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KP Tissue Releases Third Quarter 2017 Financial Results

MISSISSAUGA, ONTARIO, Nov 08, 2017 (Marketwired via COMTEX) --

Revenue Growth and Continuing Pulp Price Headwinds

MISSISSAUGA, ONTARIO--(Marketwired - Nov. 8, 2017) - KP Tissue Inc. (KPT) (TSX:KPT) reports the Q3 2017 financial and operational results of KPT and Kruger Products L.P. (KPLP). Kruger Products is Canada's leading manufacturer of quality tissue products for the Consumer market (Cashmere, Purex, SpongeTowels, Scotties, and White Swan) and the Away-From-Home market, and continues to grow in the U.S. Consumer tissue business with the White Cloud® brand and premium private label products. KPT currently holds a 16.0% interest in KPLP.

KPLP Q3 2017 Business and Financial Highlights

Revenue increased by 7.5% to $336.3 million in Q3 2017 compared to Q3 2016

Adjusted EBITDA was $39.4 million in Q3 2017 compared to $45.6 million in Q3 2016

TAD Products sales and Adjusted EBITDA contribution continued to be strong, in line with previously set targets

Successful start-up of new Paper Machine #8 and a new converting line in Crabtree, Quebec site

Declared a quarterly dividend of $0.18 per share to be paid on January 15, 2018

"Third quarter results were in-line with our expectations, however they reflect the continued negative impact of rising pulp prices which have reached record levels, and also higher freight costs driven by the recent hurricanes in the southern U.S., said Mario Gosselin, CEO of KP Tissue and KPLP.

"Our new paper machine in Quebec started production during the third quarter, and as planned we incurred start-up costs. The project was completed on time and on budget, and we anticipate that it will positively contribute to our Away-from-Home business starting in the first quarter of Fiscal 2018.

"The selling price increase announced in the Canadian market in July has started to take effect in the fourth quarter. Given the further escalation in pulp prices, Adjusted EBITDA for Q4 2017 is expected to decrease compared to Q4 2016 Adjusted EBITDA of $42.9 million," concluded Mr. Gosselin.

KPLP Q3 2017 Financial Results

Revenue in Q3 2017 was $336.3 million, compared to $312.8 million in Q3 2016, an increase of $23.5 million or 7.5%. The increase in revenue was primarily due to higher sales volume, partially offset by the unfavourable impact of foreign exchange on U.S. Dollar sales.

Cost of sales in Q3 2017 increased to $290.8 million from $256.8 million in Q3 2016, primarily due to higher sales volumes, a significant increase in fibre costs, as well as higher freight costs and PM#8 project start-up costs, partially offset by the favourable impact of foreign exchange on U.S. Dollar denominated costs. As a percentage of revenue, cost of sales were 86.5% in Q3 2017 compared to 82.1% in Q3 2016.

Selling, general and administrative (SG&A) expenses in Q3 2017 were $20.7 million, compared to $22.7 million in Q3 2016. The decrease was primarily due to the timing of spend and cost reduction initiatives. As a percentage of revenue, SG&A expenses were 6.2% in Q3 2017, compared to 7.3% in Q3 2016.

Adjusted EBITDA in Q3 2017 was $39.4 million, compared to $45.6 million in Q3 2016, lower by $6.2 million or 13.6%, primarily due to significantly higher fibre costs, increased freight costs, and start-up costs, partially offset by increased sales volume and lower SG&A costs.

Net income in Q3 2017 was $16.5 million, compared to $21.6 million in Q3 2016, primarily due to lower Adjusted EBITDA of $6.2 million and higher depreciation expense of $2.3 million. These items were partially offset by a change in foreign exchange gain of $2.0 million.

Total liquidity, representing cash and cash equivalents and availability under the credit line within covenant limitations, was $76.0 million as of September 24, 2017, compared to $80.3 million as of June 25, 2017.

KPT Q3 2017 Financial Results

KPT incurred a net loss of $0.1 million in Q3 2017. Included in the net loss was $2.6 million representing KPT's share of KPLP's income. The income was reduced by depreciation expense of $1.4 million related to adjustments to carrying amounts on acquisition and income tax expense of $1.3 million.

