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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 30, 2024
OR
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 1-4171
Kellanova.jpg
Kellanova
State of Incorporation—Delaware  IRS Employer Identification No.38-0710690
412 N. Wells Street, Chicago , IL 60654
Registrant’s telephone number: 269-961-2000
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Common Stock, $.25 par value per shareKNew York Stock Exchange
1.000% Senior Notes due 2024K 24New York Stock Exchange
1.250% Senior Notes due 2025K 25New York Stock Exchange
0.500% Senior Notes due 2029K 29New 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 filerAccelerated filerNon-accelerated filerSmaller reporting companyEmerging 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  
Common Stock outstanding as of April 27, 2024 — 341,883,645 shares


KELLANOVA
INDEX
 
 Page
Financial Statements
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures about Market Risk
Controls and Procedures
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Exhibits


Part I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Kellanova and Subsidiaries
CONSOLIDATED BALANCE SHEET
(in millions of U.S. dollars, except per share data)
(Unaudited)
March 30,
2024
December 30,
2023
Current assets
Cash and cash equivalents$242 $274 
Accounts receivable, net1,666 1,568 
Inventories1,210 1,243 
Other current assets332 245 
Total current assets3,450 3,330 
Property, net3,101 3,212 
Operating lease right-of-use assets665 661 
Goodwill5,067 5,160 
Other intangibles, net1,828 1,930 
Investments in unconsolidated entities100 184 
Other assets1,104 1,144 
Total assets$15,315 $15,621 
Current liabilities
Current maturities of long-term debt$1,303 $663 
Notes payable236 121 
Accounts payable2,209 2,314 
Current operating lease liabilities131 121 
Accrued advertising and promotion740 766 
Accrued salaries and wages205 278 
Other current liabilities701 797 
Total current liabilities5,525 5,060 
Long-term debt4,395 5,089 
Operating lease liabilities528 532 
Deferred income taxes513 497 
Pension liability596 613 
Other liabilities480 461 
Commitments and contingencies
Equity
Common stock, $.25 par value
105 105 
Capital in excess of par value1,063 1,101 
Retained earnings8,878 8,804 
Treasury stock, at cost(4,723)(4,794)
Accumulated other comprehensive income (loss)(2,171)(2,041)
Total Kellanova equity3,152 3,175 
Noncontrolling interests126 194 
Total equity3,278 3,369 
Total liabilities and equity$15,315 $15,621 
See accompanying Notes to Consolidated Financial Statements.


3

Kellanova and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME
(in millions of U.S. dollars, except per share data)
(Unaudited)
 Quarter ended
March 30,
2024
April 1,
2023
Net sales$3,200 $3,342 
Cost of goods sold2,169 2,358 
Selling, general and administrative expense638 638 
Operating profit393 346 
Interest expense83 70 
Other income (expense), net43 17 
Income from continuing operations before income taxes353 293 
Income taxes82 61 
Earnings (loss) from unconsolidated entities 2 
Net income from continuing operations271 234 
Net income (loss) attributable to noncontrolling interests4 4 
Income (loss) from discontinued operations, net of taxes 68 
Net income attributable to Kellanova$267 $298 
Per share amounts:
Earnings per common share - basic
Earnings (loss) from continuing operations$0.78 $0.67 
Earnings (loss) from discontinued operations$ $0.20 
Net earnings (loss) per common share - basic$0.78 $0.87 
Earnings per common share - diluted
Earnings (loss) from continuing operations$0.78 $0.67 
Earnings (loss) from discontinued operations$ $0.19 
Net earnings (loss) per common share - diluted$0.78 $0.86 
Average shares outstanding:
Basic341 342 
Diluted344 345 
Actual shares outstanding at period end342 343 
See accompanying Notes to Consolidated Financial Statements.


4

Kellanova and Subsidiaries
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(in millions of U.S. dollars) (Unaudited)
Quarter ended
March 30, 2024
Pre-tax
amount
Tax (expense)
benefit
After-tax
amount
Net income$271 
Other comprehensive income (loss):
Foreign currency translation adjustments:
Foreign currency translation adjustments during period$(272)$ (272)
Net investment hedges:
Net investment hedges gain (loss)71 (18)53 
Cash flow hedges:
Net deferred gain (loss) on cash flow hedges 22 (6)16 
Reclassification to net income2  2 
Postretirement and postemployment benefits:
Reclassification to net income:
Prior service cost1  1 
Other comprehensive income (loss) $(176)$(24)$(200)
Comprehensive income$71 
Net Income attributable to noncontrolling interests4 
Other comprehensive income (loss) attributable to noncontrolling interests(70)
Comprehensive income attributable to Kellanova$137 
Quarter ended
 April 1, 2023
Pre-tax
amount
Tax (expense)
benefit
After-tax
amount
Net income$302 
Other comprehensive income (loss):
Foreign currency translation adjustments:
Foreign currency translation adjustments during period$42 $3 45 
Net investment hedges:
Net investment hedges gain (loss)(57)15 (42)
Cash flow hedges:
Net deferred gain (loss) on cash flow hedges(18)5 (13)
Reclassification to net income3 (1)2 
Postretirement and postemployment benefits:
Reclassification to net income:
Net experience (gain) loss(1) (1)
Available-for-sale securities:
Unrealized gain (loss)1  1 
Other comprehensive income (loss)$(30)$22 $(8)
Comprehensive income$294 
Net Income attributable to noncontrolling interests4 
Other comprehensive income (loss) attributable to noncontrolling interests(3)
Comprehensive income attributable to Kellanova$293 
See accompanying Notes to Consolidated Financial Statements.

5

Kellanova and Subsidiaries
CONSOLIDATED STATEMENT OF EQUITY
(in millions of U.S. dollars, except per share data)
(Unaudited) 
Quarter ended March 30, 2024
 
 
Common
stock
Capital in
excess of
par value
Retained
earnings
 
Treasury
stock
Accumulated
other
comprehensive
income (loss)
Total Kellanova
equity
Non-controlling
interests
Total
equity
sharesamountsharesamount
Balance, December 30, 2023421 $105 $1,101 $8,804 81 $(4,794)$(2,041)$3,175 $194 $3,369 
Net income267 267 4 271 
Dividends declared ($0.56 per share)
(191)(191)(191)
Distributions to noncontrolling interest (2)(2)
Other comprehensive income (loss)(130)(130)(70)(200)
Stock compensation21 21 21 
Stock options exercised, issuance of other stock awards and other(59)(2)(1)71 10 10 
Balance, March 30, 2024421 $105 $1,063 $8,878 80 $(4,723)$(2,171)$3,152 $126 $3,278 

Quarter ended April 1, 2023
 
 
Common
stock
Capital in
excess of
par value
Retained
earnings
 
Treasury
stock
Accumulated
other
comprehensive
income (loss)
Total Kellanova
equity
Non-controlling
interests
Total
equity
sharesamountsharesamount
Balance, December 31, 2022421 $105 $1,068 $9,197 79 $(4,721)$(1,708)$3,941 $434 $4,375 
Net income298 298 4 302 
Dividends declared ($0.59 per share)
(202)(202)(202)
Distributions to noncontrolling interest (8)(8)
Other comprehensive income (loss)(5)(5)(3)(8)
Stock compensation22 22 22 
Stock options exercised, issuance of other stock awards and other(57) (1)55 (2)(2)
Balance, April 1, 2023421 $105 $1,033 $9,293 78 $(4,666)$(1,713)$4,052 $427 $4,479 
See accompanying Notes to Consolidated Financial Statements.



