WESTERN UNIVERSITY CANADA IVEY BUSINESS SCHOOL BUSINESS 2257 COMPREHENSIVE CASE SUMMATIVE ASSIGNMENT ASSIGNED: Thursday, April 8, 2021 (4 hours) DEADLINE: Friday, April 9, 2021 at 3pm, Eastern Daylight Time ACCEPTED UNTIL: Monday, April 12, 2021 at 3pm, Eastern Daylight Time Instructions: (1) Include your name, section and student number on your title page. (2) This is an individual assignment. Communicating with other students is a violation of course and university regulations. (3) This is an open book report. Casebooks, readings and OWL resources are permitted. (4) Calculators permitted. (5) Dictionaries permitted. (6) Read and follow the assignment rules on the next page carefully. Hi-Line Auto Parts (Cover page + Rules + Case = 16 pages) Assignment: As Jason Green, complete all necessary analysis and make whatever decisions required. RULES FOR THE FINAL SUMMATIVE ASSIGNMENT BUSINESS 2257 – 2020/21 1. Your entire summative report, including text and exhibits, must be prepared individually, in your own words, without input or assistance from anyone else. This rule will be actively monitored and aggressively enforced. Serious and lasting penalties will be issued to any student that violates this rule. 2. Maximum report length: 2,500 words of text in the report body (8.5 x 11inch pages), plus a maximum of 6 pages of graphic or financial exhibits. All textual pages in the report should be formatted with oneinch margins on all sides, single-spaced, Times New Roman, 12 point font, in MS Word. The report should be written concisely and may include bullets. Headings for each new section are required. In addition, page numbers in the upper right hand corner of each page are required. • Length Penalty: The penalty for exceeding the word count or exhibit page limit is ten (10) marks out of 100. Instructors reserve the right to increase this penalty for excessive violations. If the report is not formatted according to the guidelines, instructors may choose to reformat the report and/or apply the appropriate deduction. 3. All reports must be typewritten. The document must be submitted in .docx (MS Word) format. Reports must be submitted as one single document. Use the cut and paste function to merge content if needed. When submitting on OWL, please ensure your submission follows the required naming convention: Section Number_Student Last Name_Student First Name i.e. 001_Smith_John 4. The student name, student number, instructor name and section number must be clearly indicated on the front of the report as a title page. The title page will not be included in the stated page limit. No executive summary is to be included in the report. 5. The report must be submitted electronically on OWL via the Assignment Submissions (Turnitin) tab by the deadline of 3:00 p.m. EDT, Friday, April 9, 2021. The deadline applies to all students. Report submissions will be accepted until 3:00 p.m. EDT on Monday, April 12, 2021 without penalty. You may upload your report once, anytime between the release date and the acceptance date. You are responsible for saving and backing up your files and submitting the correct file. Late Penalty: Ten (10) marks (out of 100) will be deducted from the final report grade from any online submission received after 3:00 p.m. EDT, Monday, April 12 and before 3:00 p.m. EDT, Tuesday, April 13, 2021. Another ten (10) marks will be deducted for each additional 24-hour period thereafter. Absolutely no extensions. 6. Plagiarism is the submission of work that is in whole or in part someone else’s work, which you claim as your own. Students must write their final summative assignment in their own words and use their own exhibits. Plagiarism is a major academic offense (see Scholastic Offence Policy in the Western Academic Calendar). Refer to the Business 2257 Course Outline for a definition of plagiarism and the course plagiarism policy. Additionally, collusion is the collaboration with another individual in the preparation of written work offered for credit. Collusion is regarded like plagiarism and is a major academic offense. The Business Foundations department takes this policy and its consequences very seriously. Students may not seek, accept, or provide consultation or advice in the preparation of the final summative report. 