**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

**FORM 10-Q**
| **(Mark)**                                         |                                                                                                |
|----------------------------------------------------|-----------------------------------------------------------------------------------------------------|
| **x**                                              | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934**  |
| ** **                                         |
| **For the  Quarterly Period Ended March 31, 2007** |
| ** **                                         |
| **or**                                             |
| ** **                                         |
| **o**                                              | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |

 
|            | **Commission file numbers:** | **333-135646-12** |
|------------|------------------------------|-------------------|
| ** ** | **001-12381**                |
| ** ** | **333-135646-11**            |

 

**LINENSHOLDING CO.LINENS ‘N THINGS, INC.LINENS ‘N THINGS CENTER, INC.**

(Exact names of registrants as specified intheir charters)

| **Delaware**                       |   | **20-4192917**        |
|------------------------------------|--------|-----------------------|
| **Delaware**                       |   | **22-3463939**        |
| **California**                     |   | **59-2740308**        |
| (States or other  jurisdictions of |   | (I.R.S. Employer      |
| incorporation or  organization)    |   | Identification  Nos.) |

 

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

**(973) 778-1300**(Registrants’ telephone number, including area code)

Indicate by check mark whether the registrants(1) have filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required tofile such reports), and (2) have been subject to such filing requirementsfor the past 90 days:

Yes    x    No    o

Indicate by check mark whether the registrants arelarge accelerated filers, accelerated filers, or non-accelerated filers. Seedefinition of “accelerated filer and large accelerated filer” inRule 12b-2 of the Exchange Act. (Check one):

Large AcceleratedFiler o     AcceleratedFiler o     Non-acceleratedfiler x

Indicate by check mark whether the registrants are ashell company (as defined in Rule 12b-2 of the Act):

Yes    o    No    x

As of April 30, 2007, there were 13,013,000 sharesof Linens Holding Co. common stock, $0.01 par value, outstanding; 1,000shares of Linens ‘n Things, Inc. common stock, $0.01 par value, outstanding;and 100 shares of Linens ‘n Things Center, Inc. common stock, no par value,outstanding.

 

----

**INDEX**
|                                                     | ** **                                                                                                                                                                                                                                                                               | **Page No.** |
|-----------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------|
|                                                |                                                                                                                                                                                                                                                                                     |         |
| **Explanatory Note and Forward-Looking Statements** | 3                                                                                                                                                                                                                                                                                        |
|                                                |                                                                                                                                                                                                                                                                                     |         |
| **Part I.**                                         | **Financial Information**                                                                                                                                                                                                                                                                |         |
|                                                |                                                                                                                                                                                                                                                                                     |         |
| **Item 1.**                                         | **Financial Statements**                                                                                                                                                                                                                                                                 |         |
|                                                |                                                                                                                                                                                                                                                                                     |         |
|                                                | Condensed Consolidated Statements of Operations  (Unaudited) for the thirteen weeks ended March 31, 2007 (Successor  Entity); the period February 14, 2006 to April 1, 2006 (Successor Entity);  and the period January 1, 2006 to February 13, 2006 (Predecessor Entity)           | 4            |
|                                                |                                                                                                                                                                                                                                                                                     |         |
|                                                | Condensed Consolidated Balance Sheets (Unaudited) as  of March 31, 2007 (Successor Entity); December 30, 2006 (Successor Entity);  and April 1, 2006 (Successor Entity)(Restated)                                                                                                        | 5            |
|                                                |                                                                                                                                                                                                                                                                                     |         |
|                                                | Condensed Consolidated Statements of Cash Flows  (Unaudited) for the thirteen weeks ended March 31, 2007 (Successor  Entity); the period February 14, 2006 to April 1, 2006 (Successor Entity)(Restated);  and the period January 1, 2006 to February 13, 2006 (Predecessor Entity) | 6            |
|                                                |                                                                                                                                                                                                                                                                                     |         |
|                                                | Notes to Unaudited Condensed Consolidated Financial  Statements                                                                                                                                                                                                                          | 7            |
|                                                |                                                                                                                                                                                                                                                                                     |         |
| **Item 2.**                                         | **Management’s  Discussion and Analysis of Financial Condition and Results of Operations**                                                                                                                                                                                          | 30           |
|                                                |                                                                                                                                                                                                                                                                                     |         |
| **Item 3.**                                         | **Quantitative  and Qualitative Disclosures about Market Risk**                                                                                                                                                                                                                          | 39           |
|                                                |                                                                                                                                                                                                                                                                                     |         |
| **Item 4.**                                         | **Controls and  Procedures**                                                                                                                                                                                                                                                             | 40           |
|                                                |                                                                                                                                                                                                                                                                                     |         |
| **Part II.**                                        | **Other Information**                                                                                                                                                                                                                                                                    |         |
|                                                |                                                                                                                                                                                                                                                                                     |         |
| **Item 1.**                                         | **Legal Proceedings**                                                                                                                                                                                                                                                                    | 41           |
|                                                |                                                                                                                                                                                                                                                                                     |         |
| **Item 1A.**                                        | **Risk Factors**                                                                                                                                                                                                                                                                         | 41           |
|                                                |                                                                                                                                                                                                                                                                                     |         |
| **Item 6.**                                         | **Exhibits**                                                                                                                                                                                                                                                                             | 41           |
|                                                |                                                                                                                                                                                                                                                                                     |         |
| ** **                                          | **Signatures**                                                                                                                                                                                                                                                                           | 42           |
|                                                     |                                                                                                                                                                                                                                                                                          |              |  |

 

2

----

**EXPLANATORY NOTE**

On November 8,2005, Linens Merger Sub Co. was formed by affiliates of Apollo Management,L.P., and National Realty & Development Corp. and Silver Point Capital FundInvestments LLC (collectively, the “Sponsors”) to serve as a holding company.On February 14, 2006, Linens Merger Sub Co. merged with and into Linens ‘nThings, Inc. (the “Merger”), and Linens ‘n Things, Inc., as the survivingcorporation, became a wholly owned subsidiary of Linens Holding Co. (the “Company”).The Merger was financed in part by the issuance of $650.0 million aggregateprincipal amount of Senior Secured Floating Rate Notes (the “Notes”) due 2014of Linens ‘n Things, Inc. and Linens ‘n Things Center, Inc., a wholly ownedsubsidiary of Linens ‘n Things, Inc. The Notes are guaranteed by the Companyand each of its domestic subsidiaries (other than Linens ‘n Things, Inc. andLinens ‘n Things Center, Inc.). This report also contains the condensedconsolidated financial statements of the Company’s predecessor entity, Linens ‘nThings, Inc. and its subsidiaries, for the period January 1, 2006 to February13, 2006. The accompanying condensed consolidated financial statements arethose of Linens Holding Co. and its subsidiaries. The Company has not presentedseparate financial statements for Linens ‘n Things, Inc. and its subsidiariesor Linens ‘n Things Center, Inc. and its subsidiaries (collectively, the “Issuers”as described in Note 14) because management has determined that the differencesin such financial statements are minor. Unlessthe context requires otherwise, “we,” “us,” “our,” or the “Company” refer toLinens Holding Co. and its subsidiaries and, for periods prior to February 14,2006, the Company’s predecessor entity and its subsidiaries.

**FORWARD-LOOKING STATEMENTS**

This report may contain forward-lookingstatements within the meaning of the Private Securities Litigation Reform Actof 1995 (Section 27A of the Securities Act of 1933 and Section 21E ofthe Securities Exchange Act of 1934) with respect to the Company’s financialcondition, results of operations and business that is not historicalinformation. All statements, other than statements of historical fact, includedin this report are forward-looking statements. In particular, statements thatthe Company makes relating to its overall volume trends, industry forces,margin trends, anticipated capital expenditures and its strategies are forward-lookingstatements. When used in this document, the words “believe,” “expect,” “anticipate,”“intend,” “estimate,” “project,” “plan,” and similar expressions, aswell as future or conditional verbs such as “will,” “should,” “would” and “could,” are intended to identifyforward-looking statements.

These statementsare based on assumptions and assessments made by the Company’s management inlight of its experience and its perception of historical trends, currentconditions, expected future developments and other factors it believes to beappropriate. The Company believes there is a reasonable basis for itsexpectations and beliefs, but they are inherently uncertain, the Company maynot realize its expectations and its beliefs may not prove correct. Any forward-lookingstatements are not guarantees of the Company’s future performance and aresubject to risks and uncertainties that could cause actual results,developments and business decisions to differ materially from those describedor implied by any such forward-looking statements. The Company undertakes noobligation to publicly update or revise any forward-looking statement, whetheras a result of new information, future events or otherwise. Such factorsinclude, without limitation: general economic conditions; changes in theretailing environment and consumer spending habits; inclement weather andnatural disasters; competition from existing and potential competitors; theamount of merchandise markdowns; loss or retirement of key members ofmanagement; increases in the costs of borrowings and unavailability ofadditional debt or equity capital; impact of the Company’s substantialindebtedness on its operating income and its ability to grow; the cost oflabor; labor disputes; increased healthcare benefit costs; other costs andexpenses; and other important factors that could cause actual results to differmaterially from those described or implied by the forward-looking statementscontained in this report.

3

----

**PART I – FINANCIAL INFORMATION**

**LINENS HOLDING CO. AND SUBSIDIARIES(AND PREDECESSOR)CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(In thousands) (Unaudited)**
| ** **                                              | ** ** | **Thirteen Weeks  Ended March 31,  2007** | ** **  | **February 14, 2006  to April 1, 2006** | ** ** | ** **  | **January 1, 2006  to February 13,  2006** | ** ** |
|---------------------------------------------------------|------------|----------------------------------------------------------|-------------|------------------------------------------------------------------|------------|-------------|----------------------------------------------------------------|------------|
| ** **                                              | ** ** | **(Successor  Entity)**                                  | ** **  | **(Successor  Entity)**                                          | ** ** | ** **  | **(Predecessor  Entity)**                                      | ** ** |
| ** **                                              | ** ** | ** **                                               | ** **  | ** **                                                       | ** ** |        | ** **                                                     | ** ** |
| **Net sales**                                           | ** ** | **$**                                                    | **571,560** | ** **                                                       | **$**      | **307,845** | ** **                                                     |       | **$** | **284,971** | ** ** |
| Cost of sales,  including buying and distribution costs |       | 358,076                                                  |        | 189,068                                                          |       |        | 180,675                                                        |       |
|                                                    |       |                                                     |        |                                                             |       |        |                                                           |       |
| **Gross profit**                                        | ** ** | **213,484**                                              | ** **  | **118,777**                                                      | ** ** |        | **104,296**                                                    | ** ** |
| Selling, general and  administrative expenses           |       | 282,936                                                  |        | 137,560                                                          |       |        | 175,424                                                        |       |
|                                                    |       |                                                     |        |                                                             |       |        |                                                           |       |
| **Operating loss**                                      | ** ** | **(69,452**                                              | **)**       | **(18,783**                                                      | **)**      |        | **(71,128**                                                    | **)**      |
|                                                    |       |                                                     |        |                                                             |       |        |                                                           |       |
| Interest income                                         |       | (155                                                     | )           | (86                                                              | )          |        | (668                                                           | )          |
| Interest expense                                        |       | 24,162                                                   |        | 9,987                                                            |       |        | —                                                         |       |
|                                                    |       |                                                     |        |                                                             |       |        |                                                           |       |
| Interest expense  (income), net                         |       | 24,007                                                   |        | 9,901                                                            |       |        | (668                                                           | )          |
|                                                    |       |                                                     |        |                                                             |       |        |                                                           |       |
| Other (income) expense,  net                            |       | (873                                                     | )           | 201                                                              |       |        | (1,286                                                         | )          |
|                                                    |       |                                                     |        |                                                             |       |        |                                                           |       |
| **Loss before benefit for income  taxes**               | ** ** | **(92,586**                                              | **)**       | **(28,885**                                                      | **)**      |        | **(69,174**                                                    | **)**      |
| Benefit for income  taxes                               |       | (34,412                                                  | )           | (11,313                                                          | )          |        | (21,270                                                        | )          |
|                                                    |       |                                                     |        |                                                             |       |        |                                                           |       |
| **Net loss**                                            | ** ** | **$**                                                    | **(58,174** | **)**                                                            | **$**      | **(17,572** | **)**                                                          |       | **$** | **(47,904** | **)** |

 

*See accompanying Notes to Unaudited CondensedConsolidated Financial Statements*

4

----

**LINENS HOLDING CO. AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS(In thousands, except share amounts)(Unaudited)**
| ** **                                                                                                                                                                                                                      | ** ** | **Successor Entity** | ** **    |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------|---------------|
| ** **                                                                                                                                                                                                                      | ** ** | **March 31,  2007**  | ** **    | **December 30,  2006** | ** ** | **April 1,  2006** | ** ** |
| ** **                                                                                                                                                                                                                      | ** ** | ** **                | ** **    | ** ** | ** ** | **(Restated)** | ** ** |
| **Assets**                                                                                                                                                                                                                      | ** ** | ** **                | ** **    | ** ** | ** ** | ** ** | ** ** |
| Current assets:                                                                                                                                                                                                                 |       |                      |          |   |   |   |   |
| Cash and cash  equivalents                                                                                                                                                                                                      |       | $                         | 8,565         |   | $ | 12,526 |   | $ | 15,033 |   |
| Accounts  receivable                                                                                                                                                                                                            |       | 35,538                    |          | 37,063 |   | 42,646 |   |
| Inventories                                                                                                                                                                                                                     |       | 829,558                   |          | 793,002 |   | 827,779 |   |
| Prepaid expenses  and other current assets                                                                                                                                                                                      |       | 17,191                    |          | 15,308 |   | 66,676 |   |
| Current deferred  taxes                                                                                                                                                                                                         |       | 16,093                    |          | 16,815 |   | 1,258 |   |
|                                                                                                                                                                                                                            |       |                      |          |   |   |   |   |
| **Total  current assets**                                                                                                                                                                                                       | ** ** | **906,945**               | ** **    | **874,714** | ** ** | **953,392** | ** ** |
| Property and  equipment, net of accumulated depreciation of $130,728, $100,616 and $13,861  at March 31, 2007, December 30, 2006 and April 1, 2006, respectively                                                                |       | 509,740                   |          | 530,829 |   | 601,805 |   |
| Identifiable  intangible assets, net                                                                                                                                                                                            |       | 148,152                   |          | 150,044 |   | 159,979 |   |
| Goodwill                                                                                                                                                                                                                        |       | 270,134                   |          | 267,830 |   | 265,814 |   |
| Deferred  financing costs and other noncurrent assets                                                                                                                                                                           |       | 42,147                    |          | 34,517 |   | 36,089 |   |
|                                                                                                                                                                                                                            |       |                      |          |   |   |   |   |
| **Total assets**                                                                                                                                                                                                                | ** ** | **$**                     | **1,877,118** | ** ** | **$** | **1,857,934** | ** ** | **$** | **2,017,079** | ** ** |
|                                                                                                                                                                                                                            |       |                      |          |   |   |   |   |
| **Liabilities and Shareholders’  Equity**                                                                                                                                                                                  | ** ** | ** **                | ** **    | ** ** | ** ** | ** ** | ** ** |
| Current  liabilities:                                                                                                                                                                                                           |       |                      |          |   |   |   |   |
| Accounts payable                                                                                                                                                                                                                |       | $                         | 191,916       |   | $ | 204,760 |   | $ | 210,423 |   |
| Accrued expenses  and other current liabilities                                                                                                                                                                                 |       | 206,132                   |          | 241,911 |   | 214,392 |   |
| Current deferred  taxes                                                                                                                                                                                                         |       | —                    |          | — |   | 3,880 |   |
| Short-term  borrowings                                                                                                                                                                                                          |       | —                    |          | — |   | 81,537 |   |
|                                                                                                                                                                                                                            |       |                      |          |   |   |   |   |
| **Total  current liabilities**                                                                                                                                                                                                  | ** ** | **398,048**               | ** **    | **446,671** | ** ** | **510,232** | ** ** |
| Senior secured  notes and other long-term debt                                                                                                                                                                                  |       | 844,640                   |          | 689,876 |   | 652,123 |   |
| Noncurrent  deferred income taxes                                                                                                                                                                                               |       | 98,127                    |          | 125,977 |   | 181,916 |   |
| Other long-term  liabilities                                                                                                                                                                                                    |       | 47,916                    |          | 50,667 |   | 42,624 |   |
|                                                                                                                                                                                                                            |       |                      |          |   |   |   |   |
| **Total liabilities**                                                                                                                                                                                                           | ** ** | **1,388,731**             | ** **    | **1,313,191** | ** ** | **1,386,895** | ** ** |
|                                                                                                                                                                                                                            |       |                      |          |   |   |   |   |
| **Shareholders’ equity:**                                                                                                                                                                                                  | ** ** | ** **                | ** **    | ** ** | ** ** | ** ** | ** ** |
| Common stock of  Successor Entity, $0.01 par value; 15,000,000 shares authorized; 13,013,000  shares issued and outstanding at March 31, 2007 and December 30, 2006;  13,000,000 shares issued and outstanding at April 1, 2006 |       | 131                       |          | 131 |   | 130 |   |
| Additional  paid-in capital                                                                                                                                                                                                     |       | 652,968                   |          | 652,395 |   | 648,192 |   |
| Retained deficit                                                                                                                                                                                                                |       | (164,707                  | )             | (106,533 | ) | (17,572 | ) |
| Accumulated  other comprehensive loss                                                                                                                                                                                           |       | (5                        | )             | (1,250 | ) | (566 | ) |
|                                                                                                                                                                                                                            |       |                      |          |   |   |   |   |
| **Total  shareholders’ equity**                                                                                                                                                                                            | ** ** | **488,387**               | ** **    | **544,743** | ** ** | **630,184** | ** ** |
|                                                                                                                                                                                                                            |       |                      |          |   |   |   |   |
| **Total liabilities and  shareholders’ equity**                                                                                                                                                                            | ** ** | **$**                     | **1,877,118** | ** ** | **$** | **1,857,934** | ** ** | **$** | **2,017,079** | ** ** |

 

*See accompanying Notes to Unaudited CondensedConsolidated Financial Statements*

5

----

**LINENS HOLDING CO. AND SUBSIDIARIES(AND PREDECESSOR)CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands) (Unaudited)**
| ** **                                                                   | ** ** | **Successor Entity**                                | ** ** | ** **                                                   | **Predecessor Entity** | ** ** |
|------------------------------------------------------------------------------|------------|----------------------------------------------------------|------------|--------------------------------------------------------------|-----------------------------|------------|
| ** **                                                                   | ** ** | **Thirteen Weeks  Ended March 31,  2007** | ** ** | **February 14, 2006  to April 1,  2006** | ** **                  | ** ** | **January 1, 2006  to February 13,  2006** | ** ** |
| ** **                                                                   | ** ** | ** **                                               | ** ** | **(Restated)**                                               | ** **                  | ** ** | ** ** | ** ** |
| **Cash  flows from operating activities:**                                   |       |                                                     |       |                                                         |                        |       |   |   |
| Net loss                                                                     |       | $                                                        | (58,174    | )                                                            | $                           | (17,572    | ) |   | $ | (47,904 | ) |
| Adjustments to  reconcile net loss to net cash used in operating activities: |       |                                                     |       |                                                         |                        |       |   |   |
| Depreciation and  amortization                                               |       | 31,916                                                   |       | 15,022                                                       |                        |       | 12,642 |   |
| Deferred income  taxes                                                       |       | (35,325                                                  | )          | (6,968                                                       | )                           |       | (6,725 | ) |
| Share-based  compensation                                                    |       | 572                                                      |       | 709                                                          |                        |       | 12,484 |   |
| Amortization of  deferred financing charges                                  |       | 2,809                                                    |       | 630                                                          |                        |       | 43 |   |
| Loss on  disposals of property and equipment                                 |       | 16                                                       |       | 73                                                           |                        |       | — |   |
| Changes in  assets and liabilities, net of effect of acquisition:            |       |                                                     |       |                                                         |                        |       |   |   |
| Decrease  (increase) in accounts receivable                                  |       | 1,551                                                    |       | 3,157                                                        |                        |       | (2,240 | ) |
| Increase in  inventories                                                     |       | (35,908                                                  | )          | (8,711                                                       | )                           |       | (31,886 | ) |
| Increase in  prepaid expenses and other current assets                       |       | (1,786                                                   | )          | (37,104                                                      | )                           |       | (12,153 | ) |
| Decrease in  identifiable intangible assets and other noncurrent assets      |       | 33                                                       |       | 508                                                          |                        |       | 9,580 |   |
| (Decrease)  increase in accounts payable                                     |       | (13,162                                                  | )          | (21,416                                                      | )                           |       | 12,010 |   |
| Decrease in  accrued expenses and other liabilities                          |       | (39,673                                                  | )          | (18,944                                                      | )                           |       | (7,807 | ) |
|                                                                         |       |                                                     |       |                                                         |                        |       |   |   |
| **Net cash used in operating  activities**                                   | ** ** | **(147,131**                                             | **)**      | **(90,616**                                                  | **)**                       | ** ** | **(61,956** | **)** |
|                                                                         |       |                                                     |       |                                                         |                        |       |   |   |
| **Cash flows from investing  activities:**                                   | ** ** | ** **                                               | ** ** | ** **                                                   | ** **                  | ** ** | ** ** | ** ** |
| Acquisition of  the Predecessor Entity, net of cash acquired(1)              |       | —                                                   |       | (1,205,502                                                   | )                           |       | — |   |
| Additions to  property and equipment                                         |       | (11,587                                                  | )          | (11,072                                                      | )                           |       | (10,956 | ) |
|                                                                         |       |                                                     |       |                                                         |                        |       |   |   |
| **Net cash used in investing  activities**                                   | ** ** | **(11,587**                                              | **)**      | **(1,216,574**                                               | **)**                       | ** ** | **(10,956** | **)** |
|                                                                         |       |                                                     |       |                                                         |                        |       |   |   |
| **Cash flows from financing  activities:**                                   | ** ** | ** **                                               | ** ** | ** **                                                   | ** **                  | ** ** | ** ** | ** ** |
| Issuance of  common stock to Linens Investors LLC and others                 |       | —                                                   |       | 650,000                                                      |                        |       | — |   |
| Issuance of  floating rate notes                                             |       | —                                                   |       | 650,000                                                      |                        |       | — |   |
| Financing and  direct acquisition costs                                      |       | (56                                                      | )          | (59,254                                                      | )                           |       | — |   |
| Federal tax  benefit from common stock issued under stock incentive plans    |       | —                                                   |       | —                                                       |                        |       | 4,298 |   |
| Net increase in  borrowings under revolving credit facility                  |       | 154,780                                                  |       | 81,556                                                       |                        |       | — |   |
| Decrease in  treasury stock                                                  |       | —                                                   |       | —                                                       |                        |       | 674 |   |
| Payments on  mortgage note                                                   |       | (15                                                      | )          | (5                                                           | )                           |       | (10 | ) |
|                                                                         |       |                                                     |       |                                                         |                        |       |   |   |
| **Net cash provided by financing  activities**                               | ** ** | **154,709**                                              | ** ** | **1,322,297**                                                | ** **                  | ** ** | **4,962** | ** ** |
|                                                                         |       |                                                     |       |                                                         |                        |       |   |   |
| Effect of exchange rate  changes on cash and cash equivalents                |       | 48                                                       |       | (74                                                          | )                           |       | 125 |   |
| Net (decrease) increase  in cash and cash equivalents                        |       | (3,961                                                   | )          | 15,033                                                       |                        |       | (67,825 | ) |
| **Cash and cash equivalents at  beginning of period**                        | ** ** | **12,526**                                               | ** ** | **—**                                                   | ** **                  | ** ** | **158,158** | ** ** |
|                                                                         |       |                                                     |       |                                                         |                        |       |   |   |
| **Cash and cash equivalents at  end of period**                              | ** ** | **$**                                                    | **8,565**  | ** **                                                   | **$**                       | **15,033** | ** ** | ** ** | **$** | **90,333** | ** ** |
|                                                                         |       |                                                     |       |                                                         |                        |       |   |   |
| **Supplemental disclosure of cash  flow information**                        | ** ** | ** **                                               | ** ** | ** **                                                   | ** **                  | ** ** | ** ** | ** ** |
| **Cash paid during the period  for:**                                        | ** ** | ** **                                               | ** ** | ** **                                                   | ** **                  | ** ** | ** ** | ** ** |
| Interest (net of  amounts capitalized)                                       |       | $                                                        | 21,096     |                                                         | $                           | 47         |   |   | $ | 135 |   |
| Income taxes                                                                 |       |                                                     |       |                                                         |                        |       |   |   |
| Income taxes  paid                                                           |       | $                                                        | 6,779      |                                                         | $                           | 22,090     |   |   | $ | 57 |   |
| Income tax  refunds                                                          |       | $                                                        | 773        |                                                         | $                           | —     |   |   | $ | — |   |
|                                                                         |       |                                                     |       |                                                         |                        |       |   |   |
| **Non-cash transactions:**                                                   |       |                                                     |       |                                                         |                        |       |   |   |
| Increase  (decrease) in goodwill due to purchase accounting adjustments, net |       | $                                                        | 2,304      |                                                         | $                           | (171       | ) |   | $ | — |   |
| Decrease in accrued  additions to property and equipment                     |       | $                                                        | 3,093      |                                                         | $                           | 2,501      |   |   | $ | 3,180 |   |

