klg-20250329

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 29, 2025


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-41755

WK Kellogg Co

(Exact name of registrant as specified in its charter)

Delaware

92-1243173

(State or other jurisdiction of incorporation or organization)

(IRS Employer Identification No.)

One Kellogg Square,

Battle Creek

Michigan

49016-3599

(Address of principal executive offices)

(Zip Code)

269-401-3000

(Registrant's telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $.0001 par value per share	KLG	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

As of April 30, 2025 — 86,262,725 shares of the registrant's common stock were outstanding

Table of Conten t s

WK KELLOGG CO

INDEX


			Page
PART I — Financial Information
Item 1:
Financial Statements
Unaudited Consolidated Balance Sheet — March 29, 2025 and December 28, 2024			3
Unaudited Consolidated Statement of Income — quarter s ended March 29, 2025 and March 30, 2024			4
Unaudited Consolidated Statement of Comprehensive Income – quarter s ended March 29, 2025 and March 30, 2024			5
Unaudited Consolidated Statement of Equity — quarter s ended March 29, 2025 and March 30, 2024			6
Unaudited Consolidated Statement of Cash Flows — quarter s ended March 29, 2025 and March 30, 2024			7
Notes to Unaudited Consolidated Financial Statements			8
Item 2:
Management’s Discussion and Analysis of Financial Condition and Results of Operations			18
Item 3:
Quantitative and Qualitative Disclosures about Market Risk			26
Item 4:
Controls and Procedures			27
PART II — Other Information
Item 1:
Legal Proceedings			28
Item 1A:
Risk Factors			28


Item 5:
Other Information			28
Item 6:
Exhibits			29
Signatures			30

Table of Conten t s

Part I – FINANCIAL INFORMATION

Item 1. Financial Statements.

WK KELLOGG CO

CONSOLIDATED BALANCE SHEET (Unaudited)

(millions, except per share data)


	March 29, 2025		December 28, 2024
Current assets
Cash and cash equivalents	$	27	$	40
Accounts receivable, net	231		199
Inventories	371		353
Other current assets	23		27
Total current assets	652		619
Property, net	799		786
Operating lease right-of-use assets	120		113
Goodwill	53		53
Other intangibles	57		57
Postretirement plan assets	308		301
Other assets	27		33
Total assets	$	2,016	$	1,962
Current liabilities
Notes payable	$	69	$	51
Current maturities of long-term debt	26		24
Accounts payable	527		513
Accrued advertising and promotion	89		98
Accrued salaries and wages	31		61
Other current liabilities	94		94
Total current liabilities	836		841
Long-term debt	502		460
Long-term operating lease obligations	99		95
Deferred income taxes	83		83
Pension liability	125		124

Other liabilities	44		42
Commitments and contingencies (Note 12)
Equity
Common stock, $0.0001 par value, 1,000,000,000 shares authorized Issued: 86,148,263 shares as of March 29, 2025 and 86,101,154 shares as of December 28, 2024	—		—
Capital in excess of par value	353		343
Retained earnings	19		16

Accumulated other comprehensive loss	(45)		(42)


Total equity	327		317
Total liabilities and equity	$	2,016	$	1,962

See accompanying Notes to Unaudited Consolidated Financial Statements.

Table of Conten t s

WK KELLOGG CO

CONSOLIDATED STATEMENT OF INCOME (Unaudited)

(millions, except per share data)


	Quarter ended
	March 29, 2025		March 30, 2024
Net sales	$	663	$	707
Cost of goods sold	474		504
Selling, general and administrative expense	155		157
Restructuring costs	14		—
Operating profit	20		46
Interest expense	3		8
Other income (expense), net	5		6
Income before income taxes	22		44
Income taxes (benefit)	4		11
Net income	$	18	$	33


Per share amounts:
Basic earnings	$	0.20	$	0.38
Diluted earnings	0.20		0.37

Average shares outstanding:
Basic	86		86
Diluted	88		87

See accompanying Notes to Unaudited Consolidated Financial Statements.