Dividends on Common Shares 

The Board of Directors of KPT declared a quarterly dividend of $0.18 per share to be paid on January 15, 2018 to shareholders of record at the close of business on December 29, 2017.

Additional Information

For additional information please refer to Management's Discussion and Analysis (MD&A) of KPT and KPLP for the third quarter ended September 24, 2017 available on SEDAR at www.sedar.com or our website at www.kptissueinc.com.

Third Quarter Results Conference Call Information

KPT will hold its third quarter conference call on Wednesday, November 8, 2017 at 8:30 a.m. Eastern Time.

Via telephone: 1-877-223-4471 or 647-788-4922

Via the internet at: www.kptissueinc.com

Presentation material referenced during the conference call will be available at www.kptissueinc.com.

A rebroadcast of the conference call will be available until midnight, November 15, 2017 by dialing 800-585-8367 or 416-621-4642 and entering passcode 84517935.

The replay of the webcast will remain available on the website until midnight, November 15, 2017.

About KP Tissue Inc. (KPT)

KPT was created to acquire, and its business is limited to holding, a limited partnership interest in KPLP, which is accounted for as an investment on the equity basis. KPT currently holds a 16.0% interest in KPLP. For more information visit www.kptissueinc.com.

About Kruger Products L.P. (KPLP)

KPLP is Canada's leading manufacturer of quality tissue products for household, industrial and commercial use. KPLP serves the Canadian consumer market with such well-known brands as Cashmere®, Purex®, SpongeTowels®, Scotties® and White Swan®. In the U.S., KPLP manufactures the White Cloud® brand, as well as many private label products. The Away-From-Home division manufactures and distributes high-quality, cost-effective product solutions to a wide range of commercial and public entities. KPLP has approximately 2,500 employees and operates eight FSC® COC-certified (FSC® C-104904) production facilities in North America. For more information visit www.krugerproducts.ca.

Non-IFRS Measures

This press release uses certain non-IFRS financial measures which KPLP believes provide useful information to management of KPLP and the readers of the financial information in measuring the financial performance and financial condition of KPLP. These measures do not have a standardized meaning prescribed by IFRS and therefore may not be comparable to similarly titled measures presented by other companies. An example of such a measure is Adjusted EBITDA. Beginning with Q4 2015 in accordance with Canadian Securities Administrators Staff Notice 52-306 (Revised), we reference Adjusted EBITDA as a non-IFRS financial measure. This term replaces the previously referenced non-IFRS financial measure EBITDA. Our definition of Adjusted EBITDA is unchanged from our former definition of EBITDA. Accordingly, this change in terminology has no impact on our reported financial results for prior periods. Adjusted EBITDA is not a measurement of operating performance computed in accordance with IFRS and should not be considered as a substitute for operating income, net income or cash flows from operating activities computed in accordance with IFRS. "Adjusted EBITDA" is calculated by KPLP as net income (loss) before (i) interest expense, (ii) income taxes, (iii) depreciation, (iv) amortization, (v) impairment (gain on sale) of non-financial assets, (vi) loss (gain) on disposal of property, plant and equipment, (vii) foreign exchange loss (gain), (viii) costs related to restructuring activities, (ix) changes in amortized cost of Partnership units liability, and (x) one-time costs due to pension revaluations related to past service. A reconciliation of Adjusted EBITDA to the relevant reported results can be found in the MD&A of KPT and KPLP for the third quarter ended September 24, 2017 available on SEDAR at www.sedar.com.

Forward-Looking Statements

Certain statements in this press release about KPT's and KPLP's current and future plans, expectations and intentions, results, levels of activity, performance, goals or achievements or any other future events or developments constitute forward-looking statements. The words "may", "will", "would", "should", "could", "expects", "plans", "intends", "trends", "indications", "anticipates", "believes", "estimates", "predicts", "likely" or "potential" or the negative or other variations of these words or other comparable words or phrases, are intended to identify forward-looking statements. The forward-looking information is based on certain key expectations and assumptions made by KPT, including expectations and assumptions concerning: the impact of the TAD Project on Adjusted EBITDA; the expectation of continued growth in sales of TAD products in the U.S.; a successful ramp-up of the Crabtree paper machine; improved performance of the Away-From-Home business; and expanded distribution of White Cloud to select U.S. retailers. Although KPT believes that the expectations and assumptions on which such forward-looking information is based are reasonable, undue reliance should not be placed on the forward-looking information since no assurance can be given that such expectations and assumptions will prove to be correct.

