KP Tissue Inc. - Interim / Quarterly Report 2021

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KRUGER PRODUCTS L.P.

UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE 3-MONTH AND 6-MONTH PERIODS ENDED JUNE 30, 2021 AND JUNE 30, 2020

Kruger Products L.P. 2 Prologis Blvd., Suite 500, Mississauga, Ontario L5W 0G8 www.krugerproducts.ca

Kruger Products L.P. Unaudited Condensed Consolidated Statements of Financial Position

(tabular amounts are in thousands of Canadian dollars)

Assets Current assets Cash, cash equivalents and restricted cash (note 17) Trade and other receivables Receivables from related parties (note 14) Advances to partners (note 12) Inventories Income tax recoverable Prepaid expenses Non-current assets Property, plant and equipment (note 6) Right-of-use assets (note 7) Other long-term assets (note 14) Goodwill Intangible assets Deferred income taxes Total assets Liabilities Current liabilities Trade and other payables Payables to related parties (note 14) Income tax payable Distributions payable (notes 12 and 14) Current portion of provisions (note 9) Current portion of long-term debt (note 10) Current portion of lease liabilities (note 11) Non-current liabilities Long-term debt (note 10) Long-term lease liabilities (note 11) Long-term payable to related party (note 14) Long-term provisions (note 9) Other long-term liabilities Pensions (note 8) Post-retirement benefits (note 8) Liabilities to non-unitholders Current portion of Partnership units liability (note 12) Long-term portion of Partnership units liability (note 12) Total Partnership units liability Total liabilities Equity Partnership units (note 12) Deficit Accumulated other comprehensive income Total equity Total equity and liabilities Subsequent events (note 12)	June 30, 2021 December 31, 2020 $ $
	129,711 128,739 82,943 88,041 12 13 6,011 5,647 282,810 215,934 189 358 12,623 8,315
	514,299 447,047 1,201,195 1,194,191 106,586 107,633 37,824 10 152,021 152,021 29,852 26,205 27,659 24,217
	2,069,436 1,951,324
	227,775 332,072 10,758 9,097 617 554 12,106 11,919 2,365 4,913 22,108 9,495 28,345 25,341
	304,074 393,391 935,190 743,978 101,369 105,634 40,959 - 8,992 9,549 - 575 69,636 161,333 59,194 63,038
	1,519,414 1,477,498 14,554 31,244 160,191 154,180
	174,745 185,424
	1,694,159 1,662,922
	450,400 439,571 (141,085) (224,503) 65,962 73,334
	375,277 288,402
	2,069,436 1,951,324

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

Kruger Products L.P. Unaudited Condensed Consolidated Statements of Comprehensive Income (loss) For the 3-month and 6-month periods ended June 30, 2021 and June 30, 2020

(tabular amounts are in thousands of Canadian dollars)

3-month period ended June 30, 2021 $	3-month period ended June 30, 2020 $ 386,763 310,009 30,492 - 483 45,779 11,333 (3,269)	6-month period ended June 30, 2021 $	6-month period ended June 30, 2020 $
339,361 294,977 29,584 2 (15)		649,740 558,308 57,349 3 41	761,909 624,522 60,126 1 1,221
14,813 16,263 (631)		34,039 29,185 (947)	76,039 21,913 8,152
(819) (3,066)	37,715 8,811	5,801 (3,205)	45,974 8,682
2,247	28,904	9,006	37,292
(3,406) (1,420) (3,927)	(103,032) (9,896) (12,480)	94,041 4,349 (7,372)	(36,655) (3,388) 14,227
(8,753)	(125,408)	91,018	(25,816)
(6,506)	(96,504)	100,024	11,476

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

Kruger Products L.P. Unaudited Condensed Consolidated Statements of Changes in Equity For the 6-month periods ended June 30, 2021 and June 30, 2020

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

# $ 63,293,136 408,978 - - - - - (216) - - - - - - - - 2,041,839 20,174 65,334,975 428,936 66,216,999 439,571 - - - - - (138) - - - - - - - - 1,036,291 10,967 67,253,290 450,400 Partnership units	# $ 63,293,136 408,978 - - - - - (216) - - - - - - - - 2,041,839 20,174 65,334,975 428,936 66,216,999 439,571 - - - - - (138) - - - - - - - - 1,036,291 10,967 67,253,290 450,400 Partnership units	Deficit $
63,293,136 - - - - - - - 2,041,839		(183,188) (11,760) (11,576) 216 (36,655) (3,388) - 37,292 -
65,334,975	428,936	(209,059)
66,216,999 - - - - - - - 1,036,291	439,571 - - (138) - - - - 10,967	(224,503) (12,106) (12,010) 138 94,041 4,349 - 9,006 -
67,253,290	450,400	(141,085)

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

Kruger Products L.P. Unaudited Condensed Consolidated Statements of Cash Flows

For the 6-month periods ended June 30, 2021 and June 30, 2020

(tabular amounts are in thousands of Canadian dollars)

Cash flows from (used in) operating activities
Net income for the period
Items not affecting cash
Depreciation
Amortization
Loss on sale of property, plant and equipment
Change in amortized cost of Partnership units liability (note 5)
Foreign exchange (gain) loss (note 5)
Change in fair value of derivatives (note 5)
Interest expense
Pension and post-retirement benefits (note 8)
Provisions (note 9)
Income taxes
Loss on sale of non-financial assets
Total items not affecting cash
Net change in non-cash working capital (note 18)
Contributions to pension and post-retirement benefit plans
Provisions paid (note 9)
Income tax payments
Net cash from (used in) operating activities
Cash flows from (used in) investing activities
Purchases of property, plant and equipment
Purchases of property, plant and equipment related to the TAD Sherbrooke Project
Interest paid on credit facilities related to the TAD Sherbrooke Project
Purchases of software
Proceeds on sale of shares
Proceeds on sale of property, plant and equipment
Net cash used in investing activities
Cash flows from (used in) financing activities (note 19)
Proceeds from long-term debt
Repayment of long-term debt
Payment of deferred financing fees
Payment of lease liabilities
Interest paid on long-term debt
Distributions and advances paid, net (note 12)
Net cash from financing activities
Effect of exchange rate changes on cash and cash
equivalents held in foreign currency
Increase in cash, cash equivalents and restricted cash during the period
Cash, cash equivalents and restricted cash - Beginning of period (note 17)
Cash, cash equivalents and restricted cash - End of period (note 17)

6-month
6-month
period ended
period ended
June 30, 2021
June 30, 2020
$
$
9,006
37,292
38,735
32,960
1,632
773
264
49
6,856
5,040
(7,803)
3,472
-
(360)
29,185
21,913
8,143
7,474
641
3,599
(3,205)
8,682
3
1
74,451
83,603
(131,825)
26,035
(7,622)
(7,938)
(3,904)
(1,871)
(1,006)
(13)
(60,900)
137,108
(11,248)
(7,451)
(78,940)
(132,013)
(608)
(4,204)
(774)
(1,593)
-
992
8
-
(91,562)
(144,269)
226,475
132,327
(3,273)
(33,701)
(8,270)
(493)
(12,715)
(9,917)
(16,526)
(21,622)
(30,861)
(10,221)
154,830
56,373
(1,396)
1,835
972
51,047
128,739
93,141
129,711
144,188

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

Kruger Products L.P. Notes to Unaudited Condensed Consolidated Financial Statements

For the 6-month periods ended June 30, 2021 and June 30, 2020

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

1 General information

Kruger Products L.P. (KPLP or the Partnership) is a limited partnership registered in the Province of Quebec, Canada whose partners are Kruger Inc. (ultimate parent), KPGP Inc. (KPGP) and KP Tissue Inc. (KPT). The Partnership manufactures, sells and distributes tissue products for household, industrial and commercial use. The Partnership has plants in New Westminster, British Columbia; Crabtree, Quebec; Sherbrooke, Quebec; Gatineau, Quebec; Scarborough and Trenton, Ontario and Memphis, Tennessee. The Partnership’s headquarters are located in Mississauga, Ontario, Canada.

2 Basis of presentation

These unaudited condensed consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) applicable to the preparation of interim financial statements, including International Accounting Standard (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 consolidated financial statements should be read in conjunction with the annual audited consolidated financial statements of the Partnership for the year ended December 31, 2020.

These unaudited condensed consolidated financial statements were approved by the board of directors of KPGP on August 11, 2021.

3 Summary of significant accounting policies

The significant accounting policies that have been used in the preparation of these unaudited condensed consolidated financial statements are described in the annual audited consolidated financial statements of the Partnership for the year ended December 31, 2020 and have been applied to all periods presented except the following accounting policies, which were adopted effective January 1, 2021.

(i) IFRS 9/IAS 39, IFRS 7, IFRS 4 and IFRS 16, Interest Rate Benchmark Reform (Phase 2). In August 2020, the IASB issued amendments that address issues arising from the implementation of interest rate benchmark reform, including the replacement of one benchmark with an alternative one. The mandatory effective date was for annual periods beginning on or after January 1, 2021. The amended standards had no material impact on the unaudited condensed consolidated financial statements.
(ii) IFRS 16, COVID-19-Related Rent Concessions. In May 2020, the IASB issued an amendment to provide lessees with an exemption from assessing whether a COVID-19-related rent concession is a lease modification for any reduction in lease payments originally due on or before June 30, 2021. In March 2021, the IASB issued an amendment to extend the practical expedient to any reduction in lease payments originally due on or before June 30, 2022. The mandatory effective date was for annual periods beginning on or after April 1, 2021, with early adoption permitted. The amended standard had no impact on the unaudited condensed consolidated financial statements.