Table of Conten t s

WK KELLOGG CO

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (Unaudited)

(millions)


	Quarter ended
	March 29, 2025
	Pre-tax amount		Tax (expense) benefit		After-tax amount
Net income (loss)	$	22	$	(4)	$	18
Other comprehensive income (loss):
Foreign currency translation adjustments:
Foreign currency translation adjustments during this period	—		—		—


Cash flow hedges:
Net deferred gain (loss) on cash flow hedges arising during this period	(4)		1		(3)
Reclassification to interest expense	1		—		1
Postretirement and postemployment benefits:


Reclassification to net income:

Prior service cost	(1)		—		(1)




Comprehensive income (loss)	$	18	$	(3)	$	15




	Quarter ended
	March 30, 2024
	Pre-tax amount		Tax (expense) benefit		After-tax amount
Net income (loss)	$	44	$	(11)	$	33
Other comprehensive income (loss):
Foreign currency translation adjustments:
Foreign currency translation adjustments during this period	(3)		1		(2)





Postretirement and postemployment benefits:


Reclassification to net income:

Prior service cost	(1)		—		(1)




Comprehensive income	$	40	$	(10)	$	30

See accompanying Notes to Unaudited Consolidated Financial Statements.

Table of Conten t s

WK KELLOGG CO

CONSOLIDATED STATEMENT OF EQUITY (Unaudited)

(millions)


	Quarter ended March 29, 2025
	Common stock			Capital in excess of par value		Retained earnings		Accumulated other comprehensive income (loss)			Total equity
(unaudited)	shares	amount
Balance, December 28, 2024	86	$	—	$	343	$	16		$	(42)		$	317

Net income	—	—		—		18			—			18


Spin-Off related adjustment	—	—		4		—			—			4
Dividends declared ($0.165 per share)	—	—		—		(14)			—			(14)

Other comprehensive income (loss)	—	—		—		—			(3)			(3)
Stock compensation	—	—		5		(1)			—			4

Share issuance	—	—		1		—			—			1

Balance, March 29, 2025	86	$	—	$	353	$	19		$	(45)		$	327


	Quarter ended March 30, 2024
	Common stock			Capital in excess of par value		Retained earnings		Accumulated other comprehensive income (loss)			Total equity
(unaudited)	shares	amount
Balance, December 29, 2023	86	$	—	$	327	$	1		$	(28)		$	300

Net income	—	—		—		33			—			33
Dividends declared ($0.16 per share)	—	—		—		(14)						(14)


Other comprehensive income (loss)	—	—		—		—			(4)			(4)

Stock compensation	—	—		1		—			—			1
Share issuance	—	—		1		—			—			1
Balance, March 30, 2024	86	$	—	$	329	$	20		$	(32)		$	317

See accompanying Notes to Unaudited Consolidated Financial Statements.

Table of Conten t s

WK KELLOGG CO

CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)

(millions)


	Year-to-date period ended
	March 29, 2025		March 30, 2024
Operating activities
Net income	$	18	$	33
Adjustments to reconcile net income to operating cash flows:
Depreciation and amortization	22		19
Pension and postretirement plan benefit	(8)		(9)
Deferred income taxes	2		1
Stock compensation	5		1

Restructuring costs	13		—
Other	—		3
Pension plan contributions	—		(3)
Changes in operating assets and liabilities:
Trade receivables	(17)		2
Inventories	(18)		16
Accounts payable	29		(5)

Income taxes payable	2		4
Accrued advertising and promotion	(9)		(11)
Accrued salaries and wages	(31)		(21)
All other assets and liabilities	(10)		(20)

Net cash provided by (used in) operating activities	(2)		10
Investing activities
Additions to properties	(60)		(9)












Net cash provided by (used in) investing activities	(60)		(9)
Financing activities
Proceeds from borrowings under the Credit Agreement	50		—
Repayment of borrowings under the Credit Agreement	(6)		(3)

Issuances of notes payable, with maturities greater than 90 days	94		—
Reductions of notes payables, with maturities greater than 90 days	(75)		—
Net reduction of notes payable, with maturities less than or equal to 90 days	(1)		(3)
Issuances of common stock	1		1


