KP TISSUE INC.

UNAUDITED CONDENSED FINANCIAL STATEMENTS

FOR THE 3-MONTH AND 9-MONTH PERIODS ENDED SEPTEMBER 30, 2024

AND SEPTEMBER 30, 2023

KP Tissue Inc.

2 Prologis Blvd., Suite 500, Mississauga, Ontario L5W 0G8 www.kptissueinc.com

KP Tissue Inc.

Unaudited Condensed Statements of Financial Position

(tabular amounts are in thousands of Canadian dollars)

September 30, 2024

December 31, 2023

$

$

Assets

Current assets

Dividends receivable

1,796

1,793

Income taxes recoverable

367

652

Receivable from Investee

65

-

2,228

2,445

Non-current assets

Investment in associate (note 5)

70,647

68,162

Total assets

72,875

70,607

Liabilities

Current liabilities

Dividend payable (note 7)

1,796

1,793

Payable to investee

-

457

Income taxes payable

376

-

Total liabilities

2,172

2,250

Equity

Common shares (note 7)

22,702

22,560

Contributed surplus

144,819

144,819

Deficit

(113,398)

(115,027)

Accumulated other comprehensive income

16,580

16,005

Total equity

70,703

68,357

Total liabilities and equity

72,875

70,607

Subsequent events (note 7)

The accompanying notes are an integral part of these unaudited condensed financial statements.

1

KP Tissue Inc.

Unaudited Condensed Statements of Income (Loss) and Comprehensive Income (Loss)

For the 3-month and 9-month periods ended September 30, 2024 and September 30, 2023

(tabular amounts are in thousands of Canadian dollars, except share and per share amounts)

3-month period

3-month period

9-month period

9-month period

ended September

ended September

ended September

ended September

30, 2024

30, 2023

30, 2024

30, 2023

$

$

$

$

Share of income (loss)

2,259

1,789

4,758

(2,909)

Depreciation of fair value increments

(278)

(286)

(847)

(886)

Equity income (loss)

1,981

1,503

3,911

(3,795)

Dilution gain

107

262

500

787

Income (loss) before income taxes

2,088

1,765

4,411

(3,008)

Deferred tax expense

-

-

-

3,892

Net income (loss)

2,088

1,765

4,411

(6,900)

Other comprehensive income (loss)

net of income tax expense (recovery) (note 6)

Items that will not be

reclassified to net income (loss):

Remeasurements of pensions

(786)

2,466

2,585

6,675

Remeasurements of post-retirement

benefits

(215)

370

17

2,229

Items that may be subsequently

reclassified to net income (loss):

Cumulative translation adjustment

(474)

672

575

1,938

Other comprehensive income (loss)

(1,475)

3,508

3,177

10,842

Total comprehensive income (loss)

613

5,273

7,588

3,942

Basic earnings (loss) per share

0.21

0.18

0.44

(0.69)

Weighted average number of shares

outstanding

9,979,383

9,957,841

9,973,463

9,953,646

The accompanying notes are an integral part of these unaudited condensed financial statements.

2

KP Tissue Inc.

Unaudited Condensed Statements of Changes in Equity

For the 3-month and 9-month periods ended September 30, 2024 and September 30, 2023

(tabular amounts are in thousands of Canadian dollars, except share amounts)

Accumulated

othe r

Contribute d

compre he nsive

Total

Common shares

surplus

De ficit

income

equity

#

$

$

$

$

$

As of January 1, 2023

9,945,976

22,379

144,819

(108,008)

14,840

74,030

Issuance of common shares (note 7)

12,746

131

-

-

-

131

Dividends payable (note 7)

-

-

-

(1,793)

-

(1,793)

Dividends paid

-

-

-

(3,582)

-

(3,582)

Fair value adjustment

-

(1)

-

1

-

-

Remeasurements of pensions

-

-

-

6,675

-

6,675

Remeasurements of

-

-

-

2,229

-

post-retirement benefits

2,229

Cumulative translation adjustment

-

-

-

-

1,938

1,938

Net loss

-

-

-

(6,900)

-

(6,900)

As of September 30, 2023

9,958,722

22,509

144,819

(111,378)

16,778

72,728

Accumulated

other

Contributed

comprehensive

Total

Common shares

surplus

Deficit

income

equity

#

$

$

$

$

$

As of January 1, 2024

9,963,722

22,560

144,819

(115,027)

16,005

68,357

Issuance of common shares (note 7)

16,588

143

-

-

-

143

Dividends payable (note 7)

-

-

-

(1,796)

-

(1,796)

Dividends paid

-

-

-

(3,589)

-

(3,589)

Fair value adjustment

-

(1)

-

1

-

-

Remeasurements of pensions

-

-

-

2,585

-

2,585

Remeasurements of

post-retirement benefits

-

-

-

17

-

17

Cumulative translation adjustment

-

-

-

-

575

575

Net income

-

-

-

4,411

4,411

As of September 30, 2024

9,980,310

22,702

144,819

(113,398)

16,580

70,703

The accompanying notes are an integral part of these unaudited condensed financial statements.

