Cascades
Annual Report 2023

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2023 Annual Report Transfer Agent and Registrar Computershare Shareholders Services 650 de Maisonneuve Blvd. West, 7th floor Montréal, Québec H3A 3T2 Canada Telephone: 514-982-7888 Toll-free (Canada): 1-800-564-6253 Fax: 514-982-7635 service@computershare.com Head Office Cascades Inc. 404 Marie-Victorin Blvd. Kingsey Falls, Québec J0A 1B0 Canada Telephone: 819-363-5100 Fax: 819-363-5155 Investor Relations Cascades Inc. Jennifer Aitken, MBA Director, Investor Relations investor@cascades.com Telephone: 514-282-2697 www.cascades.com/en/investors Cascades Inc’s, 2023 Annual Information Form will be available, upon request, form the Corporation’s head office as of March 28, 2024 This document will also be accessible via the Corporation’s website (www.cascades.com) and will be filed on SEDAR (www.sedarplus.ca) as of this date. On peut se procurer la version française du présent rapport annuel en s’adressant au siège social de la Société à l’adresse suivante : Secrétaire corporatif Cascades inc. 404, boulevard Marie-Victorin Kingsey Falls (Québec) J0A 1B0 Canada Table of contents Message from the President and Chief Executive Officer...................................................................................................................... Management’s Discussion & Analysis Financial snapshot............................................................................................................................................................................... Our business........................................................................................................................................................................................ Business highlights.............................................................................................................................................................................. Business drivers................................................................................................................................................................................... Operational performance indicators..................................................................................................................................................... Historical market prices of main products and raw materials............................................................................................................... Sensitivity table.................................................................................................................................................................................... Financial overview - 2023.................................................................................................................................................................... Business segment review.................................................................................................................................................................... Corporate, Recovery and Recycling activities..................................................................................................................................... Liquidity and capital resources............................................................................................................................................................. Consolidated financial position as of December 31, 2023, 2022 and 2021......................................................................................... Employee future benefits..................................................................................................................................................................... Comments on the fourth quarter of 2023............................................................................................................................................. 2024 First quarter outlook.................................................................................................................................................................... Capital stock information...................................................................................................................................................................... Contractual obligations and other commitments.................................................................................................................................. Transactions with related parties......................................................................................................................................................... Change in accounting policies and disclosures................................................................................................................................... Critical accounting estimates and judgments....................................................................................................................................... Controls and procedures...................................................................................................................................................................... Risk factors.......................................................................................................................................................................................... Contingencies...................................................................................................................................................................................... 4 8 9 10 12 14 15 16 17 20 27 27 30 31 31 33 33 34 34 35 35 37 37 47 Supplemental information on non-IFRS Accounting Standards measures and other financial measures........................................... 48 Historical financial information............................................................................................................................................................. 55 Audited Consolidated Financial Statements Management report.............................................................................................................................................................................. 56 Independent auditor report................................................................................................................................................................... 57 Consolidated balance sheets............................................................................................................................................................... 61 Consolidated statements of earnings (loss)......................................................................................................................................... 62 Consolidated statements of comprehensive income (loss).................................................................................................................. 63 Consolidated statements of equity....................................................................................................................................................... 64 Consolidated statements of cash flow.................................................................................................................................................. 65 Segmented information........................................................................................................................................................................ 66 Notes to consolidated financial statements.......................................................................................................................................... 70 2023 Annual Report 3 Dear fellow shareholders, I am very proud of what Cascades achieved this past year and encouraged by the performance of our businesses throughout 2023. We navigated the economic backdrop well, increasing sales by 4% and EBITDA (A)1 by 48% from 2022 levels, while generating $397 million of cash flow from operations, up 53% year-over-year. We also decreased our net debt by $84 million and our leverage ratio1 to 3.4x from 5.2x at the end of 2022. Following two challenging years, these solid sales and EBITDA (A)1 levels are a testament to the hard work and dedication of our employees. “It takes a village” is a fitting recap of 2023, as the underlying catalyst of this stronger performance was the steadfast commitment of each and every Cascader to generate lasting operational improvement. In my letter to you last year, I outlined our top priorities for 2023. Key among these were to capture the operational and financial benefits from recent investments and profitability initiatives, notably in our Tissue Papers segment, and to complete the strategic Bear Island project. We executed well, and adapted plans in response to the added complexity and higher costs that inevitably accompanied the challenging supply chain, labour constraints and unrelenting cost inflation prevalent throughout the year. The countermeasures implemented to offset these headwinds were successful, leading to significant benefits across our operations. Likewise, we started commercial production at our Bear Island mill in May, the culmination of a project that spanned not only last year’s challenging macro-environmental context, but the COVID-19 pandemic as well. While 2023 was certainly an eventful and demanding year, the significant steps we have taken to reposition our business portfolio have reinforced our foundational strengths supporting long-term transformative growth for Cascades. We are continuing to optimize the operational platform of our containerboard business in 2024 with the announcement of the closure of three of our higher-cost facilities in Newtown, Connecticut, and Trenton and Belleville, Ontario. This reduces our annual capacity by 175,000 short tons of semi-chemical medium containerboard and 500 million square feet of converted products. The majority of this converting capacity will be transferred to other facilities. Multiple layers of tissue My reference to transformative change applies in equal measure to the steps we have taken in our Tissue Papers business. We made significant modifications to our operational platform in 2023, and while difficult from a human perspective, these decisions were necessary. As the significant turnaround in this business’s profitability levels—from a loss of $13 million in 2022 to a positive EBITDA (A)1 of $182 million in 2023—shows, these decisions have produced important benefits. Following two very challenging years, we made the difficult but ultimately right decision to close underperforming plants in Barnwell, South Carolina, Scappoose, Oregon and St. Helens, Oregon in 2023. These moves reduced our annual manufacturing capacity by 142,000 short tons and our converting capacity temporarily by 10 million cases, as part of this capacity will be redeployed to other facilities in 2024. Some of the manufacturing capacity that was already integrated within our existing operational network will be absorbed in our other facilities, while the tonnage previously sold externally will not. Containerboard: A bear out of hibernation An excellent example of the groundwork that has been laid to drive our future growth is the recently completed Bear Island project, the largest in the Company’s history from an investment standpoint. When fully ramped, this state-of-the-art mill will have an annual capacity to produce 465,000 short tons of 100% recycled containerboard at basis weights as low as 16 lbs. Strategically, this is advantageous in two ways. First, the sustainability of the product meets growing demand for eco- friendly solutions from our customers and end-consumers and increases the percentage of our recycled capacity to over 85% of our lower basis weight containerboard products that deliver comparable quality to heavier weight options provide our customers with sustainable solutions that also cost less to transport. To this end, with the linerboard inclusion of Bear manufacturing capacity lightweight and advantageously positioned within the North American industry with basis weights under 26 pounds. Island, over 50% of our total production. Second, is Operationally, the addition of this mill optimizes the production flexibility, geographic footprint, and competitiveness of our containerboard manufacturing platform. The range of liner and medium products that this mill can manufacture complements what we produce at our Greenpac Mill, increasing the agility of our operational base and providing our customers with a more versatile offering of sustainable lightweight packaging solutions. From a geographic perspective, the facility is strategically located near Richmond, Virginia and Washington, DC, with very good rail and road access and easy accessibility for recycled fibre sourcing. It is also the southernmost manufacturing asset in our containerboard platform, which allows for optimal service for customers in the southern and midwestern US. Competitively speaking, our two state-of-the-art machines in the Greenpac and Bear Island mills are positioned within the first quartile of the North American industry, optimizing our business platform both in terms of cost base and machine width, positioning it more competitively through economic downturns. 1 Some information represents non-IFRS Accounting Standards financial measures, other financial measures or non-IFRS Accounting Standards ratios which are not standardized under IFRS Accounting Standards and therefore might not be comparable to similar financial measures disclosed by other corporations. Please refer to the “Supplemental Information on Non-IFRS Accounting Standards Measures and Other Financial Measures” section for a complete reconciliation. 2023 Annual Report 5 A transformed asset base mobilized for the future I have had the privilege to be at the helm of Cascades since 2013, and over my tenure as CEO, the Company has undertaken perhaps its most intense transformative phase. We have completely modernized the operational platform of our containerboard business with the addition of the Greenpac Mill in 2013, the Piscataway, New Jersey box plant in 2019 and the Bear Island Mill in May 2023, and the repositioning and upgrading of many of our other operating plants. We have also invested in new modern equipment in our Specialty Packaging business for high-quality sustainable packaging solutions. Likewise, our Tissue Papers business has undergone enormous change, most notably in the past two years, and today is equipped with an asset base that is better positioned to meet the needs of our customers both geographically and operationally. the growing demand to meet Looking ahead, the transformative changes we have completed position Cascades well for the future. In the coming year, we will focus on optimizing the efficiency and productivity of our modernized and repositioned asset base and leveraging the full benefits of our recent investments. These, along with our goal of reducing our debt, are central to delivering on the objectives set out in our Strategic Plan. By focusing on these concrete actions, Cascades will not only generate benefits for the Company, but for our customers and other stakeholders as well. On behalf of myself and Cascades’ management team, I would like to thank you for your continued support and trust through the challenges presented by the economic environment over the past year. We are confident in the future, and in the ability of Cascades to achieve long-term value from the comprehensive transformation of our businesses the Company, our shareholders, our employees and other stakeholders. We look forward to demonstrating this in 2024 and beyond. for initiatives were implement profitability in Included While favourable raw material pricing was an important tailwind for the stronger performance of this business in 2023, the repositioning of our operational platform and our multiple-year the main to effort catalysts. these efforts were wide-ranging commercial realignment decisions that involved adjustments to our product offering and our customer base, and cost-saving initiatives via productivity and efficiency improvements at the production level. Today, this streamlined business is better positioned to service our customers both geographically and operationally, while also being equipped to reduce costs, create synergies and generate sustained financial, operational and environmental performance improvements going forward. A strong legacy On a more personal note, 2023 brought with it some sad news for Cascades. One of the Company’s founders, Bernard Lemaire, passed away in November. Along with his brothers, Bernard founded and built Cascades on the principles of entrepreneurship, sustainability and an unwavering belief that employees are a company’s greatest resource. He leaves behind a legacy that nurtures ingenuity, applauds relentless determination and champions importance of eco- responsibility. This culture continues to lie at the very heart of Cascades today and remains a guiding principle and source of inspiration for all Cascaders, including myself. I believe it was Isaac Newton who said, “If I have seen further, it is by standing on the shoulders of giants,” and I couldn’t agree more. Bernard Lemaire was indeed a giant on whose shoulders the Company’s core principles were built, and Cascades would not be the company it is today without his leadership and vision. the Our sustainable DNA has endured for 60 years throughout We will honor six decades of this legacy in 2024, celebrating the 60th anniversary of the Company’s founding. From our roots in the first mill in Kingsey Falls, Québec, Cascades has grown into one of North America’s leading providers of sustainable packaging and tissue products. The Company has changed considerably the years—in scale, geographic footprint and business focus. What has not changed is our engagement to the environment and our legacy of stewardship in both this regard and in terms of social commitment. We are honoured that Cascades was once more recognized as one of the Global 100 most sustainable corporations in 2023, and again in 2024, and as one of Canada’s Top 100 Employers by The Globe and Mail for the fourth year in a row. What for Cascades has been at the very heart of our DNA since the Company was founded has gained widespread traction, and we applaud this growing environmental focus from our customers, our suppliers and the investment community at large. Our comprehensive 2021–2025 Sustainability Action Plan underscores just how committed Cascades is to not only eco- responsibility, but transparency and accountability. importantly, just as to 6 2023 Annual Report 2023 Annual Report 7 MANAGEMENT’S DISCUSSION & ANALYSIS FINANCIAL SNAPSHOT (in millions of Canadian dollars, unless otherwise noted) (unaudited) Sales Operating income EBITDA (A)1 EBITDA (A) as a percentage of sales1 Net earnings (loss) As reported Adjusted1 Net earnings (loss) per common share (basic) (in Canadian dollars) As reported Adjusted1 Capital expenditures, net of disposals Dividends declared per common share (in Canadian dollars) FINANCIAL POSITION (as of December 31) Total assets Net debt1 Net debt / EBITDA (A) ratio1 Equity attributable to Shareholders per common share (in Canadian dollars) Working capital as a percentage of sales1, 2 KEY INDICATORS Total shipments (in ’000 of s.t.)3 US$/CAN$ - Average rate 2023 4,638 40 558 12.0% (76) 109 ($0.76) $1.08 343 $0.48 4,772 1,882 3.4x 1,739 $17.27 2022 4,466 33 376 8.4% (34) 37 ($0.34) $0.37 482 $0.48 5,053 1,966 5.2x 1,871 $18.64 2021 3,956 50 389 9.8% 162 27 $1.60 $0.26 233 $0.48 4,566 1,351 3.5x 1,879 $18.63 9.9% 10.5% 8.6% 2,125 $0.74 2,027 $0.77 2,075 $0.80 FORWARD-LOOKING The following document is the annual financial report and Management’s Discussion and Analysis (“MD&A”) of the operating results and financial position of Cascades Inc. (“Cascades” or “the Corporation”) and should be read in conjunction with the Corporation’s Audited Consolidated Financial Statements and accompanying notes for the years ended December 31, 2023 and 2022. Information contained herein includes any significant developments as of February 21, 2024, the date on which the MD&A was approved by the Corporation’s Board of Directors. For additional information, readers are referred to the Corporation’s Annual Information Form (“AIF”), which is published separately. Additional information relating to the Corporation is also available on the SEDAR website at www.sedarplus.ca. The financial information contained herein, including tabular amounts, is expressed in Canadian dollars, unless otherwise specified, and is prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS® Accounting Standards), unless otherwise specified. Unless otherwise specified or if required by context, the terms “we”, “our” and “us” refer to Cascades Inc. and all of its subsidiaries, joint ventures and associates. This MD&A is intended to provide readers with information that Management believes is necessary for an understanding of Cascades’ current results and to assess the Corporation’s future prospects. Consequently, certain statements herein, including statements regarding future results and performance, are forward-looking statements within the meaning of securities legislation, based on current expectations. The accuracy of such statements is subject to a number of risks, uncertainties and assumptions that may cause actual results to differ materially from those projected, including, but not limited to, the effect of general economic conditions, decreases in demand for the Corporation’s products, prices and availability of raw materials, changes in relative values of certain currencies, fluctuations in selling prices and adverse changes in general market and industry conditions. Cascades disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required under applicable securities regulations. This MD&A also includes price indices, as well as variance and sensitivity analysis that are intended to provide the reader with a better understanding of the trends with respect to our business activities. These items are based on the best estimates available to the Corporation. 1 Some information represents non-IFRS Accounting Standards financial measures, other financial measures or non-IFRS Accounting Standards ratios which are not standardized under IFRS Accounting Standards and therefore might not be comparable to similar financial measures disclosed by other corporations. Please refer to the “Supplemental Information on Non-IFRS Accounting Standards Measures and Other Financial Measures” section for a complete reconciliation. 2 Percentage of sales = Average quarterly last twelve months (LTM) working capital / LTM sales. 3 Shipments do not take into account the elimination of business sector inter-segment shipments. Shipments from our Specialty Products segment are not presented, as different units of measure are used. 8 2023 Annual Report OUR BUSINESS Cascades Inc. is a paper and packaging company that produces, converts and sells packaging and tissue products composed primarily of recycled fibres. Established in 1964 in Kingsey Falls, Québec, Canada, the Corporation was founded by the Lemaire brothers, who saw the economic and social potential of building a company focused primarily on the sustainable development principles of reusing, recovering and recycling. 60 years later, Cascades is a multinational business with more than 70 operating facilities1 and approximately 10,000 employees1 across Canada and the United States. The Corporation currently operates three business segments: (Business segments) (unaudited) PACKAGING PRODUCTS Containerboard Specialty Products TISSUE PAPERS Number of facilities1 2023 Sales2 (in $M) % of sales 2023 Operating income (loss) (in $M) 2023 EBITDA (A)2, 3 (in $M) 2023 EBITDA (A) Margin2, 3 (%) % of EBITDA (A) 26 17 10 2,277 642 1,615 50.2% 14.2% 35.6% 128 66 (2) 390 91 182 17.1% 14.2% 11.3% 58.8% 13.7% 27.5% The locations of our facilities4 and employees by geographic segment in North America are as follows: 1 Including 50% owned joint ventures. The Corporation also has 18 Recovery and Recycling facilities which are included in Corporate Activities. 2 Excluding associates and joint ventures not included in consolidated results. Refer to Note 7 of the 2023 Audited Consolidated Financial Statements for more information on associates and joint ventures. 3 Please refer to the “Supplemental Information on Non-IFRS Accounting Standards Measures and Other Financial Measures” section for a complete reconciliation. 4 Excluding sales offices, distribution and transportation hubs and corporate offices. Including main joint ventures. 2023 Annual Report 9 Our facilities2028%2231%1623%1318%Canada - QuébecUnited StatesCanada - OntarioCanada - Other provincesOur employees 4,70046%2,50024%1,90019%1,10011%Canada - QuébecUnited StatesCanada - OntarioCanada - Other provinces BUSINESS HIGHLIGHTS 2022 - 2024 STRATEGIC PLAN As part of the annual review of its strategy, the Corporation analyzes its overall business and the environment in which it competes, sets objectives for the following year and the years ahead and approves its annual plans, all with a view to enhancing shareholder value. On February 24, 2022, Management and the Board of Directors disclosed the Corporation’s 2022 to 2024 Strategic Plan, and subsequently provided an update of the plan in conjunction with the Q1 2023 results on May 11, 2023. The presentation is available on the SEDAR website at www.sedarplus.ca and on the Corporation’s website at www.cascades.com/en/investors. The following is a summary of the 2024 financial targets set out in the Corporation’s 2022 to 2024 Strategic Plan in February 2022, and the subsequent update made to these targets in May 2023: 2024 Financial Targets Presented February 2022 Updated 2024 Financial Targets May 2023 Financial Targets ~$5.0B+ in 2024 1 Sales: 2 EBITDA (A) Margin4: 3 Capital expenditures (Capex): ~4% of sales in 2023-20241 4 Free cash flow2,3,4: 5 Net debt / EBITDA (A)4: ~13% - 15% in 2024 ~9% - 11% of sales 2.0x - 2.5x by the end of 2024 ~$5.0B ~12% - 14% ~$175M in 2024 (3.5% of sales) ~9% - 10% of sales 2.5x - 3.0x UPDATE ON THE 2022 - 2024 STRATEGIC PLAN Having completed two years out of its three year 2022 to 2024 Strategic Plan, and having successfully achieved the main business objectives set out in the plan, namely delivering significant profitability improvement in the Tissue Papers segment and the successful start- up of the Bear Island containerboard facility, the Corporation will not be providing any additional detailed financial updates. However, regarding its 2024 financial objectives, due to existing business conditions, the Corporation does not currently expect to attain its sales objective of $5 billion, and anticipates that its operations will generate levels at the lower-end of the targeted ranges for both EBITDA (A) margin4 and free cash flow4. The Corporation’s net debt to EBITDA (A) ratio4 is also expected to be slightly higher than the stated 2024 year-end target. Ongoing profitability improvement initiatives in all business segments and recent price increases announced in the containerboard segment may improve the Corporation’s 2024 financial performance, thus enabling it to attain the financial objectives for 2024 as previously disclosed. TISSUE PAPERS SEGMENT PROFITABILITY PLAN On April 25, 2023, the Corporation announced the repositioning of its Tissue Papers operating platform. This decision strengthens the operational, financial and environmental performance of this business segment with the closure of assets that have been underperforming. These actions simplify operations by concentrating the majority of tissue product operating activities at core, geographically well- positioned, sites that offer opportunities for future development and will further consolidate the Corporation’s position as a leading manufacturer of private label tissue products in the North American retail and Away-from-Home markets. The profitability plan initiatives progressed as planned, with the closures completed as scheduled. We anticipate that these decisions, combined with the ongoing productivity optimization initiatives, which are also progressing as expected, will continue to strengthen the performance of our Tissue Papers business going forward, as demonstrated by the solid financial performance during the second half of 2023. BEAR ISLAND PROJECT On May 2, 2023, we announced the production of the first roll of 100% lightweight recycled containerboard at the Bear Island, Virginia mill. After the commissioning of the Greenpac mill nearly 10 years ago, the start-up of Bear Island marks another historic milestone in the strategic modernization of our containerboard manufacturing network, allowing us to pursue long-term growth in packaging and enhance our portfolio of sustainable packaging solutions for our customers on a North American scale. The cost of the project was revised in February 2023 to approximately $690 million (~US$525 million) up from the initial total investment, announced at the end of 2020, of $475 million (US$380 million) due to important cost inflation, delays in the completion of certain construction milestones due to labour and material availability and changes required to the original construction plans. As of December 31, 2023, the total cost of the project is in line with our expectations. 1 Excluding strategic projects. 2 Defined as EBITDA (A)4 - Capex. 3 Interests, cash tax, working capital, lease payments, dividends paid to non-controlling interests and other cash flow item requirements are estimated at $225M - $250M/year. 4 Please refer to the “Supplemental Information on Non-IFRS Accounting Standards Measures and Other Financial Measures” section for a complete reconciliation. 10 2023 Annual Report BUSINESS DEVELOPMENTS The following transactions should be taken into consideration when reviewing the overall and segmented analysis of the Corporation’s 2023 and 2022 results. 2023 CONTAINERBOARD PACKAGING • • On February 13, 2024, the Corporation announced an important repositioning of its Containerboard operating platform. The currently idled Trenton (Ontario) corrugated medium mill will not restart operations, while the Belleville (Ontario) and Newtown (Connecticut) converting plants will be permanently closed, in a progressive manner, by May 31, 2024. The production from these facilities will be moved to other plants with available capacity and more modern equipment. On May 2, 2023, the Corporation announced the permanent closure of the paper machine no. 2 at the plant located in Niagara Falls. The paper machine previously ceased its operations in November 2022. SPECIALTY PRODUCTS • On September 22, 2023, the Corporation announced the consolidation of its isotherm packaging operations, resulting in the closure of its facilities in Tacoma, Washington in October 2023 and Grand Rapids, Michigan in December 2023. TISSUE PAPERS • On April 25, 2023, the Corporation announced an important repositioning of its Tissue Papers operating platform to enhance the performance of the business. In June and July, Cascades closed its underperforming plants in Barnwell, South Carolina, and Scappoose, Oregon, as well as the virgin paper tissue machine at its St. Helens plant, also in Oregon. On August 10, 2023, the Corporation announced the closing of the second paper machine at its St. Helens plant, resulting in the complete shutdown of the facility. Operations ceassed at the beginning of October 2023. Please refer to the “Business Highlights - 2022 - 2024 Strategic Plan” section for more details. SIGNIFICANT FACTS 2023 • On February 9, 2024, the Corporation entered into an agreement with its lenders for its existing revolving credit facility to extend the maturity from July 2026 to July 2027. The financial conditions remain unchanged. • • 2022 • In the fourth quarter of 2023, the Corporation entered into an $81 million (US$60 million) monthly rolling receivables’ monetization facility without recourse. As of December 31, 2023, the Corporation unrecognized receivables of $53 million related to the facility. On September 15, 2023, our subsidiary, Greenpac, entered into a 3-year credit agreement with a banking syndicate securing a revolving credit facility authorized at US$150 million which bears interest at a variable rate based on the level of leverage ratio of the subsidiary. Transaction fees amounting to US$2 million ($2 million) were capitalized in other assets. On October 19, 2022, the Corporation entered into an agreement with its lenders for its existing credit agreement to increase its authorized term loan to US$260 million from US$160 million and to extend the maturity from December 2025 to December 2027. Concurrently, the Corporation extended its existing $750 million revolving credit facility maturity from July 2025 to July 2026. The financial conditions of both facilities remain unchanged. The Corporation incurred $2 million in capitalizable transaction fees related to the refinancing. 2023 Annual Report 11 BUSINESS DRIVERS Cascades’ results may be impacted by fluctuations in the following areas: EXCHANGE RATES On a year-over-year basis, the average value of the Canadian dollar decreased by 4% compared to the US dollar in 2023. ENERGY COSTS On a year-over-year basis, the average price of natural gas decreased by 59% in 2023. In the case of crude oil, the average price was 17% lower in 2023 than in 2022. (unaudited) 2021 YEAR Q1 Q2 Q3 Q4 YEAR Q1 Q2 Q3 Q4 YEAR 2022 2023 US$/CAN$ - Average rate $0.80 $0.79 $0.78 $0.77 $0.74 $0.77 $0.74 $0.74 $0.75 $0.73 $0.74 US$/CAN$ - End of the period rate $0.79 $0.80 $0.78 $0.72 $0.74 $0.74 $0.74 $0.76 $0.74 $0.76 $0.76 Natural Gas Henry Hub - US$/mmBtu $3.84 $4.95 $7.17 $8.20 $6.26 $6.64 $3.42 $2.10 $2.55 $2.88 $2.74 Crude oil (US$/barrel) Source: Bloomberg RAW MATERIALS $65.15 $82.49 $109.25 $101.05 $83.39 $94.04 $77.85 $72.87 $75.49 $85.54 $77.94 Reference prices - virgin pulp in North America1 In 2023, the reference price for NBSK and NBHK decreased by 15% and 19% reflecting global demand supply dynamics. respectively, compared to 2022, Reference prices - recycled fibre costs in North America1 The brown grade recycled paper No. 11 (old corrugated containers, OCC) annual index price decreased by 48% while the recycled paper No. 56 (sorted residential papers, SRP) annual index price decreased by 65% in 2023 compared to 2022. The white grade recycled paper No. 37 (sorted office papers, SOP) annual index price decreased by 28% in 2023 compared to 2022. 1 Source: RISI, excluding mixed papers 12 2023 Annual Report US$/CAN$Q121Q221Q321Q421Q122Q222Q322Q422Q123Q223Q323Q4230.700.750.800.85Natural gas (US$/mmBtu)Crude oil (US$/Barrel)Q121Q221Q321Q421Q122Q222Q322Q422Q123Q223Q323Q423—1.503.004.506.007.509.00—20.0040.0060.0080.00100.00120.00Recycled paper No. 37 (SOP) (Northeast) (US$/s.t.)Recycled paper No. 11 (OCC) (Northeast) (US$/s.t.)Recycled paper No. 56 (SRP) (Northeast) (US$/s.t.)Q121Q221Q321Q421Q122Q222Q322Q422Q123Q223Q323Q42304080120160200240280Bleached hardwood kraft, mixed, Canada / US (US$/m.t.)Northern bleached softwood kraft, Canada (US$/m.t.)Q121Q221Q321Q421Q122Q222Q322Q422Q123Q223Q323Q4238001,0001,2001,4001,6001,800 FREIGHT U.S. national van rates1 In 2023, the average national van rate decreased by 16% compared to 2022. Diesel2 The average price of diesel in Canada and in the U.S. decreased by 12% and 16%, respectively, in 2023 compared to 2022. 1 Source : DAT Freight and analytics 2 Sources : In Canada : Canada Natural Resources. In the U.S. : Energy Information Administration 2023 Annual Report 13 US ($/Mile)Q121Q221Q321Q421Q122Q222Q322Q422Q123Q223Q323Q4232.252.502.753.003.253.50Canada (CAN$/Liter)US (US$/Gallon)Q121Q221Q321Q421Q122Q222Q322Q422Q123Q223Q323Q4230.901.201.501.802.102.402.503.003.504.004.505.005.506.00 OPERATIONAL PERFORMANCE INDICATORS We use several operational performance indicators to monitor our action plan and analyze the progress we are making toward achieving our long-term objectives. These indicators include the following: (unaudited) OPERATIONAL Total shipments (in ’000 short tons (s.t.))1 Packaging Products Containerboard Tissue Papers Total Integration rate2 Containerboard Tissue Papers Manufacturing capacity utilization rate3 Containerboard Tissue Papers FINANCIAL Working capital In millions of CAN$, at the end of period4 As a percentage of sales4, 5 2021 2022 2023 YEAR Q1 Q2 Q3 Q4 YEAR Q1 Q2 Q3 Q4 YEAR 1,521 372 379 391 364 1,506 383 398 429 402 1,612 554 131 133 134 123 521 124 134 134 121 513 2,075 503 512 525 487 2,027 507 532 563 523 2,125 58% 74% 57% 79% 57% 82% 52% 85% 53% 87% 55% 83% 49% 84% 50% 83% 50% 87% 55% 94% 52% 87% 94% 82% 93% 84% 96% 81% 93% 88% 83% 81% 91% 83% 91% 81% 93% 86% 91% 92% 84% 96% 90% 91% 297 424 493 561 397 397 487 514 512 318 318 8.6% 9.3% 9.6% 10.2% 10.5% 10.5% 10.6% 10.6% 10.3% 9.9% 9.9% 1 Shipments do not take into account the elimination of business sector inter-segment shipments. Shipments from our Specialty Products segment are not presented, as different units of measure are used. 2 Defined as: Percentage of manufacturing shipments transferred to our converting operations. 3 Defined as: Manufacturing internal and external shipments/practical capacity. Excluding Specialty Products segment manufacturing activities. 4 Some information represents non-IFRS Accounting Standards financial measures, other financial measures or non-IFRS Accounting Standards ratios which are not standardized under IFRS Accounting Standards and therefore might not be comparable to similar financial measures disclosed by other corporations. Please refer to the “Supplemental Information on Non-IFRS Accounting Standards Measures and Other Financial Measures” section for a complete reconciliation. 5 Percentage of sales = Average quarterly last twelve months (LTM) working capital / LTM sales. 