DLTR, §1A diff (2015 → 2016)

Item 1A. RISK FACTORS An investment in our common stock involves a high degree of risk. Any failure to meet market expectations, including our comparable store sales growth rate, earnings and earnings per share or new store openings, could cause the market price of our stock to decline. You should carefully consider the specific risk factors listed below together with all other information included or incorporated in this report. Any of the following risks may materialize, and additional risks not known to us, or that we now deem immaterial, may arise. In such event, our business, financial condition, results of operations or prospects could be materially adversely affected. Our profitability is vulnerable to cost increases. Future increases in costs such as the cost of merchandise, wage and benefit costs, shipping rates, freight costs, fuel costs and store occupancy costs may reduce our profitability. The minimum wage has increased or is scheduled to increase in multiple states and local jurisdictions and there is a possibility that Congress will increase the federal minimum wage. We do not raise the sales price of our merchandise to offset cost increases because we are committed to selling primarily at the $1.00 price point to continue to provide value to the customer. We are dependent on our ability to adjust our product assortment, to operate more efficiently or to increase our comparable store net sales in order to offset inflation or other cost increases. We can give no assurance that we will be able to operate more efficiently or increase our comparable store net sales in the future. Please see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” beginning on page 25 of this Form 10-K for further discussion of the effect of Inflation and Other Economic Factors on our operations. A downturn in economic conditions could impact our sales. Deterioration in economic conditions, such as those caused by a recession, inflation, higher unemployment, consumer debt levels, lack of available credit, cost increases, as well as adverse weather conditions or terrorism, could reduce consumer spending or cause customers to shift their spending to products we either do not sell or do not sell as profitably. Adverse economic conditions could disrupt consumer spending and significantly reduce our sales, decrease our inventory turnover, cause greater markdowns or reduce our profitability due to lower margins. A significant disruption in our computer and technology systems could adversely affect our results of operation or business. We rely extensively on our computer and technology systems to manage inventory, process credit card and customer transactions and summarize results. Systems may be subject to damage or interruption from power outages, telecommunication failures, computer viruses, security breaches and catastrophic events. If our systems are damaged or fail to function properly, we may incur substantial costs to repair or replace them, may experience loss of critical data and interruptions or delays in our ability to manage inventories or process customer transactions and may receive negative publicity, which could adversely affect our results of operation or business. If we are unable to secure our customers’ credit card and confidential information, or other private data relating to our associates, suppliers or our business, we could be subject to negative publicity, costly government enforcement actions or private litigation, which could damage our business reputation and adversely affect our results of operation or business. We have procedures and technology in place to safeguard our customers’ debit and credit card information, our associates’ private data, suppliers’ data, and our business records and intellectual property. Despite these measures, criminals are constantly devising schemes to circumvent safeguards and we may be vulnerable to, and unable to detect and appropriately respond to, data security breaches and data loss, including cyber-security attacks. Other sophisticated retailers have recently suffered serious security breaches. If we experience a data security breach, we could be exposed to negative publicity, government enforcement actions, private litigation, or costly response measures. In addition, our reputation within the business community and with our customers may be affected, which could result in our customers discontinuing the use of debit or credit cards in our stores or not shopping in our stores altogether. This could have an adverse effect on our results of operation or business. Our growth is dependent on our ability to increase sales in existing stores and to expand our square footage profitably. Existing store sales growth is dependent on a variety of factors including merchandise selection and availability, store operations and customer satisfaction. In addition, competition could affect our sales. Our highest sales periods are the Christmas and Easter seasons and we generally realize a disproportionate amount of our net sales and our operating and net income during the fourth quarter. In anticipation, we stock extra inventory and hire many temporary employees to prepare our stores. A reduction in sales during these periods could adversely affect our operating results, particularly operating and net income, to a greater extent than if a reduction occurred at other times of the year. Untimely merchandise delays due to receiving or distribution problems could have a similar effect. Easter was observed on March 31, 2013, April 20, 2014, and will be observed on April 5, 