3

KP Tissue Inc.

Unaudited Condensed Statements of Cash Flows

For the 9-month periods ended September 30, 2024 and September 30, 2023

(tabular amounts are in thousands of Canadian dollars)

9-month period

9-month period

ended September

ended September

30, 2024

30, 2023

$

$

Cash flows from (used in) operating activities

Net income (loss)

4,411

(6,900)

Items not affecting cash

Equity loss (income)

(3,911)

3,795

Dilution gain

(500)

(787)

Deferred tax expense

-

3,892

Total items not affecting cash

(4,411)

6,900

Decrease in payable to investee

(660)

(137)

Tax refunds, net

660

137

Net cash from (used in) operating activities

-

-

Cash flows from investing activites

Dividends received, net

5,239

5,242

Net cash from investing activities

5,239

5,242

Cash flows used in financing activities

Dividends paid, net

(5,239)

(5,242)

Net cash used in financing activities

(5,239)

(5,242)

Increase (decrease) in cash and cash equivalents during the period

-

-

Cash and cash equivalents - Beginning of period

-

-

Cash and cash equivalents - End of period

-

-

The accompanying notes are an integral part of these unaudited condensed financial statements.

4

KP Tissue Inc.

Notes to Unaudited Condensed Financial Statements

For the 9-month periods ended September 30, 2024 and September 30, 2023

(tabular amounts are in thousands of Canadian dollars, except share amounts)

  1. General information
    KP Tissue Inc. (KPT or the Corporation) was incorporated by articles of incorporation under the Canadian Business Corporations Act on October 1, 2012. As of September 30, 2024, the Corporation held a 12.7% interest in Kruger Products Inc. (Kruger Products). As of December 31, 2023, the Corporation held a 13.1% interest in Kruger Products.
    On January 1, 2023, KPLP undertook a corporate reorganization (the Kruger Products Reorganization) pursuant to which KPLP sold and assigned to its wholly-owned subsidiary, Kruger Products, and Kruger Products purchased and assumed from KPLP, in exchange for common shares, all of the properties, operations, assets and liabilities of KPLP, and KPLP was subsequently dissolved and wound-up into its partners. As a result of the Kruger Products Reorganization, Kruger Products, as the successor corporate entity to KPLP, now operates the business previously operated by KPLP.
    Kruger Products' principal business is to produce, distribute, market and sell a wide range of disposable tissue products, including bathroom tissue, facial tissue, paper towels and napkins for both the consumer and away-from-home markets in North America. The Corporation's headquarters are located in Mississauga, Ontario, Canada.
  2. Basis of presentation
    These unaudited condensed financial statements have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS Accounting Standards) applicable to the preparation of interim financial statements, including International Accounting Standards (IAS) 34 - Interim Financial Reporting as issued by the International Accounting Standards Board (IASB), and with interpretations of the International Financial Reporting Committee which the Canadian Accounting Standards Board has approved for incorporation into Part 1 of the CPA Canada Handbook - Accounting. These unaudited condensed financial statements should be read in conjunction with the annual audited financial statements of the Corporation for the year ended December 31, 2023.
    These unaudited condensed financial statements were approved by the board of directors on November 12, 2024.
  3. Summary of significant accounting policies
    The significant accounting policies used in the preparation of these unaudited condensed financial statements were disclosed in the annual audited financial statements of the Corporation for the year ended December 31, 2023 and have been applied to all periods presented.

Accounting standard issued but not yet implemented:

  1. IFRS 18, Presentation and Disclosure in Financial Statements. In April 2024, the IASB issued IFRS 18 to achieve comparability of the financial performance of similar entities. The standard, which replaces IAS 1, impacts the presentation of primary financial statements and notes, mainly the income statement where companies will be required to present separate categories of income and expense for operating, investing, and financing activities with prescribed subtotals for each new category. IFRS 18 will require management-defined performance measures to be explained and included in a separate note within the consolidated financial statements. The mandatory effective date would be for annual reporting periods beginning on or after January 1, 2027, including interim financial statements, and requires retrospective application. The Company is currently assessing the impact of the new standard.