7. This case contains all the information that is required for you to complete the assessment. No outside sources are required. For the purposes of this report, DO NOT CONTACT ANY PERSONS RELATED TO THE CASE OR INVOLVED WITH THE COMPANY FOR ANY ADDITIONAL INFORMATION. THIS WILL BE CONSIDERED AN ACADEMIC OFFENCE.Hi-Line Auto Parts 20018/09 FW FW 2020-21 FINAL SUMMATIVE ASSIGNMENT – HI-LINE AUTO PARTS In April 2020, Jason Green, President of Hi-Line Auto Parts (Hi-line), was assessing his options after a year of weak financial performance. Hi-line was an automotive warehouse located in Toronto, Ontario that distributed automotive parts and accessories across Canada. Green was hoping to retire in the next five years. As such, he was wondering what his exit strategy should be. With the automotive aftermarket industry moving more online, he thought operating an e-commerce platform would increase the value of Hi-line if he chose to sell the business upon retirement. Another option he was considering was utilizing Hi-line’s vacant warehouse space to expand into the industrial rental market. He thought this opportunity would be a great way to generate a steady income stream, without requiring much of his time or effort. Green was eager to examine the two options and select the best one for Hi-line moving forward. THE INDUSTRY The Automotive Aftermarket The automotive aftermarket comprised the automotive services and parts businesses after the initial sale of a vehicle. Aftermarket parts and accessories were used to replace original equipment manufacturer (OEM) parts as they aged due to normal wear-and-tear of a vehicle. They were also used to repair vehicles after damage from collisions. In some cases, aftermarket parts were stronger than OEM parts and could greatly increase the longevity of both old and used vehicles. The service business (maintenance and repair of vehicles) generated 45 per cent of total automotive aftermarket revenues, while the retail and wholesale of vehicle parts and accessories made up the remaining 55 per cent. The aftermarket supply chain consisted of manufacturers, wholesalers and distributors, retailers, and independent repair and maintenance shops. Manufacturers in this industry offered very attractive volume discounts in order to encourage wholesalers and distributors to purchase goods in large quantities. Aging vehicles were a major trend affecting the automotive aftermarket industry. The average age for onroad vehicles had been increasing significantly across the globe. By the year 2022, the average age of a Canadian passenger vehicle was expected to reach 11.6 years, a 12 per cent increase from 2017. Another prominent trend affecting the aftermarket industry was e-commerce. Technological advancements were transforming the market toward digitization, leading to automotive components and parts being sold online. Hi-Line Auto Parts 20028/09 FW FW 2020-21 It was estimated that the Canadian online automotive market would reach over $4.9 billion in revenue by the end of 2020, up 30 per cent from 2019.1 Auto repair and service shops relied on minor maintenance such as oil changes and emission checks to get customers in the door. However, the rise in electric vehicles was estimated to eliminate much of the routine maintenance trips customers made. Unlike gasoline cars, electric vehicles required no oil changes and had fewer moving parts that could break down. According to the Institute of Motor Industry, 97% of active vehicle mechanics were not suitably qualified to work on electric cars. As such, two thirds of auto repair and service shops were expected to see a mass decline in sales by 2040. The GTA Industrial Rental Market Toronto was the third largest industrial real estate market in North America behind Los Angeles and Chicago. The GTA’s well-established transportation system and network of highways made it a strategic location for businesses to operate. This was evident from the average net asking rental rate increasing to an all-time high of $9.73 per square foot in the second quarter of 2020, up 64 per cent in the last five years. The GTA was one of five markets in North America where demand outstripped supply substantially. This imbalance had pushed vacancy rates to historical lows. Properties in the medium-to-small size range (under 20,000 square feet) were the most scarce, with vacancy rates as low as 0.3%. The Covid-19 global lockdown had caused many sectors, including food and beverage and paper products, to shift from just-in-time to just-in-case manufacturing strategies. Just-in-time was a management system where inventory was only produced as required to meet the immediate customer demand. Conversely, justin-case was a strategy of maintaining large inventories to reduce the risk of back orders. As more sectors were expected to switch to the latter strategy, the need for warehousing space was expected to rise. Additionally, the accelerated adoption of e-commerce in response to Covid-19 had increased demand for industrial warehousing in the GTA. HI-LINE AUTO PARTS History Hi-line, founded in 1953, was a family owned and operated business. Carl Green, Jason’s father, began his career in the automotive industry as a sales representative for George Stembler, a Canadian automotive wholesaler. In the early 1940s, Carl joined the Canadian Armed Forces in World War