2015. Expanding our square footage profitably depends on a number of uncertainties, including our ability to locate, lease, build out and open or expand stores in suitable locations on a timely basis under favorable economic terms. In addition, our expansion is dependent upon third-party developers’ abilities to acquire land, obtain financing, and secure necessary permits and approvals. It remains difficult for third party developers to obtain financing for new projects due to the recent turmoil in the financial markets. We also open or expand stores within our established geographic markets, where new or expanded stores may draw sales away from our existing stores. We may not manage our expansion effectively, and our failure to achieve our expansion plans could materially and adversely affect our business, financial condition and results of operations. Risks associated with our domestic and foreign suppliers from whom our products are sourced could affect our financial performance. We are dependent on our vendors to supply merchandise in a timely and efficient manner. If a vendor fails to deliver on its commitments due to financial or other difficulties, we could experience merchandise shortages which could lead to lost sales or increased merchandise costs if alternative sources must be used. Merchandise imported directly accounts for approximately 39% to 41% of our total retail value purchases. In addition, we believe that a portion of our goods purchased from domestic vendors is imported. China is the source of a substantial majority of our imports. Imported goods are generally less expensive than domestic goods and increase our profit margins. A disruption in the flow of our imported merchandise or an increase in the cost of those goods may significantly decrease our profits. Risks associated with our reliance on imported goods may include disruptions in the flow of or increases in the cost of imported goods because of factors such as: • raw material shortages, work stoppages, strikes and political unrest; • economic crises and international disputes; • changes in currency exchange rates or policies and local economic conditions, including inflation in the country of origin; and • failure of the United States to maintain normal trade relations with China. We could encounter disruptions in our distribution network or additional costs in distributing merchandise. Our success is dependent on our ability to transport merchandise to our distribution centers and then ship it to our stores in a timely and cost-effective manner. We may not anticipate, respond to or control all of the challenges of operating our receiving and distribution systems. Additionally, if a vendor fails to deliver on its commitments, we could experience merchandise shortages that could lead to lost sales or increased costs. Some of the factors that could have an adverse effect on our distribution network or costs are: • Shipping disruption. Our oceanic shipping schedules may be disrupted or delayed from time to time. • Shipping costs. We could experience increases in shipping rates imposed by the trans-Pacific ocean carriers. Changes in import duties, import quotas and other trade sanctions could increase our costs. • Diesel fuel costs. We have experienced volatility in diesel fuel costs over the past few years. • Vulnerability to natural or man-made disasters. A fire, explosion or natural disaster at a port or any of our distribution facilities could result in a loss of merchandise and impair our ability to adequately stock our stores. Some facilities are vulnerable to earthquakes, hurricanes or tornadoes. • Labor disagreement. Labor disagreements, disruptions or strikes may result in delays in the delivery of merchandise to our distribution centers or stores and increase costs. • War, terrorism and other events. War and acts of terrorism in the United States, the Middle East, or in China or other parts of Asia, where we buy a significant amount of our imported merchandise, could disrupt our supply chain or increase our transportation costs. • Economic conditions. Suppliers may encounter financial or other difficulties. Our profitability is affected by the mix of products we sell. Our gross profit margin could decrease if we increase the proportion of higher cost goods we sell in the future. In recent years, the percentage of our sales from higher cost consumable products has increased and we can give no assurance that this trend will not continue. As a result, our gross profit margin could decrease unless we are able to maintain our current merchandise cost sufficiently to offset any decrease in our product margin percentage. We can give no assurance that we will be able to do so. Pressure from competitors may reduce our sales and profits. The retail industry is highly competitive. The marketplace is highly fragmented as many different retailers compete for market share by utilizing a variety of store formats and merchandising strategies. We expect competition to increase in the future. There are no significant economic barriers for others to enter our retail sector. Some of our current or potential competitors have greater financial resources than we do. We cannot guarantee that we will continue to be able to compete successfully against existing or future competitors. Please see Item 1, “Business” beginning on page 6 of this Form 10-K for further discussion of the effect of competition on our operations. Litigation may adversely affect our business, financial condition and results of operations. Our business is subject to the risk of litigation involving