 

----

(1)          In connection with the Merger, net cash settlementsof approximately $20.0 million and $4.4 million for stock options andrestricted stock units, respectively, are included in “Acquisition of thePredecessor Entity, net of cash acquired.”

*See accompanying Notes to Unaudited CondensedConsolidated Financial Statements*

6

----

**LINENSHOLDING CO. AND SUBSIDIARIES (AND PREDECESSOR)NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**1. Basisof Presentation**

On November 8, 2005,Linens Merger Sub Co. was formed by affiliates of Apollo Management, L.P., andNational Realty & Development Corp. and Silver Point Capital FundInvestments LLC (collectively, the “Sponsors”) to serve as a holding company. OnFebruary 14, 2006, Linens Merger Sub Co. merged with and into Linens ‘n Things,Inc. (the “Merger”), and Linens ‘n Things, Inc., as the surviving corporation,became a wholly owned subsidiary of Linens Holding Co. (the “Company”). Theacquisition and related financings are referred to collectively as the “Transactions”and are discussed in more detail in Note 3 to the audited consolidatedfinancial statements included in the Company’s 2006 Annual Report on Form 10-K.As a result of the consummation of the Transactions, a new entity (the “Successor”or “Successor Entity”) was formed for financial accounting purposes with aneffective date of February 14, 2006, consisting of Linens Holding Co. andSubsidiaries. The condensed consolidated financial statements as of March 31,2007 and April 1, 2006, for the thirteen weeks ended March 31, 2007 and for theperiod February 14, 2006 to April 1, 2006 show the financial position andresults of operations and cash flows of the Successor Entity, Linens HoldingCo. and Subsidiaries. The condensed consolidated financial statements for theperiod January 1, 2006 to February 13, 2006 show the results ofoperations and cash flows of Linens ’n Things, Inc. andSubsidiaries (the “Predecessor” or “Predecessor Entity”).

The accompanyingcondensed consolidated financial statements are unaudited. In the opinion ofmanagement, the accompanying condensed consolidated financial statements forthe Successor Entity and Predecessor Entity include all normal and recurringadjustments that are considered necessary to present fairly the financialposition and the results of operations and cash flows for the respectiveperiods presented. As a result of the consummation of the Transactions, thecondensed consolidated financial statements for the periods afterFebruary 13, 2006 are presented on a different basis than that for theperiods before February 14, 2006 as a result of the application ofpurchase accounting as of February 14, 2006 and, therefore, are notcomparable.

The preparation offinancial statements in conformity with U.S. generally accepted accountingprinciples requires management to make estimates and assumptions that affectthe reported amounts of revenues and expenses during the reporting period. Actualresults could differ from those estimates. Because of the seasonality of thespecialty retailing business, operating results of the Company on a quarterlyor interim basis may not be indicative of operating results for the full year.

These condensedconsolidated financial statements should be read in conjunction with theaudited consolidated financial statements for the fiscal year endedDecember 30, 2006 included in the Company’s 2006 Annual Report onForm 10-K available from the Securities and Exchange Commission (“SEC”) orthrough the Company’s website at *lnt.com* postedon March 27, 2007 under *SEC Filings*. Allsignificant intercompany accounts and transactions have been eliminated.

The accompanyingcondensed consolidated financial statements are those of Linens Holding Co. andits subsidiaries. The Company has not presented separate financial statementsfor Linens ‘n Things, Inc. and its subsidiaries or Linens ‘n Things Center,Inc. and its subsidiaries (collectively, the “Issuers” as described in Note 14)because management has determined that the differences in such financialstatements are minor.

The Company adopted SEC StaffAccounting Bulletin No. 108, “*Considering the Effects ofPrior Year Misstatements when Quantifying Misstatements in Current YearFinancial Statements*” (“SAB No. 108”) effective the beginningof the 52-week period ended December 30, 2006, which is more fullydescribed in Note 2 to the audited consolidated financial statements includedin the Company’s 2006 Annual Report on Form 10-K under “*Summary of Significant Accounting Policies – Adoption of StaffAccounting Bulletin No. 108*.”In accordance with the requirements of SAB No. 108, the Company has restatedcertain balances at April 1, 2006 in the accompanying condensed consolidatedbalance sheet for its SAB No. 108 adjustment to its net deferred income taxliability.

7

----

**LINENS HOLDING CO. AND SUBSIDIARIES (ANDPREDECESSOR)NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont’d**

The cumulative effect of theadjustment above to certain accounts on the balance sheet at April 1, 2006 isas follows (in thousands):

|                                                   | ** ** | **Increase (Decrease) to Amount  Previously Reported** | ** ** |
|---------------------------------------------------|------------|----------------------------------------------------------------------------|------------|
| **Balance Sheet Account Adjusted** | ** ** | **Assets**                                                                 | ** ** | **Liabilities and  Shareholders’  Equity** | ** ** |
| Goodwill                                          |       | $                                                                          | (11,450    | ) | $ | **—** | ** ** |
| Noncurrent deferred  income taxes                 | ** ** | **—**                                                                 |       | (10,371 | ) |
| Current deferred income  taxes                    |       | 1,079                                                                      | ** ** | **—** | ** ** |
|                                              |       |                                                                       |       |   |   |
| Total                                             |       | $                                                                          | (10,371    | ) | $ | (10,371 | ) |

 

The SAB No. 108adjustment did not impact results of operations and cash flows for any of theperiods presented.

Certain other priorperiod amounts have been reclassified to conform to the current period’spresentation. Additionally, the Company corrected its reporting of cash flowsfor the period February 14, 2006 to April 1, 2006. Additions to property andequipment on the condensed consolidated statements of cash flows was adjustedto exclude accrued additions. This correction increased additions to propertyand equipment with an offsetting reduction to net cash used in operatingactivities by $2.5 million for the period February 14, 2006 to April 1, 2006. Financingand direct acquisition costs was adjusted to include cash outlays for thesecosts that were previously reported as a use of cash included in accruedexpenses and other liabilities. This correction decreased net cash provided byfinancing activities with an offsetting reduction to net cash used in operatingactivities by approximately $39.4 million for the period February 14, 2006 toApril 1, 2006.

**2.Share-based Compensation**

On January 1, 2006,the Company adopted Statement of Financial Accounting Standards (“SFAS”)No. 123 (Revised 2004), “Share-Based Payment” (“SFAS No. 123 (Revised2004)”), requiring the recognition of compensation cost for all equityclassified awards granted, modified or settled after the effective date and forthe unvested portion of awards outstanding as of the effective date using thefair-value measurement method. SFAS No. 123 (Revised 2004) revised SFASNo. 123, “Accounting for Stock-Based Compensation,” and supersededAccounting Principles Board (“APB”) Opinion No. 25, “Accounting for StockIssued to Employees.”

The Company recognizesthe cost of all time-based employee stock options on a straight-lineattribution basis and the cost of all performance-based employee stock optionson an accelerated basis in accordance with Financial Accounting Standards BoardInterpretation No. 28, “Accounting for Stock Appreciation Rights and OtherVariable Stock Option or Award Plans” over their respective vesting periods,net of estimated forfeitures.

**Share-basedCompensation Plans—Predecessor Entity**

Prior to the completionof the Merger, the Company granted stock options and restricted stock units fora fixed number of shares to employees and directors under share-basedcompensation plans, which are more fully described in Note 13 to the auditedconsolidated financial statements included in the Company’s 2006 Annual Reporton Form 10-K under “*Share-basedCompensation Plans—Predecessor Entity*.” The exercise prices of the stock options were equal to the fairmarket value of the underlying shares at the date of grant. Compensationexpense for restricted stock awards was measured at fair value on the date ofgrant based on the number of shares granted and the quoted market price of theCompany’s common stock. Such value was recognized as expense over the vestingperiod of the award adjusted for actual forfeitures.

8

----

**LINENSHOLDING CO. AND SUBSIDIARIES (AND PREDECESSOR)NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont’d**

Upon completion of theMerger and in accordance with the terms of the stock plans, all of theoutstanding stock options became fully vested and immediately exercisable. Eachoption was exercised, equal to the excess of $28.00 over the underlying stockoption exercise price, less applicable withholding taxes. Each restricted stockunit award was exercised at $28.00 in cash, without interest, less applicablewithholding taxes.

Therewere no share-based grants during the period January 1, 2006 toFebruary 13, 2006. The total intrinsic value of stock options andrestricted stock units exercised due to the Merger was approximately$20.0 million and $4.4 million, respectively, for the periodJanuary 1, 2006 to February 13, 2006.

The total fair value ofstock options and restricted stock units vested during the period fromJanuary 1, 2006 to February 13, 2006 was approximately$11.2 million and $4.0 million, respectively.

As of January 1, 2006,there was approximately $9.3 million and $3.2 million of totalunrecognized compensation cost related to stock option grants and restrictedstock unit awards, respectively, under the share-based compensation plans. Theconsummation of the Merger accelerated the recognition of compensation costand, accordingly, all of this cost was included in selling, general andadministrative expense in the condensed consolidated statements of operationsfor the period January 1, 2006 to February 13, 2006.

**Share-basedCompensation Plans—Successor Entity**

On February 14,2006, the board of directors (the “Board”) and stockholders of Linens HoldingCo. adopted the Linens Holding Co. Stock Option Plan (the “Plan”). The Plan providesemployees or directors of the Company or its subsidiaries who are in a positionto contribute to the long-term success of these entities, with options toacquire shares in the Company to aid in attracting, retaining and motivatingpersons of outstanding ability. The Plan was amended in March 2006 toincrease the number of shares of common stock, par value $0.01 per share, ofLinens Holding Co. (the “Common Stock”) available for issuance under the Planto 1,157,298 shares.

As of March 31, 2007, atotal of 812,946 stock options were outstanding.

Stock options grantedunder the Plan to each optionee are equally divided between a “Time Option” anda “Performance Option,” as those terms are defined in the standard form ofoption grant letter. The stock options have an exercise price of $50.00 pershare, the estimated fair market value of the underlying shares at the date ofgrant, and expire seven years after the date of grant. Time Options becomevested and exercisable in four equal installments on either (1) each ofFebruary 14, 2007, February 14, 2008, February 14, 2009, andFebruary 14, 2010 with respect to options initially granted March 27, 2006or (2) on each of the first four anniversaries of the date of grant for allother options. With respect to Performance Options and as provided for anddefined in the standard form of grant letter, the stock options become vestedand exercisable in two equal installments from a measurement date if, on suchmeasurement date, the value per share equals or exceeds a target stock price.

The following is asummary of share-based option activity for the thirteen weeks ended March 31,2007:

| Successor Entity                      | ** ** |
|---------------------------------------|------------|
| Options                               | ** ** | **Shares** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Weighted Average  Remaining  Contractual Term  (years)** | ** ** |
|                                  |       |   |   |   |   |   |   |
| **Outstanding at December 30,  2006** | ** ** | **839,946** | ** ** | **$** | **50.00** | ** ** | ** ** | ** ** |
| Options granted                       |       | 47,000 |   | 50.00 |   |   |   |
| Exercised                             |       | — |   | — |   |   |   |
| Canceled                              |       | (74,000 | ) | 50.00 |   |   |   |
|                                  |       |   |   |   |   |   |   |
| **Outstanding at March 31, 2007**     | ** ** | **812,946** | ** ** | **$** | **50.00** | ** ** | **6.09** | ** ** |
|                                  |       |   |   |   |   |   |   |
| **Exercisable at March 31, 2007**     | ** ** | **168,598** | ** ** | **$** | **50.00** | ** ** | **6.04** | ** ** |

 

Thereare no provisions in the Plan for the issuance of restricted stock units.

9

----

**LINENSHOLDING CO. AND SUBSIDIARIES (AND PREDECESSOR)NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont’d**

The weighted-averagegrant date fair value of options granted during the thirteen week period endedMarch 31, 2007 was $17.10. The weighted-average grant date fair value ofoptions granted during the period February 14, 2006 to April 1, 2006 (SuccessorEntity) was $17.43.

There were no stockoption exercises during the thirteen weeks ended March 31, 2007 and the periodFebruary 14, 2006 to April 1, 2006 (Successor Entity).

The following is asummary of the activity for nonvested stock option grants as of March 31, 2007and the changes for the thirteen weeks then ended:
| ** **                         | ** ** | **Successor Entity  Stock Options** | ** ** |
|------------------------------------|------------|-----------------------------------------------|------------|
| ** **                         | ** ** | **Options**                                   | ** ** | **Fair Value(1)** | ** ** |
| **Nonvested at December 30, 2006** | ** ** | **736,946**                                   | ** ** | **$** | **17.41** | ** ** |
| Grants                             |       | 47,000                                        | ** ** | $ | 17.10 | ** ** |
| Vested                             |       | (66,535                                       | )          | $ | 17.47 | ** ** |
| Canceled                           |       | (73,063                                       | )          | $ | 17.47 | ** ** |
|                               |       |                                          |       |   |   |
| **Nonvested at March 31, 2007**    | ** ** | **644,348**                                   | ** ** | **$** | **17.37** | ** ** |

 

----

(1)          Represents the weighted-average grant datefair value per option, using the Monte Carlo simulation option-pricing modelfor Performance Options, and the Black-Scholes option-pricing model for TimeOptions.

The total fair value ofstock options vested during the thirteen weeks ended March 31, 2007 wasapproximately $1.2 million. The total fair value of stock options vested duringthe period February 14, 2006 to April 1, 2006 (Successor Entity) wasapproximately $0.7 million.

As of March 31, 2007,there was approximately $8.7 million of total unrecognized compensationcost related to stock option grants both under and outside the Plan. This costis expected to be recognized over a remaining weighted-average period of2.7 years. The compensation cost that has been charged against income forstock option grants was approximately $0.6 million and $0.7 million forthe thirteen weeks ended March 31, 2007 and for the period February 14, 2006 toApril 1, 2006 (Successor Entity), respectively, and was included in selling,general and administrative expense in the condensed consolidated statements ofoperations.

Prior to the adoption ofSFAS 123 (Revised 2004) the Company used the Black-Scholes option-pricingmodel for estimating the fair value for all options granted. Beginning in thefirst quarter of 2006, the Company used the Monte Carlo simulationoption-pricing model for estimating the fair value of Performance Options andthe Black-Scholes option-pricing model for Time Options. This change was madein order to provide a better estimate of fair value. The Monte Carlooption-pricing model is particularly useful in the valuation of options withcomplicated features that make them difficult to value through astraight-forward Black-Scholes-style computation.

10

----

**LINENSHOLDING CO. AND SUBSIDIARIES (AND PREDECESSOR)NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont’d**

Presented below is acomparative summary of valuation assumptions for grants issued in each of theindicated periods:
| Valuation Assumptions:                           | ** ** | **Thirteen Weeks   Ended  March 31, 2007  (Monte Carlo  Simulation and  Black-Scholes)  (Successor Entity)** | ** ** | **February 14 to  April 1, 2006  (Monte Carlo  Simulation and  Black-Scholes)  (Successor Entity)** | ** ** | ** ** | **January 1 to  February 13, 2006  (Black-Scholes)  (Predecessor Entity)** | ** ** |
|-------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------|------------|------------|-----------------------------------------------------------------------------------------------------|------------|
| Weighted-average  calculated value of options granted |       | $                                                                                                                                               | 17.10      |                                                                                                                                   | $          | 17.43      |                                                                                                |       | No  Grants |   |
| Expected  volatility                                  |       | N/A                                                                                                                                             | (1)        | N/A                                                                                                                                    | (1)        |       | No  Grants                                                                                          |       |
| Weighted-average  volatility                          |       | 37.6                                                                                                                                            | %(1)       | 38.3                                                                                                                                   | %(1)       |       | No  Grants                                                                                          |       |
| Weighted-average  expected term (in years)            |       | 3.2                                                                                                                                             |       | 3.8                                                                                                                                    |       |       | No  Grants                                                                                          |       |
| Dividend yield                                        |       | —                                                                                                                                          |       | —                                                                                                                                 |       |       | No  Grants                                                                                          |       |
| Risk-free  interest rate                              |       | 4.8% - 4.9                                                                                                                                      | %          | 4.7% - 4.8                                                                                                                             | %          |       | No  Grants                                                                                          |       |
| Weighted-average  risk-free interest rate             |       | 4.9                                                                                                                                             | %          | 4.7                                                                                                                                    | %          |       | No  Grants                                                                                          |       |
| Weighted average  expected annual forfeiture          |       | 2.0                                                                                                                                             | %          | 4.4                                                                                                                                    | %          |       | No Grants                                                                                           |       |
|                                                       |            |                                                                                                                                                 |            |                                                                                                                                        |            |            |                                                                                                     |            |  |  |

 

----

(1)        The Company used the average of the historical volatility of each of thecomponent companies included in the Standard & Poors Specialty RetailIndex as a substitute for expected volatility.

It is not possible forthe Company, a non-public entity, to use Company-specific volatility indetermining a reasonable estimate of fair value of options granted.  Accordingly, the Company is required to usean alternative measurement method.  Underthe alternative measurement method, a nonpublic entity uses a calculatedvolatility, determined by applying the historical volatility of an appropriateindex of public entities, as an input to the valuation models.  The Company used the Standard & Poor’sSpecialty Retail Index for a period approximating the expected term as thisindex most closely approximates the Company’s applicable operatingindustry.  Expected term of share optionsgranted represents the period of time that the option grants are expected to beoutstanding.  The Company is not expectedto pay dividends and, accordingly, the dividend yield is zero.  The risk-free interest rate within theexpected term was based on the U.S. Treasury yield curve in effect at the timeof grant.

