DESCRIPTION OF THE COMPANY AND BASIS OF PRESENTATION

12 Months Ended

Dec. 28, 2024

DESCRIPTION OF THE COMPANY AND BASIS OF PRESENTATION

Description of the Company

On June 21, 2022, Kellanova (formerly known as Kellogg Company) announced its intent to separate its North American Cereal Business (“Cereal Business”) via a tax-free Spin-Off, resulting in the creation of a new independent public company, WK Kellogg Co. The Cereal Business consists of the business and operations conducted by Kellanova until October 2, 2023. WK Kellogg Co's products are manufactured in the United States, Mexico and Canada and marketed in the United States, Canada and the Caribbean.

On September 11, 2023, the Board of Directors of Kellanova approved the Spin-Off (the “Spin-Off”) of the Cereal Business through the distribution of shares of WK Kellogg Co common stock to Kellanova share owners (the “Distribution”). In connection with the Distribution, WK Kellogg Co underwent an internal reorganization following which it became the holder, directly or through its subsidiaries, of the Cereal Business. On October 2, 2023, the Spin-Off was achieved through Kellanova's distribution of one share of WK Kellogg Co’s common stock for every four shares of Kellanova common stock to Kellanova’s share owners as of the close of business on the record date of September 21, 2023. On October 2, 2023, WK Kellogg Co began trading as an independent publicly traded company under the stock symbol "KLG" on the New Your Stock Exchange. Prior to October 2, 2023, WK Kellogg Co was wholly owned by 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 Agreement regarding Patents, Trademarks and Certain Related Intellectual Property, Tax Matters Agreement and Transition Services Agreement.

Restatement of Previously Issued Consolidated Financial Statements

While preparing its second quarter 2025 consolidated financial statements, the Company identified an error (the "Error") in the Company’s historical consolidated financial statements for the quarter and year-to-date periods ended December 30, 2023, March 30, 2024, June 29, 2024, September 28, 2024 and December 28, 2024, that caused understatements of Inventory, overstatements of Cost of goods sold, and corresponding Income tax impacts to the resulting increase in net income. The Company determined that the Error originated from discrete reporting processes established at the time of the spin-off from Kellanova and related to inventory adjustments that inadvertently double-counted certain manufacturing expenses. The Error had no cash impact and no impact on manufacturing operations.

Additionally, the Company is correcting certain items that were previously identified and concluded as immaterial, individually and in the aggregate, to its consolidated financial statements as of and for the fiscal year ended December 28, 2024. These items primarily relate to cash, accounts payable and notes payable misclassifications. These items impact cash amounts reflected on the consolidated balance sheet, and therefore impact net cash provided by (used in) operating activities and net cash provided by (used in) financing activities within the consolidated statement of cash flows for each respective period. Therefore management is restating for the Error and immaterial items in the accompanying consolidated financial statements for the year ended December 28, 2024 and revising for the Error in the accompanying financial statements for the year ended December 30, 2023.

Note 17 “Unaudited Quarterly Financial Data” includes restated unaudited financial information as of and for the quarters and ended March 30, 2024, June 29, 2024, September 28, 2024 and December 28, 2024 and the year-to-date periods ended June 28, 2024 and September 28, 2024.

The effects of the restatements on the Consolidated Balance Sheet as of December 28, 2024 are as follows:



(millions)	As Reported		Adjustment		As Restated
Cash	$	40	$	7	$	47
Inventories	353		14		367
Total current assets	619		21		640

Total assets	1,962		21		1,983

Accounts payable	513		7		520
Other current liabilities	94		3		97
Total current liabilities	841		10		851

Retained earnings	16		11		27
Total equity	317		11		328
Total liabilities and equity	1,962		21		1,983

Note A: Please refer to discussion in preceding paragraphs regarding adjustments to cash and accounts payable unrelated to the Error.

Note B: The Company's Consolidated Statements of Equity were also affected by the restated retained earnings amounts for the period presented above.

The effects of the revisions of errors not material to 2023 on the Consolidated Balance Sheet as of December 30, 2023 are as follows:



(millions)	As Reported	Adjustment	As Revised

Inventories	345	3	348
Total current assets	706	3	709

Total assets	1,889	3	1,892


Other current liabilities	105	1	106
Total current liabilities	836	1	837

Retained earnings	1	2	3
Total equity	300	2	302
Total liabilities and equity	1,889	3	1,892

Note: The Company's Consolidated Statements of Equity were also affected by the revised retained earnings amounts for the period presented above.