II. When he was 1 All currencies were in CAD dollars unless otherwise stated. Hi-Line Auto Parts 20038/09 FW FW 2020-21 discharged in 1953, he decided to start his own automotive business. Carl utilized the upstairs space of his grandparents shoe store, located on Queen Street West in Downtown Toronto and began importing and selling various automotive parts from global manufacturers. By 1963, sales had grown rapidly and Carl needed additional space. He purchased a building on Toryork Drive in an industrial neighborhood with various warehouses, factories and auto repair shops. The street was less than 10 kilometers away from five major highways, making it easily accessible for both employees and customers. The building itself was just over 42,000 square feet and sat on a 2-acre lot. Of the building’s total square footage, the warehouse represented 40,000 square feet, and the remaining was utilized for office space. Jason Green Green started working for Hi-line in his teens. From the ages of 12 to 17, he would work in the warehouse after school; packaging orders, delivering orders, and bringing customers around the warehouse to view new products. In 1980, Jason began his first year of business studies at York University, but decided to pursue Hi-line on a full time basis after just two years in the program. As Hi-line was a relatively small company, Green had built strong working relationships with its client base and understood their needs. This knowledge and expertise was apparent in Hi-line’s customer loyalty – over 80 per cent of the company’s customers had been purchasing from Green for over 30 years. It had been ten years since Green last took a vacation. As such, he wanted to work less hours and spend more time with his wife and family. He had plans to retire in the next five years and hoped he could draw $1.5 million from the business to put towards his retirement. Current Operations Hi-line purchased automotive parts and accessories in large quantities directly from global manufacturers and distributed them to car dealerships, service centers, tire shops, and wholesalers across Canada. Hi-line’s customers would then use these parts and accessories to perform maintenance and repairs on the end user’s vehicles. Hi-line’s inventory was comprised of over 40,000 stock-keeping units (SKUs) which were segmented into nine product types: filters, lighting and electronics, chemicals, body parts, exhaust, brake Hi-Line Auto Parts 20048/09 FW FW 2020-21 parts, tire, personal protective equipment (PPE), and shop supplies. Approximately 15% of Hi-line’s sales were derived from filters, with the remaining spread evenly amongst the other product types. 2 In recent years, it had become easier for Hi-line’s customers to purchase parts from competitors and manufacturers online. Thus, sales had slowly begun to flatten (See Exhibits 1 and 2). To boost revenues, Green decided to rent some of Hi-line’s vacant warehouse parking spaces to Hi-line’s neighboring properties in exchange for a monthly fee beginning in fiscal 2018. Hi-line was committed to offering the lowest prices in the automotive parts market. To achieve this, Green attempted to keep operating costs as low as possible. This was exemplified by Hi-line’s lean workforce, which was limited to Green, three warehouse workers, two administrative personnel, and two full-time drivers. Hi-line’s full time drivers were responsible for delivering orders to customers across the Greater Toronto Area (GTA). Green would also deliver GTA orders himself on weekends and in the evenings. For orders outside the GTA, Hi-line used an external courier. Green was currently compensated by means of a salary and dividends, depending on the company’s performance (See Exhibit 3). Hi-line offered pick-up options to customers located in close proximity to the warehouse. Credit terms were net 30 days for approved credit customers. It took Hi-line an average of three days to deliver an order after it was placed by phone. CUSTOMERS The automotive aftermarket was defined by two consumer groups: the “do-it-yourself” (DIY) segment and the “do-it-for-me” (DIFM) segment. Customers who were skilled enough to repair and modify their own vehicles were characterized as DIY. In contrast, many individuals preferred to have parts and accessories installed for them. These individuals took their vehicles to professional repair shops or service centers in the DIFM market. The DIY segment made up 20 per cent of total aftermarket parts purchases and the DIFM segment made up the remaining 80 per cent. The product mix of a DIFM customer was much broader than a typical DIY purchase. DIY purchases contained simple parts including filters, glass and lighting products that were easy to install, whereas larger and more complex parts such as exhaust systems tended to be DIFM