14 2023 Annual Report HISTORICAL MARKET PRICES OF MAIN PRODUCTS AND RAW MATERIALS These indexes should only be used as trend indicators. They may differ from our actual selling prices and purchasing costs. (unaudited) Selling prices (average) PACKAGING PRODUCTS Containerboard (US$/short ton) Linerboard 42-lb. unbleached kraft, Eastern US (open market) Corrugating medium 26-lb. semichemical, Eastern US (open market) Specialty Products (US$/short ton) Uncoated recycled boxboard - bending chip, 20-pt. (series B) TISSUE PAPERS (US$/short ton) 2021 2022 2023 2023 vs.2022 YEAR Q1 Q2 Q3 Q4 YEAR Q1 Q2 Q3 Q4 YEAR Change % 833 895 935 935 915 920 872 852 845 832 850 (70) (8%) 745 818 865 865 832 845 762 728 715 702 727 (118) (14%) 845 1,027 1,067 1,100 1,100 1,073 1,053 1,040 1,040 1,020 1,038 (35) (3%) Parent rolls, recycled fibres (transaction) 1,156 1,213 1,271 1,291 1,290 1,266 1,269 1,233 1,196 1,190 1,222 (44) Parent rolls, virgin fibres (transaction) 1,515 1,504 1,597 1,644 1,631 1,594 1,572 1,489 1,394 1,404 1,465 (129) (3%) (8%) Raw material prices (average) RECYCLED PAPER North America (US$/short ton) Sorted residential papers, No. 56 (SRP - Northeast average) Old corrugated containers, No. 11 (OCC - Northeast average) Sorted office papers, No. 37 (SOP - Northeast average) VIRGIN PULP (US$/metric ton) 80 98 107 98 127 140 137 109 23 35 81 105 18 33 18 47 28 59 48 83 28 55 (53) (65%) (50) (48%) 134 205 235 252 248 235 222 183 142 135 170 (65) (28%) Northern bleached softwood kraft, Canada 1,478 1,527 1,743 1,800 1,745 1,704 1,675 1,510 1,293 1,312 1,448 (256) (15%) Bleached hardwood kraft, mixed, Canada/US 1,229 1,312 1,517 1,620 1,608 1,514 1,523 1,277 1,023 1,083 1,227 (287) (19%) Sources: RISI and Cascades 2023 Annual Report 15 SENSITIVITY TABLE2 The following table provides a quantitative estimate of the impact that potential changes in the prices of our main products, the costs of certain raw materials, energy and the exchange rates may have on Cascades’ annual EBITDA (A)1, assuming, for each price change, that all other variables remain constant. Estimates are based on Cascades’ 2023 manufacturing and converting external shipments and consumption quantities. It is important to note that this table does not consider the Corporation’s use of hedging instruments for risk management. These hedging policies and portfolios (see the “Risk Factors” section) should also be considered in order to fully analyze the Corporation’s sensitivity to the highlighted factors. Potential indirect sensitivity to the CAN$/US$ exchange rate is not considered in this table. Some of Cascades’ selling prices and raw material costs in Canada are based on US dollar reference prices and costs that are then converted into Canadian dollars. Consequently, fluctuations in the exchange rate may have a direct impact on the value of sales and purchases of Canadian facilities in Canada. However, because it is difficult to measure the precise impact of this fluctuation, we do not take it into consideration in the following table. The impact of the exchange rate on the working capital items and cash positions denominated in currencies other than CAN$ at the Corporation’s Canadian units is also excluded. Fluctuations in foreign exchange rates may also impact the translation of the results of our non-Canadian units into CAN$. (unaudited) SELLING PRICE (MANUFACTURING AND CONVERTING)3 Packaging Linerboard 42-lb. unbleached kraft, Eastern US Corrugating medium 26-lb. semichemical, Eastern US Uncoated recycled boxboard - bending chip, 20-pt., Eastern US Converting products (cartonboard based only) Tissue Papers RAW MATERIALS3 Packaging Brown grades (OCC and others) Groundwood grades (SRP and others) Tissue Papers Virgin pulp Brown grades (OCC and others) White grades (SOP and others) NATURAL GAS Packaging Tissue Papers EXCHANGE RATE4 U.S. subsidiaries translation SHIPMENTS/ CONSUMPTION ('000 SHORT TONS, ’000 MMBTU FOR NATURAL GAS) INCREASE EBITDA (A)1 IMPACT (IN MILLIONS OF CAN$) 425 375 125 825 1,750 515 2,265 1,625 45 1,670 190 140 245 575 5,600 3,100 8,700 US$25/s.t. US$25/s.t. US$25/s.t. US$25/s.t. US$25/s.t. US$25/s.t. US$25/s.t. US$25/s.t. US$25/s.t. US$25/s.t. US$1.00/mmBtu US$1.00/mmBtu CAN$/US$ 0.01 change 14 12 4 27 57 17 74 (54) (1) (55) (6) (5) (8) (19) (7) (4) (11) 2 1 Please refer to the “Supplemental Information on Non-IFRS Accounting Standards Measures and Other Financial Measures” section for a complete reconciliation. 2 Sensitivity calculated according to 2023 volumes or consumption with year-end closing exchange rate of CAN$/US$ 1.32, excluding hedging programs and the impact of related expenses such as discounts, commissions on sales and profit-sharing. 3 Based on 2023 external manufacturing and converting shipments, as well as fibre and pulp consumption. Including purchases sourced internally from our recovery and recycling operations. Adjusted to reflect acquisitions, disposals and closures, if needed. 4 As an example, from CAN$/US$ 1.32 to CAN$/US$ 1.33. 16 2023 Annual Report FINANCIAL OVERVIEW - 2023 SALES For the year ended December 31, 2023, consolidated sales totaled $4,638 million, an increase of $172 million, or 4%, compared to $4,466 million in 2022. The exchange rate was favourable for all segments, while benefits from higher selling prices in the Tissue Papers segment were partly offset by pricing pressures in the Containerboard Packaging segment. Sales levels benefited from stronger volume in the Containerboard Packaging segment and a better sales mix in the Tissue Papers segment. These impacts were partly offset by lower volume from the Specialty Products segment, lower sales from Recovery and Recycling activities and a less favourable sales mix in the Containerboard Packaging segment. Sales, in 2023, by geographic segment are as follows: The main variances in sales in 2023, compared 2022, are shown below: (in millions of Canadian dollars) 2023 Annual Report 17 Sales from (in %)56%44%United StatesCanadaSales to (in %)47%53%United StatesCanadaSALES ($M)4,466106102(1)(14)(21)4,6382022SalesF/XCAN$VolumeMixPriceRecovery &Recycling andOther items2023Sales OPERATING INCOME AND EBITDA (A)1 For the year ended December 31, 2023, the Corporation recorded an operating income of $40 million, compared to an operating income of $33 million in 2022. The operating income variance is explained by a significant specific items loss of $246 million, including impairment charges amounting to $209 million recorded in 2023, and higher depreciation and amortization expense in 2023 offset by better overall operating performance. For more details on impairment charges please refer to the “Segmented Information” section and Note 22 of the 2023 Audited Consolidated Financial Statements. The Corporation recorded an EBITDA (A)1 of $558 million in 2023, compared to $376 million in 2022. Tissue Papers segment performance was much stronger, Specialty Products segment results were stable and Containerboard Packaging segment contribution was lower. On a consolidated basis, volume combined with lower raw material, freight and energy costs and a favourable exchange rate more than offset a less favourable selling price and a lower contribution from Recovery and Recycling activities and higher general production costs mainly stemming from inflation. The main variances in operating income and in EBITDA (A)1 in 2023, compared to 2022, are shown below: (in millions of Canadian dollars) Raw materials (EBITDA (A)1) F/X CAN$ (EBITDA (A)1) The impacts of these estimated costs are based on production costs per unit shipped externally or inter-segment, which are affected by yield, product mix changes, inbound freight costs and purchase and transfer prices. In addition to market pulp and recycled fibre, these costs include purchases of external boards and parent rolls for the converting sector, and other raw materials such as plastic and wood chips. The estimated impact of the exchange rate is based on the Corporation’s Canadian export sales less purchases, denominated in US$, that are impacted by exchange rate fluctuations and by the translation of our non-Canadian subsidiaries EBITDA (A)1 into CAN$. It also includes the impact of exchange rate fluctuations on the Corporation’s Canadian units in currency other than the CAN$ on working capital items and cash positions, as well as our hedging transactions. It excludes indirect sensitivity (please refer to the “Sensitivity Table” section for further details). Production costs (EBITDA (A)1) Recovery and Recycling activities (Sales and EBITDA (A)1) These costs include the impact of variable and fixed costs based on production costs per unit shipped externally, which are affected by downtime and efficiency. While this sub-segment is integrated within the other segments of the Corporation, all variations in the results of Recovery and Recycling activities are presented separately and on a global basis in the charts. The sales and EBITDA (A)1 variances analysis by segment is shown in each business segment review (please refer to “Business Segment Review” for more details). 1 Please refer to the “Supplemental Information on Non-IFRS Accounting Standards Measures and Other Financial Measures” section for a complete reconciliation. 18 2023 Annual Report OPERATING INCOME AND EBITDA (A) ($M)332529137616251361912(14)(23)(61)558(246)(272)402022Operating incomeDepreciation and amortizationSpecificitems2022EBITDA (A)Raw materialsFreightVolume &MixEnergyF/XCAN$PriceRecovery &RecyclingProd.costs2023EBITDA (A)SpecificitemsDepreciation and amortization2023Operating income DEPRECIATION AND AMORTIZATION The depreciation and amortization expense increased by $20 million to $272 million in 2023, compared to $252 million in 2022. The increase reflects the depreciation of the Canadian dollar which increased the depreciation expense in 2023 by $5 million. The start-up of the Bear Island mill also contributed to the increase in the depreciation and amortization expense. The impact was partially offset by impairment charges recorded over the last twelve months. FINANCING EXPENSE (in millions of Canadian dollars) (unaudited) Interest on long-term debt (including lease obligations interest 2023 - $8 million; 2022 - $ 7 million) Amortization of financing costs Other interest and banking fees Interest expense on employee future benefits Unrealized loss on interest rate swaps Foreign exchange loss on long-term debt and financial instruments 2023 113 3 7 4 1 — 128 2022 69 2 5 3 — 9 88 The financing expense amounted to $128 million in 2023, compared to $88 million in 2022, an increase of $40 million. Higher interest rates and a higher level of debt resulted in a variance of $44 million. The variance is also impacted by the capitalization of the financing expense related to the qualifying assets during the construction of the Bear Island mill, which amounts to $9 million in 2023, compared to $15 million in 2022. The increase reflects the depreciation of the Canadian dollar which increased the financing expense in 2023 by $3 million. Also, the Corporation recorded an unrealized loss on interest rate swaps of $1 million in 2023 (nil in 2022). The variance is also impacted by the foreign exchange loss on long-term debt and financial instruments. In 2023, the Corporation recorded a gain of less than a million dollars, compared to a loss of $9 million in 2022. The average interest rate on our revolving credit facility increased to 7.16% as of December 31, 2023 compared to 6.18% at the same date in 2022. As of December 31, 2023, 36% of the Corporation’s total long-term debt was at a variable rate and 64% was at a fixed rate. As of December 31, 2023, the Corporation had, on a consolidated basis, total U.S. dollar-denominated debt of US$1,263 million. SHARE OF RESULTS OF ASSOCIATES AND JOINT VENTURES Share of results of associates and joint ventures amounted to $22 million in 2023, compared to $19 million in 2022. In 2023, it included a gain of $10 million on the disposal of non-significant joint ventures. For more information on share of results of associates and joint ventures please refer to Note 7 of the 2023 Audited Consolidated Financial Statements. RECOVERY OF INCOME TAXES In 2023, the Corporation recorded a recovery of income taxes of $13 million, which compares to a recovery of income taxes of $22 million in 2022. (in millions of Canadian dollars) (unaudited) Recovery of income taxes based on the combined basic Canadian and provincial income tax rate Adjustment for income taxes arising from the following: Difference in statutory income tax rate of foreign operations Prior years reassessment1 Reversal of deferred income tax assets related to prior year losses1 Permanent differences Recovery of income taxes 2023 (17) 3 5 1 (5) 4 (13) 2022 (10) — (6) — (6) (12) (22) Greenpac is a limited liability company (LLC) and partners agreed to account for it as a disregarded entity for tax purposes. Consequently, income taxes associated with Greenpac net earnings are proportionately recorded by each partner based on its respective share in the LLC and no income tax provision is included in Greenpac’s net earnings. As such, although Greenpac is fully consolidated in the Corporation’s results, only 92% of pre-tax book income is considered for tax provision purposes. The effective tax rate and income taxes are affected by the results of certain subsidiaries and joint ventures located in countries where the income tax rates are different from those in Canada, notably the United States. The normal effective tax rate is expected to be in the range of 21% to 27%. The weighted-average applicable tax rate was 24.25% in 2023. NET EARNINGS (LOSS) For the year ended December 31, 2023, the Corporation posted a net loss of $(76) million, or ($0.76) per common share, compared to a net loss of $(34) million, or ($0.34) per common share, in 2022. On an adjusted basis1, the Corporation posted net earnings of $109 million in 2023, or $1.08 per common share, compared to net earnings of $37 million, or $0.37 per common share, in 2022. 1 Please refer to the “Supplemental Information on Non-IFRS Accounting Standards Measures and Other Financial Measures” section for a complete reconciliation. 2023 Annual Report 19 BUSINESS SEGMENT REVIEW PACKAGING PRODUCTS - CONTAINERBOARD Our Industry U.S. containerboard industry production and capacity utilization rate1 Total U.S. containerboard production amounted to 36.5 million short tons in 2023, a decrease of 3% compared to 2022. As a result, the industry’s capacity utilization rate decreased to 87% in 2023 from 89% in 2022. U.S. containerboard inventories at box plants and mills2 The average inventory level decreased by 7% year-over-year in 2023. The number of weeks of supply in inventory averaged 4.2x for the year, down from 4.4x in 2022. U.S corrugated box industry shipments2 Total U.S. corrugated box shipments decreased by 5% in 2023 compared to 2022. Canadian corrugated box industry shipments3 Canadian corrugated box shipments were stable in 2023 compared to 2022. Reference prices - containerboard1 2023 reference prices for linerboard and corrugating medium decreased by 8% and 14%, respectively, compared to 2022. Reference prices - recovered papers (brown grade)1 The average reference price of old corrugated containers no.11 (“OCC̑ decreased by 48% in 2023 compared to 2022. ̑”) 1 Source: RISI 2 Source: Fibre Box Association 3 Source: Canadian Corrugated and Containerboard Association 20 2023 Annual Report 40,09237,79736,49695%89%87%Total production (’000 s.t.)Capacity utilization rate20212022202320,00025,00030,00035,00040,00045,00080%85%90%95%100%2,5282,8382,6273.84.44.2Average inventory level (’000 s.t.)Weeks of supply202120222023—5001,0001,5002,0002,5003,0003.03.54.04.55.0416.2400.5380.6Total shipments (Billion sq. ft.)202120222023300.0350.0400.0450.036.535.635.6Total shipments (Billion sq. ft.)20212022202325.030.035.040.0745845727833920850Corrugating medium 26-lb. semichemical, Eastern U.S. (open market) (US$/s.t.)Linerboard 42-lb. unbleached kraft, Eastern U.S. (open market) (US$/s.t.)2021202220236007008009001,00012710555Old corrugated containers, no. 11 (OCC - Northeast average) (US$/s.t.)202120222023—20406080100120140 Our Performance EBITDA (A)1 ($M) Sales ($M) and EBITDA (A) margin1 The main variances2 in sales and EBITDA (A)1 for the Containerboard Packaging segment in 2023, compared to 2022, are shown below: (in millions of Canadian dollars) 1 Please refer to the “Supplemental Information on Non-IFRS Accounting Standards Measures and Other Financial Measures” section for a complete reconciliation. 2 For definitions of certain sales and EBITDA (A)1 variation categories, please refer to the "Financial Overview” section for more details. 2023 Annual Report 21 80991031191269610167EBITDA (A) ($M)Q122Q222Q322Q422Q123Q223Q323Q423050100150534569595567561562593561SALES ($M)EBITDA (A) margin (% of sales)Q122Q222Q322Q422Q123Q223Q323Q42320030040050060010%15%20%25%30%Shipments and manufacturing capacity utilization rate372379391364383398429402Shipments (’000 s.t.)Utilization rateQ122Q222Q322Q422Q123Q223Q323Q42320025030035040045080%85%90%95%100%Average selling price(CAN$/s.t.)(US$/s.t.)Q122Q222Q322Q422Q123Q223Q323Q4231,2001,3001,4001,5001,6009001,0001,1001,200SALES ($M)2,26516151(40)(160)2,2772022 SalesVolumeF/XCAN$MixPrice2023 SalesEBITDA (A) ($M)40110747161310(44)(160)3902022EBITDA (A)Raw materialsVolume & MixEnergyF/XCAN$ FreightProd.costsPrice 2023EBITDA (A) 2022 2023 Change in % Shipments2 (’000 s.t.) 1,506 1,612 Average Selling Price (CAN$/unit) 1,504 1,412 7% -6% Sales ($M) 2,265 2,277 1% EBITDA (A)1 ($M) 401 18% % of sales 390 17% -3% 1 Please refer to the “Supplemental Information on Non-IFRS Accounting Standards Measures and Other Financial Measures” section for a complete reconciliation. 2 Shipments do not take into account the elimination of business sector inter-segment shipments. 3 Including sales to other partners in Greenpac. Total shipments increased by 106,000 s.t., or 7%, in 2023 compared to 2022. Parent roll shipments increased by 88,000 s.t., or 12%, compared to 2022. This increase reflects new volume associated with the Bear Island facility ramping up production. With the addition of Bear Island, the mill integration rate decreased by 3% to 52%. Including sales to other partners3, the integration rate was 68% in 2023, compared to 72% in 2022. The manufacturing utilization rate decreased by 1% to 90%, which includes the impact of the start-up of Bear Island. Shipments from converting activities increased by 18,000 s.t., or 2% compared to 2022. In terms of square feet, our volume increased by 3% from 13.8 billion in 2022 to 14.2 billion in 2023. This reflects a 2% increase in our Canadian converted products shipments, compared to a stable performance for the Canadian industry. Our US converted product shipments in 2023, outperforming the market decline of 5%. In terms of square feet per day, our shipments from converting activities increased by 3% year- over-year. increased by 8% year-over-year The average selling price decreased by 6% in 2023, reflecting a 11% decrease for parent rolls and a 1% decrease for converted products. Sales increased by $12 million, or 1%, in 2023 compared to 2022. The lower average selling price subtracted $160 million from sales while a less favourable sales mix removed another $40 million. These negative impacts were more than offset by benefits of $161 million related to greater volume and $51 million from the 4% average depreciation of the Canadian dollar compared to the US dollar. EBITDA (A)1 decreased by $11 million, or 3%, from 2022. This decrease reflects the negative impacts of $160 million from a lower average selling price and $44 million due to higher production costs, including chemicals, repair and maintenance, labour and other costs. These headwinds were offset by a $107 million beneficial impact related to lower raw material costs and $16 million from lower energy costs. Higher volume and a less favourable sales mix also had a net positive impact of $47 million, lower logistics and distribution costs added $10 million, and the depreciation of the Canadian dollar added $13 million. Results also include the impact on costs resulting from the Bear Island mill commissioning and start-up in May 2023. 22 2023 Annual Report BUSINESS SEGMENT REVIEW PACKAGING PRODUCTS - SPECIALTY PRODUCTS Our Performance EBITDA (A)1 ($M) Sales ($M) and EBITDA (A) margin1 The main variances2 in sales and EBITDA (A)1 for the Specialty Products segment in 2023, compared to 2022, are shown below: (in millions of Canadian dollars) 2022 654 Sales ($M) 2023 642 EBITDA (A)1 ($M) 92 14% % of sales 91 14% Change in % -2% -1% Sales decreased by $12 million, or 2%, in 2023 compared to 2022. Lower volume in almost all of our sub-segments due to market softening, labour constraints and operational issues, decreased sales by $39 million. Higher average selling prices for most of our sub- segments benefited sales levels by $11 million this year. In addition, the 4% average depreciation of the Canadian dollar compared to the US dollar had a positive impact of $16 million on sales. EBITDA (A)1 decreased by $1 million, or 1%, in 2023 compared to 2022. This performance reflects the beneficial impacts from higher realized spreads (selling price less raw materials) and depreciation of the Canadian dollar, which contributed $31 million and $2 million, respectively. These impacts were partially offset by higher operating, maintenance and supplies costs and a lower production level, which negatively impacted results by $24 million. In addition, lower volume decreased results by $10 million. 1 Please refer to the “Supplemental Information on Non-IFRS Accounting Standards Measures and Other Financial Measures” section for a complete reconciliation. 2 For definitions of certain sales and EBITDA (A)1 variation categories, please refer to the "Financial Overview” section for more details. 2023 Annual Report 23 2225252027242119EBITDA (A) ($M)Q122Q222Q322Q422Q123Q223Q323Q423051015202530157168168161161164157160SALES ($M)EBITDA (A) margin (% of sales)Q122Q222Q322Q422Q123Q223Q323Q4230501001502000%5%10%15%20%25%SALES ($M)6541611(39)6422022 SalesF/XCAN$PriceVolume 2023 SalesEBITDA (A) ($M)9220112(10)(24)912022 EBITDA (A)Raw materialsPriceF/XCAN$ Volume & MixProd.costs2023 EBITDA (A) BUSINESS SEGMENT REVIEW TISSUE PAPERS Our Industry U.S. tissue paper industry production (parent rolls) and capacity utilization rate1 Total parent roll production was stable in 2023. The average capacity utilization rate of 94% in 2023 increased by 1% compared to 93% in 2022. U.S. tissue paper industry converted product shipments1 In 2023, shipments for the Retail and the Away-from-Home markets decreased by 2% and increased by 2%, respectively, compared to 2022. Reference prices - parent rolls1 In 2023, the reference price for recycled and virgin parent rolls decreased by 3% and 8%, respectively, compared to 2022. Reference prices - recovered papers (white grade)1 The reference price of sorted office papers no.37 (“SOP”) decreased by 28% in 2023 compared to 2022. Reference prices - market pulp1 In 2023, the reference price for NBSK and NBHK decreased by 15% and 19%, respectively, compared to 2022, reflecting global demand supply dynamics. 1 Source: RISI 24 2023 Annual Report 9,4019,4849,49192%93%94%Total parent roll production (’000 s.t.)Capacity utilization rate2021202220237,0008,0009,00010,00011,00090%92%94%96%98%100%2,8792,9763,0356,4836,3836,282Shipments - Away-from-Home market (’000 s.t.)Shipments - Retail market (’000 s.t.)202120222023—2,0004,0006,0008,0001,1561,2661,2221,5151,5941,465Recycled parent roll (average publication price) (US$/s.t.)Virgin parent roll (average publication price) (US$/s.t.)202120222023—5001,0001,5002,000134235170Sorted office papers, no. 37 (SOP - Northeast average) (US$/s.t.)202120222023—501001502002501,2291,5141,2271,4781,7041,448Bleached hardwood kraft, mixed, Canada / U.S. (US$/m.t.)Northern bleached softwood kraft, Canada (US$/m.t.)202120222023—5001,0001,5002,000 Our Performance EBITDA (A)1 ($M) Sales ($M) and EBITDA (A) margin1 The main variances2 in sales and EBITDA (A)1 for the Tissue Papers segment in 2023, compared to 2022, are shown below: (in millions of Canadian dollars) 1 Please refer to the “Supplemental Information on Non-IFRS Accounting Standards Measures and Other Financial Measures” section for a complete reconciliation. 2 For definitions of certain sales and EBITDA (A)1 variation categories, please refer to the "Financial Overview” section for more details. 2023 Annual Report 25 (17)(8)4816446161EBITDA (A) ($M)Q122Q222Q322Q422Q123Q223Q323Q423-30-1501530456075314342382384387416422390SALES ($M)EBITDA (A) margin (% of sales)Q122Q222Q322Q422Q123Q223Q323Q4230100200300400-10%0%10%20%Shipments and manufacturing capacity utilization rate131133134123124134134121Shipments (’000 s.t.)Utilization rateQ122Q222Q322Q422Q123Q223Q323Q42305010015070%80%90%100%Average selling price(CAN$/s.t.)(US$/s.t.)Q122Q222Q322Q422Q123Q223Q323Q4232,2002,4002,6002,8003,0003,2003,4001,4001,6001,8002,0002,2002,400SALES ($M)1,4221353939(20)1,615 2022 SalesPriceMixF/XCAN$Volume 2023 SalesEBITDA (A) ($M)(13)1354135(16)182 2022EBITDA (A)PriceFreightRawmaterialsOthervariations 2023EBITDA (A) 2022 2023 Change in % Shipments2 (’000 s.t.) 513 521 Average Selling Price (CAN$/unit) 2,731 3,147 -2% 15% Sales ($M) 1,422 1,615 14% EBITDA (A)1 ($M) (13) (1)% % of sales 182 11% 1,500% 1 Please refer to the “Supplemental Information on Non-IFRS Accounting Standards Measures and Other Financial Measures” section for a complete reconciliation. 2 Shipments do not take into account the elimination of business sector inter-segment shipments. In April 2023, the Corporation announced the repositioning of this segment’s operating platform to strengthen its operational, financial and environmental performance, which included the closure of underperforming assets. We are very pleased with the benefits being realized from these wide-ranging measures and other profitability initiatives that have been executed in recent months. Shipments decreased by 8,000 s.t., or 2%, in 2023 compared to 2022. Converted product shipments increased by 14,000 s.t., or 3%, with 9% higher volume in the Consumer Products market partially offset by 4% lower shipments in the Away-from-Home market. In terms of cases, shipments increased by 3.6 million cases, or 6%, to 62.4 million cases in 2023 compared to 2022. Parent roll shipments decreased by 22,000 s.t., or 26%, in 2023 compared to 2022 mainly due to the closure of two paper machines in Oregon and one mill in South Carolina during the year. Network optimization also contributed to higher integration of parent rolls. The integration rate increased to 87% during the period (94% in the fourth quarter), from 83% in 2022. The 15% increase in the average selling price reflects price increase initiatives in both the Away-from-Home and Consumer Products markets during 2022 and 2023, the 4% average depreciation of the Canadian dollar compared to the US dollar and a favourable sales mix due to a higher proportion of converted products. Sales increased by $193 million, or 14%. This was driven by beneficial impacts of $135 million from a higher average selling price, $39 million from a favourable sales mix, and $39 million related to the favourable exchange rate. These benefits were partially offset by lower volumes mainly related to the paper machine closures, which negatively impacted sales by $20 million. EBITDA (A)1 increased by $195 million mainly due to the higher average selling price, which added $135 million. Additionally, lower transportation costs added $41 million due to lower market rates and savings generated from network optimization and lower raw material costs added $35 million. These were partially offset by a $16 million impact from higher production costs reflecting inflationary pressures and slightly lower volume. 26 2023 Annual Report CORPORATE, RECOVERY AND RECYCLING ACTIVITIES Corporate, Recovery and Recycling activities recorded an EBITDA (A)1 of $(105) million in 2023, compared to $(104) million in 2022. The EBITDA (A)1 of our Recovery and Recycling activities was $23 million lower in 2023 due to lower volume and decreasing recycled fibre prices. Corporate activities results benefited from lower professional fees and stable operating costs, and a loss of $2 million in 2023 was incurred following a fire at an external warehouse causing inventory losses. STOCK-BASED COMPENSATION EXPENSE Stock-based compensation expense recognized in Corporate activities amounted to $10 million in 2023, compared to $5 million in 2022. For more details on stock-based compensation, please refer to Note 20 of the 2023 Audited Consolidated Financial Statements. LIQUIDITY AND CAPITAL RESOURCES CASH FLOWS FROM OPERATING ACTIVITIES Cash flows from operating activities are presented in the following table: (in millions of Canadian dollars) (unaudited) Operating activities Net loss attributable to Shareholders for the year Adjustments for: Financing expense Depreciation and amortization Impairment charges Other loss (gain) Restructuring costs Unrealized loss on derivative financial instruments Recovery of income taxes Share of results of associates and joint ventures Net earnings attributable to non-controlling interests Net financing expense paid Net income taxes paid Dividends received Provisions for contingencies and charges and other liabilities Changes in non-cash working capital components 2023 (76) 128 272 209 12 23 2 (13) (22) 23 (129) (9) 9 (32) 397 113 510 2022 (34) 88 252 102 (20) 3 6 (22) (19) 20 (87) (5) 12 (36) 260 (116) 144 Cash flows from operating activities, excluding changes in non-cash working capital components, stood at $397 million in 2023, compared to $260 million in 2022. This cash flow measurement is relevant to the Corporation’s ability to pursue its capital expenditure program and reduce its indebtedness. Cash flows from operating activities generated $510 million in liquidity in 2023, compared to $144 million generated in 2022. The increase is driven by improved profitability and the significant decrease in the non-cash working capital compared to 2022. The Corporation paid $129 million of financing expense in 2023, compared to $87 million in 2022. The Corporation also paid $9 million of income taxes in 2023, compared to $5 million paid in 2022. Other elements include payments totaling $24 million in 2023 for severances and other restructuring costs related to closures, compared to $12 million in 2022. Changes in non-cash working capital components generated $113 million in liquidity in 2023, compared to $116 million used in 2022. A lower inflation rate along with working capital improvement initiatives have allowed the Corporation to improve its cash converting cycle, despite the fact that additional working capital was necessary in 2023 to support the start-up of the Bear Island mill. As of December 31, 2023, average quarterly LTM working capital as a percentage of LTM sales1 stood at 9.9%, which compares to 10.5% as of December 31, 2022. In the fourth quarter of 2023, the Corporation entered into an $81 million (US$60 million) monthly rolling receivables’ monetization facility without recourse. Under this agreement the Corporation considers the receivables transferred and accounts for as a sale. The Corporation’s continuing involvement in the transferred assets is limited to servicing the receivables. In the fourth quarter of 2023, the Corporation had unrecognized receivables of $53 million related to the facility of which the Corporation received $20 million as the collection agent and recorded an account payable in the same amount to the transferred assets purchaser. 1 Please refer to the “Supplemental Information on Non-IFRS Accounting Standards Measures and Other Financial Measures” section for a complete reconciliation. 2023 Annual Report 27 INVESTING ACTIVITIES Investing activities are presented in the following table: (in millions of Canadian dollars) (unaudited) Investing activities Disposals in associates and joint ventures Payments for property, plant and equipment Proceeds from disposals of property, plant and equipment Change in intangible and other assets Investing activities used $332 million in liquidity in 2023, compared to $486 million used in 2022. DISPOSALS IN ASSOCIATES AND JOINT VENTURES In 2023, the Corporation received $12 million from the sale of investments in non-significant joint ventures. In 2022, the Corporation received $1 million from an advance made to an associate. PAYMENTS FOR PROPERTY, PLANT AND EQUIPMENT (in millions of Canadian dollars) (unaudited) Total additions during the year Variation of payments of acquisitions for property, plant and equipment included in “Trade and other payables” Right-of-use assets acquisitions and provisions (non-cash) Payments for property, plant and equipment Proceeds from disposals of property, plant and equipment Payments for property, plant and equipment net of proceeds from disposals 2023 12 (350) 7 (1) (332) 2023 343 61 (54) 350 (7) 343 2022 1 (501) 19 (5) (486) 2022 619 (31) (87) 501 (19) 482 New capital expenditure projects, including right-of-use assets and provisions, by segment in 2023 were as follows: (in millions of Canadian dollars) The major capital projects that were initiated, are in progress or were completed in 2023 are as follows: CONTAINERBOARD PACKAGING • Bear Island assets in Virginia, USA, for site preparation and conversion of equipment to recycled containerboard manufacturing (see the “Business Highlights” section for more details). • Investment in equipment to optimize and increase the converting capacity in the USA. SPECIALTY PRODUCTS • Investment in thermoforming and extrusion equipment to increase production capacity and transition the Plastics sub-segment to recycled rigid plastics. 28 2023 Annual Report 19725353254ContainerboardSpecialty ProductsTissue PapersCorporate, Recovery and Recycling activitiesRight-of-use assets and provisions PROCEEDS FROM DISPOSALS OF PROPERTY, PLANT AND EQUIPMENT The main disposals of property, plant and equipment are as follows: 2023 The Tissue Papers segment received $4 million from the sale of a building and some machinery and equipment related to a previously closed plant in the USA. 2022 The Specialty Products segment received $5 million from the sale of land and a building related to a closed plant in Canada. An additional amount of $1 million deposited in escrow was collected in the first quarter of 2023. CHANGE IN INTANGIBLE AND OTHER ASSETS In 2023, the Corporation invested $1 million, compared to $3 million in 2022, in its information technology system and other software developments. In 2022, the Corporation invested an additional $1 million for other assets, including deposits. FINANCING ACTIVITIES Financing activities are presented in the following table: (in millions of Canadian dollars) (unaudited) Financing activities Bank loans and advances Change in credit facilities Increase in term loan Payments of term loan Increase in other long-term debt Payments of other long-term debt, including lease obligations (2023 - $59 million; 2022 - $55 million) Issuance of common shares upon exercise of stock options Redemption of common shares Dividends paid to non-controlling interests Acquisition of non-controlling interests Dividends paid to the Corporation’s Shareholders 2023 2022 (3) (92) — — 99 (144) 2 — (36) (3) (48) (225) 2 323 355 (219) — (117) 1 (9) (13) (3) (48) 272 Financing activities used $225 million in total liquidity in 2023, compared to $272 million generated in 2022, including $48 million ($48 million in 2022) in dividend payments to the Corporation’s Shareholders. INCREASE IN (PAYMENTS OF) TERM LOAN On October 19, 2022, the Corporation entered into an agreement with its lenders for its existing credit agreement to increase its authorized term loan to US$260 million from US$160 million and to extend the maturity from December 2025 to December 2027. The increase portion of the term loan was used to reduce the borrowings under the revolving credit facility. INCREASE OF OTHER LONG-TERM DEBT In 2023, other debt without recourse to the Corporation increased by $99 million, mainly related to the refinancing of our subsidiary, Greenpac. PAYMENTS OF OTHER LONG-TERM DEBT In 2023, the Corporation repaid $73 million of other debt without recourse to the Corporation, which was refinanced as described above. Also, the Corporation repaid lease obligations of $59 million in 2023, compared to $55 million in 2022. ISSUANCE OF COMMON SHARES UPON EXERCISE OF STOCK OPTIONS AND REDEMPTION OF COMMON SHARES The Corporation issued 333,743 common shares at an average price of $5.40 as a result of the exercise of stock options in 2023, representing an aggregate amount of $2 million (in 2022 - $1 million for 355,686 common shares issued at an average price of $4.47). The Corporation purchased no common shares for cancellation in 2023 (in 2022 - $9 million for 854,421 common shares for cancellation at an average price of $11.07). DIVIDENDS PAID TO NON-CONTROLLING INTERESTS AND ACQUISITION OF NON-CONTROLLING INTERESTS Dividends paid to non-controlling interests in Greenpac and Falcon Packaging (distributor in the Specialty Products segment) amounted to $36 million in 2023 ($13 million in 2022). In 2023, the Corporation also increased its participation in Falcon Packaging for a contribution of $3 million ($3 million in 2022). 2023 Annual Report 29 CONSOLIDATED FINANCIAL POSITION AS OF DECEMBER 31, 2023, 2022 AND 2021 The Corporation’s financial position and ratios are as follows: (in millions of Canadian dollars, unless otherwise noted) (unaudited) Cash and cash equivalents Total assets Total debt1 Net debt1 Equity attributable to Shareholders Non-controlling interests Total equity Total equity and net debt1 Ratio of net debt/(total equity and net debt)1 Shareholders’ equity per common share (in Canadian dollars) December 31, 2023 December 31, 2022 December 31, 2021 54 4,772 1,936 1,882 1,739 42 1,781 3,663 102 5,053 2,068 1,966 1,871 57 1,928 3,894 174 4,566 1,525 1,351 1,879 48 1,927 3,278 51.4% $17.27 50.5% $18.64 41.2% $18.63 The following table reflects the Corporation’s secured debt rating/corporate rating/unsecured debt rating: Credit rating (outlook) December 31, 2022 December 31, 2023 MOODY’S Baa3/Ba2/Ba3 (stable) Baa3/Ba2/Ba3 (stable) STANDARD & POOR’S BB+/BB-/BB- (stable) BB+/BB-/BB- (stable) During the first quarter of 2022, STANDARD & POOR’S revised the Corporation’s outlook to stable from positive on cost headwinds and reaffirmed its ’BB-’ rating. NET DEBT1 RECONCILIATION The variance in the net debt1 (total debt1 less cash and cash equivalents) in 2023 are shown below, with the applicable financial ratios included: (in millions of Canadian dollars) 376 5.2x EBITDA (A)1 (last twelve months) ($M) Net debt / EBITDA (A) ratio1 558 3.4x 1 Some information represents non-IFRS Accounting Standards financial measures, other financial measures or non-IFRS Accounting Standards ratios which are not standardized under IFRS Accounting Standards and therefore might not be comparable to similar financial measures disclosed by other corporations. Please refer to the “Supplemental Information on Non-IFRS Accounting Standards Measures and Other Financial Measures” section for a complete reconciliation. 30 2023 Annual Report 1,966(397)(113)(39)(13)(7)50853501,882Net debt as of December 31, 2022Cash flowfrom oper.activitiesChanges in non-cashworking capital components F/X CAN$Investments and othersProceeds from disposals of property, plant and equipmentRight-of-use assets acquisitionsDividends paid &change in capitalstockPayments for property, plant and equipmentNet debt as of December 31, 2023 Liquidity available via the Corporation’s credit facilities, cash and cash equivalent balance and the anticipated cash flow generated by its operating activities are expected to provide sufficient funds to meet our financial obligations and to fulfill our capital expenditure program for the next twelve months. 2024 capital expenditures are forecasted to be approximately $175 million. As of December 31, 2023, the Corporation had $485 million (net of letters of credit in the amount of $13 million) available on its $750 million credit facility (excluding the credit facilities of our subsidiary Greenpac). Cash and cash equivalents as of December 31, 2023 are comprised as follows: $39 million in the parent company and restricted subsidiaries (as defined in the credit agreement) and $15 million in unrestricted subsidiaries, mainly Greenpac. EMPLOYEE FUTURE BENEFITS The Corporation’s employee future benefits assets and liabilities amounted to $189 million and $229 million, respectively, as of December 31, 2023, including an amount of $65 million for post-employment benefits other than pension plans. The pension plans include an amount of $26 million, which does not require any funding by the Corporation until it is paid to the employees. This amount is not expected to increase, as the Corporation has reviewed its benefits program to phase out some of them for future retirees. With regard to pension plans, the Corporation’s risk is limited, since all defined benefit pension plans are closed to new employees and fewer than 5% of its active employees are subject to those pension plans, while the remaining employees are part of the Corporation’s defined contribution plans, such as group RRSPs or 401(k). The measurement date of the employee future benefits plans is December 31 of each year. An actuarial evaluation is performed at least every three years. Based on their liabilities balances as of December 31, 2023, 94% of the Corporation’s plans had been evaluated on December 31, 2022 (19% in 2021). Considering the assumptions used and the asset ceiling limit, the surplus status for accounting purposes of its pension plans amounted to $19 million as of December 31, 2023, compared to a surplus of $10 million in 2022. The 2023 pension plan expense was $3 million and the cash outflow was $4 million. Due to the investment returns in 2023 and the change in the impact of the minimum funding requirement (asset ceiling), the expected expense for these pension plans is $2 million in 2024. As for the cash flow requirements, these pension plans are expected to require a net contribution of approximately $1 million in 2024. Finally, on a consolidated basis, the solvency ratio of the Corporation’s funded pension plans has increased to approximately 138%. COMMENTS ON THE FOURTH QUARTER OF 2023 SALES Sales of $1,138 million increased by $3 million in the fourth quarter of 2023, compared to $1,135 million in the same period of 2022. Higher volume in Packaging Products, a better sales mix and a favourable foreign exchange rate in all segments had a positive impact on sales. These factors were partially offset by lower volume in the Tissue Papers segment and lower selling prices in all segments. OPERATING LOSS AND EBITDA (A)1 The Corporation generated an operating loss of $(24) million in the fourth quarter of 2023, compared to an operating loss of $(20) million in the same period of 2022. The Corporation recorded an EBITDA (A)1 of $122 million in the fourth quarter of 2023, compared to $116 million in the same period of 2022, an increase of $6 million. The increase reflects the positive impact from lower production costs, energy, raw materials and freight. Also, volume and mix contributed positively in the packaging segments as well as lower raw material costs, mainly in the Tissue Papers segment. These positive impacts were partially offset by lower selling prices in all segments. 