Share-based employeecompensation expense included in net loss in the condensed consolidatedstatements of operations, net of related tax effects, is detailed as follows:
|                                                                            | ** ** | **Successor Entity**                                            | ** ** | ** **                                                       | **Predecessor Entity** | ** ** |
|----------------------------------------------------------------------------|------------|----------------------------------------------------------------------|------------|------------------------------------------------------------------|-----------------------------|------------|
| **(In thousands)**                                                    | ** ** | **Thirteen Weeks   Ended March 31,   2007** | ** ** | **February 14, 2006  to April 1, 2006** | ** **                  | ** ** | **January 1, 2006 to  February 13, 2006** | ** ** |
| **Compensation  expense:**                                                 | ** ** | ** **                                                           | ** ** | ** **                                                       | ** **                  |       | ** ** | ** ** |
| Stock option  grants                                                       |       | $                                                                    | 572        |                                                             | $                           | 709        |   |   | $ | 9,305 |   |
| Restricted stock  units                                                    |       | —                                                               |       | —                                                           |                        |       | 3,179 |   |
|                                                                       |       | 572                                                                  |       | 709                                                              |                        |       | 12,484 |   |
|                                                                       |       |                                                                 |       |                                                             |                        |       |   |   |
| **Benefit  for income taxes:**                                             | ** ** | ** **                                                           | ** ** | ** **                                                       | ** **                  |       | ** ** | ** ** |
| Stock option  grants                                                       |       | (213                                                                 | )          | (278                                                             | )                           |       | (2,861 | ) |
| Restricted stock  units                                                    |       | —                                                               |       | —                                                           |                        |       | (978 | ) |
|                                                                       |       | (213                                                                 | )          | (278                                                             | )                           |       | (3,839 | ) |
|                                                                       |       |                                                                 |       |                                                             |                        |       |   |   |
| **Share-based  employee compensation expense, net of related tax effects** |       | $                                                                    | 359        |                                                             | $                           | 431        |   |   | $ | 8,645 |   |

 

11

----

**LINENSHOLDING CO. AND SUBSIDIARIES (AND PREDECESSOR)NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont’d**

**3.Comprehensive Loss**

Comprehensive loss forthe thirteen weeks ended March 31, 2007, the period February 14, 2006 to April1, 2006 and the period January 1, 2006 to February 13, 2006 is as follows:
|                                            | ** ** | **Successor Entity**                                            | ** **  | ** **                                                       | **Predecessor Entity** | ** **  |
|--------------------------------------------|------------|----------------------------------------------------------------------|-------------|------------------------------------------------------------------|-----------------------------|-------------|
| **(In thousands)**                    | ** ** | **Thirteen Weeks   Ended March 31,   2007** | ** **  | **February 14, 2006  to April 1, 2006** | ** **                  | ** **  | **January 1, 2006 to  February 13, 2006** | ** ** |
| **Net  loss**                              |       | $                                                                    | (58,174     | )                                                                | $                           | (17,572     | ) |   | $ | (47,904 | ) |
|                                       |       |                                                                 |        |                                                             |                        |        |   |   |
| **Other  comprehensive income (loss)**     |       |                                                                 |        |                                                             |                        |        |   |   |
| Foreign currency  translation adjustment   |       | 734                                                                  |        | (566                                                             | )                           |        | 253 |   |
| Unrealized loss  on hedge arrangements(1)  |       | (33                                                                  | )           | —                                                           |                        |        | — |   |
| Unrealized  foreign currency exchange gain |       | 544                                                                  |        | —                                                           |                        |        | — |   |
| **Comprehensive  loss**                    | ** ** | **$**                                                                | **(56,929** | **)**                                                            | **$**                       | **(18,138** | **)** | ** ** | **$** | **(47,651** | **)** |

 

----

(1)      On July 7, 2006 the Issuers entered into a zero cost interest ratecollar agreement to hedge the cash flows associated with the LIBOR component ofthe interest rate on the Notes.  On July7, 2006 the Issuers also purchased a one-year forward-starting interest ratecap agreement which takes effect on January 15, 2008 (see Note 10 to theunaudited condensed consolidated financial statements for disclosures regardingthese derivatives).

**4.Restructuring and Asset Impairment Charge**

In fiscal 2001, thePredecessor committed to a strategic initiative designed to improve storeperformance and profitability which called for the closing of certainunder-performing stores.  In connectionwith this initiative, the Predecessor recorded a pre-tax restructuring andasset impairment charge in fiscal 2001 of $37.8 million($23.7 million after-tax).  All ofthe stores included in the reserve at March 31, 2007 are closed.   The Company continues to negotiate and/orexplore lease buyouts or sublease agreements for certain of these stores aswell as evaluates reopening stores previously closed.  Certain components of the restructuringcharge were based on estimates and may be subject to change in the future.

The restructuring reservebalance was approximately $3.1 million, $3.6 million and $4.2 million at March31, 2007, December 30, 2006 and April 1, 2006 and is included in accruedexpenses and other current liabilities in the condensed consolidated balancesheets.  The $0.5 million reduction inthe reserve during the thirteen weeks ended March 31, 2007 primarily consistsof payments for lease commitments.  Otheractivity in the reserve includes the reversal of estimated lease commitmentcosts of approximately $0.1 million which were not needed, offset by anincrease to lease commitment costs of approximately $0.1 million due to changesin estimates based on current negotiations. This change in the restructuring reserve resulting from changes in estimatesis recorded in other (income) expense, net in the condensed consolidatedstatements of operations.

**5.Identifiable Intangible Assets (Including Goodwill)**

The acquisition ofLinens ’n Things, Inc. was accounted for as a businesscombination using the purchase method of accounting, whereby the purchase price(including liabilities assumed) was allocated to the assets acquired based ontheir estimated fair market values at the date of acquisition.  Independent third-party appraisers wereengaged to assist management and perform valuations of certain of the tangibleand intangible assets acquired.  Theexcess of the total purchase price over the fair value of the Company’s netassets was allocated to goodwill.  TheCompany does not believe its estimate of certain contingencies will materially modifythe purchase price allocation.

12

----

**LINENSHOLDING CO. AND SUBSIDIARIES (AND PREDECESSOR)NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont’d**

***Goodwill***

After the application ofpurchase accounting, the Company recorded an initial preliminary balance togoodwill at February 14, 2006 for approximately $277.4 million.  The following table presents an analysis ofthe change in goodwill subsequent to the preliminary allocation through March31, 2007:
|                                                                                                | ** ** | **Successor Entity** | ** **  |
|------------------------------------------------------------------------------------------------|------------|---------------------------|-------------|
| **(in thousands)**                                                                        | ** ** | **Amount**                | ** **  |
| ** **                                                                                     | ** ** | ** **                | ** **  |
| **Initial  preliminary balance at February 14, 2006**                                          | ** ** | **$**                     | **277,435** | ** ** |
| SAB 108  adjustment (see Note 1 to the unaudited condensed consolidated financial  statements) |       | (11,450                   | )           |
|                                                                                           |       |                      |        |
| **Balance  at February 14, 2006**                                                              | ** ** | **265,985**               | ** **  |
| Other – foreign  currency translation                                                     |       | (171                      | )           |
|                                                                                           |       |                      |        |
| **Balance  at April 1, 2006 (restated)**                                                       | ** ** | **265,814**               | ** **  |
| Pre-existing tax  adjustments                                                                  |       | 1,885                     |        |
| Pre-existing  book adjustments, net                                                            |       | (618                      | )           |
| Book adjustment  for returned deposit on building purchase option assigned                     |       | 722                       |        |
| Other – foreign  currency translation                                                     |       | 27                        |        |
|                                                                                           |       |                      |        |
| **Balance  at December 30, 2006**                                                              | ** ** | **267,830**               | ** **  |
| Pre-existing tax  adjustments                                                                  |       | 12,635                    |        |
| Pre-existing  book adjustment                                                                  |       | (10,500                   | )           |
| Other – foreign  currency translation                                                     |       | 169                       |        |
|                                                                                           |       |                      |        |
| **Balance  at March 31, 2007**                                                                 |       | **$**                     | **270,134** |   |

 

***IdentifiableIntangible Assets***

The carrying amount andaccumulated amortization of identifiable intangible assets consisted of thefollowing:
| ** **                                       | ** ** | **Successor Entity**    | ** ** |
|--------------------------------------------------|------------|------------------------------|------------|
| **(in thousands)**                          | ** ** | **March 31, 2007** | ** ** | **December 30,  2006** | ** ** | **April 1,  2006** | ** ** |
|                                             |       |                         |       |   |   |   |   |
| Intangible assets subject  to amortization:      |       |                         |       |   |   |   |   |
| Credit card customer  relationships              |       | $                            | 10,137     |   | $ | 10,129 |   | $ | 10,136 |   |
| Customer list                                    |       | 406                          |       | 406 |   | 406 |   |
| Favorable leases                                 |       | 23,865                       |       | 23,852 |   | 27,788 |   |
|                                             |       |                         |       |   |   |   |   |
|                                             |       | 34,408                       |       | 34,387 |   | 38,330 |   |
| Less:  accumulated amortization                  |       | (8,944                       | )          | (7,031 | ) | (1,039 | ) |
|                                             |       |                         |       |   |   |   |   |
| Total intangible assets  subject to amortization |       | 25,464                       |       | 27,356 |   | 37,291 |   |
| Total indefinite-lived  trademarks               |       | 122,688                      |       | 122,688 |   | 122,688 |   |
|                                             |       |                         |       |   |   |   |   |
| Total identifiable intangible assets             |       | $                            | 148,152    |   | $ | 150,044 |   | $ | 159,979 |   |

 

Customer list has anestimated life of 5 years, credit card customer relationships have anestimated life of 3 years and favorable leases have an average estimatedlife of 5 years.  For the thirteenweeks ended March 31, 2007, the period February 14, 2006 to April 1, 2006 andthe period January 1, 2006 to February 13, 2006, amortization expense of $1.9million, $1.1 million and $0.02 million, respectively, was recorded by theCompany and is included in selling, general and administrative expenses in thecondensed consolidated statements of operations.

13

----

**LINENSHOLDING CO. AND SUBSIDIARIES (AND PREDECESSOR)NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont’d**

The following is asummary table representing the remaining amortization of identifiableintangible assets, net, with definitive lives, by year (in thousands):
| Fiscal Year                           | ** ** | **Amortization** | ** ** |
|--------------------------------------------|------------|------------------|------------|
| 2007 (April 1,  2007 to December 29, 2007) |       | $                | 5,529      |   |
| 2008                                       |       | 6,489            |       |
| 2009                                       |       | 3,127            |       |
| 2010                                       |       | 2,407            |       |
| 2011                                       |       | 2,034            |       |
| 2012 and  thereafter                       |       | 5,878            |       |
|                                       |       |             |       |
| Total                                      |       | $                | 25,464     |   |

 

**6.Guarantees**

The Company has assignedproperty at a retail location in which the Company guarantees the payment ofrent over the specified lease term in the event of non-performance.  As of March 31, 2007, the maximum potentialamount of future payments the Company could be required to make under suchguarantee is approximately $0.5 million.

**7.Accrued Expenses and Other Current Liabilities**

Accrued expenses andother current liabilities includes amounts due customers principally for gift card,customer rebate and sales return liabilities of $51.4 million, $55.3 millionand $41.3 million as of March 31, 2007, December 30, 2006 and April 1, 2006,respectively.  Income from gift cardsthat are not expected to be redeemed is recorded in other (income) expense, netin the condensed consolidated statements of operations.  Such amounts recognized for the thirteenweeks ended March 31, 2007, the period February 14, 2006 to April 1, 2006 andthe period January 1, 2006 to February 13, 2006 were approximately $1.0million, $0.6 million and $0.5 million, respectively.

**8.Senior Secured Notes, Asset-based Revolving Credit Facility and Other Long-TermDebt**

Senior secured notes,asset-based revolving credit facility and other long-term debt consistsof the following:
|                                              | ** ** | **Successor Entity** | ** **  |
|----------------------------------------------|------------|---------------------------|-------------|
| **(in thousands)**                      | ** ** | **March 31,  2007**  | ** **  | **December 30,  2006** | ** ** | **April 1,  2006** | ** ** |
|                                         |       |                      |        |   |   |   |   |
| Senior secured  floating rate notes due 2014 |       | $                         | 650,000     |   | $ | 650,000 |   | $ | 650,000 |   |
| Asset-based  revolving credit facility       |       | 192,580                   |        | 37,800 |   | — |   |
| Mortgage note  payable                       |       | 2,060                     |        | 2,076 |   | 2,123 |   |
|                                         |       |                      |        |   |   |   |   |
|                                         | ** ** | **$**                     | **844,640** | ** ** | **$** | **689,876** | ** ** | **$** | **652,123** | ** ** |

 

***SeniorSecured Floating Rate Notes Due 2014***

Senior secured floating rate notes due2014 consist of $650.0 million aggregate principal amount of SeniorSecured Floating Rate Notes due 2014 of Linens ‘n Things, Inc. and Linens ‘nThings Center, Inc.

The Notes bear interest at a per annumrate equal to LIBOR plus 5.625%, which is to be paid every three months onJanuary 15, April 15, July 15 and October 15. The interest rate on the Notes is reset quarterly.  The Notes mature on January 15,2014.  As of March 31, 2007 the interestrate on the Notes was 11.0%, based on a LIBOR rate of 5.4%.

On July 7, 2006 the Issuers enteredinto a zero cost interest rate collar agreement to hedge the cash flowsassociated with the LIBOR component of the interest rate on the Notes.  On July 7, 2006 the Issuers also purchased aone-year forward-starting interest rate cap agreement which takes effect onJanuary 15, 2008 (see Note 10 to the unaudited condensed consolidated financialstatements).

14

----

**LINENS HOLDING CO. AND SUBSIDIARIES (ANDPREDECESSOR)NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont’d**

Deferred financing costs ofapproximately $31 million relating to the Notes are being amortized overeight years using the effective interest method.

The Notes are fully andunconditionally guaranteed jointly and severally on a senior basis by theCompany and by certain of the Company’s domestic subsidiaries other than theIssuers (collectively, the “Note Guarantors”), and are secured byfirst-priority liens on all of the Company’s and Note Guarantors’ equipment,intellectual property rights and related general intangibles and the capitalstock of the Issuers and certain subsidiaries and by second-priority liens onthe Issuers’ and the Note Guarantors’ inventory, accounts receivable, cash,securities and other general intangibles. The lien on capital stock may be released under certaincircumstances.  As a result of the filingand effectiveness of a registration statement on Form S-4 with the SECwith respect to the Notes, the Issuers and the NoteGuarantors became subject to applicable SEC rules with respect toinformation required to be included in the prospectus in the registrationstatement.  To the extent that the securities of any Issueror Note Guarantor constitute collateral for the Notes and the value of thesecurities equals or exceeds 20% of the principal amount, or $130.0million of the Notes, separate financial statements of the Issueror Note Guarantor would be required under these SEC rules to beincluded in the Company’s SEC filings.  The indenture that governsthe Notes provides, however, with respect to any direct or indirect subsidiaryof Linens ‘n Things, Inc., that the securities of the subsidiary are releasedfrom the lien on capital stock on the date that the lien triggers thisseparate financial statement requirement.  Accordingly, for anysubsidiary with securities that equal or exceed the 20% threshold, the lien onthe capital stock securing the Notes has been released with respect to thosesecurities.  The lien on the capital stock of Linens ‘n Things, Inc.remains in place.

If the Issuers sellcertain assets or experience specific kinds of changes in control, the Issuersmust offer to repurchase the Notes.  TheIssuers may, at their option, redeem the Notes at any time on or afterJanuary 15, 2008 at pre-determined prices. Prior to January 15, 2008, the Issuers may, at their option, redeemup to 35% of the Notes with the proceeds of certain sales of its equity or ofits subsidiaries.  Prior toJanuary 15, 2008, the Issuers may, at their option, redeem the Notes at aprice equal to 100% of the principal amount of the Notes plus a “make-whole” premium.

***SeniorSecured Asset-based Revolving Credit Facility***

In February 2006, the Companyentered into a new senior secured asset-based revolving credit facilityagreement (the “Credit Facility”) with third-party institutional lenders, whichexpires February 14, 2011. The Credit Facility provides senior securedfinancing of up to $600.0 million, subject to a borrowing base consistingof certain eligible inventory and receivables, minus certain reserves.  A portion of the Credit Facility, not toexceed $40.0 million, is also available to a Canadian subsidiary of theCompany subject to the Canadian borrowing base. The Credit Facility replaced the $250.0 million senior revolvingcredit facility amended November 2004, which allowed for up to$50.0 million in borrowings from additional lines of credit outside theagreement, including CAD $40.0 million covering the Company’s Canadianoperations (the “2004 Credit Agreement”). The Company incurred deferred financing costs of approximately$17 million related to the Credit Facility, which are being amortized overfive years on a straight-line basis.

All obligations under the CreditFacility, and the guarantees of those obligations, are secured, subject tocertain exceptions, by substantially all of the Company’s, the Issuers’ and thesubsidiary guarantors’ assets, including: (1) a first-priority securityinterest in inventory, accounts receivable, cash, securities and other generalintangibles; and (2) a second-priority security interest in equipment,intellectual property rights and related general intangibles and all of thecapital stock of the Issuers and the capital stock of certain subsidiaries.

Borrowings under theCredit Facility bear interest at a rate equal to, at the Borrowers’ option,either (a) an alternate base rate determined by reference to the higher of(1) the base rate in effect on such day and (2) the federal fundseffective rate plus 0.50% or (b) a LIBOR rate, with respect to anyEurodollar borrowing, determined by reference to the costs of funds for U.S.dollar deposits for the interest period relevant to such borrowing adjusted forcertain additional costs, in each case plus an applicable margin.  In addition to paying interest on outstandingprincipal under the Credit Facility, the Company is required to pay a variablerate commitment fee in respect of the unutilized commitments thereunder.  The Credit Facility requires the Company tocomply with financial ratio maintenance covenants if the excess availabilityunder the Credit Facility, at any time, does not exceed $75.0 million andalso contains certain restrictive covenants including the Company’s ability topay dividends and certain customary affirmative covenants and events ofdefault.  During the thirteen weeks endedMarch 31, 2007, the Company always maintained excess availability above$75.0 million.

As of March 31, 2007, the Issuers had (i) $192.6 million inborrowings outstanding under the Credit Facility at an average interest rate of6.9%; (ii) $73.1 million of letters of credit outstanding issued under theCredit Facility, which includes standby letters of credit and import letters ofcredit used for merchandise purchases; and (iii) $254.1 million of additionalavailability under the Credit Facility.

At various times during(1) the thirteen weeks ended March 31, 2007 and the period February 14, 2006 toApril 1, 2006 and (2) the period January 1, 2006 to February 13, 2006, theCompany borrowed against its Credit Facility and the 2004 Credit Agreement, 

15

----

**LINENSHOLDING CO. AND SUBSIDIARIES (AND PREDECESSOR)NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont’d**

respectively, for workingcapital needs.  The Company is notobligated under any formal or informal compensating balance requirements.

***Mortgage Note Payable***

Mortgagenote payable represents an 8.2% fixed-rate mortgage note on the land andbuilding of one of the Company’s closed stores. Under the mortgage note terms, the Company is required to make 96 equalpayments of principal and interest, with a final principal payment ofapproximately $1.6 million in August 2012.

**9.Income Taxes (Including the Adoption of FIN No. 48)**

***Adoptionof Financial Accounting Standards Board Interpretation No. 48, “Accounting forUncertainty in Income Taxes – an interpretation of FASB Statement No. 109”***

The Company is subject totax in the United States and in various states and foreign jurisdictions.  The Company, joined by its domesticsubsidiaries, files a consolidated income tax return for Federal income tax purposes.  With few exceptions, the Company is no longersubject to U.S. Federal, state and local income tax or non-U.S. income taxexaminations by tax authorities for tax years before 2004.  The Internal Revenue Service (“IRS”)commenced an examination of the Company’s U.S. consolidated income tax returnsfor the years 2004 through 2006, inclusive, in the first quarter of 2007.  Based on its work to date, the IRS has notproposed any adjustments to any of the Company’s tax positions.

Financial AccountingStandards Board (“FASB”) Interpretation No. 48, “*Accountingfor Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109*”(“FIN No. 48”), was issued in July 2006 and interprets FASB SFAS No. 109, “*Accounting for Income Taxes*.”  FIN No. 48 is effective for fiscal yearsbeginning after December 15, 2006.  TheCompany, in its opening balance sheet for 2007, is required to reflect, ascumulative adjustments to the Company’s retained earnings, the impact of FINNo. 48 on its income tax accruals for all prior years subject to adjustment byfederal, state, local and foreign taxing authorities (open years).  The Company has undertaken an analysis of allmaterial tax positions in its tax accruals for all open years and hasidentified all of its outstanding tax positions and estimated the transitionamounts with respect to each item at the effective date.  The Company has determined that no adjustmentto shareholders’ equity is required as a result of applying FIN No. 48.  The Company expects no material change forthe next twelve months as a result of adopting FIN No. 48.  The Company will continue its policy ofclassifying interest on tax liabilities as part of the provision for incometaxes.  The Company does not anticipateany significant payments with respect to any tax assessments within the nexttwelve months.

The Company adopted theprovisions of FIN No. 48 on December 31, 2006. As a result of the implementation of FIN No. 48, the Company recognizedno change with respect to any unrealized tax benefits and therefore made nochange to the December 31, 2006 opening retained earnings balance.  A reconciliation of the beginning and endingamount of unrecognized tax benefits is as follows (in thousands):
|                                                            | ** ** | **Amount** | ** ** |
|------------------------------------------------------------|------------|------------|------------|
| Beginning  balance at December 31, 2006 (date of adoption) |       | $          | 8,702      |   |
| Additions for  current year tax positions                  |       | 76         |       |
| Additions for  prior year tax positions                    |       | 71         |       |
| Additions due to  purchase accounting                      |       | 3,609      |       |
| Reductions for  prior year tax positions                   |       | —     |       |
| Settlements                                                |       | —     |       |
|                                                       |       |       |       |
| Ending balance  at March 31, 2007                          |       | $          | 12,458     |   |

 

Included in the endingbalance at March 31, 2007 are approximately $12.5 million of tax positions forwhich the ultimate deductibility is highly certain but for which uncertaintyexists as to the timing of such deductions.