purchases. DIY customers typically choose between used parts and new parts, the price point and availability of used parts was a major factor in these decisions. As electric vehicles continued to increase 2 Filters were used to prevent dust and other contaminants from entering the vehicles engine, cabin, fuel and hydraulic systems.Hi-Line Auto Parts 20058/09 FW FW 2020-21 in popularity, the DIY segment was expected to capture a larger percentage of aftermarket purchases due to simpler installation processes. All of Hi-line’s sales were made to customers in the DIFM segment. Nearly 85 per cent of Hi-line’s customers were located in the GTA, while the remaining were located in the Maritime Provinces.3 Within the DIFM segment, Hi-line catered to three customer types: dealerships, mobile distributors, and franchise centers. Each customer type valued the same four qualities when making purchasing decisions: affordability, speed of delivery, ease of ordering, and product selection. Dealerships Hi-line sold merchandise to both new and used car dealerships. These dealerships contained large service departments that provided customers with services including oil changes, filter replacements, light and tire checks, fluid replacements, and wiper blade inspections. The most popular product segments that this consumer group purchased included chemicals, tire repair, and filters. Dealerships typically paid for their orders upon delivery and represented 25 per cent of Hi-line’s product sales in 2019. The average customer in this group purchased $400 worth of merchandise at a time and re-ordered every three weeks. Mobile Distributors Mobile distributors were individuals who carried automotive parts on delivery trucks and travelled doorto-door to car repair shops replenishing stock as needed. Mobile distributors consistently purchased from Hi-line every six weeks, purchasing an average of $1,500 worth of merchandise at a time. A typical order made by a mobile distributor included shop supplies, filters, chemicals, and exhaust systems. Sales from mobile distributors accounted for 20 per cent of Hi-line’s 2019 product sales and nearly all mobile distributors utilized Hi-line’s pick-up option. Approximately 50 per cent of sales to mobile distributors were made on account. Franchise Centers Approximately 50 per cent of Hi-line’s product sales were made to franchise auto and tire centers. These centers were well-known repair centers amongst North American car owners and included brands like Goodyear, Active Green & Ross, and Midas. These franchises performed a variety of different auto repair services and sold new and used tires directly to consumers. Franchise stores placed weekly orders amounting to $80 on average and primarily consisted of chemicals, filters, tire repair, and shop supplies. 3 The Maritime Provinces consisted of New Brunswick, Nova Scotia and Prince Edward Island.Hi-Line Auto Parts 20068/09 FW FW 2020-21 All sales to franchise stores were made on credit and it was common for them to pay beyond Hi-line’s 30- day credit policy. These customers never utilized Hi-line’s pick-up option, forcing Hi-line’s drivers to make frequent trips to these centers with relatively low margin orders. COMPETITION The auto parts distribution industry in Canada was highly fragmented. No player accounted for more than five per cent of the industry’s total revenues. An estimated 80 per cent of industry players employed fewer than 20 employees and the average revenue per player was estimated to be $9.3 million in 2020. Though the market was currently fragmented, it was expected to slowly consolidate as players merged with each other to afford larger and more cost efficient purchases (See Exhibit 4). Automotive Parts Distributors One of the largest warehouse distributors in Canada was Automotive Parts Distributors (APD). APD was a private company that originated from its parent company, Red Deer Exhaust Specialties, in 1993. The parent company was a performance exhaust manufacturer and distributor of several well recognized brand names in the exhaust segment of the aftermarket.4 APD had four auto parts distribution warehouses in Canada, including three in Alberta and one in Saskatchewan. They were also one of the only warehouse distributors in Western Canada that sold solely to the DIFM market. APD was committed to investing in technology and processes. They offered GPS tracking on all deliveries and an online order platform for its customers. APD prided itself on its transparent pricing. Their company website featured upcoming manufacturer price increases to encourage its customers to “beat the increases and save”. APD’s revenue, which was primarily in Western Canada, was expected to total $174.8 million in 2020. Motorcade Industries Motorcade Industries, Inc (Motorcade) was established