The effects of the restatements on the Consolidated Statement of Income and the Consolidated Statement of Comprehensive Income for the year ended December 28, 2024 are as follows:



(millions, except per share data)	As Reported		Adjustment		As Restated
Cost of goods sold	$	1,915	$	(11)	$	1,904
Operating profit	109		11		120
Income before income taxes	85		11		96
Income taxes	13		2		15
Net income	72		9		81
Comprehensive income	58		9		67
Basic earnings per share	0.83		0.11		0.94
Diluted earnings per share	0.82		0.09		0.91

The effects of the revisions of errors not material to 2023 on the Consolidated Statement of Income and the Consolidated Statement of Comprehensive Income for the year ended December 30, 2023 are as follows:



(millions, except per share data)	As Reported		Adjustment		As Revised
Cost of goods sold	$	2,009	$	(3)	$	2,006
Operating profit	92		3		95
Income before income taxes	145		3		148
Income taxes	35		1		36
Net income	110		2		112
Comprehensive income	113		2		115
Basic earnings per share	1.28		0.03		1.31
Diluted earnings per share	1.28		0.03		1.31

The effects of the restatements on the Consolidated Statement of Cash Flows for the year ended December 28, 2024 are as follows:



(millions)	As Reported		Adjustment		As Restated
Operating activities:
Net Income	$	72	$	9	$	81
Changes in operating assets and liabilities:
Inventories	(12)		(11)		(23)
Income taxes payable	7		2		9
Accounts payable	(67)		7		(60)
Net cash provided by (used in) operating activities	100		7		107



Increase (decrease) in cash and cash equivalents	(49)		7		(42)
Cash and cash equivalents at end of period	40		7		47

Note: Please refer to discussion in preceding paragraphs regarding adjustments to cash and accounts payable unrelated to the Error.

The effects of the revision of errors not material to 2023 on the Consolidated Statement of Cash Flows for the year ended December 30, 2023 are as follows:



(millions)	As Reported		Adjustment		As Revised
Operating activities:
Net Income	$	110	$	2	$	112
Changes in operating assets and liabilities:
Inventories	86		(3)		83
Income taxes payable	7		1		8
Net cash provided by (used in) operating activities	422		—		422

The impacts of the restatements have been reflected throughout these Consolidated Financial Statements, including Notes 12, 16 and 17.

Basis of presentation

The accompanying financial statements are presented on a consolidated basis as the Company is a standalone public company. Prior to the Spin-Off, the Company historically operated as part of Kellanova. Certain information from prior to the Spin-Off was derived from the consolidated financial statements and accounting records of Kellanova. These statements reflect the historical results of operations, financial position and cash flows of the Company prepared in accordance with accounting principles generally accepted in the United States (“GAAP”).

For periods prior to the Spin-Off, the Consolidated Financial Statements are presented as if the Company had been carved out of Kellanova, and included the attribution of certain assets and liabilities that had been held at Kellanova but which are specifically identifiable or attributable to our Business. They include expense allocations for: (1) co-manufacturing, product warehousing and distribution; (2) a combined sales force and management; (3) certain support functions that were provided on a centralized basis within Kellanova, including, but not limited to executive oversight, treasury, finance, internal audit, legal, information technology, human resources, communications, facilities, and compliance; and (4) employee benefits and compensation, including stock based compensation. These expenses were allocated to the Company on the basis of direct usage where identifiable, with the remainder allocated on a basis of gross sales value, production pounds, headcount or other applicable measures. Management believes the assumptions underlying these Consolidated Financial Statements, including the assumptions regarding allocated expenses, reasonably reflect the utilization of services provided to or the benefit received by the Company during the periods presented. Nevertheless, the periods prior to the Spin-Off that are included within the Consolidated Financial Statements may not reflect the results of operations, financial position and cash flows had the Company been a standalone company during the periods presented. Actual costs that the Company may have incurred had it been a standalone company would depend on a number of factors, including its organizational structure, whether functions were outsourced or performed by our employees and strategic decisions made in areas such as manufacturing, selling and marketing, research and development, information technology and infrastructure.

