Energy Transfer 2010 Annual Report Download - page 76

Depreciation and Amortization. Midstream depreciation and amortization expense increased between the periods
primarily due to incremental depreciation from the continued expansion of our Godley plant.
Selling, General and Administrative Expenses. Midstream selling, general and administrative expenses
decreased between the periods primarily due to a decrease in employee-related costs (including allocated
overhead expenses) of approximately $16.8 million. This decrease was partially offset by an increase in
professional fees of $3.0 million, $10.0 million related to a FERC settlement, and a net increase of $0.9 million
in other general and administrative expenses.
Retail Propane and Other Retail Propane Related
Years Ended December 31,
2009 2008 Change
Retail propane gallons (in thousands) 568,315 601,134 (32,819)
Retail propane revenues $ 1,190,523 $ 1,514,599 $ (324,076)
Other retail propane related revenues 102,060 109,411 (7,351)
Retail propane cost of products sold 574,854 1,014,068 (439,214)
Other retail propane related cost of
products sold 21,148 24,654 (3,506)
Gross margin 696,581 585,288 111,293
Operating expenses 341,935 350,280 (8,345)
Depreciation and amortization 83,476 79,717 3,759
Selling, general and administrative 41,941 40,727 1,214
Segment operating income $ 229,229 $ 114,564 $ 114,665
Volumes. Retail propane volumes decreased primarily due to the continued effects of customer conservation, the
impact of the economic recession, and to a lesser extent, the decline in new home construction. These decreases
were partially offset by volume increases from acquisitions that were made after January 1, 2008 and therefore
were not included in the results for the full year ended December 31, 2008. Temperatures during the year ended
December 31, 2009 were 4.1% colder than normal and were just slightly colder than the year ended
December 31, 2008.
Gross Margin. Total gross margin increased $111.3 million or 19.0% for the year ended December 31, 2009
compared to the year ended December 31, 2008. This increase was principally due to the benefit of the rapid
decline in commodity prices in the first half of 2009 compared to the historically high commodity prices reached
in 2008, which resulted in a reduction in product costs that outpaced the decline in average selling prices and the
impact of mark-to-market accounting of our financial instruments. The average sales price per retail gallon sold
decreased approximately 17.0% for the year ended December 31, 2009 compared to the year ended
December 31, 2008 while the average cost per gallon of propane was approximately 35.0% lower during the year
ended December 31, 2009 as compared to the year ended December 31, 2008. To hedge a significant portion of
our propane sales commitments entered into under our customer prebuy programs, we utilize financial
instruments to lock in margins. Prior to April 2009, these financial instruments were not designated as cash flow
hedges for accounting purposes, and changes in market value were recorded in cost of products sold in the
consolidated statements of operations. During 2009, our propane margins were positively impacted by the
settlement of financial instruments related to sales commitments that were entered into in 2008. We recognized
unrealized losses of $45.6 million on these financial instruments in 2008 and we recognized unrealized gains of
$45.6 million when they settled in 2009.
Operating Expenses. The decrease in operating expenses was principally due to a decrease of $9.7 million in
vehicle fuel used for delivery to customers due to the significant decline in fuel prices between the periods, a
decrease of $4.0 million in bad debt expense due to improved collections in the accounts receivable in 2009,
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