The outlook provided in respect of Adjusted EBITDA for Q4 2017 is forward-looking information and is subject to the risk and uncertainties referred to below. The purpose of the outlook is to provide the reader with an indication of management's expectations, at the date of this press release, regarding KPLP's future financial performance. Readers are cautioned that this information may not be appropriate for other purposes. 

Many factors could cause KPLP's actual results, level of activity, performance or achievements or future events or developments (which could in turn affect the economic benefits derived from the Corporation's economic interest in KPLP) to differ materially from those expressed or implied by the forward-looking statements, including, without limitation, the following factors, which are discussed in greater detail in the "Risk Factors - Risks Related to KPLP's Business" section of the KPT Annual Information Form dated March 9, 2017 available on SEDAR at www.sedar.com: Kruger Inc.'s influence over KPLP; KPLP's reliance on Kruger Inc.; consequences of an event of insolvency relating to Kruger Inc.; risks associated with the TAD Project; operational risks; Gatineau Plant land lease; significant increases in input costs; reduction in supply of fibre; increased pricing pressure and intense competition; KPLP's inability to innovate effectively; adverse economic conditions; dependence on key retail trade customers; damage to the reputation of KPLP or KPLP's brands; KPLP's sales being less than anticipated; KPLP's failure to implement its business and operating strategies; KPLP's obligation to make regular capital expenditures; KPLP's entering into unsuccessful acquisitions; KPLP's dependence on key personnel; KPLP's inability to retain its existing customers or obtain new customers; KPLP's loss of key suppliers; KPLP's failure to adequately protect its intellectual property rights; KPLP's reliance on third party intellectual property licenses; adverse litigation and other claims affecting KPLP; material expenditures due to comprehensive environmental regulation affecting KPLP's cash flow; KPLP's pension obligations are significant and can be materially higher than predicted if KPLP Management's underlying assumptions are incorrect; labour disputes adversely affecting KPLP's cost structure and KPLP's ability to run its plants; exchange rate and U.S. competitors; KPLP's inability to service all of its indebtedness; exposure to potential consumer product liability, restrictive covenants; interest rate and refinancing risk; information technology; cyber-security; insurance; internal controls; and trade related risk.

Readers should not place undue reliance on forward-looking statements made herein. The forward-looking information contained herein is expressly qualified in its entirety by this cautionary statement. The forward-looking information contained herein is made as of the date of press release and KPT undertakes no obligation to publicly update such forward-looking information to reflect new information, subsequent or otherwise, unless required by applicable securities laws.

                                                                                                                       
Kruger Products L.P.                                                                                                        
Unaudited Condensed Consolidated Statement of Financial Position                                                            
(thousands of Canadian dollars)                                                                                             
                                                                                              
                                                      September 24, 2017             December 31, 2016  
                                                      $                              $                  
Assets                                                                                                  
Current assets                                                                                          
          Cash and cash equivalents                        26,997                         36,511             
          Trade and other receivables                      126,591                        123,095            
          Receivables from related parties                 69                             185                
          Advances to partners                             6,417                          5,465              
          Inventories                                      174,003                        179,543            
          Income tax recoverable                           293                            423                
          Prepaid expenses                                 10,503                         7,286              
                                                      344,873                        352,508            
Non-current assets                                                                                      
          Property, plant and equipment                    748,458                        762,270            
          Other long-term assets                           6,150                          6,075              
          Goodwill                                         160,939                        160,939            
          Intangible assets                                14,955                         15,270             
          Deferred income taxes                            33,359                         39,913             
Total assets                                                    1,308,734                      1,336,975          
                                                                                              