in 1957 and had grown to become one of Ontario’s largest automotive parts wholesaler and retailer. They had over 11 sales representatives in the GTA alone, and 17 in all of Ontario. Motorcade was well known for its excellent customer service and knowledgeable sales representatives. Aside from their warehouse in North York, they also had eight retail locations in the GTA which made it readily accessible for the DIY segment of the market. Motorcade also employed four times the amount of delivery personnel as Hi-line, making their average delivery time less than one day. 4 Performance exhaust was used to increase the airflow of a car’s engine.Hi-Line Auto Parts 20078/09 FW FW 2020-21 Motorcade offered very comparable products and brands to Hi-line, however their prices tended to be slightly higher. Currently, Motorcade did not have an e-commerce platform for consumers to browse products and place orders. BECOMING DIGITAL Each SKU that Hi-line ordered from suppliers needed to be purchased in bulk. Thus, Hi-line’s warehouse consisted of products that dated all the way back to the mid 1900’s that never sold. In early 2012, Hi-line had written off most of its out-of-date products from the company’s balance sheet, as their net realizable values were estimated to be close to zero. These outdated products remained in Hi-line’s warehouse. Green’s son, Blake, took it upon himself to set up an eBay shop to liquidate some of Hi-line’s old merchandise. 5 Blake listed some of Hi-line’s products on the platform in late 2018. In just one month, he received over 20 orders, amounting to over $1,270 worth of sales. The eBay store had been a huge success for Hi-line and represented five per cent of product sales on Hi-line’s 2019 statement of earnings. All eBay sales were paid up front. Green had always considered starting his own e-commerce platform, and thought it would increase the value of Hi-line if he were to sell the business. Green found an agency who he believed could get the website up and running quickly. The agency promised that the website would be live by September 2020 if Green agreed to all of their terms by the end of the month. They estimated the cost to create the website would be $11,000, plus an additional $4,000 to capture images of all of Hi-line’s merchandise. 6 All of Hi-line’s products would be visible on the website, and customers could easily select items and place orders. All sales made on the platform would need to be paid for up front before the order was processed. All e-commerce sales would be shipped using Canada Post. Upon checkout, GTA customers would have the option to select express shipping, in which Canada Post guaranteed delivery within 24 hours. Shipping rates from Canada Post were calculated based on the size and weight of the parcel. Parcel tracking would be available on all shipments and shipping fees were to be charged to the customer. There would be no pick-up option for orders placed on the e-commerce site. The website would require ongoing updates as prices and products changed. As such, Green planned to hire a part-time website manager who would be responsible for all updates and technological issues as they 5 eBay was an e-commerce platform that facilitated business-to-consumer sales. 6 All website development costs would be expensed in the 2020 fiscal period.Hi-Line Auto Parts 20088/09 FW FW 2020-21 arose. The part-time employee was to be paid an annual salary of $24,800. If the e-commerce platform was pursued, all of Hi-line’s products would be delisted from the eBay platform and transferred onto the company’s own website. Therefore, Green did not anticipate any incremental sales from transitioning to its own e-commerce site. Green set an annual target profit of $25,000 for this initiative. He wondered which of Hi-line’s customer groups he should target for the e-commerce platform. For each of Hi-line’s customer groups, he wanted to know how many orders would need to be made on the new website for Hi-line to achieve its target profit. He thought he could compare the required orders to Hi-line’s current order levels so that he could better understand the financial feasibility of each potential customer group. For the purpose of this calculation, he wanted to use the 2019 figures as a basis for estimation. WAREHOUSE REMODEL Since sales had begun to decline in fiscal 2018, Green started purchasing smaller quantities of each SKU. As such, only 60 per cent of Hi-line’s 40,000 square foot warehouse space was currently utilized for inventory storage. Green was considering renting out the remaining vacant space. When Hi-line first purchased its building in 1963, the average warehouse ceiling height was 18 feet. In 2020, the average warehouse ceiling height was 32.3 feet high. Green believed that increasing the ceiling height on the