The impact of new standards, amendments to standards and interpretations that have been issued but not yet effective for financial periods beginning on or after January 1, 2022 and have not been early adopted are as follows:

(i) IAS 1, Classification of Liabilities as Current or Non-current. In January 2020, the IASB issued an amendment to IAS 1 to clarify that liabilities are classified as either current or non-current, depending on the rights that exist at the end of the reporting period. The mandatory effective date would be annual periods beginning on or after January 1, 2023, with early adoption permitted. The amended standard is not expected to have an impact on the unaudited condensed consolidated financial statements.

Kruger Products L.P. Notes to Unaudited Condensed Consolidated Financial Statements

For the 6-month periods ended June 30, 2021 and June 30, 2020

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

(ii) IFRS 3, Reference to Conceptual Framework. In May 2020, the IASB issued an amendment to IFRS 3 to (i) clarify references to the 2018 Conceptual Framework in order to determine what constitutes an asset or liability in a business combination, (ii) add an exception for certain liabilities and contingent liabilities to refer to IAS 37 or IFRIC 21 and (iii) clarify that an acquirer should not recognize contingent assets at the acquisition date. The mandatory effective date would be annual periods beginning on or after January 1, 2022, with early adoption permitted. The amended standard is not expected to have an impact on the unaudited condensed consolidated financial statements.
(iii) IAS 37, Onerous Contracts – Cost of Fulfilling a Contract. In May 2020, the IASB issued an amendment to IAS 37 to clarify which costs to include in estimating the cost of fulfilling a contract for the purpose of assessing whether that contract is onerous. The mandatory effective date would be annual periods beginning on or after January 1, 2022, with early adoption permitted. The amended standard is not expected to have an impact on the unaudited condensed consolidated financial statements.
(iv) IAS 16, Proceeds before Intended Use. In May 2020, the IASB issued an amendment to IAS 16 to clarify the accounting for the net proceeds from selling any items produced while bringing an item of property, plant and equipment into use. The mandatory effective date would be annual periods beginning on or after January 1, 2022, with early adoption permitted. The amended standard is not expected to have a material impact on the unaudited condensed consolidated financial statements.
(v) IAS 1, Disclosure of Accounting Policies. In February 2021, the IASB issued amendments to IAS 1 to provide guidance and examples to help entities apply materiality judgements to accounting policy disclosures. The mandatory effective date would be annual periods beginning on or after January 1, 2023, with early adoption permitted. The amended standard is not expected to have an impact on the unaudited condensed consolidated financial statements.
(vi) IAS 8, Accounting Policies, Changes to Accounting Estimates and Errors. In February 2021, the IASB issued amendments to IAS 8 to introduce a new definition of accounting estimates to clarify the distinction between changes in accounting policies and changes in accounting estimates and the correction of errors. The mandatory effective date would be annual periods beginning on or after January 1, 2023, with early adoption permitted. The amended standard is not expected to have an impact on the unaudited condensed consolidated financial statements.
(vii)IAS 12, Deferred Tax related to Assets and Liabilities arising from a Single Transaction. In May 2021, the IASB issued amendments to IAS 12 that require an entity to recognize deferred tax on certain transactions such as leases and decommissioning obligations that give rise to equal amounts of taxable and deductible temporary differences on initial recognition. The mandatory effective date would be annual periods beginning on or after January 1, 2023, with early adoption permitted. The amended standard is not expected to have an impact on the unaudited condensed consolidated financial statements.

4 Critical accounting estimates and judgments

The preparation of these unaudited condensed consolidated financial statements in conformity with IFRS requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities in the unaudited condensed consolidated financial statements and the disclosure of contingencies at the dates of the unaudited condensed consolidated statements 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. 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 underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period, or in the period of revision and the future periods if the revision affects both current and future periods.

Kruger Products L.P. Notes to Unaudited Condensed Consolidated Financial Statements For the 6-month periods ended June 30, 2021 and June 30, 2020

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

The estimates and judgement applied by management that most significantly affect the unaudited condensed consolidated financial statements are the same as the ones that applied to the annual audited consolidated financial statements for the year ended December 31, 2020, updated for the following:

COVID-19

During the 6-month period ended June 30, 2021, management considered the impact of COVID-19 on the Partnership’s critical accounting estimates and judgments, including the Partnership’s assessment of the assumptions and estimates made in its valuation of the Partnership units liability and pension liability, the assumptions utilized in its assessment of the recoverability of deferred tax assets, the assessment of triggering events with respect to its impairment analysis for non-current assets and the impact on credit risk and liquidity risk.

While management has concluded that there was no material change in the assumptions relevant to the valuation of the Partnership units liability or recoverability of deferred tax assets as of June 30, 2021 and that during the 6-month period ended June 30, 2021, no triggering event had occurred requiring an impairment test to be performed with respect to noncurrent assets, the length and severity of the COVID-19 pandemic could result in future material changes to those assumptions or future impairment charges. Although the Partnership believes that its exposure to credit risk and liquidity risk is generally limited, the risks and uncertainties associated with the COVID-19 pandemic have increased the credit risk and liquidity risk associated with trade receivables and such risks are being closely managed. The Partnership recorded a provision for expected credit losses of $1.3 million as of June 30, 2021 (December 31, 2020 - $1.5 million). As the impact of COVID-19 on the AFH business begins to stabilize, management will continue to assess the expected credit losses associated with its trade receivables.

5 Other (income) expense

Foreign exchange (gain) loss Change in amortized cost of Partnership units liability Change in fair value of derivatives	3-month period ended June 30, 2021 $	3-month period ended June 30, 2020 $	6-month 6-month period ended period ended June 30, 2021 June 30, 2020 $ $
	(4,059) 3,428 -	(5,789) 2,520 -	(7,803) 3,472 6,856 5,040 - (360)
	(631)	(3,269)	(947) 8,152

Kruger Products L.P. Notes to Unaudited Condensed Consolidated Financial Statements

For the 6-month periods ended June 30, 2021 and June 30, 2020

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

6 Property, plant and equipment

Land $	Buildings $	Machinery and equipment $	Assets under construction or development Total $ $ 285,524 1,931,831 - (737,640) 285,524 1,194,191 46,132 46,132 1,830 1,830 - (272) (301,079) - - (32,046) (48) (8,640)
38,203 -	319,272 (98,267)	1,288,832 (639,373)
38,203 - - - 143 - (39)	221,005 - - - 63,769 (4,875) (1,390)	649,459 - - (272) 237,167 (27,171) (7,163)
38,307	278,509	852,020	32,359 1,201,195
38,307 -	381,112 (102,603)	1,513,242 (661,222)	32,359 1,965,020 - (763,825)
38,307	278,509	852,020	32,359 1,201,195

Land $	Buildings $	Equipment $
38,068 (25,174)	150,149 (62,679)	9,641 (3,535)
12,894 188 (846) -	87,470 4,359 (6,344) (153)	6,106 3,694 (1,842) (7)
12,236	85,332	7,951
38,256 (26,020)	154,242 (68,910)	13,320 (5,369)
12,236	85,332	7,951

Kruger Products L.P. Notes to Unaudited Condensed Consolidated Financial Statements For the 6-month periods ended June 30, 2021 and June 30, 2020

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

8 Pensions and post-retirement benefits

The following were the significant assumptions for the defined benefit pension plans and other benefit plans:

Assumptions Discount rate - accrued benefit obligation Rate of compensation increases		Pensions	Post-retirement benefit plans
	June 30, 2021 %	December 31, 2020 %	June 30, 2021 December 31, 2020 % % 3.05 2.57
	3.05 3.25 - 4.00	2.57 3.25 - 4.00

The net benefit pension plan expense included the following components:

	Pensions	Post-retirement benefit plans	Post-retirement benefit plans
3-month period ended June 30, 2021 $	3-month period ended June 30, 2020 $	3-month period ended June 30, 2021 $	3-month period ended June 30, 2020 $
3,442 4,012 (3,162) 147	3,006 5,177 (4,117) 154	552 316 - -	534 398 - -
4,439	4,220	868	932
	Pensions
6-month period ended June 30, 2021 $	6-month period ended June 30, 2020 $	6-month 6-month period ended period ended June 30, 2021 June 30, 2020 $ $ 1,105 1,037 631 797 - - - - 1,736 1,834
6,743 8,046 (6,349) 295	6,130 10,357 (8,238) 307
8,735	8,556

Kruger Products L.P. Notes to Unaudited Condensed Consolidated Financial Statements

For the 6-month periods ended June 30, 2021 and June 30, 2020

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

9 Provisions

Provisions as of January 1, 2021 Current Non-current Provisions as of January 1, 2021 Additional provisions Reclassification Paid during the period Interest accretion Provisions as of June 30, 2021 Current Non-current	Environmental and asset retirement obligations(a) $ 6,545 - 6,545 6,545 - - - 69	Long-term incentives, DSUs, PSUs and RSUs(b) $	Restructuring Total $ $ 738 14,462 604 4,913 134 9,549 738 14,462 28 641 - 89 (395) (3,904) - 69 371 11,357 363 2,365 8 8,992
		7,179 4,309
		2,870
		7,179 613 89 (3,509) -
	6,614 -	4,372 2,002
	6,614	2,370

(a) Environmental and asset retirement obligations

The Partnership has made a provision for the potential obligation under a land lease at one of its plant locations to demolish the building and restore the land at the end of the lease to its original condition. The current lease ends in March 2028 with permission to secure the site until March 2053. The undiscounted amount to settle this obligation is estimated to be between $13.1 million and $17.3 million. The liability is estimated using a discounted cash flow with a discount rate of 2.12% (December 31, 2020 – 2.12%).

(b) Long-term incentives, DSUs, PSUs and RSUs

Long-term incentives include the Executive Long-Term Incentive Plan (LTIP) for the Partnership. The LTIP uses performance share units (PSUs) and restricted share units (RSUs). Performance results are based primarily on Adjusted EBITDA (note 15) return on capital employed using a three-year average, along with other components. The PSUs are paid in cash in June of the year following the three-year period they are earned. The PSU expense is recognized over the same three-year period. The RSUs are expensed and vest one-third each year and are paid in cash each June.

