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Basis of Presentation and Summary of Significant Accounting Policies (Policies) | 9 Months Ended
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Sep. 30, 2022
Accounting Policies [Abstract] |
Financial Statements Presentation | Financial Statements Presentation The accompanying unaudited condensed consolidated financial statements as of September 30, 2022 and for the three and nine months ended September 30, 2022 and 2021 are prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the SEC) for interim financial information. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (GAAP) for complete financial statements. Therefore, the unaudited financial statements should be read in conjunction with the audited consolidated financial statements contained in our Annual Report on Form 10-K filed with the SEC and on March 11, 2022.
Principles of Consolidation | Principles of Consolidation The condensed consolidated financial statements include the accounts of the Company and its subsidiaries that it controls due to ownership of a majority voting interest or pursuant to accounting guidance for non-controlling interests. All intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates | Use of Estimates The presentation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions, primarily related to long-lived asset valuation, leases, deferred revenue, tax receivable agreements, income taxes, and equity-based compensation that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Although management bases its estimates on historical experience and assumptions that are believed to be reasonable under the circumstances, actual results could differ from those estimates.
Reclassifications | Reclassifications The Company has reclassified certain amounts in prior-period financial statements to conform to the current period's presentation. •NOTE 5 — Inventories: components of inventory related to our Blue Rebel energy drink have been reclassified from finished goods to raw materials.
Derivative Instruments | Derivative Instruments The Company manages exposure to fluctuations in interest rates within its condensed consolidated financial statements according to a hedging policy. Under this policy, the Company may engage in interest rate swap agreements to hedge interest rate risk. A swap agreement is a contract between two parties to exchange cash flows based on specified underlying notional amounts, assets and/or indices. The Company does not enter into derivative instruments for speculative purposes. By using swap instruments, the Company is exposed to potential credit risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. The Company minimizes this credit risk by entering into transactions with carefully selected, credit-worthy counterparties. Cash Flow Hedges For derivative instruments that are designated and qualify as a cash flow hedge, the derivative's gain or loss is reported as a component of other comprehensive income (OCI) and recorded in accumulated other comprehensive income (AOCI) on our condensed consolidated balance sheets. The gain or loss is subsequently reclassified into net earnings when the hedged exposure affects net earnings, in the same line item as the underlying hedged item on the Company’s condensed consolidated statements of operations. Cash flow hedges related to anticipated transactions are designated and documented at the inception of each hedge. Cash flows from hedging transactions are classified in the same categories as the cash flows from the respective hedged items.
Leases | LeasesThe Company adopted ASC Topic 842 (ASC 842), Leases, as amended, with an effective date of January 1, 2022.
Revenue Recognition | Revenue Recognition Consolidated revenues are recognized net of any discounts, returns, allowances and sales incentives in accordance with Accounting Standard Codification (ASC) Topic 606, Revenue from Contracts with Customers. Loyalty Programs In February 2021, the Company transitioned from a traditional loyalty program to a digital loyalty program. Under the previous program, a customer earned a “Stamp” for each purchase at a Dutch Bros coffee shop. After accumulating a certain number of Stamps, the customer earned a reward that may be redeemed for free product that, regardless of where the related Stamps were earned, would have been honored at company-operated shops and franchised shop locations. The Company deferred revenue associated with the estimated selling price of Stamps earned by customers towards free product as each Stamp was earned, and a corresponding contract liability was established. The estimated selling price of each Stamp earned was based on the estimated value of the product for which the reward was expected to be redeemed, net of Stamps not expected to be redeemed, based on historical redemption patterns. Stamps did not expire. As a result of the COVID-19 pandemic beginning in March 2020, the Company discontinued new Stamps. The Company continued to redeem previously earned Stamps through March 2021. In February 2021, the Company released the digital loyalty program (Dutch Rewards) in which the customer earns rewards through use of the Company’s mobile app that can be redeemed for free drinks. Points collected but not redeemed expire after six months, and earned rewards expire six months after issuance. The Company defers revenue as points are accumulated and rewards are earned under the Dutch Rewards program. Deferred Revenue Deferred revenue primarily consists of the unredeemed gift card liability and unredeemed points from our Dutch Rewards loyalty program, as discussed above. Deferred revenue also includes bean and beverage sales to distributors where the performance obligation has not yet been satisfied as control has not transferred to the customer.
Vendor Incentives | Vendor Incentives The Company has entered into food and beverage supply agreements with certain major vendors. Pursuant to the terms of these arrangements, rebates are provided to the Company from the vendors based upon the dollar value of purchases for company-operated shops and franchised shops. These incentives are recognized as earned throughout the year and are classified as a reduction of cost of sales in the accompanying condensed consolidated statements of operations. Vendor incentives recognized in cost of sales were as follows for the periods presented:
|  | Three Months Ended September 30, |  | Nine Months Ended September 30, |  |
(in thousands) |  | 2022 |  | 2021 |  | 2022 |  | 2021 |  |
Vendor incentives |  | $ | 13,808 |  |  | $ | 11,585 |  |  | $ | 32,700 |  |  | $ | 30,348 |  |  |
Advertising Expense | Advertising ExpenseAdvertising costs are expensed as they are incurred. Most franchise shops contribute to an advertising fund that the Company manages on behalf of the shops. Under the Company’s standard franchise agreement, the contributions received must be spent on marketing, creative efforts, media support, or other related purposes specified in the agreement. The expenditures are primarily amounts paid to third parties but may also include personnel expenses and allocated costs.
Recently Issued Accounting Standards and Recently Adopted Accounting Standards | Recently Issued Accounting Standards In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13, as amended, replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. For accounts receivable and other financial instruments, the Company will be required to use a forward-looking expected loss model rather than the incurred loss model for recognizing credit losses which reflects losses that are probable. ASU 2016-13, as amended, is effective for fiscal years beginning after December 15, 2022. Application of the amendments is through a cumulative-effect adjustment to retained earnings as of the effective date. The Company is evaluating the impact of this standard on its condensed consolidated financial statements. In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The amendments in this update provide specific guidance to address diversity in practice related to (1) recognition of an acquired contract liability, and (2) payment terms and their effect on subsequent revenue recognized by the acquirer. The amendments in ASU 2021-08 are applied on a prospective basis, and are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted. The Company is evaluating the impact of this standard on its condensed consolidated financial statementsRecently Adopted Accounting StandardsIn February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The pronouncement requires lessees to recognize a liability for lease obligations, which represent the discounted obligation to make future lease payments, and a corresponding right-of-use asset on the balance sheet, as well as new disclosure requirements. The Company adopted Topic 842 effective January 1, 2022 using the modified transition approach.
Fair Value Measurements | The Company’s condensed consolidated financial statements include cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other current liabilities, for which the carrying amounts approximate fair value due to their short-term maturity. The fair value of the Company’s variable-rate term loan and revolving loans approximate their carrying amounts; these debt instruments are designated as Level 2 within the fair value hierarchy, as the Company’s cost of borrowing is variable and approximates current market rates.

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