The Company recognizesinterest and penalties accrued related to unrecognized tax benefits as part ofthe provision for income taxes.  At March31, 2007 and December 31, 2006 (the date of adoption), accrued interest andpenalties amounted to approximately $1.1 million and $0.9 million,  respectively, and is included in accruedexpenses and other current liabilities in the condensed consolidated balancesheets.  The Company recordedapproximately $0.2 million of interest and penalties during the thirteen weeksended March 31, 2007 which is included in benefit for income taxes in thecondensed consolidated statements of operations.

16

----

**LINENSHOLDING CO. AND SUBSIDIARIES (AND PREDECESSOR)NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont’d**

***OtherIncome Taxes***

During the thirteen weeksended March 31, 2007, the Company recorded an income tax benefit ofapproximately $34.4 million at an effective tax benefit rate of 37.2%.  The Federal statutory rate of 35.0% is lowerthan the effective tax benefit rate primarily due to state tax benefits.

At March 31, 2007, theCompany has approximately $66.7 million of federal net operating losscarryforwards after carryback which expire in 2026 and approximately $200.0million of state net operating loss carryforwards expiring at various datesbetween 2007 and 2022.

In assessing therealizability of deferred tax assets included in the condensed consolidatedbalance sheets, management considers whether it is more likely than not thatsome portion or all of the tax assets will not be realized.  The ultimate realization of deferred taxassets is dependent upon the generation of future taxable income during theperiods in which those temporary differences become deductible.  Management considers the scheduled reversalof deferred tax liabilities, projected future taxable income and tax planningstrategies in making this assessment. Based upon the level of historical taxable income and projections forfuture taxable income over the periods in which the deferred tax assets aredeductible, management believes it is more likely than not that the Companywill realize the benefits of these deductible differences, net of existingvaluation allowances.

**10.****Derivative Financial Instruments**

The Company accounts forderivative instruments in accordance with SFAS No. 133, “*Accounting for Derivative Instruments and Hedging Activities*”(“SFAS No. 133”), as amended.  Inaccordance with SFAS No. 133, the Company reports all derivative financialinstruments on its balance sheet at fair value and has established criteria fordesignation and evaluation of effectiveness of transactions entered into forhedging purposes.

The Company employsderivative financial instruments to manage its exposure to interest ratechanges and to limit the volatility and impact of interest rate changes onearnings and cash flows.

The Company does notenter into other derivative financial instruments for trading or speculativepurposes.  The Company faces credit riskif the counterparties to these transactions are unable to perform theirobligations.  However, the Company seeksto minimize this risk by entering into transactions with counterparties thatare major financial institutions with high credit ratings.

The Company recordsunrealized gains and losses on derivative financial instruments qualifying ascash flow hedges in accumulated other comprehensive loss on the condensedconsolidated balance sheets, to the extent that hedges are effective.  For derivative financial instruments which donot qualify as cash flow hedges, any changes in fair value would be recorded inthe condensed consolidated statements of operations.

The Company may at itsdiscretion terminate or de-designate any such hedging instrumentagreements prior to maturity.  At thattime, any gains or losses previously reported in accumulated othercomprehensive loss on termination would amortize into interest expense orinterest income to correspond to the recognition of interest expense orinterest income on the hedged debt.  Ifsuch debt instrument was also terminated, the gain or loss associated with theterminated derivative included in accumulated other comprehensive loss at thetime of termination of the debt would be recognized in the condensedconsolidated statements of operations at that time.

On July 7, 2006 theIssuers entered into a zero cost interest rate collar agreement (the “CollarAgreement”) to hedge the cash flows associated with the LIBOR component of theinterest rate on the Notes.  The CollarAgreement provides for payments to be made to or received from the counterpartywhere the LIBOR component of the rate in effect for the Notes is below 4.45% orabove 6.51% for a given reset period. Such payments represent the difference between the rates stated above inthe Collar Agreement and those in effect on the Notes for the given resetperiod.  Payment and reset dates underthe Collar Agreement are matched exactly to those of the Notes.  The Collar Agreement has an ultimate maturityof January 15, 2008.  To the extent thatthe three-month LIBOR rate is below the Collar Agreement floor, payment is duefrom the Company to the counterparty for the difference.  To the extent the three-month LIBOR rate isabove the Collar Agreement cap, the Company is entitled to receive thedifference from the counterparty.  At theinception of the Collar Agreement, the Company determined that the hedgingrelationship would have no ineffectiveness, and the Company will continue toverify and document that the critical terms of the hedging instrument and thehedged item are exactly matched.  AtMarch 31, 2007, the notional amount of debt related to the Collar Agreement was$650.0 million and the fair value of the Collar Agreement was approximately a$0.08 million liability.

17

----

**LINENSHOLDING CO. AND SUBSIDIARIES (AND PREDECESSOR)NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont’d**

On July 7, 2006 theIssuers also purchased a one-year forward-starting interest rate cap agreement(the “Cap Agreement”) which takes effect on January 15, 2008.  The Cap Agreement provides for payments to bereceived from the counterparty where the LIBOR component of the rate in effecton a LIBOR-based borrowing arrangement is above 6.51% for a given resetperiod.  Such payments represent the differencebetween the LIBOR rate stated above in the Cap Agreement and those in effect ona LIBOR-based borrowing arrangement for the given reset period.  Payment and reset dates under the CapAgreement are matched exactly to those of the LIBOR-based borrowingarrangement.  The Cap Agreement has anultimate maturity of January 15, 2009. The Issuers paid a premium of $0.7 million to purchase the CapAgreement.  The Cap Agreement consists oftwo components, a forward contract and an interest rate cap agreement.  The Company’s intent is to hedge the cashflow associated with the LIBOR component of the interest rate on a LIBOR-basedborrowing arrangement beyond 6.51% for the period January 15, 2008 throughJanuary 15, 2009.  The forward contractenables the Company to achieve this objective. The Company will assess the effectiveness of the forward contractquarterly.  Once the forward contractbecomes an interest rate cap agreement, effectiveness will be assessed anddocumented as a new relationship.  Theinterest rate cap agreement is expected to be perfectly effective at such time,and the Company will continue to subsequently verify and document that thecritical terms of the interest rate cap agreement and the hedged item continueto match exactly over the remaining life of the relationship.  At March 31, 2007, the notional amount ofdebt related to the Cap Agreement was $650.0 million and the fair value of theinstrument was approximately a $0.04 million asset.

The Company hasdetermined that the Collar Agreement and the Cap Agreement have been appropriatelydesignated and documented as cash flow hedges under SFAS No. 133.  As such, changes in the fair value of theCollar Agreement and the Cap Agreement have been recorded in accumulated othercomprehensive loss on the condensed consolidated balances sheets.  During the thirteen weeks ended March 31,2007, the Company has recorded a loss of approximately $0.03 million inaccumulated other comprehensive loss related to these changes in fair value.  The Collar Agreement and the Cap Agreementhad no ineffectiveness and provided no amounts received or paid under thehedges that affected net loss during the period.  Both agreements are expected to have noineffectiveness during their contractual lives.

**11. Recent AccountingPronouncements**

In February 2007, theFinancial Accounting Standards Board (“FASB”) issued Statement of FinancialAccounting Standards No. 159, “*The Fair Value Option forFinancial Assets and Financial Liabilities - Including an Amendment of FASBStatement No. 115*” (“SFAS No. 159”).  SFAS No. 159 permits, but does not require,companies to report at fair value the majority of recognized financial assets,financial liabilities and firm commitments. Under this standard, unrealized gains and losses on items for which thefair value option is elected are reported in earnings at each subsequentreporting date.  The Company is currentlyassessing the effect SFAS No. 159 may have, if any, on its consolidatedfinancial statements when it becomes effective as of the beginning of fiscal2008.

In September 2006, theFASB issued Statement of Financial Accounting Standards No. 158, “**Employers’Accounting for Defined Benefit Pension and Other Postretirement Plans, anamendment of FASB Statements No. 87, 88, 106, and 132(R)****”**(“SFASNo. 158”). SFAS No. 158 requires, among other items, recognition of theoverfunded or underfunded status of an entity’s defined benefit postretirementplan as an asset or liability, respectively, in the balance sheet, requires themeasurement of defined benefit postretirement plan assets and obligations as ofthe end of the employer’s fiscal year, and requires recognition of changes infunded status of defined benefit postretirement plans in the year in which thechanges occur in other comprehensive income. SFAS No. 158  is effective as ofthe end of the fiscal year ending after June 15, 2007 and early application isencouraged.  The adoption of SFAS No. 158is not expected to have a material effect on the Company’s financial positionor results of operations.

In September 2006, theFASB issued Statement of Financial Accounting Standards No. 157, “*Fair Value Measurements*” (“SFAS No. 157”) which is effectivefor fiscal years beginning after November 15, 2007 and for interim periodswithin those years.  This statementdefines fair value, establishes a framework for measuring fair value andexpands the related disclosure requirements. The Company is in the process of determining the effect, if any, thatthe adoption of SFAS No. 157 will have on its financial statements.

In September 2006,the SEC staff issued Staff Accounting Bulletin No. 108, “*Considering the Effects of Prior Year Misstatements when QuantifyingMisstatements in Current Year Financial Statements*” (“SABNo. 108”).  SAB No. 108 providesguidance on the consideration of the effects of prior year misstatements inquantifying current year misstatements for the purpose of a materialityassessment.  SAB No. 108 establishesan approach that requires quantification of financial statement errors based onthe effects on each of the Company’s financial statements and related financialstatement disclosures.  SAB No. 108permits existing public companies to record the cumulative effect of initiallyapplying this approach in the first year ending after November 15, 2006 byrecording the necessary correcting adjustments to the carrying values of assetsand liabilities as of the beginning of that year with the offsetting adjustmentrecorded to the opening balance of retained earnings.  Additionally, the use of the cumulativeeffect transition method requires detailed disclosure of the nature and amountof each individual error being corrected through the cumulative adjustment andhow and when it arose.  At December 31,2006, the Company recorded an adjustment under SAB No. 108 (see Note 1 tothe unaudited condensed consolidated financial statements).

18

----

**LINENSHOLDING CO. AND SUBSIDIARIES (AND PREDECESSOR)NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont’d**

In June 2006, the FASB’sEmerging Issues Task Force reached a consensus on Issue No. 06-3, “*How Taxes Collected from Customers and Remitted to GovernmentalAuthorities Should be Presented in the Income Statement (That Is, Gross versusNet Presentation)*” (“EITF 06-3”). EITF 06-3 includes sales, use, value-added and some excise taxes thatare assessed by a governmental authority on specific revenue-producingtransactions between a seller and a customer. EITF 06-3 requires disclosure of the method of accounting for theapplicable assessed taxes and the amount of assessed taxes included in revenuesif such taxes are accounted for under the gross method.  EITF 06-3 became effective for both interimand annual periods beginning in fiscal year 2007.  EITF 06-3 did not impact the Company’s methodfor recording these applicable assessed taxes because the Company hashistorically presented sales excluding such taxes, that is “net” presentation.

**12.Related Party Transactions**

**ManagementServices Agreement**

Upon consummation of theMerger, the Company entered into a management services agreement with ApolloManagement V, L.P., NRDC Linens B LLC and Silver Point Capital Fund InvestmentsLLC (each of whom is an affiliate of the Company).  Under this management services agreement, theSponsors agreed to provide to the Company certain investment banking,management, consulting, financial planning and real estate advisory services onan ongoing basis for a fee of $2.0 million per year.  Under this management services agreement,Apollo Management V, L.P. also agreed to provide to the Company certainfinancial advisory and investment banking services from time to time inconnection with major financial transactions that may be undertaken by it orits subsidiaries in exchange for fees customary for such services after takinginto account Apollo Management V, L.P.’s expertise and relationships within thebusiness and financial community.  Underthis management services agreement, the Company also agreed to providecustomary indemnification.  In addition,the Company paid a transaction fee of $15.0 million in the aggregate (plusreimbursement of expenses) to the Sponsors for financial advisory servicesrendered in connection with the Merger. 30% of this fee, or $4.5 million, was included as part of the purchaseprice and the remaining 70%, or $10.5 million, has been included in deferredfinancing costs.  These services includedassisting the Company in structuring the Merger, taking into account taxconsiderations and optimal access to financing, and assisting in thenegotiation of the Company’s material agreements and financing arrangements inconnection with the Merger.

**Stockholders’Agreement**

The only stockholders ofthe Company are Linens Investors, LLC, a limited liability company owned by theSponsors, two executives of the Company, Robert J. DiNicola, Chairman and ChiefExecutive Officer, and F. David Coder, Executive Vice President, StoreOperations, and one nonemployee director, George G. Golleher.  In connection therewith, Linens Investors,LLC has entered into a stockholders’ agreement with the Company, and each ofthe other stockholders have entered into joinder agreements to be bound by thestockholders’ agreement.  Thestockholders’ agreement sets forth certain provisions relating to themanagement of the Company.  In addition,the stockholders’ agreement contains customary drag along rights, tag alongrights, registration rights, restrictions on the transfer of the Company’scommon stock and an indemnity of the Sponsors.

**13.Subsequent Event**

The Company has obtaineda commitment from the U.S. administrative agent under the Credit Facility, UBSAG, and its affiliates (“UBS”) for a $100.0 million increase in the CreditFacility, which will increase the maximum availability (subject to having asufficient borrowing base) from $600.0 million to $700.0 million.  Under the terms of the Credit Facility, thisincrease must be offered to all lenders participating in the CreditFacility.  Because of the UBS commitment,the full amount of the $100.0 million increase will be available even if otherlenders elect not to increase their portion of the Credit Facility by the fullamount of their pro rata share of the increase. The Company expects this process to be completed and the Credit Facilityincrease to be effective before the end of the second quarter of 2007.

**14.Supplemental Condensed Consolidating Financial Information**

On February 14, 2006Linens ‘n Things, Inc. and Linens ‘n Things Center, Inc. (collectively,the “Issuers”), issued $650.0 million aggregate principal amount of SeniorSecured Floating Rate Notes due 2014. The Notes are fully and unconditionally guaranteed, jointly andseverally, on a senior basis by the Company, and by each of the Company’sdirect and indirect subsidiaries that guarantee the Company’s new asset-basedrevolving credit facility except for its Canadian subsidiaries.  The Company’s Canadian subsidiaries (the “Non-Guarantors”)are not guarantors of the Notes.

19

----

**LINENSHOLDING CO. AND SUBSIDIARIES (AND PREDECESSOR)NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont’d**

The following tablespresent the supplemental condensed consolidating financial information for theCompany (Parent), the Co-Issuers, the Guarantors (excluding the Companywhich is also a Guarantor but is separately presented) and the Non-Guarantors,together with eliminations, as of and for the periods indicated.  The Company has not presented separatefinancial statements and other disclosures concerning the Co-Issuers,Guarantors and Non-Guarantors because management has determined that suchinformation is not meaningful to investors. The accounting policies for Parent, Co-Issuers, Guarantors, andNon-Guarantors are the same as those more fully described in Note 2 to theaudited consolidated financial statements included in the Company’s 2006 AnnualReport on Form 10-K under “*Summaryof Significant Accounting Policies*”. The financial information may not necessarily be indicative of thefinancial position, results of operations or cash flows had the Parent,Co-Issuers, Guarantors and Non-Guarantors operated as independent entities.

The information at March 31, 2007,December 30, 2006 and April 1, 2006 and for the thirteen weeks ended March 31,2007 and the period February 14, 2006 to April 1, 2006, presents thefinancial position and results of operations and cash flows, respectively, ofthe Successor Entity.  The informationfor the period January 1, 2006 to February 13, 2006 presents theresults of operations and cash flows of the Predecessor Entity.

20

----

**LINENS HOLDING CO. ANDSUBSIDIARIES (AND PREDECESSOR)**

**(Successor Entity)**

**SUPPLEMENTAL CONDENSEDCONSOLIDATING STATEMENT OF OPERATIONS**

**For the Thirteen Week PeriodEnded March 31, 2007**

**(InThousands) (Unaudited)**
| ** **                                              | ** ** | ** ** | ** ** | ** **     | ** ** | ** **     | ** ** | **Non-**       | ** **  | ** **       | ** ** | ** **       | ** ** |
|---------------------------------------------------------|------------|------------|------------|----------------|------------|----------------|------------|----------------|-------------|------------------|------------|------------------|------------|
| ** **                                              | ** ** | **Parent** | ** ** | **Co-Issuers** | ** ** | **Guarantors** | ** ** | **Guarantors** | ** **  | **Eliminations** | ** ** | **Consolidated** | ** ** |
|                                                    |       |       |       |           |       |           |       |           |        |             |       |             |       |
| **Net sales**                                           | ** ** | **$**      | **—** | ** **     | **$**      | **13,816**     | ** ** | **$**          | **514,691** | ** **       | **$**      | **43,053**       | ** ** | **$** | **—** | ** ** | **$** | **571,560** | ** ** |
| Cost of sales,  including buying and distribution costs |       | 0          |       | 8,454          |       | 328,606        |       | 21,016         |        | 0                |       | 358,076          |       |
|                                                    |       |       |       |           |       |           |       |           |        |             |       |             |       |
| **Gross profit**                                        | ** ** | **0**      | ** ** | **5,362**      | ** ** | **186,085**    | ** ** | **22,037**     | ** **  | **0**            | ** ** | **213,484**      | ** ** |
| Selling, general and  administrative expenses           |       | 0          |       | 5,130          |       | 257,608        |       | 20,198         |        | 0                |       | 282,936          |       |
|                                                    |       |       |       |           |       |           |       |           |        |             |       |             |       |
| **Operating profit (loss)**                             | ** ** | **0**      | ** ** | **232**        | ** ** | **(71,523**    | **)**      | **1,839**      | ** **  | **0**            | ** ** | **(69,452**      | **)**      |
|                                                    |       |       |       |           |       |           |       |           |        |             |       |             |       |
| Interest income                                         |       | 0          |       | (16,306        | )          | (257           | )          | (147           | )           | 16,555           |       | (155             | )          |
| Interest expense                                        |       | 0          |       | 24,359         |       | 16,050         |       | 308            |        | (16,555          | )          | 24,162           |       |
|                                                    |       |       |       |           |       |           |       |           |        |             |       |             |       |
| Interest expense, net                                   |       | 0          |       | 8,053          |       | 15,793         |       | 161            |        | 0                |       | 24,007           |       |
|                                                    |       |       |       |           |       |           |       |           |        |             |       |             |       |
| Other expense (income),  net                            |       | 0          |       | 260            |       | (997           | )          | (136           | )           | 0                |       | (873             | )          |
| ** **                                              | ** ** | ** ** | ** ** | ** **     | ** ** | ** **     | ** ** | ** **     | ** **  | ** **       | ** ** | ** **       | ** ** |
| **(Loss) income before income  taxes**                  | ** ** | **0**      | ** ** | **(8,081**     | **)**      | **(86,319**    | **)**      | **1,814**      | ** **  | **0**            | ** ** | **(92,586**      | **)**      |
| ** **                                              | ** ** | ** ** | ** ** | ** **     | ** ** | ** **     | ** ** | ** **     | ** **  | ** **       | ** ** | ** **       | ** ** |
| (Benefit) provision for  income taxes                   |       | 0          |       | (2,949         | )          | (32,098        | )          | 635            |        | 0                |       | (34,412          | )          |
|                                                    |       |       |       |           |       |           |       |           |        |             |       |             |       |
| **Net (loss) income**                                   | ** ** | **$**      | **—** | ** **     | **$**      | **(5,132**     | **)**      | **$**          | **(54,221** | **)**            | **$**      | **1,179**        | ** ** | **$** | **—** | ** ** | **$** | **(58,174** | **)** |

** **

21

----

**LINENS HOLDING CO. ANDSUBSIDIARIES (AND PREDECESSOR)**

**(Successor Entity)**

**SUPPLEMENTAL CONDENSEDCONSOLIDATING STATEMENT OF OPERATIONS**

**For the Period February 14, 2006- April 1, 2006**

**(InThousands) (Unaudited)**
| ** **                                              | ** ** | ** ** | ** ** | ** **     | ** ** | ** **     | ** ** | **Non-**       | ** **  | ** **       | ** ** | ** **       | ** ** |
|---------------------------------------------------------|------------|------------|------------|----------------|------------|----------------|------------|----------------|-------------|------------------|------------|------------------|------------|
| ** **                                              | ** ** | **Parent** | ** ** | **Co-Issuers** | ** ** | **Guarantors** | ** ** | **Guarantors** | ** **  | **Eliminations** | ** ** | **Consolidated** | ** ** |
| ** **                                              | ** ** | ** ** | ** ** | ** **     | ** ** | ** **     | ** ** | ** **     | ** **  | ** **       | ** ** | ** **       | ** ** |
| **Net  sales**                                          | ** ** | **$**      | **—** | ** **     | **$**      | **8,160**      | ** ** | **$**          | **280,656** | ** **       | **$**      | **19,029**       | ** ** | **$** | **—** | ** ** | **$** | **307,845** | ** ** |
| Cost of sales,  including buying and distribution costs |       | 0          |       | 4,700          |       | 175,213        |       | 9,155          |        | 0                |       | 189,068          |       |
|                                                    |       |       |       |           |       |           |       |           |        |             |       |             |       |
| **Gross  profit**                                       | ** ** | **0**      | ** ** | **3,460**      | ** ** | **105,443**    | ** ** | **9,874**      | ** **  | **0**            | ** ** | **118,777**      | ** ** |
| Selling, general  and administrative expenses           |       | 0          |       | 2,772          |       | 124,296        |       | 10,492         |        | 0                |       | 137,560          |       |
|                                                    |       |       |       |           |       |           |       |           |        |             |       |             |       |
| **Operating  profit (loss)**                            | ** ** | **0**      | ** ** | **688**        | ** ** | **(18,853**    | **)**      | **(618**       | **)**       | **0**            | ** ** | **(18,783**      | **)**      |
|                                                    |       |       |       |           |       |           |       |           |        |             |       |             |       |
| Interest income                                         |       | 0          |       | (17,414        | )          | (81            | )          | (21            | )           | 17,430           |       | (86              | )          |
| Interest expense                                        |       | 0          |       | 10,014         |       | 17,148         |       | 255            |        | (17,430          | )          | 9,987            |       |
|                                                    |       |       |       |           |       |           |       |           |        |             |       |             |       |
| Interest  (income) expense, net                         |       | 0          |       | (7,400         | )          | 17,067         |       | 234            |        | 0                |       | 9,901            |       |
|                                                    |       |       |       |           |       |           |       |           |        |             |       |             |       |
| Other expense  (income), net                            |       | 0          |       | 449            |       | (422           | )          | 174            |        | 0                |       | 201              |       |
|                                                    |       |       |       |           |       |           |       |           |        |             |       |             |       |
| **Income  (loss) before income taxes**                  | ** ** | **0**      | ** ** | **7,639**      | ** ** | **(35,498**    | **)**      | **(1,026**     | **)**       | **0**            | ** ** | **(28,885**      | **)**      |
| ** **                                              | ** ** | ** ** | ** ** | ** **     | ** ** | ** **     | ** ** | ** **     | ** **  | ** **       | ** ** | ** **       | ** ** |
| Provision  (benefit) for income taxes                   |       | 0          |       | 3,009          |       | (13,982        | )          | (340           | )           | 0                |       | (11,313          | )          |
|                                                    |       |       |       |           |       |           |       |           |        |             |       |             |       |
| **Net income (loss)**                                   | ** ** | **$**      | **—** | ** **     | **$**      | **4,630**      | ** ** | **$**          | **(21,516** | **)**            | **$**      | **(686**         | **)**      | **$** | **—** | ** ** | **$** | **(17,572** | **)** |