The Partnership has adopted a policy that requires that each director own a minimum of 5,000 common shares and/or share equivalents in the form of deferred share units (DSUs) of KPT. A deferred share unit plan (Plan) has been adopted which allows independent directors to receive all or part of their director retainer fees in the form of DSUs. The Plan allows for the issuance of additional units as dividend equivalents when KPT declares and issues a dividend to shareholders. Upon the individual ceasing to be a director, the DSUs will be paid out in cash. As of June 30, 2021, DSUs of $0.4 million were recorded (December 31, 2020 – $0.4 million).

Kruger Products L.P. Notes to Unaudited Condensed Consolidated Financial Statements

For the 6-month periods ended June 30, 2021 and June 30, 2020

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

10 Long-term debt

Maturity	June 30, 2021 $	December 31, 2020 $ 8,941 122,847 - 444,933 98,251 - 53,225 23,024 2,252
2026 2025 2029 2023, 2025, 2036, 2037 2028 2034 2029 2026 2026	12,797 123,009 132,027 487,963 101,278 20,298 57,689 19,952 2,285
	957,298 9,582 7,103 4,938 485	753,473 1,250 3,307 4,938 -
	22,108	9,495
	935,190	743,978

a) AgCredit Agreement

On March 19, 2021, the Partnership entered into the Second Amendment to the AgCredit Agreement, to allow for IQ’s expected investment in the Sherbrooke Expansion Project and to provide for other capital investment financing requirements.

b) Trust Indenture - Senior Unsecured Notes due April 9, 2029

On April 8, 2021, the Partnership issued $135 million aggregate principal amount of 5.375% senior unsecured notes due April 9, 2029 (the Senior Unsecured Notes due April 9, 2029 or the 2029 Notes) by way of private placement in Canada in accordance with applicable Canadian prospectus and registration exemptions. The 2029 Notes were issued pursuant to a trust indenture entered into as of April 8, 2021 between the Partnership, the Guarantors and Computershare Trust Company of Canada (the 2029 Indenture). Interest on the 2029 Notes accrues at 5.375% per year and is payable semi-annually on April 9 and October 9 of each year.

Under the 2029 Notes, “Restricted Subsidiaries” means any subsidiary of the Partnership that is not an Unrestricted Subsidiary as defined in the 2029 Indenture (which Unrestricted Subsidiaries include TAD Canco Inc., TAD Luxembourg S.A.R.L., K.T.G. (USA) Inc. (KTG), Kruger Products Sherbrooke Inc. (KPSI), KP TAD Holdco Inc., TAD2 GP ULC, TAD2 US LP, TAD1 Canco I Inc., TAD1 GP ULC, TAD1 US LP, TAD1 Canco II Inc., 1061021 Delaware Inc., 8528365 Canada Inc., Kruger Products SB Inc. (KPSB) and Non-Material Subsidiaries as defined in the 2029 Indenture).

The 2029 Notes are senior unsecured obligations of the Partnership. The 2029 Notes rank senior in right of payment to all existing and future subordinated indebtedness of the Partnership and equal in right of payment to all indebtedness of the Partnership that is not subordinated in right of payment to the 2029 Notes other than any

Kruger Products L.P. Notes to Unaudited Condensed Consolidated Financial Statements For the 6-month periods ended June 30, 2021 and June 30, 2020

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

indebtedness that ranks senior to the 2029 Notes by operation of law. The 2029 Notes will be effectively subordinated to all existing and future secured indebtedness of the Partnership, to the extent of the assets securing such indebtedness.

The 2029 Notes are unconditionally guaranteed, jointly and severally, by all existing and future Restricted Subsidiaries (the Guarantors). The guarantees are senior unsecured obligations of each of the Guarantors and will rank senior in right of payment to all existing and future subordinated indebtedness of the Guarantors and equal in right of payment to all indebtedness of such Guarantor that is not subordinated in right of payment to their guarantee, other than indebtedness that ranks senior to the guarantees by operation of law.

At any time prior to April 9, 2024, the Partnership may redeem up to 40.0% of the aggregate principal amount of the 2029 Notes at a redemption price of 105.375% of the principal amount of the 2029 Notes to be redeemed, plus accrued and unpaid interest to the date of redemption, with the net proceeds received by the Partnership from certain equity offerings after the issue date.

At any time prior to April 9, 2024, the Partnership may redeem the 2029 Notes, at a redemption price equal to the greater of (a) the Applicable Premium (as defined in the 2029 Indenture) and (b) 101% of the aggregate principal amount of the 2029 Notes redeemed, plus, in each case, accrued and unpaid interest, if any, to the applicable redemption date.

On or after April 9, 2024, the Partnership may redeem all or part of the 2029 Notes at the following redemption prices, plus accrued and unpaid interest to the applicable redemption date, if redeemed during the 12-month period commencing April 9 of the year set forth below:

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Year Percentage
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	Year	Percentage
	2024	102.688%
	2025	101.344%
2026	and thereafter	100.000%

Upon the occurrence of a Change of Control of the Partnership (as defined in the 2029 Indenture), the Partnership will be required to offer to repurchase all or any part of each holder’s 2029 Notes for a payment in cash equal to 101% of the aggregate principal amount of 2029 Notes repurchased, plus accrued and unpaid interest thereon to the purchase date.

The 2029 Indenture contains certain restrictive covenants of the Partnership, including, but not limited to, limitations on making certain restricted payments by the Partnership or its Restricted Subsidiaries, restrictions on incurring certain indebtedness by the Partnership or its Restricted Subsidiaries, restrictions on incurring certain liens by the Partnership or its Restricted Subsidiaries, certain restrictions on transactions with affiliates, limitations on engaging in any line of business other than the businesses in which the Partnership and the Restricted Subsidiaries were engaged on the date of issuance of the 2029 Notes, and any business reasonably related, incidental, complementary or ancillary thereto, limitations on creating any contractual restrictions on the ability of the Partnership or its Restricted Subsidiaries to take certain actions, such as the payment of dividends or making of distributions, restrictions on consolidating, amalgamating or merging into any other person and restrictions on selling, transferring, assigning, leasing, conveying or otherwise disposing of all or substantially all of the property of the Partnership and the Restricted Subsidiaries taken as a whole.

The 2029 Indenture contains customary events of default such as non-payment, liquidation of assets, change of control, non-payment or acceleration of any indebtedness in an aggregate amount exceeding $25 million, insolvency and enforcement proceedings.

Kruger Products L.P. Notes to Unaudited Condensed Consolidated Financial Statements For the 6-month periods ended June 30, 2021 and June 30, 2020

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

c) KPLP Senior Credit Agreement

On May 21, 2021, the Partnership entered into the seventh amended and restated credit agreement (the KPLP Senior Credit Agreement) related to its revolving credit facility (the KPLP Senior Credit Facility), to amend negative covenants and other provisions of the KPLP Senior Credit Agreement to allow for implementation of the Sherbrooke Expansion Project. In conjunction with the issuance of the 2029 Notes on April 8, 2021, capacity under the KPLP Senior Credit Facility was reduced from $250 million to $200 million. The borrowings under the KPLP Senior Credit Facility bear interest at a base rate of Canadian prime rate, U.S. base rate, banker’s acceptance rates, LIBOR or the applicable benchmark replacement rate, plus a margin varying between 0.20% and 3.50% depending on the ratio of total net funded debt to EBITDA (as defined in the KPLP Senior Credit Agreement) and the type of advance. The KPLP Senior Credit Agreement is for a five year period, maturing on May 21, 2026. The KPLP Senior Credit Agreement provides for certain restrictive undertakings and covenants to be complied with by the Partnership.

The KPLP Senior Credit Agreement is guaranteed by KPLP, KPGP, Kruger Products Real Estate Holdings Inc., Kruger Products (USA) Inc., Kruger Products AFH G.P. Inc. and Kruger Products AFH L.P. and their respective subsidiaries (the Restricted Subsidiaries). The Partnership and the Restricted Subsidiaries provide first ranking security interests and hypothecs over their current and future tangible assets to secure the obligations under the KPLP Senior Credit Agreement including a pledge of 100% of the stock or ownership interest in all subsidiaries owned by the Partnership and the Restricted Subsidiaries.

d) Nordea2 Credit Agreement

On May 21, 2021, the Partnership entered into an amended credit agreement (the Nordea2 Credit Agreement) related to its Nordea2 Credit Facility, in connection with amendments to the KPLP Senior Credit Facility. No significant changes were made to the Nordea2 Credit Facility.

e) KPSB IQ Debenture

On May 21, 2021, KPSB entered into an agreement to issue a 10-year convertible debenture in favour of Investissement Québec (IQ) in the maximum principal amount of $75 million (the KPSB IQ Debenture). On May 21, 2021, $27 million of this debenture was issued. The purpose of the KPSB IQ Debenture is to partially finance the implementation of a light dry crepe tissue machine (the LDC Machine) in a new facility adjacent to the Sherbrooke TAD facility, as part of the Sherbrooke Expansion Project. The KPSB IQ Debenture matures ten years from the earlier of (i) the date on which commercial operation of the LDC Machine begins (the LDC Machine Commissioning Date) or (ii) September 1, 2024.