6

Kellanova and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions of U.S. dollars)
(Unaudited)
 Quarter ended
March 30,
2024
April 1,
2023
Operating activities
Net income$271 $302 
Adjustments to reconcile net income to operating cash flows:
Depreciation and amortization86 116 
Impairment of property plant and equipment60  
Postretirement benefit plan expense (benefit)(18)(15)
Deferred income taxes29 (6)
Stock compensation21 22 
Other36 (10)
Distribution from postretirement benefit plan175  
Postretirement benefit plan contributions(22)(5)
Changes in operating assets and liabilities, net of acquisitions:
Trade receivables(173)(110)
Inventories(4)(27)
Accounts payable(14)9 
All other current assets and liabilities(83) 
Net cash provided by (used in) operating activities364 276 
Investing activities
Additions to properties(155)(203)
Issuance of notes receivable (5)
Purchase of marketable securities(175) 
Purchases of available for sale securities (5)
Sales of available for sale securities 5 
Settlement of net investment hedges(7)17 
Collateral paid on derivatives (15)
Other4 1 
Net cash provided by (used in) investing activities(333)(205)
Financing activities
Net issuances (reductions) of notes payable115 3 
Issuances of long-term debt 401 
Reductions of long-term debt(2)(216)
Net issuances of common stock23 19 
Cash dividends(191)(202)
Other(3)(38)
Net cash provided by (used in) financing activities(58)(33)
Effect of exchange rate changes on cash and cash equivalents(5)10 
Increase (decrease) in cash and cash equivalents(32)48 
Cash and cash equivalents at beginning of period274 299 
Cash and cash equivalents at end of period$242 $347 
Supplemental cash flow disclosures of non-cash investing activities:
   Additions to properties included in accounts payable$88 $105 
See accompanying Notes to Consolidated Financial Statements.

7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the quarter ended March 30, 2024 (unaudited)
NOTE 1 ACCOUNTING POLICIES
Basis of presentation
The unaudited interim financial information of Kellanova (the Company), formerly Kellogg 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 financial statements and accompanying footnotes within the Company’s 2023 Annual Report on Form 10-K.
During the fourth quarter of 2023, the Company completed the separation of its North America cereal business resulting in two independent companies, Kellanova and WK Kellogg Co. In accordance with applicable accounting guidance, the results of WK Kellogg Co are presented as discontinued operations in the consolidated statements of operations and, as such, have been excluded from both continuing operations and segment results for all periods presented. The consolidated statements of comprehensive income, equity and cash flows are presented on a consolidated basis for both continuing operations and discontinued operations. All amounts, percentages and disclosures for all periods presented reflect only the continuing operations of Kellanova unless otherwise noted. See Note 2 for additional information.
The balance sheet information at December 30, 2023 was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States. The results of operations for the quarter ended March 30, 2024 are not necessarily indicative of the results to be expected for other interim periods or the full year.
Certain prior period amounts have been reclassified to conform with current period presentation.
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 150 days dependent 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 cash used in operating activities in the Consolidated Statement of Cash Flows. As of March 30, 2024, $842 million of the Company’s outstanding payment obligations had been placed in the accounts payable tracking system. As of December 30, 2023, $825 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 to expand the disclosure requirements for income taxes, specifically related to the rate reconciliation and income taxes paid. It will take effect for public entities fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently assessing the impact of any incremental disclosures required by this ASU and the planned timing of adoption.
Segment Reporting: Improvements to Reportable Segment Disclosures. In November 2023, the FASB issued ASU 2023-07, which focuses on enhancing reportable segment disclosures under Segment Reporting (Topic 280). This new standard is designed to enhance the transparency of significant segment expenses on an interim and annual basis. It will take effect for public entities fiscal years beginning after December 15, 2023, and interim periods within the fiscal year beginning after December 15, 2024, with the option for earlier adoption at any time before the specified date. The Company is currently assessing the impact of any incremental disclosures required by this ASU. The Company expects to adopt this amendment in the fourth quarter of 2024.

8

NOTE 2 DISCONTINUED OPERATIONS
During the fourth quarter of 2023, the Company completed the separation of its North America cereal business resulting in two independent companies, Kellanova and WK Kellogg Co.
In accordance with applicable accounting guidance, the results of WK Kellogg Co are presented as discontinued operations in the consolidated statements of operations and, as such, have been excluded from both continuing operations and segment results for all periods presented. The consolidated statements of cash flows are presented on a consolidated basis for both continuing operations and discontinued operations.
The following table presents key components of “Income from discontinued operations, net of income taxes” for the quarter ended April 1, 2023:
(millions)
Net sales$711 
Cost of goods sold485 
Selling, general and administrative expense133 
Operating profit$93 
Interest expense10 
Other income (expense), net9 
Income from discontinued operations before income taxes$92 
Income taxes24 
Net income from discontinued operations, net of tax$68 
The following table presents significant cash flow items from discontinued operations for the quarter ended April 1, 2023:
(millions)
Depreciation and amortization$19 
Additions to properties$42 
Postretirement benefit plan expense (benefit)$(7)
In connection with the separation, WK Kellogg Co entered into several agreements with Kellanova that govern the relationship of the parties following the spin-off including a Separation and Distribution Agreement, a Manufacturing and Supply Agreement (“Supply Agreement”), a Tax Matters Agreement, Employee Matters Agreement, Transition Services Agreement (“TSA”), and various lease agreements.
Pursuant to the TSA, both Kellanova and WK Kellogg Co agreed to provide certain services to each other, on an interim, transitional basis from and after the separation and the distribution for a duration of up to 2 years following the spin-off. The TSA covers various services such as supply chain, IT, commercial, sales, Finance, HR, R&D and other Corporate. The remuneration to be paid for such services is generally intended to allow the company providing the services to recover all of its costs and expenses of providing such services. The costs and reimbursements related to services provided by Kellanova under the TSA are recorded in continuing operations within the consolidated statement of operations. Kellanova recorded approximately $47 million of cost reimbursements related to the TSA, of which $33 million is recognized in COGS and $14 million in SGA in the Consolidated Statement of Income for the quarter ended March 30, 2024. These reimbursements are a direct offset within the consolidated statement of income to the costs incurred related to providing services under the TSA.
Pursuant to the Supply Agreement, Kellanova will continue to supply certain inventory to WKKC for a period of up to 3 years following the spin-off. Net sales to WKKC of $15 million and cost of sales of $13 million were recognized during the quarter ended March 30, 2024.


