WK Kellogg Co(KLG) - 2025 Q1 - Quarterly Report

PART I — Financial Information Item 1: Financial Statements This section presents WK Kellogg Co's unaudited consolidated financial statements, including balance sheets, income statements, and cash flow statements, with notes on accounting policies, equity, restructuring, and contingencies Unaudited Consolidated Balance Sheet Consolidated Balance Sheet Key Data (Millions of US Dollars) | Indicator | September 28, 2024 | December 30, 2023 | | :---------------------- | :------------ | :------------- | | Assets | | | | Total Current Assets | 602 | 706 | | Property, Plant, and Equipment, Net | 764 | 739 | | Pension Plan Assets | 300 | 283 | | Total Assets | 1,900 | 1,889 | | Liabilities and Equity | | | | Total Current Liabilities | 770 | 836 | | Long-Term Debt | 472 | 487 | | Pension Liabilities | 122 | 135 | | Total Equity | 316 | 300 | | Total Liabilities and Equity | 1,900 | 1,889 | Unaudited Consolidated Statement of Income Consolidated Statement of Income Key Data (Millions of US Dollars, except EPS) | Indicator | September 28, 2024 (Quarter) | September 30, 2023 (Quarter) | September 28, 2024 (YTD) | September 30, 2023 (YTD) | | :---------------------- | :------------------- | :------------------- | :------------------ | :------------------ | | Net Sales | 689 | 692 | 2,068 | 2,112 | | Cost of Goods Sold | 495 | 496 | 1,475 | 1,544 | | Selling, General and Administrative Expense | 162 | 179 | 468 | 497 | | Restructuring Costs | 38 | — | 38 | — | | Operating Profit (Loss) | (6) | 17 | 87 | 71 | | Interest Expense | 7 | — | 23 | — | | Other Income (Expense), Net | (2) | 38 | 8 | 53 | | Income (Loss) Before Income Taxes | (15) | 55 | 72 | 124 | | Income Tax (Benefit) Expense | (4) | 13 | 19 | 29 | | Net Income (Loss) | (11) | 42 | 53 | 95 | | Earnings Per Share | | | | | | Basic EPS (Loss) | (0.13) | 0.49 | 0.62 | 1.10 | | Diluted EPS (Loss) | (0.13) | 0.49 | 0.60 | 1.10 | Unaudited Consolidated Statement of Comprehensive Income Consolidated Statement of Comprehensive Income Key Data (Millions of US Dollars) | Indicator | September 28, 2024 (Quarter) | September 30, 2023 (Quarter) | September 28, 2024 (YTD) | September 30, 2023 (YTD) | | :--------------------------------- | :------------------- | :------------------- | :------------------ | :------------------ | | Net Income (Loss) | (11) | 42 | 53 | 95 | | Other Comprehensive Income (Loss) | 0 | (1) | (6) | 3 | | Comprehensive Income (Loss) | (11) | 41 | 47 | 98 | Unaudited Consolidated Statement of Equity Consolidated Statement of Equity Key Data (Millions of US Dollars) | Indicator | September 28, 2024 (Quarter) | September 28, 2024 (YTD) | | :--------------------------------- | :------------------- | :------------------ | | Beginning Balance | 336 | 300 | | Net Income (Loss) | (11) | 53 | | Dividends | (14) | (41) | | Other Comprehensive Income (Loss) | — | (8) | | Equity Compensation | 4 | 9 | | Share Issuances | 1 | 3 | | Ending Balance | 316 | 316 | - The company declared a $0.16 per share dividend in Q3 2024, with a year-to-date cumulative dividend of $0.48 per share[12][13] Unaudited Consolidated Statement of Cash Flows Consolidated Statement of Cash Flows Key Data (Millions of US Dollars, Year-to-Date) | Activity Type | September 28, 2024 | September 30, 2023 | | :------------------- | :------------ | :------------- | | Net Cash from Operating Activities | 98 | 184 | | Net Cash from Investing Activities | (94) | (89) | | Net Cash from Financing Activities | (44) | (31) | | Effect of Exchange Rate Changes | (2) | — | | Increase (Decrease) in Cash and Cash Equivalents | (42) | 64 | | Cash and Cash Equivalents, End of Period | 47 | 64 | Notes to Unaudited Consolidated Financial Statements Note 1 Accounting policies This note details WK Kellogg Co's accounting policies post-Kellanova spin-off, including financial statement preparation, agreements with Kellanova, and pre-spin-off expense allocations - WK Kellogg Co spun off from Kellanova (formerly Kellogg Company) on October 2, 2023, becoming an independent public company[20][92] - Post-spin-off, the company entered into various agreements with Kellanova, including separation, employee matters, supply, intellectual property, tax, and transition service agreements, to govern their relationship and allocate assets, liabilities, and obligations[22][93] Kellanova Expense Allocations (Millions of US Dollars) | Expense Category | September 30, 2023 (Quarter) | September 30, 2023 (YTD) | | :---------------------- | :------------------- | :------------------- | | Cost of Goods Sold | 39 | 