Borrowings under the KPSB IQ Debenture bear interest at a fixed capitalized interest rate of 2.0% per annum (the Fixed Rate), calculated monthly, starting on the disbursement date of each payment in respect of the amount disbursed. In the event the Partnership is in default (the KPLP Default) under the KPLP Contribution Undertaking Agreement (note 14), the Fixed Rate would increase from the date of the KPLP Default (the KPLP Default Date) to 6.0% per annum (the Fixed Default Rate), until the KPLP Default is remedied to IQ’s satisfaction within twelve months of the KPLP Default Date, failing which the Fixed Default Rate would continue to apply permanently. Interest is capitalized to the loan principal from the date of the first loan disbursement until the LDC Machine Commissioning Date. As of the LDC Machine Commissioning Date, interest will cease to be capitalized and is due and payable monthly.

The KPSB IQ Debenture is redeemable on a monthly basis commencing 24 months from the earlier of: (i) the LDC Machine Commissioning Date or (ii) September 1, 2024, which payments KPSB undertakes to cause the Partnership to make, failing which IQ will have a conversion right on terms of conversion that would provide IQ with a 100% equity interest in KPSB if the entirety of the debenture was so converted.

Kruger Products L.P. Notes to Unaudited Condensed Consolidated Financial Statements For the 6-month periods ended June 30, 2021 and June 30, 2020

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

Pursuant to a repayment agreement entered into by the Partnership, KPSB and IQ on May 21, 2021 (the Repayment Agreement), the Partnership will make required monthly redemption payments to IQ. As consideration of such payment, the Partnership will receive shares of KPSB of a class reserved exclusively for IQ and which must include pari passu rights with the common shares held by the Partnership. Pursuant to the Repayment Agreement, after the Partnership makes all of the redemption payments, it will hold a 100% equity interest in KPSB. KPSB may redeem or cause to be redeemed, early the KPSB IQ Debenture, in whole or in part, at any time and without penalty.

The Partnership’s redemption payments to IQ will be funded by rate discounts attributable to the Partnership, KPSB and KPSI for their plants under the rate discounts program applicable to consumers billed at rate “L”, as administered by the Ministère des Finances du Québec (Rate Discounts). The Rate Discounts are held by the Partnership in a designated bank account to be used only for the purpose of funding the Partnership’s redemption payments to IQ (the Dedicated Account). The Partnership has granted a first movable hypothec on the Dedicated Account in favour of IQ. The Partnership and IQ have entered into an account control agreement with respect to this hypothec and the Dedicated Account. The Dedicated Account is recorded in the unaudited condensed consolidated statement of financial position as Restricted cash (note 17).

The KPSB IQ Debenture contains covenants including, but not limited to, the delivery of financial statements and other information.

The KPSB IQ Debenture contains customary events of default such as failure to convert, misrepresentation and breach of covenants.

The Partnership has guaranteed, jointly and severally, to a maximum of $90 million: (i) KPSI’s IQ Bathroom Tissue Loan, (ii) KPSB’s IQ Facial Tissue Loan and (iii) the KPSB IQ Debenture.

f) IQ Bathroom Tissue Credit Agreement

KPSI is party to a loan agreement dated as of May 21, 2021 entered into by KPSI, as borrower, and IQ as lender (IQ Bathroom Tissue Credit Agreement) pursuant to which a secured non-revolving subordinated loan in a maximum amount of $47 million (IQ Bathroom Tissue Loan) is made available to KPSI. No amounts have been drawn on the IQ Bathroom Tissue Loan as of June 30, 2021. The purpose of the IQ Bathroom Tissue Loan is to finance the implementation of a bathroom tissue converting line (the BT Line) in the existing Sherbrooke TAD facility, as part of the Sherbrooke Expansion Project. The IQ Bathroom Tissue Loan matures ten years from the earlier of (i) the date on which commercial operation of the BT Line begins (the BT Line Commissioning Date) or (ii) November 1, 2022.

Borrowings under the IQ Bathroom Tissue Loan bear interest at a fixed interest rate of 2.0% per annum (the Fixed Rate), calculated monthly, starting on the disbursement date of each payment in respect of the amount disbursed. In the event the Partnership is in default (the KPLP Default) under the KPLP Contribution Undertaking Agreement (note 14), the Fixed Rate would increase from the date of the KPLP Default (the KPLP Default Date) to 6.0% per annum (the Fixed Default Rate), until the KPLP Default is remedied to IQ’s satisfaction within twelve months of the KPLP Default Date, failing which the Fixed Default Rate would continue to apply permanently. Interest is capitalized to the loan principal from the date of the first loan disbursement until the BT Line Commissioning Date. As of the BT Line Commissioning Date, interest will cease to be capitalized and is due and payable monthly.

The IQ Bathroom Tissue Loan has a moratorium on repayment of the principal, ending no later than 36 months from November 1, 2022, after which the principal is to be repaid in 84 equal monthly consecutive payments. KPSI may prepay all or part of the IQ Bathroom Tissue Loan at any time and without penalty.

The IQ Bathroom Tissue Credit Agreement contains covenants including, but not limited to, delivery of financial and other information to IQ, the preservation of existence, maintenance of insurance and maintenance of operations. The IQ Bathroom Tissue Credit Agreement also contains restrictions on the disposition of assets, incurrence of indebtedness and granting of liens, change of control and changes in the Sherbrooke Expansion Project.

Kruger Products L.P. Notes to Unaudited Condensed Consolidated Financial Statements For the 6-month periods ended June 30, 2021 and June 30, 2020

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

The IQ Bathroom Tissue Credit Agreement contains customary events of default such as non-performance, nonpayment, misrepresentation, breach of covenants, cross-default to any other agreement entered into with IQ or any of KPSI’s senior lenders, insolvency and enforcement proceedings.

The Partnership has guaranteed, jointly and severally, to a maximum of $90 million: (i) KPSI’s IQ Bathroom Tissue Loan, (ii) KPSB’s IQ Facial Tissue Loan and (iii) the KPSB IQ Debenture.

The IQ Bathroom Tissue Loan is secured by the BT Line. The security is second ranking immediately after the security granted in favour of KPSI’s senior lenders.

g) IQ Facial Tissue Credit Agreement

KPSB is party to a loan agreement dated as of May 21, 2021 entered into by KPSB, as borrower, and IQ as lender (IQ Facial Tissue Credit Agreement) pursuant to which a secured non-revolving subordinated loan in a maximum amount of $43 million (IQ Facial Tissue Loan) is made available to KPSB. No amounts have been drawn on the IQ Facial Tissue Loan as of June 30, 2021. The purpose of the IQ Facial Tissue Loan is to finance the implementation a facial tissue converting line (the FT Line) in a new facility adjacent to the Sherbrooke TAD facility, as part of the Sherbrooke Expansion Project. The IQ Facial Tissue Loan matures ten years from the earlier of (i) the date on which commercial operation of the FT Line begins (the FT Line Commissioning Date) or (ii) July 1, 2023.

Borrowings under the IQ Facial Tissue Loan bear interest at a fixed interest rate of 2.0% per annum (the Fixed Rate), calculated monthly, starting on the disbursement date of each payment in respect of the amount disbursed. In the event the Partnership is in default (the KPLP Default) under the KPLP Contribution Undertaking Agreement (note 14), the Fixed Rate would increase from the date of the KPLP Default (the KPLP Default Date) to 6.0% per annum (the Fixed Default Rate), until the KPLP Default is remedied to IQ’s satisfaction within twelve months of the KPLP Default Date, failing which the Fixed Default Rate would continue to apply permanently. Interest is capitalized to the loan principal from the date of the first loan disbursement until the FT Line Commissioning Date. As of the FT Line Commissioning Date, interest will cease to be capitalized and is due and payable monthly.

The IQ Facial Tissue Loan has a moratorium on repayment of the principal, ending no later than 24 months from July 1, 2023, after which the principal is to be repaid in 96 equal monthly consecutive payments. KPSB may prepay all or part of the IQ Facial Tissue Loan at any time and without penalty.

The IQ Facial Tissue Credit Agreement contains covenants including, but not limited to, delivery of financial and other information to IQ, the preservation of existence, maintenance of insurance and maintenance of operations. The IQ Facial Tissue Credit Agreement also contains restrictions on the disposition of assets, incurrence of indebtedness and granting of liens, change of control and changes in the Sherbrooke Expansion Project.

The IQ Facial Tissue Credit Agreement contains customary events of default such as non-performance, non-payment, misrepresentation, breach of covenants, cross-default to any other agreements entered into with IQ or any of KPSB’s senior lenders, insolvency and enforcement proceedings.

The Partnership has guaranteed, jointly and severally, to a maximum of $90 million: (i) KPSI’s IQ Bathroom Tissue Loan, (ii) KPSB’s IQ Facial Tissue Loan and (iii) the KPSB IQ Debenture.

The IQ Facial Tissue Loan is secured by the FT Line. The security is second ranking immediately after the security granted in favour of KPSB’s senior lenders.

h) KPSB Senior Credit Agreement

KPSB is a party to a credit agreement dated as of May 21, 2021 entered into by KPSB, as borrower, the lenders party thereto and National Bank of Canada, as administrative agent (the KPSB Senior Credit Agreement). Pursuant to the

Kruger Products L.P. Notes to Unaudited Condensed Consolidated Financial Statements For the 6-month periods ended June 30, 2021 and June 30, 2020

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

KPSB Senior Credit Agreement, a $70 million construction loan repayable by May 21, 2028 (the KPSB Construction Facility) and a revolving loan of $10 million with a maturity date of May 21, 2026 with the option to extend the maturity date on an annual basis by one additional year (the KPSB Revolving Facility) were made available as part of the KPSB Senior Credit Facility.

The purpose of the KPSB Construction Facility is to partially finance the implementation of the LDC Machine in a new facility adjacent to the Sherbrooke TAD facility, as part of the Sherbrooke Expansion Project, subject to KPSB having first used the full amount of the KPSB IQ Debenture. The purpose of the KPSB Revolving Facility is to finance general corporate purposes and the ongoing working capital requirements of KPSB.