 

22

----

**LINENS HOLDING CO. AND SUBSIDIARIES (AND PREDECESSOR)**

**(Predecessor Entity)**

**SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS**

**For the Period January 1, 2006 - February 13, 2006**

**(In Thousands)(Unaudited)**
| ** **                                              | ** ** | ** **     | ** ** | ** **     | ** ** | **Non-**       | ** ** | ** **       | ** ** | ** **       | ** ** |
|---------------------------------------------------------|------------|----------------|------------|----------------|------------|----------------|------------|------------------|------------|------------------|------------|
| ** **                                              | ** ** | **Co-Issuers** | ** ** | **Guarantors** | ** ** | **Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| ** **                                              | ** ** | ** **     | ** ** | ** **     | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
| **Net  sales**                                          | ** ** | **$**          | **7,684**  | ** **     | **$**      | **259,826**    | ** ** | **$**            | **17,461** | ** **       | **$**      | **—** | ** ** | **$** | **284,971** | ** ** |
| Cost of sales,  including buying and distribution costs |       | 4,749          |       | 165,927        |       | 9,999          |       | 0                |       | 180,675          |       |
|                                                    |       |           |       |           |       |           |       |             |       |             |       |
| **Gross  profit**                                       | ** ** | **2,935**      | ** ** | **93,899**     | ** ** | **7,462**      | ** ** | **0**            | ** ** | **104,296**      | ** ** |
| Selling, general  and administrative expenses           |       | 2,571          |       | 164,013        |       | 8,840          |       | 0                |       | 175,424          |       |
|                                                    |       |           |       |           |       |           |       |             |       |             |       |
| **Operating  profit (loss)**                            | ** ** | **364**        | ** ** | **(70,114**    | **)**      | **(1,378**     | **)**      | **0**            | ** ** | **(71,128**      | **)**      |
|                                                    |       |           |       |           |       |           |       |             |       |             |       |
| Interest income                                         |       | (2,374         | )          | (139           | )          | (14            | )          | 1,859            |       | (668             | )          |
| Interest expense                                        |       | 0              |       | 1,730          |       | 129            |       | (1,859           | )          | 0                |       |
|                                                    |       |           |       |           |       |           |       |             |       |             |       |
| Interest  (income) expense, net                         |       | (2,374         | )          | 1,591          |       | 115            |       | 0                |       | (668             | )          |
|                                                    |       |           |       |           |       |           |       |             |       |             |       |
| Other income,  net                                      |       | (452           | )          | (502           | )          | (332           | )          | 0                |       | (1,286           | )          |
|                                                    |       |           |       |           |       |           |       |             |       |             |       |
| **Income  (loss) before income taxes**                  | ** ** | **3,190**      | ** ** | **(71,203**    | **)**      | **(1,161**     | **)**      | **0**            | ** ** | **(69,174**      | **)**      |
| ** **                                              | ** ** | ** **     | ** ** | ** **     | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
| Provision  (benefit) for income taxes                   |       | 976            |       | (21,822        | )          | (424           | )          | 0                |       | (21,270          | )          |
|                                                    |       |           |       |           |       |           |       |             |       |             |       |
| **Net income (loss)**                                   | ** ** | **$**          | **2,214**  | ** **     | **$**      | **(49,381**    | **)**      | **$**            | **(737**   | **)**            | **$**      | **—** | ** ** | **$** | **(47,904** | **)** |

 

23

----

**LINENS HOLDING CO. AND SUBSIDIARIES (AND PREDECESSOR)**

**(Successor Entity)**

**SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET**

**March 31, 2007**

**(In Thousands)(Unaudited)**
| ** **                                            | ** ** | ** **  | ** **  | ** **     | ** ** | ** **     | ** ** | **Non-**       | ** **    | ** **       | ** ** | ** **       | ** ** |
|-------------------------------------------------------|------------|-------------|-------------|----------------|------------|----------------|------------|----------------|---------------|------------------|------------|------------------|------------|
| ** **                                            | ** ** | **Parent**  | ** **  | **Co-Issuers** | ** ** | **Guarantors** | ** ** | **Guarantors** | ** **    | **Eliminations** | ** ** | **Consolidated** | ** ** |
| **Assets**                                            | ** ** | ** **  | ** **  | ** **     | ** ** | ** **     | ** ** | ** **     | ** **    | ** **       | ** ** | ** **       | ** ** |
| Current assets:                                       |       |        |        |           |       |           |       |           |          |             |       |             |       |
| Cash and cash  equivalents                            |       | $           | —      |           | $          | 750            |       | $              | 5,931         |             | $          | 1,884            |       | $ | — |   | $ | 8,565 |   |
| Accounts  receivable                                  |       | 0           |        | 397            |       | 32,316         |       | 2,825          |          | 0                |       | 35,538           |       |
| Inventories                                           |       | 0           |        | 14,927         |       | 757,048        |       | 57,583         |          | 0                |       | 829,558          |       |
| Prepaid expenses  and other current assets            |       | 0           |        | 291            |       | 16,024         |       | 876            |          | 0                |       | 17,191           |       |
| Current deferred  taxes                               |       | 0           |        | 223            |       | 15,614         |       | 256            |          | 0                |       | 16,093           |       |
| **Total  current assets**                             | ** ** | **0**       | ** **  | **16,588**     | ** ** | **826,933**    | ** ** | **63,424**     | ** **    | **0**            | ** ** | **906,945**      | ** ** |
|                                                  |       |        |        |           |       |           |       |           |          |             |       |             |       |
| Property and  equipment, net                          |       | 0           |        | 10,167         |       | 455,265        |       | 44,308         |          | 0                |       | 509,740          |       |
| Identifiable  intangible assets, net                  |       | 0           |        | 695            |       | 145,879        |       | 1,578          |          | 0                |       | 148,152          |       |
| Goodwill                                              |       | 0           |        | 11,254         |       | 242,537        |       | 16,343         |          | 0                |       | 270,134          |       |
| Intercompany  receivables                             |       | 0           |        | 0              |       | 628,252        |       | 13,607         |          | (641,859         | )          | 0                |       |
| Intercompany  notes receivable                        |       | 0           |        | 1,177,244      |       | 0              |       | 23,561         |          | (1,200,805       | )          | 0                |       |
| Investment in  subsidiaries                           |       | 488,387     |        | 749,944        |       | 0              |       | 0              |          | (1,238,331       | )          | 0                |       |
| Deferred  financing costs and other noncurrent assets |       | 0           |        | 41,471         |       | 655            |       | 21             |          | 0                |       | 42,147           |       |
|                                                  |       |        |        |           |       |           |       |           |          |             |       |             |       |
| **Total  assets**                                     | ** ** | **$**       | **488,387** | ** **     | **$**      | **2,007,363**  | ** ** | **$**          | **2,299,521** | ** **       | **$**      | **162,842**      | ** ** | **$** | **(3,080,995** | **)** | **$** | **1,877,118** | ** ** |
|                                                  |       |        |        |           |       |           |       |           |          |             |       |             |       |
| **Liabilities  and Shareholders’ Equity**        | ** ** | ** **  | ** **  | ** **     | ** ** | ** **     | ** ** | ** **     | ** **    | ** **       | ** ** | ** **       | ** ** |
|                                                  |       |        |        |           |       |           |       |           |          |             |       |             |       |
| Current  liabilities:                                 |       |        |        |           |       |           |       |           |          |             |       |             |       |
| Accounts payable                                      |       | $           | —      |           | $          | —         |       | $              | 163,920       |             | $          | 27,996           |       | $ | — |   | $ | 191,916 |   |
| Accrued expenses  and other current liabilities       |       | 0           |        | 32,902         |       | 164,176        |       | 9,054          |          | 0                |       | 206,132          |       |
| **Total  current liabilities**                        | ** ** | **0**       | ** **  | **32,902**     | ** ** | **328,096**    | ** ** | **37,050**     | ** **    | **0**            | ** ** | **398,048**      | ** ** |
|                                                  |       |        |        |           |       |           |       |           |          |             |       |             |       |
| Intercompany  payable                                 |       | 0           |        | 641,859        |       | 0              |       | 0              |          | (641,859         | )          | 0                |       |
| Intercompany  notes payable                           |       | 0           |        | 0              |       | 1,153,800      |       | 47,005         |          | (1,200,805       | )          | 0                |       |
| Senior secured  notes and other long-term debt        |       | 0           |        | 842,580        |       | 2,060          |       | 0              |          | 0                |       | 844,640          |       |
| Noncurrent  deferred income taxes                     |       | 0           |        | 759            |       | 91,847         |       | 5,521          |          | 0                |       | 98,127           |       |
| Other long-term  liabilities                          |       | 0           |        | 876            |       | 43,354         |       | 3,686          |          | 0                |       | 47,916           |       |
|                                                  |       |        |        |           |       |           |       |           |          |             |       |             |       |
| **Total  liabilities**                                | ** ** | **0**       | ** **  | **1,518,976**  | ** ** | **1,619,157**  | ** ** | **93,262**     | ** **    | **(1,842,664**   | **)**      | **1,388,731**    | ** ** |
|                                                  |       |        |        |           |       |           |       |           |          |             |       |             |       |
| **Total  shareholders’ equity**                  | ** ** | **488,387** | ** **  | **488,387**    | ** ** | **680,364**    | ** ** | **69,580**     | ** **    | **(1,238,331**   | **)**      | **488,387**      | ** ** |
| ** **                                            | ** ** | ** **  | ** **  | ** **     | ** ** | ** **     | ** ** | ** **     | ** **    | ** **       | ** ** | ** **       | ** ** |
| **Total liabilities and shareholders’ equity**   | ** ** | **$**       | **488,387** | ** **     | **$**      | **2,007,363**  | ** ** | **$**          | **2,299,521** | ** **       | **$**      | **162,842**      | ** ** | **$** | **(3,080,995** | **)** | **$** | **1,877,118** | ** ** |

 

24

----

**LINENS HOLDING CO. AND SUBSIDIARIES (AND PREDECESSOR)**

**(Successor Entity)**

**SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET**

**December 30, 2006**

**(In Thousands)(Unaudited)**
| ** **                                            | ** ** | ** **  | ** **  | ** **     | ** ** | ** **     | ** ** | **Non-**       | ** **    | ** **       | ** ** | ** **       | ** ** |
|-------------------------------------------------------|------------|-------------|-------------|----------------|------------|----------------|------------|----------------|---------------|------------------|------------|------------------|------------|
| ** **                                            | ** ** | **Parent**  | ** **  | **Co-Issuers** | ** ** | **Guarantors** | ** ** | **Guarantors** | ** **    | **Eliminations** | ** ** | **Consolidated** | ** ** |
| **Assets**                                            | ** ** | ** **  | ** **  | ** **     | ** ** | ** **     | ** ** | ** **     | ** **    | ** **       | ** ** | ** **       | ** ** |
| Current assets:                                       |       |        |        |           |       |           |       |           |          |             |       |             |       |
| Cash and cash  equivalents                            |       | $           | —      |           | $          | 1,087          |       | $              | 10,218        |             | $          | 1,221            |       | $ | — |   | $ | 12,526 |   |
| Accounts  receivable                                  |       | 0           |        | 435            |       | 33,083         |       | 3,545          |          | 0                |       | 37,063           |       |
| Inventories                                           |       | 0           |        | 14,822         |       | 728,503        |       | 49,677         |          | 0                |       | 793,002          |       |
| Prepaid expenses  and other current assets            |       | 0           |        | 141            |       | 14,662         |       | 505            |          | 0                |       | 15,308           |       |
| Current deferred  taxes                               |       | 0           |        | 16,561         |       | 0              |       | 254            |          | 0                |       | 16,815           |       |
| **Total  current assets**                             | ** ** | **0**       | ** **  | **33,046**     | ** ** | **786,466**    | ** ** | **55,202**     | ** **    | **0**            | ** ** | **874,714**      | ** ** |
|                                                  |       |        |        |           |       |           |       |           |          |             |       |             |       |
| Property and  equipment, net                          |       | 0           |        | 10,154         |       | 477,390        |       | 43,285         |          | 0                |       | 530,829          |       |
| Identifiable  intangible assets, net                  |       | 0           |        | 731            |       | 147,650        |       | 1,663          |          | 0                |       | 150,044          |       |
| Goodwill                                              |       | 0           |        | 7,357          |       | 244,485        |       | 15,988         |          | 0                |       | 267,830          |       |
| Intercompany  receivables                             |       | 0           |        | 0              |       | 774,784        |       | 22,986         |          | (797,770         | )          | 0                |       |
| Intercompany  notes receivable                        |       | 0           |        | 1,176,998      |       | 0              |       | 23,314         |          | (1,200,312       | )          | 0                |       |
| Investment in  subsidiaries                           |       | 544,742     |        | 802,241        |       | 0              |       | 0              |          | (1,346,983       | )          | 0                |       |
| Deferred  financing costs and other noncurrent assets |       | 0           |        | 33,813         |       | 687            |       | 17             |          | 0                |       | 34,517           |       |
|                                                  |       |        |        |           |       |           |       |           |          |             |       |             |       |
| **Total  assets**                                     | ** ** | **$**       | **544,742** | ** **     | **$**      | **2,064,340**  | ** ** | **$**          | **2,431,462** | ** **       | **$**      | **162,455**      | ** ** | **$** | **(3,345,065** | **)** | **$** | **1,857,934** | ** ** |
|                                                  |       |        |        |           |       |           |       |           |          |             |       |             |       |
| **Liabilities  and Shareholders’ Equity**        | ** ** | ** **  | ** **  | ** **     | ** ** | ** **     | ** ** | ** **     | ** **    | ** **       | ** ** | ** **       | ** ** |
|                                                  |       |        |        |           |       |           |       |           |          |             |       |             |       |
| Current  liabilities:                                 |       |        |        |           |       |           |       |           |          |             |       |             |       |
| Accounts payable                                      |       | $           | —      |           | $          | —         |       | $              | 181,159       |             | $          | 23,601           |       | $ | — |   | $ | 204,760 |   |
| Accrued expenses  and other current liabilities       |       | 0           |        | 38,466         |       | 186,994        |       | 16,451         |          | 0                |       | 241,911          |       |
| **Total  current liabilities**                        | ** ** | **0**       | ** **  | **38,466**     | ** ** | **368,153**    | ** ** | **40,052**     | ** **    | **0**            | ** ** | **446,671**      | ** ** |
| ** **                                            | ** ** | ** **  | ** **  | ** **     | ** ** | ** **     | ** ** | ** **     | ** **    | ** **       | ** ** | ** **       | ** ** |
| Intercompany  payable                                 |       | 0           |        | 797,770        |       | 0              |       | 0              |          | (797,770         | )          | 0                |       |
| Intercompany  notes payable                           |       | 0           |        | 0              |       | 1,153,800      |       | 46,513         |          | (1,200,313       | )          | 0                |       |
| Senior secured  notes and other long-term debt        |       | 0           |        | 687,800        |       | 2,076          |       | 0              |          | 0                |       | 689,876          |       |
| Noncurrent  deferred income taxes                     |       | 0           |        | (5,343         | )          | 125,894        |       | 5,426          |          | 0                |       | 125,977          |       |
| Other long-term  liabilities                          |       | 0           |        | 905            |       | 46,953         |       | 2,809          |          | 0                |       | 50,667           |       |
| **Total  liabilities**                                | ** ** | **0**       | ** **  | **1,519,598**  | ** ** | **1,696,876**  | ** ** | **94,800**     | ** **    | **(1,998,083**   | **)**      | **1,313,191**    | ** ** |
|                                                  |       |        |        |           |       |           |       |           |          |             |       |             |       |
| **Total  shareholders’ equity**                  | ** ** | **544,742** | ** **  | **544,742**    | ** ** | **734,586**    | ** ** | **67,655**     | ** **    | **(1,346,982**   | **)**      | **544,743**      | ** ** |
| ** **                                            | ** ** | ** **  | ** **  | ** **     | ** ** | ** **     | ** ** | ** **     | ** **    | ** **       | ** ** | ** **       | ** ** |
| **Total  liabilities and shareholders’ equity**  | ** ** | **$**       | **544,742** | ** **     | **$**      | **2,064,340**  | ** ** | **$**          | **2,431,462** | ** **       | **$**      | **162,455**      | ** ** | **$** | **(3,345,065** | **)** | **$** | **1,857,934** | ** ** |

 

25

----

**LINENS HOLDING CO. AND SUBSIDIARIES (AND PREDECESSOR)**

**(Successor Entity)**

**SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET**

**April 1, 2006**

**(In Thousands)(Unaudited) (Restated)**
| ** **                                            | ** ** | ** **  | ** **  | ** **     | ** ** | ** **     | ** ** | **Non-**       | ** **    | ** **       | ** ** | ** **       | ** ** |
|-------------------------------------------------------|------------|-------------|-------------|----------------|------------|----------------|------------|----------------|---------------|------------------|------------|------------------|------------|
| ** **                                            | ** ** | **Parent**  | ** **  | **Co-Issuers** | ** ** | **Guarantors** | ** ** | **Guarantors** | ** **    | **Eliminations** | ** ** | **Consolidated** | ** ** |
| **Assets**                                            | ** ** | ** **  | ** **  | ** **     | ** ** | ** **     | ** ** | ** **     | ** **    | ** **       | ** ** | ** **       | ** ** |
| Current assets:                                       |       |        |        |           |       |           |       |           |          |             |       |             |       |
| Cash and cash  equivalents                            |       | $           | —      |           | $          | 660            |       | $              | 7,682         |             | $          | 6,691            |       | $ | — |   | $ | 15,033 |   |
| Accounts  receivable                                  |       | 0           |        | 517            |       | 39,303         |       | 2,826          |          | 0                |       | 42,646           |       |
| Inventories                                           |       | 0           |        | 15,052         |       | 762,621        |       | 50,106         |          | 0                |       | 827,779          |       |
| Prepaid expenses  and other current assets            |       | 0           |        | 31,541         |       | 31,814         |       | 3,321          |          | 0                |       | 66,676           |       |
| Current deferred  taxes                               |       | 0           |        | 0              |       | 1,079          |       | 179            |          | 0                |       | 1,258            |       |
| **Total  current assets**                             | ** ** | **0**       | ** **  | **47,770**     | ** ** | **842,499**    | ** ** | **63,123**     | ** **    | **0**            | ** ** | **953,392**      | ** ** |
|                                                  |       |        |        |           |       |           |       |           |          |             |       |             |       |
| Property and  equipment, net                          |       | 0           |        | 9,749          |       | 550,385        |       | 41,671         |          | 0                |       | 601,805          |       |
| Identifiable  intangible assets, net                  |       | 0           |        | 839            |       | 157,123        |       | 2,017          |          | 0                |       | 159,979          |       |
| Goodwill                                              |       | 0           |        | 7,607          |       | 241,968        |       | 16,239         |          | 0                |       | 265,814          |       |
| Intercompany  receivables                             |       | 0           |        | 0              |       | 722,106        |       | 0              |          | (722,106         | )          | 0                |       |
| Intercompany  notes receivable                        |       | 0           |        | 1,096,963      |       | 0              |       | 23,278         |          | (1,120,241       | )          | 0                |       |
| Investment in  subsidiaries                           |       | 630,185     |        | 907,569        |       | 0              |       | 0              |          | (1,537,754       | )          | 0                |       |
| Deferred  financing costs and other noncurrent assets |       | 0           |        | 35,200         |       | 776            |       | 113            |          | 0                |       | 36,089           |       |
|                                                  |       |        |        |           |       |           |       |           |          |             |       |             |       |
| **Total  assets**                                     | ** ** | **$**       | **630,185** | ** **     | **$**      | **2,105,697**  | ** ** | **$**          | **2,514,857** | ** **       | **$**      | **146,441**      | ** ** | **$** | **(3,380,101** | **)** | **$** | **2,017,079** | ** ** |
|                                                  |       |        |        |           |       |           |       |           |          |             |       |             |       |
| **Liabilities  and Shareholders’ Equity**        | ** ** | ** **  | ** **  | ** **     | ** ** | ** **     | ** ** | ** **     | ** **    | ** **       | ** ** | ** **       | ** ** |
|                                                  |       |        |        |           |       |           |       |           |          |             |       |             |       |
| Current  liabilities:                                 |       |        |        |           |       |           |       |           |          |             |       |             |       |
| Accounts payable                                      |       | $           | —      |           | $          | —         |       | $              | 194,188       |             | $          | 16,235           |       | $ | — |   | $ | 210,423 |   |
| Accrued expenses  and other current liabilities       |       | 0           |        | 23,729         |       | 181,156        |       | 9,507          |          | 0                |       | 214,392          |       |
| Current deferred  taxes                               |       | 0           |        | 173            |       | 3,707          |       | 0              |          | 0                |       | 3,880            |       |
| Short-term  borrowings                                |       | 0           |        | 79,823         |       | 0              |       | 1,714          |          | 0                |       | 81,537           |       |
| **Total  current liabilities**                        | ** ** | **0**       | ** **  | **103,725**    | ** ** | **379,051**    | ** ** | **27,456**     | ** **    | **0**            | ** ** | **510,232**      | ** ** |
| ** **                                            | ** ** | ** **  | ** **  | ** **     | ** ** | ** **     | ** ** | ** **     | ** **    | ** **       | ** ** | ** **       | ** ** |
| Intercompany  payable                                 |       | 0           |        | 713,020        |       | 0              |       | 9,086          |          | (722,106         | )          | 0                |       |
| Intercompany  notes payable                           |       | 0           |        | 0              |       | 1,073,800      |       | 46,441         |          | (1,120,241       | )          | 0                |       |
| Senior secured  notes and other long-term debt        |       | 0           |        | 650,000        |       | 2,123          |       | 0              |          | 0                |       | 652,123          |       |
| Noncurrent  deferred income taxes                     |       | 0           |        | 8,217          |       | 166,724        |       | 6,975          |          | 0                |       | 181,916          |       |
| Other long-term  liabilities                          |       | 0           |        | 551            |       | 39,685         |       | 2,388          |          | 0                |       | 42,624           |       |
| **Total  liabilities**                                | ** ** | **0**       | ** **  | **1,475,513**  | ** ** | **1,661,383**  | ** ** | **92,346**     | ** **    | **(1,842,347**   | **)**      | **1,386,895**    | ** ** |
|                                                  |       |        |        |           |       |           |       |           |          |             |       |             |       |
| **Total  shareholders’ equity**                  | ** ** | **630,185** | ** **  | **630,184**    | ** ** | **853,474**    | ** ** | **54,095**     | ** **    | **(1,537,754**   | **)**      | **630,184**      | ** ** |
| ** **                                            | ** ** | ** **  | ** **  | ** **     | ** ** | ** **     | ** ** | ** **     | ** **    | ** **       | ** ** | ** **       | ** ** |
| **Total  liabilities and shareholders’ equity**  | ** ** | **$**       | **630,185** | ** **     | **$**      | **2,105,697**  | ** ** | **$**          | **2,514,857** | ** **       | **$**      | **146,441**      | ** ** | **$** | **(3,380,101** | **)** | **$** | **2,017,079** | ** ** |