5

KP Tissue Inc.

Notes to Unaudited Condensed Financial Statements

For the 9-month periods ended September 30, 2024 and September 30, 2023

(tabular amounts are in thousands of Canadian dollars, except share amounts)

  1. Amendments to IFRS 9 and IFRS 7 - Amendments to the Classification and Measurement of Financial Instruments. On May 30, 2024, the IASB issued amendments to IFRS Accounting Standards 9 and IFRS Accounting Standards 7 aimed at improving the classification and measurement of financial instruments. The recent amendments simplify financial reporting by allowing earlier recognition of liabilities settled via electronic payments, clarifying the assessment of cash flows for basic lending arrangements, and refining definitions for non-recourse features and linked instruments. The amendments also introduce more detailed disclosure requirements for fair value changes in equity instruments and mandate reporting of terms that could affect cash flow timings or amounts. The amendment will be effective from January 1, 2026 and entities must apply these amendments retrospectively, with earlier adoption permitted. The Company is currently assessing the impact of the amendments.
  1. Critical accounting estimates and judgments
    The preparation of these unaudited condensed financial statements in conformity with IFRS Accounting Standards requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities in the unaudited condensed financial statements and the disclosure of contingencies at the dates of the unaudited condensed statement of financial position, and the reported amounts of revenues and expenses during the reporting period. On a regular basis and with the information available, management reviews its estimates and judgements, including those related to fair value and the basis of accounting. Actual results could differ from those estimates. When adjustments become necessary, they are reported in earnings in the period in which they occur.
    The estimates and judgement applied by management that most significantly affect the unaudited condensed financial statements are the same as the ones that applied to the annual audited financial statements for the year ended December 31, 2023.
  2. Investment in associate
    Changes in the carrying amount of the investment were as follows:

9-month period

9-month period

ended September

ended September

30, 2024

30, 2023

$

$

Opening balance

68,162

79,338

Increase in investment

143

131

Share of income (loss)

4,758

(2,909)

Depreciation of fair value increments

(847)

(886)

Share of other comprehensive income (loss)

3,177

1,232

Dilution gain

500

787

Dividends

(5,385)

(5,375)

Partnership unit refunds

139

-

Closing balance

70,647

72,318

6

KP Tissue Inc.

Notes to Unaudited Condensed Financial Statements

For the 9-month periods ended September 30, 2024 and September 30, 2023

(tabular amounts are in thousands of Canadian dollars, except share amounts)

The following summarizes financial information about the assets, liabilities, revenue and net income (loss) of Kruger Products, in which the Corporation holds a 12.7% interest as of September 30, 2024. The financial information was derived from the unaudited condensed consolidated financial statements of Kruger Products for the 9-month period ended September 30, 2024. The assets and liabilities disclosed include the fair value adjustments made to the carrying amount of the assets and liabilities of the associate on its acquisition.

September 30, 2024

Kruger Products

KPT basis of

basis of accounting

Fair value increment

accounting

$

$

$

Current assets

584,320

-

584,320

Non-current assets

1,910,917

301,936

2,212,853

Liabilities

1,828,241

-

1,828,241

Net assets

666,996

3-month period ended September 30, 2024

$

9-month period ended September 30, 2024

$

Revenue

521,085

1,510,317

Net income attributable to Kruger Products

17,993

37,541

Other comprehensive income (loss)

(10,736)

25,154

Total comprehensive income

attributable to Kruger Products

7,257

62,695

December 31, 2023

Kruger Products

KPT basis of

basis of accounting

Fair value increment

accounting

$

$

$

Current assets

542,854

-

542,854

Non-current assets

1,782,776

307,973

2,090,749

Liabilities

1,712,003

-

1,712,003

Net assets

613,627

3-month period ended September 30, 2023

$

9-month period ended September 30, 2023

$

Revenue

473,399

1,390,693

Net income (loss) attributable to Kruger Products

12,928

(21,849)

Other comprehensive income

25,770

10,827

Total comprehensive income (loss)

attributable to Kruger Products

38,698

(11,022)

7

KP Tissue Inc.