Borrowings under the KPSB Construction Facility bear interest at a base rate of Canadian Prime Rate, U.S. Base Rate, LIBOR, Banker’s Acceptance Stamping Fees or LC Fees, plus a margin varying between 0.15% and 3.25% depending on the Total Leverage Ratio (as defined in the KPSB Senior Credit Agreement) and the type of advance. Borrowings under the KPSB Revolving Facility bear interest at a base rate of Canadian Prime Rate or U.S. Base Rate, depending on the type of advance. Stand-by fees are also payable on the available portion of the KPSB Senior Credit Facility at a rate varying between 0.50% and 0.75% depending on the Total Leverage Ratio (as defined in the KPSB Senior Credit Agreement).

The KPSB Construction Facility is available for multiple draws on a non-revolving basis, until the achievement of Term Conversion, which occurs on the earlier of (i) substantial completion of the LDC Machine installation (the LDC Machine Substantial Completion Date) or (ii) December 31, 2025 (the Final Acceptance Date). After the achievement of Term Conversion, the principal is to be repaid in quarterly instalments equal to 1.875% of the aggregate principal amount of the outstanding KPSB Construction Facility, annual Excess Cash Flow Sweeps (as defined in the KPSB Senior Credit Agreement) and repayments by an amount equal to the receipt of insurance proceeds by KPSB and any subsidiaries of KPSB, proceeds from the issue of capital stock by KPSB and proceeds from the sale or disposition of tangible and intangible assets of KPSB and any subsidiaries of KPSB. KPSB may at any time voluntarily repay the outstanding KPSB Construction Facility, in whole or in part, without premiums or penalty.

At any time during the six-month period prior to April 30, 2025 (the Scheduled Substantial Completion Date), KPSB may request to reduce the undrawn amount of the KPSB Construction Facility and increase the KPSB Revolving Facility by the same amount. The Scheduled Substantial Completion Date may be extended if it is determined that the LDC Machine Substantial Completion Date is not expected to occur by the Scheduled Substantial Completion Date.

The KPSB Senior Credit Agreement contains customary affirmative covenants, including, but not limited to, delivery of financial and other information to the administrative agent, delivery of notice to the administrative agent upon the occurrence of certain material events, preservation of existence and authorizations, maintenance of insurance, compliance with laws, payment of taxes and other claims, limitation of transactions with affiliates and maintenance of security.

The KPSB Senior Credit Agreement requires KPSB to comply with certain financial covenants. At all times, starting on the first day of the fourth fiscal quarter following the quarter during which Term Conversion is achieved, KPSB shall maintain on a quarterly financial basis:

Senior Leverage Ratio not greater than:

(i) 4.75x up to and including the end of the 7[th] fiscal quarter;
(ii) 3.75x from the 8[th] fiscal quarter up to and including the 11[th] fiscal quarter; and
(iii) 3.25x from the 12[th] fiscal quarter and thereafter

Kruger Products L.P. Notes to Unaudited Condensed Consolidated Financial Statements For the 6-month periods ended June 30, 2021 and June 30, 2020

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

Total Leverage Ratio not greater than:

(i) 7.00x up to and including the end of the 7th fiscal quarter;
(ii) 5.25x from the 8[th] fiscal quarter up to and including the 11[th] fiscal quarter; and (iii) 4.50x from the 12[th] fiscal quarter and thereafter

Fixed Charge Coverage Ratio not less than: (i) 1.10x up to and including the end of the 7th fiscal quarter; and (ii) 1.25x from the 8[th] fiscal quarter and thereafter

The KPSB Senior Credit Agreement contains customary negative covenants of KPSB, including, but not limited to, restrictions on the ability of KPSB to, subject to certain exceptions, grant liens, incur indebtedness, merge or consolidate, make investments and loans, grant guarantees, pay management fees, make acquisitions, declare, set apart and pay distributions, reduce capital, sell or otherwise dispose of assets, incur capital expenditures or materially change their business.

The KPSB Senior Credit Agreement contains customary events of default, including, but not limited to, nonpayment, misrepresentation, breach of covenants, cross-default and cross-acceleration to other debt above a certain threshold, cross defaults to the KPSB IQ Debenture, the IQ Facial Tissue Credit Agreement and the KPLP Senior Credit Agreement, insolvency, change of control of KPSB or the Partnership and enforcement proceedings.

To secure the obligations under the KPSB Senior Credit Facility, KPSB shall (i) grant first ranking liens (subject to permitted liens) on all its current and future tangible and intangible assets, including a pledge of all capital stock or ownership interest in all subsidiaries, and liens on the LDC Machine and the FT Line, in favour of the administrative agent under the KPSB Senior Credit Agreement, (ii) cause every wholly-owned subsidiary of KPSB to solidarily guarantee the obligations under the KPSB Senior Credit Facility (Future Guarantors) and grant first ranking liens (subject to permitted liens) on all of its current and future tangible and intangible assets, including a pledge of all capital stock or ownership interest in all subsidiaries, in favour of the administrative agent under the KPSB Senior Credit Agreement (there are no Future Guarantors as of June 30, 2021) and (iii) cause the Partnership to pledge on a limited recourse basis all of its capital stock in KPSB.

i) Citizens Letter of Intent

On June 23, 2021, KTG signed a letter of intent with Citizens Bank, N.A. to finance all costs associated with the implementation of a facial tissue converting line (the KTG FT Line) at the Memphis facility (Citizens Facial Tissue Loan). The Citizens Facial Tissue Loan is not expected to exceed the lesser of (i) US$21.8 million or (ii) 100% of the fair market value of the KTG FT Line. The loan is expected to be available as one single draw following the implementation of the KTG FT Line, which is expected to occur in 2022. The Citizens Facial Tissue Loan is expected to have a seven year term.

Kruger Products L.P. Notes to Unaudited Condensed Consolidated Financial Statements

For the 6-month periods ended June 30, 2021 and June 30, 2020

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

11 Lease liabilities

The Partnership’s leases relate to right-of-use of land, buildings, equipment and motor vehicles. The contractual undiscounted cash flows for Lease liabilities were as follows:

Less than 1 year Between 1 and 5 years More than 5 years	June 30, 2021 $
	28,345 77,767 63,167
	169,279

Renewal options have been included in the measurement of Lease liabilities when it is reasonably certain that the Partnership will exercise the renewal option.

Interest expense on Lease liabilities, expenses relating to variable payments not included in the measurement of Lease liabilities, expenses relating to low-value leases and expenses relating to short-term leases were as follows:

Interest expense on Lease liabilities(a) Expenses relating to variable payments not included in the measurement of Lease liabilities(b) Expenses relating to low-value leases(b) Expenses relating to short-term leases(c)	3-month period ended June 30, 2021 $	3-month period ended June 30, 2020 $	6-month 6-month period ended period ended June 30, 2021 June 30, 2020 $ $ 2,984 2,823 2,758 2,436 129 130 1,198 - 7,069 5,389
	1,402 1,335 65 1,040	1,396 1,145 62 -
	3,842	2,603

(a) Included in Interest expense in the unaudited condensed consolidated statement of comprehensive income (loss).

(b) Included in Cost of sales and Selling, general and administrative expenses in the unaudited condensed consolidated statement of comprehensive income (loss).

Expenses relating to variable payments not included in the measurement of Lease liabilities include variable lease payments for operating costs, property taxes and insurance.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Partnership’s incremental borrowing rate. Generally, the Partnership uses its incremental borrowing rate as the discount rate. The weighted-average rate applied is 3.94% as of June 30, 2021 (December 31, 2020 – 4.33%). Variable lease payments that do not depend on an index or rate are not included in the measurement of the lease liability.

Kruger Products L.P. Notes to Unaudited Condensed Consolidated Financial Statements

For the 6-month periods ended June 30, 2021 and June 30, 2020

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

12 Distributions and Partnership units liability

As of January 1, 2021 Change in amortized cost of Partnership units liability (note 5) Tax Distributions As of June 30, 2021	Partnership units liability $
	185,424 6,856 (17,535)
	174,745

The Partnership unit distributions paid, the portion of the distribution reinvested by the partners, the additional Partnership units issued at the unit price, and the gross proceeds were as follows:

Distribution Payment Date	Partnership unit distributions $	Unit price $	6-monthperiod ended June 30, 2021 Issuance of Gross proceeds Partnership units # $ 507,826 5,434 528,465 5,533 1,036,291 10,967 6-monthperiod ended June 30, 2020	6-monthperiod ended June 30, 2021 Issuance of Gross proceeds Partnership units # $ 507,826 5,434 528,465 5,533 1,036,291 10,967 6-monthperiod ended June 30, 2020
January 15, 2021 April 15, 2021 Distribution Payment Date	11,919 12,010	10.70 10.47	507,826 528,465	5,434 5,533
	23,929		1,036,291	10,967

	Partnership unit distributions $	Unit price $	Issuance of Gross proceeds Partnership units # $ 1,016,179 9,999 1,025,660 10,175 2,041,839 20,174
January 15, 2020 April 15, 2020	11,393 11,576	9.84 9.92
	22,969

On July 15, 2021, the Partnership paid a distribution of $12.1 million to the partners. Pursuant to the Partnership’s Distribution Reinvestment Plan (DRIP), a portion of the distribution was reinvested by the partners, resulting in the Partnership issuing 536,167 Partnership units at a price of $10.32. During the 6-month period ended June 30, 2021, a decrease of $0.1 million was recorded as a fair value adjustment to reflect the market value of the Partnership units issued.

Subsequent to June 30, 2021, the Partnership declared a distribution of $12.2 million, payable on October 15, 2021.