9

NOTE 3 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 two Receivable Sales Agreements (Monetization Programs) described below, which are intended to directly offset the impact the Extended Terms Program would have on the days-sales-outstanding (DSO) metric that is critical to the effective management of the Company's accounts receivable balance and overall working capital. The Monetization Programs sell, on a revolving basis, certain trade accounts receivable invoices to third party financial institutions. Transfers under these agreements are accounted for as sales of receivables resulting in the receivables being de-recognized from the Consolidated Balance Sheet. The Monetization Programs provide 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 $975 million.
The Company has no retained interest in the receivables sold, however the Company does have collection and administrative responsibilities for the sold receivables. The Company has not recorded any servicing assets or liabilities as of March 30, 2024 and December 30, 2023 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 $725 million and $697 million remained outstanding under these arrangements as of March 30, 2024 and December 30, 2023, respectively. The proceeds from these sales of receivables are included in cash from operating activities in the Consolidated Statement of Cash Flows in the period of sale. The recorded net loss on sale of receivables was $11 million and $8 million for the quarters ended March 30, 2024 and April 1, 2023, respectively. The recorded loss is included in Other income and expense (OIE).
Other programs
Additionally, from time to time certain of the Company's foreign subsidiaries will transfer, without recourse, accounts receivable invoices of certain customers to financial institutions. These transactions are accounted for as sales of the receivables resulting in the receivables being de-recognized from the Consolidated Balance Sheet. Accounts receivable sold of $20 million and $8 million remained outstanding under these programs as of March 30, 2024 and December 30, 2023, respectively. The proceeds from these sales of receivables are included in cash from operating activities in the Consolidated Statement of Cash Flows in the period of sale. The recorded net loss on the sale of these receivables is included in OIE and is not material.
NOTE 4 RESTRUCTURING
The Company views its restructuring programs as part of its operating principles to provide greater visibility in achieving its long-term profit growth targets. Initiatives undertaken are generally expected to recover cash implementation costs within a 1 to 5-year period subsequent to completion. Completion (or as each major stage is completed in the case of multi-year programs) is when the project begins to deliver cash savings and/or reduced depreciation.
In the first quarter, the Company announced a reconfiguration of the North America frozen supply chain network, designed to drive increased productivity. The project is expected to be substantially completed by late 2024, with cost savings beginning to contribute to gross margin improvements in the second half of 2024 and reaching full-run rate in 2025. The overall project is expected to result in cumulative pretax charges of approximately $50 million, which include employee-related costs of $10 million, other cash costs of $10 million, and non-cash costs, primarily consisting of asset impairment, accelerated depreciation, and asset disposals of $30 million. Charges incurred related to this restructuring program were $31 million during the quarter ended March 30, 2024. These charges primarily related to severance costs and asset impairment, and were recorded in COGS.
In the first quarter, the Company proposed a reconfiguration of the European cereal supply chain network, following the completion of any collective bargaining obligations and consultation with impacted employees. The project, designed to drive efficiencies, is expected to be substantially completed by late 2026, with resulting efficiencies expected to begin contributing to gross margin improvements in late 2026. The overall project is expected to result in cumulative pretax charges of approximately $120 million, which include employee-related costs of $50 million, other cash costs of $30 million, and non-cash costs, primarily consisting of asset impairment, accelerated depreciation, and asset disposals of $40 million. Charges incurred related to this restructuring program were $70 million during the quarter ended March 30, 2024. These charges primarily related to severance costs and asset impairment, and were recorded in COGS.


10

The tables below provide the details for charges incurred during the quarter ended March 30, 2024.
 Quarter ended
(millions)March 30, 2024
Employee related costs$37 
Asset related costs4 
Asset impairment60 
Total$101 
 Quarter ended
(millions)March 30, 2024
North America$31 
Europe70 
Total$101 
All other restructuring projects were immaterial during the periods presented.
At March 30, 2024 total project reserves for the European and North American reorganizations were $31 million and $6 million, respectively. The reserves were related to severance payments and other costs of which a substantial portion will not be paid during the current year. The following table provides details for exit cost reserves related to the European and North American reorganizations described above.
Employee
Related
Costs
Asset
Impairment
Asset
Related
Costs
Total
Liability as of December 30, 2023$ $ $ $ 
2024 restructuring charges37 60 4 101 
Cash payments    
Non-cash charges and other (60)(4)(64)
Liability as of March 30, 2024$37 $ $ $37 
NOTE 5 DIVESTITURES
Russia
In July 2023 the Company completed the sale of its Russian business. As a result of completing the transaction, the Company derecognized net assets of approximately $65 million and recorded a non-cash loss on the transaction of approximately $113 million in OIE, primarily related to the release of historical currency translation adjustments. The business was part of the Europe reportable segment and the sale resulted in a complete exit from the Russian market. The business in Russia represented approximately 1% of consolidated Kellanova net sales.

NOTE 6 EQUITY
Earnings per share
Basic earnings per share is determined by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share is similarly determined, except that the denominator is increased to include the number of additional common shares that would have been outstanding if all dilutive potential common shares had been issued. Dilutive potential common shares consist principally of employee stock options issued by the Company, restricted stock units, and certain contingently issuable performance shares. There were approximately 6 million and 4 million anti-dilutive potential common shares excluded from the calculation for the quarters ended March 30, 2024 and April 1, 2023, respectively. Please refer to the Consolidated Statement of Income for basic and diluted earnings per share for the quarters ended March 30, 2024 and April 1, 2023.

