital requirements in the foreseeable future.

Market Risk Disclosure

Market risks relating to the Company's  operations result primarily from changes
in interest  rates and foreign  exchange  rates.  The Company does not engage in
financial transactions for trading or speculative purposes.

In the normal  course of  operations,  the  Company  is  exposed to market  risk
arising  from  adverse  changes in  interest  rates.  The  Company is exposed to
interest rate risks primarily through borrowings under the Credit Agreement. The
Company does not hedge these  interest rate risks.  As of December 30, 2000, the
Company had no  borrowings  under the Credit  Agreement  and had $3.9 million in
borrowings against the uncommitted lines of credit at a variable rate.

The Company enters into some purchase  obligations outside of the United States,
which are predominately settled in U.S. dollars and, therefore, has only minimal
exposure to foreign currency  exchange risks. The Company does not hedge against
foreign  currency  risks and believes  that foreign  currency  exchange  risk is
immaterial.

<PAGE>

Inflation and Seasonality

The Company does not believe  that its  operating  results have been  materially
affected  by  inflation  during  the  preceding  three  years.  There  can be no
assurance, however, that the Company's operating results will not be affected by
inflation in the future.

The  Company's   business  is  subject  to  substantial   seasonal   variations.
Historically,  the Company has realized a  significant  portion of its net sales
and net income for the year during the third and fourth quarters.  The Company's
quarterly results of operations may also fluctuate  significantly as a result of
a variety of other  factors,  including  the timing of new store  openings.  The
Company believes this is the general pattern  associated with its segment of the
retail   industry  and  expects  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.

<PAGE>

Recent Accounting Pronouncements

The Company is required to adopt Statement of Financial  Standards  ("SFAS") No.
133 "Accounting for Derivative  Instruments and Hedging  Activities"  ("SFAS No.
133").  This  statement  is  effective  with the first  quarter of fiscal  years
beginning after June 15, 2000. For the Company,  implementation  is required for
the  first  quarter  of  fiscal  2001.  The  Company  has  determined  that  the
implementation  of SFAS No. 133 is not expected to have a significant  effect on
its results of operations or financial position.  This statement is not required
to be applied retroactively to financial statements of prior periods.

Financial Accounting Standards Board ("FASB") Interpretation No. 44, "Accounting
for Certain  Transactions  Involving Stock Compensation" ("FIN No. 44") provides
guidance  for  applying  Accounting  Principles  Board  ("APB")  Opinion No. 25,
"Accounting for Stock Issued to Employees".  With certain exceptions, FIN No. 44
applies  prospectively  to  new  awards,  exchanges  of  awards  in  a  business
combination,  modifications to outstanding  awards and changes in grantee status
on or after July 1, 2000. The Company has determined that the  implementation of
FIN No. 44 did not have a  significant  effect on its results of  operations  or
financial position.

At a recent FASB Emerging  Issues Task Force ("EITF")  meeting,  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.  The adoption of the EITF is
required in the second quarter of fiscal 2001. The Company already includes such
sales  incentives  against sales and records free  merchandise  in cost of goods
sold as required by the new EITF consensus.

Forward-Looking Statements

This Annual Report to Shareholders  contains  forward-looking  statements within
the  meaning  of The  Private  Securities  Litigation  Reform  Act of 1995.  The
statements  are  made a number  of  times  throughout  the  document  and may be
identified by such  forward-looking  terminology as "expect,"  "believe," "may,"
"will," "intend,"  "plan," "target" or similar  statements or variations of such
terms. Such  forward-looking  statements are based on our current  expectations,
assumptions,  estimates and  projections  about our Company and involve  certain
significant  risks and uncertainties  including levels of sales,  store traffic,
acceptance of product  offerings  and fashions,  the success of our new business
concepts  and  seasonal   concepts,   competitive   pressures  from  other  home
furnishings  retailers,  the success of the Canadian expansion,  availability of
suitable future store locations and schedule of store expansion plans. These and
other important  factors that may cause actual results to differ materially from
such  forward-looking  statements are included in the "Risk Factors"  section of
the Company's  Registration  Statement on Form S-1 as filed with the  Securities
and  Exchange  Commission  on May 29, 1997,  and may be contained in  subsequent
reports  filed with the  Securities  and Exchange  Commission.  You are urged to
consider  all  such  factors.  In  light  of the  uncertainty  inherent  in such
forward-looking  statements,  you should not  consider  their  inclusion to be a
representation that such forward-looking  matters will be achieved.  The Company
assumes no  obligation  for  updating  any such  forward-looking  statements  to
reflect  actual  results,  changes in  assumptions  or changes in other  factors
affecting such forward-looking statements.