1 Please refer to the “Supplemental Information on Non-IFRS Accounting Standards Measures and Other Financial Measures” section for a complete reconciliation. 2023 Annual Report 31 The main variances1 in sales, in operating loss and in EBITDA (A)2 in the fourth quarter of 2023, compared to the same period of 2022, are shown below: (in millions of Canadian dollars) NET EARNINGS (LOSS) For the three-month period ended December 31, 2023, the Corporation posted a net loss of $(57) million, or ($0.57) per common share, compared to a net loss of $(27) million, or ($0.27) per common share, for the same period in 2022. On an adjusted basis2, the Corporation generated net earnings of $5 million in the fourth quarter of 2023, or $0.05 per common share, compared to net earnings of $22 million, or $0.22 per common share, in the same period in 2022. 1 For definitions of certain sales and EBITDA (A)2 variation categories, please refer to the "Financial Overview” section for more details. 2 Please refer to the “Supplemental Information on Non-IFRS Accounting Standards Measures and Other Financial Measures” section for a complete reconciliation. 2023 Annual Report 32 SALES ($M)1,135571042(70)1,138Q4 2022SalesVolumeMixRecovery &Recycling and Other itemsF/XCANPriceQ4 2023SalesOPERATING LOSS AND EBITDA (A) ($M)(20)62741162516151363(2)(70)122(73)(73)(24)Q4 2022 Operating lossDepreciation and amortizationSpecificitemsQ4 2022EBITDA (A)Volume& MixProd.costsRawmaterialsEnergyFreightRecovery &RecyclingF/XCAN$PriceQ4 2023EBITDA (A)SpecificitemsDeprciationand amortizationQ4 2023 Operating loss 2024 FIRST QUARTER OUTLOOK On a consolidated basis, we are forecasting that our results in the first quarter of 2024 will decrease sequentially. This is driven by lower expected results in our Containerboard segment due to higher raw material costs, slightly lower average selling prices and lower production levels to manage inventory following softer demand in the fourth quarter. Along with the strategic investments made in recent years, these factors contributed to our decision to permanently remove higher-cost capacity from our manufacturing platform. We continue to implement commercial strategies and cost optimization initiatives to drive profitability in this business, while increasing the agility and market responsiveness of our platform. To this end, we are pleased with the ramp-up of our Bear Island facility, and the addition of this top tier mill to our containerboard mill network augments its competitiveness from an operational, geographic positioning and cost perspective. Results in the Tissue Papers segment are also expected to slightly decrease sequentially reflecting increases in raw material pricing and normal seasonal softness at the beginning of the year, while results in Specialty Packaging are expected to improve thanks to efficiency improvements, notably in the plastics sub-segment. More broadly, while our outlook for volume remains prudent for our packaging businesses in the first quarter given economic uncertainty, benefits from ongoing profitability initiatives will continue to create value across our businesses for Cascades, our customers and our shareholders. CAPITAL STOCK INFORMATION COMMON SHARE TRADING Cascades’ stock is traded on the Toronto Stock Exchange (TSX) under the ticker symbol “CAS”. From January 1, 2023 to December 31, 2023, Cascades’ common share price fluctuated between $8.61 and $12.98. During the same period, 37.9 million Cascades common shares were traded on the Toronto Stock Exchange. On December 31, 2023, Cascades’ common shares closed at $12.73. This compares with a closing price of $8.46 on the same closing day last year. COMMON SHARES OUTSTANDING As of December 31, 2023, the Corporation’s issued and outstanding capital stock consisted of 100,695,370 common shares (100,361,627 as of December 31, 2022) and 3,172,527 issued and outstanding stock options (2,794,344 as of December 31, 2022). In 2023, the Corporation purchased no common shares for cancellation, while 333,743 stock options were exercised, 730,876 stock options were granted and 18,950 stock options were forfeited. As of February 21, 2024, issued and outstanding capital stock consisted of 100,707,211 common shares and 3,160,686 stock options. NORMAL COURSE ISSUER BID PROGRAM The Corporation did not renew its normal course issuer bid program in 2023. The normal course issuer bid announced on March 17, 2022 enabled the Corporation to purchase for cancellation up to 2,015,053 common shares between March 19, 2022 and March 18, 2023. During that period, the Corporation purchased 460,400 common shares for cancellation at an average price of $9.38 for $4 million. DIVIDEND POLICY On February 21, 2024, Cascades’ Board of Directors declared a quarterly dividend of $0.12 per common share to be paid on March 21, 2024 to shareholders of record at the close of business on March 7, 2024. On February 21, 2024, dividend yield was 3.2%. TSX Ticker: CAS Common shares outstanding (in millions)1 Closing price (in Canadian dollars)1 Average daily volume2 Dividend yield1 Q1 Q2 Q3 2021 Q4 Q1 Q2 Q3 2022 Q4 Q1 Q2 Q3 2023 Q4 102.3 102.3 100.9 100.9 100.5 100.8 100.4 100.4 100.4 100.7 100.7 100.7 $15.73 $15.26 $15.67 $13.97 $12.82 $10.13 $8.04 $8.46 $10.99 $11.69 $12.27 $12.73 342,616 433,394 278,277 272,438 250,944 299,332 293,260 259,071 225,154 139,265 121,774 119,877 2.0% 2.1% 3.1% 3.4% 3.7% 4.7% 6.0% 5.7% 4.4% 4.1% 3.9% 3.8% 1 On the last day of the quarter 2 Average daily volume on the Toronto Stock Exchange 2023 Annual Report 33 CASCADES’ COMMON SHARE PRICE FOR THE PERIOD FROM JANUARY 1, 2021 TO DECEMBER 31, 2023 (in Canadian dollars) CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS The Corporation’s principal contractual obligations and commercial commitments relate to outstanding debt, capital expenditures, raw materials and supplies, intangible assets, service agreements, leases and obligations for its pension and post-employment benefit plans. The following table summarizes these obligations as of December 31, 2023: CONTRACTUAL OBLIGATIONS Payment due by period (in millions of Canadian dollars) (unaudited) Long-term debt, including capital and interest Commitments for capital expenditures, raw materials and supplies and intangible assets Service agreements and exempted leases Leases not yet commenced but already signed Pension plans and other post-employment benefits1 Total contractual obligations TOTAL 2,375 61 58 2 515 3,011 LESS THAN ONE YEAR 179 48 30 — 12 269 BETWEEN ONE AND FIVE YEARS 2,132 13 27 2 68 2,242 OVER FIVE YEARS 64 — 1 — 435 500 1 These amounts represent all the benefits payable to current members during the following years and thereafter without limitations. The majority of benefit payments are payable from trustee- administered funds. The difference will come from future investment returns expected on plan assets and future contributions that will be made by the Corporation for services rendered after December 31, 2023. TRANSACTIONS WITH RELATED PARTIES The Corporation has also entered into various agreements with its joint-venture partners, significantly influenced companies and entities that are affiliated with one or more of its directors for the supply of raw materials, including recycled paper, virgin pulp and energy, as well as the supply of unconverted and converted products and other agreements entered into in the normal course of business. Aggregate sales by the Corporation to its joint-venture partners and other affiliates totaled $317 million and $367 million for 2023 and 2022, respectively. Aggregate purchases by the Corporation from its joint-venture partners and other affiliates came to $161 million and $154 million for 2023 and 2022, respectively. 34 2023 Annual Report Q121Q221Q321Q421Q122Q222Q322Q422Q123Q223Q323Q423$8.00$10.00$12.00$14.00$16.00$18.00 CHANGES IN ACCOUNTING POLICY AND DISCLOSURES A. NEW IFRS ACCOUNTING STANDARDS ADOPTED Disclosure of Accounting Policy Information - Amendments to IAS 1 and IFRS Practice Statement 2 In February 2021, the International Accounting Standards Board (IASB®) amended IAS 1 Presentation of Financial Statement and IFRS Practice Statement 2 Making Materiality Judgements to require the Corporation to disclose its material accounting policies rather than its significant accounting policies. implementation of The Financial Statements. these standard amendments resulted in no significant impact of the Corporation’s Consolidated IFRS 17 Insurance Contracts IFRS 17 Insurance Contracts was issued in May 2017 as replacement for IFRS 4 Insurance Contracts. The amendments deferred the application date of IFRS 17 to January 1, 2023. IFRS 17 Insurance Contracts, applies to insurance contracts regardless of the entity that issues them and so it does not apply only to traditional insurance entities. IFRS 17 Insurance Contracts defines an insurance contract as an agreement where one party, the insurer, accepts significant insurance risk from another party, the policy holder, by agreeing to compensate the policy holder if a specified uncertain future event adversely affects the policy holder. The standard became effective on January 1, 2023 and had no impact on the Corporation’s Consolidated Financial Statements. International Tax Reform—Pillar Two Model Rules, amendments to IAS 12 Income Taxes On May 23, 2023, the IASB published an amendment to IAS 12 to introduce a mandatory temporary exemption to the accounting for deferred taxes arising from jurisdictional tax law enacted or substantively enacted to implement the Pillar Two Model Rules that were published by the Organisation for Economic Co-operation and Development (OECD) and new disclosure requirements for affected entities. The Global Anti-Base Erosion Rules (GloBE) are a key component of the Pillar Two Model Rules and ensure large multinational enterprises pay a minimum level of tax on the income arising in each of the jurisdictions where they operate. The impact on the Corporation of the Pillar Two Model rules, including GloBE, is under assessment and a reasonable estimate shall be available once applicable jurisdictional tax law is substantively enacted. B. RECENT IFRS ACCOUNTING STANDARDS NOT YET ADOPTED IAS 7 and IFRS 7 Amendments Relating to Supplier Finance Arrangements IAS 7 and IFRS 7 Amendments Relating to Supplier Finance Arrangements require disclosures to enhance the transparency of supplier finance arrangements and their effects on an entity’s liabilities, cash flows and exposure to liquidity risk. The Corporation has an arrangement that is subject to the new requirements and is currently evaluating the impact on the disclosures in the Consolidated Financial Statements. Amendment to IAS 1 – Non-current liabilities with covenants These amendments clarify how conditions with which an entity must comply within twelve months after the reporting period affect the classification of a liability. The Corporation has covenants that are subject to this amendment and evaluates that there is no impact on the disclosures in the Consolidated Financial Statements as of December 31, 2023. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS The preparation of financial statements in conformity with IFRS Accounting Standards requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and disclosure of contingencies at the balance sheet date, 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, including those related to environmental costs, employee future benefits, collectability of accounts receivable, financial instruments, contingencies, income taxes, useful life and residual value of property, plant and equipment and impairment of property, plant and equipment and intangible assets. Actual results could differ from those estimates. When adjustments become necessary, they are reported in earnings in the period in which they occur. 2023 Annual Report 35 IMPAIRMENT OF PROPERTY, PLANT AND EQUIPMENT, INTANGIBLE ASSETS AND GOODWILL A. In determining the recoverable amount of an asset or CGU, based on the market approach, Management uses the value of comparable assets on the market. In determining the recoverable amount of an asset or CGU, based on the income approach, Management uses several key assumptions, including estimated shipment levels, foreign exchange rates, revenue growth rates, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA (A)) margins1, discount rates, capitalization rate and capital expenditures. The Corporation believes its assumptions are reasonable. Based on available information at the assessment date, however, these assumptions involve a high degree of judgment and complexity. Management believes that the following assumptions are the most susceptible to change and therefore could impact the valuation of the assets in the next year. DESCRIPTION OF SIGNIFICANT IMPAIRMENT TESTING ASSUMPTIONS (see Note 22 of the 2023 Audited Consolidated Financial Statements) REVENUES, ADJUSTED EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION (EBITDA (A)) MARGINS1, CASH FLOWS AND GROWTH RATES The assumptions used for revenues were based on the segment’s internal budget and were projected for a period of five years and a long- term growth rate of 3% was applied thereafter. The assumption used for EBITDA (A) margin1 was based on the segment’s historical performance. In arriving at its forecasts, the Corporation considers past experience, economic trends such as gross domestic product growth and inflation, as well as industry and market trends. DISCOUNT RATES The Corporation assumed a discount rate in order to calculate the present value of its projected cash flows. The discount rate represents a weighted average cost of capital (WACC) for comparable companies operating in similar industries of the applicable CGU, group of CGUs or reportable segment based on publicly available information. CAPITALIZATION RATES The Corporation assumed a capitalization rate in order to calculate the present value of its property cash flows. The capitalization rate represents a real estate valuation measure used to compare different real estate investments. The capitalization rate is calculated as the ratio between the annual rental income produced by a real estate asset to its current market value. FOREIGN EXCHANGE RATES When estimating the fair value less cost of disposal, foreign exchange rates are determined using the financial institution’s average forecast for the first two years of forecasting. For the following three years, the Corporation uses the last five years’ historical average of the foreign exchange rate. Terminal rate is based on historical data of the last ten years and adjusted to reflect Management’s best estimate of market participants expectations. SHIPMENTS The assumptions used are based on the Corporation’s internal budget for the next year and are usually held constant for the established capacity, for new capacity the ramp up is considered over the forecast period. In arriving at its budgeted shipments, the Corporation considers past experience, economic, industry and market trends. Considering the sensitivity of the key assumptions used, there is measurement uncertainty since adverse changes in one or a combination of the Corporation’s key assumptions could cause a significant change in the carrying amounts of these assets. INCOME TAXES B. The Corporation is required to estimate the income taxes in each jurisdiction in which it operates. This includes estimating a value for existing tax losses based on the Corporation’s assessment of its ability to use them against future taxable income before they expire. If the Corporation’s assessment of its ability to use the tax losses proves inaccurate in the future, more or less of the tax losses might be recognized as assets, which would increase or decrease the income tax expense and, consequently, affect the Corporation’s results in the relevant year. C. EMPLOYEE BENEFITS The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity approximating the terms of the related pension liability. The cost of pensions and other retirement benefits earned by employees is determined by actuaries using the projected benefit method pro-rated on years of service and Management’s best estimate of expected plan investment performance, salary escalations, retirement ages of employees and expected health care costs. The accrued benefit obligation is evaluated using the market interest rate at the evaluation date. Due to the long-term nature of these plans, such estimates are subject to significant uncertainty. All assumptions are reviewed annually. 1 Please refer to the “Supplemental Information on Non-IFRS Accounting Standards Measures and Other Financial Measures” section for a complete reconciliation. 36 2023 Annual Report CONTROLS AND PROCEDURES EVALUATION OF THE EFFECTIVENESS OF DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROLS OVER FINANCIAL REPORTING The Corporation’s President and Chief Executive Officer and its Vice-President and Chief Financial Officer have designed, or caused to be designed under their supervision, disclosure controls and procedures (DC&P) and internal controls over financial reporting (ICFR), as defined in National Instrument 52-109, “Certification of Disclosure in Issuer’s Annual and Interim Filings”. The purpose of internal controls over financial reporting (ICFR) is to provide reasonable assurance regarding the reliability of the Corporation’s financial reporting and the preparation of financial statements in accordance with IFRS Accounting Standards. The President and Chief Executive Officer and the Vice-President and Chief Financial Officer certify disclosures in annual and interim filings under Regulation 52-109 using the internal control framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). During the year ended December 31, 2023, there were no changes in the Corporation’s ICFR that materially affected or are reasonably likely to materially affect the Corporation’s ICFR. RISK FACTORS As part of its ongoing business operations, the Corporation is exposed to certain market risks, including risks ensuing from changes in selling prices for its principal products, costs of raw materials, interest rates and foreign currency exchange rates, all of which impact the Corporation’s financial position, operating results and cash flows. The Corporation manages its exposure to these and other market risks through regular operating and financing activities and, on a limited basis, through the use of derivative financial instruments. We use these derivative financial instruments as risk management tools, not for speculative investment purposes. The following is a discussion of key areas of business risks and uncertainties that we have identified and our mitigating strategies. The risk areas below are listed in no particular order, as risks are evaluated based on both severity and probability. Readers are cautioned that the following is not an exhaustive list of all the risks we are exposed to, nor will our mitigation strategies eliminate all risks listed. Risks relating to the Corporation’s business Macroeconomic risks In the last years, economies and markets have faced the phenomena of inflation, the control of which is the focus of all regulatory institutions around the world. Towards the end of the year 2023 the inflation came down and the raises of the benchmark interest rate are halted, but the lag effect impact is still of concern. Inflation represents a significant risk to macroeconomic stability, it results in rising energy and commodity costs, global equity and capital markets may experience significant volatility and weakness. The market for our securities proved resilient, however highly volatile. Our operations are subject to significant cost pressures and increased costs of labour and our employee compensation expenses. If our costs continue to be subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases and there is no assurance that our revenues will increase at the same rate to maintain the same level of profitability. Our clients may have difficulty and may delay their payment for the acquired goods. Although Cascades does not have direct activities in areas of armed conflicts around the world, a prolonged armed conflict between countries or an expansion of an armed conflict to other countries could have a materially adverse effect on world economies and on the Corporation in a variety of ways, including: (i) a general decrease in consumer spending from lower confidence levels; (ii) severe price inflation; (iii) disruptions in capital and financial markets; (iv) disruptions in supply chain; and (v) an increase in cyber security risk. If the Corporation does not successfully manage the demand, supply and operational challenges associated with the effects of the pandemic or other similar widespread public health concerns, our results could be negatively impacted. The Corporation’s business may be negatively impacted by the fear of exposure to, actual effects of, or government response to, the pandemic, such as travel restrictions, business shutdowns or limitations, shelter-in-place orders, recommendations or mandates from governmental authorities to avoid large gatherings or to self-quarantine as a result of the pandemic, or other shutdowns and restrictions. These impacts include, but are not limited to: • Significant reductions in demand or significant volatility in demand for one or more of the Corporation’s products, which may be caused by, among other things: quarantine or other travel restrictions, financial hardship, shifts in demand away from one or more of the Corporation’s products, including our Away-from-Home products or our industrial packaging products, or consumer stockpiling activity which may result in a decrease in demand for our products in one period as a result of excessive purchases of the Corporation’s products in another period. If prolonged, these events further increase the difficulty of planning for operations and may adversely impact the Corporation’s results; 2023 Annual Report 37 • • • • Inability to meet the Corporation’s customers’ needs and achieve cost targets due to disruptions in the Corporation’s manufacturing and supply arrangements caused by constrained workforce capacity or the loss or disruption of other significant manufacturing or supply materials such as raw materials or other finished product components, transportation, or other manufacturing and distribution capability. While the Corporation has not been required to do so to date, in the future the Corporation may be required to limit or shutdown our manufacturing facilities to comply with any future, more stringent government mandates, which may adversely impact the Corporation’s results; Failure of third parties on which the Corporation relies, including its suppliers, contract manufacturers, distributors and other contractors, to meet their obligations to the Corporation, or significant disruptions in their ability to do so, which may be caused by their own financial or operational difficulties or their inability to deliver goods or services based on governmental restrictions or other mandates and may adversely impact the Corporation’s operations; Increased expenses related to the implementation of procedures to comply with governmental regulations and recommendations and maintain the health and safety of the Corporation’s employees such as remote working (which, in turn, creates additional cyber security risks), health screenings and enhanced cleaning and sanitation protocols. The Corporation could continue to incur costs related to its mitigation efforts and it may have to enact additional, more expensive measures to continue to comply with governmental regulations and recommendations, which may become more stringent in the future, in order to ensure the health and safety of its employees; or Government actions in one or more of the jurisdictions in which Cascades operates, resulting in Cascades no longer having the benefits of being deemed an “essential business” (or other government actions undertaken to restrict the business activities of businesses deemed essential) and, as a result, forcing the Corporation to scale back its operations or halt them entirely, or government action resulting in any of our suppliers, contract manufacturers, distributors and other contractors no longer being deemed essential and thus impacting the Corporation’s ability to deliver its products and services to its customers, which may adversely impact its operations and results. Despite the Corporation’s efforts to manage and remedy these impacts to the Corporation, their ultimate impact also depends on factors beyond its control, including the duration and severity of the pandemic, as well as third-party actions taken to contain its spread and mitigate its public health effects. The adverse effects described above may also apply to other epidemics, pandemics and other public health emergencies. To the extent the pandemic adversely affects the Corporation’s business, operations, financial condition and operating results, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section, such as those relating to the Corporation’s high level of indebtedness, its need to generate sufficient cash flows to service its indebtedness, and its ability to comply with the covenants contained in the agreements that govern its indebtedness. The markets for some of the Corporation’s products tend to be cyclical in nature and prices for some of its products, as well as raw material and energy costs, may fluctuate significantly, which can adversely affect its business, operating results, profitability and financial position. The markets for some of the Corporation’s products, particularly containerboard, are cyclical. As a result, prices for these types of products and for its two principal raw materials, recycled paper and virgin fibre, have fluctuated significantly in the past and will likely continue to fluctuate significantly in the future, principally due to market imbalances between supply and demand. Demand is heavily influenced by the strength of the global economy and the countries or regions in which Cascades does business, particularly Canada and the United States, the Corporation’s two primary markets. Demand is also influenced by fluctuations in inventory levels held by customers and consumer preferences. Supply depends primarily on industry capacity and capacity utilization rates. In periods of economic weakness, reduced spending by consumers and businesses results in decreased demand, which can potentially cause downward price pressure. Industry participants may also, at times, add new capacity or increase capacity utilization rates, potentially causing supply to exceed demand and exerting downward price pressure. In addition, in the event of depressed market prices for recycled paper, the availability of recycled paper may decrease. Depending on market conditions and related demand, Cascades may have to take market-related downtime. In addition, the Corporation may not be able to maintain current prices or implement additional price increases in the future. If Cascades is unable to do so, its revenues, profitability and cash flows could be adversely affected. In addition, other participants may introduce new capacity or increase capacity utilization rates, which could also adversely affect the Corporation’s business, operating results and financial position. Prices for recycled and virgin fibre also fluctuate considerably. The costs of these materials present a potential risk to the Corporation’s profit margins in the event that it is unable to pass along price increases to its customers on a timely basis. Although changes in the price of recycled fibre generally correlate with changes in the price of products made from recycled paper, this may not always be the case. If Cascades were unable to implement increases in the selling prices for its products to compensate for increases in the price of recycled or virgin fibre, the Corporation’s profitability and cash flows would be adversely affected. 38 2023 Annual Report In addition, Cascades uses energy, mainly natural gas and fuel oil, to generate steam, which it then uses in the production process and to operate machinery. Energy prices, particularly for natural gas and fuel oil, have continued to remain very volatile. Cascades continues to evaluate its energy costs and consider ways to factor energy costs into its pricing. However, should energy prices increase, the Corporation’s production costs, competitive position and operating results would be adversely affected. A substantial increase in energy costs would adversely affect the Corporation’s operating results and could have broader market implications that could further adversely affect the Corporation’s business or financial results. Cascades faces significant competition and some of its competitors may have greater cost advantages, be able to achieve greater economies of scale or be able to better withstand periods of declining prices and adverse operating conditions, which could negatively affect the Corporation’s market share and profitability. The markets for the Corporation’s products are highly competitive. In some of the markets in which Cascades competes, such as tissue papers, it competes with a small number of other producers. In some businesses, such as the containerboard industry, competition tends to be global. In others, such as the tissue industry, competition tends to be regional. In the Corporation’s packaging products segment, it also faces competition from alternative packaging materials, such as plastic and Styrofoam, which can lead to excess capacity, decreased demand and pricing pressures. Competition in the Corporation’s markets is primarily based on price, as well as customer service and the quality, breadth and performance characteristics of its products. The Corporation’s ability to compete successfully depends on a variety of factors, including: • • • the Corporation’s ability to maintain high plant efficiencies, operating rates and lower manufacturing costs; the availability, quality and cost of raw materials, particularly recycled and virgin fibre, as well as labour; and the cost of energy. Some of the Corporation’s competitors may, at times, have lower fibre, energy and labour costs and less restrictive environmental and governmental regulations to comply with than Cascades. For example, fully integrated manufacturers or those whose requirements for pulp or other fibre are met fully from their internal sources, may have some competitive advantages over manufacturers that are not fully integrated, such as Cascades, in periods of relatively high raw material pricing, in that the former are able to ensure a steady source of these raw materials at costs that may be lower than prices in the prevailing market. In contrast, competitors that are less integrated than Cascades may have cost advantages in periods of relatively low pulp or fibre prices because they may be able to purchase pulp or fibre at prices lower than the costs the Corporation incurs in the production process. Other competitors may be larger in size or scope than Cascades, which may allow them to achieve greater economies of scale on a global basis or to better withstand periods of declining prices and adverse operating conditions. In addition, there has been an increasing trend among the Corporation’s customers towards consolidation. With fewer customers in the market for the Corporation’s products, the strength of its negotiating position with these customers could be weakened, which could have an adverse effect on its pricing, margins and profitability. Because of the Corporation’s international operations, it faces political, social and exchange rate risks that can negatively affect its supply chain, manufacturing capabilities, distribution activities, operating results, net earnings and financial condition. The Corporation’s international operations present it with a number of risks and challenges, including: • • • • effective marketing of its products in other countries; tariffs and other trade barriers; different regulatory schemes and political environments applicable to the Corporation’s operations in areas such as environmental and health and safety compliance; and exposure to health epidemics and pandemics and other highly communicable diseases or viruses. Cascades has customers and operations located outside Canada. In 2023, approximately 53% of the Corporation’s consolidated sales were in the United States. In 2023, 21% of sales from Canadian operations were made to the United States. In 2023, 6% of sales from USA operations were made to Canada. In addition, the Corporation’s consolidated financial statements are reported in Canadian dollars, while a portion of its sales is made in other currencies, primarily the U.S. dollar. A decrease of the Canadian dollar against the U.S. dollar could adversely affect the Corporation’s operating results and financial condition. As of December 31, 2023, the Corporation had, on a consolidated basis, total U.S. dollar-denominated debt of US$1,263 million. 2023 Annual Report 39 Moreover, in some cases, the currency of the Corporation’s sales does not match the currency in which it incurs costs, which can negatively affect the Corporation’s profitability. Fluctuations in exchange rates can also affect the relative competitive position of a particular facility where the facility faces competition from non-local producers, as well as the Corporation’s ability to successfully market its products in export markets. As a result, if the Canadian dollar were to remain permanently strong compared to the US dollar, it could affect the profitability of the Corporation’s facilities, which could lead Cascades to shutdown facilities either temporarily or permanently, all of which could adversely affect its business or financial results. The Corporation uses various foreign exchange forward contracts and related currency option instruments to anticipate sales net of purchases, interest expenses and debt repayment. These hedging instruments may not be effective in offsetting risks, may generate losses or otherwise may adversely affect the Corporation’s financial results as compared to what its results would have been had the hedges not been implemented. The Corporation’s operations are subject to comprehensive environmental regulations and involve expenditures which may be material in relation to its operating cash flow. The Corporation is subject to environmental laws and regulations imposed by the various governments and regulatory authorities in all countries in which it operates. These environmental laws and regulations impose stringent standards on the Corporation regarding, among other things: • • • • • air emissions; water discharges; use and handling of hazardous materials; use, handling and disposal of waste; and remediation of environmental contamination. The Corporation is also subject to the U.S. Federal Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), as well as to other applicable legislation in the United States and Canada that holds companies accountable for the investigation and remediation of hazardous substances. The Corporation, for some of our Québec plants, is also subject to an emissions market aimed at reducing worldwide CO2 emissions. Each unit has been allocated emission rights (“CO2 quota”). On a calendar year basis, the Corporation must buy the necessary credits to cover its deficit on the open market if its emissions are higher than quota. The Corporation’s failure to comply with applicable environmental laws, regulations or permit requirements may result in civil or criminal fines, penalties or enforcement actions. These may include regulatory or judicial orders enjoining or curtailing operations or requiring corrective measures, the installation of pollution control equipment or remedial actions, any of which could entail significant expenditures. It is difficult to predict the future development of such laws and regulations or their impact on future earnings and operations, but these laws and regulations may require capital expenditures to ensure compliance. In addition, amendments to or more stringent implementation of, current laws and regulations governing the Corporation’s operations could have a material adverse effect on its business, operating results or financial position. Furthermore, although Cascades generally tries to plan for capital expenditures relating to environmental and health and safety compliance on an annual basis, actual capital expenditures may exceed those estimates. In such an event, Cascades may be forced to curtail other capital expenditures or other activities. In addition, the enforcement of existing environmental laws and regulations has become increasingly strict. The Corporation may discover currently unknown environmental problems or conditions in relation to its past or present operations or may face unforeseen environmental liabilities in the future. These conditions and liabilities could have the following effects: • • require site remediation or other costs to maintain compliance or correct violations of environmental laws and regulations; or result in governmental or private claims for damage to persons, property or the environment. Either of these possibilities could have a material adverse effect on the Corporation’s financial condition or operating results. Cascades may be subject to strict liability and, under specific circumstances, joint and several (solidary) liability for the investigation and remediation of soil, surface and groundwater contamination, including contamination caused by other parties on properties that it owns or operates and on properties where the Corporation or its predecessors have arranged for the disposal of regulated materials. As a result, the Corporation is involved from time to time in administrative and judicial proceedings and inquiries relating to environmental matters. The Corporation may become involved in additional proceedings in the future, the total amount of future costs and other environmental liabilities of which could be material. To date, the Corporation is in compliance, in all material respects, with all applicable environmental legislation or regulations. However, the Corporation expects to incur ongoing capital and operating expenses in order to achieve and maintain compliance with applicable environmental requirements. 