Dividends paid	(14)		(14)



Net cash provided by (used in) financing activities	49		(19)
Effect of exchange rate changes on cash and cash equivalents	—		—
Increase (decrease) in cash and cash equivalents	(13)		(18)
Cash and cash equivalents at beginning of period	40		88
Cash and cash equivalents at end of period	$	27	$	70

Supplemental cash flow disclosures of non-cash investing activities:
Additions to properties included in accounts payable	$	39	$	20
Supplemental cash flow disclosures of non-cash financing activities:
Operating lease liabilities arising from obtaining right of use assets	$	18	$	36

See accompanying Notes to Unaudited Consolidated Financial Statements.

Table of Conten t s

Notes to Unaudited Consolidated Financial Statements

for the quarter ended March 29, 2025 (unaudited)

Note 1 Accounting policies

Basis of presentation

The accompanying Unaudited Consolidated Financial Statements reflect the results of operations, financial position and cash flows of the Company prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The unaudited interim financial information of the Company included in this report reflects all adjustments, all of which are of a normal and recurring nature, that management believes are necessary for a fair statement of the results of operations, comprehensive income, financial position, equity and cash flows for the periods presented. This interim information should be read in conjunction with the Consolidated Financial Statements and the accompanying Notes included within the 2024 Annual Report on Form 10-K ("2024 Annual Report").

The balance sheet information at December 28, 2024 was derived from audited financial statements, but does not include all disclosures required by GAAP. The results of operations for the quarter ended March 29, 2025 are not necessarily indicative of the results to be expected for other interim periods or the full year.

On October 2, 2023 ("Spin-Off Date"), Kellanova (formerly known as Kellogg Company) completed the spin-off (the "Spin-Off") of its North American cereal business, resulting in a new independent public company, WK Kellogg Co (the "Company"). Prior to the Spin-Off, the Company historically operated as part of Kellanova.

In connection with the Spin-Off, the Company entered into several agreements with Kellanova that govern the relationship of the parties following the Spin-Off and allocate between WK Kellogg Co and Kellanova various assets, liabilities, and obligations, including, among other things, employee benefits, intellectual property, and tax related assets and liabilities. The agreements included a Separation and Distribution Agreement, Employee Matters Agreement, Supply Agreement, Master Ownership and License Agreements regarding Patents, Trademarks and Certain Related Intellectual Property, Tax Matters Agreement and Transition Services Agreement.

Accounts payable - Supplier Finance Programs

The Company establishes competitive market-based terms with our suppliers, regardless of whether they participate in supplier finance programs, which generally range from 0 to 135 days depending on their respective industry and geography.

The Company has agreements with third parties to provide accounts payable tracking systems which facilitate participating suppliers’ ability to monitor and, if elected, sell payment obligations from the Company to designated third-party financial institutions. Participating suppliers may, at their sole discretion, make offers to sell one or more payment obligations of the Company prior to their scheduled due dates at a discounted price to participating financial institutions. The Company has no economic interest in the sale of these suppliers’ receivables and no direct financial relationship with the financial institutions concerning these services. The Company’s obligations to its suppliers, including amounts due and scheduled payment dates, are not impacted by suppliers’ decisions to sell amounts under the arrangements. However, the Company’s right to offset balances due from suppliers against payment obligations is restricted by the agreements for those payment obligations that have been sold by suppliers. The payment of these obligations by the Company is included in Net cash provided by (used in) operating activities in the Unaudited Consolidated Statement of Cash Flows. As of March 29, 2025, $132 million of the Company’s outstanding payment obligations had been placed in the accounts payable tracking system. As of December 28, 2024, $132 million of the Company’s outstanding payment obligations had been placed in the accounts payable tracking system.

Accounting standards to be adopted in future periods

Income Taxes: Improvements to Income Tax Disclosures. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This standard primarily expands the required disclosures surrounding the rate reconciliation and income taxes paid. For public entities, this standard is effective for annual reporting periods beginning after December 15, 2024. Early adoption is permitted and the amendments should be applied on a prospective basis. Retrospective application is permitted. The Company will adopt the

Table of Conten t s

updated standard for the fiscal year ending January 3, 2026. The Company is currently evaluating the impact the adoption of this standard will have on its disclosures.