<PAGE>

<TABLE>
<CAPTION>


Consolidated Statements of Operations (in thousands, except per share amounts)
-------------------------------------------------------------------------------------------------------------------

                                                                  December 30,          January 1,           December 31,
Fiscal Year Ended                                                     2000                 2000                  1998
-------------------------------------------------------------- ------------------- -- --------------- --- --------------------
<S>                                                                    <C>                <C>                      <C>
Net sales.................................................             $1,572,576         $1,300,632               $1,066,194
Cost of sales, including buying and
   distribution costs.....................................                929,305            772,453                  639,138
                                                               -------------------    ---------------     --------------------

Gross profit..............................................                643,271            528,179                  427,056
Selling, general and administrative expenses..............                536,179            443,627                  365,068
                                                               -------------------    ---------------     --------------------

Operating profit..........................................                107,092             84,552                   61,988
Interest expense, net of interest income and
  capitalized interest....................................                  1,941                 43                       83
                                                               -------------------    ---------------     --------------------
Income before income taxes................................                105,151             84,509                   61,905
Provision for income taxes................................                 40,214             32,457                   23,843
                                                               -------------------    ---------------     --------------------
Net income................................................               $ 64,937           $ 52,052                 $ 38,062
                                                               ===================    ===============     ====================

Per share of common stock:

Basic
Net income................................................                $  1.63           $   1.32                 $   0.98
                                                               -------------------    ---------------     --------------------
Weighted average shares outstanding.......................                 39,785             39,339                   38,895

Diluted
Net income................................................                $  1.60           $   1.27                 $   0.94
                                                               -------------------    ---------------     --------------------
Weighted average shares outstanding.......................                 40,712             40,907                   40,407


</TABLE>

See accompanying notes to consolidated financial statements.


<PAGE>

<TABLE>
<CAPTION>

Consolidated Balance Sheets (in thousands, except share amounts)
------------------------------------------------------------------------------------------------------------------------------

                                                                                      December 30, 2000        January 1, 2000
------------------------------------------------------------------------------------- ------------------- -- -----------------
<S>                                                                                             <C>                  <C>
Assets
    Current assets:
      Cash and cash equivalents................................................                 $ 38,524             $ 45,751
      Accounts receivable, net.................................................                   31,508               20,836
      Inventories..............................................................                  437,258              342,681
      Prepaid expenses and other current assets................................                   25,360               21,410
                                                                                      -------------------    -----------------
    Total current assets.......................................................                  532,650              430,678
      Property and equipment, net..............................................                  262,409              223,725
      Goodwill, net of accumulated amortization of $8,214
         at December 30, 2000 and $7,364 at January 1, 2000....................                   18,977               19,826
      Deferred charges and other noncurrent assets, net........................                    7,521                5,687
                                                                                      -------------------    -----------------
Total assets...................................................................                $ 821,557            $ 679,916
                                                                                      ===================    =================
Liabilities and Shareholders' Equity
    Current liabilities:
      Accounts payable.........................................................                $ 183,473            $ 144,884
      Accrued expenses and other current liabilities...........................                  118,580              104,414
      Short-term borrowings ...................................................                    3,903                   --
                                                                                      -------------------    -----------------
    Total current liabilities..................................................                  305,956              249,298
      Deferred income taxes and other long-term liabilities....................                   56,607               46,656

    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; 40,173,441
         shares issued and 40,059,126  shares  outstanding at December 30, 2000;
         39,555,259 shares issued and 39,478,782  shares  outstanding at
         January 1, 2000.......................................................                      402                  396
      Additional paid-in capital...............................................                  231,547              220,751
      Retained earnings........................................................                  230,186              165,249
      Accumulated other comprehensive income ..................................                      289                   --
      Treasury stock, at cost, 114,315 shares at December 30, 2000 and 76,477
         shares at January 1, 2000.............................................                  (3,430)              (2,434)
                                                                                      -------------------    -----------------
    Total shareholders' equity.................................................                  458,994              383,962
                                                                                      -------------------    -----------------
Total liabilities and shareholders' equity.....................................                $ 821,557            $ 679,916
                                                                                      ===================    =================


</TABLE>

See accompanying notes to consolidated financial statements.