128 | | Selling, General and Administrative Expense | 59 | 233 | | Other (Income) Expense, Net | (32) | (43) | | Total | 66 | 318 | Net Sales by Country (Millions of US Dollars) | Country | September 28, 2024 (Quarter) | September 30, 2023 (Quarter) | September 28, 2024 (YTD) | September 30, 2023 (YTD) | | :----------- | :------------------- | :------------------- | :------------------ | :------------------ | | United States | 601 | 605 | 1,813 | 1,859 | | Canada | 78 | 78 | 229 | 225 | | Other | 10 | 9 | 26 | 28 | | Total | 689 | 692 | 2,068 | 2,112 | - The company plans to adopt new accounting standards, including 'Segment Reporting: Improvements to Reportable Segment Disclosures' effective for fiscal years beginning after December 15, 2023, and 'Income Taxes: Improvements to Income Tax Disclosures' effective for annual periods beginning after December 15, 2024[29][30] Note 2 Sale of accounts receivable The company sells trade accounts receivable without recourse through monetization agreements, with $320 million outstanding as of September 28, 2024, and a $5 million net loss recorded - The company sells certain customer trade accounts receivable without recourse through monetization agreements with unaffiliated financial institutions, with a maximum capacity of approximately $350 million[34][146] Accounts Receivable Sales (Millions of US Dollars) | Indicator | September 28, 2024 | December 30, 2023 | | :------------------- | :------------ | :------------- | | Outstanding Accounts Receivable Sold | 320 | 266 | | Restricted Cash | 16 | 13 | | Net Loss on Sale of Accounts Receivable | | | | Quarter | 5 | 3 | | Year-to-Date | 14 | 11 | Note 3 Equity This note explains basic and diluted EPS calculation, noting the exclusion of dilutive shares due to a Q3 2024 net loss, and details components of accumulated other comprehensive income (loss) - Basic EPS is calculated by dividing net income by the weighted-average number of common shares outstanding, while diluted EPS includes all dilutive potential common shares[39] - Due to a net loss in the quarter ended September 28, 2024, all potentially dilutive shares were excluded from the diluted EPS calculation[39] Components of Accumulated Other Comprehensive Income (Loss) (Millions of US Dollars) | Indicator | September 28, 2024 | December 30, 2023 | | :--------------------------------- | :------------ | :------------- | | Foreign Currency Translation Adjustments | (41) | (35) | | Cash Flow Hedges — Net Deferred Gains (Losses) | (2) | — | | Postretirement and Postemployment Benefits: | | | | Prior Service Credits (Costs) | 7 | 7 | | Total Accumulated Other Comprehensive Income (Loss) | (36) | (28) | Note 4 Restructuring The company approved a restructuring plan on July 31, 2024, to consolidate its manufacturing network by closing the Omaha plant and scaling back Memphis production, with $41 million in charges recorded as of September 28, 2024 - The company approved a restructuring plan to close its Omaha plant and scale back production at its Memphis plant, expected to be completed by the end of 2026[44][132] - The restructuring plan is expected to incur $230 million to $270 million in pre-tax charges, including $30 million to $40 million in cash severance and other termination benefits, and $170 million to $190 million in non-cash charges (primarily accelerated depreciation and asset write-offs)[45][133] Restructuring Charges (Millions of US Dollars) | Indicator | 2024 (YTD) | Project Cumulative to Date | | :------------------- | :----------- | :----------- | | Employee-Related Costs | 20 | 20 | | Pension Curtailment (Gain) Loss, Net | 3 | 3 | | Asset-Related Costs | 16 | 16 | | Other Costs | 2 | 2 | | Total | 41 | 41 | - As of September 28, 2024, total project reserves were $22 million, primarily for anticipated severance and other costs[49][50] Note 5 Pension and postretirement benefits This note details the company's US and Canadian pension and postretirement benefit plans, disclosing Q3 and YTD pension expenses and postretirement income, with $3 million in pension curtailment losses due to restructuring - The company sponsors pension and postretirement benefit plans in the United States and Canada[51] - For Q3 2024 and year-to-date, the company recorded $3 million in pension curtailment losses due to the restructuring plan[52][54] Pension Expense (Millions of US Dollars) | Indicator | September 28, 2024 (Quarter) | September 28, 2024 (YTD) | | :------------------- | :------------------- | :------------------ | | Service Cost | 2 | 6 | | Interest Cost | 7 | 21 | | Expected Return on Plan