employees, consumers, suppliers, competitors, shareholders, government agencies, or others through private actions, class actions, governmental investigations, administrative proceedings, regulatory actions or other litigation. Our products could also cause illness or injury, harm our reputation, and subject us to litigation. We are currently defendants in several employment-related class and collective actions, litigation concerning leases, several occupational safety proceedings, and a governmental investigation concerning retail hazardous waste. The outcome of litigation is difficult to assess or quantify. Plaintiffs in these types of lawsuits may seek recovery of very large or indeterminate amounts, and the magnitude of the potential loss may remain unknown for substantial periods of time. In addition, certain of these matters, if decided adversely to us or settled by us, may result in an expense that may be material to our financial statements as a whole or may negatively affect our operating results if changes to our business operation are required. The cost to defend current and future litigation may be significant. There also may be adverse publicity associated with litigation, including litigation related to product safety, customer information and environmental or safety requirements, which could negatively affect customer perception of our business, regardless of whether the allegations are valid or whether we are ultimately found liable. For a discussion of current legal matters, please see Item 3, “Legal Proceedings” beginning on page 20 of this Form 10-K and Item 8, “Financial Statements and Supplementary Data, Note 4 Commitments and Contingencies” under the caption “Contingencies” beginning on page 51 of this Form 10-K. Resolution of these matters, if decided against the Company, could have a material adverse effect on our results of operations, accrued liabilities or cash flows. Changes in federal, state or local law, or our failure to comply with such laws, could increase our expenses and expose us to legal risks. Our business is subject to a wide array of laws and regulations. Significant legislative changes, such as the health-care legislation, that impact our relationship with our workforce could increase our expenses and adversely affect our operations. The minimum wage has increased or is scheduled to increase in multiple states and local jurisdictions and there is a possibility that Congress will increase the federal minimum wage. Changes in other regulatory areas, such as consumer credit, privacy and information security, product safety, worker safety or environmental protection, among others, could cause our expenses to increase. In addition, if we fail to comply with applicable laws and regulations, particularly wage and hour laws, we could be subject to legal risk, including government enforcement action and class action civil litigation, which could adversely affect our results of operations. Changes in tax laws, the interpretation of existing laws, or our failure to sustain our reporting positions on examination could adversely affect our effective tax rate. Our business could be adversely affected if we fail to attract and retain qualified associates and key personnel. Our growth and performance is dependent on the skills, experience and contributions of our associates, executives and key personnel. Various factors, including overall labor availability, wage rates, regulatory or legislative impacts, and benefit costs could impact the ability to attract and retain qualified associates at our stores, distribution centers and corporate office. Certain provisions in our Articles of Incorporation and Bylaws could delay or discourage a change of control transaction that may be in a shareholder’s best interest. Our Articles of Incorporation and Bylaws currently contain provisions that may delay or discourage a takeover attempt that a shareholder might consider in his best interest. These provisions, among other things: • provide that only the Board of Directors, chairman or president may call special meetings of the shareholders; • establish certain advance notice procedures for nominations of candidates for election as directors and for shareholder proposals to be considered at shareholders’ meetings; and • permit the Board of Directors, without further action of the shareholders, to issue and fix the terms of preferred stock, which may have rights senior to those of the common stock. However, we believe that these provisions allow our Board of Directors to negotiate a higher price in the event of a takeover attempt which would be in the best interest of our shareholders. Risks related to the proposed Family Dollar merger and the business of the combined company Completion of the proposed merger is subject to the satisfaction of numerous conditions, and the proposed merger may not be completed on the proposed terms, within the expected timeframe, or at all. Each of our and Family Dollar’s obligation to consummate the proposed merger remains subject to a number of conditions, including, among others, the following, as further described in the merger agreement: (i) the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (‘‘HSR Act’’), (ii) approval of the listing on the Nasdaq of our common stock to be issued in the merger, (iii) the absence of an injunction prohibiting the merger, (iv) the accuracy of the representations and warranties of the other party under the merger agreement (subject to the materiality standards set forth in the merger agreement), (v) the performance by the other party of its respective obligations under