40 2023 Annual Report Climate change could negatively affect Cascades’ business and operations. There is concern that carbon dioxide and other greenhouse gases in the atmosphere have an adverse impact on global temperatures, weather patterns and the frequency and severity of extreme weather and natural disasters. The Corporation operates plants and delivers products to clients in locations that may be subject to climate stress events such as sea-level rise and increased storm frequency or intensity. Caused by climate change or not, the occurrence of one or more natural disasters or extreme weather conditions, such as a hurricane, tornado, earthquake, fire or flooding, may disrupt the productivity of the Corporation’s facilities or the operation of its supply chain and unfavourably impact the demand for or its consumers’ ability to purchase, its products. Further, climate changes could require higher remediation and insurance costs for the Corporation. Concern over climate change may result in new or increased regional, federal and/or global legal and regulatory requirements to reduce or mitigate the effects of greenhouse gases or to limit or impose additional costs on commercial water use due to local water scarcity concerns. In the event that such regulation is more stringent than current regulatory obligations or the measures that the Corporation is currently undertaking to monitor and improve its energy efficiency and water conservation, the Corporation may experience disruptions in, or significant increases in its costs of, operation and delivery and the Corporation may be required to make additional investments in facilities and equipment or relocate its facilities. In particular, increasing regulation of fuel emissions could substantially increase the cost of energy, including fuel, required to operate the Corporation’s facilities or transport and distribute its products, thereby substantially increasing the distribution and supply chain costs associated with its products. As a result, the effects of climate change could negatively affect the Corporation’s business and operations. There is also increased focus, including by governmental and non-governmental organizations, investors, customers and consumers on environmental sustainability matters, including deforestation, land use, climate impact, water use and recyclability or recoverability of packaging, including plastic. The Corporation’s reputation could be damaged if it or others in its industry do not act, or are perceived not to act, responsibly with respect to the Corporation’s impact on the environment. Cascades may be subject to losses that might not be covered in whole or in part by its insurance coverage. Cascades carries comprehensive liability, fire and extended coverage insurance on all of its facilities, with policy specifications and insured limits customarily carried in its industry for similar properties. In addition, some types of losses, such as losses resulting from wars, acts of terrorism or natural disasters, are generally not insured because they are either uninsurable or not economically practical. Moreover, insurers have recently become more reluctant to insure against these types of events. Should an uninsured loss or a loss in excess of insured limits occur, Cascades could lose capital invested in that property, as well as the anticipated future revenues derived from the manufacturing activities conducted on that property, while remaining obligated for any mortgage indebtedness or other financial obligations related to the property. Any such loss could adversely affect its business, operating results or financial condition. Labour disputes or shortages could have a material adverse effect on the Corporation’s cost structure and ability to run its mills and plants as it depends on attracting and retaining qualified personnel. As of December 31, 2023, the Corporation had approximately 10,000 employees, with approximately 30% of its workforce unionized. The Corporation’s inability to negotiate acceptable contracts with its unions upon expiration of an existing contract could result in strikes or work stoppages by the affected workers and increased operating costs as a result of higher wages or benefits paid to union members. If the unionized workers were to engage in a strike or another form of work stoppage, Cascades could experience a significant disruption in operations or higher labour costs, which could have a material adverse effect on its business, financial condition, operating results and cash flows. Of the 28 collective bargaining agreements, 3 have expired and are currently under negotiation, 7 will expire in 2024 and 4 will expire in 2025. The Corporation generally begins the negotiation process several months before agreements are due to expire and is currently in the process of negotiating with the unions where the agreements have expired or will soon expire. However, Cascades may not be successful in negotiating new agreements on satisfactory terms, if at all. Cascades’s success depends in part upon its ability to continue to attract and retain qualified management, regulatory, technical, and sales and marketing executives and personnel in various geographical locations. The failure to attract, integrate, motivate and retain skilled and qualified personnel could have a material adverse effect on the business. The Corporation competes for such personnel against numerous companies. There can be no assurance that it will be successful in attracting or retaining such personnel and the failure to do so could have a material adverse effect on our financial condition and results of operations. 2023 Annual Report 41 Cascades may make investments in entities that it does not fully control and may not receive dividends or returns from those investments in a timely fashion or at all. Cascades has established joint ventures, made investments in associates and acquired significant participation in subsidiaries in order to increase its vertical integration, enhance customer service and increase efficiency in its marketing and distribution in the United States and other markets. The Corporation’s principal joint ventures, associates and significant participation in subsidiaries are: • • two 50%-owned joint ventures with Sonoco Products Corporation, of which one is in Canada (two plants) and one is in the United States (two plants), that produce specialty paper packaging products such as headers, rolls and wrappers; and a 79.90%-owned subsidiary, Greenpac Holding LLC, a North American manufacturer of linerboard. The percentage including indirect ownership stands at 86.35% for consolidation and accounting purposes (see Note 7 of the 2023 Audited Consolidated Financial Statements for more details). Apart from Greenpac Holding LLC, Cascades does not have control over these entities. The Corporation’s inability to control entities in which it invests may affect its ability to receive distributions from these entities or to fully implement its business plan. The incurrence of debt or entrance into other agreements by an entity not under the Corporation’s control may result in restrictions or prohibitions on that entity’s ability to pay distributions to the Corporation. Even where these entities are not restricted by contract or by law from paying dividends or making distributions to Cascades, the Corporation may not be able to influence the payout or timing of these dividends or distributions. In addition, if any of the other investors in a non-controlled entity fail to observe their commitments, the entity may not be able to operate according to its business plan or Cascades may be required to increase its level of commitment. If any of these events were to transpire, the Corporation’s business, operating results, financial condition and ability to make payments on indebtedness could be adversely affected. In addition, the Corporation has entered into various shareholder agreements relating to its joint ventures and equity investments. Some of these agreements contain “shotgun” provisions, which provide that if one Shareholder offers to buy all the shares owned by the other parties to the agreement, the other parties must either accept the offer or purchase all the shares owned by the offering Shareholder at the same price and conditions. Some of the agreements also stipulate that, in the event that a Shareholder is subject to bankruptcy proceedings or otherwise defaults on any indebtedness, the non-defaulting parties to that agreement are entitled to invoke the “shotgun” provision or sell their shares to a third party. The Corporation’s ability to purchase the other Shareholders’ interests in these joint ventures if they were to exercise these “shotgun” provisions could be limited by the covenants in the Corporation’s credit facility and the indenture. In addition, Cascades may not have sufficient funds to accept the offer or the ability to raise adequate financing should the need arise, which could result in the Corporation having to sell its interests in these entities or otherwise alter its business plan. Acquisitions have been and are expected to continue to be a substantial part of the Corporation’s growth strategy, which could expose the Corporation to difficulties in integrating the acquired operation, diversion of management time and resources, and unforeseen liabilities, among other business risks. Acquisitions have been a significant part of the Corporation’s growth strategy. Cascades expects to continue to selectively seek strategic acquisitions in the future. The Corporation’s ability to consummate and to effectively integrate any future acquisitions on terms that are favourable to it may be limited by the number of attractive acquisition targets, internal demands on its resources and, to the extent necessary, its ability to obtain financing on satisfactory terms, if at all. Acquisitions may expose the Corporation to additional risks, including: • • • • • • difficulties in integrating and managing newly acquired operations and improving their operating efficiency; difficulties in maintaining uniform standards, controls, procedures and policies across all of the Corporation’s businesses; entry into markets in which Cascades has little or no direct prior experience; the Corporation’s ability to retain key employees of the acquired company; disruptions to the Corporation’s ongoing business; and diversion of management time and resources. In addition, future acquisitions could result in Cascades’ incurring additional debt to finance the acquisition or possibly assuming additional debt as part of it, as well as costs, contingent liabilities and amortization expenses. The Corporation may also incur costs and divert Management’s attention for potential acquisitions that are never consummated. For acquisitions Cascades does consummate, expected synergies may not materialize. The Corporation’s failure to effectively address any of these issues could adversely affect its operating results, financial condition and ability to service debt, including its outstanding senior notes. 42 2023 Annual Report Although Cascades performs a due diligence investigation of the businesses or assets that it acquires and anticipates continuing to do so for future acquisitions, the acquired business or assets may have liabilities that Cascades fails or is unable to uncover during its due diligence investigation and for which the Corporation, as a successor owner, may be responsible. When feasible, the Corporation seeks to minimize the impact of these types of potential liabilities by obtaining indemnities and warranties from the seller, which may in some instances be supported by deferring payment of a portion of the purchase price. However, these indemnities and warranties, if obtained, may not fully cover the liabilities because of their limited scope, amount or duration, or the financial resources of the indemnitor or warrantor, or for other reasons. The Corporation undertakes impairment tests, which could result in a write-down of the value of assets and, as a result, have a material adverse effect. IFRS Accounting Standards requires that Cascades undertakes impairment tests of long-lived assets and goodwill to determine whether a write-down of such assets is required. A write-down of asset value as a result of impairment tests would result in a non-cash charge that reduces the Corporation’s reported earnings. Furthermore, a reduction in the Corporation’s asset value could have a material adverse effect on the Corporation’s compliance with total debt-to-capitalization tests under its current credit facilities and, as a result, limit its ability to access further debt capital. Messrs. Laurent and Alain Lemaire and their families (the “Lemaire”) as well as Mr. Bernard Lemaire’s family collectively own a significant percentage of the common shares. The Lemaire collectively own a significant percentage of the common shares of the Corporation and there may be situations in which their interests and the interests of other holders of shares do not align. There is no formal agreement among the Lemaire with respect to the voting of their common shares and, over the past few years, the control of their shares has become more dispersed within their respective families. However, because the Corporation’s remaining shares are widely held, the Lemaire may still effectively be able to influence: • • • the election of all of the Corporation’s directors and, as a result, control matters requiring board approval; matters submitted to a shareholder vote, including mergers, acquisitions and consolidations with third parties and the sale of all or substantially all of the Corporation’s assets; and the Corporation’s business direction and policies. If Cascades is not successful in retaining or replacing its key personnel, including its President and Chief Executive Officer, its Vice-President and Chief Financial Officer, its Chief of Strategy and Legal Affairs, and its Executive Chairman of the Board and co-founder Alain Lemaire, the Corporation’s business, financial condition or operating results could be adversely affected. Although Cascades believes that its key personnel will remain active in the business and that Cascades will continue to be able to attract and retain other talented personnel and replace key personnel should the need arise, competition in recruiting replacement personnel could be significant. Cascades does not carry key-man insurance on the members of its senior management. Alain Lemaire announced that he would be stepping down as Executive Chairman of the Board as of May 9, 2024. The Board has designated Patrick Lemaire as his replacement and is confident that he is a worthy successor and possesses all the qualities required to successfully take on the role of Chairman. In addition, Alain Lemaire will continue to sit on the Board as a director and will thus be able to continue to share his knowledge and expertise with the Board and Management. Cascades’ business activities, intellectual property, operating results and financial position could suffer if Cascades is unable to protect its information systems against, or effectively respond to, cyber-attacks or other cyber incidents. The Corporation relies on information technology, other computer resources and its employees to process, transmit and store electronic data in its daily business activities and to carry out important operational and marketing activities. Despite the implementation of security measures, the Corporation’s technology systems and those of third parties on which it relies, are vulnerable to damage, disability or failure due to computer viruses, malware or other harmful circumstance, intentional penetration or disruption of the Corporation’s information technology resources by a third party, natural disasters, hardware or software corruption or failure or error (including a failure of security controls incorporated into or applied to such hardware or software), telecommunications system failure, service provider error or failure, intentional or unintentional personnel actions (including the failure to follow its security protocols), or lost connectivity to its networked resources. A significant and extended disruption in the functioning of these resources would result in an interruption of the Corporation’s operations and could damage its reputation and cause the Corporation to lose customers, sales and revenue. 2023 Annual Report 43 In addition, security breaches involving the Corporation’s systems or third-party providers may occur, such as unauthorized access, denial of service, computer viruses and other disruptive problems caused by hackers. This could result in the unintended public disclosure or the misappropriation of proprietary, personal and confidential information or in the inability to access company data (including due to ransomware), and require the Corporation to incur significant expense to address and resolve these kinds of issues. The release of confidential information may also lead to identity theft and related fraud, litigation or other proceedings against the Corporation by affected individuals and/or business partners and/or by regulators and the outcome of such proceedings, which could include penalties or fines, could have a material and adverse effect on its business activities, intellectual property, operating results and financial condition. The occurrence of any of these incidents could result in adverse publicity, loss of consumer confidence or employees, and reduced sales and profits. In addition, the costs of maintaining adequate protection against such threats, including potentially higher insurance costs, as they develop rapidly in the future (or as legal requirements related to data security increase) could be material. Cyber security represents a company-wide challenge and the related risks are part of the enterprise risk management program that is presented to the Corporation’s audit and finance committee. As a result of the foregoing, the Corporation may have to modify its business systems and practices with the goal of further improving data security, which would result in increased expenditures and operating complexity. Although the Corporation has to date not experienced any material losses relating to cyber-attacks or other information security breaches, there can be no assurance that it will not incur such losses in the future. The Corporation’s risk and exposure to these matters cannot be fully mitigated because of, among other things, the evolving nature of these threats. As cyber threats continue to evolve, the Corporation may be required to expend additional resources to continue to modify or enhance protective measures or to investigate and remediate any security vulnerabilities. Risks relating to the Corporation’s indebtedness The significant amount of the Corporation’s debt could adversely affect its financial health and prevent it from fulfilling its obligations under its outstanding indebtedness. The Corporation has a significant amount of debt. As of December 31, 2023, it had $1,882 million of net debt1 outstanding on a consolidated basis, including lease obligations of $189 million and net cash and cash equivalents of $54 million. The Corporation’s leverage could have major consequences for holders of its shares. For example, it could: • • • • make it more difficult for the Corporation to satisfy its obligations with respect to its indebtedness; increase the Corporation’s vulnerability to competitive pressures and to general adverse economic or market conditions and require it to dedicate a substantial portion of its cash flow from operations to servicing debt, reducing the availability of its cash flow to fund working capital, capital expenditures, acquisitions and other general corporate purposes; limit its flexibility in planning for, or reacting to, changes in its business and industry; and limit its ability to obtain additional sources of financing. The Corporation’s ability to service its indebtedness will depend on its ability to generate cash in the future. The Corporation cannot provide assurance that its business will generate sufficient cash flow from operations or that future borrowings will be available in an amount sufficient to enable it to service its indebtedness or to fund other liquidity needs. Additionally, if the Corporation is not in compliance with the covenants and obligations under its debt instruments, it would be in default, and the lenders could call the debt, which would have a material adverse effect on its business. Cascades may incur additional debt in the future, which would intensify the risks it now faces as a result of its leverage as described above. Even though the Corporation is substantially leveraged, it and its subsidiaries will be able to incur substantial additional indebtedness in the future. Although its credit facility and the indentures governing the notes restrict the Corporation and its restricted subsidiaries from incurring additional debt, these restrictions are subject to important exceptions and qualifications. As of December 31, 2023, the Corporation had $485 million (net of letters of credit in the amount of $13 million) available on its $750 million revolving credit facility (excluding the credit facilities of our subsidiary Greenpac). If the Corporation or its subsidiaries incur additional debt, the risks that it and they now face as a result of its leverage could intensify. 1 Please refer to the “Supplemental Information on Non-IFRS Accounting Standards Measures and Other Financial Measures” section for a complete reconciliation. 44 2023 Annual Report The Corporation’s operations are substantially restricted by the terms of its debt, which could limit its ability to plan for or react to market conditions, or to meet its capital needs. The Corporation’s credit facilities and the indenture governing its senior notes include a number of significant restrictive covenants. These covenants restrict, among other things, the Corporation’s ability to: • • • • • • • • • • • incur debt; pay dividends on stock, repurchase stock or redeem subordinated debt; make investments; sell assets, including capital stock in subsidiaries; guarantee other indebtedness; enter into agreements that restrict dividends or other distributions from restricted subsidiaries (solely in the case of the Corporation’s credit facility); enter into transactions with affiliates; create or assume liens securing debt; sell or transfer lease back transactions; engage in mergers or consolidations; and enter into a sale of all or substantially all of our assets. These covenants could limit the Corporation’s ability to plan for or react to market conditions or to meet its capital needs. The Corporation’s current credit facility contains other, more restrictive covenants, including financial covenants that require it to achieve certain financial and operating results, and maintain compliance with specified financial ratios. The Corporation’s ability to comply with these covenants and requirements may be affected by events beyond its control and it may have to curtail some of its operations and growth plans to maintain compliance. The restrictive covenants contained in the Corporation’s senior note indenture, along with the Corporation’s credit facility, do not apply to its joint ventures, minority investments and unrestricted subsidiaries. The Corporation’s failure to comply with the covenants contained in its credit facility or its senior note indenture, including as a result of events beyond its control or due to other factors, could result in an event of default that could cause accelerated repayment of the debt. If Cascades is not able to comply with the covenants and other requirements contained in the indenture, its credit facility or its other debt instruments, an event of default under the relevant debt instrument could occur. If an event of default does occur, it could trigger a default under its other debt instruments, Cascades could be prohibited from accessing additional borrowings and the holders of the defaulted debt could declare amounts outstanding with respect to that debt, which would then be immediately due and payable. The Corporation’s assets and cash flow may not be sufficient to fully repay borrowings under its outstanding debt instruments. In addition, the Corporation may not be able to refinance or restructure the payments on the applicable debt. Even if the Corporation were able to secure additional financing, it might not be available on favourable terms. A significant or prolonged downtime in general business and difficult economic conditions may affect the Corporation’s ability to comply with the covenants in its debt instruments and could require it to take actions to reduce its debt or to act in a manner contrary to its current business objectives. Cascades is a holding corporation and depends on its subsidiaries to generate sufficient cash flow to meet its debt service obligations. Cascades is structured as a holding corporation and its only significant assets are the capital stock or other equity interests in its subsidiaries, joint ventures, investments in associates and minority investments. As a holding corporation, Cascades conducts substantially all of its business through these entities. Consequently, the Corporation’s cash flow and ability to service its debt obligations are dependent on the earnings of its subsidiaries, joint ventures, investments in associates and minority investments, and the distribution of those earnings to Cascades, or on loans, advances or other payments made by these entities to Cascades. The ability of these entities to pay dividends or make other payments or advances to Cascades will depend on their operating results and will be subject to applicable laws and contractual restrictions contained in the instruments governing their debt. In the case of the Corporation’s joint ventures, associates and minority investments, Cascades may not exercise sufficient control to cause distributions to itself. Although its credit facility and the indenture, respectively, limit the ability of its restricted subsidiaries to enter into consensual restrictions on their ability to pay dividends and make other payments to the Corporation, these limitations do not apply to its joint ventures, associates, minority investments or unrestricted subsidiaries. The limitations are also subject to important exceptions and qualifications. 2023 Annual Report 45 The ability of the Corporation’s subsidiaries to generate cash flow from operations that is sufficient to allow the Corporation to make scheduled payments on its debt obligations will depend on their future financial performance, which will be affected by a range of economic, competitive and business factors, many of which are outside of the Corporation’s control. If the Corporation’s subsidiaries do not generate sufficient cash flow from operations to satisfy the Corporation’s debt obligations, Cascades may have to undertake alternative financing plans, such as refinancing or re-structuring its debt, selling assets, reducing or delaying capital investments, or seeking to raise additional capital. Refinancing may not be possible and assets may not be able to be sold, or, if they are sold, Cascades may not realize sufficient amounts from those sales. Additional financing may not be available on acceptable terms, if at all, or the Corporation may be prohibited from incurring it, if available, under the terms of its various debt instruments in effect at the time. The Corporation’s inability to generate sufficient cash flow to satisfy its debt obligations, or to refinance its obligations on commercially reasonable terms, would have an adverse effect on its business, financial condition and operating results. The earnings of the Corporation’s operating subsidiaries and the amount that they are able to distribute to the Corporation as dividends or otherwise may not be adequate for the Corporation to service its debt obligations. Variable rate indebtedness subjects Cascades to interest rate risk, which could cause its debt service obligations to increase significantly. The Corporation’s borrowings under its credit facility bear interest at variable rates and, accordingly, expose the Corporation to interest rate risk. If interest rates increase, our debt service obligations on our variable rate indebtedness could increase even though the amount borrowed remained the same and our net income could decrease. The applicable margin with respect to the loans under the Corporation’s credit facility is a percentage per annum equal to a reference rate plus the applicable margin. In order to manage its exposure to interest rate risk, the Corporation may in the future enter into derivative financial instruments, typically interest rate swaps and caps, involving the exchange of floating for fixed rate interest payments. If the Corporation is unable to enter into interest rate swaps, it may adversely affect its cash flow and may impact its ability to make required principal and interest payments on its indebtedness For all the outstanding variable rate indebtedness agreements the Corporation adopted SOFR (Secured Overnight Financing Rate) for establishing its interest rate. Risks related to the common shares The market price of the common shares may fluctuate and purchasers may not be able to resell the common shares at or above the Offering Price. The market price of the common shares may fluctuate due to a variety of factors relative to the Corporation’s business, including announcements of new developments, fluctuations in the Corporation’s operating results, sales of the common shares in the marketplace, failure to meet analysts’ expectations, general conditions in all of our segments or the worldwide economy and related uncertainty, many of which are beyond the Corporation’s control. In recent years, the common shares, the stock of other companies operating in the same sectors and the stock market in general have experienced significant price fluctuations, which have been unrelated to the operating performance of the affected companies. There can be no assurance that the market price of the common shares will not continue to experience significant fluctuations in the future, including fluctuations that are unrelated to the Corporation’s performance. Payments of dividends Any decision to pay dividends on the common shares is subject to the discretion of the Board of Directors and based on, among other things, Cascades’ earnings and financial requirements for operations, the satisfaction of applicable solvency tests for the declaration and payment of dividends and other conditions existing from time to time. As a result, no assurance can be given as to whether Cascades will declare and pay any dividends in the future, or the frequency or amount of any such dividend. Potential dilution The Corporation’s articles permit the issuance of an unlimited number of common shares and an unlimited number of Class A and Class B preferred shares, issuable in series. In order to successfully complete targeted acquisitions or to fund its other activities, the Corporation may issue additional equity securities that could dilute share ownership. The dilutive effect of these issuances may adversely affect the Corporation’s ability to obtain additional capital or impair the Corporation’s share price. 46 2023 Annual Report CONTINGENCIES ENVIRONMENTAL RESTORATION The Corporation uses some landfill sites. A provision has been recognized at fair value for the costs to be incurred for the restoration of these sites. The additional provision recorded in 2023 relates to the announced closure of a containerboard mill, in February 2024, that triggered significant changes in the assumptions. ENVIRONMENTAL COSTS The Corporation is currently working with representatives of the Ontario Ministry of the Environment (MOE) - Northern Region and Environment Canada - Great Lakes Sustainability Fund in Toronto regarding its potential responsibility for an environmental impact identified at its former Thunder Bay facility. Both authorities lead the working group and they are developing a site management plan relating to the sediment quality adjacent to Thunder Bay’s lagoon. Several meetings have been held during the past years with the MOE and Environment Canada and a management plan based on sediment dredging has been proposed by a third-party consultant. Both governments are looking at this proposal with stakeholders to agree on this remediation action plan that would likely be implemented in the coming years. The Corporation has recorded an environmental reserve to address its estimated exposure for this matter. LEGAL CLAIMS In the normal course of operations, the Corporation is party to various legal actions and contingencies, mostly related to contract disputes, environmental and product warranty claims, and labour issues. While the final outcome with respect to legal actions outstanding or pending as of December 31, 2023 cannot be predicted with certainty, it is Management’s opinion that the outcome will not have a material adverse effect on the Corporation’s consolidated financial position, the results of its operations or its cash flows. 2023 Annual Report 47 SUPPLEMENTAL INFORMATION ON NON-IFRS ACCOUNTING STANDARDS MEASURES AND OTHER FINANCIAL MEASURES SPECIFIC ITEMS The Corporation incurs some specific items that adversely or positively affect its operating results. We believe it is useful for readers to be aware of these items as they provide additional information to measure performance, compare the Corporation’s results between periods, and assess operating results and liquidity, notwithstanding these specific items. Management believes these specific items are not necessarily reflective of the Corporation’s underlying business operations in measuring and comparing its performance and analyzing future trends. Our definition of specific items may differ from that of other corporations and some of these items may arise in the future and may reduce the Corporation’s available cash. They include, but are not limited to, charges for (reversals of) impairment of assets, restructuring gains or costs, loss on refinancing and repurchase of long-term debt, some deferred tax asset provisions or reversals, premiums paid on repurchase of long-term debt, gains or losses on the acquisition or sale of a business unit, gains or losses on the share of results of associates and joint ventures, unrealized gains or losses on derivative financial instruments that do not qualify for hedge accounting, unrealized gains or losses on interest rate swaps and option fair value revaluation, foreign exchange gains or losses on long-term debt and financial instruments, fair value revaluation gains or losses on investments, specific items of discontinued operations and other significant items of an unusual, non-cash or non-recurring nature. RECONCILIATION AND USES OF NON-IFRS ACCOUNTING STANDARDS AND OTHER FINANCIAL MEASURES To provide more information for evaluating the Corporation’s performance, the financial information included in this analysis contains certain data that are not performance measures under IFRS Accounting Standards (“non-IFRS Accounting Standards measures”), which are also calculated on an adjusted basis to exclude specific items. We believe that providing certain key performance and capital measures, as well as non-IFRS Accounting Standards measures, is useful to both Management and investors, as they provide additional information to measure the performance and financial position of the Corporation. This also increases the transparency and clarity of the financial information. The following non-IFRS Accounting Standards measures and other financial measures are used in our financial disclosures: Non-IFRS Accounting Standards measures • Adjusted earnings before interest, taxes, depreciation and amortization or EBITDA (A): represents the operating income (as published in Consolidated Statement of Earnings (Loss) of the Consolidated Financial Statements) before depreciation and amortization excluding specific items. Used to assess recurring operating performance and the contribution of each segment on a comparable basis. • • • Adjusted net earnings: Used to assess the Corporation’s consolidated financial performance on a comparable basis. Adjusted cash flow: Used to assess the Corporation’s capacity to generate cash flows to meet financial obligations and/or discretionary items such as share repurchases, dividend increases and strategic investments. Free cash flow: Used to measure the excess cash the Corporation generates by subtracting capital expenditures (excluding strategic projects) from the EBITDA (A). • Working capital: Used to assess the short-term liquidity of the Corporation. Other financial measures • Total debt: Used to calculate all the Corporation’s debt, including long-term debt and bank loans. Often put in relation to equity to calculate the debt-to-equity ratio. Net debt: Used to calculate the Corporation’s total debt less cash and cash equivalents. Often put in relation to EBITDA (A) to calculate net debt to EBITDA (A) ratio. Non-IFRS Accounting Standards ratios • • Net debt to EBITDA (A) ratio: Ratio used to assess the Corporation’s ability to pay its debt and evaluate financial leverage. EBITDA (A) margin: Ratio used to assess operating performance and the contribution of each segment on a comparable basis calculated as a percentage of sales. Adjusted net earnings per common share: Ratio used to assess the Corporation’s consolidated financial performance on a comparable basis. Net debt / Net debt + Shareholders’ equity: Ratio used to evaluate the Corporation’s financial leverage and thus the risk to Shareholders. • • • • Working capital as a percentage of sales: Ratio used to assess the Corporation’s operating liquidity performance. • Adjusted cash flow per common share: Ratio used to assess the Corporation’s financial flexibility. 