Liabilities                                                                                             
Current liabilities                                                                                     
          Bank indebtedness                                -                              9,007              
          Trade and other payables                         196,459                        201,477            
          Payables to related parties                      5,089                          3,606              
          Income tax payable                               592                            1,779              
          Distributions payable                            10,324                         10,148             
          Current portion of provisions                    757                            1,885              
          Current portion of long-term debt                186,695                        8,859              
                                                      399,916                        236,761            
Non-current liabilities                                                                                 
          Long-term debt                                   238,487                        415,379            
          Provisions                                       6,969                          6,487              
          Pensions                                         112,671                        92,646             
          Post-retirement benefits                         57,881                         57,162             
          Liabilities to non-unitholders                   815,924                        808,435            
          Current portion of Partnership units liability   5,571                          8,611              
          Long-term portion of Partnership units liability 135,903                        137,296            
          Total Partnership units liability                141,474                        145,907            
Total liabilities                                               957,398                        954,342            
                                                                                              
Equity                                                                                                  
          Partnership units                                351,381                        336,576            
          Deficit                                          (61,775            )                (42,792           )
          Accumulated other comprehensive income           61,730                         88,849             
Total equity                                                    351,336                        382,633            
Total equity and liabilities                                    1,308,734                      1,336,975          
                                                                                                   
                                                                                                                                                                                                           
Kruger Products L.P.                                                                                                                                                                                            
Unaudited Condensed Consolidated Statement of Comprehensive Income (Loss)                                                                                                                                       
(thousands of Canadian dollars)                                                                                                                                                                                 
                                                                                                                                                    
                                                                                                                                                    
                                                                               3-month                3-month                9-month                9-month             
                                                                                         period ended                     period ended                     period ended                     period ended
                                                                                         September 24, 2017               September 25, 2016               September 24, 2017               September 25, 2016
                                                                               $                      $                      $                      $                   
                                                                                                                                                    
Revenue                                                                             336,284                312,823                939,943                888,270             
                                                                                                                                                    
Expenses                                                                                                                                                 
                  Cost of sales                                                290,777                256,823                802,108                747,348             
                  Selling, general and administrative expenses                 20,726                 22,645                 66,467                 66,283              
                  Gain on sale of non-financial assets                         (12                )        (395               )        (80                )        (395               )
                  Restructuring costs, net                                     (245               )        25                     (234               )        418                 
                                                                                                                                                    
Operating income                                                                    25,038                 33,725                 71,682                 74,616              
                                                                                                                                                    
                  Interest expense                                             10,533                 11,192                 31,554                 33,327              
                  Other (income) expense                                       (2,103             )        813                    1,860                  (307               )
                                                                                                                                                    
Income before income taxes                                                          16,608                 21,720                 38,268                 41,596              
                                                                                                                                                    
Income taxes                                                                        158                    162                    4,922                  1,612               
                                                                                                                                                    
Net income for the period                                                           16,450                 21,558                 33,346                 39,984              
                                                                                                                                                    
Other comprehensive loss                                                                                                                                 
                  Items that will not be reclassified to net income:                                                                                
                  Remeasurements of pensions                                   (5,424             )        (20,097            )        (20,647            )        (63,986            )
                  Remeasurements of post-retirement benefits                   2,929                  (2,885             )        (272               )        (4,519             )
                  Items that may be subsequently reclassified to net income:                                                                        
                  Available-for-sale investment                                -                      -                      -                      (290               )
                  Cumulative translation adjustment                            (23,774            )        3,969                  (27,119            )        (16,858            )
                                                                                                                                                    
Total other comprehensive loss for the period                                       (26,269            )        (19,013            )        (48,038            )        (85,653            )
                                                                                                                                                    
Comprehensive income (loss) for the period                                          (9,819             )        2,545                  (14,692            )        (45,669            )
                                                                                                                                                    
                                                                                                                                                                                                                            
Kruger Products L.P.                                                                                                                                                                                                             
Unaudited Condensed Consolidated Statement of Cash Flows                                                                                                                                                                         
(thousands of Canadian dollars)                                                                                                                                                                                                  
                                                                                                                                                                     