Assets | (9) | (27) | | Amortization of Unrecognized Prior Service Cost | 1 | 3 | | Recognized (Gain) Loss, Net | 3 | 3 | | Curtailment (Gain) Loss, Net | 3 | 3 | | Total Pension Expense | 7 | 9 | Non-Pension Postretirement Benefit Income (Millions of US Dollars) | Indicator | September 28, 2024 (Quarter) | September 28, 2024 (YTD) | | :------------------- | :------------------- | :------------------ | | Service Cost | 1 | 3 | | Interest Cost | 6 | 18 | | Expected Return on Plan Assets | (15) | (45) | | Amortization of Unrecognized Prior Service Cost | (2) | (6) | | Total Postretirement Benefit Income | (10) | (30) | Company Contributions to Employee Benefit Plans (Millions of US Dollars) | Period | Pension | Non-Pension Postretirement Benefits | Total | | :------------------- | :----- | :----------------- | :--- | | September 28, 2024 (Quarter) | 7 | — | 7 | | September 30, 2023 (Quarter) | — | — | — | | September 28, 2024 (YTD) | 17 | — | 17 | | September 30, 2023 (YTD) | 1 | — | 1 | | Fiscal 2024 (Estimated) | 24 | — | 24 | Note 6 Operating leases The company leases warehouses, equipment, vehicles, and office space through operating leases, incurring $5 million in Q3 and $12 million year-to-date, with new leases increasing assets and liabilities by $82 million - The company primarily leases warehouses, equipment, vehicles, and office space through operating lease agreements[62] Operating Lease Costs (Millions of US Dollars) | Period | Operating Lease Costs | | :------------------- | :----------- | | September 28, 2024 (Quarter) | 5 | | September 28, 2024 (YTD) | 12 | Operating Lease Cash Flows and Assets (Millions of US Dollars) | Indicator | September 28, 2024 (Quarter) | September 28, 2024 (YTD) | | :--------------------------------- | :------------------- | :------------------ | | Operating Lease Cash Outflows | 4 | 9 | | Additions to Operating Lease Right-of-Use Assets | 35 | 87 | | Modified Lease Right-of-Use Assets | — | — | - As of September 28, 2024, total future operating lease minimum payments are $116 million, with a weighted-average remaining lease term of 5.4 years and a weighted-average discount rate of 6.2%[64] - Year-to-date 2024, new lease agreements resulted in an $82 million increase in both operating lease assets and liabilities[66] Note 7 Income taxes The company's consolidated effective tax rates for Q3 and YTD 2024 were 27.8% and 26.1% respectively, higher than prior year, primarily due to US state taxes Consolidated Effective Tax Rates | Period | September 28, 2024 (Quarter) | September 30, 2023 (Quarter) | September 28, 2024 (YTD) | September 30, 2023 (YTD) | | :------------------- | :------------------- | :------------------- | :------------------ | :------------------ | | Effective Tax Rate | 27.8% | 23.9% | 26.1% | 23.7% | - The difference between the effective tax rate and the U.S. statutory rate is primarily influenced by U.S. state taxes[68] Note 8 Derivative instruments The company uses derivative financial and commodity instruments to manage market risks like interest rates and foreign exchange, with a total notional value of $610 million as of September 28, 2024 - The company uses derivative financial and commodity instruments to manage market risks such as interest rates, foreign exchange rates, and price fluctuations, without engaging in trading or speculative hedging[69] Notional Amount of Derivative Instruments (Millions of US Dollars) | Contract Type | September 28, 2024 | December 30, 2023 | | :------------------- | :------------ | :------------- | | Foreign Exchange Forward Contracts | 300 | — | | Commodity Contracts | 60 | — | | Interest Rate Contracts | 250 | — | | Total | 610 | — | - Fair value measurements for derivative instruments are categorized into Level 1 (based on quoted prices in active markets) and Level 2 (based on observable market inputs)[73][74] Impact of Derivatives Not Designated as Hedging Instruments on the Statement of Income (Millions of US Dollars) | Contract Type | September 28, 2024 (Quarter) | September 30, 2023 (Quarter) | September 28, 2024 (YTD) | September 30, 2023 (YTD) | | :------------------- | :------------------- | :------------------- | :------------------ | :------------------ | | Commodity Contracts (Cost of Goods Sold) | (1) | 1 | (2) | (12) | | Foreign Exchange Derivatives (Cost of Goods Sold) | (4) | (3) | (6) | (2) | Note 9 Supplemental financial statement data This note provides supplemental financial statement data as of September 28, 2024, and December 30, 2023, including detailed breakdowns of accounts receivable, inventory, property, plant, and