vacant warehouse space would be crucial to securing a tenant. After conducting extensive research, Green found that the average cost to increase ceiling height was $26 per square foot of space on the ground. Green planned to raise the ceilings for only 90 per cent of the vacant space. The remaining 10 per cent would be used for the tenant’s back office space. It was estimated to cost an additional $28,310 to put up the walls and insulation necessary to divide the building into two separate warehouses. Green believed that to be competitive in the warehouse rental market, adding a communal kitchen to the building would help Hi-line secure a tenant. Communal kitchens were popular among corporate and industrial offices and gave employees a space to prepare meals while they were on break. Since Hi-line’s office space was not fully utilized, Green was willing to dedicate 100 square feet of this space towards a communal kitchen. The kitchen would be accessible from the tenant’s side of the building and for Hi-line’s employees. Green estimated the cost of the kitchen appliances to amount to $4,145 and would be depreciated using the straight-line method over 10 years with no residual value. Another $3,800 would be required to renovate the office space into a kitchen. The ceiling height expansion, wall renovation and Hi-Line Auto Parts 20098/09 FW FW 2020-21 kitchen renovation would all be depreciated using the straight-line method over 30 years with no residual value. Green planned to list the vacant space for $9.40 per square foot, per year. This was comparable to the other warehouse rental listings in Hi-line’s neighborhood. The tenant would be required to pay in equal monthly installments over the course of the rental agreement. A deposit for last month’s rent would be required from the tenant upon signing the agreement. With Hi-line’s reduced warehouse space, Green believed he could convert one of his full-time warehouse workers into a part-time employee. Each of Hi-line’s warehouse workers were paid $22.21 per hour and worked 40 hours per week in the 2019 fiscal year. If this opportunity were pursued, one warehouse worker would only be required for 20 hours per week. The worker would be compensated at the same hourly rate as in 2019. All of Hi-line’s employees were paid on the last day of the month. Green estimated Hi-line’s maintenance and repairs expense to increase by 80 per cent from 2019 levels if this opportunity were pursued. Green had also been advised by his insurance broker to purchase landlord insurance, which would cover any damages made to the rented warehouse. This was estimated to cost $1,900 annually. With less storage space, Green wanted to scale down on his purchasing volume and frequency even more. As such, he believed he could decrease his inventory days by 15 days. Changes to accounts receivable and accounts payable would be negligible. Green also wanted to test a scenario with no added communal kitchen. His research indicated that this feature would bring the rental rate down to $8.10 per square foot, per year. If this alternative was pursued, Hi-line would save on all the investments related to the kitchen renovation. The only other change would be to maintenance and repairs, which would only increase by 20 per cent from 2019 levels. In both scenarios, Green anticipated that it would take time to clean up the warehouse and secure a tenant, but believed that the warehouse could be rented by September 2020. Green decided to assess the warehouse remodel opportunity against a hurdle rate of 40 per cent. Green needed to decide how the warehouse renovation would be financed. He wanted to project the financial results for fiscal 2020 to determine whether raising debt or equity would be necessary. If the warehouse remodel option was chosen, Green only felt the need to project out the alternative with a communal kitchen.Hi-Line Auto Parts 200108/09 FW FW 2020-21 FUTURE FINANCIAL OUTLOOK Green projected that fiscal 2020 product sales would experience half the level of product sales growth decline as the 2018 to 2019 fiscal period. Parking lot rental sales would remain same dollar as fiscal 2019. Costs of goods sold was estimated to increase to 76 per cent of product sales as a result of Green continuously scaling down on purchase volume. Realty taxes would increase from four per cent of sales to five per cent of sales and Green did not expect any sales/disposals of equipment in fiscal 2020. Advertising and promotion would increase by five per cent from 2019 levels and vehicle expenses would drop by 10 per cent. Fiscal 2020 interest expense on existing debt would be five per cent per annum. Depreciation would amount to $7,250 for the existing building and office equipment and $2,345 for the delivery vehicles. All other expenses would remain the same