48 2023 Annual Report • Free cash flow ratio: Ratio used to measure the liquidity and efficiency of how much more cash the Corporation generates than it uses to run the business by subtracting capital expenditures (excluding strategic projects) from the EBITDA (A) calculated as a percentage of sales. Non-IFRS Accounting Standards and other financial measures are mainly derived from the consolidated financial statements, but do not have meanings prescribed by IFRS Accounting Standards. These measures have limitations as an analytical tool and should not be considered on their own or as a substitute for an analysis of our results as reported under IFRS Accounting Standards. In addition, our definitions of non-IFRS Accounting Standards and other financial measures may differ from those of other corporations. Any such modification or reformulation may be significant. The chief operating decision-maker (CODM) assesses the performance of each reportable segment based on sales and earnings before interest, taxes, depreciation and amortization, adjusted to exclude specific items (EBITDA (A)). The CODM considers EBITDA (A) to be the best performance measure of the Corporation’s activities. EBITDA (A) by business segment is reconciled to IFRS Accounting Standards measure, namely operating income (loss), and is presented in the following table: (in millions of Canadian dollars) (unaudited) Operating income (loss) Depreciation and amortization Impairment charges Other loss (gain) Restructuring costs Unrealized loss (gain) on derivative financial instruments EBITDA (A) (in millions of Canadian dollars) (unaudited) Operating income (loss) Depreciation and amortization Impairment charges Other gain Restructuring costs Unrealized gain on derivative financial instruments EBITDA (A) (in millions of Canadian dollars) (unaudited) Operating income (loss) Depreciation and amortization Impairment charges Other loss (gain) Restructuring costs Unrealized loss (gain) on derivative financial instruments EBITDA (A) 2023 Annual Report For the 3-month period ended December 31, 2023 Containerboard Specialty Products Tissue Papers (33) 39 43 18 1 (1) 67 13 5 1 (1) 1 — 19 34 17 4 (4) 10 — 61 Corporate, Recovery and Recycling activities Consolidated (38) (24) 12 — — — 1 73 48 13 12 — (25) 122 For the 3-month period ended December 31, 2022 Containerboard Specialty Products Tissue Papers Corporate, Recovery and Recycling activities Consolidated 85 30 8 — — (4) 119 22 5 3 (10) — — 20 (86) (41) 17 75 — 2 — 8 10 — — — — (31) (20) 62 86 (10) 2 (4) 116 For the year ended December 31, 2023 Containerboard Specialty Products Tissue Papers Corporate, Recovery and Recycling activities Consolidated 128 141 104 18 1 (2) 390 66 21 2 — 2 — 91 (2) (152) 67 103 (6) 20 — 182 43 — — — 4 (105) 40 272 209 12 23 2 558 49 (in millions of Canadian dollars) (unaudited) Operating income (loss) Depreciation and amortization Impairment charges Other gain Restructuring costs Unrealized loss (gain) on derivative financial instruments EBITDA (A) For the year ended December 31, 2022 Containerboard Specialty Products Tissue Papers Corporate, Recovery and Recycling activities Consolidated 266 118 10 — — 7 401 86 19 3 (16) — — 92 (175) (144) 74 89 (4) 3 — (13) 41 — — — (1) (104) 33 252 102 (20) 3 6 376 The following table reconciles net loss and net loss per common share, as reported, with adjusted net earnings and adjusted net earnings per common share: (in millions of Canadian dollars, except per common share amounts and number of common shares) (unaudited) 2023 2022 2023 2022 2023 2022 2023 2022 For the 3-month periods ended December 31, NET EARNINGS (LOSS) For the years ended December 31, For the 3-month periods ended December 31, NET EARNINGS (LOSS) PER COMMON SHARE1 For the years ended December 31, (57) (27) (76) (34) ($0.57) ($0.27) ($0.76) ($0.34) As reported Specific items: Impairment charges Other loss (gain) Restructuring costs Unrealized loss (gain) on derivative financial instruments Unrealized loss on interest rate swaps Foreign exchange loss (gain) on long-term debt and financial instruments Tax effect on specific items, other tax adjustments and attributable to non-controlling interests1 Adjusted Weighted average basic number of common shares outstanding Share of results of associates and joint ventures (1) 48 13 12 — 1 1 86 (10) 2 (4) — (3) — 209 12 23 2 1 — (10) 102 (20) 3 6 — 9 — $0.35 $0.10 $0.10 — $0.01 $0.64 ($0.09) $0.02 ($0.03) — $1.56 $0.09 $0.18 $0.01 $0.01 — ($0.02) — ($0.01) — ($0.08) (12) (22) (52) (29) 62 5 49 22 185 109 71 37 $0.07 $0.62 $0.05 ($0.03) $0.49 $0.22 $0.07 $1.84 $1.08 $0.76 ($0.17) $0.03 $0.04 — $0.08 — ($0.03) $0.71 $0.37 The following table reconciles cash flow from operating activities with EBITDA (A): (in millions of Canadian dollars) (unaudited) Cash flow from operating activities Changes in non-cash working capital components Net income taxes paid Net financing expense paid Provisions for contingencies and charges and other liabilities, net of dividends received EBITDA (A) 100,685,574 100,361,627 100,542,206 100,647,972 For the 3-month periods ended December 31, For the years ended December 31, 2023 240 (149) — 20 11 122 2022 196 (96) — 15 1 116 2023 510 (113) 9 129 23 558 2022 144 116 5 87 24 376 1 Specific amounts per common share are calculated on an after-tax basis and are net of the portion attributable to non-controlling interests. Per common share amounts in line item “Tax effect on specific items, other tax adjustments and attributable to non-controlling interests” only include the effect of tax adjustments. Please refer to “Recovery of income taxes” section for more details. 50 2023 Annual Report The following table reconciles cash flow from operating activities with cash flow from operating activities (excluding changes in non-cash working capital components) and adjusted cash flow from operating activities. It also reconciles adjusted cash flow from operating activities to adjusted cash flow generated (used), which is also calculated on a per common share basis: For the 3-month periods ended December 31, For the years ended December 31, (in millions of Canadian dollars, except per common share amounts or as otherwise noted) (unaudited) Cash flow from operating activities Changes in non-cash working capital components Cash flow from operating activities (excluding changes in non-cash working capital components) Restructuring costs paid Adjusted cash flow from operating activities Payments for property, plant and equipment Change in intangible and other assets Lease obligation payments Proceeds from disposals of property, plant and equipment Dividends paid to non-controlling interests Dividends paid to the Corporation’s Shareholders Adjusted cash flow generated (used) 2023 240 (149) 91 12 103 (47) — (15) 1 42 (3) (12) 27 2022 196 (96) 100 3 103 (160) (2) (15) 11 (63) (4) (12) (79) 2023 510 (113) 397 24 421 (350) (1) (59) 7 18 (36) (48) (66) Adjusted cash flow generated (used) per common share (in Canadian dollars) $0.27 ($0.79) ($0.66) 2022 144 116 260 12 272 (501) (5) (55) 19 (270) (13) (48) (331) ($3.29) Weighted average basic number of common shares outstanding 100,685,574 100,361,627 100,542,206 100,647,972 The following table reconciles payments for property, plant and equipment, excluding strategic projects and free cash flow. It also provides these two metrics as a percentage of sales: (in millions of Canadian dollars) (unaudited) Sales EBITDA (A) Payments for property, plant and equipment Less: strategic projects included above1 Payments for property, plant and equipment, excluding strategic projects Free cash flow: EBITDA (A) less payments for property plant and equipment, excluding strategic projects Free cash flow / Sales Payments for property, plant and equipment, excluding strategic projects / Sales The following table reconciles working capital as reported: December 31, 2023 4,638 558 350 (205) 145 413 8.9% 3.1% December 31, 2022 4,466 376 501 (335) 166 210 4.7% 3.7% (in millions of Canadian dollars) (unaudited) Accounts receivable Inventories Trade and other payables Working capital December 31, 2023 December 31, 2022 December 31, 2021 453 568 (703) 318 556 587 (746) 397 510 494 (707) 297 1 Strategic projects include the investment for the Bear Island construction project. 2023 Annual Report 51 The following table reconciles total debt and net debt with the ratio of net debt to adjusted earnings before interest, taxes, depreciation and amortization (EBITDA (A)): (in millions of Canadian dollars, except ratios) (unaudited) Long-term debt Current portion of long-term debt Bank loans and advances Total debt Less: Cash and cash equivalents Net debt as reported Last twelve months EBITDA (A) Net debt / EBITDA (A) ratio December 31, 2023 December 31, 2022 December 31, 2021 1,869 67 — 1,936 (54) 1,882 558 3.4x 1,931 134 3 2,068 (102) 1,966 376 5.2x 1,450 74 1 1,525 (174) 1,351 389 3.5x SPECIFIC ITEMS The Corporation incurred the following specific items in 2023 and in 2022: IMPAIRMENT CHARGES 2023 The Containerboard Packaging segment recorded an impairment charge of $2 million on spare parts and $59 million on some land ($3 million), building ($22 million) and equipment ($34 million) of a CGU (cash generating unit) subsequent to the permanent closure of one paper machine in the USA. The decision was the result of competitive market conditions, which make the CGU less profitable. The recoverable amount of the assets in operation, totaling $39 million, was determined using fair value less the cost of disposal based on the market approach of comparable assets on the market. The Containerboard Packaging segment also recorded an impairment charge in the fourth quarter of $8 million on spare parts and $35 million on some land ($1 million), building ($12 million) and equipment ($22 million) related to closure of plants announced in February 2024 in Ontario, Canada and in Connecticut, USA. The recoverable amount of the assets totaling $35 million, was determined using fair value less cost of disposal based on the market approach of comparable assets on the market. The Specialty Products segment recorded an impairment charge of $1 million on spare parts in the fourth quarter and $1 million on some equipment related to a closed plant in the USA. The recoverable amount was determined using fair value less the cost of disposal based on the market approach of comparable assets on the market. The Tissue Papers segment recorded an impairment charge of $23 million on spare parts ($4 million in the fourth quarter) and $80 million on some buildings ($10 million) and equipment ($70 million), consequent to the strategic repositioning of its operating platform. The decision includes the permanent closure of three plants in the USA. The recoverable amount of $130 million for these three CGUs was determined using fair value less cost of disposal based on the market approach of comparable assets on the market, as well, for one of the plants, the recoverable amount of the real estate was established using the income method over a period of 20 years and a capitalization rate of 7.25%, no impairment recognized for the latest. 2022 The Containerboard Packaging segment recorded an impairment charge of $10 million ($8 million in the fourth quarter) on some property, plant and equipment related to the closure of a plant in Canada and to unused assets in Canada and the USA. The recoverable amount was determined using the market approach of comparable assets on the market. The Specialty Products segment recorded an impairment charge of $3 million in the fourth quarter on goodwill, related to the closure of a plant in the USA. The recoverable amount of goodwill was determined using an income approach. The Tissue Papers segment recorded an impairment charge of $4 million on spare parts and $10 million on some property, plant and equipment related to the permanent closure of a plant in the USA. The recoverable amount was determined using the market approach of comparable assets on the market. The Tissue Papers segment also recorded, in the fourth quarter, an impairment charge of $55 million on machinery and equipment related to assets acquired in 2019 in the USA due to slower ramp-up and lower efficiency than expected. The recoverable amount was determined using the market approach of comparable assets on the market. For the same plants, an impairment charge related to buildings of $20 million was recorded. The recoverable amount was established using the income method over a period of 20 years and a capitalization rate of 7.25%. 52 2023 Annual Report OTHER LOSS (GAIN) 2023 The Containerboard Packaging segment recorded an environmental obligation of $18 million in the fourth quarter related to the closure of a plant announced in February 2024 in Ontario, Canada. The Specialty Products segment recorded a $1 million loss on a contract of a closed plant in the USA. The Specialty Products segment also recorded a $1 million gain in the fourth quarter from the sale of some machinery and equipment related to a closed plant in the USA. The Tissue Papers segment recorded a $2 million gain from the sale of some machinery and equipment related to a previously closed plant in the USA. The Tissue Papers segment also recorded a $4 million gain in the fourth quarter on a contract related to a closed plant in the USA. 2022 The Specialty Products segment recorded a $16 million ($10 million in the fourth quarter) gain from the sale of lands and a building related to closed plants in Canada. The Tissue Papers segment recorded a $4 million gain from the settlement of a supply agreement. RESTRUCTURING COSTS 2023 The Containerboard Packaging segment recorded costs totaling $1 million in the fourth quarter related to closed plants in Canada. The Specialty Products segment recorded costs totaling $2 million ($1 million in the fourth quarter) related to closed plants in the USA. The Tissue Papers segment recorded costs totaling $20 million ($10 million in the fourth quarter) related to the closures of the plants and severances, in the USA. 2022 The Tissue Papers segment recorded additional costs totaling $3 million ($2 million in the fourth quarter) related to assets relocation and severances. UNREALIZED LOSS (GAIN) ON DERIVATIVE FINANCIAL INSTRUMENTS The Containerboard Packaging segment recorded an unrealized gain of $2 million in 2023 (unrealized gain of $1 million in the fourth quarter), compared to an unrealized loss of $7 million in 2022 (unrealized gain of $4 million in the fourth quarter), from a steam contract embedded derivatives related to our Niagara Falls containerboard complex. Corporate activities recorded an unrealized loss of $4 million in 2023 (unrealized loss of $1 million in the fourth quarter) compared to an unrealized gain of $1 million in 2022 (nil in the fourth quarter) due to the financial hedging contracts for natural gas purchases. UNREALIZED LOSS ON INTEREST RATE SWAPS In 2023, the Corporation recorded an unrealized loss on interest rate swaps of $1 million in the fourth quarter (nil in 2022). FOREIGN EXCHANGE LOSS (GAIN) ON LONG-TERM DEBT AND FINANCIAL INSTRUMENTS In 2023, the Corporation recorded a gain of less than a million dollars (loss of $1 million in the fourth quarter) on its US$ denominated debt and related financial instruments, compared to a loss of $9 million in 2022 (gain of $3 million in the fourth quarter). The foreign exchange loss (gain) on long-term debt and financial instruments is composed of foreign exchange forward contracts not designated for hedge accounting. 2023 Annual Report 53 SHARE OF RESULTS OF ASSOCIATES AND JOINT VENTURES In 2023, the Corporation recorded a gain in the consolidated statement of earnings in the line item “Share of results of associates and joint ventures” of $10 million ($1 million in the fourth quarter) from the sale of investments in non-significant joint ventures. SPECIFIC ITEMS INCLUDED IN RECOVERY OF INCOME TAXES In 2023, the Corporation recorded the following specific items related to its recovery of income taxes: • • • $4 million of deferred tax expense as a result of the settlement of tax assessments of previous years; provision of $2 million (recovery of $3 million in 2022) in relation to a tax audit that is expected to result in an increase of the tax expense previously recorded on the gain from the sale of discontinued operations in 2021; $1 million of deferred tax expense as a result of the expected changes to applicable effective state tax rates following the repositioning of its Tissue Papers operating platform in the USA. 54 2023 Annual Report HISTORICAL FINANCIAL INFORMATION (in millions of Canadian dollars, unless otherwise noted) (unaudited) Sales Packaging Products Containerboard Specialty Products Inter-segment sales Tissue Papers Inter-segment sales, Corporate, Recovery and Recycling activities Total 2021 2022 2023 YEAR Q1 Q2 Q3 Q4 YEAR Q1 Q2 Q3 Q4 YEAR 2,009 548 (32) 2,525 1,272 534 157 (8) 683 314 569 168 (10) 727 342 595 168 (11) 752 382 567 161 (7) 721 384 2,265 654 (36) 2,883 1,422 561 161 (7) 715 387 562 164 (9) 717 416 593 157 (7) 743 422 561 160 (8) 713 390 2,277 642 (31) 2,888 1,615 159 3,956 41 1,038 50 1,119 40 1,174 30 1,135 161 4,466 32 1,134 35 1,168 33 1,198 35 1,138 135 4,638 Operating income (loss) 50 (4) 32 25 (20) 33 (80) 64 80 (24) 40 EBITDA (A)1 Packaging Products Containerboard Specialty Products Tissue Papers Corporate, Recovery and Recycling activities Total Margin (EBITDA (A) / Sales) (%)1 Net earnings (loss) Adjusted1 Net earnings (loss) from continuing operations per basic common share (in Canadian dollars) Net earnings (loss) from discontinued operations per basic common share (in Canadian dollars) Net earnings (loss) per common share (in Canadian dollars) Basic Diluted Basic, adjusted1 372 74 446 27 (84) 389 9.8% 162 27 (27) 58 5.6% (15) (15) (25) 91 8.1% 10 10 80 22 102 (17) 99 25 124 (8) 103 25 128 4 119 20 139 8 (21) 111 (31) 116 401 92 493 (13) (104) 376 126 27 153 16 96 24 120 44 101 21 122 61 67 19 86 61 390 91 481 182 (35) 134 (23) 141 (22) 161 (25) 122 (105) 558 9.5% 10.2% 8.4% 11.8% 12.1% 13.4% 10.7% 12.0% (2) 20 (27) 22 (34) 37 (75) 33 22 26 34 45 (57) 5 (76) 109 ($0.59) ($0.15) $0.10 ($0.02) ($0.27) ($0.34) ($0.75) $0.22 $0.34 ($0.57) ($0.76) $2.19 — — — — — — — — — — $1.60 $1.59 $0.26 ($0.15) ($0.15) ($0.15) — $0.10 $0.10 $0.10 ($0.02) ($0.02) $0.20 ($0.27) ($0.27) $0.22 ($0.34) ($0.34) $0.37 ($0.75) ($0.75) $0.32 $0.22 $0.22 $0.27 $0.34 $0.34 $0.44 ($0.57) ($0.57) $0.05 ($0.76) ($0.76) $1.08 Cash flow from operating activities (excluding changes in non-cash working capital components) 247 19 81 60 100 260 89 117 100 91 397 Payments for property, plant and equipment Net debt1 Net debt / EBITDA (A) (LTM) ratio1 (286) (102) (117) (122) (160) (501) (140) (104) (59) (47) (350) 1,351 1,549 1,712 2,011 1,966 1,966 2,070 2,076 2,088 1,882 1,882 3.5x 4.8x 5.4x 6.2x 5.2x 5.2x 4.6x 4.1x 3.8x 3.4x 3.4x 1 Please refer to the “Supplemental Information on Non-IFRS Accounting Standards Measures and Other Financial Measures” section for a complete reconciliation. 2023 Annual Report 55 MANAGEMENT REPORT TO THE SHAREHOLDERS OF CASCADES INC. February 21, 2024 The accompanying Consolidated Financial Statements are the responsibility of the Management of Cascades Inc. and have been reviewed by the Audit and Finance Committee and approved by the Board of Directors. The Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS® Accounting Standards) and include certain estimates that reflect Management’s best judgment. The Management of the Corporation is also responsible for all other information included in this Annual Report and for ensuring that this information is consistent with the Corporation’s Consolidated Financial Statements and business activities. The Management of the Corporation is responsible for the design, establishment and maintenance of appropriate internal controls and procedures for financial reporting, to ensure that financial statements for external purposes are fairly presented in conformity with IFRS Accounting Standards. Such internal control systems are designed to provide reasonable assurance on the reliability of the financial information and the safeguarding of assets. An independent auditor and internal auditors have free and independent access to the Audit and Finance Committee, which comprises outside independent directors. The Audit and Finance Committee, which meets regularly throughout the year with members of Management and the external and internal auditors, reviews the Consolidated Financial Statements and recommends their approval to the Board of Directors. The Consolidated Financial Statements have been audited by PricewaterhouseCoopers LLP, whose report is provided below. /s/ Mario Plourde MARIO PLOURDE /s/ Allan Hogg ALLAN HOGG PRESIDENT AND CHIEF EXECUTIVE OFFICER KINGSEY FALLS, CANADA VICE-PRESIDENT AND CHIEF FINANCIAL OFFICER KINGSEY FALLS, CANADA 56 2023 Annual Report Independent auditor’s report To the Shareholders of Cascades Inc. Our opinion In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of Cascades Inc. and its subsidiaries (together, the Corporation) as at December 31, 2023 and 2022, and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS Accounting Standards). What we have audited The Corporation’s consolidated financial statements comprise: • • • • • • the consolidated balance sheets as at December 31, 2023 and 2022; the consolidated statements of earnings (loss) for the years then ended; the consolidated statements of comprehensive income (loss) for the years then ended; the consolidated statements of equity for the years then ended; the consolidated statements of cash flows for the years then ended; and the notes to the consolidated financial statements, comprising material accounting policy information and other explanatory information. Basis for opinion We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We are independent of the Corporation in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Canada. We have fulfilled our other ethical responsibilities in accordance with these requirements. Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements for the year ended December 31, 2023. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key audit matter Impairment assessment of property, plant and equipment Refer to the Segmented Information, note 2 – Summary of significant accounting policies, note 4 – Critical accounting estimates and judgments and note 22 – Impairment charges to the consolidated financial statements. Total net book value of property, plant and equipment amounted to $2,808 million as at December 31, 2023. At the end of each reporting period, management assesses whether there is an indicator that the carrying amount of an asset or a group of assets may be higher than its recoverable amount. When the recoverable amount of an asset or cash-generating unit (CGU) is lower than the carrying amount, the carrying amount is reduced to the recoverable amount. A CGU is the lowest level of a group of assets for which there are separately identifiable cash inflows. The recoverable amount is the higher of fair value less cost of disposal and value in use of an asset or CGU. The recoverable amount of each asset or CGU is determined by management using the fair value less cost of disposal based on the market approach if a market exists or the income approach. In determining the recoverable amount of an asset or CGU based on the market approach, management used the value of comparable assets on the market and applied a high degree of judgment in determining the value of comparable assets on the market. How our audit addressed the key audit matter Our approach to addressing the matter included the following procedures, among others: • Tested how management determined the recoverable amounts of the assets or CGUs related to property, plant and equipment for which an indicator of impairment was identified, which included the following: – including the mathematical accuracy of Tested the appropriateness of the methods and approach used, the recoverable amount calculations. Tested the underlying data used in the recoverable amount calculations. For assets or CGUs where the market approach was used by management, professionals with specialized skill and knowledge in the field of valuation assisted in testing the reasonableness of the value of comparable assets on the market identified by management. For assets or CGUs where the income approach was used by management, professionals with specialized skill and knowledge in the field of valuation assisted in developing an independent point estimate of the recoverable amount of each of these assets of CGUs, and compared each independent point estimate to management’s estimate of the recoverable amount to evaluate the reasonableness of management’s estimate. – – – 2023 Annual Report 57 How our audit addressed the key audit matter Our approach to addressing the matter included the following procedures, among others: • Tested how management determined the recoverable amount of at Containerboard segment the December 31, 2023, which included the following: – Packaging as Tested the appropriateness of the method and approach used and the mathematical accuracy of the recoverable amount calculation. Tested the underlying data used in the recoverable amount calculation. Tested the reasonableness of the assumptions related to estimated shipment levels, foreign exchange rates, revenue growth rates, EBITDA (A) margins and capital expenditures by considering (i) the budget approved by the Board of Directors, (ii) the current and past performance of the segment and (iii) external market and industry data, and whether these assumptions were consistent with evidence obtained in other areas of the audit, as applicable. Professionals with specialized skill and knowledge in the field of valuation assisted in testing the reasonableness of the discount rate applied by management based on available data of comparable companies. – – – the Key audit matter In determining the recoverable amount of an asset or CGU, based on income approach, management uses several key assumptions, including the capitalization rate. For the year ended December 31, 2023, management determined the recoverable amounts of certain assets or CGUs related to property, plant and equipment for which an indicator of impairment was identified were lower than the carrying amounts and recorded impairment charges of $175 million for property, plant and equipment. We considered this a key audit matter due to the high degree of judgment required by management in determining the recoverable amounts of assets or CGUs related to property, plant and equipment for which indicators of impairment were identified, including the determination of the value of comparable assets on the market and the use of key assumptions. This has resulted in significant audit effort and a high degree of subjectivity and complexity in performing procedures to test the recoverable amounts of assets or CGUs determined by management. Professionals with specialized skill and knowledge in the field of valuation assisted us in performing the procedures. Impairment assessment of goodwill – Containerboard Packaging segment Refer to the Segmented Information, note 2 – Summary of significant accounting policies, note 4 – Critical accounting estimates and judgments and note 22 – Impairment charges to the consolidated financial statements Management performs an impairment assessment of goodwill annually, or more frequently if events or circumstances indicate that the carrying value may be impaired. Goodwill is allocated to CGUs for the purpose of impairment assessment based on the level at which management monitors it, which is not higher than an operating segment. An impairment loss is recognized if the carrying amount of a CGU or group of CGUs exceeds its recoverable amount. The recoverable amount is the higher of fair value less cost of disposal and value in use. Total net book value of goodwill as at December 31, 2023 amounted to $481 million and was allocated to the Containerboard Packaging segment. Management performed its annual goodwill impairment test for the Containerboard Packaging segment as at December 31, 2023. The the Containerboard Packaging segment was determined using the fair value less cost of disposal based on the income approach. recoverable amount of In determining the fair value less cost of disposal, management applied a high degree of judgment in developing several key assumptions, foreign including estimated shipment exchange rates, revenue growth rates, adjusted earnings before taxes, depreciation and amortization (EBITDA) (A) interest, margins, the discount rate and capital expenditures. No impairment was recognized as a result of the 2023 impairment assessment. levels, the recoverable amount of judgment required by management We considered this a key audit matter due to the significance of the goodwill balance of the Containerboard Packaging segment and the high degree of in determining the Containerboard Packaging segment as at December 31, 2023, including the use of key assumptions. This has resulted in significant audit effort and a in performing high degree of subjectivity and complexity procedures to test the recoverable amount. Professionals with specialized skill and knowledge in the field of valuation assisted us in performing the procedures. 58 2023 Annual Report Other information Management is responsible for the other information. The other information comprises the Management’s Discussion and Analysis. Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of management and those charged with governance for the consolidated financial statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRS Accounting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, management is responsible for assessing the Corporation’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Corporation or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Corporation’s financial reporting process. Auditor’s responsibilities for the audit of the consolidated financial statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • • • • • Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Corporation’s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Corporation’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Corporation to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. 2023 Annual Report 59 • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Corporation to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. The engagement partner on the audit resulting in this independent auditor’s report is Sonia Boisvert. /s/ PricewaterhouseCoopers LLP1 Montréal, Quebec February 21, 2024 [1] FCPA auditor, public accountancy permit No. A116853 60 2023 Annual Report CONSOLIDATED BALANCE SHEETS (in millions of Canadian dollars) Assets Current assets Cash and cash equivalents Accounts receivable Current income tax assets Inventories Current portion of financial assets Long-term assets Investments in associates and joint ventures Property, plant and equipment Intangible assets with finite useful life Financial assets Other assets Deferred income tax assets Goodwill and other intangible assets with indefinite useful life Liabilities and Equity Current liabilities Bank loans and advances Trade and other payables Current income tax liabilities Current portion of long-term debt Current portion of provisions for contingencies and charges Current portion of financial liabilities and other liabilities Long-term liabilities Long-term debt Provisions for contingencies and charges Financial liabilities Other liabilities Deferred income tax liabilities Equity Capital stock Contributed surplus Retained earnings Accumulated other comprehensive income Equity attributable to Shareholders Non-controlling interests Total equity The accompanying notes are an integral part of these Audited Consolidated Financial Statements. 2023 Annual Report NOTE December 31, 2023 December 31, 2022 23 5 6 15 7 8 and 13 9 15 10 18 9 23 11 12 and 23 14 15 and 16 12 and 23 14 15 16 and 17 18 19 20 7 54 453 12 568 1 1,088 94 2,808 55 — 78 167 482 4,772 — 703 6 67 14 29 819 1,869 61 5 94 143 2,991 613 15 1,096 15 1,739 42 1,781 4,772 102 556 11 587 9 1,265 94 2,945 73 4 70 114 488 5,053 3 746 4 134 8 22 917 1,931 41 7 97 132 3,125 611 14 1,212 34 1,871 57 1,928 5,053 61 CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) For the years ended December 31 (in millions of Canadian dollars, except per common share amounts and number of common shares) NOTE Sales Supply chain and logistic Wages and employee benefits expenses Depreciation and amortization Maintenance and repair Other operational costs Impairment charges Other loss (gain) Restructuring costs Unrealized loss on derivative financial instruments Operating income Financing expense Share of results of associates and joint ventures Loss before income taxes Recovery of income taxes Net loss including non-controlling interests for the year Net earnings attributable to non-controlling interests Net loss attributable to Shareholders for the year Net loss per common share Basic Diluted Weighted average basic number of common shares outstanding Weighted average number of diluted common shares The accompanying notes are an integral part of these Audited Consolidated Financial Statements. 21 22 15.4 A (iv) 12 and 23 7 18 7 2023 4,638 2,741 1,082 272 236 21 209 12 23 2 40 128 (22) (66) (13) (53) 23 (76) 2022 4,466 2,836 992 252 217 45 102 (20) 3 6 33 88 (19) (36) (22) (14) 20 (34) ($0.76) ($0.76) 100,542,206 100,964,908 ($0.34) ($0.34) 100,647,972 101,092,352 62 2023 Annual Report CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) For the years ended December 31 (in millions of Canadian dollars) Net loss including non-controlling interests for the year Other comprehensive income (loss) Items that may be reclassified subsequently to earnings Translation adjustments Change in foreign currency translation of foreign subsidiaries Change in foreign currency translation related to net investment hedging activities Cash flow hedges Change in fair value of commodity derivative financial instruments Recovery of income taxes Items that are not released to earnings Actuarial gain on employee future benefits Provision for income taxes Other comprehensive income (loss) Comprehensive income (loss) including non-controlling interests for the year Comprehensive income attributable to non-controlling interests for the year Comprehensive income (loss) attributable to Shareholders for the year The accompanying notes are an integral part of these Audited Consolidated Financial Statements. NOTE 2023 (53) 2022 (14) 18 17 18 (25) 11 (6) — (20) 9 (2) 7 (13) (66) 22 (88) 78 (23) 3 2 60 33 (8) 25 85 71 23 48 2023 Annual Report 63 CONSOLIDATED STATEMENTS OF EQUITY (in millions of Canadian dollars) Balance - Beginning of year Comprehensive income (loss) Net earnings (loss) Other comprehensive income (loss) Dividends Stock options expense Issuance of common shares upon exercise of stock options Acquisitions of non-controlling interests Balance - End of year NOTE CAPITAL STOCK 611 CONTRIBUTED SURPLUS 14 For the year ended December 31, 2023 ACCUMULATED OTHER COMPREHENSIVE INCOME 34 RETAINED EARNINGS 1,212 TOTAL EQUITY ATTRIBUTABLE TO SHAREHOLDERS 1,871 NON- CONTROLLING INTERESTS 57 TOTAL EQUITY 1,928 — — — — — 2 — 613 — — — — 1 — — 15 (76) 7 (69) (48) — — 1 1,096 — (19) (19) — — — — 15 (76) (12) (88) (48) 1 2 1 1,739 23 (1) 22 (36) — — (1) 42 (53) (13) (66) (84) 1 2 — 1,781 19 (in millions of Canadian dollars) Balance - Beginning of year NOTE CAPITAL STOCK 614 CONTRIBUTED SURPLUS 14 For the year ended December 31, 2022 ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (23) RETAINED EARNINGS 1,274 TOTAL EQUITY ATTRIBUTABLE TO SHAREHOLDERS 1,879 NON- CONTROLLING INTERESTS 48 TOTAL EQUITY 1,927 Comprehensive income Net earnings (loss) Other comprehensive income Dividends Stock options expense Issuance of common shares upon exercise of stock options Redemption of common shares Acquisitions of non-controlling interests Balance - End of year 19 19 — — — — — 2 (5) — 611 — — — — 1 (1) — — 14 (34) 25 (9) (48) — — (4) (1) 1,212 — 57 57 — — — — — 34 (34) 82 48 (48) 1 1 (9) (1) 1,871 20 3 23 (13) — — — (1) 57 (14) 85 71 (61) 1 1 (9) (2) 1,928 The accompanying notes are an integral part of these Audited Consolidated Financial Statements. 64 2023 Annual Report CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended December 31 (in millions of Canadian dollars) Operating activities Net loss attributable to Shareholders for the year Adjustments for: Financing expense Depreciation and amortization Impairment charges Other loss (gain) Restructuring costs Unrealized loss on derivative financial instruments Recovery of income taxes Share of results of associates and joint ventures Net earnings attributable to non-controlling interests Net financing expense paid Net income taxes paid Dividends received Provisions for contingencies and charges and other liabilities Changes in non-cash working capital components Investing activities Disposals in associates and joint ventures Payments for property, plant and equipment Proceeds from disposals of property, plant and equipment Change in intangible and other assets Financing activities Bank loans and advances Change in credit facilities Increase in term loan Payments of term loan Increase in other long-term debt NOTE 12 and 23 22 15.4 A (iv) 18 7 7 7 14, 16 and 17 12 and 23 7 23 23 12 and 23 12 and 23 12 and 23 Payments of other long-term debt, including lease obligations (2023 - $59 million; 2022 - $55 million) 12, 13 and 23 Issuance of common shares upon exercise of stock options Redemption of common shares Dividends paid to non-controlling interests Acquisition of non-controlling interests Dividends paid to the Corporation’s Shareholders Net change in cash and cash equivalents during the year Currency translation on cash and cash equivalents Cash and cash equivalents - Beginning of the year Cash and cash equivalents - End of the year The accompanying notes are an integral part of these Audited Consolidated Financial Statements. 19 19 7 7 2023 (76) 128 272 209 12 23 2 (13) (22) 23 (129) (9) 9 (32) 397 113 510 12 (350) 7 (1) (332) (3) (92) — — 99 (144) 2 — (36) (3) (48) (225) (47) (1) 102 54 2022 (34) 88 252 102 (20) 3 6 (22) (19) 20 (87) (5) 12 (36) 260 (116) 144 1 (501) 19 (5) (486) 2 323 355 (219) — (117) 1 (9) (13) (3) (48) 272 (70) (2) 174 102 2023 Annual Report 65 SEGMENTED INFORMATION The Corporation’s operations are managed in three segments: Containerboard and Specialty Products (which constitutes the Corporation’s Packaging Products) and Tissue Papers. The accounting policies of the reportable segments are the same as the Corporation’s accounting policies described in Note 2. The Corporation’s operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker (CODM). The Chief Executive Officer has authority for resource allocation and management of the Corporation’s performance and is therefore the CODM. The CODM assesses the performance of each reportable segment based on sales and earnings before interest, taxes, depreciation and amortization, adjusted to exclude specific items (EBITDA (A)). The CODM considers EBITDA (A) to be the best performance measure of the Corporation’s activities. Sales for each segment are prepared on the same basis as those of the Corporation. Inter-segment operations are recorded on the same basis as sales to third parties, which are at fair market value. EBITDA (A) does not have a standardized meaning under IFRS Accounting Standards; accordingly, it may not be comparable to similarly named measures used by other companies. Investors should not view EBITDA (A) as an alternative measure to, for example, net earnings, or as a measure of operating results, which are IFRS Accounting Standards measures. Assets by business segment are presented in the following table: (in millions of Canadian dollars) Packaging Products Containerboard Specialty Products Tissue Papers Corporate, Recovery and Recycling activities Intersegment eliminations Investments in associates and joint ventures Other investments Property, plant and equipment by geographic segment are as follows: (in millions of Canadian dollars) Canada United States December 31, 2023 TOTAL ASSETS December 31, 2022 2,740 362 3,102 954 678 (59) 4,675 94 3 4,772 2,789 365 3,154 1,216 641 (55) 4,956 94 3 5,053 PROPERTY, PLANT AND EQUIPMENT December 31, 2023 December 31, 2022 961 1,847 2,808 1,005 1,940 2,945 Goodwill, customer relationships and client lists, and other finite and indefinite useful life intangible assets by geographic segment are as follows: (in millions of Canadian dollars) Canada United States GOODWILL, CUSTOMER RELATIONSHIPS AND CLIENT LISTS, AND OTHER FINITE AND INDEFINITE USEFUL LIFE INTANGIBLE ASSETS December 31, 2023 December 31, 2022 262 275 537 277 284 561 66 2023 Annual Report Sales by country by business segment are presented in the following table: For the years ended December 31 (in millions of Canadian dollars) 2023 Canada 2022 United States Other countries 2023 2022 2023 2022 2023 Packaging Products Containerboard Specialty Products Inter-segment sales Tissue Papers Inter-segment sale, Corporate, Recovery and Recycling activities 1,314 230 1,326 236 961 408 938 417 (15) (18) (16) (18) 1,529 1,544 551 100 449 138 1,353 1,064 27 1,337 973 22 2,180 2,131 2,444 2,332 2 4 — 6 — 8 14 1 1 — 2 — 1 3 2,277 642 (31) 2,888 1,615 135 4,638 Total 2022 2,265 654 (36) 2,883 1,422 161 4,466 SALES TO EBITDA (A) by business segment is reconciled to IFRS Accounting Standards measure, namely operating income (loss), and is presented in the following table: (in millions of Canadian dollars) Operating income (loss) Depreciation and amortization Impairment charges Other loss (gain) Restructuring costs Unrealized loss (gain) on derivative financial instruments EBITDA (A) (in millions of Canadian dollars) Operating income (loss) Depreciation and amortization Impairment charges Other gain Restructuring costs Unrealized loss (gain) on derivative financial instruments EBITDA (A) NOTE Containerboard Specialty Products Tissue Papers Corporate, Recovery and Recycling activities Consolidated For the year ended December 31, 2023 22 128 141 104 18 1 (2) 121 390 66 21 2 — 2 — 4 91 (2) (152) 67 103 (6) 20 — 117 182 43 — — — 4 4 (105) 40 272 209 12 23 2 246 558 NOTE Containerboard Specialty Products Tissue Papers Corporate, Recovery and Recycling activities Consolidated For the year ended December 31, 2022 22 266 118 10 — — 7 401 86 19 3 (16) — — 92 (175) (144) 74 89 (4) 3 — (13) 41 — — — (1) (104) 33 252 102 (20) 3 6 376 IMPAIRMENT CHARGES 2023 The Containerboard Packaging segment recorded an impairment charge of $2 million on spare parts and $59 million on some land ($3 million), building ($22 million) and equipment ($34 million) of a CGU (cash generating unit) subsequent to the permanent closure of one paper machine in the USA. The decision was the result of competitive market conditions, which make the CGU less profitable. The recoverable amount of the assets in operation, totaling $39 million, was determined using fair value less the cost of disposal based on the market approach of comparable assets on the market. The Containerboard Packaging segment also recorded an impairment charge of $8 million on spare parts and $35 million on some land ($1 million), building ($12 million) and equipment ($22 million) related to closure of plants announced in February 2024 in Ontario, Canada and in Connecticut, USA. The recoverable amount of the assets totaling $35 million, was determined using fair value less cost of disposal based on the market approach of comparable assets on the market. 