equipment, and other current liabilities Supplemental Financial Statement Data (Millions of US Dollars) | Indicator | September 28, 2024 | December 30, 2023 | | :------------------- | :------------ | :------------- | | Accounts Receivable, Net | | | | Trade Accounts Receivable | 169 | 225 | | Allowance for Doubtful Accounts | (1) | — | | Other Accounts Receivable | 31 | 19 | | Total Accounts Receivable, Net | 199 | 244 | | Inventory | | | | Raw Materials | 54 | 49 | | Manufacturing Supplies | 55 | 53 | | Work in Process | 21 | 15 | | Finished Goods | 209 | 228 | | Total Inventory | 339 | 345 | | Property, Plant, and Equipment, Net | | | | Cost | 2,745 | 2,676 | | Accumulated Depreciation | (1,976) | (1,937) | | Accumulated Impairment | (5) | — | | Total Property, Plant, and Equipment, Net | 764 | 739 | | Other Current Liabilities | | | | Transition Service Agreement Obligations | 12 | 52 | | Operating Lease Obligations | 18 | 6 | | Income Taxes Payable | 13 | 7 | | Other | 58 | 40 | | Total Other Current Liabilities | 101 | 105 | Note 10 Contingencies The company faces various legal proceedings and claims in its ordinary course of business, but management believes none will have a material adverse effect on its consolidated financial statements - The company faces various legal proceedings, claims, and government investigations in its ordinary course of business, covering commercial, regulatory, antitrust, product liability, environmental, intellectual property, and labor matters[85] - Management believes that no single or aggregate legal proceeding or claim will have a material adverse effect on the company's consolidated financial statements[86] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides an overview of WK Kellogg Co's business, spin-off context, key influencing factors, non-GAAP financial measures, and detailed analysis of operating results and financial condition for the quarter and year-to-date ended September 28, 2024 Business Overview - WK Kellogg Co is an iconic North American cereal company with a differentiated brand portfolio, primarily producing, marketing, and distributing ready-to-eat cereal products[89] - The company's products are diversified across cereal sub-segments (taste, health, and balance), with key brands including Frosted Flakes, Special K, and Froot Loops[90] - Products are manufactured through six primary production facilities and sold through grocery stores, mass merchandisers, club stores, and drug stores[91] Separation from Kellanova - Kellanova completed the spin-off of its North American cereal business on October 2, 2023, making WK Kellogg Co an independent public company[92] - Prior to the spin-off, the company was a wholly-owned subsidiary of Kellanova and entered into various agreements to govern the post-spin-off relationship[92][93] Basis of Presentation - Financial statements prior to the spin-off were derived from Kellanova's consolidated financial statements and accounting records; post-spin-off statements are based on the company's actual performance as an independent entity[94] Key Factors Affecting Our Business - Macroeconomic conditions: Geopolitical instability, supply chain challenges, and inflationary pressures continue to impact business, with the company offsetting input cost inflation through productivity measures and revenue growth management actions[96][97] - Highly competitive environment: The company's business is concentrated in a single product category, facing intense competition in brand recognition, taste, nutritional value, price, promotions, innovation, shelf space, and customer service[99] - Challenging retail environment: The company's sales are highly concentrated with a few large U.S. retail customers, requiring leveraging marketing expertise, product innovation, and category leadership to navigate market changes[100] Non-GAAP Financial Measures - The company uses non-GAAP financial measures such as adjusted net income, adjusted EPS, adjusted EBITDA, adjusted gross profit and margin, and free cash flow to assess performance, make business decisions, and allocate resources[102] - These non-GAAP metrics exclude items such as mark-to-market impacts of commodity and foreign currency contracts, spin-off costs, business and portfolio adjustments, restructuring costs, and other income (expense)[104][105][106][108] - Free cash flow is defined as net cash provided by operating activities less additions to property, used to measure cash available for debt service, dividends, acquisitions, and share repurchases[109] Significant items impacting comparability - Mark-to-market adjustments for commodity and certain foreign currency contracts resulted in pre-tax losses of $3 million for Q3 2024 and $5 million year-to-date[110] - Spin-off related costs: Pre-tax charges of $6 million for Q3 2024 and $22 million year-to-date, primarily related to transition and spin-off employee costs[111] - Business, portfolio adjustment, and restructuring costs: Pre-tax charges of $42 million for Q3 2024 and $44 million year-to-date, primarily related to supply chain network reconfiguration[112] - Other income (expense), net: Excluded $2 million in expense for Q3 2024 and $8 million in income year-to-date, primarily comprising net pension-related income (expense) and financing charges[113] Net income (loss) Net Income (Loss) Analysis (Millions of US Dollars) | Indicator | September 28, 2024 (Quarter) | September 30, 2023 (Quarter) | September 28, 2024 (YTD) | September 30, 2023 (YTD) | | :--------------------------------- | :------------------- | :------------------- | :------------------ | :------------------ | | Reported Net Income (Loss) | (11) | 42 | 53 | 95 | | Adjusted Net Income | 27 | 28 | 96 | 127 | | EBITDA | 12 | 72 | 153 | 174 | | Adjusted EBITDA | 65 | 55 | 217 | 215 | - Reported net income (loss) decreased by 126% (quarterly) and 44% (year-to-date) year-over-year, primarily due to costs associated with the supply chain modernization restructuring plan[115][116] - Adjusted EBITDA increased by 19% (quarterly) and 1% (year-to-date) year-over-year, reflecting benefits from revenue growth management and improved supply chain operating efficiencies[116] Margin performance Gross Profit and Margin Analysis (Millions of US Dollars, Percentage) | Indicator | September 28, 2024 (Quarter) | September 30, 2023 (Quarter) | September 28, 2024 (YTD) | September 30, 2023 (YTD) | | :--------------------------------- | :------------------- | :------------------- | :------------------ | :------------------ | | Reported Gross Profit | 194 | 196 | 593 | 568 | | Reported Gross Margin | 28.1% | 28.4% | 28.7% | 26.9% | | Adjusted Gross Profit | 203 | 193 | 611 | 592 | | Adjusted Gross Margin | 29.4% | 27.9% | 29.5% | 28.1% | - Reported gross margin decreased by 30 basis points year-over-year quarterly, primarily due to unfavorable mark-to-market impacts from foreign currency and commodity hedging[118] - Adjusted gross margin increased by 150 basis points quarterly and 140 basis points year-to-date year-over-year, primarily benefiting from improved supply chain operating efficiencies[118][119] Earnings Per Share (EPS) Earnings Per Share (EPS) Analysis | Indicator | September 28, 2024 (Quarter) | September 30, 2023 (Quarter) | September 28, 2024 (YTD) | September 30, 2023 (YTD) | | :--------------------------------- | :------------------- | :------------------- | :------------------ | :------------------ | | Reported EPS | (0.13) | 0.49 | 0.60 | 1.10 | | Adjusted EPS | 0.31 | 0.33 | 1.09 | 1.48 | - Reported EPS decreased by $0.62 quarterly and $0.50 year-to-date year-over-year, primarily due to the supply chain modernization plan and zero interest expense in the prior year period[120] - Adjusted EPS decreased by $0.02 quarterly and $0.39 year-to-date year-over-year, also impacted by zero interest expense in the prior year period[121] Net sales Net Sales Change (Millions of US Dollars, Percentage) | Indicator | September 28, 2024 (Quarter) | September 30, 2023 (Quarter) | September 28, 2024 (YTD) | September 30, 2023 (YTD) | | :------------------- | :------------------- | :------------------- | :------------------ | :------------------ | | Net Sales | 689 | 692 | 2,068 | 2,112 | | Net Sales Change (%) | (0.4)% | — | (2.1)% | — | | Volume (Tons) Change (%) | (4.3)% | — | (6.7)% | — | | Pricing/Mix Change (%) | 3.9% | — | 4.6% | — | - Quarterly net sales were largely flat, with a year-to-date decrease of approximately 2%, driven by volume declines of approximately 4% and 7% respectively, partially offset by favorable pricing/mix of approximately 4% from revenue growth management initiatives[123] Selling, general and administrative expense Selling, General and Administrative Expense (Millions of US Dollars, Percentage) | Indicator | September 28, 2024 (Quarter) | September 30, 2023 (Quarter) | September 28, 2024 (YTD) | September 30, 2023 (YTD) | | :--------------------------------- | :------------------- | :------------------- | :------------------ | :------------------ | | Selling, General and Administrative Expense | 162 | 179 | 468 | 497 | | Change (%) | (9.5)% | — | (5.8)% | — | | As a Percentage of Net Sales | 24% | 26% | 23% | 