                                                                                                                                                                     
                                                                                                3-month                3-month                9-month                9-month             
                                                                                                          period ended                     period ended                     period ended                     period ended
                                                                                                          September 24, 2017               September 25, 2016               September 24, 2017               September 25, 2016
                                                                                                $                      $                      $                      $                   
Cash flows from (used in) operating activities                                                                                                                            
Net income for the period                                                                            16,450                 21,558                 33,346                 39,984              
Items not affecting cash                                                                                                                                                  
                                      Depreciation                                              14,350                 12,007                 38,414                 33,775              
                                      Amortization                                              286                    296                    775                    876                 
                                      Gain on sale of property, plant and equipment             -                      -                      (2                 )        (3                 )
                                      Change in amortized cost of Partnership units liability   (882               )        -                      4,178                  1,234               
                                      Gain on sale of investment                                -                      -                      -                      (324               )
                                      Foreign exchange (gain) loss                              (1,221             )        813                    (2,318             )        (1,217             )
                                      Interest expense                                          10,533                 11,192                 31,554                 33,327              
                                      Pension and post retirement benefits                      2,513                  2,487                  7,539                  7,805               
                                      Provisions                                                (127               )        392                    211                    1,191               
                                      Income taxes                                              158                    162                    4,922                  1,612               
                                      Gain on sale of non-financial assets                      (12                )        (395               )        (80                )        (395               )
                                      Total items not affecting cash                            25,598                 26,954                 85,193                 77,881              
                                                                                                                                                                     
Net change in non-cash working capital                                                               5,130                  (6,009             )        (25,959            )        (10,471            )
Contributions to pension and post-retirement benefit plans                                           (3,735             )        (2,613             )        (11,406            )        (13,918            )
Provisions paid                                                                                      (565               )        (334               )        (1,015             )        (1,452             )
Income tax payments                                                                                  (115               )        (514               )        (3,169             )        (1,887             )
                                                                                                                                                                     
Net cash from operating activities                                                                   42,763                 39,042                 76,990                 90,137              
                                                                                                                                                                     
Cash flows from (used in) investing activities                                                                                                                            
Purchases of property, plant and equipment                                                           (12,033            )        (19,965            )        (50,278            )        (58,666            )
Capitalized interest paid                                                                            (116               )        -                      (497               )        -                   
Proceeds on sale of investment                                                                       -                      -                      -                      1,439               
Government assistance received                                                                       923                    -                      3,872                  1,209               
Purchases of software                                                                                (460               )        -                      (460               )        (71                )
Proceeds on sale of property, plant and equipment                                                    14                     535                    1,184                  539                 
                                                                                                                                                                     
Net cash used in investing activities                                                                (11,672            )        (19,430            )        (46,179            )        (55,550            )
                                                                                                                                                                     
Cash flows from (used in) financing activities                                                                                                                            
Proceeds from long-term debt                                                                         (5,893             )        4,204                  20,877                 4,995               
Repayment of long-term debt                                                                          (4,749             )        (596               )        (5,250             )        (8,106             )
Payment of deferred financing fees                                                                   -                      (376               )        (12                )        (711               )
Interest paid on long-term debt                                                                      (7,819             )        (8,538             )        (18,930            )        (18,294            )
Distributions and advances paid, net                                                                 (8,263             )        (4,806             )        (25,992            )        (16,883            )
                                                                                                                                                                     
Net cash used in financing activities                                                                (26,724            )        (10,112            )        (29,307            )        (38,999            )
                                                                                                                                                                     
Effect of exchange rate changes on cash and cash equivalents held in foreign currency                (1,924             )        (80                )        (2,011             )        (1,519             )
                                                                                                                                                                     
Increase (decrease) in cash and cash equivalents during the period                                   2,443                  9,420                  (507               )        (5,931             )
                                                                                                                                                                     
Cash and cash equivalents - Beginning of period                                                      24,554                 10,104                 27,504                 25,455              
                                                                                                                                                                     
Cash and cash equivalents - End of period                                                            26,997                 19,524                 26,997                 19,524              
                                                                                                                                                                     
                                                                                                                                                                                 
Kruger Products L.P.                                                                                                                                                                  
Segment and Geographic Results                                                                                                                                                        
(thousands of Canadian dollars)                                                                                                                                                       
                                                                                                                          
                                                     3-month                3-month                9-month                9-month             
                                                               period ended                     period ended                     period ended                     period ended
                                                               September 24, 2017               September 25, 2016               September 24, 2017               September 25, 2016
                                                     $                      $                      $                      $                   
                                                                                                                          