<PAGE>

<TABLE>
<CAPTION>

Consolidated Statements of Shareholders' Equity
                                                                                              Foreign
                                                Common Stock      Additional                  Currency
                                                ------------       Paid-in        Retained    Translation   Treasury
                                             Shares      Amount    Capital        Earnings    Adjustment      Stock     Total
----------------------------------------- ------------   -------  -----------     --------    ------------  --------  ----------
(in thousands, except number of shares)
<S>                                        <C>             <C>     <C>              <C>       <C>          <C>        <C>
Balance at December 31, 1997............   38,633,840      $386    $204,514         $75,135   $    --        $ --     $ 280,035
Net income..............................           --        --          --          38,062        --          --        38,062
Common stock issued under stock
   incentive plans......................      457,441         5       6,864              --        --          --         6,869
Purchase of treasury stock..............      (53,333)       --          --              --        --      (1,390)       (1,390)
                                           ------------   ------   -----------     ---------  ---------   ---------   -----------
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
                                           ============   ======   ===========     =========  =========   =========   ===========

</TABLE>

See accompanying notes to consolidated financial statements.


<PAGE>

<TABLE>
<CAPTION>

Consolidated Statements of Cash Flows (in thousands)
--------------------------------------------------------- -- -------------------- -- ----------------- -- --------------------
                                                                December 30,            January 1,           December 31,
Fiscal Year Ended                                                   2000                   2000                  1998
--------------------------------------------------------- -- -------------------- -- ----------------- -- --------------------
<S>                                                                     <C>                  <C>                     <C>
Cash flows from operating activities:
   Net income..........................................                 $ 64,937             $ 52,052                $38,062
   Adjustments to reconcile net income to net
     cash provided by operating activities:
     Depreciation and amortization.....................                   32,422               26,521                 21,308
     Deferred income taxes.............................                    5,074                3,784                  2,502
     Loss on disposal of assets........................                      807                  868                  1,560
     Federal tax benefit from common stock
          issued under stock incentive plans...........                    4,480                4,669                  3,212
     Changes in assets and liabilities:
       (Increase) decrease in accounts receivable......                  (10,672)               1,978                 (9,050)
       Increase in inventories.........................                  (94,577)             (71,292)               (48,201)
       Increase in prepaid expenses and other
           current assets..............................                   (2,468)              (1,551)                (4,814)
       (Increase) decrease in deferred charges
          and other noncurrent assets..................                   (2,425)              (1,062)                   175
       Increase in accounts payable....................                    2,929               31,033                    472
       Increase (decrease) in accrued expenses
             and other liabilities.....................                   27,027               (5,618)                25,671
                                                             --------------------    -----------------    --------------------
   Net cash provided by operating activities...........                   27,534               41,382                 30,897
                                                             --------------------    -----------------    --------------------
Cash flows from investing activities:
   Additions to property and equipment.................                  (70,473)             (70,129)               (46,272)
                                                             --------------------    -----------------    --------------------
Cash flows from financing activities:
   Proceeds from common stock issued under
     stock incentive plans.............................                    6,322                4,709                  3,657
   Purchase of treasury stock..........................                     (996)              (1,044)                (1,390)
   Increase in short-term borrowings...................                    3,903                   --                     --
   Increase in book overdrafts.........................                   26,483               28,195                 15,864
                                                             --------------------    -----------------    --------------------
   Net cash provided by financing activities...........                   35,712               31,860                 18,131
                                                             --------------------    -----------------    --------------------
   Net (decrease) increase in cash and cash equivalents
                                                                          (7,227)               3,113                 2,756
   Cash and cash equivalents at beginning of
        year...........................................                   45,751               42,638                39,882
                                                             --------------------    -----------------    --------------------
Cash and cash equivalents at end of year...............                 $ 38,524             $ 45,751               $42,638
                                                             ====================    =================    ====================
Supplemental disclosure of cash flow information

Cash paid during the year for:
   Interest (net of amounts capitalized)...............                 $  2,500               $  747                $  727
   Income taxes........................................                 $ 25,102             $ 20,889              $ 16,756


</TABLE>

See accompanying notes to consolidated financial statements.


