SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Consolidation. The accompanying consolidated financial statements include the accounts of the Company and all of the accounts of HIOS and East Breaks. Intercompany transactions and balances have been eliminated in consolidation. Basis of Presentation HIOS is regulated by the FERC. HIOS meets the criteria and, accordingly, follows the accounting and reporting requirements of Statement of Financial Accounting Standards No. 71 for regulated enterprises. Western Gulf and East Breaks are non jurisdictional. 80 WESTERN GULF HOLDINGS, L.L.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses. Actual results could differ from those estimates. Depreciation Annual depreciation and negative salvage provisions for HIOS are computed on a straight-line basis using rates of depreciation, which vary by type of property. The annual composite depreciation rate is approximately 1.26%, which includes a provision for negative salvage of .2% for offshore facilities.