the merger agreement in all material respects, (vi) delivery of officer certificates by the other party certifying satisfaction of the two preceding conditions, and in the case of our obligations to complete the merger, the absence of a material adverse effect (as described in the merger agreement) on Family Dollar since July 27, 2014. There is no assurance that all of the conditions will be satisfied, or that the proposed merger will be completed on the proposed terms, within the expected timeframe, or at all. Any delay in completing the proposed merger could cause us not to realize some or all of the benefits that we expect to achieve if the merger is successfully completed within its expected timeframe. Further, there can be no assurance that the conditions to the closing of the merger will be satisfied or waived or that the merger will be completed. See the risk factor entitled “Failure to complete the merger could negatively impact our stock price and future business and financial results,” below. In order to complete the proposed merger, we and Family Dollar must make certain governmental filings and obtain certain governmental authorizations, and if such filings and authorizations are not made or granted or are granted with conditions, completion of the merger may be jeopardized or the anticipated benefits of the proposed merger could be reduced. Although we and Family Dollar have agreed in the merger agreement to use our reasonable best efforts, subject to certain limitations, to make certain governmental filings and obtain the required expiration or termination of the waiting period under the HSR Act, there can be no assurance that the waiting period under the HSR Act will expire or be terminated. As a condition to granting termination of the waiting period under the HSR Act, governmental authorities may impose requirements, limitations or costs or require divestitures or place restrictions on the conduct of our business after completion of the merger. Under the terms of the merger agreement, subject to certain exceptions, we are required to accept certain conditions and take certain actions imposed by governmental authorities that would apply to, or affect, our businesses, assets or properties or those of Family Dollar and its subsidiaries. There can be no assurance that regulators will not impose conditions, terms, obligations or restrictions (including requiring divestitures) and that such conditions, terms, obligations or restrictions (including divestitures) will not have the effect of delaying completion of the merger or imposing additional material costs on or materially limiting the revenues of the combined company following the merger, or otherwise adversely affecting our business and results of operations after completion of the proposed merger. In addition, we can provide no assurance that these conditions, terms, obligations or restrictions will not result in the delay or abandonment of the proposed merger. There can also be no assurance that regulators will not seek to challenge the merger. We and Family Dollar each submitted a filing under the HSR Act, on August 8, 2014, and each received a Second Request from the FTC regarding the Acquisition on September 8, 2014. We and Family Dollar certified substantial compliance with the Second Request on November 7, 2014, and October 21, 2014, respectively. The HSR Act waiting period has been extended by a timing agreement among the parties and the FTC, and we and Family Dollar have agreed to provide the FTC with four weeks’ notice prior to closing. We expect to initiate the 4-week notice period (which may be terminated early by the FTC) after we execute a consent decree with the FTC. As of March 10, 2015, the FTC has identified approximately 250 stores for divestiture, representing approximately $34 million of operating income. We expect the FTC to substantially complete its review of all remaining stores in the near future. We continue to estimate that no more than roughly 300 stores will be required to be divested, although we can give no assurance as to the exact number and it could be more or less than 300. In parallel, we have made good progress with divestiture buyers and have received multiple indications of interest from buyers, each of whom intend to operate these divested locations as dollar stores to address the FTC's concerns. We will work to secure FTC approval and finalize divestiture agreements with the selected bidder(s) as soon as practical. We are working to close the proposed merger as early as April 2015, but it is uncertain whether the FTC will approve the transaction by that date. Combining the two companies may be more difficult, costly or time consuming than expected and the anticipated benefits, synergies and cost savings of the proposed merger may not be realized, including as a result of the challenges Family Dollar has been recently experiencing as a stand-alone company. We and Family Dollar have operated and, until the completion of the proposed merger, will continue to operate, independently. The success of the proposed merger, including anticipated benefits, synergies and cost savings, will depend, in part, on our ability to successfully combine and integrate the businesses of our company and Family Dollar. It is possible that the pendency of the merger and/or the integration process could result in the loss of key employees, higher than expected costs, litigation relating to the proposed merger, diversion of management attention of both Dollar Tree and Family Dollar, increased competition, the disruption of either company’s ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect the combined company’s ability to maintain relationships with customers, vendors and employees or to achieve the anticipated benefits and cost savings of the proposed merger. If we experience difficulties with the integration process, the anticipated benefits of the proposed merger may not be realized fully or at all, or may take longer to realize than expected. Family Dollar’s first quarter of fiscal year 2015 experienced increased pressures on merchandise margin, deleveraging of expenses and increased professional fees, and such conditions may continue in fiscal 2015. Moreover, Family Dollar has recently experienced turnover in its corporate office and may continue to do so during the pendency of the proposed merger and/or integration process. Each of these factors, among others, could negatively impact the actual benefits realized in the merger. Furthermore, integration efforts between the two companies will also divert management attention and resources. These integration matters could have an adverse effect on us during this transition period and for an undetermined period after completion of the merger on the combined company. In addition, the actual cost savings of the proposed merger could be less than anticipated. Failure to complete the proposed merger could negatively impact our stock price and our future business and financial results. If the proposed Family Dollar merger is not completed for any reason, we would be subject to a number of risks, including the following: • We will incur substantial expenses and costs related to the proposed merger, whether or not it is consummated, including legal, accounting and advisory fees; • Matters relating to the proposed merger (including integration planning) will require substantial commitments of time and resources by our management, which would otherwise have been devoted to day-to-day operations and other potentially advantageous business opportunities or plans that may have been beneficial to us, without realizing any of the expected benefits of the proposed merger; and • Failure to consummate the proposed merger may result in negative reactions from the financial markets or from our customers, vendors and employees. If the proposed merger is not completed, these risks may materialize and could have a material adverse effect on our stock price, business and cash flows, financial condition and results of operations. We will incur significant transaction and acquisition-related costs in connection with the proposed merger. We expect to incur a number of non-recurring costs associated with the proposed merger and combining the operations of the two companies. The substantial majority of non-recurring expenses will be comprised of transaction and regulatory costs related to the merger. We also will incur transaction fees and costs related to formulating and implementing integration plans, including facilities and systems consolidation costs and employment-related costs. We continue to assess the magnitude of these costs, and additional unanticipated costs may be incurred in the proposed merger and the integration of the two companies’ businesses. Although we expect that the elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of the businesses, should allow us to offset integration-related costs over time, this net benefit may not be achieved in the near term, or at all. See the risk factor entitled “Combining the two companies may be more difficult, costly or time consuming than expected and the anticipated benefits, synergies and cost savings of the proposed merger may not be realized, including as a result of the challenges Family Dollar has been recently experiencing as a stand-alone company” above. Lawsuits have been filed against Family Dollar, its directors, Dollar Tree, and one of Dollar Tree's subsidiaries challenging the proposed merger, and an adverse ruling in such lawsuits may prevent the proposed merger from becoming effective or from becoming effective within the expected timeframe. Family Dollar, its directors, Dollar Tree, and one of Dollar Tree's subsidiaries are named as defendants in three putative class action lawsuits, which have been consolidated under the caption In re Family Dollar Stores, Inc. Stockholder Litig., C.A. No. 9985 CB., brought by purported Family Dollar shareholders challenging the proposed merger, seeking, among other things, to enjoin consummation of the proposed merger. The parties conducted certain document discovery and depositions relating to the motion for a preliminary injunction and a hearing was held on December 5, 2014. On December 19, 2014, the Court of Chancery issued an opinion and order denying plaintiffs’ preliminary injunction motion. The plaintiffs sought from the Court of Chancery certification of an interlocutory appeal of that order to the Delaware Supreme Court, but on January 2, 2015, the Court of Chancery denied that request. No schedule has yet been set for the adjudication of the plaintiffs’ remaining claims for relief. If the plaintiffs are successful in their remaining claims, there could be an adverse effect on our and Family Dollar’s business, financial condition, results of operations and cash flows. Our substantial indebtedness could adversely affect our financial condition and prevent us from fulfilling our obligations under the notes. Our consolidated indebtedness as of January 31, 2015 was $757 million. Following the proposed merger, we will have substantially increased our indebtedness, which could adversely affect our ability to fulfill our obligations and have a negative