The allocation of expenses from Kellanova to WK Kellogg Co was reflected as follows in the Consolidated Financial Statements for the years-ended December 30, 2023 and December 31, 2022:


(millions)	2023		2022
Cost of goods sold	$	128	$	172
Selling, general and administrative	233		308
Other (income) expense, net	(43)		106
Total	$	318	$	586

The Consolidated Financial Statements also include $29 million, $102 million and $26 million of separation costs related to the separation from Kellanova for the years-ended December 28, 2024, December 30, 2023 and December 31, 2022, respectively. These were primarily related to legal and consulting costs and transition and Spin-Off related employee costs under the Transition Services Agreement. Prior to the Spin-Off, the Company was allocated a portion of costs incurred by Kellanova to evaluate, plan and execute the Spin-Off. The Company was allocated a pro rata portion of those costs, that they received a benefit from, based on either specific identification, where possible, or a proportional cost method based on gross sales value. Certain separation charges are expected to continue to be incurred through the first half of 2026.

Prior to the Spin-Off, Kellanova used a centralized approach to cash management and financing of operations. The majority of WK Kellogg Co’s businesses were part of Kellanova’s cash pooling arrangements to maximize Kellanova’s availability of cash for general operating and investing purposes. Under these cash pooling arrangements, cash balances were swept regularly from WK Kellogg Co’s accounts. Cash transfers to and from Kellanova’s cash concentration accounts and the resulting balances at the end of each reporting period prior to the Spin-Off are reflected in net parent company investment in the Consolidated Balance Sheet.

Additionally, prior to the Spin-Off we participated in Kellanova's hedging program which historically used a combination of long-term contracts with suppliers and exchange-traded futures and option contracts to reduce price fluctuations in a desired percentage of forecasted raw material purchases over a duration of generally less than 18 months. The Consolidated Statement of Income reflects a reasonable allocation of the impacts of our participation in Kellanova’s hedging program.

Debt obligations and related financing costs of Kellanova have not been included in the Consolidated Financial Statements of WK Kellogg Co for all periods prior to the Spin-Off, because WK Kellogg Co is not a party to the obligations between Kellanova and the debt holders. The debt obligations and related financing costs of WK Kellogg Co have been described in Note 8 "Debt".

For periods prior to the Spin-Off, our employees participated in Kellanova benefit and stock-based compensation plans. A portion of the cost of those plans related to our employees is included in our Consolidated Financial Statements. However, the Consolidated Balance Sheet does not include any equity issued related to stock-based compensation plans or any net benefit plan obligations unless the benefit plan covers only our dedicated employees or where the entire legal obligation associated with the benefit plan transferred to WK Kellogg Co post-spin. During the third quarter of 2023, in connection with the Spin-Off, certain pension and nonpension postretirement plans that were previously sponsored by Kellanova were divided such that the plans became dedicated to our employees and sponsored by WK Kellogg Co. See Note 10 "Pension and Postretirement Benefits" for further details on the assumption of pension and postretirement assets and liabilities and related costs.

Prior to the Spin-Off, the Company's operations have historically been included in the consolidated U.S. federal, certain state and local tax returns filed by Kellanova. We also filed certain separate U.S. state and local and foreign income tax returns. The Company has calculated its provision for income taxes using a separate return method as if the Company was a separate group of companies under common ownership. Under this method, the Company is assumed to file hypothetical separate returns with the tax authorities, thereby reporting its taxable income or loss and paying the applicable tax to or receiving the appropriate refund from Kellanova. The Company reports deferred taxes on its temporary differences and on any carryforwards that it could claim on its hypothetical returns. Cash tax payments, current and deferred tax balances and unremitted foreign earnings may not be reflective of the Company’s actual tax balances prior to or subsequent to the distribution.

The Company manages its business and reports its operations in one operating and reportable segment, engaged in the manufacturing, marketing and sales of cereal products in North America. Consistent with our operational structure, our Chief Operating Decision Maker (“CODM”), makes resource allocation and business decisions on a consolidated basis. Our CODM also uses consolidated single-segment financial information for the purpose of evaluating financial performance, allocating resources, setting incentive compensation targets, as well as forecasting future period financial results.

The Company’s fiscal year normally ends on the Saturday closest to December 31 and as a result, a 53rd week is added approximately every sixth year. The Company’s 2024, 2023 and 2022 fiscal years each contained 52 weeks and ended on December 28, 2024, December 30, 2023, and December 31, 2022, respectively.

The financial information included in the Consolidated Financial Statements 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 (loss), financial position, equity and cash flows for the periods presented. Certain prior period amounts have been updated to conform to the current period presentation.