11

Share repurchases
In December 2022, the Board of Directors approved an authorization to repurchase up to $1.5 billion of our common stock through December 2025. During the quarters ended March 30, 2024 and April 1, 2023, the Company did not repurchase any shares of common stock.
Comprehensive income
Comprehensive income includes net income and all other changes in equity during a period except those resulting from investments by or distributions to shareholders. Other comprehensive income consists of foreign currency translation adjustments, fair value adjustments associated with cash flow hedges, which are recorded in interest expense within the statement of income, upon reclassification from Accumulated Other Comprehensive Income (AOCI), adjustments for net experience gains (losses), prior service credit (costs) related to employee benefit plans and adjustments for unrealized (gains) losses on available-for-sale securities, which are recorded in other income (expense) within the statement of income, upon reclassification from AOCI. The related tax effects of these items are recorded in income tax expense within the statement of income, upon reclassification from AOCI.
Accumulated other comprehensive income (loss), net of tax, as of March 30, 2024 and December 30, 2023 consisted of the following:
(millions)March 30,
2024
December 30,
2023
Foreign currency translation adjustments$(2,528)$(2,326)
Net investment hedges gain (loss)239 186 
Cash flow hedges — net deferred gain (loss)161 143 
Postretirement and postemployment benefits:
Net experience gain (loss)1 1 
Prior service credit (cost)(44)(45)
Total accumulated other comprehensive income (loss)$(2,171)$(2,041)
NOTE 7 EMPLOYEE BENEFITS
The Company sponsors a number of U.S. and foreign pension plans as well as other nonpension postretirement and postemployment plans to provide various benefits for its employees. These plans are described within the footnotes to the Consolidated Financial Statements included in the Company’s 2023 Annual Report on Form 10-K. Components of Company benefit plan (income) expense for the periods presented are included in the tables below. Excluding the service cost component, these amounts are included within Other income (expense) in the Consolidated Statement of Income.
Pension
 Quarter ended
(millions)March 30, 2024April 1, 2023
Service cost$4 $4 
Interest cost35 36 
Expected return on plan assets(41)(45)
Amortization of unrecognized prior service cost2 1 
Total pension income$ $(4)

12

Other nonpension postretirement
 Quarter ended
(millions)March 30, 2024April 1, 2023
Service cost$1 $ 
Interest cost4 4 
Expected return on plan assets(9)(9)
Amortization of unrecognized prior service cost(1)(1)
Recognized net (gain) loss(13) 
Total postretirement benefit income$(18)$(6)
The Company contributes to voluntary employee benefit association (VEBA) trusts to fund certain U.S. retiree health and welfare benefit obligations. During the first quarter of 2024, the Company amended the plan to create a sub-trust to permit the payment of certain benefits for active union employees using a surplus totaling $175 million from the retiree plan, which represents a portion of the plan's total surplus. This amount was converted to cash and treated as a one-time transfer to a sub-trust that was then invested in marketable securities and will be used to pay for these active union employee benefits. As a result of its designation for this purpose, the transferred amount is no longer considered an asset of the retiree plan and will be included in Other current assets and Other assets dependent on the expected holding period on the Consolidated Balance Sheet as of March 30, 2024. The one-time transfer of cash from the VEBA trust to the sub-trust was treated as a distribution from the plan in operating activities on the Consolidated Statement of Cash Flows and the investment in marketable securities to fund the active union employee benefits was treated as an investing activity in the Consolidated Statement of Cash Flows.

For the quarter ended March 30, 2024, the Company recognized a gain of $13 million related to the remeasurement of other postretirement benefit plans. These remeasurements were the result of the transfer of assets noted above. The remeasurements recognized were due primarily to the increase in discount rates versus the prior year-end and higher than expected return on plan assets.
Postemployment benefit plan expense for the quarters ended March 30, 2024 and April 1, 2023 was not material.
Exclusive of the negative contribution discussed above, Company contributions to employee benefit plans are summarized as follows:
(millions)PensionNonpension postretirementTotal
Quarter ended:
March 30, 2024$19 $3 $22 
April 1, 2023$ $3 $3 
Full year:
Fiscal year 2024 (projected)$46 $18 $64 
Fiscal year 2023 (actual)$25 $10 $35 
Plan funding strategies may be modified in response to management's evaluation of tax deductibility, market conditions, and competing investment alternatives.
NOTE 8 INCOME TAXES
The consolidated effective tax rate for the quarters ended March 30, 2024 and April 1, 2023 was 23% and 21%, respectively.
As of March 30, 2024, the Company classified $8 million of unrecognized tax benefits as a current tax liability. Management's estimate of reasonably possible changes in unrecognized tax benefits during the next twelve months consists of the current liability expected to be settled within one year, offset by approximately $3 million of projected additions related primarily to ongoing intercompany transfer pricing activity. Management is currently unaware of any issues under review that could result in significant additional payments, accruals or other material deviation in this estimate.

13

The Company’s total gross unrecognized tax benefits as of March 30, 2024 was $32 million. Of this balance, $27 million represents the amount that, if recognized, would affect the Company’s effective income tax rate in future periods.
The accrual balance for tax-related interest was approximately $4 million at March 30, 2024.
NOTE 9 DERIVATIVE INSTRUMENTS AND FAIR VALUE
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 instruments and commodity instruments, including futures, options, and swaps, where appropriate, to manage these risks. Instruments used as hedges must be effective at reducing the risk associated with the exposure being hedged.
The Company designates derivatives and nonderivative hedging instruments as cash flow hedges, fair value hedges, net investment hedges, and uses other contracts to reduce volatility in interest rates, foreign currency and commodities. As a matter of policy, the Company does not engage in trading or speculative hedging transactions.
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.
Total notional amounts of the Company’s derivative instruments as of March 30, 2024 and December 30, 2023 were as follows:
(millions)March 30,
2024
December 30,
2023
Foreign currency exchange contracts$3,320 $3,141 
Cross-currency contracts1,776 1,707 
Interest rate contracts2,268 2,289 
Commodity contracts337 201 
Total$7,701 $7,338 
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 30, 2024 and December 30, 2023, 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 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, cross-currency swaps and over-the-counter commodity and currency contracts.
The Company’s calculation of the fair value of interest rate swaps is derived from a discounted cash flow analysis based on the terms of the contract and the 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. Cross-currency contracts are valued based on changes in the spot rate at

14

the time of valuation compared to the spot rate at the time of execution, as well as the change in the interest differential between the two currencies. 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.
Level 3 – Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect management’s own assumptions about the assumptions a market participant would use in pricing the asset or liability. The Company did not have any Level 3 financial assets or liabilities as of March 30, 2024 or December 30, 2023.
The following table presents assets and liabilities that were measured at fair value in the Consolidated Balance Sheet on a recurring basis as of March 30, 2024 and December 30, 2023:
Derivatives designated as hedging instruments
 March 30, 2024December 30, 2023
(millions)Level 1Level 2TotalLevel 1Level 2Total
Assets:
Cross-currency contracts:
Other current assets$ $11 $11 $ $12 $12 
Other assets 17 17  4 4 
Interest rate contracts:
Other current assets      
Other assets      
Total assets$ $28 $28 $ $16 $16 
Liabilities:
Cross-currency contracts:
Other current liabilities$ $ $ $ $(17)$(17)
   Other liabilities (3)(3) (15)(15)
Interest rate contracts(a):
Other current liabilities (15)(15) (44)(44)
Other liabilities (50)(50) (45)(45)
Total liabilities$ $(68)$(68)$ $(121)$(121)
(a) The fair value of the related hedged portion of the Company's long-term debt, a Level 2 liability, was $1.1 billion as of March 30, 2024 and December 30, 2023, respectively.