Segment Information                                                                                                            
                                                                                                                          
Segment Revenue                                                                                                                
                       Consumer                      272,917                248,792                763,996                708,868             
                       AFH                           62,497                 59,411                 171,090                167,513             
                       Other                         870                    4,620                  4,857                  11,889              
                                                                                                                          
Total segment revenue                                     336,284                312,823                939,943                888,270             
                                                                                                                          
Segment Adjusted EBITDA                                                                                                        
                       Consumer                      38,077                 42,907                 105,951                104,433             
                       AFH                           1,852                  2,425                  4,840                  4,230               
                       Other                         (512               )        326                    (236               )        948                 
                                                                                                                          
Total segment Adjusted EBITDA                             39,417                 45,658                 110,555                109,611             
                                                                                                                          
Reconciliation to Net Income:                                                                                                  
                                                                                                                          
Depreciation and amortization                             14,636                 12,303                 39,189                 34,651              
Interest expense                                          10,533                 11,192                 31,554                 33,327              
Change in amortized cost of Partnership units liability   (882               )        -                      4,178                  1,234               
Gain on sale of property, plant and equipment             -                      -                      (2                 )        (3                 )
Gain on sale of non-financial assets                      (12                )        (395               )        (80                )        (395               )
Restructuring costs, net                                  (245               )        25                     (234               )        418                 
Foreign exchange (gain) loss                              (1,221             )        813                    (2,318             )        (1,217             )
                                                                                                                          
Income before income taxes                                16,608                 21,720                 38,268                 41,596              
                                                                                                                          
Income taxes                                              158                    162                    4,922                  1,612               
                                                                                                                          
Net income                                                16,450                 21,558                 33,346                 39,984              
                                                                                                                          
Geographic Revenue                                                                                                             
                                                                                                                          
Canada                                                    209,289                195,186                570,949                539,221             
U.S.                                                      113,157                105,114                332,710                311,517             
Mexico                                                    13,838                 12,523                 36,284                 37,532              
                                                                                                                          
Total revenue                                             336,284                312,823                939,943                888,270             
                                                                                                                          
                                                                                                               
KP Tissue Inc.                                                                                                      
Unaudited Condensed Statement of Financial Position                                                                 
(thousands of Canadian dollars)                                                                                     
                                                                                      
                                                    September 24, 2017       December 31, 2016  
                                                    $                        $                  
Assets                                                                                     
                                                                                      
Current assets                                                                             
          Distributions receivable                  1,653                    1,636              
          Receivable from Partnership               -                        426                
          Income tax recoverable                    1,031                    -                  
                                                    2,684                    2,062              
                                                                                      
Non-current assets                                                                         
          Investment in associate                   104,650                  117,349            
                                                                                      
Total Assets                                             107,334                  119,411            
                                                                                      
Liabilities                                                                                
                                                                                      
Current liabilities                                                                        
          Dividend payable                          1,653                    1,636              
          Payable to Partnership                    52                       -                  
          Advances from Partnership                 1,040                    914                
          Income tax payable                        -                        884                
                                                    2,745                    3,434              
Non-current liabilities                                                                    
          Deferred income taxes                     1,946                    893                
                                                                                      
Total liabilities                                        4,691                    4,327              
                                                                                      
Equity                                                                                     
                                                                                      
          Common shares                             14,573                   13,176             
          Contributed surplus                       144,819                  144,819            
          Deficit                                   (67,862            )          (58,729           )
          Accumulated other comprehensive income    11,113                   15,818             
                                                                                      
Total equity                                             102,643                  115,084            
                                                                                      
Total liabilities and equity                             107,334                  119,411            
                                                                                      
                                                                                                                                                                                                                         
KP Tissue Inc.                                                                                                                                                                                                                
Unaudited Condensed Statement of Comprehensive Loss                                                                                                                                                                           
(thousands of Canadian dollars, except share and per share amounts)                                                                                                                                                           
                                                                                                                                                                  
                                                                                           3-month                3-month                9-month                9-month               
                                                                                                     period ended                     period ended                     period ended                     period ended
                                                                                                     September 24, 2017               September 25, 2016               September 24, 2017               September 25, 2016
                                                                                           $                      $                      $                      $                     
                                                                                                                                                                  
Equity income                                                                                   1,179                  2,010                  931                    2,101                 
                                                                                                                                                                  