<PAGE>


Notes to Consolidated Financial Statements

1.   Business

Linens 'n Things, Inc. and subsidiaries (collectively the "Company") operates in
one segment,  the retail  industry,  and had 283 stores in 40 states  across the
United  States and three  Provinces  in Canada as of the fiscal year ended 2000.
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  intercompany
     balances and transactions have been eliminated.

     Fiscal Periods

     On  December  15,  1999,  the Board of  Directors  approved a change in the
     Company's  fiscal year from a calendar year to a 52/53-week  calendar year.
     Therefore,  fiscal  2000 ended  December  30,  2000 and  fiscal  1999 ended
     January 1, 2000.  Both  fiscal 2000 and 1999 were 52 week  periods.  Fiscal
     1998 was based on a calendar year which ended December 31, 1998.

     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 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 weighted  average number of shares  outstanding  for basic earnings per
     share were  approximately  39,785,000 in fiscal 2000,  39,339,000 in fiscal
     1999 and 38,895,000 in fiscal 1998.  The weighted  average number of shares
     outstanding for diluted  earnings per share including the dilutive  effects
     of stock options and deferred stock grants were approximately 40,712,000 in
     fiscal 2000, 40,907,000 in fiscal 1999 and 40,407,000 in fiscal 1998.

     Stock Based Compensation

     The Company grants stock options and restricted stock for a fixed number of
     shares to  employees  with stock option  exercise  prices equal to the fair
     market  value of the 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 but amortizes restricted stock
     grants at fair market value, over specified vesting periods.

     Financial Instruments

     Cash  and cash  equivalents,  accounts  receivable,  accounts  payable  and
     accrued expenses are reflected in the consolidated  financial statements at
     carrying value which  approximates  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

     The Company's cash  management  program  utilizes  controlled  disbursement
     accounts.  Under this system, book overdrafts represent checks outstanding,
     which have been issued and have not cleared the Company's  bank accounts at
     fiscal  year  end.  Accordingly,  all book  overdraft  balances  have  been
     reclassified to current  liabilities.  Cash equivalents are considered,  in
     general,  to be those  securities  with  maturities of three months or less
     when purchased.

<PAGE>

     Inventories

     Inventories  consist of finished goods merchandise  purchased from domestic
     and foreign  vendors  and are carried at the lower of cost or market,  cost
     being determined by the retail inventory method of accounting.

     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 building  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

     The excess of acquisition  costs over the fair value of net assets acquired
     is amortized on a straight-line basis not to exceed 40 years.

     Deferred Rent

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

     Shareholders' Equity

     In April of 1999, the Company's Certificate of Incorporation was amended to
     increase the number of  authorized  shares of common stock (par value $0.01
     per share) from 60,000,000 shares to 135,000,000 shares.

     On April 14,  1998,  the  Board of  Directors  of the  Company  approved  a
     two-for-one split of its common stock to be effected in the form of a stock
     dividend.  The stock dividend was one additional  share of common stock for
     each  outstanding  share of common stock and was distributed on May 7, 1998
     to shareholders of record on April 24, 1998. Unless otherwise  stated,  all
     references  to  common  shares  outstanding  and  income  per  share in the
     consolidated   financial  statements,   notes  to  consolidated   financial
     statements, and management's discussion and analysis of financial condition
     and results of operations are on a post-split basis.

     Revenue Recognition

     The Company  recognizes  revenue at the time of sale of  merchandise to its
     customers.

     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 total lease  obligation,
     less  anticipated  sublease  rental  income and  related  improvements  and
     fixtures, is provided for in the year of closing.

     Advertising Costs

     The  Company   expenses  the   production   costs  of  advertising  at  the
     commencement  date  of the  advertisement.  Advertising  costs  were  $39.6
     million,  $35.6 million and $28.9  million for fiscal years 2000,  1999 and
     1998, respectively.

<PAGE>

     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.

     Use of Estimates in the Preparation of
     Financial Statements

     The  preparation  of financial  statements  in  conformity  with  generally
     accepted  accounting  principles  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  of  expenses  during the
     reporting period. Actual results could differ from those estimates.