Notes to Unaudited Condensed Financial Statements

For the 9-month periods ended September 30, 2024 and September 30, 2023

(tabular amounts are in thousands of Canadian dollars, except share amounts)

The following shows the reconciliation of KPT's portion of Kruger Products equity to the investment recorded in KPT:

September 30, 2024

December 31, 2023

$

$

Kruger Products consolidated equity

666,996

613,627

Add back: Inception value of Partnership units liability

(a)

118,562

118,562

Less: Equity pertaining to Kruger Inc. and KPGP

(635,784)

(585,120)

Equity pertaining to KPT

149,774

147,069

Investment in associate recorded in KPT

70,647

68,162

Reconciling difference

79,127

78,907

Reconciling items since inception:

Equity issuance costs

(11,110)

(11,110)

Depreciation of fair value increments

61,183

60,336

Currency translation adjustment in fair value increments

(2,950)

(2,962)

Tax Distribution

9,181

9,320

Gain on exercise of overallotment option

(375)

(375)

Dilution gain

(4,802)

(4,302)

Impairment in investment in associate

28,000

28,000

-

-

  1. As a result of the Kruger Products Reorganization, KPLP's Partnership unit liability was extinguished as KPLP's Partnership Agreement was terminated in accordance with its terms and KPLP's corresponding requirement to make the Tax Distribution was eliminated.

With respect to KPT's investment in Kruger Products, the liability of KPT for the debts, liabilities and other obligations of Kruger Products is limited to KPT's capital contribution to Kruger Products.

6 Income taxes

As a result of the Kruger Products Reorganization (note 1), KPLP's tax status changed from a limited partnership to a corporation. Kruger Products is, therefore, a tax paying entity and will recognize income tax provisions directly. KPT no longer incurs taxable income and therefore the Deferred tax liability of $5.7 million recorded in KPT's audited statement of financial position as of December 31, 2022 was derecognized through the unaudited condensed statement of comprehensive income (loss) for the 9-month period ended September 30, 2023, as Deferred tax expense of $3.9 million and through Other comprehensive income (OCI) remeasurement of pension of $6.9 million Deferred tax recovery, OCI remeasurement of post retirement benefits of $0.5 million Deferred tax recovery and OCI cumulative translation adjustment of $2.2 million Deferred tax recovery.

8

KP Tissue Inc.

Notes to Unaudited Condensed Financial Statements

For the 9-month periods ended September 30, 2024 and September 30, 2023

(tabular amounts are in thousands of Canadian dollars, except share amounts)

7 Dividends

During the 9-month periods ended September 30, 2024 and September 30, 2023, the Corporation paid a quarterly dividend of $0.18 per share to shareholders. Pursuant to the Corporation Dividend Reinvestment Plan (DRIP), a portion of the dividend was reinvested by the shareholders, resulting in the Corporation issuing common shares. The proceeds were used to acquire additional shares of Kruger Products. The dividends paid, the additional common shares issued at the share price, and the gross proceeds were as follows:

9-month period ended September 30, 2024

Issuance of

Dividends paid

Share price

Common shares

Gross proceeds

Dividend Payment Date

$

$

#

$

January 15, 2024

1,793

8.99

4,615

41

April 15, 2024

1,794

8.52

5,880

50

July 15, 2024

1,795

8.52

6,093

52

5,382

16,588

143

9-month period ended September 30, 2023

Issuance of

Dividends paid

Share price

Common shares

Gross proceeds

Dividend Payment Date

$

$

#

$

January 16, 2023

1,790

10.18

4,682

48

April 17, 2023

1,791

10.25

3,000

30

July 17, 2023

1,791

10.30

5,064

53

5,372

12,746

131

Subsequent to September 30, 2024, on October 15, 2024, the Corporation paid a dividend of $1.8 million to shareholders at $0.18 per common share. Pursuant to the Corporation DRIP, a portion of the dividend was reinvested by the shareholders, resulting in the Corporation issuing 7,237 common shares at a price of $8.34.

Subsequent to September 30, 2024, the Corporation declared a dividend of $0.18 per common share to shareholders, payable on January 15, 2025.

As a result of the DRIP and Kruger Inc.'s reinvestment of its dividends from Kruger Products in common shares of Kruger Products, a dilution gain of $0.5 million was recorded during the 9-month period ended September 30, 2024 (9- month period ended September 30, 2023 - $0.8 million).

8 Economic dependence

The Corporation was created to acquire, and its business is limited to holding, a limited equity interest in Kruger Products, which is accounted for as an investment in an associate using the equity method of accounting. As such, the Corporation is economically dependent on Kruger Products and exposed to all the risks associated with the business of Kruger Products, including, but not limited to, liquidity risk.

9

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KP Tissue Inc. published this content on November 13, 2024, and is solely responsible for the information contained herein. Distributed by Public, unedited and unaltered, on November 13, 2024 at 21:45:44.127.