Dilution gain                                                                                   39                     58                     136                    142                   
                                                                                                                                                                  
Income before income taxes                                                                      1,218                  2,068                  1,067                  2,243                 
                                                                                                                                                                  
Income taxes                                                                                    1,288                  1,299                  2,288                  3,557                 
                                                                                                                                                                  
Net income (loss) for the period                                                                (70                )        769                    (1,221             )        (1,314             )       
                                                                                                                                                                  
Other comprehensive loss                                                                                                                                               
                  net of tax expense (recovery)                                                                                                                   
                  Items that will not be reclassified to net income (loss):                                                                                  
                  Remeasurements of pensions                                               (755               )        (2,825             )        (2,885             )        (9,034             )       
                  Remeasurements of post-retirement benefits                               287                    (285               )        (27                )        (447               )       
                  Items that may be subsequently reclassified to net income (loss):                                                                          
                  Available-for-sale investment                                            -                      -                      -                      (41                )       
                  Cumulative translation adjustment                                        (4,086             )        711                    (4,705             )        (3,495             )       
                                                                                                                                                                  
Total other comprehensive loss for the period                                                   (4,554             )        (2,399             )        (7,617             )        (13,017            )       
                                                                                                                                                                  
Comprehensive loss for the period                                                               (4,624             )        (1,630             )        (8,838             )        (14,331            )       
                                                                                                                                                                  
Basic earnings (loss) per share                                                                 (0.01              )        0.08                   (0.13              )        (0.15              )       
                                                                                                                                                                  
Weighted average number of shares outstanding                                                   9,176,138              9,051,321              9,146,312              9,021,008             
                                                                                                                                                                  
                                                                                                                                                                                             
KP Tissue Inc.                                                                                                                                                                                    
Unaudited Condensed Statement of Cash Flows                                                                                                                                                       
(thousands of Canadian dollars)                                                                                                                                                                   
                                                                                                                                      
                                                                 3-month                3-month                9-month                9-month             
                                                                           period ended                     period ended                     period ended                     period ended
                                                                           September 24, 2017               September 25, 2016               September 24, 2017               September 25, 2016
                                                                 $                      $                      $                      $                   
Cash flows from (used in) operating activities                                                                                             
Net income (loss) for the period                                      (70                )        769                    (1,221             )        (1,314             )
Items not affecting cash                                                                                                                   
                             Equity income                       (1,179             )        (2,010             )        (931               )        (2,101             )
                             Dilution gain                       (39                )        (58                )        (136               )        (142               )
                             Income taxes                        1,288                  1,299                  2,288                  3,557               
                             Total items not affecting cash      70                     (769               )        1,221                  1,314               
                                                                                                                                      
Net change in non-cash working capital                                (219               )        -                      478                    -                   
Tax payments                                                          (225               )        -                      (1,999             )        (205               )
Tax Distribution received                                             -                      -                      481                    -                   
Advances received                                                     444                    -                      1,040                  205                 
                                                                                                                                      
Net cash from (used in) operating activities                          -                      -                      -                      -                   
                                                                                                                                      
Cash flows from investing activites                                                                                                        
Partnership unit distributions received                               1,218                  1,180                  3,586                  3,728               
                                                                                                                                      
Net cash from investing activities                                    1,218                  1,180                  3,586                  3,728               
                                                                                                                                      
Cash flows used in financing activities                                                                                                    
Dividends paid                                                        (1,218             )        (1,180             )        (3,586             )        (3,728             )
                                                                                                                                      
Net cash used in financing activities                                 (1,218             )        (1,180             )        (3,586             )        (3,728             )
                                                                                                                                      
Increase (decrease) in cash and cash equivalents during the period    -                      -                      -                      -                   
                                                                                                                                      
Cash and cash equivalents - Beginning of period                       -                      -                      -                      -                   
                                                                                                                                      
Cash and cash equivalents - End of period                             -                      -                      -                      -                   
                                                                                                                                      

INFORMATION: Francois Paroyan General Counsel and Corporate Secretary KP Tissue Inc. 905.812.6936 francois.paroyan@krugerproducts.ca INVESTORS: Mike Baldesarra Director of Investor Relations KP Tissue Inc. 905.812.6962 IR@KPTissueinc.com

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