     Reclassifications

     Certain   reclassifications   were  made  to  the  fiscal   1999  and  1998
     consolidated  financial  statements  in order to conform to the fiscal 2000
     presentation.

3.   Accounts Receivable, Net

                                          Fiscal Year Ended
Accounts  receivable,  net, consisted    ------------------
of the following (in thousands):         2000          1999
-------------------------------------- ---------- -- ----------
Credit and charge card receivables...     $9,489        $6,457
Due from landlords and vendors.......     20,934        13,172
Other, net of allowance.............       1,085         1,207
                                       ----------    ----------
                                        $ 31,508      $ 20,836

4.   Property and Equipment

                                        Fiscal Year Ended
  Property and equipment consisted
  of the following (in thousands):          2000         1999
  ------------------------------------------------------------
  Land                                    $  430      $   430
  Building...........................      4,760        4,760
  Furniture, fixtures and equipment..    283,608      226,810
  Leasehold improvements.............     83,480       74,320
  Computer software..................      9,905        7,829
                                     ------------ ------------
                                         382,183      314,149
  Less accumulated depreciation
      and amortization...............    119,774       90,424
                                     ------------ ------------
                                       $ 262,409    $ 223,725


5.   Accrued Expenses and Other Current Liabilities

                                          Fiscal Year Ended
Accrued  expenses  and other  current
liabilities    consisted    of    the       2000          1999
following (in thousands):
-------------------------------------- ---------- -- ----------
Income taxes payable.............       $ 22,403       $16,778
Other taxes payable..............         18,383        16,508
Salaries and employee benefits...         16,834        15,565
Other............................         60,960        55,563
                                       ----------    ----------
                                        $118,580      $104,414

<PAGE>

6.   Short-Term Borrowing Arrangements

On October 20, 2000, the Company  entered into a $140 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  uncommitted  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 uncommitted lines of credit (the "1998 Credit Agreement"). Under
the Credit  Agreement,  the amount of  borrowings  can be  increased  up to $150
million provided certain terms and conditions  contained in the Credit Agreement
are met. Interest on all borrowings is determined based upon several alternative
rates as  stipulated in the Credit  Agreement  including a fixed rate plus LIBOR
rate. The Credit Agreement 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. At the end of fiscal 2000,
the Company was in compliance with the terms of the Credit Agreement. At various
times  throughout  fiscal 2000 and 1999, the Company borrowed against the Credit
Agreement and the 1998 Credit  Agreement for seasonal  working capital needs. At
the end of fiscal 2000, the Company had no borrowings under the Credit Agreement
and $3.9  million of  borrowings  against the  uncommitted  lines of credit.  In
addition,  as of December  30,  2000 and January 1, 2000,  the Company had $10.7
million and $1.7 million,  respectively,  of letters of credit outstanding.  The
letters  of  credit  were  used  to  guarantee   payment  of  certain  insurance
obligations and to secure a foreign line of credit. The Company is not obligated
under any formal or informal compensating balance requirements.


7.   Deferred Income Taxes and Other Long-Term
     Liabilities

Deferred income taxes and other long-term liabilities consisted of the following
(in thousands):

                                         Fiscal Year Ended
                                         -----------------
                                         2000          1999
------------------------------------- --------     ---------
Deferred income taxes............     $30,198       $23,642
Deferred rent....................      18,988        15,097
Other............................       7,421         7,917
                                      --------     ---------
                                      $56,607       $46,656


8.   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
----------------------- --------------------------------------
                             2000           1999         1998
----------------------- ----------     ----------    ---------
Minimum rentals.....     $125,172       $101,575      $83,881
Contingent rentals..          151            212          139
                        ----------     ----------    ---------
                          125,323        101,787       84,020
Less sublease rentals         503            577          563
                        ----------     ----------    ---------
                         $124,820       $101,210      $83,457


At fiscal year end 2000,  the future  minimum  rental  payments  required  under
operating  leases  and the  future  minimum  sublease  rentals  excluding  lease
obligations for closed stores were as follows (in thousands):

Fiscal Year
--------------------------------------------- -------------
2001                                             $ 132,267
2002                                               132,898
2003                                               131,240
2004                                               128,572
2005                                               126,423
Thereafter................................       1,065,730
                                              -------------
                                                $1,717,130
                                              -------------
Total future minimum sublease rentals.....        $  8,257
                                              -------------

<PAGE>

In addition,  as of January 31, 2001, the Company had fully executed  leases for
47 stores planned to open in fiscal 2001.