15

Derivatives not designated as hedging instruments
 March 30, 2024December 30, 2023
(millions)Level 1Level 2TotalLevel 1Level 2Total
Assets:
Foreign currency exchange contracts:
Other current assets$ $46 $46 $ $51 $51 
Other assets 4 4  4 4 
Interest rate contracts:
Other current assets 9 9  9 9 
Other assets 5 5  4 4 
Commodity contracts:
Other current assets7  7 2  2 
Total assets$7 $64 $71 $2 $68 $70 
Liabilities:
Foreign currency exchange contracts:
Other current liabilities$ $(45)$(45)$ $(54)$(54)
Other liabilities (5)(5) (6)(6)
Interest rate contracts:
Other current liabilities (11)(11) (11)(11)
Other liabilities (7)(7) (6)(6)
Commodity contracts:
Other current liabilities(3) (3)(2) (2)
Total liabilities$(3)$(68)$(71)$(2)$(77)$(79)
The Company has designated its outstanding foreign currency denominated debt as a net investment hedge of a portion of the Company’s investment in its subsidiaries’ foreign currency denominated net assets. The carrying value of this debt, including current and long-term, was approximately $1.6 billion and $1.7 billion as of March 30, 2024 and December 30, 2023, respectively.
The following amounts were recorded on the Consolidated Balance Sheet related to cumulative basis adjustments for existing fair value hedges as of March 30, 2024 and December 30, 2023.
(millions)Line Item in the Consolidated Balance Sheet in which the hedged item is includedCarrying amount of the hedged liabilitiesCumulative amount of fair value hedging adjustment included in the carrying amount of the hedged liabilities (a)
March 30,
2024
December 30,
2023
March 30,
2024
December 30,
2023
Interest rate contractsCurrent maturities of long-term debt$1,297 $655 $2 $(8)
Interest rate contractsLong-term debt$994 $1,666 $(53)$(43)
(a) The fair value adjustment related to current maturities of long-term debt includes $5 million and $2 million from discontinued hedging relationships as of March 30, 2024 and December 30, 2023, respectively. The fair value adjustment related to long-term debt includes $(2) million and $3 million from discontinued hedging relationships as of March 30, 2024 and December 30, 2023, respectively.

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The Company has elected to not offset the fair values of derivative assets and liabilities executed with the same counterparty that are generally subject to enforceable netting agreements. However, if the Company were to offset and record the asset and liability balances of derivatives on a net basis, the amounts presented in the Consolidated Balance Sheet as of March 30, 2024 and December 30, 2023 would be adjusted as detailed in the following table:
    
As of March 30, 2024:
  
Gross Amounts Not Offset in the
Consolidated Balance Sheet
  
  
Amounts
Presented in the
Consolidated
Balance Sheet
Financial
Instruments
Cash Collateral
Received/
Posted
Net
Amount
Total asset derivatives$99 $(81)$6 $24 
Total liability derivatives$(139)$81 $58 $ 

 
As of December 30, 2023:
  
Gross Amounts Not Offset in the
Consolidated Balance Sheet
  
  
Amounts
Presented in the
Consolidated
Balance Sheet
Financial
Instruments
Cash Collateral
Received/
Posted
Net
Amount
Total asset derivatives$86 $(84)$ $2 
Total liability derivatives$(200)$84 $68 $(48)

During the quarter ended April 1, 2023, the Company settled certain interest rate contracts resulting in a net realized gain of approximately $47 million. These derivatives were accounted for as cash flow hedges and the related net gains were recorded in accumulated other comprehensive income and will be amortized to interest expense over the term of the related forecasted fixed rate debt, once issued.
During the quarters ended March 30, 2024 and April 1, 2023, the Company settled certain cross currency swaps resulting in a net realized loss of approximately $7 million and a net realized gain of approximately $17 million, respectively. These cross currency swaps were accounted for as net investment hedges and the related net gain (loss) was recorded in accumulated other comprehensive income.
The effect of derivative instruments on the Consolidated Statements of Income and Comprehensive Income for the quarters ended March 30, 2024 and April 1, 2023 was as follows:
Derivatives and non-derivatives in net investment hedging relationships
(millions)Gain (loss)
recognized in
AOCI
Gain (loss) excluded from assessment of hedge effectivenessLocation of gain (loss) in income of excluded component
 March 30,
2024
April 1,
2023
March 30,
2024
April 1,
2023
Foreign currency denominated long-term debt$37 $(32)$ $ 
Cross-currency contracts34 (25)8 14 Interest expense
Total$71 $(57)$8 $14 
Derivatives not designated as hedging instruments
(millions)Location of gain
(loss) recognized
in income
Gain (loss)
recognized in
income
  March 30,
2024
April 1,
2023
Foreign currency exchange contractsCOGS$(1)$(8)
Foreign currency exchange contractsOther income (expense), net4 (4)
Foreign currency exchange contractsSG&A9 (2)
Interest rate contractsInterest expense  
Commodity contractsCOGS(17)(35)
Total$(5)$(49)

