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.

Subsequent to the issuance of the Company’s 2021 consolidated financial statements, management of the Company identified an error in application of Accounting Standards Codification (ASC) 710, Compensation-General, related to accrued sick leave pay. ASC 710-10-25-7 states that an employer is not required to accrue a liability for nonvesting accumulating rights to receive sick pay benefits. Historically, the Company accrued sick leave pay expense for each employee. As unused sick leave pay does not carry forward and is not paid out upon termination, the accrued liability should not have been recorded.

The Company has evaluated the effects of the corrections detailed in the table below on the previously issued consolidated financial statements, individually and in the aggregate, in accordance with the guidance in ASC 250, Accounting Changes and Error Corrections. The Company has concluded such corrections to be immaterial to its previously issued consolidated financial statements.

While management believes the effect of the error is immaterial to the Company’s previously issued consolidated financial statements as of December 31, 2021, and for the three and nine months ended September 30, 2021, the financial statement line items impacted by this error have been corrected. In addition, the immaterial error is being corrected prospectively in the Company’s subsequent quarterly and annual filings.


	December 31, 2021
(in thousands)	As Reported		Adjustments		As Corrected




Current liabilities:
Accrued liabilities	$	24,513	$	(3,543)	$	20,970
Total current liabilities	142,277		(3,543)		138,734
Total liabilities	343,514		(3,543)		339,971

Stockholders’ equity:
Additional paid in capital	106,410		783		107,193
Accumulated deficit	(12,914)		235		(12,679)
Total stockholders’ equity attributable to Dutch Bros Inc. / members’ equity	93,498		1,018		94,516
Non-controlling interests	116,688		2,525		119,213
Total equity	$	210,186	$	3,543	$	213,729


	Three Months Ended September 30, 2021
(in thousands)	As Reported		Adjustments		As Corrected
Costs and expenses
Cost of sales	$	91,060	$	(281)	$	90,779
Selling, general and administrative	153,727		(27)		153,700
Total costs and expenses	244,787		(308)		244,479
Loss from operations	(114,984)		308		(114,676)
Loss before income taxes	(118,418)		308		(118,110)

Net loss	$	(117,138)	$	308	$	(116,830)

Less: Net loss attributable to non-controlling interests 1	(31,531)		219		(31,312)
NET LOSS ATTRIBUTABLE TO DUTCH BROS INC.1	$	(11,166)	$	89	$	(11,077)

1 Amounts and balances have been updated to reflect reclassifications based on updated timing and sequence of certain Reorganization Transactions and purchase of Dutch Bros OpCo Class A common units in connection with the IPO from previously reported figures in the Company’s Form 10-Q for the period ended September 30, 2021, as filed with the SEC on November 12, 2021.


	Nine Months Ended September 30, 2021
(in thousands)	As Reported		Adjustments		As Corrected
Costs and expenses
Cost of sales	$	239,869	$	(1,115)	$	238,754
Selling, general and administrative	223,595		(421)		223,174
Total costs and expenses	463,464		(1,536)		461,928
Loss from operations	(105,668)		1,536		(104,132)
Loss before income taxes	(112,015)		1,536		(110,479)

Net loss	$	(111,299)	$	1,536	$	(109,763)
Less: Net loss attributable to Dutch Bros OpCo prior to the Reorganization Transactions	(68,602)		1,228		(67,374)
Less: Net loss attributable to non-controlling interests 1	(31,531)		219		(31,312)
NET LOSS ATTRIBUTABLE TO DUTCH BROS INC. 1	$	(11,166)	$	89	$	(11,077)


	Three Months Ended September 30, 2021
(in thousands)	As Reported 1		Adjustments		As Corrected
Members' Equity
Balance, June 30, 2021	$	(127,279)	$	2,725	$	(124,554)
Effect of the Reorganization Transactions and initial public offering on non-controlling interests	50,745		(2,725)		48,020


Additional Paid-in-Capital

Effect of the Reorganization Transactions and initial public offering on non-controlling interests	(196,515)		579		(195,936)
Purchase of OpCo Units in connection with the initial public offering	(239,622)		201		(239,421)
Effect of exchange of Dutch Bros OpCo Class A common units	285		4		289
Balance, September 30, 2021	104,259		784		105,043

Accumulated Deficit

Net loss subsequent to the Reorganization Transactions	(11,166)		89		(11,077)
Balance, September 30, 2021	(11,166)		89		(11,077)

Non-Controlling Interests

Effect of the Reorganization Transactions and initial public offering on non-controlling interests	145,768		2,146		147,914
Purchase of OpCo Units in connection with the initial public offering	(13,648)		(201)		(13,849)
Net loss subsequent to the Reorganization Transactions	(31,531)		219		(31,312)
Effect of exchange of Dutch Bros OpCo Class A common units	(285)		(4)		(289)
Balance, September 30, 2021	116,527		2,160		118,687

Total Equity
Balance, June 30, 2021	(127,279)		2,725		(124,554)
Net loss subsequent to the Reorganization Transactions	(42,697)		308		(42,389)
Balance, September 30, 2021	209,622		3,033		212,655

_________________


	Nine Months Ended September 30, 2021
(in thousands)	As Reported 1		Adjustments		As Corrected
Members' Equity
Balance, December 31, 2020	$	75,990	$	1,497	$	77,487
Net loss prior to the Reorganization Transactions	(68,602)		1,228		(67,374)
Effect of the Reorganization Transactions and initial public offering on non-controlling interests	50,745		(2,725)		48,020


Additional Paid-in-Capital

Effect of the Reorganization Transactions and initial public offering on non-controlling interests	(196,515)		579		(195,936)
Purchase of OpCo Units in connection with the initial public offering	(239,622)		201		(239,421)
Effect of exchange of Dutch Bros OpCo Class A common units	285		4		289
Balance, September 30, 2021	104,259		784		105,043

Accumulated Deficit

Net loss subsequent to the Reorganization Transactions	(11,166)		89		(11,077)
Balance, September 30, 2021	(11,166)		89		(11,077)

Non-Controlling Interests

Effect of the Reorganization Transactions and initial public offering on non-controlling interests	145,768		2,146		147,914
Purchase of OpCo Units in connection with the initial public offering	(13,648)		(201)		(13,849)
Net loss subsequent to the Reorganization Transactions	(31,531)		219		(31,312)
Effect of exchange of Dutch Bros OpCo Class A common units	(285)		(4)		(289)
Balance, September 30, 2021	116,527		2,160		118,687

Total Equity
Balance, December 31, 2020	75,990		1,497		77,487
Net loss prior to the Reorganization Transactions	(68,602)		1,228		(67,374)
Net loss subsequent to the Reorganization Transactions	(42,697)		308		(42,389)
Balance, September 30, 2021	209,622		3,033		212,655

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.

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.

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.

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

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 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.

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:

Advertising 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. Advertising expense was as follows for the periods presented:

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 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. For additional information, refer to NOTE 8 — Leases.