Kruger Products L.P. Notes to Unaudited Condensed Consolidated Financial Statements For the 6-month periods ended June 30, 2021 and June 30, 2020

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

The Partnership paid Partnership unit distributions, Tax Distributions and advances to its related parties as follows:

Paid to Kruger Inc.(a) Paid to KPGP Paid to KPT(b) Total paid Paid to Kruger Inc.(a) Paid to KPGP Paid to KPT(b) Total paid	Advances paid $	6-monthperiod endedJune 30, 2021 Partnership Tax unit Distributions distibutions Total $ $ $ 10,149 10,205 25,468 1 2 3 1,738 2,755 5,390 11,888 12,962 30,861 6-monthperiod endedJune 30, 2020 Partnership Tax unit Distributions distibutions Total $ $ $ 4,322 - 6,285 - 2 2 781 2,793 3,934 5,103 2,795 10,221	6-monthperiod endedJune 30, 2021 Partnership Tax unit Distributions distibutions Total $ $ $ 10,149 10,205 25,468 1 2 3 1,738 2,755 5,390 11,888 12,962 30,861 6-monthperiod endedJune 30, 2020 Partnership Tax unit Distributions distibutions Total $ $ $ 4,322 - 6,285 - 2 2 781 2,793 3,934 5,103 2,795 10,221
	5,114 - 897
	6,011
	Advances paid $
	1,963 - 360		6,285 2 3,934
	2,323		10,221

(a) During the 6-month periods ended June 30, 2021 and June 30, 2020, Partnership unit distributions were paid to Kruger Inc. net of the DRIP reinvestment. During the 6-month period ended June 30, 2021, Kruger Inc.’s DRIP reinvestment was $10.2 million (6-month period ended June 30, 2020 - $19.5 million).

(b) During the 6-month periods ended June 30, 2021 and June 30, 2020, Partnership unit distributions were paid to KPT net of the DRIP reinvestment. During the 6-month period ended June 30, 2021, KPT’s DRIP reinvestment was $0.8 million (6-month period ended June 30, 2020 - $0.7 million).

Tax Distributions

On February 26, 2021, pursuant to the Tax Distribution as defined in the Partnership Agreement, the Partnership declared a Tax Distribution of $17.5 million, of which the advances of $5.6 million were offset and the remaining $11.9 million was paid on February 26, 2021. During the 6-month period ended June 30, 2021, pursuant to the Tax Distribution as defined in the Partnership Agreement, the Partnership made advances to its partners of $6.0 million, of which $0.9 million was used to pay the monthly tax instalment on behalf of KPT and the remaining was advanced to Kruger Inc. and KPGP. The advances are non-interest bearing and non-recourse in nature and are settled when the Tax Distribution is declared annually.

13 Income taxes

The Partnership is not a tax paying entity for the 6-month periods ended June 30, 2021 and June 30, 2020. The income (loss) from the Partnership flows to the partners, Kruger Inc., KPGP and KPT. However, the Partnership’s subsidiaries KP USA, KTG, TAD Canco Inc., TAD Luxembourg S.A.R.L, KP TAD Holdco Inc., TAD1 Canco I Inc., TAD1 Canco II Inc., TAD1 GP ULC, TAD2 GP ULC, KPSI and KPSB are corporate entities and, therefore, are subject to tax.

Kruger Products L.P. Notes to Unaudited Condensed Consolidated Financial Statements

For the 6-month periods ended June 30, 2021 and June 30, 2020

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

Income tax expense (recovery) was recognized based on management’s best estimate of the effective weighted average annual income tax rate expected for the full financial year. The estimated effective weighted average annual income tax rate for the 6-month period ended June 30, 2021 was (55.2%) (6-month period ended June 30, 2020 – 18.9%).

The components of income taxes were as follows:

Current tax expense Deferred tax expense (recovery)	3-month period ended June 30, 2021 $	3-month 6-month period ended period ended June 30, 2020 June 30, 2021 $ $ 402 839 8,409 (4,044) 8,811 (3,205)	6-month period ended June 30, 2020 $
	478 (3,544)		882 7,800
	(3,066)		8,682

14 Related party transactions

The Partnership makes sales to and acquires goods and services from Kruger Inc. and its subsidiary companies (related parties) in the normal course of business. These transactions are measured at the exchange amount, which is the amount agreed on by the related parties, and are non-interest bearing.

Kruger Inc. is also providing certain management and support services related to the TAD Sherbrooke Project including project management services, and engineering, construction, accounting and corporate finance support services.

Sales of goods to Kruger Inc. for the 6-month period ended June 30, 2021 were $0.1 million (6-month period ended June 30, 2020 - $0.1 million). Sales of goods to subsidiaries of Kruger Inc. for the 6-month period ended June 30, 2021 were $1.2 million (6-month period ended June 30, 2020 - nil). Goods are sold based on the price lists in force and terms that would be available to third parties.

Purchases of goods and services from Kruger Inc. for the 6-month period ended June 30, 2021 were $4.2 million (6month period ended June 30, 2020 - $4.9 million). Purchases of goods and services from subsidiaries of Kruger Inc. for the 6-month period ended June 30, 2021 were $21.4 million (6-month period ended June 30, 2020 - $30.9 million). Goods are purchased from Kruger Inc. and related parties under normal commercial terms and conditions. These purchases of goods and services are included within Cost of sales and Selling, general and administrative expenses in the unaudited condensed consolidated statement of comprehensive income (loss).

During the 6-month period ended June 30, 2021, management fees of $3.7 million (6-month period ended June 30, 2020 - $3.7 million) were paid to Kruger Inc. for management services provided to the Partnership.

Kruger Products L.P. Notes to Unaudited Condensed Consolidated Financial Statements

For the 6-month periods ended June 30, 2021 and June 30, 2020

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

Balances due to and from related parties were as follows:

Receivables from Kruger Inc. Receivables from subsidiaries of Kruger Inc. Total receivables from related parties Payables to Kruger Inc. Payables to subsidiaries of Kruger Inc. Payables to KPT Total payables to related parties Long-term payable to KBLP Total long-term payable to related party	June 30, 2021 $ 12 -	December 31, 2020 $ - 13
	12	13
	8,164 2,570 24 10,758	5,726 3,350 21
		9,097
	40,959	-
	40,959	-

The receivables from and payables to related parties are based on commercial terms agreed on between the parties, unsecured and non-interest bearing. There were no provisions related to the receivables from related parties as of June 30, 2021 and December 31, 2020. There were no loans outstanding with related parties as of June 30, 2021 and December 31, 2020.

Long-term payable to KBLP

As part of the commitment of the IQ financing for the Sherbrooke Expansion Project (note 10), the Partnership entered into a contribution undertaking agreement with a subsidiary of the Partnership’s majority partner, Kruger Brompton L.P. (KBLP), dated as of May 21, 2021 (the KPLP Contribution Undertaking Agreement) pursuant to which the Partnership will be required to make payments to KBLP in an aggregate amount of $58 million over a period of ten years (the Contribution). The Contribution will be payable by the Partnership in ten annual equal and consecutive payments of $5.8 million each, the first payment being payable by the Partnership on May 21, 2023 and subsequent payments being payable by the Partnership on May 21 of each year thereafter until May 21, 2032. Not withstanding the foregoing, the first payment of the Contribution will be reduced by $0.1 million, which is equal to the purchase price paid by KPSB to KBLP for the sale of immovable property under the deed of sale dated May 21, 2021. The Partnership has agreed to pay the Contribution in exchange for access to shared infrastructure and services, the transfer of properties to complete the Sherbrooke Expansion Project and KBLP’s facilitation of the capital and financing structure for the Sherbrooke Expansion Project. The liability to KBLP is estimated using a discounted cash flow with a discount rate of 5.375%. As of June 30, 2021, an obligation of $41.0 is recorded in the unaudited condensed consolidated statement of financial position as Long-term payable to related party. The KPSB IQ Debenture (note 10(e)), the IQ Bathroom Tissue Loan (note 10(f)) and the IQ Facial Tissue Loan (note 10(g)) were arranged with IQ by the Partnership’s majority partner. It was determined that the difference between the fair value of the debt at a market rate of interest and the prescribed rate in the agreement represents a government grant. However, as a result of KBLP’s facilitation of the capital and financing structure for the Sherbrooke Expansion Project, it was determined that the government grant is not for the benefit of the Partnership and will be repaid via the KPLP Contribution Undertaking Agreement. Therefore, the fair value of the loans was estimated by discounting the cash flows using a market rate of interest of 5.375% and accordingly a deferred financing fee recorded. As of June 30, 2021, a deferred financing fee relating to the KPSB IQ Debenture of $18.6 million is recorded in the unaudited condensed consolidated statement of financial position, $11.9 million as Other long-term assets and $6.7 million netted against Long-term debt, based on the pro rata portion of the KPSB IQ Debenture issued as of period end. Also, as of June 30, 2021, deferred financing fees relating to the IQ Bathroom Tissue Loan and the IQ Facial Tissue Loan of $11.7 million and $10.7 million, respectively, are recorded in the unaudited condensed consolidated statement of financial position as Other long-term assets.

Kruger Products L.P. Notes to Unaudited Condensed Consolidated Financial Statements

For the 6-month periods ended June 30, 2021 and June 30, 2020

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

The Partnership declared distributions, which are payable to its related parties as follows:

Distribution payable to Kruger Inc. Distribution payable to KPGP Distribution payable to KPT Total distributions payable	June 30, 2021 December 31, 2020 $ $
	10,337 10,163 1 1 1,768 1,755 12,106 11,919

15 Segment information

Reportable segments

Management has determined the operating segments based on the reports reviewed by the Chief Executive Officer who is considered to be the Chief Operating Decision Maker. The Partnership operates in two industry segments: Consumer and Away-From-Home (AFH).

(a) Consumer

This segment operates using the Partnership’s manufacturing facilities in Canada (New Westminster, British Columbia; Crabtree, Quebec; Sherbrooke, Quebec; Gatineau, Quebec) and in the United States (Memphis, Tennessee). The Consumer segment includes sales of branded tissue products such as Cashmere™, Purex™, White Swan™, Scotties™, Sponge Towels™ and White Cloud™ and private label tissue products.