2023 Annual Report 67 The Specialty Products segment recorded an impairment charge of $1 million on spare parts and $1 million on some equipment related to a closed plant in the USA. The recoverable amount was determined using fair value less the cost of disposal based on the market approach of comparable assets on the market. The Tissue Papers segment recorded an impairment charge of $23 million on spare parts and $80 million on some buildings ($10 million) and equipment ($70 million), consequent to the strategic repositioning of its operating platform. The decision includes the permanent closure of three plants in the USA. The recoverable amount of $130 million for these three CGUs was determined using fair value less cost of disposal based on the market approach of comparable assets on the market, as well, for one of the plants, the recoverable amount of the real estate was established using the income method over a period of 20 years and a capitalization rate of 7.25%, no impairment recognized for the latest. 2022 The Containerboard Packaging segment recorded an impairment charge of $10 million on some property, plant and equipment related to the closure of a plant in Canada and to unused assets in Canada and the USA. The recoverable amount was determined using the market approach of comparable assets on the market. The Specialty Products segment recorded an impairment charge of $3 million on goodwill, related to the closure of a plant in the USA. The recoverable amount of goodwill was determined using an income approach. The Tissue Papers segment recorded an impairment charge of $4 million on spare parts and $10 million on some property, plant and equipment related to the permanent closure of a plant in the USA. The recoverable amount was determined using the market approach of comparable assets on the market. The Tissue Papers segment also recorded an impairment charge of $55 million on machinery and equipment related to assets acquired in 2019 in the USA due to slower ramp-up and lower efficiency than expected. The recoverable amount was determined using the market approach of comparable assets on the market. For the same plants, an impairment charge related to buildings of $20 million was recorded. The recoverable amount was established using the income method over a period of 20 years and a capitalization rate of 7.25%. OTHER LOSS (GAIN) 2023 The Containerboard Packaging segment recorded an environmental obligation of $18 million related to the closure of a plant announced in February 2024 in Ontario, Canada. For further details, please refer to Note 14 and Note 26. The Specialty Products segment recorded a $1 million loss on a contract of a closed plant in the USA. The Specialty Products segment also recorded a $1 million gain from the sale of some machinery and equipment related to a closed plant in the USA. The Tissue Papers segment recorded a $2 million gain from the sale of some machinery and equipment related to a previously closed plant in the USA. The Tissue Papers segment also recorded a $4 million gain on a contract related to a closed plant in the USA. 2022 The Specialty Products segment recorded a $16 million gain from the sale of lands and a building related to closed plants in Canada. The Tissue Papers segment recorded a $4 million gain from the settlement of a supply agreement. RESTRUCTURING COSTS 2023 The Containerboard Packaging segment recorded costs totaling $1 million related to closed plants in Canada. The Specialty Products segment recorded costs totaling $2 million related to closed plants in the USA. The Tissue Papers segment recorded costs totaling $20 million related to the closures of the plants and severances, in the USA. 2022 The Tissue Papers segment recorded additional costs totaling $3 million related to assets relocation and severances. 68 2023 Annual Report UNREALIZED LOSS (GAIN) ON DERIVATIVE FINANCIAL INSTRUMENTS The Containerboard Packaging segment recorded an unrealized gain of $2 million in 2023 and an unrealized loss of $7 million in 2022, from a steam contract embedded derivatives related to our Niagara Falls containerboard complex. Corporate activities recorded an unrealized loss of $4 million in 2023 and an unrealized gain of $1 million in 2022 due to the financial hedging contracts for natural gas purchases. Payments for property, plant and equipment by business segment are presented in the following table: For the years ended December 31 (in millions of Canadian dollars) Packaging Products Containerboard Specialty Products Tissue Papers Corporate, Recovery and Recycling activities Total acquisitions Right-of-use assets acquisitions and provisions (non-cash) Acquisitions for property, plant and equipment included in “Trade and other payables” Beginning of the year End of the year Payments for property, plant and equipment Proceeds from disposals of property, plant and equipment Payments for property, plant and equipment net of proceeds from disposals PAYMENTS FOR PROPERTY, PLANT AND EQUIPMENT 2023 2022 223 32 255 39 49 343 (54) 289 106 (45) 350 (7) 343 481 40 521 55 43 619 (87) 532 75 (106) 501 (19) 482 2023 Annual Report 69 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Tabular amounts are in millions of Canadian dollars, except per common share and option amounts and number of common shares and options.) NOTE 1 GENERAL INFORMATION Cascades Inc. and its subsidiaries (together “Cascades” or the “Corporation”) produce, convert and market packaging and tissue products composed mainly of recycled fibres. Cascades Inc. is incorporated and domiciled in Québec, Canada. The address of its registered office is 404 Marie-Victorin Boulevard, Kingsey Falls. Its common shares are listed on the Toronto Stock Exchange under the ticker symbol “CAS”. The Board of Directors approved the Consolidated Financial Statements on February 21, 2024. NOTE 2 SUMMARY OF MATERIAL ACCOUNTING POLICIES BASIS OF PRESENTATION The Corporation prepares its financial statements in accordance with Canadian generally accepted accounting principles (GAAP) as set forth in Part I of the Chartered Professional Accountants of Canada (CPA Canada) Handbook – Accounting, which incorporates International Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS Accounting Standards). The key accounting policies applied in the preparation of these Consolidated Financial Statements are described below. BASIS OF MEASUREMENT The Consolidated Financial Statements have been prepared under the historical cost convention, except for the revaluation of certain financial assets and liabilities, including derivative instruments, which are measured at fair value. BASIS OF CONSOLIDATION These Consolidated Financial Statements include the accounts of the Corporation, which include: SUBSIDIARIES Subsidiaries are all entities over which the Corporation has control, where control is defined as the power to direct decisions about relevant activities. The existence and effect of potential voting rights that are exercisable or convertible are considered when assessing whether the Corporation controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Corporation. They are unconsolidated from the date on which control ceases. Accounting policies of subsidiaries have been changed, where necessary, to ensure consistency with the policies adopted by the Corporation. The purchase method of accounting is used to account for the acquisition of subsidiaries by the Corporation. Results of operations are consolidated commencing on the date of acquisition. The purchase consideration is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. The transaction costs directly attributable to the acquisition are expensed. Identifiable assets acquired, as well as liabilities and contingent liabilities assumed in a business combination, are measured initially at their fair values at the acquisition date, irrespective of the extent of any non-controlling interests. The excess of the purchase consideration over the fair value of the Corporation’s share of the identifiable net assets acquired is recorded as goodwill. If the purchase consideration is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in the consolidated statement of earnings. Intercompany transactions, balances and unrealized gains on transactions between subsidiaries are eliminated. The following are the principal subsidiaries of the Corporation: Cascades Canada ULC Cascades USA Inc. Greenpac Holding LLC1 1 Including indirect ownership, percentage stands at 86.35% for accounting purposes. See Note 7 for more details. PERCENTAGE OWNED (%) JURISDICTION 100 100 79.90 Canada Delaware Delaware 70 2023 Annual Report REVENUE FROM CONTRACT WITH CUSTOMERS The revenues of the Corporation come mainly from sales of packaging and tissue products that are recognized at a point in time. Sales of goods in the consolidated statement of earnings are recognized by the Corporation when control of the goods has been transferred, being when the goods are delivered to customers and when all performance obligations have been fulfilled. The amounts recognized as sales of goods represent the fair values of the considerations received or receivable from third parties on the sales of goods to customers, net of returns, volume rebates and discounts, at which time there are no conditions for the payment to become due other than the passage of time. Accumulated experience is used to estimate and provide for discounts and returns (expected value method), whereas volume discounts are assessed based on anticipated annual sales (most likely amount method). The transaction price is not adjusted for the time value of money since all sales are due within twelve months. FINANCIAL INSTRUMENTS AND HEDGING RELATIONSHIPS Financial assets and financial liabilities are recognized when the Corporation becomes a party to the contractual provisions of the instrument. Financial assets and financial liabilities are offset and the net amount is reported in the consolidated balance sheet when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis or to realize the asset and settle the liability simultaneously. A. CLASSIFICATION On initial recognition, the Corporation determines the financial instruments classification as per the following categories: • • • instruments measured at amortized cost; instruments measured at fair value through other comprehensive income (FVOCI); instruments measured at fair value through net income (FVTPL). The financial instruments’ classification under IFRS 9 is based on the business model in which a financial asset is managed and on its contractual cash flow characteristics. Derivatives embedded in contracts where the host is a financial instrument in the scope of the standard are never separated. Instead, the hybrid financial instrument as a whole is assessed for classification. A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated at FVTPL: • • it is held within a business model whose objective is to hold assets to collect contractual cash flows; and its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. Equity investments not subject to significant influence and held for trading are classified as FVTPL. The Corporation, on initial recognition, may irrevocably elect to present subsequent changes in the investment’s fair value in other comprehensive income (OCI). This election is made on an investment-by-investment basis. Financial liabilities are measured at amortized cost unless they must be measured at FVTPL (such as derivatives) or if the Corporation elects to measure them at FVTPL. B. EVALUATION Financial instruments at amortized cost Financial instruments at amortized cost are initially measured at fair value and subsequently at amortized cost, using the effective interest method, less any impairment loss. Interest income, foreign exchange gains and losses and impairment are recognized in the consolidated statement of earnings. Financial instruments at fair value Financial instruments are initially and subsequently measured at fair value and transaction costs are accounted for in the consolidated statement of earnings. When the Corporation elects to measure a financial liability at FVTPL, gains or losses related to the Corporation’s own credit risk are accounted for in the consolidated statement of earnings. IMPAIRMENT C. The Corporation prospectively estimates the expected credit losses associated with the debt instruments accounted for at amortized cost or FVOCI. The impairment methodology used depends on whether there is a significant increase in the credit risk or not. For trade receivables, the Corporation measures loss allowances at an amount equal to lifetime expected credit loss (ECL) as allowed by IFRS 9 under the simplified method. 2023 Annual Report 71 D. DERECOGNITION Financial assets The Corporation derecognizes a financial asset when and only when the contractual rights to the cash flows from the financial asset have expired or when contractual rights to the cash flows have been transferred. Financial liabilities The Corporation derecognizes a financial liability when and only when it is extinguished, meaning when the obligation specified in the contract is discharged, cancelled or expired. The difference between the carrying amount of the extinguished financial liability and the consideration paid or payable, including non-cash assets transferred or liabilities assumed, is recognized in the consolidated statement of earnings. CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of cash on hand, bank balances and short-term liquid investments with original maturities of three months or less. ACCOUNTS RECEIVABLE Accounts receivable are initially recognized at fair value and subsequently measured at amortized cost using the effective interest method, less an expected credit loss allowance that is based on expected collectability. INVENTORIES Inventories of finished goods are valued at the lower of cost, which is established using the average production cost, and net realizable value. Inventories of raw materials as well as supplies and spare parts are valued at the lower of cost and replacement value, which is the best available measure of their net realizable value. Cost for both raw materials and supplies and spare parts is determined using the average cost. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale. PROPERTY, PLANT AND EQUIPMENT AND DEPRECIATION Property, plant and equipment are recorded at cost, including capitalized interest incurred during the construction period of qualifying assets, less accumulated depreciation and net impairment losses. Repairs and maintenance costs are charged to the consolidated statement of earnings during the period in which they are incurred. Residual values, method of depreciation and useful lives of the assets are reviewed annually and adjusted if appropriate. Depreciation is calculated on a straight-line basis as follows: Buildings Machinery and equipment Automotive equipment Right-of-use assets Between 10 and 33 years Between 3 and 30 years Between 5 and 10 years Lease term BORROWING COSTS Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use, are added to the cost of those assets until all the activities necessary to prepare the asset for its intended use are complete. The capitalized borrowing costs for major acquisition, construction or production of qualifying assets, which are financed through non directly attributable sources, are calculated using the actual interest rate, if not available the Cascades’ long-term incremental borrowing rate. All other borrowing costs are recognized in the consolidated statement of earnings in the period in which they are incurred. INTANGIBLE ASSETS Intangible assets consist primarily of customer relationships and client lists, as well as application software. They are recorded at cost less accumulated amortization and impairment losses and amortized on a straight-line basis over the estimated useful lives as follows: Application software Enterprise Resource Planning (ERP) Customer relationships and client lists Other intangible assets with finite useful life Between 3 and 10 years 7 years Between 2 and 20 years Between 2 and 20 years Expenditure on research activities is recognized as an expense in the period in which it is incurred. 72 2023 Annual Report GOODWILL AND OTHER INTANGIBLE ASSETS WITH INDEFINITE USEFUL LIFE Goodwill and other intangible assets with an indefinite useful life are recognized at cost less any impairment losses. They have an indefinite useful life due to their permanent nature since they are acquired rights or not subject to wear and tear. IMPAIRMENT A. PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS WITH FINITE USEFUL LIFE At the end of each reporting period, the Corporation assesses whether there is an indicator that the carrying amount of an asset or a group of assets may be higher than its recoverable amount, which is described in section C hereunder. For that purpose, assets are grouped at the lowest levels for which there are separately identifiable cash inflows (cash generating units (CGUs)). If there is any indication that an individual asset may be impaired, the recoverable amount shall be estimated for the individual asset. When the recoverable amount is lower than the carrying amount, the carrying amount is reduced to the recoverable amount. Impairment losses are recorded immediately in the consolidated statement of earnings in the line item “Impairment charges”. Impairment losses are evaluated for potential reversals when events or changes in circumstances warrant such consideration. The revalued carrying value is the lower of the estimated recoverable amount and the carrying amount that would have been determined had no impairment loss been recognized and depreciation had been taken previously on the asset or CGU. A reversal of impairment loss is recorded directly in the consolidated statement of earnings in the line item “Impairment charges”. B. GOODWILL AND OTHER INTANGIBLE ASSETS WITH INDEFINITE USEFUL LIFE Goodwill and other intangible assets are assessed for impairment annually on December 31 or when an event or a circumstance occurs and indicates that the value could be permanently impaired. Goodwill is allocated to CGUs for the purpose of impairment assessment based on the lower level at which Management monitors it, which is not higher than an operating segment. The allocation is made to CGUs that are expected to benefit from the business combination in which the goodwill and other intangible assets with an indefinite useful life arose. Impairment loss on goodwill is not reversed. C. RECOVERABLE AMOUNTS A recoverable amount is the higher of fair value less cost of disposal and value in use. To determine the recoverable amount of each asset or CGU, the Corporation uses the fair value less cost of disposal calculation based on the market approach, if a market exists for the asset or CGU, or the income approach. LONG-TERM DEBT Long-term debt is recognized initially at fair value, net of financing costs incurred. Long-term debt is subsequently carried at amortized cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognized in the consolidated statement of earnings over the period of the term of the debt using the effective interest method. Financing costs paid on establishment of the revolving credit facility are recognized as deferred financing costs in the consolidated balance sheet under other assets and are amortized on a straight-line basis over the anticipated period of the credit facility. LEASES The Corporation recognizes, in the consolidated balance sheet, a lease liability and a corresponding right-of-use asset at the date at which the leased asset is available for use. Subsequently, lease payments are allocated between the liability and finance cost. Right-of-use assets are depreciated over the lease term on a straight-line basis. The lease liability equals the net present value of the lease payments discounted using the interest rate implicit in the lease or the Corporation’s incremental borrowing rate, which is determined for each lease. Right-of-use assets are measured at cost, which includes the initial lease liability amount, lease payments made at or before the lease commencement date less lease incentives, initial direct costs and restoration costs. The Corporation uses the low-value exception, as well as the short-term exception on all categories of assets, except buildings. The Corporation does not apply IFRS 16 to leases of intangible assets. 2023 Annual Report 73 ENVIRONMENTAL RESTORATION OBLIGATIONS AND ENVIRONMENTAL COSTS An obligation to incur restoration and environmental costs arises when environmental disturbance is caused by the development or ongoing production of a plant or landfill site. Such costs arising from the installation of a plant and other site preparation work are provided for and capitalized at the start of each project or as soon as the obligation to incur such costs arises. Decommissioning costs are recorded at the estimated amount at which the obligation could be settled at the consolidated balance sheet date and are charged against earnings over the life of the operation through the depreciation of the asset and the unwinding of the discount on the provision. The discount rate is the pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. Costs for restoring subsequent site damage that is created on an ongoing basis during production are provided for at their present values and charged against earnings as the obligation arises. Changes in the measurement of a liability relating to the decommissioning of a plant or other site preparation work resulting from changes in the estimated timing or amount of the cash flow or a change in the discount rate are added to or deducted from the cost of the related asset in the current year. If a decrease in the liability exceeds the carrying amount of the asset, the excess is recognized immediately in the consolidated statement of earnings. If the asset value is increased and there is an indication that the revised carrying value is not recoverable, an impairment test is performed in accordance with the accounting policy for impairment testing. EMPLOYEE BENEFITS The Corporation offers funded and unfunded defined benefit pension plans, defined contribution pension plans and group registered retirement savings plans (RRSPs) that provide retirement benefit payments for most of its employees. The defined benefit pension plans are usually contributory and are based on the number of years of service and, in most cases, the average salary or compensation at the end of a career. Retirement benefits are not adjusted based on inflation. The Corporation also offers its employees some post-employment benefit plans such as a retirement allowance, group life insurance and medical and dental plans. However, these benefits, other than pension plans, are not funded. Furthermore, the medical and dental plans upon retirement are being phased out and are no longer offered to the majority of new retirees and the retirement allowance is not offered to those who do not meet certain criteria. The liability recognized in the consolidated balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets. The defined benefit obligation is calculated at least every three years by independent actuaries using the projected unit credit method and regularly updated by Management for any material transactions and changes in circumstances, including changes in market prices and interest rates up to the end of the reporting period. As well, when an asset is recorded for a pension plan, its carrying value cannot be greater than the future economic benefit that the Corporation will get from the asset. The future economic benefit includes the suspension of contribution if the pension plan provisions allow for it under the minimum funding requirements. When there is a minimum funding requirement, it can increase the liability recorded. All special contributions legally required to fund a plan deficit are considered. For plans for which an actuarial evaluation is required as of December 31, 2023, a schedule of contributions is estimated to establish the minimum funding requirement. For other plans, we have used contributions from the most recent actuarial report. Actuarial gains and losses that arise in calculating the present value of the defined benefit obligation and the fair value of plan assets are recorded in the consolidated statement of other comprehensive income and recognized immediately in retained earnings without recycling to the consolidated statement of earnings. Past service costs are recognized immediately in the consolidated statement of earnings. When restructuring a plan results in a curtailment and settlement occurring at the same time, the curtailment is accounted for before the settlement. Interest costs on pensions and other post-employment benefits are recognized in the consolidated statement of earnings as “Financing expense”. The measurement date of the employee future benefits plans is December 31 of each year. An actuarial evaluation is performed at least every three years. Based on their balances as of December 31, 2023, 94% of the Corporation’s plans had been evaluated on December 31, 2022 (19% in 2021). FOREIGN CURRENCY TRANSLATION Items included in the financial statements of each of the Corporation’s entities are measured using the currency of the primary economic environment in which the business unit operates (the “functional currency”). The Consolidated Financial Statements are presented in Canadian dollars, which is Cascades’ functional currency. 74 2023 Annual Report SHARE-BASED PAYMENTS The Corporation uses the fair value method of accounting for stock-based compensation awards granted to officers and key employees. This method consists of recording expenses to earnings based on the vesting period of each tranche of options granted. The fair value of each tranche is calculated based on the Black-Scholes option pricing model. This model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. When stock options are exercised, any considerations paid by employees, as well as the related stock-based compensation, are credited to capital stock. DIVIDEND DISTRIBUTION Dividend distribution to the Corporation’s Shareholders is recognized as a liability in the Consolidated Financial Statements in the period in which the dividends are approved by the Corporation’s Board of Directors. EARNINGS PER COMMON SHARE Basic earnings per common share are determined using the weighted average number of common shares outstanding during the period. Diluted earnings per common share are determined by adjusting the weighted average number of common shares outstanding for dilutive instruments, which are primarily stock options, using the treasury stock method to evaluate the dilutive effect of stock options. Under this method, instruments with a dilutive effect, which is when the average market price of a share for the period exceeds the exercise price, are considered to have been exercised at the beginning of the period and the proceeds received are considered to have been used to redeem common shares of the Corporation at the average market price for the period. NOTE 3 CHANGES IN ACCOUNTING POLICY AND DISCLOSURES A. NEW IFRS ACCOUNTING STANDARDS ADOPTED Disclosure of Accounting Policy Information - Amendments to IAS 1 and IFRS Practice Statement 2 In February 2021, the International Accounting Standards Board (IASB®) amended IAS 1 Presentation of Financial Statement and IFRS Practice Statement 2 Making Materiality Judgements to require the Corporation to disclose its material accounting policies rather than its significant accounting policies. implementation of The Financial Statements. these standard amendments resulted in no significant impact of the Corporation’s Consolidated IFRS 17 Insurance Contracts IFRS 17 Insurance Contracts was issued in May 2017 as replacement for IFRS 4 Insurance Contracts. The amendments deferred the application date of IFRS 17 to January 1, 2023. IFRS 17 Insurance Contracts, applies to insurance contracts regardless of the entity that issues them and so it does not apply only to traditional insurance entities. IFRS 17 Insurance Contracts defines an insurance contract as an agreement where one party, the insurer, accepts significant insurance risk from another party, the policy holder, by agreeing to compensate the policy holder if a specified uncertain future event adversely affects the policy holder. The standard became effective on January 1, 2023 and had no impact on the Corporation’s Consolidated Financial Statements. International Tax Reform—Pillar Two Model Rules, amendments to IAS 12 Income Taxes On May 23, 2023, the IASB published an amendment to IAS 12 to introduce a mandatory temporary exemption to the accounting for deferred taxes arising from jurisdictional tax law enacted or substantively enacted to implement the Pillar Two Model Rules that were published by the Organisation for Economic Co-operation and Development (OECD) and new disclosure requirements for affected entities. The Global Anti-Base Erosion Rules (GloBE) are a key component of the Pillar Two Model Rules and ensure large multinational enterprises pay a minimum level of tax on the income arising in each of the jurisdictions where they operate. The impact on the Corporation of the Pillar Two Model rules, including GloBE, is under assessment and a reasonable estimate shall be available once applicable jurisdictional tax law is substantively enacted. 2023 Annual Report 75 B. RECENT IFRS ACCOUNTING STANDARDS NOT YET ADOPTED IAS 7 and IFRS 7 Amendments Relating to Supplier Finance Arrangements IAS 7 and IFRS 7 Amendments Relating to Supplier Finance Arrangements require disclosures to enhance the transparency of supplier finance arrangements and their effects on an entity’s liabilities, cash flows and exposure to liquidity risk. The Corporation has an arrangement that is subject to the new requirements and is currently evaluating the impact on the disclosures in the Consolidated Financial Statements. Amendment to IAS 1 – Non-current liabilities with covenants These amendments clarify how conditions with which an entity must comply within twelve months after the reporting period affect the classification of a liability. The Corporation has covenants that are subject to this amendment and evaluates that there is no impact on the disclosures in the Consolidated Financial Statements as of December 31, 2023. NOTE 4 CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS The preparation of financial statements in conformity with IFRS Accounting Standards requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and disclosure of contingencies at the balance sheet date, 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, including those related to environmental costs, employee future benefits, collectability of accounts receivable, financial instruments, contingencies, income taxes, useful life and residual value of property, plant and equipment and impairment of property, plant and equipment and intangible assets. Actual results could differ from those estimates. When adjustments become necessary, they are reported in earnings in the period in which they occur. IMPAIRMENT OF PROPERTY, PLANT AND EQUIPMENT, INTANGIBLE ASSETS AND GOODWILL A. In determining the recoverable amount of an asset or CGU, based on the market approach, Management uses the value of comparable assets on the market. In determining the recoverable amount of an asset or CGU, based on the income approach, Management uses several key assumptions, including estimated shipment levels, foreign exchange rates, revenue growth rates, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA (A)) margins, discount rates, capitalization rate and capital expenditures. The Corporation believes its assumptions are reasonable. Based on available information at the assessment date, however, these assumptions involve a high degree of judgment and complexity. Management believes that the following assumptions are the most susceptible to change and therefore could impact the valuation of the assets in the next year. DESCRIPTION OF SIGNIFICANT IMPAIRMENT TESTING ASSUMPTIONS (see Note 22) REVENUES, ADJUSTED EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION (EBITDA (A)) MARGINS, CASH FLOWS AND GROWTH RATES The assumptions used for revenues were based on the segment’s internal budget and were projected for a period of five years and a long- term growth rate of 3% was applied thereafter. The assumption used for EBITDA (A) margin was based on the segment’s historical performance. In arriving at its forecasts, the Corporation considers past experience, economic trends such as gross domestic product growth and inflation, as well as industry and market trends. DISCOUNT RATES The Corporation assumed a discount rate in order to calculate the present value of its projected cash flows. The discount rate represents a weighted average cost of capital (WACC) for comparable companies operating in similar industries of the applicable CGU, group of CGUs or reportable segment based on publicly available information. CAPITALIZATION RATES The Corporation assumed a capitalization rate in order to calculate the present value of its property cash flows. The capitalization rate represents a real estate valuation measure used to compare different real estate investments. The capitalization rate is calculated as the ratio between the annual rental income produced by a real estate asset to its current market value. 76 2023 Annual Report FOREIGN EXCHANGE RATES When estimating the fair value less cost of disposal, foreign exchange rates are determined using the financial institution’s average forecast for the first two years of forecasting. For the following three years, the Corporation uses the last five years’ historical average of the foreign exchange rate. Terminal rate is based on historical data of the last ten years and adjusted to reflect Management’s best estimate of market participants expectations. SHIPMENTS The assumptions used are based on the Corporation’s internal budget for the next year and are usually held constant for the established capacity, for new capacity the ramp up is considered over the forecast period. In arriving at its budgeted shipments, the Corporation considers past experience, economic, industry and market trends. Considering the sensitivity of the key assumptions used, there is measurement uncertainty since adverse changes in one or a combination of the Corporation’s key assumptions could cause a significant change in the carrying amounts of these assets. INCOME TAXES B. The Corporation is required to estimate the income taxes in each jurisdiction in which it operates. This includes estimating a value for existing tax losses based on the Corporation’s assessment of its ability to use them against future taxable income before they expire. If the Corporation’s assessment of its ability to use the tax losses proves inaccurate in the future, more or less of the tax losses might be recognized as assets, which would increase or decrease the income tax expense and, consequently, affect the Corporation’s results in the relevant year. C. EMPLOYEE BENEFITS The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity approximating the terms of the related pension liability. The cost of pensions and other retirement benefits earned by employees is determined by actuaries using the projected benefit method pro-rated on years of service and Management’s best estimate of expected plan investment performance, salary escalations, retirement ages of employees and expected health care costs. The accrued benefit obligation is evaluated using the market interest rate at the evaluation date. Due to the long-term nature of these plans, such estimates are subject to significant uncertainty. All assumptions are reviewed annually. NOTE 5 ACCOUNTS RECEIVABLE (in millions of Canadian dollars) Accounts receivable - Trade Receivables from related parties Less: expected credit loss allowance Trade receivables - net Other NOTE 25 2023 419 19 (7) 431 22 453 2022 502 27 (4) 525 31 556 As of December 31, 2023, trade receivables of $93 million, including $47 million within 30 days (December 31, 2022 - $132 million, including $61 million within 30 days) were past due. Past due receivables are before any commercial claims, which are accounted under customers contracts liabilities. For further details, please refer to Note 11. 2023 Annual Report 77 Movements in the Corporation’s expected credit loss allowance are as follows: (in millions of Canadian dollars) Balance at beginning of year Provision for expected credit loss allowance Receivables written off during the year as uncollectable Balance at end of year 2023 2022 4 5 (2) 7 4 1 (1) 4 The change in the expected credit loss allowance has been included in “Other operational costs” in the consolidated statement of earnings. The maximum exposure to credit risk at the reporting period approximates the carrying value of each class of receivable mentioned above. NOTE 6 INVENTORIES (in millions of Canadian dollars) Finished goods Raw materials Supplies and spare parts 2023 246 111 211 568 2022 238 135 214 587 As of December 31, 2023, finished goods, raw materials and supplies and spare parts inventories have been adjusted to their net realizable value (NRV) requiring a provision of $10 million, $2 million and $18 million, respectively (December 31, 2022 - $9 million, $2 million and $8 million). In 2023, the Corporation reversed no provision that gets recorded against spare parts inventories (none in 2022). No reversal of previously written-down finished goods or raw materials inventory occurred in 2023 or 2022. The cost of raw materials and supplies and spare parts included in “Supply chain and logistic” amounted to $1,597 million (2022 - $1,611 million). NOTE 7 INVESTMENTS IN ASSOCIATES AND JOINT VENTURES AND SUBSIDIARIES WITH NON- CONTROLLING INTERESTS A. INVESTMENTS IN ASSOCIATES AND JOINT VENTURES ARE DETAILED AS FOLLOWS: (in millions of Canadian dollars) Investments in associates Investments in joint ventures 2023 26 68 94 2022 25 69 94 INVESTMENTS IN ASSOCIATES B. The Corporation did not hold any significant participation in associates in 2023 and 2022. INVESTMENTS IN JOINT VENTURES C. The following are the principal joint ventures of the Corporation and the Corporation’s percentage of equity owned: Cascades Sonoco US Inc.1 Cascades Sonoco inc.1 Maritime Paper Products Limited Partnership (MPPLP)2 Tencorr Holdings Corporation3 2023-2022 PERCENTAGE EQUITY OWNED (%) PRINCIPAL ESTABLISHMENT 50 Birmingham, Alabama and Tacoma, Washington, United States 50 40 33.33 Kingsey Falls and Berthierville, Québec, Canada Dartmouth, Nova Scotia, Canada Brampton, Ontario, Canada 1 Joint ventures producing specialty paper packaging products such as headers, rolls and wrappers. 