Disaggregation of Income Statement Expenses: In November 2024, the FASB issued ASU 2024-03, Disaggregation of Income Statement Expenses (“DISE”). This standard requires all public entities to provide additional disclosure about the nature of the expenses included in the income statement. The DISE will require disclosure about specific types of expenses included within the expense caption presented on the face of the income statement and additional disclosure about selling expenses. This standard is effective for fiscal years beginning after December 15, 2026 and interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. This standard can be applied either prospectively or retrospectively. The Company intends to adopt the updated standard for the fiscal year ending January 1, 2028. The Company is currently evaluating the impact the adoption of this standard will have on its disclosures.

Note 2 Sale of accounts receivable

The Company has a program in which a discrete group of customers are allowed to extend their payment terms in exchange for the elimination of early payment discounts (Extended Terms Program).

The Company has a monetization agreement with an unaffiliated financial institution specifically designed to factor trade receivables with certain customers that participate in the Extended Terms Program. Under this monetization arrangement, from time to time, the Company sells these customers’ trade receivables at a discount on a non-recourse basis. A portion of the cash proceeds is subject to certain restrictions. Transfers under these agreements are accounted for as sales of receivables resulting in the receivables being de-recognized from the Unaudited Consolidated Balance Sheet. The monetization program provides for the continuing sale of certain receivables on a revolving basis until terminated by either party; however, the maximum receivables that may be sold at any time is approximately $350 million.

The Company has no retained interest in the receivables sold; however, the Company does have collection and administrative responsibilities for the receivables sold. The Company has not recorded any servicing assets or liabilities as of March 29, 2025 and December 28, 2024 for these agreements, as the fair value of these servicing arrangements as well as the fees earned were not material to the financial statements.

Accounts receivable sold of $322 million and $307 million remained outstanding under these arrangements as of March 29, 2025 and December 28, 2024, respectively. The proceeds from these sales of receivables are included in Net cash provided by (used in) operating activities in the Unaudited Consolidated Statement of Cash Flows in the period of sale. The recorded net loss on sale of receivables was $4 million for the quarter ended March 29, 2025, and $4 million for the quarter ended March 30, 2024. The recorded loss is included in Other income (expense), net ("OIE") in the Unaudited Consolidated Statement of Income.

A portion of cash received related to the accounts receivable monetization program is restricted as part of the Extended Terms Program collateralization agreement. As of March 29, 2025 and December 28, 2024, the amount of restricted cash was $8 million and $15 million, respectively, and is included in Cash and cash equivalents in the Unaudited Consolidated Balance Sheets.

Note 3 Equity

Earnings per share

Basic earnings (loss) per share is determined by dividing net income by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per share is similarly determined, except that the denominator is increased to include the number of additional shares of common stock that would have been outstanding if all dilutive potential shares of common stock had been issued. Dilutive potential shares of common stock consist principally of unvested restricted stock units and unvested performance stock units. Computations of diluted earnings per share should not give effect to any dilutive potential shares of common stock that would have the effect of increasing earnings per share (or decreasing the loss per share). For the quarter ended March 29, 2025, the Company had approximately two million dilutive shares and no anti-dilutive shares. For the quarter ended March 30, 2024, the Company had approximately one million dilutive shares and no anti-dilutive shares. Please refer to the Consolidated Statement of Income for basic and diluted earnings per share for the quarters ended March 29, 2025 and March 30, 2024.

Comprehensive income

Table of Conten t s

Comprehensive income includes net income and all other changes in equity during a period except those resulting from investments by or distributions to shareowners. Other comprehensive income consists of foreign currency translation adjustments, fair value adjustments associated with cash flow hedges, which are recorded in interest expense within the statement of income upon reclassification from Accumulated Other Comprehensive Income ("AOCI"), adjustments for net experience gains (losses) and prior service credit (costs) related to employee benefit plans, which are recorded in OIE within the statement of income upon reclassification from AOCI. The related tax effects of these items are recorded in Income taxes within the Unaudited Consolidated Statement of Income upon reclassification from AOCI.