impact on our financing options and liquidity position. Upon completion of the proposed merger we expect to have indebtedness of approximately $8,507 million and availability under our new revolving credit facility of approximately $1,250 million, less amounts outstanding for letters of credit. Our high level of debt could have significant consequences, including the following: • limiting our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions or other general corporate purposes; • requiring a substantial portion of our cash flows to be dedicated to debt service payments, instead of other purposes, thereby reducing the amount of cash flows available for working capital, capital expenditures, acquisitions and other general corporate purposes; • limiting our ability to refinance our indebtedness on terms acceptable to us or at all; • imposing restrictive covenants on our operations; • placing us at a competitive disadvantage to competitors carrying less debt; and • making us more vulnerable to economic downturns and limiting our ability to withstand competitive pressures. In addition, our credit ratings impact the cost and availability of future borrowings and, accordingly, our cost of capital. Our ratings reflect the opinions of the ratings agencies of our financial strength, operating performance and ability to meet our debt obligations. There can be no assurance that we will achieve a particular rating or maintain a particular rating in the future. We may not be able to generate sufficient cash to service all of our indebtedness and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful. Our ability to make scheduled payments on or to refinance our debt obligations depends on our financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to certain financial, business, legislative, regulatory and other factors beyond our control. We may be unable to maintain a level of cash flows from operating activities sufficient to permit us to fund our day-to-day operations or to pay the principal, premium, if any, and interest on our indebtedness. If our cash flows and capital resources are insufficient to fund our debt service obligations and other cash requirements, we could face substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures or to sell assets or operations, seek additional capital or restructure or refinance our indebtedness. We may not be able to effect any such alternative measures, if necessary, on commercially reasonable terms or at all and, even if successful, such alternative actions may not allow us to meet our scheduled debt service obligations. Upon consummation of the proposed merger, the agreements that will govern the indebtedness to be incurred or assumed in connection with the proposed merger are expected to restrict (a) our ability to dispose of assets and use the proceeds from any such dispositions and (b) our ability to raise debt capital to be used to repay our indebtedness when it becomes due. We may not be able to consummate those dispositions or to obtain proceeds in an amount sufficient to meet any debt service obligations then due. Our inability to generate sufficient cash flows to satisfy our debt obligations, or to refinance our indebtedness on commercially reasonable terms or at all, would materially and adversely affect our financial position and results of operations and our ability to satisfy our obligations. If we cannot make scheduled payments on our debt, we will be in default and, as a result, holders of the notes (and lenders under any of our existing and future indebtedness) could declare all outstanding principal and interest to be due and payable, the lenders under the credit facilities could terminate their commitments to loan money, our secured lenders could foreclose against the assets securing such borrowings and we could be forced into bankruptcy or liquidation, in each case, which could result in your losing your investment. Despite current and anticipated indebtedness levels, we may still be able to incur substantially more debt. This could further exacerbate the risks described above. We may be able to incur substantial additional indebtedness in the future. Although the agreements that will govern the indebtedness to be incurred or assumed in connection with the proposed merger are expected to restrict the incurrence of additional indebtedness, these restrictions are and will be subject to a number of qualifications and exceptions and the additional indebtedness incurred in compliance with these restrictions could be substantial. If new debt is added to our current debt levels, the related risks that we now face could intensify. Upon completion of the pending acquisition, we expect to have approximately $1,250 million of availability under our new revolving credit facility. The terms of the agreements governing our indebtedness upon consummation of the proposed merger may restrict our current and future operations, particularly our ability to respond to changes or to pursue our business strategies, and could adversely affect our capital resources, financial condition and liquidity. The agreements that will govern the indebtedness to be incurred or assumed in connection with the proposed merger are expected to contain a number of restrictive covenants that impose significant operating and financial restrictions on us and may limit our ability to engage in acts that may be in our long-term best interests, including, among other things, restrictions on our ability to: • incur, assume or guarantee additional indebtedness; • declare or pay dividends or make other distributions