2 MPPLP is a Canadian corporation converting containerboard. 3 Tencorr Holdings Corporation operates as a supplier of corrugated sheet stock. 78 2023 Annual Report The Corporation’s joint ventures information (100%), translated in millions of Canadian dollars, is as follows: (in millions of Canadian dollars) Condensed balance sheet Cash and cash equivalents Current assets (other than cash and cash equivalents and current financial assets) Long-term assets (other than long-term financial assets) Current liabilities (other than current financial liabilities) Current financial liabilities Long-term liabilities (other than long-term financial liabilities) Long-term financial liabilities Condensed statement of earnings Sales Depreciation and amortization Financing expense Provision for (recovery of) income taxes Net earnings Other comprehensive income (loss) Translation adjustment Total comprehensive income Dividends received from joint ventures (in millions of Canadian dollars) Condensed balance sheet Cash and cash equivalents Current assets (other than cash and cash equivalents and current financial assets) Long-term assets (other than long-term financial assets) Current liabilities (other than current financial liabilities) Current financial liabilities Long-term liabilities (other than long-term financial liabilities) Long-term financial liabilities Condensed statement of earnings Sales Depreciation and amortization Financing expense Provision for (recovery of) income taxes Net earnings (loss) Other comprehensive income (loss) Translation adjustment Total comprehensive income (loss) Dividends received from joint ventures CASCADES SONOCO US INC. CASCADES SONOCO INC. 2023 MARITIME PAPER PRODUCTS LIMITED PARTNERSHIP TENCORR HOLDINGS CORPORATION 4 23 34 7 2 4 4 82 5 — 1 5 (1) 4 1 7 24 15 8 1 2 1 90 2 — 4 11 — 11 5 15 27 30 8 — — — 127 4 — — 6 — 6 — 16 23 10 29 4 3 — 166 1 — (1) — — — — 2022 CASCADES SONOCO US INC. CASCADES SONOCO INC. MARITIME PAPER PRODUCTS LIMITED PARTNERSHIP TENCORR HOLDINGS CORPORATION 1 28 39 13 2 5 6 108 5 1 2 7 3 10 3 4 30 15 11 1 2 2 112 2 — 5 13 — 13 4 1 33 30 4 — — — 138 3 — — 4 — 4 — 17 21 10 27 4 3 — 138 1 — (2) (1) — (1) — Commitments of the joint ventures are less than a million dollars in 2023 and 2022. D. NON-SIGNIFICANT ASSOCIATES AND JOINT VENTURES The carrying value of investments in associates and joint ventures that do not have a significant impact on the Corporation is as follows: (in millions of Canadian dollars) Non-significant associates Non-significant joint ventures 2023 Annual Report 2023 26 5 31 2022 25 9 34 79 The shares of results of non-significant associates and joint ventures for the Corporation are as follows: (in millions of Canadian dollars) Non-significant associates Non-significant joint ventures Gain from the sale of investments in non-significant joint ventures 2023 1 1 10 12 2022 5 2 — 7 In 2023, the Corporation recorded a gain in the consolidated statement of earnings in the line item “Share of results of associates and joint ventures” of $10 million from the sale of investments in non-significant joint ventures. The Corporation received $12 million from these sales. The Corporation received dividends of $3 million from these associates and joint ventures as of December 31, 2023 (December 31, 2022 - $5 million). E. SUBSIDIARIES WITH NON-CONTROLLING INTERESTS The Corporation’s information for its subsidiaries with significant non-controlling interests is as follows: (in millions of Canadian dollars, unless otherwise noted) Principal establishment FALCON PACKAGING LLC Ohio, United States 2023 GREENPAC HOLDING LLC New York, United States FALCON PACKAGING LLC Ohio, United States 2022 GREENPAC HOLDING LLC New York, United States Percentage of shares held by non-controlling interests (accounting basis) 11.00% 13.65% 14.00% 13.65% Net earnings attributable to non-controlling interests Non-controlling interests accumulated at the end of the year Dividends paid to non-controlling interests Condensed balance sheet Cash and cash equivalents Current assets (other than cash and cash equivalents and current financial assets) Long-term assets (other than long-term financial assets) Current liabilities (other than current financial liabilities) Current financial liabilities Long-term liabilities (other than long-term financial liabilities) Long-term financial liabilities Condensed statement of earnings Sales Depreciation and amortization Net earnings Condensed cash flow Cash flows from operating activities Cash flows used for investing activities Cash flows used for financing activities 1 2 1 8 19 31 15 — — 2 224 1 11 14 — (13) 22 40 35 3 103 483 52 9 1 102 532 38 167 228 (8) (250) 2 3 1 7 20 33 15 1 — 4 207 1 10 12 — (10) 18 54 12 34 127 522 51 75 1 18 569 39 139 178 (6) (159) In 2023, the Corporation increased its participation in Falcon Packaging LLC in the Specialty Products segment for a contribution of $3 million (2022 - $3 million) representing the last tranche of a call option. 80 2023 Annual Report NOTE 8 PROPERTY, PLANT AND EQUIPMENT (in millions of Canadian dollars) As of January 1, 2022 Cost Accumulated depreciation and impairment Net book amount Year ended December 31, 2022 Opening net book amount Additions Disposals Depreciation Impairment charges Others Exchange differences Closing net book amount As of December 31, 2022 Cost Accumulated depreciation and impairment Net book amount Year ended December 31, 2023 Opening net book amount Additions Disposals Depreciation Impairment charges Others Exchange differences Closing net book amount As of December 31, 2023 Cost Accumulated depreciation and impairment Net book amount NOTE LAND AND LAND IMPROVEMENTS BUILDINGS AND LEASEHOLD IMPROVEMENT MACHINERY AND EQUIPMENT AUTOMOTIVE EQUIPMENT RIGHT-OF-USE ASSETS (Note 13) 22 22 112 — 112 112 1 — — — — 4 117 117 — 117 117 — (1) — (4) — (1) 111 115 4 111 980 379 601 601 139 — (22) (22) (1) 28 723 1,152 429 723 723 80 (1) (28) (44) (5) (11) 714 1,177 463 714 3,391 1,774 1,617 1,617 378 (1) (144) (73) 13 84 1,874 3,849 1,975 1,874 1,874 196 — (153) (127) — (28) 1,762 3,780 2,018 1,762 132 89 43 43 14 — (10) — — — 47 143 96 47 47 17 — (11) — 1 (1) 53 154 101 53 277 128 149 149 87 (2) (56) — 1 5 184 359 175 184 184 50 (3) (60) — (1) (2) 168 382 214 168 TOTAL 4,892 2,370 2,522 2,522 619 (3) (232) (95) 13 121 2,945 5,620 2,675 2,945 2,945 343 (5) (252) (175) (5) (43) 2,808 5,608 2,800 2,808 Property, plant and equipment includes assets in the process of construction or installation with a book value of $67 million (December 31, 2022 - $698 million of which $575 million is for the new Bear Island containerboard mill). Deposits on purchases of machinery and equipment represent $1 million (December 31, 2022 - less than a million dollars). In 2023, $10 million (2022 - $15 million) of interest incurred on qualifying assets was capitalized. The weighted average capitalization rate on funds borrowed in 2023 was 5.68% (2022 - 4.88%). The Corporation recorded impairment charges of $175 million in 2023 (2022 - $95 million), for further details please refer to Note 22. The Corporation revised the allocation among categories of property, plant and equipment and removed the category “Other”, the amounts for 2022 were adjusted accordingly. 2023 Annual Report 81 NOTE 9 GOODWILL AND OTHER INTANGIBLE ASSETS WITH FINITE AND INDEFINITE USEFUL LIFE (in millions of Canadian dollars) As of January 1, 2022 Cost Accumulated amortization and impairment Net book amount Year ended December 31, 2022 Opening net book amount Additions Impairment charges Amortization Exchange differences Closing net book amount As of December 31, 2022 Cost Accumulated amortization and impairment Net book amount Year ended December 31, 2023 Opening net book amount Additions Amortization Exchange differences Closing net book amount As of December 31, 2023 Cost Accumulated amortization and impairment Net book amount APPLICATION SOFTWARE AND ERP CUSTOMER RELATIONSHIPS AND CLIENT LISTS NOTE OTHER INTANGIBLE ASSETS WITH FINITE USEFUL LIFE TOTAL INTANGIBLE ASSETS WITH FINITE USEFUL LIFE OTHER INTANGIBLE ASSETS WITH INDEFINITE USEFUL LIFE TOTAL INTANGIBLE ASSETS WITH INDEFINITE USEFUL LIFE GOODWILL 22 161 108 53 53 2 — (16) — 39 163 124 39 39 1 (15) — 25 135 110 25 132 98 34 34 — — (3) 2 33 134 101 33 33 — (4) — 29 133 104 29 4 3 1 1 — — — — 1 4 3 1 1 — — — 1 4 3 1 297 209 88 88 2 — (19) 2 73 301 228 73 73 1 (19) — 55 272 217 55 472 — 472 472 — (3) — 18 487 487 — 487 487 — — (6) 481 481 — 481 1 — 1 1 — — — — 1 1 — 1 1 — — — 1 1 — 1 473 — 473 473 — (3) — 18 488 488 — 488 488 — — (6) 482 482 — 482 The Corporation recorded no impairment charges in 2023 (2022 - $3 million), for further details please refer to Note 22. NOTE 10 OTHER ASSETS (in millions of Canadian dollars) Long-term notes receivable Other investments Deferred charges and financing costs Employee future benefits NOTE 2023 2022 9 3 20 46 78 8 3 19 40 70 17 An amortization expense of $1 million (2022 - $1 million) was booked against deferred charges and financing costs. 82 2023 Annual Report NOTE 11 TRADE AND OTHER PAYABLES (in millions of Canadian dollars) Trade payables Payables to related parties Customers contracts liabilities Accrued expenses Movements in the Corporation’s customers contracts liabilities are as follows: (in millions of Canadian dollars) Balance at beginning of year Provision for customers contracts liabilities Customers contracts liabilities payments Exchange differences Balance at end of year NOTE 12 LONG-TERM DEBT (in millions of Canadian dollars) NOTE 25 2023 505 3 60 135 703 2023 72 151 (162) (1) 60 2022 532 6 72 136 746 2022 64 124 (118) 2 72 NOTE MATURITY 2023 2022 2026 2025 2026 2028 2027 Revolving credit facility, weighted average interest rate of 7.16% as of December 31, 2023 and consists of US$190 million (December 31, 2022 - US$258 million) 12(a) 5.125% Unsecured senior notes of $175 million 5.125% Unsecured senior notes of US$206 million 5.375% Unsecured senior notes of US$445 million and $5 million of unamortized premium as of December 31, 2023 (December 31, 2022 - US$445 million and $6 million of unamortized premium) Term loan of US$260 million, interest rate of 7.46% as of December 31, 2023 Lease obligations with recourse to the Corporation Other debts with recourse to the Corporation Lease obligations without recourse to the Corporation Other debts without recourse to the Corporation Less: Unamortized financing costs Total long-term debt Less: 12(a) 12(b) 12(b) 12(c) Current portion of lease obligations with recourse to the Corporation Current portion of other debts with recourse to the Corporation Current portion of lease obligations without recourse to the Corporation Current portion of other debts without recourse to the Corporation 12(c) 252 175 272 595 344 174 23 15 93 1,943 7 1,936 51 8 8 — 67 1,869 350 175 279 610 352 186 31 22 69 2,074 9 2,065 46 12 8 68 134 1,931 a. On October 19, 2022, the Corporation entered into an agreement with its lenders for its existing credit agreement to increase its authorized term loan to US$260 million from US$160 million and to extend the maturity from December 2025 to December 2027. Concurrently, the Corporation extended its existing $750 million revolving credit facility maturity from July 2025 to July 2026. The financial conditions of both facilities remain unchanged. The Corporation incurred $2 million in capitalizable transaction fees related to the refinancing. As of December 31, 2023, accounts receivable and inventories totaling approximately $869 million (December 31, 2022 - $987 million) and property, plant and equipment having a net book value of $241 million (December 31, 2022 - $243 million) were pledged as collateral for the Corporation’s revolving credit facility. 2023 Annual Report 83 b. The Corporation has leases for various items of property, plant and equipment. Lease obligations are secured, as the rights to the leased asset revert to the lessor in the event of default. For more details on future payments, see Note 15.4 C. c. In the third quarter of 2023, the loan scheduled to mature on December 11, 2023 was fully repaid. On September 15, 2023, our subsidiary, Greenpac, entered into a 3-year credit agreement with a banking syndicate securing a revolving credit facility authorized at US$150 million which bears interest at a variable rate based on the level of leverage ratio of the subsidiary. Transaction fees amounting to US$2 million ($2 million) were capitalized in other assets. NOTE 13 LEASES a. The consolidated balance sheet includes, in “Property, plant and equipment”, the amounts hereunder as right-of-use assets relating to leases. 2023 and 2022 right-of-use assets under IFRS 16 are as follows: (in millions of Canadian dollars) Land Buildings Machinery and equipment Automotive equipment Others Net book amount Additions to the right-of-use assets during the 2023 financial year were $50 million (2022 - $87 million). b. The consolidated statements of earnings include the following amounts relating to leases: (in millions of Canadian dollars) Depreciation and amortization of right-of-use assets Buildings Machinery and equipment Automotive equipment Others Financing expense 2023 2 119 2 44 1 168 2022 2 130 1 50 1 184 2023 2022 38 1 21 — 60 8 33 1 21 1 56 7 Expenses relating to short-term leases, low-value assets and variable lease payments not included in the lease obligation were less than a million dollars in 2023 (2022 - $1 million). c. The total cash outflow for leases, including the interest, in 2023 was $67 million (2022 - $62 million). d. Refer to Note 12 for liabilities and to Note 15.4 C for future contractual payments of lease obligations. e. The future cash flows arising from leases not yet commenced but already signed are the following as of December 31, 2023 and 2022: (in millions of Canadian dollars) No later than one year Later than one year but no later than five years More than five years 2023 2022 AUTOMOTIVE EQUIPMENT AUTOMOTIVE EQUIPMENT — 2 — 2 — 1 1 2 84 2023 Annual Report NOTE 14 PROVISIONS FOR CONTINGENCIES AND CHARGES (in millions of Canadian dollars) As of January 1, 2022 Additional provision Payments Revaluation Unwinding of discount As of December 31, 2022 Additional provision Payments Revaluation Unwinding of discount Other As of December 31, 2023 Analysis of total provisions: (in millions of Canadian dollars) Long-term Current ENVIRONMENTAL RESTORATION OBLIGATIONS ENVIRONMENTAL COSTS LEGAL CLAIMS SEVERANCES OTHERS TOTAL PROVISIONS 18 — — (4) 1 15 18 — — 1 — 34 24 2 (6) — — 20 1 6 1 (4) — — 3 1 3 1 (2) — — 2 7 (3) (2) (7) — — — 18 — — 8 10 — — — 2 8 1 — — — 9 3 — (1) — — 11 2023 61 14 75 59 5 (12) (4) 1 49 30 (12) (1) 1 8 75 2022 41 8 49 ENVIRONMENTAL RESTORATION The Corporation uses some landfill sites. A provision has been recognized at fair value for the costs to be incurred for the restoration of these sites. The additional provision recorded in 2023 relates to the announced closure of a containerboard mill, in February 2024, that triggered significant changes in the assumptions. For further details please refer to “Segmented Information” section. ENVIRONMENTAL COSTS An environmental provision is recorded when the Corporation has an obligation caused by its ongoing or abandoned operations. The Corporation is currently working with representatives of the Ontario Ministry of the Environment (MOE) - Northern Region and Environment Canada - Great Lakes Sustainability Fund in Toronto regarding its potential responsibility for an environmental impact identified at its former Thunder Bay facility. Both authorities lead the working group and they are developing a site management plan relating to the sediment quality adjacent to Thunder Bay’s lagoon. Several meetings have been held during the past years with the MOE and Environment Canada and a management plan based on sediment dredging has been proposed by a third-party consultant. Both governments are looking at this proposal with stakeholders to agree on this remediation action plan that would likely be implemented in the coming years. The Corporation has recorded an environmental reserve to address its estimated exposure for this matter. LEGAL CLAIMS In the normal course of operations, the Corporation is party to various legal actions and contingencies, mostly related to contract disputes, environmental and product warranty claims, and labour issues. While the final outcome with respect to legal actions outstanding or pending as of December 31, 2023 cannot be predicted with certainty, it is Management’s opinion that the outcome will not have a material adverse effect on the Corporation’s consolidated financial position, the results of its operations or its cash flows. 2023 Annual Report 85 NOTE 15 FINANCIAL INSTRUMENTS 15.1 FAIR VALUE OF FINANCIAL INSTRUMENTS The classification of financial instruments as of December 31, 2023 and 2022, along with the respective carrying amounts and fair values, is as follows: (in millions of Canadian dollars) NOTE CARRYING AMOUNT FAIR VALUE CARRYING AMOUNT FAIR VALUE 2023 2022 Financial assets at fair value through profit or loss Derivatives Equity investments Financial liabilities at fair value through profit or loss Derivatives Financial liabilities at amortized cost Long-term debt Derivatives designated as hedge Asset derivatives Liability derivatives 15.4 15.4 15.4 15.4 1 3 (9) 1 3 7 3 7 3 (9) (14) (14) (1,936) (1,918) (2,065) (1,969) — (1) — (1) 6 (1) 6 (1) 15.2 DETERMINING THE FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of a financial instrument is the amount of consideration that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. i. ii. The fair value of cash and cash equivalents, accounts receivable, notes receivable, bank loans and advances, trade and other payables and provisions approximates their carrying amounts due to their relatively short maturities. The fair value of investment in shares is based on observable market data and is quoted on the Toronto Stock Exchange and classified as level 1. iii. The fair value of long-term debt and some other liabilities is based on observable market data and on the calculation of discounted cash flows. Discount rates were determined based on local government bond yields adjusted for the risks specific to each of the borrowings and for the credit market liquidity conditions and are classified as levels 1 and 3. iv. The fair value of derivative instruments, which include forward contracts, swap agreements and embedded derivatives accounted for separately, is calculated as the present value of the estimated future cash flows using an appropriate interest rate yield curve and a forward foreign exchange rate. Assumptions are based on market conditions prevailing at each reporting date and are classified as level 2. The fair value of derivative instruments reflects the estimated amounts that the Corporation would receive or pay to settle the contracts at the reporting date. 15.3 HIERARCHY OF FINANCIAL ASSETS AND LIABILITIES MEASURED AT FAIR VALUE The following table presents information about the Corporation’s financial assets and financial liabilities measured at fair value on a recurring basis as of December 31, 2023 and 2022 and indicates the fair value hierarchy of the Corporation’s valuation techniques to determine such fair value. Three levels of inputs that may be used to measure fair value are: Level 1 – Quoted prices in active markets for identical assets or liabilities. Level 2 – Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 – Inputs that are generally unobservable and typically reflect Management’s estimates of assumptions that market participants would use in pricing the asset or liability. 86 2023 Annual Report (in millions of Canadian dollars) Financial assets Equity investments Derivative financial assets Financial liabilities Derivative financial liabilities (in millions of Canadian dollars) Financial assets Equity investments Derivative financial assets Financial liabilities Derivative financial liabilities CARRYING AMOUNT QUOTED PRICES IN ACTIVE MARKETS FOR IDENTICAL ASSETS (LEVEL1) SIGNIFICANT OBSERVABLE INPUTS (LEVEL 2) 2023 SIGNIFICANT UNOBSERVABLE INPUTS (LEVEL 3) 3 1 4 (10) (10) — — — — — — 1 1 (10) (10) 3 — 3 — — CARRYING AMOUNT QUOTED PRICES IN ACTIVE MARKETS FOR IDENTICAL ASSETS (LEVEL1) SIGNIFICANT OBSERVABLE INPUTS (LEVEL 2) 2022 SIGNIFICANT UNOBSERVABLE INPUTS (LEVEL 3) 3 13 16 (15) (15) — — — — — — 13 13 (15) (15) 3 — 3 — — 15.4 FINANCIAL RISK MANAGEMENT The Corporation’s activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. The Corporation’s overall risk management program focuses on the unpredictability of the financial market and seeks to minimize potential adverse effects on the Corporation’s financial performance. The Corporation uses derivative financial instruments to hedge certain risk exposures. Risk management is carried out by a central treasury department and a management committee acting under policies approved by the Board of Directors. They identify, evaluate and hedge financial risks in close cooperation with the business units. The Board provides guidance for overall risk management, covering specific areas such as foreign exchange risk, interest rate risk and credit risk, use of derivative financial instruments and non-derivative financial instruments, and investment of excess liquidity. Summary (in millions of Canadian dollars) ASSETS LIABILITIES 2023 RISK Price risk Interest rate risk Other risk NOTE SHORT-TERM LONG-TERM TOTAL SHORT-TERM LONG-TERM TOTAL 15.4 A (ii) 15.4 A (iii) 15.4 A (iv) — — 1 1 — — — — — — 1 1 (5) — — (5) (4) (1) — (5) (9) (1) — (10) 2022 (in millions of Canadian dollars) ASSETS LIABILITIES RISK Currency risk Price risk NOTE SHORT-TERM LONG-TERM TOTAL SHORT-TERM LONG-TERM TOTAL 15.4 A (i) 15.4 A (ii) 2 7 9 — 4 4 2 11 13 (3) (5) (8) — (7) (7) (3) (12) (15) 2023 Annual Report 87 A. MARKET RISK i. Currency risk The Corporation operates internationally and is exposed to foreign exchange risks arising from various currencies as a result of its export of goods produced in Canada and in the United States. Foreign exchange risk arises from future commercial transactions, recognized assets and liabilities, and net investments in foreign operations. These risks are partially covered by purchases and debt. The Corporation manages foreign exchange exposure by entering into various foreign exchange forward contracts and currency option instruments related to anticipated sales, purchases, interest expense and repayment of long-term debt. Management has implemented a policy for managing foreign exchange risk against its functional currency. The Corporation’s risk management policy is to hedge 25% to 90% of anticipated cash flows in each major foreign currency for the next twelve months and to hedge 0% to 75% for the subsequent twenty-four months. The Corporation may designate these foreign exchange forward contracts as a cash flow hedge of future anticipated sales, cost of sales, interest expense and repayment of long-term debt denominated in foreign currencies. Gains or losses from these derivative financial instruments designated as hedges are recorded in “Accumulated other comprehensive income” net of related income taxes and are reclassified to earnings as adjustments to sales, cost of sales, interest expense or foreign exchange loss (gain) on long-term debt in the period in which the respective hedged item affected earnings. In 2023, approximately 21% of sales from Canadian operations were made to third parties in the United States. The Corporation’s outstanding foreign exchange contracts totaled less than a million dollars as of December 31, 2023. The following table summarizes the Corporation’s commitments to buy and sell foreign currencies as of December 31, 2022: EXCHANGE RATE MATURITY NOTIONAL AMOUNT (IN MILLIONS) FAIR VALUE (IN MILLIONS OF CANADIAN DOLLARS) 2022 Repayment of long-term debt Derivatives at fair value through profit or loss and classified in Foreign exchange loss (gain) on long-term debt: Currency option to sell US$ for CAN$ Foreign exchange forward contracts to buy US$ for CAN$ Forecasted sales and purchases 1.3290 1.3290 July 2023 July 2023 US$113 US$102 Currency put option instrument to sell US$ for CAN$ 1.3971 0 to 12 months US$26 (3) 2 (1) — (1) The fair values of foreign exchange forward contracts and currency options are determined using the discounted value of the difference between the value of the contract at expiry, calculated using the contracted exchange rate and the exchange rate the financial institution would use if it renegotiated the same contract under the same conditions as of the consolidated balance sheet date. The discount rates are adjusted for the credit risk of the Corporation or of the counterparty, as applicable. When determining credit risk adjustments, the Corporation considers master netting agreements, if applicable. In 2023, if the Canadian dollar had strengthened by $0.01 against the US dollar on average for the year with all other variables held constant, operating income for the year would have been less than a million dollars lower. This is based on the net exposure of total US sales less US purchases of the Corporation’s Canadian operations and operating income of the Corporation’s US operations, but excludes the effect of this change on the denominated working capital components. The interest expense would have been approximately $1 million higher. CURRENCY RISK ON TRANSLATION OF SELF-SUSTAINING FOREIGN SUBSIDIARIES The Corporation has certain investments in foreign operations whose net assets are exposed to foreign currency translation risk. The Corporation may designate part of its long-term debt denominated in foreign currencies as a hedge of the net investment in self-sustaining foreign subsidiaries. Gains or losses resulting from the translation to Canadian dollars of long-term debt denominated in foreign currencies and designated as net investment hedges are recorded in “Accumulated other comprehensive income”, net of related income taxes. The table below shows the effect on consolidated equity of a 10% change in the value of the Canadian dollar against the US dollar as of December 31, 2023 and 2022. The calculation includes the effect of currency hedges of net investment in US foreign entities and assumes that no changes occurred other than a single currency exchange rate movement. The exposures used in the calculations are the foreign currency-denominated equity and the hedging level as of December 31, 2023 and 2022, with the hedging instruments being the long-term debt denominated in US dollars. 88 2023 Annual Report Consolidated Shareholders’ equity: Currency effect before tax of a 10% change: (in millions of Canadian dollars) 10% change in the CAN$/US$ rate BEFORE HEDGES HEDGES 2023 NET IMPACT BEFORE HEDGES HEDGES 2022 NET IMPACT 78 46 32 83 34 49 Price risk ii. The Corporation is exposed to commodity price risk on old corrugated containers, commercial pulp, electricity and natural gas. The Corporation uses derivative commodity contracts to help manage its production costs. The Corporation may designate these derivatives as cash flow hedges of anticipated purchases of energy. Gains or losses from these derivative financial instruments designated as hedges are recorded in “Accumulated other comprehensive income”, net of related income taxes, and are reclassified to earnings as adjustments to “Supply chain and logistic” in the same period, as the respective hedged item affects earnings. The fair value of these contracts is as follows: QUANTITY MATURITY 2023 FAIR VALUE (IN MILLIONS OF CANADIAN DOLLARS) Forecasted purchases Derivatives designated as held for trading and reclassified in “Supply chain and logistic” Natural gas: US portfolio 4,475,000 mmBtu 2024 to 2026 Derivatives designated as cash flow hedges and reclassified in “Supply chain and logistic” (effective portion) Natural gas: US portfolio 2,161,000 mmBtu 2024 to 2025 (4) (4) (1) (5) Forecasted purchases Derivatives designated as held for trading and reclassified in “Supply chain and logistic” Natural gas: Canadian portfolio US portfolio Derivatives designated as cash flow hedges and reclassified in "Supply chain and logistic" (effective portion) Natural gas: US portfolio QUANTITY MATURITY 2022 FAIR VALUE (IN MILLIONS OF CANADIAN DOLLARS) 292,000 mmBtu 823,000 mmBtu 2023 2023 to 2025 3,050,2905 mmBtu 2023 to 2025 — 1 1 5 6 In 2013, the Corporation entered into an agreement to purchase steam. The agreement includes an embedded derivative and the fair value as of December 31, 2023 was a deficit of less than a million dollars (as of December 31, 2022 - deficit of $1 million). The Corporation also has an agreement to purchase steam that includes an embedded derivative with a negative value of $4 million as of December 31, 2023 (as of December 31, 2022 - negative value of $6 million). The fair value of derivative financial instruments other than options is established utilizing a discounted future expected cash flows method. Future expected cash flows are determined by reference to the forward price or rate prevailing on the assessment date of the underlying financial index (exchange or interest rate or commodity price) according to the contractual terms of the instrument. Future expected cash flows are discounted at an interest rate reflecting both the maturity of each flow and the credit risk of the party to the contract for which it represents a liability (subject to the application of relevant credit support enhancements). The fair value of derivative financial instruments that represent options is established utilizing similar methods that reflect the impact of the potential volatility of the financial index underlying the option on future expected cash flows. 2023 Annual Report 89 The table below shows the effect of changes in the price of virgin pulp, natural gas and electricity as of December 31, 2023 and 2022. The calculation includes the effect of price hedges of these commodities and assumes that no changes occurred other than a single change in price. The exposures used in the calculations are the commodity consumption and the hedging level as of December 31, 2023 and 2022, with the hedging instruments being derivative commodity contracts. Consolidated commodity consumption: Price change effect before tax: (in millions of Canadian dollars1) US$25/s.t. change in virgin pulp price US$1/mmBtu. change in natural gas price US$1/MWh change in electricity price 2023 2022 BEFORE HEDGES HEDGES NET IMPACT BEFORE HEDGES HEDGES NET IMPACT 6 11 2 — 4 — 6 7 2 6 11 2 — 4 — 6 7 2 1 Sensitivity calculated with an exchange rate of 1.30 CAN$/US$ for 2023 and 1.35 CAN$/US$ for 2022. Interest rate risk iii. The Corporation has no significant interest-bearing assets. The Corporation’s interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the Corporation to cash flow interest rate risk. Borrowings issued at fixed rates expose the Corporation to fair value interest rate risk. When appropriate, the Corporation analyzes its interest rate risk exposure. Various scenarios are simulated taking into consideration refinancing, renewal of existing positions, alternative financing and hedging. Based on these scenarios, the Corporation calculates the impact on earnings of a defined interest rate shift. For each simulation, the same interest rate shift is used for all currencies. The scenarios are run only for liabilities that represent the major interest-bearing positions. As of December 31, 2023, approximately 36% (2022 - 37%) of the Corporation’s long-term debt was at variable rates. As of December 31, 2023, the Corporation had the following outstanding interest rate option contracts: LOW - HIGH RANGE MATURITY NOTIONAL AMOUNT (IN MILLIONS) FAIR VALUE (IN MILLIONS OF CANADIAN DOLLARS) 2023 Variable interest payments Derivatives at fair value through profit or loss and classified in “Financing expense” Interest collar 1.60% - 5.35% 2026 to 2027 US$150 (1) Based on the outstanding long-term debt as of December 31, 2023, the impact on interest expense of a 1% change in rate would be approximately $7 million (impact on net earnings is approximately $5 million). iv. Unrealized loss on derivative financial instruments is as follows: (in millions of Canadian dollars) Unrealized loss on derivative financial instruments 2023 2 2022 6 Please refer to the “Segmented Information” section of the Consolidated Financial Statements for the years ended December 31, 2023 and 2022, for more information. B. CREDIT RISK Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions. The Corporation reduces this risk by dealing with credit-worthy financial institutions. The Corporation is exposed to credit risk on the accounts receivable from its customers. In order to reduce this risk, the Corporation’s credit policies include the analysis of the financial position of its customers and the regular review of their credit limits. In addition, the Corporation believes there is no particular concentration of credit risk due to the geographic diversity of customers and the procedures for the management of commercial risks. Derivative financial instruments include an element of credit risk should the counterparty be unable to meet its obligations. 90 2023 Annual Report Trade receivables are recognized initially at fair value and are subsequently measured at amortized cost using the effective interest method, less loss allowance. An expected credit loss allowance of trade receivables is established when there is objective evidence that the Corporation will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter into bankruptcy or financial reorganization, and default or delinquency in payments are considered indicators that the trade receivable is impaired. Each trade receivables is evaluated considering the collection history to identify impairment. The amount of the expected credit loss allowance represents the estimated credit loss. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recorded in the consolidated statement of earnings in “Other operational costs”. When a trade receivable is not collectible, it is written off against the loss allowance. Subsequent recoveries of amounts previously written off are credited against “Other operational costs” in the consolidated statement of earnings. Loans and notes receivables from business disposals are recognized at fair value. There are no past due amounts as of December 31, 2023. C. LIQUIDITY RISK Liquidity risk is the risk that the Corporation will not be able to meet its obligations as they fall due. The following are the contractual maturities of financial liabilities as of December 31, 2023 and 2022: (in millions of Canadian dollars) Non-derivative financial liabilities: Trade and other payables Revolving credit facility Unsecured senior notes Term loan Lease obligations with recourse to the Corporation Other debts with recourse to the Corporation Lease obligations without recourse to the Corporation Other debts without recourse to the Corporation Derivative financial liabilities (in millions of Canadian dollars) Non-derivative financial liabilities: Bank loans and advances Trade and other payables Revolving credit facility Unsecured senior notes Term loan Lease obligations with recourse to the Corporation Other debts with recourse to the Corporation Lease obligations without recourse to the Corporation Other debts without recourse to the Corporation Derivative financial liabilities CARRYING AMOUNT CONTRACTUAL CASH FLOWS LESS THAN ONE YEAR BETWEEN ONE AND TWO YEARS BETWEEN TWO AND FIVE YEARS 703 252 1,037 344 174 23 15 93 10 703 315 1,250 447 211 26 16 110 10 703 18 55 26 57 8 9 6 5 — 18 229 26 37 2 6 6 4 — 279 966 395 56 13 1 98 1 2,651 3,088 887 328 1,809 CARRYING AMOUNT CONTRACTUAL CASH FLOWS LESS THAN ONE YEAR BETWEEN ONE AND TWO YEARS BETWEEN TWO AND FIVE YEARS 3 746 350 1,058 352 186 31 22 69 15 3 746 426 1,331 466 227 32 23 73 15 3 746 22 56 23 52 13 9 71 8 — — 22 56 23 45 8 7 — 4 — — 382 586 420 57 11 7 2 3 2023 MORE THAN FIVE YEARS — — — — 61 3 — — — 64 2022 MORE THAN FIVE YEARS — — — 633 — 73 — — — — As of December 31, 2023, the Corporation and its subsidiaries had unused credit facilities of $591 million (December 31, 2022 - $438 million), net of outstanding letters of credit of $13 million (December 31, 2022 - $15 million). 2,832 3,342 1,003 165 1,468 706 2023 Annual Report 91 D. OTHER RISKS MONETIZATION OF ACCOUNTS RECEIVABLE In the fourth quarter of 2023, the Corporation entered into an $81 million (US$60 million) monthly rolling receivables’ monetization facility without recourse. Under this agreement the Corporation considers the receivables transferred and accounts for as a sale. The Corporation’s continuing involvement in the transferred assets is limited to servicing the receivables. In the fourth quarter of 2023, the Corporation had unrecognized receivables of $53 million related to the facility of which the Corporation received $20 million as the collection agent and recorded an account payable in the same amount to the transferred assets purchaser. The Corporation recorded as interest expenses of less than a million for the year ended December 31, 2023. The interest is charged on a monthly basis and paid on the settlement date. STOCK-BASED COMPENSATION The Corporation entered into an agreement to hedge the share price volatility related to its Deferred Share Units and Performance Share Unit plans. As of December 31, 2023, the agreement’s notional amount was 1,066,000 shares at a price of $12.28 (December 31, 2022, the agreement’s notional amount was 1,066,000 shares at a price of $8.34). The fair value as of December 31, 2023 was a receivable of less than a million dollars (December 31, 2022 - receivable: less than a million dollars). NOTE 16 OTHER LIABILITIES (in millions of Canadian dollars) Employee future benefits Other Less: Current portion NOTE 17 20 2023 92 26 118 (24) 94 2022 95 16 111 (14) 97 As of December 31, 2023, the balance on the line “Other” includes no amount (December 31, 2022 - $2 million) pertaining to a call option granted to the Corporation by one of the minority shareholders of Falcon Packaging LLC. 92 2023 Annual Report NOTE 17 EMPLOYEE FUTURE BENEFITS The Corporation operates various post-employment plans, including both defined benefit and defined contribution pension plans and post- employment benefit plans, such as retirement allowance, group life insurance and medical and dental plans. The table below outlines where the Corporation’s post-employment amounts and activity are included in the Consolidated Financial Statements. (in millions of Canadian dollars) Consolidated balance sheet obligations for Defined pension benefits - Assets (Surplus) Defined pension benefits - Liabilities Post-employment benefits other than defined benefit pension plans Net long-term liabilities on consolidated balance sheet Expenses recorded in consolidated statement of earnings for Defined pension benefits Defined contribution benefits Post-employment benefits other than defined benefit pension plans Consolidated other comprehensive income remeasurements for Defined pension benefits Post-employment benefits other than defined benefit pension plans NOTE 2023 2022 17 A 17 B 17 A 17 B (46) 27 (19) 65 46 3 35 4 42 (8) (1) (9) (40) 30 (10) 65 55 5 37 4 46 (20) (13) (33) A. DEFINED BENEFIT PENSION PLANS The Corporation offers funded and unfunded defined benefit pension plans, defined contribution pension plans and group RRSPs that provide retirement benefit payments for most of its employees. The defined benefit pension plans are usually contributory and are based on the number of years of service and, in most cases, the average salary or compensation at the end of a career. Retirement benefits are not partially adjusted based on inflation. The majority of benefit payments are payable from trustee administered funds; however, for the unfunded plans, the Corporation meets the benefit payment obligation as it falls due. Plan assets held in trusts are governed by local regulations and practices in each country. Responsibility for governance of the plans - overseeing all aspects of the plans, including investment decisions and contribution schedules - lies with the Corporation. The Corporation has established Investment Committees to assist in the management of the plans and has also appointed experienced, independent professional experts such as investment managers, investment consultants, actuaries and custodians. 