 

26

----

**LINENS HOLDING CO. AND SUBSIDIARIES (AND PREDECESSOR)**

**(Successor Entity)**

**SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS**

**For the Thirteen Week Period Ended March 31, 2007**

**(In Thousands)(Unaudited)**
| ** **                                                                                           | ** ** | ** ** | ** ** | ** **     | ** ** | ** **     | ** ** | **Non-**       | ** ** | ** **       | ** ** | ** **       | ** ** |
|------------------------------------------------------------------------------------------------------|------------|------------|------------|----------------|------------|----------------|------------|----------------|------------|------------------|------------|------------------|------------|
| ** **                                                                                           | ** ** | **Parent** | ** ** | **Co-Issuers** | ** ** | **Guarantors** | ** ** | **Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| ** **                                                                                           | ** ** | ** ** | ** ** | ** **     | ** ** | ** **     | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
| **Cash  flows from operating activities:**                                                           | ** ** | ** ** | ** ** | ** **     | ** ** | ** **     | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
| Net (loss)  income                                                                                   |       | $          | —     |           | $          | (5,132         | )          | $              | (54,221    | )                | $          | 1,179            |       | $ | — |   | $ | (58,174 | ) |
| Adjustments to  reconcile net (loss) income to net cash provided by (used in) operating  activities: |       |       |       |           |       |           |       |           |       |             |       |             |       |
| Depreciation and  amortization                                                                       |       | 0          |       | 615            |       | 29,183         |       | 2,118          |       | 0                |       | 31,916           |       |
| Deferred income  taxes                                                                               |       | 0          |       | 18,313         |       | (53,675        | )          | 37             |       | 0                |       | (35,325          | )          |
| Share-based  compensation                                                                            |       | 0          |       | 572            |       | 0              |       | 0              |       | 0                |       | 572              |       |
| Amortization of  deferred financing charges                                                          |       | 0          |       | 2,809          |       | 0              |       | 0              |       | 0                |       | 2,809            |       |
| Loss on  disposals of property and equipment                                                         |       | 0          |       | 0              |       | 16             |       | 0              |       | 0                |       | 16               |       |
| Changes in  assets and liabilities:                                                                  |       |       |       |           |       |           |       |           |       |             |       |             |       |
| Decrease in  accounts receivable                                                                     |       | 0          |       | 40             |       | 767            |       | 744            |       | 0                |       | 1,551            |       |
| Increase in  inventories                                                                             |       | 0          |       | (105           | )          | (28,545        | )          | (7,258         | )          | 0                |       | (35,908          | )          |
| Increase in  prepaid expenses and other current assets                                               |       | 0          |       | (150           | )          | (1,363         | )          | (273           | )          | 0                |       | (1,786           | )          |
| Decrease in  identifiable intangible assets and other noncurrent assets                              |       | 0          |       | 0              |       | 33             |       | 0              |       | 0                |       | 33               |       |
|                                                                                                 |       |       |       |           |       |           |       |           |       |             |       |             |       |
| (Decrease)  increase in accounts payable                                                             |       | 0          |       | 0              |       | (17,239        | )          | 4,077          |       | 0                |       | (13,162          | )          |
| Decrease in  accrued expenses and other liabilities                                                  |       | 0          |       | (8,090         | )          | (23,609        | )          | (7,974         | )          | 0                |       | (39,673          | )          |
| **Net  cash provided by (used in) operating activities**                                             | ** ** | **0**      | ** ** | **8,872**      | ** ** | **(148,653**   | **)**      | **(7,350**     | **)**      | **0**            | ** ** | **(147,131**     | **)**      |
|                                                                                                 |       |       |       |           |       |           |       |           |       |             |       |             |       |
| **Cash  flows from investing activities:**                                                           | ** ** | ** ** | ** ** | ** **     | ** ** | ** **     | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
|                                                                                                 |       |       |       |           |       |           |       |           |       |             |       |             |       |
| Additions to  property and equipment                                                                 |       | 0          |       | (1,420         | )          | (8,132         | )          | (2,035         | )          | 0                |       | (11,587          | )          |
|                                                                                                 |       |       |       |           |       |           |       |           |       |             |       |             |       |
| **Net  cash used in investing activities**                                                           | ** ** | **0**      | ** ** | **(1,420**     | **)**      | **(8,132**     | **)**      | **(2,035**     | **)**      | **0**            | ** ** | **(11,587**      | **)**      |
|                                                                                                 |       |       |       |           |       |           |       |           |       |             |       |             |       |
| **Cash  flows from financing activities:**                                                           | ** ** | ** ** | ** ** | ** **     | ** ** | ** **     | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
|                                                                                                 |       |       |       |           |       |           |       |           |       |             |       |             |       |
| Financing and  direct acquisition costs                                                              |       | 0          |       | (10,269        | )          | 9,591          |       | 622            |       | 0                |       | (56              | )          |
| Intercompany  movements                                                                              |       | 0          |       | (152,300       | )          | 142,922        |       | 9,378          |       | 0                |       | 0                |       |
| Increases in  borrowings under revolving credit facility                                             |       | 0          |       | 154,780        |       | 0              |       | 0              |       | 0                |       | 154,780          |       |
| Payments on  mortgage note                                                                           |       | 0          |       | 0              |       | (15            | )          | 0              |       | 0                |       | (15              | )          |
| **Net  cash (used in) provided by financing activities**                                             | ** ** | **0**      | ** ** | **(7,789**     | **)**      | **152,498**    | ** ** | **10,000**     | ** ** | **0**            | ** ** | **154,709**      | ** ** |
| **Effect  of exchange rate changes on cash and cash equivalents**                                    | ** ** | **0**      | ** ** | **0**          | ** ** | **0**          | ** ** | **48**         | ** ** | **0**            | ** ** | **48**           | ** ** |
| Net (decrease)  increase in cash and cash equivalents                                                |       | 0          |       | (337           | )          | (4,287         | )          | 663            |       | 0                |       | (3,961           | )          |
| Cash and cash  equivalents at beginning of period                                                    |       | 0          |       | 1,087          |       | 10,218         |       | 1,221          |       | 0                |       | 12,526           |       |
| **Cash and cash equivalents at  end of period**                                                      | ** ** | **$**      | **—** | ** **     | **$**      | **750**        | ** ** | **$**          | **5,931**  | ** **       | **$**      | **1,884**        | ** ** | **$** | **—** | ** ** | **$** | **8,565** | ** ** |

 

27

----

**LINENS HOLDING CO. AND SUBSIDIARIES (AND PREDECESSOR)**

**(Successor Entity)**

**SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS**

**For the Period February 14, 2006 - April 1, 2006**

**(In Thousands)(Unaudited) (Restated)**
| ** **                                                                            | ** ** | ** **   | ** ** | ** **     | ** ** | ** **     | ** ** | **Non-**       | ** ** | ** **       | ** ** | ** **       | ** ** |
|---------------------------------------------------------------------------------------|------------|--------------|------------|----------------|------------|----------------|------------|----------------|------------|------------------|------------|------------------|------------|
| ** **                                                                            | ** ** | **Parent**   | ** ** | **Co-Issuers** | ** ** | **Guarantors** | ** ** | **Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| ** **                                                                            | ** ** | ** **   | ** ** | ** **     | ** ** | ** **     | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
| **Cash  flows from operating activities:**                                            | ** ** | ** **   | ** ** | ** **     | ** ** | ** **     | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
| Net income  (loss)                                                                    |       | $            | —     |           | $          | 4,630          |       | $              | (21,516    | )                | $          | (686             | )          | $ | — |   | $ | (17,572 | ) |
| Adjustments to  reconcile net income (loss) to net cash used in operating activities: |       |         |       |           |       |           |       |           |       |             |       |             |       |
| Depreciation and  amortization                                                        |       | 0            |       | 242            |       | 13,906         |       | 874            |       | 0                |       | 15,022           |       |
| Deferred income  taxes                                                                |       | 0            |       | 5,605          |       | (12,333        | )          | (240           | )          | 0                |       | (6,968           | )          |
| Share-based  compensation                                                             |       | 0            |       | 0              |       | 709            |       | 0              |       | 0                |       | 709              |       |
| Amortization of  deferred financing charges                                           |       | 0            |       | 630            |       | 0              |       | 0              |       | 0                |       | 630              |       |
| Loss on  disposals of property and equipment                                          |       | 0            |       | 0              |       | 73             |       | 0              |       | 0                |       | 73               |       |
| Changes in  assets and liabilities, net of effect of acquisition:                     |       |         |       |           |       |           |       |           |       |             |       |             |       |
| Decrease (increase)  in accounts receivable                                           |       | 0            |       | 132            |       | 3,035          |       | (10            | )          | 0                |       | 3,157            |       |
| Increase in  inventories                                                              |       | 0            |       | (633           | )          | (6,284         | )          | (1,794         | )          | 0                |       | (8,711           | )          |
| Increase in  prepaid expenses and other current assets                                |       | 0            |       | (31,208        | )          | (3,850         | )          | (2,046         | )          | 0                |       | (37,104          | )          |
| Decrease  (increase) in identifiable intangible assets and other noncurrent assets    |       | 0            |       | 601            |       | 29             |       | (122           | )          | 0                |       | 508              |       |
|                                                                                  |       |         |       |           |       |           |       |           |       |             |       |             |       |
| (Decrease)  increase in accounts payable                                              |       | 0            |       | 0              |       | (23,495        | )          | 2,079          |       | 0                |       | (21,416          | )          |
| Increase  (decrease) in accrued expenses and other liabilities                        |       | 0            |       | 4,424          |       | (24,528        | )          | 1,160          |       | 0                |       | (18,944          | )          |
|                                                                                  |       |         |       |           |       |           |       |           |       |             |       |             |       |
| **Net  cash used in operating activities**                                            | ** ** | **0**        | ** ** | **(15,577**    | **)**      | **(74,254**    | **)**      | **(785**       | **)**      | **0**            | ** ** | **(90,616**      | **)**      |
| ** **                                                                            | ** ** | ** **   | ** ** | ** **     | ** ** | ** **     | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
| **Cash  flows from investing activities:**                                            | ** ** | ** **   | ** ** | ** **     | ** ** | ** **     | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
| Acquisition of  the Company, net of cash acquired                                     |       | 0            |       | (1,220,465     | )          | 7,632          |       | 7,331          |       | 0                |       | (1,205,502       | )          |
|                                                                                  |       |         |       |           |       |           |       |           |       |             |       |             |       |
| Investment in  Linens ‘n Things, Inc.                                            |       | (650,000     | )          | 0              |       | 0              |       | 0              |       | 650,000          |       | 0                |       |
|                                                                                  |       |         |       |           |       |           |       |           |       |             |       |             |       |
| Additions to  property and equipment                                                  |       | 0            |       | (22            | )          | (10,695        | )          | (355           | )          | 0                |       | (11,072          | )          |
|                                                                                  |       |         |       |           |       |           |       |           |       |             |       |             |       |
| **Net cash**(**used in) provided by investing activities**                            | ** ** | **(650,000** | **)**      | **(1,220,487** | **)**      | **(3,063**     | **)**      | **6,976**      | ** ** | **650,000**      | ** ** | **(1,216,574**   | **)**      |
| ** **                                                                            | ** ** | ** **   | ** ** | ** **     | ** ** | ** **     | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
| **Cash flows from financing activities:**                                             | ** ** | ** **   | ** ** | ** **     | ** ** | ** **     | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
| Issuance of common stock to Linens                                                    |       |         |       |           |       |           |       |           |       |             |       |             |       |
| Investors LLC and others                                                              |       | 650,000      |       | 0              |       | 0              |       | 0              |       | 0                |       | 650,000          |       |
| Investment from Parent                                                                |       | 0            |       | 650,000        |       | 0              |       | 0              |       | (650,000         | )          | 0                |       |
| Issuance of floating rate notes                                                       |       | 0            |       | 650,000        |       | 0              |       | 0              |       | 0                |       | 650,000          |       |
|                                                                                  |       |         |       |           |       |           |       |           |       |             |       |             |       |
| Financing and direct acquisition costs                                                |       | 0            |       | (59,254        | )          | 0              |       | 0              |       | 0                |       | (59,254          | )          |
| Intercompany movements                                                                |       | 0            |       | (83,845        | )          | 85,004         |       | (1,159         | )          | 0                |       | 0                |       |
| Increases in borrowings under revolving credit facility                               |       | 0            |       | 79,823         |       | 0              |       | 1,733          |       | 0                |       | 81,556           |       |
| Payments on mortgage note                                                             |       | 0            |       | 0              |       | (5             | )          | 0              |       | 0                |       | (5               | )          |
|                                                                                  |       |         |       |           |       |           |       |           |       |             |       |             |       |
| **Net cash provided by financing activities**                                         | ** ** | **650,000**  | ** ** | **1,236,724**  | ** ** | **84,999**     | ** ** | **574**        | ** ** | **(650,000**     | **)**      | **1,322,297**    | ** ** |
|                                                                                  |       |         |       |           |       |           |       |           |       |             |       |             |       |
| **Effect of exchange rate changes on cash and cash  equivalents**                     | ** ** | **0**        | ** ** | **0**          | ** ** | **0**          | ** ** | **(74**        | **)**      | **0**            | ** ** | **(74**          | **)**      |
| ** **                                                                            | ** ** | ** **   | ** ** | ** **     | ** ** | ** **     | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
| Net increase in cash and cash equivalents                                             |       | 0            |       | 660            |       | 7,682          |       | 6,691          |       | 0                |       | 15,033           |       |
| Cash and cash equivalents at beginning of period                                      |       | 0            |       | 0              |       | 0              |       | 0              |       | 0                |       | 0                |       |
| ** **                                                                            | ** ** | ** **   | ** ** | ** **     | ** ** | ** **     | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
| **Cash and cash equivalents at end of period**                                        | ** ** | **$**        | **—** | ** **     | **$**      | **660**        | ** ** | **$**          | **7,682**  | ** **       | **$**      | **6,691**        | ** ** | **$** | **—** | ** ** | **$** | **15,033** | ** ** |

 

28

----

**LINENS HOLDING CO. AND SUBSIDIARIES (AND PREDECESSOR)**

**(Predecessor Entity)**

**SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS**

**For the Period January 1, 2006 - February 13, 2006**

**(In Thousands)(Unaudited)**
| ** **                                                                            | ** ** | ** **     | ** ** | ** **     | ** ** | **Non-**       | ** ** | ** **       | ** ** | ** **       | ** ** |
|---------------------------------------------------------------------------------------|------------|----------------|------------|----------------|------------|----------------|------------|------------------|------------|------------------|------------|
| ** **                                                                            | ** ** | **Co-Issuers** | ** ** | **Guarantors** | ** ** | **Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| ** **                                                                            | ** ** | ** **     | ** ** | ** **     | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
| **Cash  flows from operating activities:**                                            | ** ** | ** **     | ** ** | ** **     | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
| Net income  (loss)                                                                    |       | $              | 2,214      |           | $          | (49,381        | )          | $                | (737       | )                | $          | — |   | $ | (47,904 | ) |
| Adjustments to  reconcile net income (loss) to net cash used in operating activities: |       |           |       |           |       |           |       |             |       |             |       |
| Depreciation and  amortization                                                        |       | 203            |       | 11,662         |       | 777            |       | 0                |       | 12,642           |       |
| Deferred income  taxes                                                                |       | (730           | )          | (6,108         | )          | 113            |       | 0                |       | (6,725           | )          |
| Share-based  compensation                                                             |       | 12,484         |       | 0              |       | 0              |       | 0                |       | 12,484           |       |
| Amortization of  deferred financing charges                                           |       | 0              |       | 43             |       | 0              |       | 0                |       | 43               |       |
| Changes in  assets and liabilities:                                                   |       |           |       |           |       |           |       |             |       |             |       |
| (Increase)  decrease in accounts receivable                                           |       | (288           | )          | (2,582         | )          | 630            |       | 0                |       | (2,240           | )          |
| Decrease  (increase) in inventories                                                   |       | 687            |       | (30,481        | )          | (2,092         | )          | 0                |       | (31,886          | )          |
| (Increase)  decrease in prepaid expenses and other current assets                     |       | (250           | )          | (12,595        | )          | 692            |       | 0                |       | (12,153          | )          |
| Decrease in  identifiable intangible assets and other noncurrent assets               |       | 11             |       | 9,515          |       | 54             |       | 0                |       | 9,580            |       |
| Increase  (decrease) in accounts payable                                              |       | 0              |       | 13,064         |       | (1,054         | )          | 0                |       | 12,010           |       |
| (Decrease)  increase in accrued expenses and other liabilities                        |       | (27,564        | )          | 24,083         |       | (4,326         | )          | 0                |       | (7,807           | )          |
|                                                                                  |       |           |       |           |       |           |       |             |       |             |       |
| **Net  cash used in operating activities**                                            | ** ** | **(13,233**    | **)**      | **(42,780**    | **)**      | **(5,943**     | **)**      | **0**            | ** ** | **(61,956**      | **)**      |
|                                                                                  |       |           |       |           |       |           |       |             |       |             |       |
| **Cash  flows from investing activities:**                                            | ** ** | ** **     | ** ** | ** **     | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
|                                                                                  |       |           |       |           |       |           |       |             |       |             |       |
| Additions to  property and equipment                                                  |       | (107           | )          | (8,533         | )          | (2,316         | )          | 0                |       | (10,956          | )          |
|                                                                                  |       |           |       |           |       |           |       |             |       |             |       |
| **Net  cash used in investing activities**                                            | ** ** | **(107**       | **)**      | **(8,533**     | **)**      | **(2,316**     | **)**      | **0**            | ** ** | **(10,956**      | **)**      |
|                                                                                  |       |           |       |           |       |           |       |             |       |             |       |
| **Cash  flows from financing activities:**                                            | ** ** | ** **     | ** ** | ** **     | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
| Intercompany  movements                                                               |       | (52,158        | )          | 49,564         |       | 2,594          |       | 0                |       | 0                |       |
| Federal tax  benefit from common stock issued under stock incentive plans             |       | 4,298          |       | 0              |       | 0              |       | 0                |       | 4,298            |       |
| Payments on  mortgage note                                                            |       | 0              |       | (10            | )          | 0              |       | 0                |       | (10              | )          |
| Decrease in  treasury stock                                                           |       | 0              |       | 674            |       | 0              |       | 0                |       | 674              |       |
|                                                                                  |       |           |       |           |       |           |       |             |       |             |       |
| **Net  cash (used in) provided by financing activities**                              | ** ** | **(47,860**    | **)**      | **50,228**     | ** ** | **2,594**      | ** ** | **0**            | ** ** | **4,962**        | ** ** |
|                                                                                  |       |           |       |           |       |           |       |             |       |             |       |
| **Effect  of exchange rate changes on cash and cash equivalents**                     | ** ** | **0**          | ** ** | **0**          | ** ** | **125**        | ** ** | **0**            | ** ** | **125**          | ** ** |
|                                                                                  |       |           |       |           |       |           |       |             |       |             |       |
| Net decrease in  cash and cash equivalents                                            |       | (61,200        | )          | (1,085         | )          | (5,540         | )          | 0                |       | (67,825          | )          |
| Cash and cash  equivalents at beginning of period                                     |       | 136,569        |       | 8,718          |       | 12,871         |       | 0                |       | 158,158          |       |
|                                                                                  |       |           |       |           |       |           |       |             |       |             |       |
| **Cash and cash equivalents at  end of period**                                       | ** ** | **$**          | **75,369** | ** **     | **$**      | **7,633**      | ** ** | **$**            | **7,331**  | ** **       | **$**      | **—** | ** ** | **$** | **90,333** | ** ** |

 

29

----

**Item 2.        Management’sDiscussion and Analysis of Financial Condition and Results of Operations**

**LINENSHOLDING CO. AND SUBSIDIARIES (AND PREDECESSOR)**

**MANAGEMENT’SDISCUSSION AND ANALYSIS**

**OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

The following discussion and analysis should be read in conjunctionwith the condensed consolidated financial statements of the Company and thenotes thereto appearing elsewhere in this report.