AOCI as of March 29, 2025 and December 28, 2024 consisted of the following:


(millions)	March 29, 2025		December 28, 2024
Foreign currency translation adjustments	$	(49)	$	(49)

Cash flow hedges — net deferred gain (loss)	1		5
Postretirement and postemployment benefits:
Net experience gain (loss)	(2)		(2)
Prior service credit (cost)	5		4

Total accumulated other comprehensive income (loss)	$	(45)	$	(42)

Note 4 Restructuring

On July 31, 2024, the Board of Directors of the Company approved a reorganization plan in connection with the Company's strategic priority to modernize its supply chain. Under this reorganization plan, herein referred to as the restructuring plan, the Company will consolidate its manufacturing network by closing its Omaha, Nebraska plant, with a phased reduction in production beginning in late 2025 and full closure targeted by the end of 2026, and scaling back production (which includes a reduction in the number of manufacturing platforms) at its Memphis, Tennessee facility, commencing in late 2025. The restructuring plan was communicated to impacted employees on August 6, 2024 and remains subject to the satisfaction of certain collective bargaining obligations. The actions under the restructuring plan are expected to be completed by the end of fiscal year 2026.

These actions are expected to result in cumulative restructuring pretax charges of between $230 million and $270 million, including between $30 million and $40 million in cash costs for severance and other termination benefits and between $30 million and $40 million in other cash restructuring costs related to equipment dismantlement and other transition costs. The Company estimates between $170 million and $190 million in non-cash charges related primarily to accelerated depreciation associated with restructuring assets and asset write-offs. These charges are expected to be incurred through 2027. The amounts expected to be incurred as a result of these actions, including the timing thereof, are estimates only and subject to a number of assumptions. Actual results may differ materially from the Company's current expectations. The Company may also incur additional charges or other cash expenditures not currently contemplated due to unanticipated events that may occur as a result of, or associated with, these actions.

For the quarter ended March 29, 2025, the Company recorded total restructuring charges of $14 million recorded as Restructuring costs on the Unaudited Consolidated Statement of Income. The Company did not have any restructuring projects during the quarter ended March 30, 2024.

The table below provides the details for the charges incurred during the quarters ended March 29, 2025 and March 30, 2024 and total project costs to date:


	Quarter ended				Project costs to date
(millions)	March 29, 2025		March 30, 2024
Employee related costs	$	—	$	—	$	20
Pension curtailment (gain) loss, net	—		—		3
Asset related costs	14		—		45
Other costs	—		—		2
Total	$	14	$	—	$	70

Table of Conten t s

Employee related costs consist of severance and other termination benefits. Pension curtailment (gain) loss consists of a curtailment loss that resulted from restructuring plan initiatives. Asset related costs consisted primarily of accelerated depreciation associated with restructuring assets, asset write-offs and impairments. Other costs incurred consist primarily of legal and consulting fees.

As of March 29, 2025 total project reserves were $20 million, related to expected severance payments and other costs of which a substantial portion will be paid in 2026. Employee related cost accruals are recorded to Other current liabilities and Other liabilities within the Unaudited Consolidated Balance Sheet. Other cost accruals are recorded to Accounts payable and Other current liabilities within the Unaudited Consolidated Balance Sheet. The following table provides details for exit cost reserves:


(millions)	Employee Related Costs		Pension curtailment (gain) loss, net		Asset Related Costs		Other Costs		Total
Liability as of December 28, 2024	$	20	$	—	$	—	$	1	$	21
2025 restructuring charges	—		—		14		—		14
Cash payments	—		—		—		(1)		(1)
Non-cash charges and other	—		—		(14)		—		(14)
Liability as of March 29, 2025	$	20	$	—	$	—	$	—	$	20

Note 5 Pension and postretirement benefits

The Company sponsors a pension plan in the United States and several plans in the United States and Canada that provide health care and other welfare benefits to retired employees who have met certain age and service requirements. These plans are described within the Notes to the Consolidated Financial Statements included in the 2024 Annual Report. Components of Company benefit plans (income) expense for the periods presented are included in the tables below. Excluding the service cost component, these amounts are included within OIE in the Unaudited Consolidated Statement of Income.