dollar as fiscal 2019. Green estimated no changes to days of accounts receivable, but believed that accounts payable days would drop by two days from fiscal 2019 levels due to less frequent purchases. Inventory days were also estimated to drop by five days regardless of which option was chosen. Hi-line’s operating income was taxable at a rate of 15 per cent. There were no anticipated changes to common stock and Green did not plan to draw dividends in 2020. CONCLUSION Given Green’s anticipated retirement, he had to decide which option to pursue: launching an e-commerce site for Hi-Line to be sold as a well-positioned automotive business or slowing down operations and selling a renovated warehouse upon his exit. Green did not feel like he had the time and motivation to pursue both options. He had to choose to move online and dedicate his time to training the new website manager or dedicate his time to finding a new tenant. Before making any decision, Green wanted to analyze the company’s past performance and cash flows, so that he could apply these key learnings to Hi-line’s strategic direction. He planned to project an income statement and balance sheet for the 2020 fiscal period. Whether he chose to launch an e-commerce platform in an attempt to prepare the business for sale or wind down operations via the rental opportunity, he knew that a detailed action plan and contingency plan would be important to the company’s success. Green took a large sip of his Coca Cola and got to work. Hi-Line Auto Parts 200118/09 FW FW 2020-21 EXHIBIT 1: STATEMENT OF EARNINGS Hi-line Auto Parts For the years ending December 31 7 Cost of sales only related to product sales. 2017 2018 2019 REVENUE Product sales $ 4,285,213 100.0% $ 3,862,014 98.6% $ 3,310,235 98.4% Parking lot rental sales – 0.0% 55,210 1.4% 53,621 1.6% Total Revenue 4,285,213 100.0% 3,917,224 100.0% 3,363,856 100.0% Cost of Sales7 3,070,395 71.7% 2,822,156 72.0% 2,489,556 74.0% Gross Profit 1,214,818 28.3% 1,095,068 28.0% 874,300 26.0% EXPENSES Salaries and wages 512,012 11.9% 536,498 13.7% 501,654 14.9% Realty taxes 123,230 2.9% 129,621 3.3% 134,214 4.0% Office and general 4,402 0.1% 3,480 0.1% 4,250 0.1% Vehicle expenses 9,600 0.2% 9,420 0.2% 9,571 0.3% Depreciation 9,125 0.2% 9,605 0.2% 9,265 0.3% Loss on sale of vehicles – 0.0% – 0.0% 9,254 0.3% Advertising and promotion 2,450 0.1% 2,345 0.1% 2,120 0.1% Interest expense 23,624 0.6% 21,302 0.5% 19,365 0.6% Maintenance and repairs 4,120 0.1% 3,650 0.1% 3,568 0.1% Total Operating Expenses 688,563 16.1% 715,921 18.3% 693,261 20.6% Net Income Before Taxes 526,255 12.3% 379,147 9.7% 181,039 5.4% Income Tax 78,938 1.8% 56,872 1.5% 27,156 0.8% Net Income $ 447,317 10.4% $ 322,275 8.2% $ 153,883 4.6%Hi-Line Auto Parts 200128/09 FW FW 2020-21 EXHIBIT 2: STATEMENT OF FINANCIAL POSITION Hi-line Auto Parts As at December 31 8 Accounts receivable only related to product sales. All parking lot rental sales were paid for up front. 2018 2019 ASSETS Current assets: Cash $ 56,324 $ 147,970 Accounts receivable8 478,562 365,125 Inventory 987,564 821,224 Total current assets 1,522,450 1,334,319 Long-term assets: Land 123,000 123,000 Delivery vehicles, net 97,854 52,354 Building and office equipment, net 132,450 124,200 Total long-term assets 353,304 299,554 Total assets $ 1,875,754 $ 1,633,873 LIABILITIES & SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 154,325 $ 128,625 Other payables 21,321 22,340 Total current liabilities 175,646 150,965 Long-term liabilities: Bank loan payable 389,521 123,542 Total long-term liabilities 389,521 123,542 Total liabilities 565,167 274,507 Shareholders' equity: Common stock 100 100 Retained earnings 1,310,487 1,359,266 Total shareholders' equity 1,310,587 1,359,366 Total liabilities and shareholders' equity $ 1,875,754 $ 1,633,873 Hi-Line Auto Parts 200138/09 FW FW 2020-21 EXHIBIT 3: HI-LINE AUTO PARTS SELECT FINANCIAL RATIOS 9 Calculated using product sales only. 10 Calculated using cost of sales. 2018 2019 Profitability Return on Assets 17.2% 9.4% Return on Equity 24.6% 11.3% Financial Strength Quick Ratio 3.0 3.4 Current Ratio 8.7 8.8 Total Debt to Equity 0.43 0.20 Interest Coverage 16.8 8.3 Efficiency Age of Receivables9 44.6 39.7 Age of Inventory10 126.0 118.8 Age of Payables24 19.7 18.6 Inventory Turnover 2.9 3.0 Fixed Asset Turnover 11.1 11.2 Total Asset Turnover 2.1 2.0 Growth Sales Growth -8.6% -14.1% Profit Growth -28.0% -52.3%Hi-Line Auto Parts 200148/09 FW FW 2020-21 EXHIBIT 4: CANADIAN AUTO PARTS WHOLESALING INDUSTRY SELECT FINANCIAL RATIOS 2019 Financial Strength Current Ratio 2.1 Total Debt to Equity 1.1 Interest Coverage 12.2 x Efficiency Age of Receivables 41.0 days Age of Inventory 79.3 days Age of Payables 23.1 days Inventory Turnover 4.6 x Growth Sales Growth 2.0% Profitability Return on Assets 11.7% Return on Equity 22.7