17

The effect of fair value and cash flow hedge accounting on the Consolidated Income Statement for the quarters ended March 30, 2024 and April 1, 2023:
March 30, 2024April 1, 2023
(millions)Interest ExpenseInterest Expense
Total amounts of income and expense line items presented in the Consolidated Income Statement in which the effects of fair value or cash flow hedges are recorded$83 $70 
Gain (loss) on fair value hedging relationships:
Interest contracts:
Hedged items1 (12)
Derivatives designated as hedging instruments1 13 
Gain (loss) on cash flow hedging relationships:
Interest contracts:
Amount of gain (loss) reclassified from AOCI into income(2)(3)
During the next 12 months, the Company expects $9 million of net deferred losses reported in AOCI at March 30, 2024 to be reclassified to income, assuming market rates remain constant through contract maturities.
Certain of the Company’s derivative instruments contain provisions requiring the Company to post collateral on those derivative instruments that are in a liability position when the value exceeds certain thresholds with each counterparty. In addition, certain derivative instruments contain provisions that would be triggered in the event the Company defaults on its debt agreements. The collateral posting requirements as of March 30, 2024, triggered by threshold contingent features was not material.
Other fair value measurements
Fair value measurements on a nonrecurring basis
During the quarter ended March 30, 2024, the Company announced the reconfiguration of the North America frozen supply chain network and the proposed reconfiguration of the European cereal supply chain network. As part of these programs, the Company will be consolidating the usage of and disposing certain long-lived assets, including manufacturing facilities. See Note 4 for more information regarding these restructuring programs.
During the quarter ended March 30, 2024, long-lived assets of $62 million related to a frozen foods manufacturing facility in the Company's North America reportable segment, were written down to an estimated fair value of less than $41 million resulting in an impairment charge of $21 million recorded in COGS.
During the quarter ended March 30, 2024, long lived assets of $99 million related to a cereal manufacturing facility in the Company's Europe reportable segment, were written down to an estimated fair value of $60 million resulting in an impairment charge of $39 million recorded in COGS.
The Company's calculation of the fair value of these long-lived assets is based on Level 3 inputs, including market comparables, market trends and the condition of the assets.
Available for sale securities
During the quarter ended April 1, 2023, the Company sold Level 2 corporate bonds for approximately $5 million. The resulting gain was immaterial and recorded in Other income and (expense). Also during the quarter ended April 1, 2023, the Company purchased approximately $5 million in Level 2 corporate bonds.
The market values of the Company's investments in Level 2 corporate bonds are based on matrices or models from pricing vendors. Unrealized gains and losses are included in the Consolidated Statement of Comprehensive Income. Additionally, these investments are recorded within Other current assets and Other assets on the Consolidated Balance Sheet, based on the maturity of the individual security.

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The Company reviews its investment portfolio for any unrealized losses that would be deemed other-than-temporary and requires the recognition of an impairment loss in earnings. If the cost of an investment exceeds its fair value, the Company evaluates, among other factors, general market conditions, the duration and extent to which the fair value is less than its cost, the Company's intent to hold the investment, and whether it is more likely than not that the Company will be required to sell the investment before recovery of the cost basis. The Company also considers the type of security, related industry and sector performance, and published investment ratings. Once a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded and a new cost basis in the investment is established. If conditions within individual markets, industry segments, or macro-economic environments deteriorate, the Company could incur future impairments.
Marketable securities
During the first quarter of 2024, the Company amended the U.S. retiree health and welfare plan to create a sub-trust to permit the payment of certain benefits for active union employees using a surplus totaling $175 million from the retiree plan. During the quarter ended March 30, 2024, the Company invested the $175 million in a short term investment fund that primarily holds short term debt instruments. This investment was measured at Level 1 quoted market prices. The fair value of the investment was approximately $175 million as of March 30, 2024. Classification of marketable securities as current or noncurrent is dependent upon our intended holding period.
Equity investments
We hold equity investments in certain companies that we do not have the ability to exercise significant influence. Equity investments without a readily determinable fair value are recorded at original cost. Investments with a readily determinable fair value, which are Level 2 investments, are measured at fair value based on observable market price changes, with gains and losses recorded through net earnings. Equity investments were approximately $40 million as of March 30, 2024 and December 30, 2023. Additionally, these investments were recorded within Other noncurrent assets on the Consolidated Balance Sheet.
Financial instruments
The carrying values of the Company’s short-term items, including cash, cash equivalents, accounts receivable, accounts payable, notes payable and current maturities of long-term debt approximate fair value. The fair value of the Company’s long-term debt, which are Level 2 liabilities, is calculated based on broker quotes. The fair value and carrying value of the Company's long-term debt was $4.3 billion and $4.4 billion, respectively, as of March 30, 2024. The fair value and carrying value of the Company's long-term debt was $5.0 billion and $5.1 billion, respectively, as of December 30, 2023.
Counterparty credit risk concentration and collateral requirements
The Company is exposed to credit loss in the event of nonperformance by counterparties on derivative financial and commodity contracts. Management believes a concentration of credit risk with respect to derivative counterparties is limited due to the credit ratings and use of master netting and reciprocal collateralization agreements with the counterparties and the use of exchange-traded commodity contracts.
Master netting agreements apply in situations where the Company executes multiple contracts with the same counterparty. Certain counterparties represent a concentration of credit risk to the Company. If those counterparties fail to perform according to the terms of derivative contracts, this would result in a loss to the Company, net of collateral already received from those counterparties. As of March 30, 2024, the concentration of credit risk to the Company was immaterial.
For certain derivative contracts, reciprocal collateralization agreements with counterparties call for the posting of collateral in the form of cash, treasury securities or letters of credit if a fair value loss position to the Company or its counterparties exceeds a certain amount. In addition, the Company is required to maintain cash margin accounts in connection with its open positions for exchange-traded commodity derivative instruments executed with the counterparty that are subject to enforceable netting agreements. As of March 30, 2024, the Company posted $53 million related to reciprocal collateralization agreements. As of March 30, 2024, the Company posted $11 million in margin deposits for exchange-traded commodity derivative instruments, which was reflected as an increase in accounts receivable, net on the Consolidated Balance Sheet.
Management believes concentrations of credit risk with respect to accounts receivable is limited due to the generally high credit quality of the Company’s major customers, as well as the large number and geographic dispersion of smaller customers.

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NOTE 10 REPORTABLE SEGMENTS
Kellanova is a leading producer of snacks, cereal, and frozen foods. It is the second largest producer of crackers, and a leading producer of savory snacks and cereal. Additional product offerings include toaster pastries, cereal bars, veggie foods and noodles. Kellanova products are manufactured and marketed globally. Principal markets for these products include the United States, United Kingdom, Nigeria, Canada, Mexico, and Australia.
The Company manages its operations through four operating segments that are based on geographic location – North America which includes U.S. businesses and Canada; Europe which consists of European countries; Latin America which consists of Central and South America and includes Mexico; and AMEA (Asia Middle East Africa) which consists of Africa, Middle East, Australia and other Asian and Pacific markets. These operating segments also represent our reportable segments.
Corporate includes corporate administration and initiatives as well as share-based compensation.
The measurement of reportable segment results is based on segment operating profit which is generally consistent with the presentation of operating profit in the Consolidated Statement of Income. Reportable segment results were as follows:
 Quarter ended
(millions)March 30,
2024
April 1,
2023
Net sales
North America$1,688 $1,686 
Europe599 604 
Latin America314 283 
AMEA600 770 
Total Reportable Segments3,201 3,343 
Corporate(1)(1)
Consolidated$3,200 $3,342 
Operating profit
North America$335 $269 
Europe28 92 
Latin America27 22 
AMEA75 74 
Total Reportable Segments465 457 
Corporate(72)(111)
Consolidated$393 $346 
Supplemental product information is provided below for net sales to external customers:
Quarter ended
(millions)March 30,
2024
April 1,
2023
Snacks$2,015 $2,022 
Cereal687 679 
Frozen290 292 
Noodles and other208 349 
Consolidated$3,200 $3,342 