with respect to, or purchase or otherwise acquire or retire for value, equity interests; • make any principal payment on, or redeem or repurchase, subordinated debt; • make loans, advances or other investments; • incur liens; • sell or otherwise dispose of assets, including capital stock of subsidiaries; • enter into sale and lease-back transactions; • consolidate or merge with or into, or sell all or substantially all of our assets to, another person; and • enter into transactions with affiliates. In addition, certain of these agreements are expected to require us to comply with certain financial maintenance covenants. Our ability to satisfy these financial maintenance covenants can be affected by events beyond our control, and we cannot assure you that we will meet them. A breach of the covenants under these agreements could result in an event of default under the applicable indebtedness, which, if not cured or waived, could result in us having to repay our borrowings before their due dates. Such default may allow the debt holders to accelerate the related debt and may result in the acceleration of any other debt to which a cross-acceleration or cross-default provision applies. If we are forced to refinance these borrowings on less favorable terms or if we were to experience difficulty in refinancing the debt prior to maturity, our results of operations or financial condition could be materially affected. In addition, an event of default under our credit facilities may permit the lenders under our credit facilities to terminate all commitments to extend further credit under such credit facilities. Furthermore, if we are unable to repay the amounts due and payable under our credit facilities, those lenders may be able to proceed against the collateral granted to them to secure that indebtedness. In the event our lenders or holders of notes accelerate the repayment of such borrowings, we cannot assure you that we will have sufficient assets to repay such indebtedness. As a result of these restrictions, we may be: • limited in how we conduct our business; • unable to raise additional debt or equity financing to operate during general economic or business downturns; or • unable to compete effectively, take advantage of new business opportunities or grow in accordance with our plans. Our variable-rate indebtedness subjects us to interest rate risk, which could cause our annual debt service obligations to increase significantly. Certain of our indebtedness, including borrowings under our new revolving credit facility and our existing credit facility, is or is expected to be subject to variable rates of interest and expose us to interest rate risk. If interest rates increase, our debt service obligations on the variable rate indebtedness would increase even though the amount borrowed remained the same, and our net income would decrease. An increase (decrease) of 0.25% on the estimated interest rate on debt to finance the proposed merger would result in an increase (decrease) of $20.5 million in annual interest expense. Although we may enter into interest rate swaps, involving the exchange of floating- for fixed-rate interest payments, to reduce interest rate volatility, we cannot assure you we will be able to do so. The proposed merger may not be accretive, and may be dilutive, to our earnings per share, which may negatively affect the market price of our common stock. Because shares of our common stock would be issued in the proposed merger, it is possible that the merger will be dilutive to our earnings per share, which could negatively affect the market price of shares of our common stock. In connection with the completion of the proposed merger, based on the number of issued and outstanding shares of our common stock and Family Dollar common stock as of January 31, 2015, we would issue approximately 28.5 million shares of our common stock. The issuance of these new shares of our common stock could have the effect of depressing the market price of shares of our common stock, through dilution of earnings per share or otherwise. In addition, future events and conditions could increase the dilution that is currently projected, including adverse changes in market conditions, additional transaction and integration related costs and other factors such as the failure to realize some or all of the benefits anticipated in the merger. Any dilution of, or delay of any accretion to, our earnings per share could cause the price of shares of our common stock to decline or grow at a reduced rate. Sales of shares of our common stock before and after the completion of the proposed Family Dollar merger may cause the market price of our common stock to fall. Based on the number of outstanding shares of our common stock and Family Dollar common stock as of January 31, 2015, we would issue approximately 28.5 million shares of our common stock in connection with the proposed Family Dollar merger. The issuance of these new shares of our common stock could have the effect of depressing the market price for our common stock. In addition, many Family Dollar stockholders may decide not to hold the shares of our common stock they will receive in the proposed merger. Other Family Dollar stockholders, such as funds with limitations on their permitted holdings of stock in individual issuers, may be required to sell the shares of our common stock that they receive in the proposed merger. Such sales of our common stock could have the effect of depressing the market price for our common stock and may take place promptly following consummation of the proposed merger. Item 1B.