9.   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,  deferred  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  available  for  issuance  of awards to regular  full time
employees (excluding any executive officers).

Stock options and grants under the Plans are awarded at the fair market value of
the  shares  at the date of  grant.  The  right to  exercise  options  generally
commences one to five years after,  and generally  expires ten years after,  the
grant date,  provided the optionee or eligible director continues to be employed
by, or remains in service as director to, the Company.

At fiscal year end 2000,  135,559 deferred stock grants were  outstanding  under
the 1996 Plan and the Directors'  Plan.  During fiscal 2000,  67,608 grants were
released, 15,601 grants were awarded and 400 grants were canceled under the 1996
Plan and the Directors' Plan.

At fiscal year end 2000, 97,127 deferred stock grants were outstanding under the
2000 Plan. During fiscal 2000, 11,860 grants were released,  108,987 grants were
awarded and no grants were canceled under the 2000 Plan.

At fiscal year end 2000, 2,661,907 stock options were outstanding under the 1996
Plan.  During  fiscal 2000,  9,850 stock  options were  granted,  525,899  stock
options were  exercised,  62,676 stock options were canceled and 1,175,808 stock
options were  exercisable at fiscal year end 2000 under the 1996 Plan. At fiscal
year end 2000,  54,800 stock options were outstanding under the Directors' Plan.
During fiscal 2000, 8,000 stock options were granted,  11,550 stock options were
exercised,  9,850 stock  options were  canceled  and 36,600  stock  options were
exercisable at fiscal year end 2000 under the Directors' Plan.

At fiscal year end 2000,  472,500 stock options were outstanding  under the 2000
Plan. During fiscal 2000,  472,500 stock options were granted,  no stock options
were  exercised,  no stock  options  were  canceled  and no stock  options  were
exercisable at fiscal year end 2000 under the 2000 Plan.

At fiscal  year end 2000,  603,835  stock  options  were  outstanding  under the
Broad-Based Equity Plan. During fiscal 2000, 606,710 stock options were granted,
no stock options were exercised,  2,875 stock options were canceled and no stock
options were  exercisable  at fiscal year end 2000 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:


<PAGE>


                                   Number          Weighted-
                                     of             Average
                                   Shares        Exercise Price
----------------------------     -----------    ---------------
Balance at December 31, 1997      2,598,618             $10.47
Options granted                     853,708             $30.31
Options exercised                   378,611              $7.86
Options canceled                     91,882             $12.56
                                 -----------    ---------------
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 Exercisable as of:
--------------------------
December 31, 1998                   720,616             $10.03
January 1, 2000                   1,055,448             $12.25
December 30, 2000                 1,212,408             $14.35


                            Options Outstanding
               -----------------------------------------------
                                Weighted-Average
                  Outstanding      Remaining    Weighted-Average
   Range of          as of        Contractual     Exercise
Exercise Price  December 30, 2000    Life           Price
--------------------------------------------------------------

$7.75  -$9.75            660,329   5.9 years       $ 7.78
$9.76  -$14.62            14,000   6.4 years       $12.45
$14.63-$19.50            501,174   6.9 years       $17.44
$19.51-$24.37          1,045,685   9.8 years       $21.44
$24.38-$29.25             64,309   6.4 years       $26.89
$29.26-$34.12          1,475,145   8.4 years       $30.82
$34.13-$39.00              7,850   8.5 years       $36.68
$39.01-$43.87             17,350   8.3 years       $40.21
$43.88-$48.75              7,200   8.3 years       $45.02
               -----------------------------------------------
     Total             3,793,042   8.1 years       $22.43
               ===============================================

<PAGE>

                       Options Exercisable
               ------------------------------------
                Outstanding as
   Range of       Of December    Weighted-Average
Exercise Price     30, 2000       Exercise Price
-------------------------------- ------------------