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NOTE 11 SUPPLEMENTAL FINANCIAL STATEMENT DATA
Consolidated Balance Sheet
(millions)March 30, 2024 (unaudited)December 30, 2023
Trade receivables$1,401 $1,246 
Allowance for credit losses(16)(16)
Refundable income taxes42 74 
Other receivables239 264 
Accounts receivable, net$1,666 $1,568 
Raw materials and supplies$305 $303 
Finished goods and materials in process905 940 
Inventories$1,210 $1,243 
Intangible assets not subject to amortization$1,692 $1,750 
Intangible assets subject to amortization, net136 180 
Other intangibles, net$1,828 $1,930 

21

KELLANOVA
PART I—FINANCIAL INFORMATION
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Business overview
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to help the reader understand Kellanova, our operations and our present business environment. MD&A is provided as a supplement to, and should be read in conjunction with, our Consolidated Financial Statements and the accompanying notes thereto contained in Item 1 of this report. Our MD&A references consumption and net sales in discussing our sales trends for certain categories and brands.  We record net sales upon delivery of shipments to our customers.  Consumption and share data noted within is based on Nielsen x-AOC or other comparable source, for the applicable period. Consumption refers to consumer purchases of our products from our customers. Unless otherwise noted, consumption and shipment trends are materially consistent.
Consumers count on Kellanova for great-tasting, high-quality and nutritious foods. Currently, these foods include snacks, such as crackers, savory snacks, toaster pastries, cereal bars and bites; and convenience foods, such as, ready-to-eat cereals, frozen waffles, veggie foods and noodles. Kellanova products are manufactured and marketed globally.
Separation transaction
On June 21, 2022, the Company announced its intent to separate its North American cereal business, via tax-free spin-off. The transaction was completed on October 2, 2023, resulting in two independent public companies, Kellanova and WK Kellogg Co.
In accordance with applicable accounting guidance, the results of WK Kellogg Co are presented as discontinued operations in the Kellanova consolidated statement of income and, as such, have been excluded from both continuing operations and segment results for all periods presented. The recast operating profit includes certain costs that are reported in continuing operations but relate to items that will be reimbursed by the transition services agreement (“TSA”) with WK Kellogg Co. We expect that the costs for such services will be fully reimbursed under the TSA for the applicable future periods. Following the end of the TSA period, we expect that such costs will no longer be incurred by Kellanova.
The consolidated statements of cash flows are presented on a consolidated basis for both continuing operations and discontinued operations.
Nigerian Naira
During the second quarter of 2023, the Nigerian government removed certain currency restrictions over the Nigerian Naira leading to a significant decline in the exchange rate of the Naira to the U.S. dollar on the official market in Nigeria. Exchange rates have declined further since the second quarter of 2023. As a result of the decline in the exchange rate, the U.S. dollar value of the assets, liabilities, expenses and revenues of our Nigerian business in our consolidated financial statements has decreased significantly compared to prior periods. The consolidated assets of our Nigerian business represented approximately 3% of our consolidated assets as of March 30, 2024, compared to 5% as of December 30, 2023. Net sales of our Nigerian business were 6% of our consolidated net sales for the quarter ended March 30, 2024 but could become a smaller percentage of our overall sales if exchange rates decline further from current levels over the remainder of 2024.
In addition to our consolidated Nigerian business, the Company also has an investment in an unconsolidated entity, Tolaram Africa Foods PTE LTD, that holds an investment in a Nigerian food manufacturer. This investment is accounted for under the equity method of accounting and is evaluated for indicators of other than temporary impairment.
Segments
We manage our operations through four operating segments that are based primarily on geographic location – North America which includes the U.S. businesses and Canada; Europe which consists principally of European countries; Latin America which consists of Central and South America and includes Mexico; and AMEA (Asia Middle East Africa) which consists of Africa, Middle East, Australia and other Asian and Pacific markets. These operating segments also represent our reportable segments.

22

Non-GAAP financial measures
This filing includes non-GAAP financial measures that we provide to management and investors that exclude certain items that we do not consider part of on-going operations. Items excluded from our non-GAAP financial measures are discussed in the "Significant items impacting comparability" section of this filing. Our management team consistently utilizes a combination of GAAP and non-GAAP financial measures to evaluate business results, to make decisions regarding the future direction of our business, and for resource allocation decisions, including incentive compensation. As a result, we believe the presentation of both GAAP and non-GAAP financial measures provides investors with increased transparency into financial measures used by our management team and improves investors’ understanding of our underlying operating performance and in their analysis of ongoing operating trends. All historic non-GAAP financial measures have been reconciled with the most directly comparable GAAP financial measures.
Non-GAAP financial measures used for evaluation of performance include currency-neutral and organic net sales, adjusted and currency-neutral adjusted operating profit, adjusted and currency-neutral adjusted diluted earnings per share (EPS), currency-neutral adjusted gross profit, currency neutral adjusted gross margin, adjusted effective tax rate, net debt, and free cash flow. We determine currency-neutral results by dividing or multiplying, as appropriate, the current-period local currency operating results by the currency exchange rates used to translate our financial statements in the comparable prior-year period to determine what the current period U.S. dollar operating results would have been if the currency exchange rate had not changed from the comparable prior-year period. These non-GAAP financial measures may not be comparable to similar measures used by other companies.
Currency-neutral net sales and organic net sales: We adjust the GAAP financial measure to exclude the impact of foreign currency, resulting in currency-neutral net sales. In addition, we exclude the impact of acquisitions, divestitures, and foreign currency, resulting in organic net sales. We excluded the items which we believe may obscure trends in our underlying net sales performance. By providing these non-GAAP net sales measures, management intends to provide investors with a meaningful, consistent comparison of net sales performance for the Company and each of our reportable segments for the periods presented. Management uses these non-GAAP measures to evaluate the effectiveness of initiatives behind net sales growth, pricing realization, and the impact of mix on our business results. These non-GAAP measures are also used to make decisions regarding the future direction of our business, and for resource allocation decisions.
Adjusted: gross profit, gross margin, operating profit, operating margin, and diluted EPS from continuing operations: We adjust the GAAP financial measures to exclude the effect of restructuring programs, costs of the separation transaction, mark-to-market adjustments for pension plans (service cost, interest cost, expected return on plan assets, and other net periodic pension costs are not excluded), commodity contracts, certain equity investments and certain foreign currency contracts, a gain on interest rate swaps, and other costs impacting comparability resulting in adjusted. We excluded the items which we believe may obscure trends in our underlying profitability. By providing these non-GAAP profitability measures, management intends to provide investors with a meaningful, consistent comparison of the Company's profitability measures for the periods presented. Management uses these non-GAAP financial measures to evaluate the effectiveness of initiatives intended to improve profitability, as well as to evaluate the impacts of inflationary pressures and decisions to invest in new initiatives within each of our segments.
Currency-neutral adjusted: gross profit, gross margin, operating profit, operating margin, and diluted EPS from continuing operations: We adjust the GAAP financial measures to exclude the effect of restructuring programs, costs of the separation transaction, mark-to-market adjustments for pension plans (service cost, interest cost, expected return on plan assets, and other net periodic pension costs are not excluded), commodity contracts, certain equity investments and certain foreign currency contracts, other costs impacting comparability, and foreign currency, resulting in currency-neutral adjusted. We excluded the items which we believe may obscure trends in our underlying profitability. By providing these non-GAAP profitability measures, management intends to provide investors with a meaningful, consistent comparison of the Company's profitability measures for the periods presented. Management uses these non-GAAP financial measures to evaluate the effectiveness of initiatives intended to improve profitability, as well as to evaluate the impacts of inflationary pressures and decisions to invest in new initiatives within each of our segments.
Adjusted effective income tax rate: We adjust the GAAP financial measures to exclude the effect of restructuring programs, costs of the separation transaction, mark-to-market adjustments for pension plans (service cost, interest cost, expected return on plan assets, and other net periodic pension costs are not

