SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____ TO _____ Commission File No. 0-14147 QUESTAR PIPELINE COMPANY (Exact name of registrant as specified in its charter) STATE OF UTAH 87-0307414 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) P.O. Box 45360, 180 East First South, Salt Lake City, Utah8445-0360 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code:(801) 324-2400 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding as of March 31, 1998 Common Stock, $1.00 par value 6,550,843 shares Registrant meets the conditions set forth in General Instruction H(a)(1) and (b) of Form 10-Q and is filing this Form 10-Q with the reduced disclosure format. PART I FINANCIAL INFORMATION Item 1. Financial Statements QUESTAR PIPELINE COMPANY STATEMENTS OF INCOME (Unaudited) 3 Months Ended 12 Months Ended March 31, March 31, 1998 1997 1998 1997 (In Thousands) REVENUES $27,249 $26,721 $105,965 $104,823 OPERATING EXPENSES Operating and maintenance 9,927 8,908 38,353 38,606 Depreciation 3,843 3,597 15,043 14,425 Other taxes 673 751 2,738 2,228 TOTAL OPERATING EXPENSES 14,443 13,256 56,134 55,259 OPERATING INCOME 12,806 13,465 49,831 49,564 INTEREST AND OTHER INCOME (EXPENSE) (86) 5 1,232 1,259 INCOME (LOSS) FROM UNCONSOLIDATED AFFILIATES 407 (68) 5,104 77 DEBT EXPENSE (3,434) (3,351) (13,619) (13,373) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 9,693 10,051 42,548 37,527 INCOME TAXES 3,139 3,729 15,748 13,813 INCOME FROM CONTINUING OPERATIONS 6,554 6,322 26,800 23,714 DISCONTINUED OPERATIONS - QUESTAR GAS MANAGEMENT COMPANY 356 NET INCOME $6,554 $6,322 $26,800 $24,070 See note to financial statements QUESTAR PIPELINE COMPANY CONDENSED BALANCE SHEETS (Unaudited) March 31, December 31, 1998 1997 1997 (In Thousands) ASSETS Current assets Cash and short-term investments $7,075 Accounts receivable $10,406 $11,523 10,851 Inventories 2,092 2,373 2,303 Other current assets 1,877 1,953 2,035 Total current assets 14,375 15,849 22,264 Property, plant and equipment 581,877 561,025 580,603 Less allowances for depreciation 207,154 197,763 202,427 Net property, plant and equipment 374,723 363,262 378,176 Investment in unconsolidated affiliates 29,884 14,279 26,977 Other assets 11,039 10,843 10,147 $430,021 $404,233 $437,564 LIABILITIES AND SHAREHOLDER'S EQUITY Current liabilities Checks outstanding in excess of cash balances $879 $752 Notes payable to Questar Corporation 19,100 4,000 $25,800 Accounts payable and accrued expenses 18,581 17,033 20,069 Total current liabilities 38,560 21,785 45,869 Long-term debt 134,568 134,549 134,563 Other liabilities 3,359 4,197 4,523 Deferred income taxes 61,919 58,637 62,298 Common shareholder's equity Common stock 6,551 6,551 6,551 Additional paid-in capital 82,034 82,034 82,034 Retained earnings 103,030 96,480 101,726 Total common shareholder's equity 191,615 185,065 190,311 $430,021 $404,233 $437,564 See note to financial statements QUESTAR PIPELINE COMPANY CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) 3 Months Ended March 31, 1998 1997 (In Thousands) OPERATING ACTIVITIES Net income $6,554 $6,322 Depreciation 4,502 3,891 Deferred income taxes (379) (131) (Income) loss from unconsolidated affiliates (407) 68 10,270 10,150 Change in operating assets and liabilities (2,725) (1,064) NET CASH PROVIDED FROM OPERATING ACTIVITIES 7,545 9,086 INVESTING ACTIVITIES Capital expenditures Purchase of property, plant and equipment (2,584) (3,270) Other investments (2,500) Total capital expenditures (5,084) (3,270) Proceeds from disposition of property, plant and equipment 1,535 4,432 NET CASH (USED IN) PROVIDED FROM INVESTING ACTIVITIES (3,549) 1,162 FINANCING ACTIVITIES Checks outstanding in excess of cash balances 879 752 Decrease in notes payable to Questar Corporation (6,700) (7,800) Payment of dividends (5,250) (5,750) NET CASH USED IN FINANCING ACTIVITIES (11,071) (12,798) DECREASE IN CASH AND SHORT-TERM INVESTMENTS ($7,075) ($2,550) See note to financial statements QUESTAR PIPELINE COMPANY NOTE TO CONDENSED FINANCIAL STATEMENTS March 31, 1998 (Unaudited) Note 1 - Basis of Presentation The interim financial statements reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. All such adjustments are of a normal recurring nature. The results of operations for the three-month period ended March 31, 1998, are not necessarily indicative of the results that may be expected for the year ending December 31, 1998. For further information refer to the financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 1997. Item 2. Management's Discussion and Analysis of Financial Conditions and Results of Operations QUESTAR PIPELINE COMPANY March 31, 1998 (Unaudited) Operating Results Following is a summary of financial and operating information for the Company: 3 Months Ended 12 Months Ended March 31, March 31, 1998 1997 1998 1997 (Dollars In Thousands) FINANCIAL