$7.75  -$9.75           658,379       $ 7.77
$9.76  -$14.62            9,650       $12.54
$14.63-$19.50           346,341       $17.44
$19.51-$24.37               100       $20.23
$24.38-$29.25            31,909       $26.13
$29.26-$34.12           156,328       $30.84
$34.13-$39.00             2,575       $36.65
$39.01-$43.87             4,750       $40.16
$43.88-$48.75             2,376       $45.05
               ----------------- ------------------
     Total            1,212,408       $14.35
               ================= ==================


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

Fiscal Year Ended                        2000    1999      1998
------------------------------------ --------- --------- ----------
Expected life (years)..........           6.0    4.5        4.5
Expected volatility............         55.0%     45.0%      45.0%
Risk-free interest rate........          5.1%      6.2%       4.7%
Expected dividend yield........          0.0%      0.0%       0.0%


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 these  plans in the  accompanying  consolidated
financial  statements.  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
------------------------------------------ -----------------------
(in millions, except per share data)         2000   1999     1998
------------------------------------------ ------- ------ --------
Net income:
     As reported.......................     $64.9  $52.1    $38.1
     Pro forma.........................     $59.8  $49.3    $36.2

Net income per share of common stock:
     Basic:
     As reported.......................     $1.63  $1.32    $0.98
     Pro forma.........................     $1.50  $1.25    $0.93
     Diluted:
     As reported.......................     $1.60  $1.27    $0.94
     Pro forma.........................     $1.47  $1.20    $0.89

------------------------------------------ ------- ------ --------

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

10.  Employee Benefit Plans

On  December  1,  1996,  the  Company  adopted a 401(k)  savings  plan.  Company
contributions to the plan amounted to approximately  $2.2 million,  $1.9 million
and $1.7 million for fiscal years 2000, 1999 and 1998, respectively.

Effective  July 1, 1999,  the  Company  adopted a defined  benefit  Supplemental
Executive  Retirement  Plan  ("SERP").  The SERP,  which is funded with the cash
surrender value of a life insurance policy,  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. The Company recorded  expenses related
to the SERP of  approximately  $34,000  for fiscal  2000 and  $34,000 for fiscal
1999.

<PAGE>

11.  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                        2000          1999
------------------------------------ ---------    ----------
Deferred tax assets:
     Employee benefits..........       $6,806        $6,150
     Inventories................        5,596         5,460
     Other......................        2,720         2,154
                                     ---------    ----------
Total deferred tax assets.......       15,122        13,764

Deferred tax liabilities:
     Property and equipment.....       33,193        26,761
                                     ---------    ----------
Net deferred tax liability......      $18,071       $12,997

Based on the  Company's  historical  and current  pre-tax  earnings,  management
believes it is more likely than not that the Company  will  realize the deferred
tax assets.

The provision for income taxes comprised the following for:

                                    Fiscal Year Ended
-------------------------- ------------------------------------
(in thousands):                2000          1999         1998
-------------------------- ---------    ----------    ---------
Current:
     U.S. Federal.....      $30,401       $25,449      $19,032
     U.S. State.......        3,868         3,224        2,399
     Non-U.S. ........          871            --           --
                           ---------    ----------    ---------
                             35,140        28,673       21,431
                           ---------    ----------    ---------
Deferred:
     U.S. Federal.....        4,572         3,328        2,148
     U.S. State.......          570           456          264
     Non-U.S. ........         (68)            --           --
                           ---------    ----------    ---------
                              5,074         3,784        2,412
                           ---------    ----------    ---------
Total                       $40,214       $32,457      $23,843

-------------------------- --------- -- ---------- -- ---------

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

                                     Fiscal Year Ended
  -------------------------------------------------------------
                                2000          1999        1998
  -------------------------------------------------------------
  Effective tax rate.........  38.2%       38.4%         38.5%
  State income taxes, net of
    Federal benefit..........  (2.7)       (2.8)        (2.8)
  Goodwill...................  (0.3)       (0.4)        (0.5)
  Other......................  (0.2)       (0.2)        (0.2)
                             ----------  ----------  ----------
  Statutory Federal income
    tax rate.................  35.0%       35.0%         35.0%

  -------------------------------------------------------------

<PAGE>

12.  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,  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 is a defendant in a California state court  litigation  brought as a
class  action on  behalf of  certain  managers  of  Company  stores  located  in
California  seeking  overtime pay as well as a claim for accrued vacation pay on
behalf of certain  former  employees.  In the event such claims for vacation pay
are  determined  adversely  to the Company,  management  of the Company does not
believe such claims, if so adversely  determined,  would have a material adverse
effect on the Company's financial position,  liquidity or results of operations.
At the present time, there has been no determination of the number of any actual
class. Nor has there been any  determination of the extent to which overtime pay
may or may not be owed. Accordingly,  the Company is not presently in a position
to  estimate  with any  degree of  certainty,  the range of  potential  exposure
represented by this litigation.