The following tables present the pension expense and nonpension postretirement income directly attributable to the Company for the quarters ended March 29, 2025 and March 30, 2024:

Pension


	Quarter ended
(millions)	March 29, 2025		March 30, 2024
Service cost	$	2	$	2
Interest cost	7		7
Expected return on plan assets	(8)		(9)
Amortization of unrecognized prior service cost	1		1


Total pension expense	$	2	$	1

Other nonpension postretirement


	Quarter ended
(millions)	March 29, 2025		March 30, 2024
Service cost	$	1	$	1
Interest cost	6		6
Expected return on plan assets	(15)		(15)
Amortization of unrecognized prior service cost	(2)		(2)



Total postretirement benefit income	$	(10)	$	(10)

Company contributions to employee benefit plans are summarized as follows:

Table of Conten t s


(millions)	Pension		Nonpension postretirement		Total
Quarter ended:
March 29, 2025	$	—	$	—	$	—
March 30, 2024	$	3	$	—	$	3



Full year:
Fiscal year 2025 (projected)	$	19	$	—	$	19
Fiscal year 2024 (actual)	$	24	$	—	$	24

Plan funding strategies may be modified in response to management's evaluation of tax deductibility, market conditions, and competing investment alternatives.

Note 6 Operating leases

The Company leases certain warehouses, equipment, vehicles, and office space primarily through operating lease agreements. The Company recorded operating lease costs of $7 million and $3 million for the quarters ended March 29, 2025 and March 30, 2024, respectively.


	Quarter ended
(millions)	March 29, 2025		March 30, 2024

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	7	$	2
Right-of-use assets obtained in exchange for operating lease liabilities
New leases	$	18	$	36
Modified leases	$	—	$	—

At March 29, 2025 future maturities of operating leases were as follows:


(millions)	Operating leases
2025 (remaining)	$	20
2026	29
2027	28
2028	22
2029	19
2030 and beyond	21
Total minimum payments	$	139
Less interest	(18)
Present value of lease liabilities	$	121

Weighted-average remaining lease term - operating leases	5.1 years
Weighted-average discount rate - operating leases	5.8%

During the first quarter of 2025, the Company entered into a lease agreement with an unrelated third party for a distribution center previously leased by Kellanova. The lease was subleased directly from Kellanova as outlined in the Separation and Distribution Agreement. Payments for this lease are made on a monthly basis. Prior to the execution of this lease, use of the distribution center was managed under the a transition services agreement that the Company entered into with Kellanova in connection with the Spin-Off (the "Transition Services Agreement").

The new sublease agreement executed in the first quarter of 2025 resulted in an increase to operating lease assets of $13 million, which is recorded within Operating lease assets on the Unaudited Consolidated Balance Sheet. This also resulted in an increase to operating lease liabilities of $13 million, of which $5 million is classified as short-term and included in Other current liabilities and $8 million is classified as Long-term operating lease obligations on the Unaudited Consolidated Balance Sheet.

Table of Conten t s

Note 7 Debt

The following table presents the components of debt balances, net of issuance costs:


(millions)	March 29, 2025		December 28, 2024
Credit Facility term loan	$	528	$	484

Credit Facility notes payable	67		48
Other notes payable	2		3
Total borrowings	$	597	$	535

In September of 2023, the Company entered into a Credit Agreement, consisting of a $500 million term loan (the "Term Loan"), a $250 million delayed draw term loan ("Delayed Term Loans"), and a $350 million equivalent multicurrency revolving credit facility (collectively, the “Credit Facility”). During the first quarter of 2025, the Company incurred an additional $50 million of borrowings related to the Delayed Term Loans, which will amortize in equal quarterly installments of 1.25% of the principal balance beginning in September 2025 through the maturity date in September 2028. Additionally, in the first quarter of 2025, the Company made a $6 million payment on the term loan as required under the Credit Facility. Total remaining borrowings available under the Credit Facility as of March 29, 2025 was $483 million.