**General**

The Company is a holding company. It does not hold any assets other than its investment in Linens ‘nThings, Inc., which the Company acquired in February 2006.  Linens ‘n Things, Inc., together with itssubsidiaries, is the operating subsidiary of the Company.

The Company, under the name “Linens ‘n Things,” is one of the leading nationallarge format specialty retailers of home textiles, housewares and homeaccessories, carrying both national brands and private label goods.  As of March 31, 2007, the Company operated573 stores in 47 states and in six provinces across Canada.

**Critical Accounting Policies**

The following includesdiscussion and analysis about the condensed consolidated financial statementsof Linens Holding Co. and its subsidiaries and Predecessor.  The Company has not presented separatefinancial statements for Linens ‘n Things, Inc. and its subsidiaries or Linens ‘nThings Center, Inc. and its subsidiaries (collectively, the issuers asdescribed in Note 14 to the unaudited condensed consolidated financialstatements) because management has determined that the differences in suchfinancial statements are minor.

The preparation of financial statements in conformity with U.S.generally accepted accounting principles requires management to make estimatesand assumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financialstatements and the reported amounts and timing of revenues and of expensesduring the reporting periods.  TheCompany bases its estimates on historical experience and on other assumptionsthat it believes to be relevant under the circumstances, the results of whichform the basis for making judgments about the carrying value of assets andliabilities that are not readily apparent from other sources. The Company’smanagement believes the following critical accounting estimates involvesignificant estimates and judgments inherent in the preparation of thecondensed consolidated financial statements. The Company bases these estimates on historical results and variousother assumptions believed to be reasonable at the time.  These critical accounting estimates arediscussed in detail in the Company’s 2006 Annual Report on Form 10-K.

*Business Combination*

On February 14, 2006, theCompany acquired all of the outstanding common stock of the Company’sPredecessor Entity, Linens ‘n Things, Inc., for total cash consideration ofapproximately $1.3 billion.  Theacquisition of Linens ‘n Things, Inc. was accounted for as a businesscombination using the purchase method of accounting, whereby the purchase price(including liabilities assumed) was preliminarily allocated to the assetsacquired based on their estimated fair market values at the date ofacquisition.  The purchase price paid byLinens Holding Co. to acquire the Company and related preliminary purchaseaccounting adjustments were “pushed down” and recorded in Linens ‘n Things,Inc. and its subsidiaries’ financial statements and resulted in a new basis ofaccounting for the “Successor” period beginning on the day the acquisition wascompleted.  As a result, the purchaseprice and related costs were preliminarily allocated to the estimated fairvalues of the assets acquired and liabilities assumed at the time of theacquisition based on management’s best estimates, which were based in part onthe work of third-party appraisers engaged to perform valuations of certain ofthe tangible and intangible assets acquired. In essence, the Company’s assets and liabilities were adjusted to fairvalue as of the closing date of the acquisition, and the excess of the totalpurchase price over the fair value of the Company’s net assets was allocated togoodwill.

30

----

*Valuation of Inventory*

Merchandise inventory isa significant portion of the Company’s balance sheet, representingapproximately 44.2% of total assets at March 31, 2007.  Inventories are valued using the lower ofcost or market value, determined by the retail inventory method (“RIM”).  Under RIM, the valuation of inventories atcost and the resulting gross margins are determined by applying a calculatedcost-to-retail ratio to the retail value of inventories.  RIM is an averaging method that is used inthe retail industry due to its practicality. Inherent in RIM calculations are certain significant managementjudgments and estimates including, among others, merchandise mark-on, mark-up,markdowns and shrinkage based on historical experience between the dates ofphysical inventories, all of which significantly impact the ending inventoryvaluation at cost.  The methodologiesutilized by the Company in its application of RIM are consistent for allperiods presented.  Such methodologiesinclude the development of the cost-to-retail ratios, the development ofshrinkage reserves and the accounting for price changes.  At any one time, inventories include itemsthat have been written down to the Company’s best estimate of their realizablevalue.  Factors considered in estimating realizable value include the ageof merchandise and anticipated demand.  Actual realizable value coulddiffer materially from this estimate based upon future customer demand oreconomic conditions.

*Sales Returns*

The Company estimatesfuture sales returns and records a provision in the period that the relatedsales are recorded based on historical return rates.  Should actual returns differ from the Company’sestimates, the Company may be required to revise estimated sales returns.  Although these estimates have not variedmaterially from historical provisions, estimating sales returns requiresmanagement judgment as to changes in preferences and quality of products beingsold, among other things; therefore, these estimates may vary materially in thefuture.  The sales returns calculationsare regularly compared with actual return experience.  In preparing its condensed consolidatedfinancial statements as of March 31, 2007, December 30, 2006 and April 1, 2006,the Company’s sales returns reserve was approximately $6.2 million, $5.9million and $5.5 million, respectively.

*Impairment of Long-Lived Assets(including Goodwill)*

Long-lived assets, suchas property and equipment and purchased intangible assets subject toamortization, are reviewed for impairment whenever events or changes incircumstances indicate that the carrying value of an asset may not be fullyrecoverable.  Recoverability of assets tobe held and used is measured by a comparison of the carrying amount of an assetto estimated undiscounted future cash flows expected to be generated by theasset.  If the carrying amount of anasset exceeds its estimated future cash flows, an impairment charge isrecognized for the amount that the carrying value of the asset exceeds the fairvalue of the asset, which is determined by discounting the future cash flowsexpected to be generated by the asset.

Goodwill and intangibleassets that have indefinite useful lives are tested annually forimpairment.  These assets are tested forimpairment more frequently if events and circumstances indicate that the assetmight be impaired.  An impairment loss isrecognized to the extent that the carrying amount exceeds the asset’s fairvalue.

The Company’s judgmentsregarding the existence of impairment indicators are based on market conditionsand operational performance.  Futureevents could cause the Company to conclude that impairment indicators exist andthat the value of long-lived assets and goodwill is impaired.  At March 31, 2007, December 30, 2006 andApril 1, 2006, the Company’s net book value for property and equipment wasapproximately $509.7 million, $530.8 million and $601.8 million, respectively,goodwill was approximately $270.1 million, $267.8 million and $265.8 million,respectively, and identifiable intangible assets, net was $148.2 million,$150.0 million and $160.0 million, respectively.

There was no impairmentloss recognized for any of the periods presented.

*Store Closure Cost*

In fiscal 2001, theCompany recorded a pre-tax restructuring and asset impairment charge of $37.8million ($23.7 million after-tax) related to the closing of certain under-performingstores.  As of March 31, 2007, December30, 2006 and April 1, 2006, the Company had $3.1 million, $3.6 million and $4.2million, respectively, remaining related to this reserve.  The Company has closed all of the initiallyidentified stores other than one store, which the

31

----

Company decided to keepopen and whose reserve was reversed.  TheCompany continues to negotiate and/or explore lease buyouts or subleaseagreements for certain of these stores as well as evaluates reopening stores previouslyclosed.  The activity in the thirteen-weekperiod ended March 31, 2007 includes payments for lease commitments totaling$0.5 million and the reversal of estimated lease commitment costs ofapproximately $0.1 million which were not needed, offset by an increase tolease commitment costs of approximately $0.1 million due to changes inestimates based on current negotiations. Final settlement of these reserves is predominantly a function ofnegotiations with unrelated third parties, and, as such, these estimates may besubject to change in the future.

*Self-Insurance*

The Company purchasesthird-party insurance for workers’ compensation, medical and general liabilitycosts that exceed certain limits for each type of insurance program.  The Company is responsible for the payment ofclaims under these insured excess limits. The Company establishes accruals for its insurance programs based onavailable claims data and historical trend and experience, as well as lossdevelopment factors for its medical insurance prepared with the assistance ofthird party actuaries.  Workers’compensation is recorded at its net present value.  In preparing the estimates, the Company alsoconsiders the nature and severity of the claims, analysis provided by thirdparty claims administrators, as well as current legal, economic and regulatoryfactors.  The ultimate cost of theseclaims may vary from the established accrual. While the Company believes that the recorded amounts are adequate, therecan be no assurance that changes to management’s estimates will not occur dueto limitations inherent in the estimate process.  The accrued obligation for theseself-insurance programs was approximately $16.5 million, $16.2 million and$14.6 million as of March 31, 2007, December 30, 2006 and April 1, 2006,respectively.

*Share-based Compensation*

On January 1, 2006,the Company adopted Statement of Financial Accounting Standards No. 123(Revised 2004), “Share-Based Payment” (“SFAS No. 123 (Revised 2004)”),requiring the recognition of compensation cost for all equity classified awardsgranted, modified or settled after the effective date and for the unvestedportion of awards outstanding as of the effective date using the fair-valuemeasurement method.

Upon completion of theMerger and in accordance with the terms of the share-based plans existing atthe time, all of the outstanding stock options and restricted stock unitsbecame fully vested and immediately exercisable.  Accordingly, under SFAS No. 123 (Revised2004) the Company recorded share-based compensation expense for the entireportion of previously granted share-based awards that remained unvestedat the date of the adoption.

On February 14,2006, the board of directors and stockholders of Linens Holding Co. adopted theLinens Holding Co. Stock Option Plan (the “Plan”).  Under the Plan, the Company grants stockoptions for a fixed number of shares to key employees and directors.  The Company recognizes the cost of all time-basedemployee stock option grants on a straight-line attribution basis and the costof all performance-based employee stock options on an acceleratedbasis.  There are no restricted stockunits under the Plan.

The Company uses theMonte Carlo simulation option-pricing model for estimating the fair value ofperformance-based options and the Black-Scholes option-pricingmodel for time-based options issued under the Plan.  Both models include various assumptions,including the expected life of stock options, the expected volatility and theexpected risk-free interest rate.  These assumptions reflect the Company’sbest estimates, but they involve inherent uncertainties based on certainconditions generally outside the control of the Company.  As a result, if other assumptions had beenused, total share-based compensation cost as determined in accordance with SFASNo. 123 (Revised 2004) could have been materially impacted.  Furthermore, if the Company uses differentassumptions for future grants, share-based compensation cost could bematerially impacted in future periods.

Under SFAS No. 123(Revised 2004), the Company is also required to record share-basedcompensation expense net of estimated forfeitures.  The Company’s forfeiture rate assumption usedin determining its share-based compensation expense is estimated, primarilybased upon historical data.  The actualforfeiture rate could differ from these estimates.

32

----

*Derivative Financial Instruments*

The Company hasdesignated certain derivative instruments entered into on July 7, 2006 as cashflow hedges and recognizes the fair value of the instruments on the condensedconsolidated balance sheet.  Gains andlosses related to a hedge and that result from changes in the fair value of thehedge are either recognized in income to offset the gain or loss on the hedgeditem, or deferred and reported as a component of accumulated othercomprehensive loss in stockholders’ equity on the condensed consolidatedbalance sheet and subsequently recognized in the condensed consolidatedstatement of operations when the hedged item affects income.  The ineffective portion of the change in fairvalue of a hedge is recognized in income immediately.  There was no hedge ineffectiveness during thethirteen weeks ended March 31, 2007.

*Income Taxes*

The Company uses theasset and liability method to account for its income taxes.  Deferred taxassets and liabilities are recognized for the future tax consequencesattributable to the differences between the financial statement carryingamounts of existing assets and liabilities and their respective tax bases andoperating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax ratesexpected to be applied to the taxable income in the year in which temporarydifferences are expected to be recovered or settled.  The effect of achange in tax rates on deferred tax assets and liabilities is recognized in thestatement of operations in the period that includes the enactment date.

Determining the provisionfor income taxes and related accruals, deferred tax assets and deferred taxliabilities requires judgment.  There aretransactions and calculations arising in the ordinary course of business wherethe ultimate tax outcome is uncertain.  Additionally, tax returns filed bythe Company are subject to audit by various tax authorities. Although theCompany believes that its estimates are reasonable, actual results could differfrom these estimates.

The Company adopted the provisions of Financial Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109” (“FIN No. 48”) at the beginning of the current fiscal quarter.  FIN No. 48  addresses the determination of how tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements.  Under FIN No. 48, the Company must recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.  The Company’s estimates of the tax benefit from uncertain tax positions may change in the future due to new developments in each matter.

*Litigation*

The Company records an estimated liability related to various claimsand legal actions arising in the ordinary course of business, which is based onavailable information and advice from outside counsel where applicable.  As additional information becomes available,the Company assesses the potential liability related to its pending claims andmay adjust its estimates accordingly.

**Impact of the Merger and RelatedTransactions**

On February 14, 2006, the Company acquired all of the outstandingcommon stock of Linens ‘n Things, Inc. for total cash consideration ofapproximately $1.3 billion.

The acquisition of Linens ‘n Things, Inc. was accounted for as abusiness combination using the purchase method of accounting, whereby thepurchase price (including liabilities assumed) was preliminarily allocated tothe assets acquired based on their estimated fair market values at the date ofacquisition.  The purchase price paid byLinens Holding Co. to acquire the Company and related preliminary purchaseaccounting adjustments were “pushed down” and recorded in Linens ‘n Things,Inc. and its subsidiaries’ financial statements and resulted in a new basis ofaccounting for the “Successor” period beginning on the day the acquisition wascompleted.  As a result, the purchaseprice and related costs were allocated to the estimated fair values of theassets acquired and liabilities assumed at the time of the acquisition based onmanagement’s best estimates, which were based in part on the work ofthird-party appraisers engaged to perform valuations of certain of the tangibleand intangible assets acquired.  Inessence, the

33

----

Company’s assets and liabilities were adjusted to fair value as of theclosing date of the acquisition, and the excess of the total purchase priceover the fair value of the Company’s net assets was allocated to goodwill.

In connection with the acquisition, the Company incurred significantadditional indebtedness, including $650.0 million aggregate principalamount of Senior Secured Floating Rate Notes due 2014 issued by two of theCompany’s subsidiaries (the “Notes”), which increased the Company’s interestexpense.  Payments required to servicethis indebtedness substantially increased the Company’s liquidity requirementsin fiscal 2006 as compared to the prior year, and will do so in fiscal 2007 andfuture years.  The Company’s depreciationand amortization expense increased significantly as well, primarily due todecreases in the depreciable lives of tangible assets and an increase in thefair values of the Company’s amortizable intangible assets.

The following discussion and analysis of the Company’s historicalfinancial condition and results of operation covers periods prior to and afterthe consummation of the acquisition.

**Results of Operations**

As a result of the acquisition, the prior period’s financial resultsfor the thirteen weeks ended April 1, 2006 have been separately presented inthe condensed consolidated statements of operations split between the “PredecessorEntity”, covering the period January 1, 2006 through February 13, 2006 and the “SuccessorEntity” covering the period February 14, 2006 through April 1, 2006.  For comparative purposes, the Companycombined the two periods from January 1, 2006 through April 1, 2006 in itsdiscussion below.  This combination isnot GAAP presentation.  However, theCompany believes this presentation is useful to provide the reader a moreaccurate comparison.
|                                                         | ** ** | ** **                                                                                | ** ** | ** **                                                                                          | ** ** |
|---------------------------------------------------------|------------|-------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------|------------|
| ** **                                              | ** ** | **Thirteen **                                                                        | ** ** | **Thirteen Weeks Ended April 1, 2006**                                     | ** ** | ** ** | ** ** |
| ** **                                              | ** ** | **Weeks   Ended   March 31,   2007   (Successor   Entity)** | ** ** | **January 1,   2006 to   February 13,  2006   (Predecessor  Entity)** | ** ** | **February 14,  2006 to April  1, 2006   (Successor   Entity)** | ** ** | **January 1,   2006 to April  1, 2006   (Combined)** | ** ** | **Increase   (Decrease)** | ** ** |
| Net sales                                               |       | $                                                                                         | 571,560    |                                                                                                | $          | 284,971 |   | $ | 307,845 |   | $ | 592,816 |   | $ | (21,256 | ) |
| Cost of sales,  including buying and distribution costs |       | 358,076                                                                                   |       | 180,675                                                                                             |       | 189,068 |   | 369,743 |   | (11,667 | ) |
| Gross profit                                            |       | 213,484                                                                                   |       | 104,296                                                                                             |       | 118,777 |   | 223,073 |   | (9,589 | ) |
| Selling, general  and administrative expenses           |       | 282,936                                                                                   |       | 175,424                                                                                             |       | 137,560 |   | 312,984 |   | (30,048 | ) |
| Operating loss                                          |       | (69,452                                                                                   | )          | (71,128                                                                                             | )          | (18,783 | ) | (89,911 | ) | 20,459 |   |
|                                                    |       |                                                                                      |       |                                                                                                |       |   |   |   |   |   |   |
| Interest income                                         |       | (155                                                                                      | )          | (668                                                                                                | )          | (86 | ) | (754 | ) | 599 |   |
| Interest expense                                        |       | 24,162                                                                                    |       | —                                                                                              |       | 9,987 |   | 9,987 |   | 14,175 |   |
|                                                    |       |                                                                                      |       |                                                                                                |       |   |   |   |   |   |   |
| Interest expense  (income), net                         |       | 24,007                                                                                    |       | (668                                                                                                | )          | 9,901 |   | 9,233 |   | 14,774 |   |
|                                                    |       |                                                                                      |       |                                                                                                |       |   |   |   |   |   |   |
| Other (income)  expense, net                            |       | (873                                                                                      | )          | (1,286                                                                                              | )          | 201 |   | (1,085 | ) | 212 |   |
|                                                    |       |                                                                                      |       |                                                                                                |       |   |   |   |   |   |   |
| Loss before  benefit for income taxes                   |       | (92,586                                                                                   | )          | (69,174                                                                                             | )          | (28,885 | ) | (98,059 | ) | 5,473 |   |
| Benefit for  income taxes                               |       | (34,412                                                                                   | )          | (21,270                                                                                             | )          | (11,313 | ) | (32,583 | ) | (1,829 | ) |
| Net loss                                                |       | $                                                                                         | (58,174    | )                                                                                                   | $          | (47,904 | ) | $ | (17,572 | ) | $ | (65,476 | ) | $ | 7,302 |   |

 

34

----

*ThirteenWeeks Ended March 31, 2007 Compared with Thirteen Weeks Ended April 1, 2006*

Net sales for the thirteen weeks ended March 31, 2007 decreasedapproximately 3.6% to $571.6 million compared to $592.8 million for the sameperiod last year.  The decrease in netsales is primarily due to the impact of a decline in comparable store salesoffset by the opening of new stores since April 1, 2006 .  Comparable store sales decreased 5.2% for thethirteen weeks ended March 31, 2007 compared to a decline of 3.8%, as restatedfor a change in fiscal 2006 to the Company’s policy for determining comparablestore sales, for the same period last year. The decline in comparable store sales is primarily due to a decline inguest traffic.  At March 31, 2007, theCompany operated 573 stores, including 36 stores in Canada, as compared with549 stores, including 30 stores in Canada, at April 1, 2006.  Store square footage increased approximately3.8% to 19.0 million at March 31, 2007 compared with 18.3 million at April 1,2006.  During the thirteen weeks endedMarch 31, 2007, the Company opened two stores as compared with opening sevenstores during the same period last year. There were no stores closed in the current and prior year period.

In addition to the cost of inventory sold, the Company includes itsbuying and distribution expenses in its cost of sales.  Buying expenses include all direct andindirect costs to procure merchandise. Distribution expenses include the cost of operating the Company’sdistribution centers and freight expense related to transportingmerchandise.  Gross profit as apercentage of net sales was relatively flat compared to the same period lastyear.  For the thirteen weeks ended March31, 2007 gross profit was $213.5 million, or 37.4% of net sales, compared with$223.1 million, or 37.6% of net sales, for the same period last year.

The Company’s selling, general and administrative expenses (“SG&A”)consist of store selling expenses, occupancy costs, advertising expenses andcorporate office expenses.  SG&A forthe thirteen weeks ended March 31, 2007 was $282.9 million, or 49.5% of netsales, compared with $313.0 million, or 52.8% of net sales, for the same periodlast year, which included approximately $44.2 million of costs related to theacquisition, or 7.5% of net sales.  Theincrease in SG&A as a percentage of net sales is primarily due to thedeleveraging of higher occupancy costs and other costs in the face of negativecomparable store sales.

Operating loss for the thirteen weeks ended March 31, 2007 was approximately$69.5 million, or (12.2%) of net sales, compared with an operating loss of$89.9 million, or (15.2%) of net sales, for the same period last year.  Operating loss for the prior period includedapproximately $44.2 million of costs related to the acquisition, or (7.5%) ofnet sales.