<PAGE>


13.  Summary of Quarterly Results (unaudited)

(in
thousands,
 except per       First     Second    Third    Fourth    Fiscal
share data)      Quarter   Quarter   Quarter  Quarter     Year
---------------- --------- --------- -------- --------- ----------
Net sales
2000 ..........  $326,976  $339,655  $410,371 $495,574  $1,572,576
1999 ..........   273,540   271,628  341,122   414,342  1,300,632

Gross profit
2000 ..........   128,301   139,683  166,086   209,201    643,271
1999 ..........   106,692   110,895  137,236   173,356    528,179

Net income
2000 ..........     5,055     6,947   18,406    34,529     64,937
1999 ..........     3,595     5,103   14,662    28,692     52,052

Net income per
share
Basic1
2000 ..........   $  0.13   $  0.18  $  0.46   $  0.86    $  1.63
1999 ..........
                     0.09      0.13     0.37      0.73       1.32

Diluted1
2000 ..........   $  0.13   $  0.17   $ 0.45    $ 0.84    $  1.60
1999 ..........
                     0.09     0.12      0.36      0.70       1.27
---------------- --------- --------- -------- --------- ----------

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.

14.  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 2000
                                            High     Low
                                            ----     ---
First Quarter............................$34 3/8    $17 15/16
Second Quarter........................... 35 15/16   23 3/16
Third Quarter............................ 36 3/8     23 7/8
Fourth Quarter........................... 33 1/2     20



For Fiscal 1999
                                            High     Low
                                            ----     ---
First Quarter............................$48 1/4    $34 3/16
Second Quarter........................... 52 1/16    37 5/8
Third Quarter............................ 49 1/2     30 5/8
Fourth Quarter........................... 41 7/16    22 7/16

At fiscal year end 2000, there were approximately 7,300 beneficial shareholders.


<PAGE>


Management's Responsibility for Financial Reporting
--------------------------------------------------------------------------------

The integrity and objectivity of the financial  statements and related financial
information  in this  report are the  responsibility  of the  management  of the
Company.  The  financial  statements  have  been  prepared  in  conformity  with
generally accepted accounting principles and include,  when necessary,  the best
estimates and judgments of management.

The  Company  maintains  a system of internal  accounting  controls  designed to
provide reasonable assurance,  at appropriate cost, that assets are safeguarded,
transactions are executed in accordance with management's authorization, and the
accounting  records  provide  a  reasonable  basis  for the  preparation  of the
financial statements.  The system of internal accounting controls is continually
reviewed by  management  and  improved  and modified as necessary in response to
changing business  conditions and  recommendations of the Company's  independent
auditors.

The Audit Committee of the Board of Directors,  currently  consisting  solely of
outside  non-management  directors,  meets  periodically with management and the
independent  auditors  to review  matters  relating to the  Company's  financial
reporting,  the  adequacy  of  internal  accounting  controls  and the scope and
results of audit work.  The  independent  auditors have free access to the Audit
Committee.

KPMG LLP,  certified  public  accountants,  is engaged to audit the consolidated
financial statements of the Company. Its Independent  Auditors' Report, which is
based on an audit made in conformity with generally accepted auditing standards,
expresses an opinion as to the fair presentation of these financial statements.



/s/ Norman Axelrod
____________________________________
Norman Axelrod
Chairman and Chief Executive Officer




/s/ William T.  Giles
____________________________________
William T. Giles
Senior Vice President, Chief Financial Officer

January 31, 2001


<PAGE>


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 30, 2000 and January 1, 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 30, 2000.
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  30,  2000 and January 1, 2000,  and the
results  of their  operations  and their cash flows for each of the years in the
three-year  period  ended  December  30,  2000  in  conformity  with  accounting
principles generally accepted in the United States of America.






/s/ KPMG LLP
________________________________
KPMG LLP

New York, New York
January 31, 2001