24% | - Selling, general and administrative expenses decreased by approximately 9% quarterly and 6% year-to-date year-over-year, primarily due to reduced spin-off related costs, partially offset by increased overall costs of operating as a standalone entity[125][126] Other income (expense), net - Other income (expense), net primarily includes mark-to-market adjustments, interest costs, and expected returns on plan assets related to allocated pension and postretirement benefit plans[127] - For Q3 2024, other income (expense), net decreased by 105% to ($2) million year-over-year, primarily due to reduced pension and postretirement benefit plan remeasurements[128] - Year-to-date 2024, other income (expense), net decreased by 85% to $8 million year-over-year, primarily due to pension and postretirement benefit plan remeasurement losses[129] Income taxes Consolidated Effective Tax Rate (Excluding Restructuring-Related Discrete Tax Items) | Period | September 28, 2024 (Quarter) | September 28, 2024 (YTD) | | :------------------- | :------------------- | :------------------ | | Effective Tax Rate | 27.8% | 26.1% | - The company recorded approximately $12 million in discrete tax benefits in Q3 2024, with $11 million related to restructuring actions[130] - The difference between the effective tax rate and the U.S. statutory rate is primarily influenced by U.S. state taxes[130] Restructuring - The company's Board of Directors approved a restructuring plan on July 31, 2024, to modernize the supply chain by closing the Omaha plant and scaling back production at the Memphis plant, expected to be completed by the end of fiscal 2026[132] - The restructuring plan is expected to incur $230 million to $270 million in pre-tax charges, including cash costs (severance, termination benefits, equipment removal) and non-cash charges (accelerated depreciation, asset write-offs)[133] - For Q3 2024 and year-to-date, the company recorded $41 million in restructuring charges, comprising $38 million in restructuring expense and $3 million in other income (expense)[134] Liquidity and capital resources - The company entered into credit agreements in September 2023, including a $500 million term loan, a $250 million delayed draw term loan, and a $350 million multi-currency revolving credit facility[135] - As of September 28, 2024, the total outstanding principal on the term loan was $472 million, with an additional $600 million borrowing capacity under the credit facilities[135] - Management believes the company's cash balance, funds from operations, borrowing capacity under credit facilities, and access to capital markets are sufficient to meet current and long-term obligations, capital expenditures, and future investment opportunities[136] - The company plans to leverage financial flexibility to balance capital investments in supply chain optimization, cost savings initiatives, and new capabilities, and to enhance shareholder value through debt reduction, dividend payments, and potential acquisitions[137] Operating activities Cash Flow Summary (Millions of US Dollars, Year-to-Date) | Activity Type | September 28, 2024 | September 30, 2023 | | :------------------- | :------------ | :------------- | | Net Cash from Operating Activities | 98 | 184 | | Net Cash from Investing Activities | (94) | (89) | | Net Cash from Financing Activities | (44) | (31) | | Effect of Exchange Rate Changes | (2) | — | | Increase (Decrease) in Cash and Cash Equivalents | (42) | 64 | - Year-to-date 2024, net cash provided by operating activities decreased to $98 million, primarily due to a $32 million payment for transition payables in Q1 2024 and reduced accrued advertising and promotion expenses[140] Free Cash Flow (Millions of US Dollars, Year-to-Date) | Indicator | September 28, 2024 | September 30, 2023 | | :------------------- | :------------ | :------------- | | Net Cash Provided by Operating Activities | 98 | 184 | | Additions to Property | (96) | (93) | | Free Cash Flow | 2 | 91 | Investing activities - Year-to-date 2024, net cash used in investing activities was $94 million, a slight increase from $89 million in the prior year period, primarily due to timing differences in capital expenditures[142] Financing activities - Year-to-date 2024, net cash used in financing activities was $44 million, higher than $31 million in the prior year period, primarily due to $41 million in dividend payments in 2024, partially offset by a $25 million net transfer to Kellanova in the prior year period[143] - The company's Board of Directors declared a $0.16 per share common stock dividend in August 