(b) AFH

This segment operates using the Partnership’s manufacturing facilities in Canada. The AFH business sells tissue products primarily through distributors to businesses involved in property management, health care, food service, manufacturing and lodging and also to public facilities.

Segment operating income is the earnings (loss) for each such segment 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, (x) change in fair value of derivatives, (xi) consulting costs related to operational transformation initiatives, (xii) corporate development related costs and (xiii) loss (gain) on sale of shares. The unaudited condensed consolidated financial statements refer to “Adjusted EBITDA”, a measure which does not have a standardized meaning prescribed by IFRS and therefore may not be comparable to similarly titled measures presented by other companies. “Consumer Segment Adjusted EBITDA” and “AFH Segment Adjusted EBITDA” means in each case the Segment operating income for the respective reportable segment of the Partnership.

Corporate and other costs

Beginning during the 3-month period ended March 31, 2021, timing adjustments for certain manufacturing costs included in inventory that were previously included in Corporate and other costs are now allocated to the Consumer and AFH segments. Corporate and other costs now includes only certain management overhead costs not directly attributable to the business segments.

The Partnership’s assets, operations and employees are located primarily in Canada and the United States. The same long-term assets of the Partnership are used for the Consumer and AFH segments. Accordingly, assets cannot be allocated to these segments.

Kruger Products L.P. Notes to Unaudited Condensed Consolidated Financial Statements

For the 6-month periods ended June 30, 2021 and June 30, 2020

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

Revenue from external customers Adjusted EBITDA Depreciation and amortization Interest expense Change in amortized cost of Partnership units liability Loss on sale of property, plant and equipment Loss on sale of non-financial assets Restructuring costs, net Foreign exchange gain Corporate development related costs Loss before income taxes Income taxes Net income	Consumer $	3-monthperiod endedJune 30, 2021 AFH Corporate and other costs Total $ $ $ 47,000 - 339,361 (426) (2,551) 37,315 22,201 16,263 3,428 264 2 (15) (4,059) 50 (819) (3,066) 2,247	3-monthperiod endedJune 30, 2021 AFH Corporate and other costs Total $ $ $ 47,000 - 339,361 (426) (2,551) 37,315 22,201 16,263 3,428 264 2 (15) (4,059) 50 (819) (3,066) 2,247
	292,361		339,361
	40,292		37,315 22,201 16,263 3,428 264 2 (15) (4,059) 50
			(819) (3,066)
			2,247

	3-monthperiod endedJune 30, 2020	3-monthperiod endedJune 30, 2020	3-monthperiod endedJune 30, 2020
Consumer $	AFH $	Corporate and other costs $	Total $
338,242	48,521	-	386,763
69,580	(2,145)	(3,012)	64,423 16,914 11,333 2,520 49 483 (5,789) 1,198
			37,715 8,811
			28,904

Kruger Products L.P. Notes to Unaudited Condensed Consolidated Financial Statements For the 6-month periods ended June 30, 2021 and June 30, 2020

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

Consumer $	6-monthperiod endedJune 30, 2021 AFH Corporate and other costs Total $ $ $ 86,012 - 649,740 (5,336) (4,355) 74,780 40,367 29,185 6,856 264 3 41 (7,803) 66 5,801 (3,205) 9,006 6-monthperiod endedJune 30, 2020	6-monthperiod endedJune 30, 2021 AFH Corporate and other costs Total $ $ $ 86,012 - 649,740 (5,336) (4,355) 74,780 40,367 29,185 6,856 264 3 41 (7,803) 66 5,801 (3,205) 9,006 6-monthperiod endedJune 30, 2020	6-monthperiod endedJune 30, 2021 AFH Corporate and other costs Total $ $ $ 86,012 - 649,740 (5,336) (4,355) 74,780 40,367 29,185 6,856 264 3 41 (7,803) 66 5,801 (3,205) 9,006 6-monthperiod endedJune 30, 2020
563,728
84,471
Consumer $	AFH $	Corporate and other costs $	Total $
651,531	110,378	-	761,909
123,929	(3,166)	(5,389)	115,374 33,733 21,913 5,040 (360) 49 1 1,221 3,472 4,331
			45,974 8,682
			37,292

Kruger Products L.P. Notes to Unaudited Condensed Consolidated Financial Statements For the 6-month periods ended June 30, 2021 and June 30, 2020

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

Geographic segments

The Partnership has generated revenue in Canada and the United States. Revenue and assets were allocated to geographic segment based on the location of the customer and long-term assets, respectively.

3-month period ended June 30, 2021 $	3-month period ended June 30, 2020 $ 218,438 168,325	6-month period ended June 30, 2021 $ 413,987 235,753 649,740	6-month period ended June 30, 2020 $
219,384 119,977 339,361			448,533 313,376 761,909
	386,763
			June 30, 2021
	Canada $	US $	Total $
	886,129 152,021 29,852 Canada $	315,066 - - US $	1,201,195 152,021 29,852 December 31, 2020 Total $
	865,247 152,021 26,205	328,944 - -	1,194,191 152,021 26,205

Kruger Products L.P. Notes to Unaudited Condensed Consolidated Financial Statements

For the 6-month periods ended June 30, 2021 and June 30, 2020

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

16 Financial instruments

Classification of financial instruments

As of June 30, 2021, the classification of the financial instruments, as well as their carrying amounts and fair values, was as follows:

Cash, cash equivalents and restricted cash
Trade and other receivables
Receivables from related parties
Advances to partners
Embedded derivative
Trade payables
Accrued liabilities
Contract liabilities
Payables to related parties
Long-term payable to related party
Distributions payable
Long-term debt
Lease liabilities
Partnership units liability

Classification
Carrying
Fair
amount
value
$
$
financial assets at amortized cost
129,711
129,711

financial assets at amortized cost
82,943
82,943

financial assets at amortized cost
12
12

financial assets at amortized cost
6,011
6,011

embedded derivative at fair value
through profit and loss
10
10
financial liabilities at amortized cost
(82,450)
(82,450)
financial liabilities at amortized cost
(58,675)

(58,675)
financial liabilities at amortized cost
(86,650)
(86,650)
financial liabilities at amortized cost
(10,758)
(10,758)
financial liabilities at amortized cost
(40,959)
(40,959)
financial liabilities at amortized cost
(12,106)
(12,106)
financial liabilities at amortized cost
(957,298)
(983,575)
financial liabilities at amortized cost
(129,714)
(129,714)
financial liabilities at amortized cost
(174,745)
(174,745)

The following table details the fair value hierarchy of financial instruments by level as of June 30, 2021:

Embedded derivative Long-term debt Partnership units liability	Level 1 $	Level 2 Level 3 $ $ 10 - (983,575) - - (174,745)	Total $
	- - -		10 (983,575) (174,745)

Kruger Products L.P. Notes to Unaudited Condensed Consolidated Financial Statements For the 6-month periods ended June 30, 2021 and June 30, 2020

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

As of December 31, 2020, the classification of the financial instruments, as well as their carrying amounts and fair values, was as follows:

Cash and cash equivalents
Trade and other receivables
Receivables from related parties
Advances to partners
Embedded derivative
Trade payables
Accrued liabilities
Contract liabilities
Payables to related parties
Distributions payable
Long-term debt
Lease liabilities
Partnership units liability

Classification
Carrying
Fair
amount
value
$
$
financial assets at amortized cost
128,739
128,739

financial assets at amortized cost
88,041
88,041

financial assets at amortized cost
13
13

financial assets at amortized cost
5,647
5,647
embedded derivative at fair value
through profit and loss
10
10
financial liabilities at amortized cost
(109,593)
(109,593)
financial liabilities at amortized cost
(114,776)
(114,776)
financial liabilities at amortized cost
(107,703)
(107,703)
financial liabilities at amortized cost
(9,097)
(9,097)
financial liabilities at amortized cost
(11,919)
(11,919)
financial liabilities at amortized cost
(753,473)
(769,984)
financial liabilities at amortized cost
(130,975)
(130,975)
financial liabilities at amortized cost
(185,424)
(185,424)

The following table details the fair value hierarchy of financial instruments by level as of December 31, 2020:

Embedded derivative Long-term debt Partnership units liability	Level 1 $	Level 2 $	Level 3 Total $ $ - 10 - (769,984) (185,424) (185,424)
	- - -	10 (769,984) -

Fair value

Cash, cash equivalents and restricted cash, Trade and other receivables, Receivables from related parties, Advances to partners, Embedded derivative, Trade payables, Accrued liabilities, Contract liabilities, Payables to related parties and Distributions payable are short-term financial instruments whose fair value approximates the carrying amount, given they will mature in the near future.

The fair values of the KPLP Senior Credit Facility, the Senior Unsecured Notes due April 24, 2025, the Senior Unsecured Notes due April 9, 2029, the AgCredit Agreement and the Nordea2 Credit Facility approximate the current principal amount outstanding as the interest rate approximates current market interest rates. The fair values of the KPSI IQ Debenture, the Quebec PM Loan and the Ontario Loan are recorded on future cash flows discounted using market rates, net of the government grant recorded on the below-market rate of interest.

Kruger Products L.P. Notes to Unaudited Condensed Consolidated Financial Statements

For the 6-month periods ended June 30, 2021 and June 30, 2020

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

The fair values of Long-term debt and discount rates were as follows:

KPLP Senior Credit Facility Senior Unsecured Notes due April 24, 2025 Senior Unsecured Notes due April 9, 2029 AgCredit Agreement KPSI IQ Debenture KPSB IQ Debenture Nordea2 Credit Facility Quebec PM Loan Ontario Loan	Discount rate	June 30, 2021 $ 15,017 125,000 135,000 497,037 101,685 27,000 60,375 20,176 2,285	December 31, 2020 $ 10,000 125,000 - 454,527 98,707 - 56,229 23,269 2,252
	- - - - 6.0% - - 4.4% 4.4%
		983,575	769,984

Amounts exclude deferred financing fees

Management has estimated the fair value of the Embedded derivative using a probability-weighted interest rate pricing method. The valuation methodology used is categorized as a Level 2 methodology.