Note 8 Income taxes

The Company's consolidated effective tax rate for the quarter ended March 29, 2025 was 20.8%. The consolidated effective tax rate for the quarter ended March 30, 2024 was 25.9%. The Company's income tax expense is impacted by the level and mix of earnings among tax jurisdictions. The rate differed from the U.S. statutory rate primarily due to the impact of US state taxes and the impact of deductible stock compensation.

Note 9 Derivative instruments

The Company is exposed to certain market risks such as changes in interest rates, foreign currency exchange rates, and commodity price fluctuations, which exist as a part of its ongoing business operations. Management uses derivative and nonderivative financial and commodity instruments to manage these risks. Instruments used as hedges must be effective at reducing the risk associated with the exposure being hedged. As a matter of policy, the Company does not engage in trading or speculative hedging transactions.

Derivative instruments are classified on the Unaudited Consolidated Balance Sheet based on the contractual maturity of the instrument or the timing of the underlying cash flows of the instrument for derivatives with contractual maturities beyond one year. Any collateral associated with derivative instruments is classified as Other assets or Other current liabilities on the Unaudited Consolidated Balance Sheet depending on whether the counterparty collateral is in an asset or liability position. Margin deposits related to exchange-traded commodities are recorded in accounts receivable, net on the Unaudited Consolidated Balance Sheet. On the Unaudited Consolidated Statement of Cash Flows, cash flows associated with derivative instruments are classified according to the nature of the underlying hedged item. Cash flows associated with collateral and margin deposits on exchange-traded commodities are classified as investing cash flows when the collateral account is in an asset position and as financing cash flows when the collateral account is in a liability position.

Total notional amounts of the Company’s derivative instruments as of March 29, 2025 and December 28, 2024 were as follows:


(millions)	March 29, 2025		December 28, 2024
Foreign currency exchange contracts	$	268	$	284
Commodity contracts	75		14
Interest rate contracts	350		250
Total	$	693	$	548

Table of Conten t s

Following is a description of each category in the fair value hierarchy and the financial assets and liabilities of the Company that were included in each category at March 29, 2025 and December 28, 2024, measured on a recurring basis.

Level 1 – Financial assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market. For the Company, level 1 financial assets and liabilities consist primarily of exchange-traded commodity derivative contracts.

Level 2 – Financial assets and liabilities whose values are based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability. For the Company, level 2 financial assets and liabilities consist of interest rate swaps and over-the-counter commodity and currency contracts.

The Company's calculation of the fair value of the interest rate swaps is derived from a discounted cash flow analysis based on the terms of the contract and interest rate curve. Over-the-counter commodity derivatives are valued using an income approach based on the commodity index prices less the contract rate multiplied by the notional amount. Foreign currency contracts are valued using an income approach based on forward rates less the contract rate multiplied by the notional amount. The Company’s calculation of the fair value of level 2 financial assets and liabilities takes into consideration the risk of nonperformance, including counterparty credit risk.

The following table presents assets and liabilities that were measured at fair value in the Unaudited Consolidated Balance Sheet on a recurring basis as of March 29, 2025 and December 28, 2024:

Derivatives designated as hedging instruments


	March 29, 2025						December 28, 2024
(millions)	Level 1		Level 2		Total		Level 1		Level 2		Total
Assets:



Interest rate contracts:
Other current assets	$	—	$	1	$	1	$	—	$	2	$	2
Other assets	—		—		—		—		3		3


Total assets	$	—	$	1	$	1	$	—	$	5	$	5

Derivatives not designated as hedging instruments


	March 29, 2025						December 28, 2024
(millions)	Level 1		Level 2		Total		Level 1		Level 2		Total
Assets:
Foreign currency exchange contracts:
Other current assets	$	—	$	3	$	3	$	—	$	4	$	4
Other assets	—

SEC Form 10-Q filed by WK Kellogg Co