2024, paid on September 13, 2024[145] Monetization and Supplier Finance Programs - The company sells certain customer trade accounts receivable without recourse through monetization agreements with financial institutions, with a maximum capacity of approximately $350 million[146] - As of September 28, 2024, the outstanding balance of sold accounts receivable was $320 million, with a $5 million net loss recorded for the quarter and a $14 million net loss year-to-date[147] - The company also entered into an accounts payable tracking system agreement with a third party, allowing suppliers to monitor and sell payment obligations for greater working capital flexibility[148] - As of September 28, 2024, $133 million in outstanding payment obligations were enrolled in the accounts payable tracking system[149] Critical accounting estimates - There have been no significant changes to the summary of critical accounting estimates provided in the company's 2023 Annual Report[150] Forward-looking statements - This quarterly report contains several forward-looking statements regarding expectations for sales, profits, operating profit, EPS, innovation, spin-off results, strategy, investments, capital expenditures, restructuring impacts, and cash flow[152] - Actual future results may differ materially due to various factors, including risks such as declining cereal demand, supply chain disruptions, increased raw material costs, competition, changes in the retail environment, and labor shortages[153] Item 3: Quantitative and Qualitative Disclosures about Market Risk The company manages market risks like interest rates, foreign exchange, and commodity price fluctuations using derivative instruments, with no significant changes to its market risk profile in the quarter ended September 28, 2024 - The company manages market risks through derivative financial and commodity instruments, without engaging in trading or speculative transactions[154] - As of the quarter ended September 28, 2024, there were no significant changes to the company's market risk[155] Item 4: Controls and Procedures Management, including the CEO and CFO, assessed and determined the company's disclosure controls and procedures were effective as of September 28, 2024, with no significant changes to internal financial reporting controls this quarter - As of September 28, 2024, company management determined that disclosure controls and procedures were effective, providing reasonable assurance that required information is timely recorded, processed, summarized, and reported[157] - As of the quarter ended September 28, 2024, there were no significant changes to internal controls over financial reporting[158] PART II — Other Information Item 1: Legal Proceedings The company faces various legal proceedings, claims, and government investigations in its ordinary course of business, none of which are currently deemed to have a material adverse effect on its financial condition or operating results - The company faces various legal proceedings, claims, and government investigations in its ordinary course of business[160] - Currently, no legal proceedings are deemed to have a material adverse effect on the company's financial condition or operating results[160] Item 1A: Risk Factors The company reiterates that its risk factors remain materially unchanged from those disclosed in its 2023 Annual Report, noting their potential significant impact on business, financial condition, or results of operations - The company's risk factors remain materially unchanged from those disclosed in its 2023 Annual Report[161] Item 5: Other Information During the most recent fiscal quarter, no directors or executive officers adopted or terminated any Rule 10b5-1(c) compliant securities trading contracts, instructions, or written plans - In the most recent fiscal quarter, no directors or executive officers adopted or terminated any securities trading plans intended to satisfy the affirmative defense conditions of Rule 10b5-1(c)[162] Item 6: Exhibits This section lists all exhibits filed with this quarterly report, including various certification documents and XBRL data files - Exhibits include Rule 13a-14(a)/15d-14(a) certifications, Section 1350 certifications, and Inline XBRL instance and taxonomy extension files[164] Signatures This quarterly report was signed by WK Kellogg Co's Chief Financial Officer David McKinstray and Chief Accounting Officer Lisa Walter on November 7, 2024 - This report was signed by Chief Financial Officer David McKinstray and Chief Accounting Officer Lisa Walter on November 7, 2024[166]