Warner Bros Discovery Inc

Appendix C

Non-GAAP Financial Measures

Warner Bros. Discovery, Inc. uses the non-GAAP financial measure of Adjusted EBITDA in this proxy statement as one of the important financial measures, among other measures, to evaluate the operating performance of our business. The Company defines Adjusted EBITDA as operating income excluding: (i) employee share-based compensation, (ii) depreciation and amortization, (iii) restructuring and facility consolidation, (iv) certain impairment charges, (v) gains and losses on business and asset dispositions, (vi) certain inter-segment eliminations, (vii) third-party transaction and integration costs, (viii) amortization of purchase accounting fair value step-up for content, (ix) amortization of capitalized interest for content, and (x) other items impacting comparability.

Management uses certain non-GAAP financial measures, such as Adjusted EBITDA, in making financial, operating and planning decisions and in evaluating our performance. The Company believes Adjusted EBITDA is relevant to investors because it allows them to analyze the operating performance of the Company using the same metric management does. Adjusted EBITDA should be considered in addition to, but not a substitute for, operating income, net income and other measures of financial performance reported in accordance with U.S. GAAP. Please see the 2023 Form 10-K for a reporting of our financial results in accordance with GAAP.

The following information is provided to reconcile Adjusted EBITDA to net loss, its most comparable GAAP measure, for the year ended December 31, 2023 and for the year ended December 31, 2022 on a pro forma combined basis. Pro forma combined results present the combined results of the Company and the WarnerMedia Business as if the WarnerMedia Transaction had been completed on January 1, 2021. Management believes reviewing our pro forma combined operating results in addition to actual operating results is useful in identifying trends in, or reaching conclusions regarding, the overall operating performance of our businesses. The pro forma combined financial information is based on the historical operating results and includes adjustments in accordance with Article 11 of Regulation S-X to illustrate the effects of the WarnerMedia Transaction as if it had occurred on January 1, 2021. The pro forma combined financial information includes, where applicable, adjustments for (i) additional costs of revenues from the fair value step-up of film and television library, (ii) additional amortization expense related to acquired intangible assets, (iii) additional depreciation expense from the fair value of property and equipment, (iv) transaction costs and other one-time non-recurring costs, (v) additional interest expense for borrowings related to the WarnerMedia Transaction and amortization associated with fair value adjustments of debt assumed, (vi) changes to align accounting policies, (vii) elimination of intercompany activity, and (viii) associated tax-related impacts of adjustments. Adjustments do not include costs related to integration activities, cost savings or synergies that have been or may be achieved by the combined business. These pro forma adjustments are based on available information as of December 31, 2023 and upon assumptions that the Company believes are reasonable to reflect the impact of the WarnerMedia Transaction on the Company's historical financial information on a supplemental pro forma basis. The pro forma financial information is presented for informational purposes and is not indicative of the results of operations that would have been achieved if the WarnerMedia Transaction had occurred on January 1, 2021, nor is it indicative of future results.

For historical pro forma financial information including segment level detail and reconciliations of non-GAAP metrics to their GAAP equivalent, please refer to the Trending Schedules and Non-GAAP Reconciliations posted in the "Quarterly Results" section of the Company's investor relations website atir.wbd.com.

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As shown in the table above, Adjusted EBITDA increased 11% from 2022 to 2023. On a constant currency basis ("ex-FX"), Adjusted EBITDA increased 12% from 2022 to 2023.

The impact of exchange rates on our business is an important factor in understanding period-to-period comparisons of our results. For example, our international revenues are favorably impacted as the U.S. dollar weakens relative to other foreign currencies, and unfavorably impacted as the U.S. dollar strengthens relative to other foreign currencies. We believe the presentation of results on a constant currency basis, in addition to results reported in accordance with GAAP provides useful information about our operating performance because the presentation ex-FX excludes the effects of foreign currency volatility and highlights our core operating results. The presentation of results on a constant currency basis should be considered in addition to, but not a substitute for, measures of financial performance reported in accordance with GAAP. The ex-FX change represents the percentage change on a period-over-period basis adjusted for foreign currency impacts.

The ex-FX change is calculated as the difference between the current year amounts translated at a baseline rate, which is a spot rate for each of our currencies determined early in the fiscal year as part of our forecasting process (the “2023 Baseline Rate”), and the prior year amounts translated at the same 2023 Baseline Rate. In addition, consistent with the assumption of a constant currency environment, our ex-FX results exclude the impact of our foreign currency hedging activities, as well as realized and unrealized foreign currency transaction gains and losses. Results on a constant currency basis, as we present them, may not be comparable to similarly titled measures used by other companies.