RESULTS Revenues From unaffiliated customers $9,065 $9,131 $36,277 $39,881 From affiliates 18,184 17,590 69,688 64,942 Total revenues $27,249 $26,721 $105,965 $104,823 Operating income $12,806 $13,465 $49,831 $49,564 Income from continuing operations 6,554 6,322 26,800 23,714 OPERATING STATISTICS Natural gas transportation volumes (in thousands of decatherms) For unaffiliated customers 32,778 33,303 115,690 128,325 For Questar Gas 38,331 42,264 106,378 105,269 For other affiliated customers 4,858 6,816 35,839 46,545 Total transportation 75,967 82,383 257,907 280,139 Transportation revenue (per decatherm) $0.24 $0.21 $0.27 $0.24 Revenues were higher in the 3- and 12-month periods of 1998 due primarily to increased firm-transportation reservation charges. Questar Pipeline is expanding working gas capacity at Clay Basin in 1998 by 5 Bcf at an estimated cost of $4 million. In an open season sign-up conducted in January 1998, all potential new capacity was pledged under long-term commitments. The expansion is expected to add about $3 million in annual storage revenues beginning in the second quarter of 1998. Operating and maintenance (O & M) expenses were 11% higher in the first quarter 1998 when compared to the same period of 1997 due primarily to a timing difference in billings from a technology supplier. O & M expenses were lower in the 12 months ended March 31, 1998 due primarily to cost efficiencies resulting from sharing services with an affiliated company. Questar Gas Company and Questar Pipeline share the costs of certain administrative, marketing, accounting, technical and related services under Questar Regulated Services Co. Depreciation expense was higher in the 1998 periods as a result of increased investment in property, plant and equipment. Other taxes were lower in the first quarter of 1998 and in the 12-months ended March 31, 1997 as a result of receiving property tax refunds in the first quarter of 1998 and the third quarter of 1996. Income from unconsolidated affiliates in the 1998 periods includes the Company's share of earnings reported by TransColorado Gas Transmission Co. The earnings reflect capitalization of interest and equity costs (AFUDC) associated with the construction of the TransColorado pipeline amounting to $318,000 in the 3 months ended March 31, 1998 and $4,774,000 in the 12 months ended March 31, 1998. The effective income tax rate was 32.4% in the first quarter of 1998 compared with 37.1% in the first quarter of 1997 due to adjustments that reduced 1998 tax expenses. A regulatory proceeding involving Questar Pipeline, Federal Energy Regulatory Commission (FERC) Docket No. IN97-1, has been resolved by an order issued March 2, 1998. The FERC found that Questar Pipeline was not liable for any refunds related to charges made to Questar Gas for rendering gathering services. Liquidity and Capital Resources Operating Activities Net cash provided from operating activities of $7,545,000 in the first quarter of 1998 was 17% below the $9,086,000 reported for the same period in 1997 due primarily to changes in operating assets and liabilities. Investing Activities Capital expenditures were $5,084,000 in the first quarter of 1998 compared with $3,270,000 in the corresponding 1997 period. Capital expenditures for calendar year 1998 are estimated to be $76,100,000, which includes $27,700,000 for the Company's share of equity investments in unconsolidated affiliates. Financing Activities The Company has a short-term line-of-credit arrangement with a bank totaling $200,000. No amounts were borrowed under this arrangement at March 31, 1998. In addition, Questar Corporation loans funds to the Company under a short-term arrangement. As of March 31, amounts borrowed from Questar were $19,100,000 in 1998 and $4,000,000 in 1997. First quarter financing activities focused on payment of dividends and a partial repayment of the Company's notes payable to Questar. Capital expenditures for 1998 are expected to be financed from net cash flow provided from operations and short- and long-term debt including borrowings from Questar. Forward Looking Statements This 10-Q contains forward-looking statements about the future operations and expectations of Questar Pipeline. According to management, these statements are made in good faith and are reasonable representations of the Company's expected performance at the time. Actual results may vary from management's stated expectations and projections due to a variety of factors. PART II OTHER INFORMATION Questar Pipeline Company has nothing to disclose in this section of the report. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. QUESTAR PIPELINE COMPANY (Registrant) May 13, 1998 /s/ D. N. Rose D. N. Rose President and Chief Executive Officer May 13, 1998 /s/S. E. Parks (Date) S. E. Parks Vice President, Treasurer and Chief Financial Officer