Interest expense, net for the thirteen weeksended March 31, 2007 increased to approximately $24.0 million from $9.2 millionduring the same period last year primarily due to the additional interestexpense associated with the Notes issued on February 14, 2006.  In addition, higher average borrowingsrequired to fund working capital needs and an increase in average borrowinginterest rates offset by lower average investment balances also contributed tothe overall increase in interest expense, net.

Other income, net for the thirteen weeks ended March31, 2007 decreased marginally to $0.9 million compared to $1.1 million for thesame period last year.

The Company’s income tax benefit was approximately$34.4 million for the thirteen weeks ended March 31, 2007 compared with anincome tax benefit of $32.6 million for the same period last year.  Thisincrease in tax benefit is primarily due to the marginally higher lossexperienced in the quarter ended March 31, 2007.  The Company’s effectivetax benefit rate for the thirteen weeks ended March 31, 2007 increased to37.2% compared to 33.2% for the same period last year primarily due todeductible transaction related costs not included in the priorperiod.

The Company’s net loss for the thirteen weeks ended March 31, 2007 wasapproximately $58.2 million compared with a net loss of $65.5 million for thesame period last year.  As noted above,the net loss for the current period is not necessarily comparable to the netloss for the prior period as the prior period includes significantly highercosts related to the acquisition partially offset by lower interest,depreciation and amortization recorded prior to the completion of the Merger onFebruary 14, 2006.

35

----

**Liquidity and Capital Resources**

The Company incurred $650.0 million aggregate principal amount ofSenior Secured Floating Rate Notes due 2014 of Linens ‘n Things, Inc. andLinens ‘n Things Center, Inc. in connection with the Merger.  The Notes bear interest at a per annum rateequal to LIBOR plus 5.625%, which is to be paid every three months on January15, April 15, July 15 and October 15. The interest rate on the Notes is reset quarterly.  The Notes mature on January 15,2014.  As of March 31, 2007 the interestrate on the Notes was 11.0%, based on a LIBOR rate of 5.4%.  On July 7, 2006 the Issuers entered into azero cost interest rate collar agreement to hedge the cash flows associatedwith the LIBOR component of the interest rate on the Notes.  On July 7, 2006 the Issuers also purchased aone-year forward-starting interest rate cap agreement which takes effect onJanuary 15, 2008.

The Notes are fully and unconditionally guaranteed jointly andseverally on a senior basis by the Company and by certain of the Company’sexisting and future domestic subsidiaries other than the Issuers.  All obligations under the Notes, and theguarantees of those obligations, are secured by first-priority liens, subjectto permitted liens, on all of the Company’s, the Issuers’ and the subsidiaryguarantors’ equipment, intellectual property rights and related generalintangibles and the capital stock of the Issuers and certain of thesubsidiaries.  The Notes are also securedby second-priority liens on the Issuers’ and the subsidiary guarantors’inventory, accounts receivable, cash, securities and other general intangibles.

The lien on capital stock may be released under certaincircumstances.  As a result of the filingand effectiveness of a registration statement on Form S-4 with the SEC withrespect to the Notes, the Issuers and the guarantors becamesubject to applicable SEC rules with respect to information required to beincluded in the prospectus in the registration statement.  To the extentthat the securities of any Issuer or guarantor constitute collateralfor the Notes and the value of the securities equals or exceeds 20% of theprincipal amount, or $130.0 million of the Notes, separate financialstatements of the Issuer or guarantor would be required under theseSEC rules to be included in the Company’s SEC filings. The indenture that governs the Notes provides, however, with respect toany direct or indirect subsidiary of Linens ‘n Things, Inc., that thesecurities of the subsidiary are released from the lien on capital stockon the date that the lien triggers this separate financial statementrequirement.  Accordingly, for any subsidiary with securities thatequal or exceed the 20% threshold, the lien on the capital stock securing theNotes has been released with respect to those securities.  The lien on thecapital stock of Linens ‘n Things, Inc. remains in place.

Concurrent with the closing of the Merger in February 2006, the Issuersalso entered into a new senior secured asset-based revolving credit facility agreement (the “Credit Facility”) withthird-party institutional lenders which expires February 14, 2011.  The Credit Facility provides senior secured financing of up to $600.0 million, subject to aborrowing base consisting of certain eligible inventory and receivables, minuscertain reserves.  A portion of theCredit Facility, not to exceed $40.0 million, is also available to a Canadiansubsidiary of the Company subject to the Canadian borrowing base.  The Credit Facility replaced the$250.0 million senior revolving credit facility amended November 2004, whichallowed for up to $50.0 million in borrowings from additional lines of creditoutside the agreement, including CAD $40.0 million covering the Company’sCanadian operations.

The Credit Facility contains certain customary affirmative covenantsand events of default, but does not require the Company to comply with anyfinancial ratio maintenance covenants unless the excess availability under theCredit Facility does not exceed $75.0 million. During the thirteen weeks ended March 31, 2007, the Company alwaysmaintained excess availability under the Credit Facility above $75.0 millionand, accordingly, is not subject to compliance with certain financial ratiomaintenance covenants as of March 31, 2007. The Company is not obligated under any formal or informal compensatingbalance requirements

Borrowings under the Credit Facility bear interest at a rate equal to,at the Issuers’ option, either (a) an alternate base rate determined byreference to the higher of (1) the base rate in effect on such day and(2) the federal funds effective rate plus 0.50% or (b) a LIBOR rate,with respect to any Eurodollar borrowing, determined by reference to the costsof funds for U.S. dollar deposits for the interest period relevant to suchborrowing adjusted for certain additional costs, in each case plus anapplicable margin.  In addition to payinginterest on outstanding principal under the Credit Facility, the Company isrequired to pay a variable rate commitment fee in respect of the unutilizedcommitments thereunder.

As of March 31, 2007, the Issuers had (i) $192.6 million inborrowings outstanding under the Credit Facility at an average interest rate of6.9%; (ii) $73.1 million of letters of credit outstanding issued under theCredit Facility, 

36

----

which includes standby letters of credit and import letters of creditused for merchandise purchases; and (iii) $254.1 million of additionalavailability under the Credit Facility.

The Company has obtained a commitment from the U.S. administrativeagent under the Credit Facility, UBS AG, and its affiliates (“UBS”) for a$100.0 million increase in the Credit Facility, which will increase the maximumavailability (subject to having a sufficient borrowing base) from $600.0million to $700.0 million.  Under theterms of the Credit Facility, this increase must be offered to all lendersparticipating in the Credit Facility. Because of the UBS commitment, the full amount of the $100.0 millionincrease will be available even if other lenders elect not to increase theirportion of the Credit Facility by the full amount of their pro rata share ofthe increase.  The Company expects thisprocess to be completed and the Credit Facility increase to be effective beforethe end of the second quarter of 2007.

All obligations under the Credit Facility, and the guarantees of thoseobligations, are secured, subject to certain exceptions, by substantially allof the Company’s, the Issuers’ and the subsidiary guarantors’ assets,including: (1) a first-priority security interest in inventory, accountsreceivable, cash, securities and other general intangibles; and (2) asecond-priority security interest in equipment, intellectual property rightsand related general intangibles and all of the capital stock of the Issuers andthe capital stock of certain subsidiaries.

The Company funds itsoperations through a combination of internally generated cash from operationsand from borrowings under the Credit Facility. The Company’s primary uses of cash are working capital requirements, newstore expenditures, new store inventory purchases and debt servicerequirements.  The Company anticipatesthat cash generated from operations together with amounts available under theCredit Facility will be sufficient to meet its future working capitalrequirements, new store expenditures, new store inventory purchases and debtservice obligations as they become due. However, the Company’s ability to fund future operating expenses andcapital expenditures and its ability to make scheduled payments of interest on,to pay principal on or refinance indebtedness and to satisfy any other presentor future debt obligations will depend on future operating performance whichwill be affected by general economic, financial and other factors beyond theCompany’s control.

As a result of the acquisition, the cash flowresults for the thirteen weeks ended April 1, 2006 have been separatelypresented in the condensed consolidated statements of cash flows split betweenthe “Predecessor Entity”, covering the period January 1 to February 13, 2006and the “Successor Entity” covering the period February 14 to April 1,2006.  The comparable period results forthe current year are presented under “Successor Entity.”  For comparative purposes, the Companycombined the two periods from January 1, 2006 through April 1, 2006 in itsdiscussion below.  This combination isnot a GAAP presentation.  However, theCompany believes this combination is useful to provide the reader a moreaccurate comparison and is provided to enhance the reader’s understanding ofcash flows for the periods presented.

Net cash used in operating activities for thethirteen weeks ended March 31, 2007 was $147.1 million, which is marginallylower when compared with $152.6 million used in operating activities for thesame period last year, determined by combining net cash used in operating activities of $90.6 million and $62.0 millionfor the periods February 14, 2006 to April 1, 2006 and January 1, 2006 toFebruary 13, 2006, respectively.  The useof cash for the thirteen weeks ended March 31, 2007 reflects the Company’sseasonal investment in working capital during its slowest selling period aswell as the payment of cash interest and income taxes.

Netcash used in investing activities for the thirteen weeks ended March 31, 2007was $11.6 million compared with $1,227.6 million used in investing activitiesfor the same period last year, determined by combining net cash used in investing activities of$1,216.6 million and $11.0 million for the periods February 14, 2006 to April1, 2006 and January 1, 2006 to February 13, 2006, respectively.  Excluding the prior period cost inconnection with the acquisition, net cash used in investing activitiesdecreased $10.4 million from the prior year due to fewer new storeopenings.  The Company currentlyestimates capital expenditures will be approximately $40 million in fiscal2007, primarily to open approximately 20 new stores, to maintain existingstores, and for system enhancements and other capital additions.

Net cash provided by financing activities forthe thirteen weeks ended March 31, 2007 was $154.7 million compared with$1,327.3 million provided by financing activities for the same periodlast year, determined by combining net 

37

----

cash provided by financing activities of$1,322.3 million and $5.0 million for the periods February 14, 2006 to April 1,2006 and January 1, 2006 to February 13, 2006, respectively.  Excluding the prior period cash flowsresulting from the acquisition, net cash provided by financing activitiesincreased $73.2 million from the prior year. The increase in net cash provided by financing activities is due tohigher borrowings from the asset-based revolving credit facility.

Management regularly reviews and evaluates its liquidity and capitalneeds.  The Company experiences peakperiods for its cash needs generally during the second quarter and fourthquarter of the fiscal year.  As theCompany’s business continues to grow and its current store expansion plan isimplemented, such peak periods may require increases in the amounts availableunder the Credit Facility from those currently existing and/or other debt orequity funding.  Management currentlybelieves that the Company’s cash flows from operations and its availabilityunder the Credit Facility will be sufficient to fund its expected capitalexpenditures, working capital and non-acquisition business expansionrequirements as they become due; however, no assurance can be given that itwill be able to obtain access to increases to the Credit Facility or additionalcapacity from new credit facilities in the future should they becomenecessary..

**Off-Balance Sheet Arrangements**

The Company does not have any transactions or relationships that couldbe considered material off-balance sheet arrangements.

**Inflation**

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

**Seasonality**

The Company’s business is subject to substantial seasonalvariations.  Historically, the Companyhas realized a significant portion of its net sales and, prior to the Mergerbefore the Company became highly leveraged, substantially all of its net incomefor the year during the third and fourth quarters.  The Company’s quarterly results of operationsmay 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 itssegment of the retail industry and expects this pattern will continue in thefuture.  Consequently, comparisonsbetween quarters are not necessarily meaningful and the results for any quarterare not necessarily indicative of future results.

38

----

**Item 3.        Quantitativeand Qualitative Disclosures About Market Risk**

The Company continuously evaluates the market riskassociated with its financial instruments.  Market risks relating to theCompany’s operations result primarily from changes in interest rates.  TheCompany does not engage in financial transactions for trading or speculativepurposes.

Market risk exposure has significantly increased dueto the issuance of the Notes in connection with the Merger and Transactions.

**Interest Rate Risk**

The Company’s financial instruments include cash andcash equivalents and borrowings under the Credit Facility and the Notes. The asset-based revolving credit facility and the Notes carry floating rateinterest and, therefore, the Company’s condensed consolidated statement ofoperations and the condensed consolidated statement of cash flows for fiscal2007 will be exposed to changes in interest rates.  As of March 31, 2007,the Company had $192.6 million in borrowings under the Credit Facility at an averageinterest rate of 6.9% and $650.0 million aggregate principal amount in Notes atan interest rate of 11.0%, based on a LIBOR rate of 5.4%.  As of March 31,2007 a one percentage point change in floating rate interest would cause anincrease to interest expense of approximately $8.4 million.

The Company employs derivative financial instrumentsto manage its exposure to interest rate changes and to limit the volatility andimpact of interest rate changes on earnings and cash flows.

The Company does not enter into other derivativefinancial instruments for trading or speculative purposes.  The Companyfaces credit risk if the counterparties to these transactions are unable toperform their obligations.  However, the Company seeks to minimize thisrisk by entering into transactions with counterparties that are major financialinstitutions with high credit ratings.

On July 7, 2006 the Issuers entered into a zero costinterest rate collar agreement to hedge the cash flows associated with theLIBOR component of the interest rate on the Notes.  The collar agreementprovides for payments to be made to or received from the counterparty where theLIBOR component of the rate in effect for the Notes is below 4.45% or above6.51% for a given reset period.  Such payments represent the differencebetween the rates stated above in the collar agreement and those in effect onthe Notes for the given reset period.  Payment and reset dates under thecollar agreement are matched exactly to those of the Notes.  The collaragreement has an ultimate maturity of January 15, 2008.  At the inceptionof the collar agreement, the Company determined that the hedging relationshipwould have no ineffectiveness, and the Company will continue to verify anddocument that the critical terms of the hedging instrument and the hedged itemare exactly matched.  At March 31, 2007, the notional amount of debtrelated to the collar agreement was $650.0 million and the fair value of thecollar agreement was approximately a $0.08 million liability.

On July 7, 2006 the Issuers also purchased a one-yearforward-starting interest rate cap agreement which takes effect on January 15,2008.  The cap agreement provides for payments to be received from thecounterparty where the LIBOR component of the rate in effect on a LIBOR-basedborrowing arrangement is above 6.51% for a given reset period.  Paymentand reset dates under the cap agreement are matched exactly to those of theLIBOR-based borrowing arrangement.  The cap agreement has an ultimate maturityof January 15, 2009.  The Company paid a premium of $0.7 million topurchase the cap agreement.  The cap agreement consists of two components,a forward contract and an interest rate cap agreement.  The Company’sintent is to hedge the cash flow associated with the LIBOR component of theinterest rate on a LIBOR-based borrowing arrangement beyond 6.51% for theperiod January 15, 2008 through January 15, 2009.  The forward contractenables the Company to achieve this objective.  The Company will assess theeffectiveness of the forward contract quarterly.  Once the forwardcontract becomes an interest rate cap agreement, effectiveness will be assessedand documented as a new relationship.  The interest rate cap agreement isexpected to be perfectly effective at such time, and the Company will continueto subsequently verify and document that the critical terms of the interestrate cap agreement and the hedged item continue to match exactly over theremaining life of the relationship.  At March 31, 2007, the notional amountof debt related to the cap agreement was $650.0 million and the fair value ofthe instrument was approximately a $0.04 million asset.

39

----

The Company has determined that the collar agreementand the cap agreement have been appropriately designated and documented as cashflow hedges under SFAS No. 133.  Duringthe thirteen weeks ended March 31, 2007, the Company has recorded a loss ofapproximately $0.03 million in accumulated other comprehensive loss related tothese changes in fair value.  The collaragreement and the cap agreement had no ineffectiveness and provided no amountsreceived or paid under the hedges that affected net loss during theperiod.  Both agreements are expected tohave no ineffectiveness during their contractual lives.

**Foreign Currency Risk**

The Company enters intosome purchase obligations outside of the United States, which are predominatelysettled in U.S. dollars, and therefore, the Company does not have a materialexposure to foreign currency exchange risks.  The Company operated 36stores in Canada as of March 31, 2007.  The Company believes its foreigncurrency translation risk is not material, as a hypothetical 10% strengtheningor weakening of the U.S. dollar relative to the Canadian dollar would notmaterially affect the Company’s results from operations or cash flow.  Asof March 31, 2007 and for the thirteen weeks then ended the Company did nothedge against foreign currency risks.

**Item 4.        Controlsand Procedures**

**Disclosure Controls andProcedures**

The Company’s management, including its Chief Executive Officer and itsChief Financial Officer, performed an evaluation of the effectiveness of thedesign and operation of the Company’s disclosure controls and procedures (assuch term is defined in Rules 13a-15(e) and 15d-15(e) under the SecuritiesExchange Act of 1934, as amended) as of March 31, 2007.  Based upon that evaluation, the Company’smanagement, including the Chief Executive Officer and the Chief FinancialOfficer, concluded that the Company’s disclosure controls and procedures areeffective as of the end of the period covered by this report.

**Changes in Internal Control OverFinancial Reporting**

The Company’s management determined that as of the endof fiscal 2006, the Company did not have adequate review over the completenessand accuracy of the income tax accounts to ensure compliance with generallyaccepted accounting principles.  TheCompany out-sources the preparation of the income tax provision to a thirdparty and did not apply a thorough review to detect misstatements.  This deficiency resulted in material errorsin the Company’s preliminary income tax provision in the 2006 consolidatedfinancial statements.  The Companycorrected the provision for income taxes and related balances prior to theissuance of the final audited consolidated financial statements.  Accordingly, management determined that thiscondition constituted a material weakness in internal control over financialreporting as of December 30, 2006.  TheCompany’s management implemented additional review controls and procedures toensure the propriety of its accounting for income tax accounts, whichmanagement believes renders the design and operation of the Company’sdisclosure controls and procedures effective subsequent to December 30, 2006.

A material weakness in internal control over financialreporting is a control deficiency (within the meaning of the Public CompanyAccounting Oversight Board (“PCAOB”) Auditing Standard No. 2), or combinationof control deficiencies, that adversely affects a company’s ability toinitiate, authorize, record, process or report external financial data reliablyin accordance with GAAP that results in there being more than a remotelikelihood that a material misstatement of the annual or interim financialstatements will not be prevented or detected.

Beyond the remediation discussed above, there have been no significantchanges to the Company’s internal control over financial reporting during themost recent fiscal quarter that have materially affected, or are reasonably likelyto materially affect, the Company’s internal control over financial reporting.

Because of its inherent limitations, internal control over financialreporting may not prevent or detect misstatements. Therefore, even thosesystems determined to be effective can provide only reasonable assurance withrespect to financial statement preparation and presentation.  Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls maybecome inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate.

40

----

#### **PART II - OTHER INFORMATION**

**Item 1.        LegalProceedings**

The Company is subject to litigation in the normal course of business,but it does not believe that the resolution of any pending proceedings willhave a material impact on the Company’s financial position or results ofoperations.

**Item 1A.     RiskFactors**

There have been no material changes in the risk factors previouslydisclosed in the Company’s 2006 Annual Report on Form 10-K.

**Item 6.        Exhibits**

| 31.1   |   | Certification of Principal Executive Officer of  Linens Holding Co. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                  |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                            |
| 31.2   |   | Certification of Principal Financial Officer of  Linens Holding Co. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                  |
|   |   |                                                                                                                                                                            |
| 31.3   |   | Certification of Principal Executive Officer of  Linens ‘n Things, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of  2002.                                        |
|   |   |                                                                                                                                                                            |
| 31.4   |   | Certification of Principal Financial Officer of  Linens ‘n Things, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of  2002.                                        |
|   |   |                                                                                                                                                                            |
| 31.5   |   | Certification of Principal Executive Officer of  Linens ‘n Things Center, Inc. pursuant to Section 302 of the Sarbanes-Oxley  Act of 2002.                                 |
|   |   |                                                                                                                                                                            |
| 31.6   |   | Certification of Principal Financial Officer of  Linens ‘n Things Center, Inc. pursuant to Section 302 of the Sarbanes-Oxley  Act of 2002.                                 |
|   |   |                                                                                                                                                                            |
| 32.1   |   | Certification of Principal Executive Officer and  Principal Financial Officer of Linens Holding Co. pursuant to Section 906 of  the Sarbanes-Oxley Act of 2002.                 |
|   |   |                                                                                                                                                                            |
| 32.2   |   | Certification of Principal Executive Officer and  Principal Financial Officer of Linens ‘n Things, Inc. pursuant to Section 906  of the Sarbanes-Oxley Act of 2002.        |
|   |   |                                                                                                                                                                            |
| 32.3   |   | Certification of Principal Executive Officer and  Principal Financial Officer of Linens ‘n Things Center, Inc. pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002. |

 

41

----

**SIGNATURES**

Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, theRegistrant has duly caused this Quarterly Report on Form 10-Q to be signed onits behalf by the undersigned thereunto duly authorized.
| ** **          | **LINENS HOLDING CO.**                 |                                               |
|---------------------|----------------------------------------|----------------------------------------------------|
| ** **          | **LINENS  ‘N THINGS, INC.**       |                                               |
| ** **          | **LINENS ‘N THINGS CENTER, INC.** |
| ** **          | ** **                             |
| ** **          | ** **                             |
| Date: May 15,  2007 | By:                                    | /s/ Robert J. DiNicola                             |
|                |                                   | Robert J.  DiNicola                                |
|                |                                   | Chairman and  Chief Executive Officer              |
|                |                                   | (principal  executive officer)                     |
|                |                                   |                                               |
|                |                                   |                                               |
| Date: May 15,  2007 | By:                                    | /s/ Francis M. Rowan                               |
|                |                                   | Francis M. Rowan                                   |
|                |                                   | Senior Vice President  and Chief Financial Officer |
|                |                                   | (principal  financial and accounting officer)      |
|                     |                                        |                                                    |  |

 

42

----