The Company is exposed to certain market risks such as changes in interest rates, foreign currency exchange rates, and commodity prices, 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.

Prior to the Spin-Off, the Company participated in Kellanova's hedging program, which uses derivative and nonderivative financial and commodity instruments, including futures, options, and swaps, where appropriate, to manage risks. Since these derivative instruments were entered into and settled by Kellanova for both WK Kellogg Co and Kellanova's other businesses, no asset or liability was recorded on the Company's Consolidated Balance Sheets prior to the Spin-Off. However, an appropriate allocation of the gains/losses and fees associated with entering into derivative instruments has been included in the Company's Consolidated Statements of Income for each of the periods presented prior to Spin-Off.

After the Spin-Off, the Company has entered into its own derivative instruments. Derivative instruments are classified on the 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 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 Consolidated Balance Sheet. On the 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.

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, 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.


	December 28, 2024						December 30, 2023
(millions)	Level 1		Level 2		Total		Level 1		Level 2		Total










Assets:



Interest rate contracts:

Other current assets	$	—	$	2	$	2	$	—	$	—	$	—
Other assets	—		3		3		—		—		—



Total assets	$	—	$	5	$	5	$	—	$	—	$	—


	December 28, 2024						December 30, 2023
(millions)	Level 1		Level 2		Total		Level 1		Level 2		Total
Assets:
Foreign currency exchange contracts:
Other current assets	$	—	$	4	$	4	$	—	$	—	$	—
Other assets	—		1		1		—		—		—





Total assets	$	—	$	5	$	5	$	—	$	—	$	—
Liabilities:
Foreign currency exchange contracts:
Other current liabilities	$	—	$	3	$	3	$	—	$	—	$	—







Total liabilities	$	—	$	3	$	3	$	—	$	—	$	—

The effect of derivative instruments on the Company's Consolidated Statement of Income and Consolidated Statement of Comprehensive Income for the year-to-date periods ended December 28, 2024, December 30, 2023, and December 31, 2022 were as follows:


	Gain (loss) recognized in AOCI						Gain (loss) excluded from assessment of hedge effectiveness						Location of gain (loss) in income of excluded component
(millions)	December 28, 2024		December 30, 2023		December 31, 2022		December 28, 2024		December 30, 2023		December 31, 2022

Interest rate contracts	$	5	$	—	$	—	$	—	$	—	$	—	Interest expense

Year-to-date period ended

December 28,
2024

December 30,
2023

December 31,
2022

(millions)

Interest Expense

Interest rate contracts:

—

Amount of gain (loss) reclassified from AOCI into income

—

During the year-ended December 28, 2024, the Company entered into an interest rate swap contract with an initial notional amount of $250 million to manage the variability of cash flows associated with our variable rate debt. The contract matures on December 27, 2027 and requires periodic interest rate settlements. These derivatives are accounted for as cash flow hedges and the related net gain or loss is recorded in AOCI and will be amortized to interest expense over the term of the contract. These derivatives are used to hedge the variability of interest payment cash flows on a portion of our future debt obligations.

The Company could incur losses in the event of nonperformance by counterparties to over-the-counter ("OTC") financial and commodity derivatives contracts. Management believes risk of loss with respect to derivative contracts is limited due to the use of master netting agreements with credit-ratings based collateralization requirements for OTC derivatives and the use of exchange-traded commodity contracts. As of December 28, 2024, the Company was not in a material net asset position with any OTC derivatives counterparties.