2023 Annual Report 93 The movement in the net defined benefit obligation and fair value of plan assets of defined benefit pension plans over the year is as follows: (in millions of Canadian dollars) As of January 1, 2022 Current service cost Interest expense (income) Impact on consolidated profit or loss Remeasurements Return on plan assets, excluding amounts included in interest income Gain from change in demographic assumptions Gain from change in financial assumptions Experience loss Impact of remeasurements on consolidated other comprehensive income (loss) Contributions Employers Plan participants Benefit payments As of December 31, 2022 Current service cost Interest expense (income) Settlement (annuity discharge) Impact on consolidated profit or loss Remeasurements Return on plan assets, excluding amounts included in interest income Loss from change in financial assumptions Experience gain Change in asset ceiling, excluding amounts included in interest expense Impact of remeasurements on consolidated other comprehensive income (loss) Contributions Employers Plan participants Benefit payments As of December 31, 2023 PRESENT VALUE OF OBLIGATION FAIR VALUE OF PLAN ASSETS 475 4 14 18 — (1) (93) 1 (93) — 1 (29) 372 2 19 (210) (189) — 10 (2) — 8 — 1 (28) 164 (482) — (13) (13) 73 — — — 73 (5) (1) 29 (399) — (19) 210 191 (4) — — — (4) (4) (1) 28 (189) TOTAL (7) 4 1 5 73 (1) (93) 1 (20) (5) — — (27) 2 — — 2 (4) 10 (2) — 4 (4) — — (25) IMPACT OF MINIMUM FUNDING REQUIREMENT (ASSET CEILING) 17 — — — — — — — — — — — 17 — 1 — 1 — — — (12) (12) — — — 6 TOTAL 10 4 1 5 73 (1) (93) 1 (20) (5) — — (10) 2 1 — 3 (4) 10 (2) (12) (8) (4) — — (19) 94 2023 Annual Report The defined benefit obligation and plan assets are composed by country as follows: (in millions of Canadian dollars) Present value of funded obligations Fair value of plan assets Deficit (surplus) of funded plans Impact of minimum funding requirement (asset ceiling) Present value of unfunded obligations Liabilities (assets) on consolidated balance sheet (in millions of Canadian dollars) Present value of funded obligations Fair value of plan assets Deficit (surplus) of funded plans Impact of minimum funding requirement (asset ceiling) Present value of unfunded obligations Liabilities (assets) on consolidated balance sheet The significant actuarial assumptions are as follows: Discount rate obligation (ending period) Discount rate obligation (beginning period) Discount rate (current service cost) Salary growth rate Inflation rate CANADA UNITED STATES 136 188 (52) 6 26 (20) 2 1 1 — — 1 CANADA UNITED STATES 337 393 (56) 17 27 (12) 8 6 2 — — 2 2023 TOTAL 138 189 (51) 6 26 (19) 2022 TOTAL 345 399 (54) 17 27 (10) CANADA 4.60% 5.20% 4.60% Between 2.00% and 2.50% 2.00% 2023 UNITED STATES 4.70% 4.90% 4.70% N/A N/A CANADA 5.20% 3.00% 5.20% Between 2.00% and 2.50% 2.00% 2022 UNITED STATES 4.90% 2.40% 4.90% N/A N/A Assumptions regarding future mortality are set based on actuarial advice in accordance with published statistics and experience in each territory. For Canadian pension plans, which represent 98% of all pension plans, these assumptions translate into an average life expectancy in years for a pensioner retiring at age 65: Retiring at the end of the reporting period Male Female Retiring 20 years after the end of the reporting period Male Female 2023 22.1 24.4 23.1 25.4 2022 22.0 24.4 23.0 25.3 The sensitivity of the Canadian defined benefit obligation to changes in assumptions is set out below. The effects on each plan of a change in an assumption are weighted proportionately to the total plan obligations to determine the total impact for each assumption presented. Discount rate Salary growth rate Life expectancy 2023 Annual Report IMPACT ON DEFINED BENEFIT OBLIGATION CHANGE IN ASSUMPTION INCREASE IN ASSUMPTION DECREASE IN ASSUMPTION 0.25% 0.25% (2.80%) 0.50% 3.00% (0.50%) INCREASE / DECREASE BY ONE YEAR IN ASSUMPTION 1.60% 95 Plan assets, which are funding the Corporation’s defined pension plans, are comprised as follows: (in millions of Canadian dollars) Cash and short-term investments Bonds Canadian bonds Foreign bonds Shares Canadian shares Foreign shares Mutual funds Foreign bond mutual funds Foreign equity mutual funds Alternative investment funds Other Insured annuities (in millions of Canadian dollars) Cash and short-term investments Bonds Canadian bonds Foreign bonds Shares Canadian shares Foreign shares Mutual funds Foreign bond mutual funds Canadian equity mutual funds Foreign equity mutual funds Alternative investment funds Other Insured annuities LEVEL 1 LEVEL 2 LEVEL 3 6 47 — 47 13 2 15 — — — — — — 68 — 33 1 34 — — — 1 40 30 71 16 16 121 — — — — — — — — — — — — — — LEVEL 1 LEVEL 2 LEVEL 3 7 54 — 54 13 3 16 — 2 — — 2 — — 79 — 46 1 47 — — — 5 1 45 32 83 190 190 320 — — — — — — — — — — — — — — — 2023 % 3.2% 42.9% 7.9% 37.5% 8.5% 2022 % 1.8% 25.3% 4.0% 21.3% 47.6% TOTAL 6 80 1 81 13 2 15 1 40 30 71 16 16 189 TOTAL 7 100 1 101 13 3 16 5 3 45 32 85 190 190 399 The plan assets do not include any shares of the Corporation. The Corporation has purchased annuity contracts of an approximate value of $16 million ($190 million in 2022) to fulfill future benefits payments. The Corporation filed for a statutory discharge in 2023 for all annuity contracts, which resulted in a full settlement of benefits for pensioners covered by those contracts unless it was not allowed as per their provincial pension legislation. 96 2023 Annual Report B. POST-EMPLOYMENT BENEFITS OTHER THAN DEFINED BENEFIT PENSION PLANS The Corporation also offers its employees some post-employment benefit plans, such as retirement allowance, group life insurance, and medical and dental plans. However, these benefits, other than pension plans, are not funded. Furthermore, the medical and dental plans upon retirement are being phased out and are no longer offered to the majority of new retirees and the retirement allowance is not offered to employees hired after 2002. The amounts recognized in the consolidated balance sheet composed by country are determined as follows: (in millions of Canadian dollars) Present value of unfunded obligations Liabilities on consolidated balance sheet (in millions of Canadian dollars) Present value of unfunded obligations Liabilities on consolidated balance sheet CANADA UNITED STATES 62 62 3 3 CANADA UNITED STATES 61 61 4 4 The movement in the net defined benefit obligation for post-employment benefits over the year is as follows: (in millions of Canadian dollars) As of January 1, 2022 Current service cost Interest expense Impact on consolidated profit or loss Remeasurements Gain from change in financial assumptions Experience gain Impact of remeasurements on consolidated other comprehensive income (loss) Benefit payments As of December 31, 2022 Current service cost Interest expense Impact on consolidated profit or loss Remeasurements Loss from change in financial assumptions Experience gain Impact of remeasurements on consolidated other comprehensive income (loss) Benefit payments As of December 31, 2023 PRESENT VALUE OF OBLIGATION FAIR VALUE OF PLAN ASSET 79 2 2 4 (12) (1) (13) (5) 65 1 3 4 2 (3) (1) (3) 65 — — — — — — — — — — — — — — — — — 2023 TOTAL 65 65 2022 TOTAL 65 65 TOTAL 79 2 2 4 (12) (1) (13) (5) 65 1 3 4 2 (3) (1) (3) 65 The method of accounting, assumptions relating to discount rate and life expectancy, and the frequency of valuations for post-employment benefits are similar to those used for defined benefit pension plans, with the addition of actuarial assumptions relating to the long-term increase in health care costs of 4.71% a year on average (2022 - 4.81%). 2023 Annual Report 97 The sensitivity of the defined benefit obligation to changes in assumptions is set out below. The effects on each plan of a change in an assumption are weighted proportionately to the total plan obligations to determine the total impact for each assumption presented. Discount rate Salary growth rate Health care cost increase Life expectancy IMPACT ON OBLIGATION FOR POST-EMPLOYMENT BENEFITS CHANGE IN ASSUMPTION INCREASE IN ASSUMPTION DECREASE IN ASSUMPTION 0.25% 0.25% 1.00% (1.70%) 0.30% 1.10% 1.60% (0.30%) (1.00%) INCREASE / DECREASE BY ONE YEAR IN ASSUMPTION (0.40%) C. RISKS AND OTHER CONSIDERATIONS RELATIVE TO POST-EMPLOYMENT BENEFITS Through its defined benefit plans, the Corporation is exposed to a number of risks, the most significant of which are detailed below. Assets volatility The plan liabilities are calculated using a discount rate set with reference to corporate bond yields and if plan assets underperform this yield, it will create an experience loss. Most of the pension plans hold a proportion of equities, which are expected to outperform corporate bonds in the long term while contributing volatility and risk in the short term. The Corporation has reduced the level of investment risk by investing more in assets that better match the liabilities and by purchasing annuities. As of December 31, 2023, 65% of the plan’s invested assets are in fixed income. As of December 31, 2023, the total value of insured annuities is $16 million. However, the Corporation believes that due to the long-term nature of the plan liabilities and the strength of the supporting group, a level of continuing equity investment is an appropriate element of the Corporation’s long-term strategy to manage the plans efficiently. Plan assets are diversified, so the failure of an individual stock would not have a big impact on the plan assets taken as a whole. The pension plans do not face a significant currency risk. Changes in bond yields A decrease in corporate bond yields will increase plan liabilities, although this will be partially offset by an increase in the value of the plans’ bond holdings. Inflation risk The benefits paid are not indexed. Only future benefits for active members are based on salaries. Therefore, this risk is not significant. Life expectancy The majority of the plans obligations are to provide benefits for the member’s lifetime, so increases in life expectancy will result in an increase in the plans liabilities. Each sensitivity analysis disclosed in this note is based on changing one assumption while holding all other assumptions constant. In practice, this is unlikely to occur and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to variations in significant actuarial assumptions, the same method (present value of the defined benefit obligation calculated using the projected unit credit method at the end of the reporting period) has been applied as for calculating the liability recognized in the consolidated balance sheet. As of December 31, 2023, the aggregate net surplus of the Corporation’s funded pension plans (mostly in Canada) amounted to $51 million (a surplus of $54 million as of December 31, 2022). Current agreed expected service contributions amount to $2 million and will be made in the normal course of business. As for the cash flow requirement, these pension plans are expected to require a net contribution of less than a million dollars in 2024, since $2 million of employer service contribution will be paid from plan surplus. The weighted average duration of the defined benefit obligation is 11 years (2022 - 9 years). 98 2023 Annual Report Expected maturity analysis of undiscounted pension and other post-employment benefits: (in millions of Canadian dollars) Pension benefits Post-employment benefits other than defined benefit pension plans As of December 31, 2023 ONE YEAR TWO YEARS BETWEEN THREE AND FIVE YEARS BETWEEN SIX AND TEN YEARS 7 5 12 8 11 19 28 21 49 353 82 435 TOTAL 396 119 515 These amounts represent all the benefits payable to current members during the following years and thereafter without limitations. The majority of benefit payments are payable from trustee administered funds. The difference will come from future investment returns expected on plan assets and future contributions that will be made by the Corporation for services rendered after December 31, 2023. NOTE 18 INCOME TAXES a. The recovery of income taxes is as follows: (in millions of Canadian dollars) Current taxes Deferred taxes 2023 12 (25) (13) 2022 11 (33) (22) b. The recovery of income taxes based on the effective income tax rate differs from the recovery of income taxes based on the combined basic rate for the following reasons: (in millions of Canadian dollars) Recovery of income taxes based on the combined basic Canadian and provincial income tax rate Adjustment for income taxes arising from the following: Difference in statutory income tax rate of foreign operations Prior years reassessment Reversal of deferred income tax assets related to prior year losses Permanent differences Recovery of income taxes 2023 (17) 3 5 1 (5) 4 (13) The weighted average income tax rate for the year ended December 31, 2023 was 24.25% (2022 - 24.27%). c. The provision for income taxes relating to components of consolidated other comprehensive income (loss) is as follows: (in millions of Canadian dollars) Foreign currency translation related to hedging activities Cash flow hedge Actuarial gain on post-employment benefit obligations Provision for income taxes in comprehensive income (loss) 2023 1 (1) 2 2 2022 (10) — (6) — (6) (12) (22) 2022 (3) 1 8 6 2023 Annual Report 99 d. The analysis of deferred tax assets and deferred tax liabilities, without taking into consideration the offsetting of balances within the same tax jurisdiction, is as follows: (in millions of Canadian dollars) Deferred income tax assets: Deferred income tax assets to be recovered Jurisdiction legal entities reclassification Deferred income tax liabilities: Deferred income tax liabilities to be recovered Jurisdiction legal entities reclassification e. The variance of the deferred income tax account is as follows: (in millions of Canadian dollars) Balance at beginning of year Through consolidated statements of earnings (loss) Variance of income tax credit, net of related income tax Through consolidated statements of comprehensive income (loss) Exchange differences Balance at end of year 2023 507 (340) 167 483 (340) 143 24 2023 (18) 25 21 (2) (2) 24 2022 372 (258) 114 390 (258) 132 (18) 2022 (54) 33 13 (6) (4) (18) f. The variance in deferred income tax assets and liabilities during the year, without taking into consideration the offsetting of balances within the same tax jurisdiction, is as follows: DEFERRED INCOME TAX ASSET (in millions of Canadian dollars) As of January 1, 2022 Through consolidated statements of earnings (loss) Variance of income tax credit Through consolidated statements of comprehensive income (loss) Others Exchange differences As of December 31, 2022 Through consolidated statements of earnings (loss) Variance of income tax credit Others Exchange differences As of December 31, 2023 RECOGNIZED TAX BENEFIT ARISING FROM INCOME TAX LOSSES EMPLOYEE FUTURE BENEFITS 127 23 19 — — — 7 153 89 — — (2) 240 (5) — (6) — — 12 — — 12 — 24 EXPENSE ON RESEARCH UNUSED TAX CREDITS FINANCIAL INSTRUMENTS LONG-TERM DEBT LONG TERM DEBT FINANCE LEASES OTHERS 6 24 — — — — 30 5 — — (1) 34 71 2 13 — — 2 88 (23) 21 — (1) 85 — 3 — — — — 3 (1) — — — 2 3 40 (3) (13) — — — — — — — — — — — — 21 1 49 (12) — 11 (1) 47 29 6 — — — 2 37 29 — 10 (1) 75 TOTAL 299 33 13 (6) 21 12 372 87 21 33 (6) 507 100 2023 Annual Report DEFERRED INCOME TAX LIABILITIES (in millions of Canadian dollars) As of January 1, 2022 Through consolidated statements of earnings (loss) Others Exchange differences As of December 31, 2022 Through consolidated statements of earnings (loss) Through consolidated statements of comprehensive income (loss) Others Exchange differences As of December 31, 2023 EMPLOYEE FUTURE BENEFITS PROPERTY, PLANT AND EQUIPMENT LONG-TERM DEBT INTANGIBLE ASSETS FINANCIAL INSTRUMENTS INVESTMENTS OTHERS — — — — — — 2 12 — 14 312 7 21 15 355 57 — 13 (4) 421 — — — — — 2 — 8 — 10 23 (9) — — 14 1 — — — 15 3 — — — 3 (3) — — — — 14 3 — 1 18 5 — — — 23 1 (1) — — — — — — — — TOTAL 353 — 21 16 390 62 2 33 (4) 483 g. The Corporation has recognized accumulated losses for income tax purposes amounting to approximately $940 million, which may be carried forward to reduce taxable income in future years. The future tax benefit of $240 million resulting from the deferral of these losses has been recognized in the accounts as a deferred income tax asset. Deferred income tax assets are recognized for tax loss carry forward to the extent that the realization of the related tax benefits through future taxable profits is probable. NOTE 19 CAPITAL STOCK A. CAPITAL MANAGEMENT Capital is defined as long-term debt, bank loans and advances net of cash and cash equivalents and Shareholders’ equity, which includes capital stock. (in millions of Canadian dollars) Cash and cash equivalents Bank loans and advances Long-term debt, including current portion Net debt Total equity Total capital 2023 (54) — 1,936 1,882 1,781 3,663 2022 (102) 3 2,065 1,966 1,928 3,894 The Corporation’s objectives when managing capital are: • • • • • to safeguard the Corporation’s ability to continue as a going concern in order to provide returns to Shareholders; to maintain an optimal capital structure and reduce the cost of capital; to make proper capital investments that are significant to ensure that the Corporation remains competitive; to maintain annual dividend payments, and to redeem common shares based on an annual redemption program. The Corporation sets the amount of capital in proportion to risk. The Corporation manages its capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Corporation may adjust the amount of dividends paid to Shareholders, return capital to Shareholders, issue new shares and acquire or sell assets to improve its financial performance and flexibility. 2023 Annual Report 101 The Corporation monitors capital on a monthly and quarterly basis based on different financial ratios and non-financial performance indicators. Also, the Corporation must conform to certain financial ratios under its various credit agreements. These ratios are calculated on an adjusted consolidated basis of restricted subsidiaries only. These are a maximum ratio of funded debt to capitalization of 65% and a minimum interest coverage ratio of 2.25x. The Corporation must also comply with a consolidated interest coverage ratio to incur additional debt. Funded debt is defined as liabilities as per the consolidated balance sheet, including guarantees and liens granted in respect of funded debt of another person but excluding other long-term liabilities, trade accounts payable, obligations under operating leases and other accrued obligations (2023 - $1,796 million; 2022 - $1,933 million). The capitalization ratio is calculated as “Shareholders’ equity” as shown in the consolidated balance sheet plus the funded debt. Shareholders’ equity is adjusted to add back the effect of IFRS Accounting Standards adjustments as of December 31, 2010 in the amount of $208 million. The interest coverage ratio is defined as earnings before interest, taxes, depreciation and amortization (EBITDA) to financing expense. The EBITDA is defined as net earnings of the last four quarters plus financing expense, income taxes, amortization and depreciation, expense for stock options and dividends received from a person who is not a credit party (2023 - $584 million; 2022 - $279 million). Excluded from net earnings are the share of results of equity investments and gains or losses from non-recurring items. Financing expense is calculated as interest and financial charges determined in accordance with IFRS Accounting Standards plus any capitalized interest, but excluding the amortization of deferred financing costs, up- front and financing costs, and unrealized gains or losses arising from hedging agreements. It also excludes any gains or losses on the translation of long-term debt denominated in a foreign currency. The consolidated interest coverage ratio to incur additional debt is calculated as defined in the Senior notes indentures dated November 26, 2019. As of December 31, 2023, the funded debt-to-capitalization ratio stood at 47.98% and the interest coverage ratio was 4.57x. The Corporation is in compliance with the ratio requirements of its lenders. The Corporation’s credit facility is subject to terms and conditions for loans of this nature, including limits on incurring additional indebtedness and granting liens or selling assets without the consent of the lenders. The unsecured senior notes are subject to customary covenants restricting the Corporation’s ability to, among other things, incur additional debt, pay dividends, and make other restricted payments as defined in the Indentures dated November 26, 2019. On a yearly basis, the Corporation has invested between $125 million and $200 million on purchases of property, plant and equipment, excluding major strategic projects. These amounts are carefully reviewed during the course of the year in relation to operating results and strategic actions approved by the Board of Directors. These investments, combined with annual maintenance, enhance the stability of the Corporation’s business units and improve cost competitiveness through new technology and improved process procedures. The Corporation can elect to enter into an annual share redemption program to redeem its outstanding common shares when the market price is judged appropriate by Management. In addition to limitations on the normal course issuer bid, the Corporation’s ability to redeem common shares is limited by its senior notes indenture. ISSUED AND OUTSTANDING B. The authorized capital stock of the Corporation consists of an unlimited number of common shares without nominal value and an unlimited number of Class A and B shares issuable in series without nominal value. Over the past two years, the common shares have fluctuated as follows: Balance at beginning of year Common shares issued on exercise of stock options Redemption of common shares Balance at end of year NOTE 19 D 19 C NUMBER OF COMMON SHARES 100,361,627 333,743 — 100,695,370 2023 IN MILLIONS OF CANADIAN DOLLARS 611 2 — 613 NUMBER OF COMMON SHARES 100,860,362 355,686 (854,421) 100,361,627 2022 IN MILLIONS OF CANADIAN DOLLARS 614 2 (5) 611 C. REDEMPTION OF COMMON SHARES In 2023, the Corporation did not renew its normal course issuer bid program. In 2023, the Corporation redeemed no common shares under this program (2022 - $9 million for 854,421 common shares). 102 2023 Annual Report D. COMMON SHARE ISSUANCE The Corporation issued 333,743 common shares upon the exercise of options for an amount of $2 million (2022 - $1 million for 355,686 common shares issued). E. NET LOSS PER COMMON SHARE The basic and diluted net loss per common share are calculated as follows: Net loss attributable to Shareholders (in millions of Canadian dollars) Weighted average number of basic common shares outstanding (in millions) Weighted average number of diluted common shares outstanding (in millions) Basic net loss per common share (in Canadian dollars) Diluted net loss per common share (in Canadian dollars) 2023 (76) 101 101 ($0.76) ($0.76) 2022 (34) 101 101 ($0.34) ($0.34) As of December 31, 2023, 549,582 stocks options have an antidilutive effect (2022 - 1,922,125 stocks options). F. DETAILS OF DIVIDENDS DECLARED PER COMMON SHARE ARE AS FOLLOWS: Dividends declared per common share (in Canadian dollars) NOTE 20 STOCK-BASED COMPENSATION 2023 $0.48 2022 $0.48 A. OPTIONS Under the terms of a share option plan adopted on December 15, 1998, amended on February 22, 2023, and approved by Shareholders on May 11, 2023, a remaining balance of 8,966,257 common shares is specifically reserved for issuance to officers and key employees of the Corporation. Each option will expire at a date not to exceed 10 years following the grant date of the option. The exercise price of an option shall not be lower than the market value of the share at the date of grant, determined as the average of the closing price of the share on the Toronto Stock Exchange on the five trading days preceding the date of grant. The terms for exercising the options are 25% of the number of shares under option within twelve months after the first anniversary date of grant and up to an additional 25% every twelve months after the second, third and fourth anniversaries of the grant date. Options cannot be exercised if the market value of the share at the exercise date is lower than the book value at the grant date. Options exercised are settled in shares. The stock-based compensation cost related to these options amounted to $1 million in 2023 (2022 - $1 million). Changes in the number of options outstanding as of December 31, 2023 and 2022 are as follows: NUMBER OF OPTIONS WEIGHTED AVERAGE EXERCISE PRICE ($) NUMBER OF OPTIONS WEIGHTED AVERAGE EXERCISE PRICE ($) 2023 2022 Balance at beginning of year Granted Exercised Forfeited Balance at end of year Options exercisable - at end of year 2,794,344 730,876 (333,743) (18,950) 3,172,527 1,724,381 10.01 11.20 5.40 12.92 10.75 10.43 2,373,416 785,532 (355,686) (8,918) 2,794,344 1,740,282 The weighted average share price at the time of exercise of the options was $11.58 (2022 - $10.15). 2023 Annual Report 9.10 10.26 4.47 11.21 10.01 9.27 103 The following options were outstanding as of December 31, 2023: YEAR GRANTED NUMBER OF OPTIONS OPTIONS OUTSTANDING WEIGHTED AVERAGE EXERCISE PRICE ($) NUMBER OF OPTIONS OPTIONS EXERCISABLE WEIGHTED AVERAGE EXERCISE PRICE ($) 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 284,963 262,408 236,711 187,032 147,682 186,736 176,824 185,726 773,569 730,876 3,172,527 6.10 7.66 9.75 14.28 12.39 11.97 13.95 14.67 10.26 11.20 284,963 262,408 236,711 187,032 147,682 186,736 132,604 92,864 193,381 — 1,724,381 6.10 7.66 9.75 14.28 12.39 11.97 13.95 14.67 10.26 11.20 EXPIRATION DATE 2024 2025 2026 2027 2024 - 2028 2024 - 2029 2030 2030 - 2031 2030 - 2032 2030 - 2033 FAIR VALUE OF THE SHARE OPTIONS GRANTED Options were priced using the Black-Scholes option pricing model. Expected volatility is based on the historical share price volatility over the past six years. The following weighted average assumptions were used to estimate the fair value of $2.50 (2022 - $2.37) as of the grant date of each option issued to employees: Grant date share price Exercise price Risk-free interest rate Expected dividend yield Expected life of options Expected volatility 2023 $10.87 $11.20 2.83% 4.42% 6.25 years 35% 2022 $10.29 $10.26 2.86% 4.66% 6.25 years 36% B. SHARE PURCHASE PLAN The Corporation offers its Canadian employees a share purchase plan for its common shares. Employees can voluntarily contribute up to a maximum of 5% of their salary and, if certain conditions are met, the Corporation will contribute 25% of the employee’s contribution to the plan. The shares are purchased on the market on a predetermined date each month. For the year ended December 31, 2023, the Corporation’s contribution to the plan amounted to $2 million (2022 - $2 million). C. PERFORMANCE SHARE UNIT PLAN The Corporation has a Performance Share Unit (PSU) Plan for the benefit of officers and key employees, allowing them to receive a portion of their annual compensation in the form of PSUs. A PSU is a notional unit equivalent in value to the Corporation’s common share. Periodically, the number of PSUs forming part of the award shall be adjusted depending upon the three-year average return on capital employed (ROCE) of the Corporation and for 2023 grants and after, a greenhouse gas emissions indicator (the expected average on three years of greenhouse gas emissions reduction in kg of CO2). Such adjusted number shall be obtained by multiplying the number of PSUs forming part of the award by the applicable multiplier based on the ROCE level and by the applicable multiplier based on greenhouse gas emission indicator level. Participants are entitled to receive the payment of their PSUs in the form of cash based on the average price of the Corporation’s common shares as traded on the open market during the five days before the vesting date. The PSUs vest over a period of two years starting on the award date. The expense and the related liability are recorded during the vesting period. The liability is periodically adjusted to reflect any variation in the market value of the common shares, the expected average ROCE, the expected average greenhouse gas emission indicator and the passage of time. As of December 31, 2023, the Corporation had a total of 1,061,212 PSUs outstanding (2022 - 848,292 PSUs) for a fair value of $4 million (2022 - $1 million). In 2023, the Corporation made payment of less than a million dollars in relation to PSUs (2022 - $1 million). 104 2023 Annual Report D. DEFERRED SHARE UNIT PLAN The Corporation has a Deferred Share Unit (DSU) Plan for the benefit of its external directors, officers and key employees, allowing them to receive all or a portion of their annual compensation in the form of DSUs. A DSU is a notional unit equivalent in value to the Corporation’s common share. Upon resignation from the Board of Directors or the Corporation, participants are entitled to receive the payment of their cumulated DSUs in the form of cash based on the average price of the Corporation’s common shares as traded on the open market during the five days before the date of the participant’s resignation. The DSU expense and the related liability are recorded at the grant date. The liability is periodically adjusted to reflect any variation in the market value of the common shares. As of December 31, 2023, the Corporation had a total of 1,344,392 DSUs outstanding (2022 - 1,033,303 DSUs). On January 15, 2024, the Corporation issued 109,281 DSUs related to prior year. As of December 31, 2023, the liability amounts to $20 million (2022 - $11 million). In 2023, the Corporation made payment of less than a million dollars in relation to DSUs (2022 - less than a million dollars). E. RESTRICTED SHARE UNIT PLAN The Corporation has a Restricted Share Unit (RSU) Plan for the benefit of officers and key employees, allowing them to receive a portion of their annual compensation in the form of RSUs. A RSU is a notional unit equivalent in value to the Corporation’s common share. Participants are entitled to receive the payment of their RSUs in the form of cash based on the average price of the Corporation’s common shares as traded on the open market during the five days before the vesting date. The RSUs vest over a period of three years starting on the award date. The expense and the related liability are recorded during the vesting period. The liability is periodically adjusted to reflect any variation in the market value of the common shares and the passage of time. As of December 31, 2023, the Corporation had a total of 68,694 RSUs outstanding (2022 - 23,605 RSUs) for a fair value of $1 million (2022 - less than a million dollars). NOTE 21 EMPLOYEE BENEFITS EXPENSES (in millions of Canadian dollars) Wages and employee benefits expenses Share options granted to directors and employees Pension costs - defined benefit plans Pension costs - defined contribution plans Post-employment benefits other than defined benefit pension plans KEY MANAGEMENT COMPENSATION NOTE 20 A 17 17 17 2023 1,039 1 3 35 4 1,082 2022 945 1 5 37 4 992 Key management includes the members of the Board of Directors, President and Vice Presidents of the Corporation. The compensation paid or payable to key management for their services is shown below: (in millions of Canadian dollars) Salaries and other short-term benefits Post-employment benefits Share-based payments 2023 13 1 2 16 2022 12 2 3 17 2023 Annual Report 105 NOTE 22 IMPAIRMENT CHARGES (in millions of Canadian dollars) Spare parts Property, plant and equipment (in millions of Canadian dollars) Spare parts Property, plant and equipment Goodwill PACKAGING PRODUCTS CONTAINER- BOARD SPECIALTY PRODUCTS SUB-TOTAL TISSUE PAPERS CORPORATE ACTIVITIES 10 94 104 1 1 2 11 95 106 23 80 103 — — — PACKAGING PRODUCTS CONTAINER- BOARD SPECIALTY PRODUCTS SUB-TOTAL TISSUE PAPERS CORPORATE ACTIVITIES — 10 — 10 — — 3 3 — 10 3 13 4 85 — 89 — — — — 2023 TOTAL 34 175 209 2022 TOTAL 4 95 3 102 GOODWILL AND OTHER INDEFINITE USEFUL LIFE INTANGIBLE ASSETS IMPAIRMENT TEST Allocation of goodwill and other indefinite useful life intangible assets is as follows: • Containerboard Packaging segment goodwill of $481 million is allocated to the Containerboard segment. Annually, the Corporation must test all of its goodwill for impairment. The Corporation tested its Containerboard Packaging segment goodwill for impairment. As a result of this impairment test, the Corporation concluded that the recoverable amount of the segment exceeded its carrying amount, thus no impairment charge was necessary. The key assumptions used by the Corporation are the adjusted earnings before interest, taxes, depreciation and amortization margin (EBITDA (A) margin), capital expenditures, the foreign exchange rate and shipments based on historical and expected levels. The Corporation applied the income approach in determining fair value less cost of disposal (level 2 inputs). With all other variables held constant, a rise reasonably possible in the discounting rate of 1.3% would reduce the excess to nil. Discounting rate CONTAINERBOARD PACKAGING 11.5% 106 2023 Annual Report NOTE 23 ADDITIONAL INFORMATION A. CHANGES IN NON-CASH WORKING CAPITAL COMPONENTS ARE DETAILED AS FOLLOWS1: (in millions of Canadian dollars) Accounts receivable Current income tax assets Inventories Trade and other payables Current income tax liabilities B. FINANCING EXPENSE (in millions of Canadian dollars) Interest on long-term debt (including lease obligations interest 2023 - $8 million; 2022 - $ 7 million) Amortization of financing costs Other interest and banking fees Interest expense on employee future benefits Unrealized loss on interest rate swaps Foreign exchange loss on long-term debt and financial instruments 2023 95 (1) (15) 35 (1) 113 2023 113 3 7 4 1 — 128 2022 (30) 9 (69) (12) (14) (116) 2022 69 2 5 3 — 9 88 UNREALIZED LOSS ON INTEREST RATE SWAPS In 2023, the Corporation recorded an unrealized loss on interest rate swaps of $1 million (nil in 2022). FOREIGN EXCHANGE LOSS (GAIN) ON LONG-TERM DEBT AND FINANCIAL INSTRUMENTS In 2023, the Corporation recorded a gain of less than a million dollars on its US$ denominated debt and related financial instruments, compared to a loss of $9 million in 2022. The foreign exchange loss (gain) on long-term debt and financial instruments is composed of foreign exchange forward contracts not designated for hedge accounting. 1 The monetization accounts receivable program described in Note 15.4 D had a positive impact on the changes in non-cash working capital of $73 million in 2023. 2023 Annual Report 107 C. TOTAL NET DEBT FROM FINANCING ACTIVITIES (in millions of Canadian dollars) As of January 1, 2022 Cash flow Change in cash and cash equivalents Bank loans and advances Change in credit facilities Increase in term loan Payments of term loan Payments of other long-term debt, including lease obligations (2022 - $55 million) Non-cash changes Foreign exchange translation on long-term debt and financial instruments Right-of-use assets acquisitions Right-of-use assets disposals Amortization of financing costs in long-term debt Other Exchange differences As of December 31, 2022 Cash flow Change in cash and cash equivalents Bank loans and advances Change in credit facilities Increase in other long-term debt Payments of other long-term debt, including lease obligations (2023 - $59 million) Non-cash changes Foreign exchange translation on long-term debt and financial instruments Right-of-use assets acquisitions Right-of-use assets disposals Amortization of financing costs in long-term debt Other Exchange differences As of December 31, 2023 NOTE CASH AND CASH EQUIVALENT BANK LOANS AND ADVANCES 12 12 12 12 (174) 70 — — — — — — — — — — 2 (102) 47 — — — — — — — — — 1 (54) 1 — 2 — — — — — — — — — — 3 — (3) — — — — — — — — — — LONG-TERM DEBT 1,524 NET DEBT 1,351 — — 323 355 (219) (117) 32 87 (2) 2 3 77 2,065 — — (92) 101 (144) (11) 50 (5) 2 (1) (29) 70 2 323 355 (219) (117) 32 87 (2) 2 3 79 1,966 47 (3) (92) 101 (144) (11) 50 (5) 2 (1) (28) 1,936 1,882 108 2023 Annual Report NOTE 24 COMMITMENTS CAPITAL EXPENDITURES, INTANGIBLE ASSETS, RAW MATERIALS AND SUPPLIES AND SERVICE AGREEMENTS Capital expenditures, intangible assets, raw materials and supplies and service agreements contracted at the end of the reporting period but not yet incurred are presented in the following table: (in millions of Canadian dollars) No later than one year Later than one year but no later than five years More than five years PROPERTY, PLANT AND EQUIPMENT INTANGIBLE ASSETS RAW MATERIALS AND SUPPLIES 21 — — 21 10 — — 10 17 13 — 30 2023 SERVICE AGREEMENTS AND EXEMPTED LEASES PROPERTY, PLANT AND EQUIPMENT INTANGIBLE ASSETS RAW MATERIALS AND SUPPLIES 30 27 1 58 107 — — 107 9 — — 9 18 19 — 37 2022 SERVICE AGREEMENTS AND EXEMPTED LEASES 22 14 2 38 Raw materials and supplies commitments include an amount of $18 million in 2023 ($25 million in 2022) spread over four years with an associate. OTHER COMMITMENTS The Corporation entered an agreement to acquire in 2024 an additional 5.25% participation in Falcon Packaging LLC for a contribution of $3 million (US$2 million). NOTE 25 RELATED PARTY TRANSACTIONS The Corporation entered into the following transactions with related parties: (in millions of Canadian dollars) For the year ended December 31, 2023 Sales to related parties Purchases from related parties For the year ended December 31, 2022 Sales to related parties Purchases from related parties These transactions occurred in the normal course of operations and are measured at fair value. The following balances were outstanding at the end of the reporting period: (in millions of Canadian dollars) Receivables from related parties Joint ventures Associates Payables to related parties Joint ventures Associates JOINT VENTURES ASSOCIATES 237 120 284 120 80 41 83 34 December 31,  2023 December 31, 2022 7 12 1 2 12 15 4 2 The receivables from related parties arise mainly from sale transactions. The receivables are unsecured in nature and bear no interest. There are no provisions held against receivables from related parties. The payables to related parties arise mainly from purchase transactions. The payables bear no interest. 2023 Annual Report 109 NOTE 26 EVENTS AFTER THE REPORTING PERIOD Extension of the maturity of the revolving credit facility On February 9, 2024, the Corporation entered into an agreement with its lenders for its existing revolving credit facility to extend the maturity from July 2026 to July 2027. The financial conditions remain unchanged. Repositioning of Containerboard operation platform On February 13, 2024, the Corporation announced an important repositioning of its Containerboard operating platform. The currently idled Trenton (Ontario) corrugated medium mill will not restart operations, while the Belleville (Ontario) and Newtown (Connecticut) converting plants will be permanently closed, in a progressive manner, by May 31, 2024. The production from these facilities will be moved to other plants with available capacity and more modern equipment. Closure costs, including severance, are expected to total approximately $30 to $35 million to be recorded in the coming periods. Please refer to the “Segmented Information” section of the Consolidated Financial Statements for the years ended December 31, 2023 and 2022, for more information. 110 2023 Annual Report cascades.com Printed on Rolland Enviro™ Satin, 60 lb. Text and Rolland Enviro™ Print, 80 lb. 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