23

excluded), commodity contracts, certain equity investments and certain foreign currency contracts, a gain on interest rate swaps, and other costs impacting comparability. We excluded the items which we believe may obscure trends in our pre-tax income and the related tax effect of those items on our adjusted effective income tax rate, and other impacts to tax expense. By providing this non-GAAP measure, management intends to provide investors with a meaningful, consistent comparison of the Company's effective tax rate, excluding the pre-tax income and tax effect of the items noted above, for the periods presented. Management uses this non-GAAP measure to monitor the effectiveness of initiatives in place to optimize our global tax rate.
Net debt: Defined as the sum of long-term debt, current maturities of long-term debt and notes payable, less cash and cash equivalents. With respect to net debt, cash and cash equivalents are subtracted from the GAAP measure, total debt liabilities, because they could be used to reduce the Company’s debt obligations. Company management and investors use this non-GAAP measure to evaluate changes to the Company's capital structure and credit quality assessment.
Free cash flow: Defined as net cash provided by operating activities reduced by expenditures for property additions. Free cash flow does not represent the residual cash flow available for discretionary expenditures. We use this non-GAAP financial measure of cash flow to focus management and investors on the amount of cash available for debt repayment, dividend distributions, acquisition opportunities, and share repurchases once all of the Company’s business needs and obligations are met. Additionally, certain performance-based compensation includes a component of this non-GAAP measure.
These measures have not been calculated in accordance with GAAP and should not be viewed as a substitute for GAAP reporting measures.
Significant items impacting comparability
Mark-to-market
We recognize mark-to-market adjustments for pension and postretirement benefit plans, commodity contracts, and certain foreign currency contracts as incurred. Actuarial gains/losses for pension plans are recognized in the year they occur. Mark-to-market gains/losses for certain equity investments are recorded based on observable price changes. Changes between contract and market prices for commodity contracts and certain foreign currency contracts result in gains/losses that are recognized in the quarter they occur. We recorded a pre-tax mark-to-market gain of $12 million for the quarter ended March 30, 2024. Included within the aforementioned was a pre-tax mark-to-market gain for pension plan remeasurements related to the transfer of assets to a sub-trust of $13 million for the quarter ended March 30, 2024. Additionally, we recorded a pre-tax mark-to-market loss of $55 million for the quarter ended April 1, 2023.

Separation costs
The Company successfully completed the separation transaction on October 2, 2023. We incurred pre-tax charges related to the separation of $12 million for the quarter ended March 30, 2024. We recorded $1 million for the quarter period ended April 1, 2023.

Network optimization
Costs related to reorganizations to increase the productivity and efficiency of the Company's supply chain. As a result, we incurred pre-tax charges, primarily related to severance and asset impairment, of $101 million for the quarter ended March 30, 2024.

Business and portfolio realignment
Costs related to reorganizations in support of our Deploy for Growth priorities and a reshaped portfolio; investments in enhancing capabilities prioritized by our Deploy for Growth strategy; and prospective divestitures and acquisitions. As a result, we recorded pre-tax charges, primarily related to reorganizations, of $1 million for the quarter ended April 1, 2023.

Foreign currency translation
We evaluate the operating results of our business on a currency-neutral basis. We determine currency-neutral operating results by dividing or multiplying, as appropriate, the current-period local currency operating results by the currency exchange rates used to translate our financial statements in the comparable prior-year period to determine what the current period U.S. dollar operating results would have been if the currency exchange rate had not changed from the comparable prior-year period.

24


Financial results
For the quarter ended March 30, 2024, our reported net sales were down 4% versus the prior year as unfavorable currency more than offset positive price/mix. Organic net sales increased 5% from the prior year excluding foreign currency and divestitures.
First quarter reported operating profit increased 13% versus the year-ago quarter primarily due to favorable mark-to-market impacts, continued gross profit margin recovery, and reimbursement for transition services provided to WK Kellogg Co, partially offset by network optimization costs. Currency-neutral adjusted operating profit increased 30%, after excluding the impact of mark-to-market, network optimization costs, separation costs, and foreign currency translation.
Reported diluted EPS of $0.78 for the quarter increased 16% compared to the prior year quarter of $0.67 due primarily to higher operating profit. Currency-neutral adjusted diluted EPS of $1.04 for the quarter increased 33% from the prior year quarter after excluding mark-to-market, network optimization costs, separation costs, and foreign currency translation.
Reconciliation of certain non-GAAP Financial Measures
 Quarter ended
Consolidated results
(dollars in millions, except per share data)
March 30,
2024
April 1,
2023
Reported net income$267 $298 
Mark-to-market (pre-tax)12 (55)
Separation costs (pre-tax)(12)(1)
Network optimization (pre-tax)(101)— 
Business and portfolio realignment (pre-tax) (1)
Income tax impact applicable to adjustments, net*21 18 
Adjusted net income$347 $337 
Foreign currency impact(11)— 
Currency-neutral adjusted net income$358 $337 
Reported diluted EPS from continuing operations$0.78 $0.67 
Mark-to-market (pre-tax)0.03 (0.16)
Separation costs (pre-tax)(0.04)— 
Network optimization (pre-tax)(0.28)— 
Business and portfolio realignment (pre-tax) — 
Income tax impact applicable to adjustments, net*0.06 0.05 
Adjusted diluted EPS from continuing operations$1.01 $0.78 
Foreign currency impact(0.03)—