The fair value of the derivative liabilities was based on foreign exchange rates and interest rates in the active market. The change in the fair value of the derivative liabilities based on foreign exchange rates was nil during the 6-month period ended June 30, 2021 (6-month period ended June 30, 2020 – $0.4 million gain, which was recorded in the unaudited condensed consolidated statement of comprehensive income (loss) in Other (income) expense). The valuation methodology used was categorized as a Level 2 methodology.

Fair value of the Partnership units liability

The Partnership units liability is classified as a financial liability at amortized cost. Management has estimated the fair value of the Partnership units liability using a discounted cash flow model. Significant assumptions include the income tax obligation, discount rate and an industry capitalization rate. There were no significant changes in the assumptions during the 6-month period ended June 30, 2021.

Currency risk

From time to time, the Partnership uses derivative financial instruments to manage foreign currency risk. Foreign exchange swaps and foreign exchange forwards are used to manage U.S. dollar borrowings. As of June 30, 2021, the Partnership had no foreign exchange swaps and no foreign exchange forwards outstanding.

Kruger Products L.P. Notes to Unaudited Condensed Consolidated Financial Statements For the 6-month periods ended June 30, 2021 and June 30, 2020

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

17 Cash, cash equivalents and restricted cash

Cash and cash equivalents Restricted cash Cash, cash equivalents and restricted cash	June 30, 2021 $ 129,360 351	December 31, 2020 $
		128,739 -
	129,711	128,739

Pursuant to the Repayment Agreement in connection with the KPSB IQ Debenture, the Partnership holds prescribed Rate Discounts, as administered by the Ministère des Finances du Québec, in a Dedicated Account to be used only for the purpose of funding the Partnership’s redemption payments to IQ. The Dedicated Account is recorded in the unaudited condensed consolidated statement of financial position as Restricted cash. Additional information is disclosed in note 10(e).

18 Non-cash working capital

The change in non-cash working capital on the unaudited condensed consolidated statement of cash flows comprised the following:

Decrease in trade and other receivables Decrease in receivables from related parties Increase in inventories Increase in prepaid expenses Decrease in income taxes Increase (decrease) in trade and other payables Increase in payables to related parties	6-month period ended June 30, 2021 $	6-month period ended June 30, 2020 $
	2,866 1 (66,012) (4,384) 406 (66,363) 1,661	2,797 123 (712) (5,111) 540 25,029 3,369
	(131,825)	26,035

Kruger Products L.P. Notes to Unaudited Condensed Consolidated Financial Statements For the 6-month periods ended June 30, 2021 and June 30, 2020

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

19 Cash flows from (used in) financing activities

The change in financing activities on the unaudited condensed consolidated statement of cash flows comprised the following:

Advances to partners Prepaid expenses Accrued liabilities Distributions payable Long-term debt Partnership units Partnership units liability Lease liabilities Total Advances to partners Prepaid expenses Other long-term assets Accounts receivable Accrued liabilities Distributions payable Long-term debt Partnership units Partnership units liability Lease liabilities Total	As of January 1, 2020 $ (80) (8,341) 99,829 11,393 591,062 408,978 143,515 118,762 1,365,118 As of January 1, 2021 $ (5,647) (8,315) (10) (88,041) 114,776 11,919 753,473 439,571 185,424 130,975 1,534,125	Proceeds from long- term debt $ - - - - 132,327 - - - 132,327 Proceeds from long- term debt $ - - - - - - 226,475 - - - 226,475	Repayment of long- term debt $ - - - - (33,701) - - - (33,701) Repayment of long- term debt $ - - - - - - (3,273) - - - (3,273)	Payment of deferred financing fees $ - - - - (493) - - - (493) Payment of deferred financing fees $ - - (3,111) - - - (5,159) - - - (8,270)	Payment of lease liabilities $ - - - - - - - (9,917) (9,917) Payment of lease liabilities $ - - - - - - - - - (12,715) (12,715)	Interest paid on long-term debt $ - (1,849) (19,429) - (344) - - - (21,622) Interest paid on long-term debt $ - (318) - (118) (16,090) - - - - - (16,526)	Distributions and advances paid, net $ (2,323) - - (22,969) - 20,174 (5,103) - (10,221) Distributions and advances paid, net $ (6,011) - - - - (23,929) - 10,967 (11,888) - (30,861)	Movements not in financing activities As of June 30, 2020 $ $ 80 (2,323) (5,083) (15,273) 10,733 91,133 23,336 11,760 16,474 705,325 (216) 428,936 5,040 143,452 4,938 113,783 55,302 1,476,793 Movements not in financing activities As of June 30, 2021 $ $ 5,647 (6,011) (3,990) (12,623) (34,703) (37,824) 5,216 (82,943) (40,011) 58,675 24,116 12,106 (14,218) 957,298 (138) 450,400 1,209 174,745 11,454 129,714 (45,418) 1,643,537

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KP Tissue Inc. — Interim / Quarterly Report 2021

47076_rns_2021-08-12_4a954358-c1f5-43ee-b99f-4cf575af0608.pdf

KRUGER PRODUCTS L.P.

Kruger Products L.P. Unaudited Condensed Consolidated Statements of Financial Position

Kruger Products L.P. Unaudited Condensed Consolidated Statements of Comprehensive Income (loss) For the 3-month and 6-month periods ended June 30, 2021 and June 30, 2020

Kruger Products L.P. Unaudited Condensed Consolidated Statements of Changes in Equity For the 6-month periods ended June 30, 2021 and June 30, 2020

Kruger Products L.P. Unaudited Condensed Consolidated Statements of Cash Flows

For the 6-month periods ended June 30, 2021 and June 30, 2020

Kruger Products L.P. Notes to Unaudited Condensed Consolidated Financial Statements

1 General information

2 Basis of presentation

3 Summary of significant accounting policies

Kruger Products L.P. Notes to Unaudited Condensed Consolidated Financial Statements

For the 6-month periods ended June 30, 2021 and June 30, 2020

4 Critical accounting estimates and judgments

COVID-19

5 Other (income) expense

Kruger Products L.P. Notes to Unaudited Condensed Consolidated Financial Statements

6 Property, plant and equipment

Kruger Products L.P. Notes to Unaudited Condensed Consolidated Financial Statements For the 6-month periods ended June 30, 2021 and June 30, 2020

8 Pensions and post-retirement benefits

Kruger Products L.P. Notes to Unaudited Condensed Consolidated Financial Statements

9 Provisions

Kruger Products L.P. Notes to Unaudited Condensed Consolidated Financial Statements

10 Long-term debt

c) KPLP Senior Credit Agreement

d) Nordea2 Credit Agreement

e) KPSB IQ Debenture

f) IQ Bathroom Tissue Credit Agreement

Kruger Products L.P. Notes to Unaudited Condensed Consolidated Financial Statements For the 6-month periods ended June 30, 2021 and June 30, 2020

i) Citizens Letter of Intent

Kruger Products L.P. Notes to Unaudited Condensed Consolidated Financial Statements

11 Lease liabilities

Kruger Products L.P. Notes to Unaudited Condensed Consolidated Financial Statements

For the 6-month periods ended June 30, 2021 and June 30, 2020

12 Distributions and Partnership units liability

Kruger Products L.P. Notes to Unaudited Condensed Consolidated Financial Statements For the 6-month periods ended June 30, 2021 and June 30, 2020

Tax Distributions

13 Income taxes

For the 6-month periods ended June 30, 2021 and June 30, 2020

14 Related party transactions

Kruger Products L.P. Notes to Unaudited Condensed Consolidated Financial Statements

For the 6-month periods ended June 30, 2021 and June 30, 2020

Long-term payable to KBLP

Kruger Products L.P. Notes to Unaudited Condensed Consolidated Financial Statements

For the 6-month periods ended June 30, 2021 and June 30, 2020

15 Segment information

Reportable segments

Corporate and other costs

Kruger Products L.P. Notes to Unaudited Condensed Consolidated Financial Statements

For the 6-month periods ended June 30, 2021 and June 30, 2020

Kruger Products L.P. Notes to Unaudited Condensed Consolidated Financial Statements For the 6-month periods ended June 30, 2021 and June 30, 2020

Kruger Products L.P. Notes to Unaudited Condensed Consolidated Financial Statements For the 6-month periods ended June 30, 2021 and June 30, 2020

Geographic segments

Kruger Products L.P. Notes to Unaudited Condensed Consolidated Financial Statements

16 Financial instruments

Kruger Products L.P. Notes to Unaudited Condensed Consolidated Financial Statements For the 6-month periods ended June 30, 2021 and June 30, 2020

Fair value

Kruger Products L.P. Notes to Unaudited Condensed Consolidated Financial Statements

For the 6-month periods ended June 30, 2021 and June 30, 2020

Fair value of the Partnership units liability

Currency risk

Kruger Products L.P. Notes to Unaudited Condensed Consolidated Financial Statements For the 6-month periods ended June 30, 2021 and June 30, 2020

17 Cash, cash equivalents and restricted cash

18 Non-cash working capital

Kruger Products L.P. Notes to Unaudited Condensed Consolidated Financial Statements For the 6-month periods ended June 30, 2021 and June 30, 2020

19 Cash flows from (used in) financing activities

More from KP Tissue Inc.

KP Tissue Inc. Interim / Quarterly Report 2021