##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form l0-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended March 31, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
 Commission File No. 000-51435
 SUPERIOR WELL SERVICES, INC.
 (Exact name of registrant as specified in its charter)
 Delaware
    
    20-2535684(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 1380 Rt. 286 East, Suite #121
Indiana, Pennsylvania 15701
 (724) 465-8904
 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
 Common Stock, $.01 par value
(Title of class)
    
    The NASDAQ Stock Market LLC
(Exchange)
 SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
 None
 o þ
 o þ
 þ o
  o þ o
 o þ




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##### 



SUPERIOR WELL SERVICES, INC. QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2007
 TABLE OF CONTENTS
 PAGEPART I
    
    FINANCIAL INFORMATIONItem 1.
    
    Unaudited Financial Statements- Unaudited Consolidated Balance Sheets
    
    
    1- Unaudited Consolidated Statements of Income
    
    
    2- Unaudited Consolidated Statement of Changes in Stockholders Equity
    
    
    3- Unaudited Consolidated Statements of Cash Flows
    
    
    4- Notes to Unaudited Consolidated Financial Statements
    
    
    5Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    26Item 4.
    
    Controls and Procedures
    
    
    26PART II
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    27Item 1.A.
    
    Risk Factors
    
    
    27Item 6.
    
    Exhibits
    
    
    27Signatures
    
    
    28Index to Exhibits
    
    
    29EX-31.1EX-31.2EX-32.1EX-32.2
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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements.
 SUPERIOR WELL SERVICES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 (Unaudited)
 December 31,
    
    
    March 31,2006
    
    
    2007(in thousands, except per share data)Current Assets:Cash and cash equivalents
    
    $
    56,752
    
    
    $
    19,659Short-term investments
    
    
    
    
    
    
    11,148Trade accounts receivable, net of
allowance of $772 and $847,
respectively
    
    
    47,325
    
    
    
    51,367Inventories
    
    
    6,951
    
    
    
    7,541Prepaid expenses
    
    
    908
    
    
    
    712Deferred income taxes
    
    
    507
    
    
    
    749Total current assets
    
    
    112,443
    
    
    
    91,176Property, Plant and Equipment:Land
    
    
    420
    
    
    
    420Building and improvements
    
    
    3,323
    
    
    
    3,633Equipment and vehicles
    
    
    149,195
    
    
    
    174,931Construction in progress
    
    
    24,922
    
    
    
    29,902177,860
    
    
    
    208,886Accumulated depreciation
    
    
    (36,436
    )
    
    
    (41,245
    )Total property, plant and equipment, net
    
    
    141,424
    
    
    
    167,641Goodwill
    
    
    2,850
    
    
    
    4,850Intangible assets, net of accumulated
amortization of $1,010 and $1,175,
respectively
    
    
    1,416
    
    
    
    2,863Deferred income taxes
    
    
    585
    
    
    
    219Other assets
    
    
    316
    
    
    
    762Total assets
    
    $
    259,034
    
    
    $
    267,511Current Liabilities:Accounts payable-trade
    
    $
    21,565
    
    
    $
    15,212Income taxes payable
    
    
    542
    
    
    
    3,636Current portion of long-term debt
    
    
    382
    
    
    
    382401(k) plan contribution and withholding
    
    
    1,982
    
    
    
    1,878Advance payments on servicing contracts
    
    
    803
    
    
    
    1,063Accrued wages and health benefits
    
    
    1,462
    
    
    
    2,075Other accrued liabilities
    
    
    1,664
    
    
    
    1,569Total current liabilities
    
    
    28,400
    
    
    
    25,815Long-term debt
    
    
    1,597
    
    
    
    1,556Deferred income taxes
    
    
    15,133
    
    
    
    16,632Stockholders Equity:Common stock, voting, par $.01 per
share, 70,000,000 shares authorized,
23,352,567 and 23,465,782 shares issued
at December 31, 2006 and March 31,
2007, respectively
    
    
    234
    
    
    
    235Additional paid-in capital
    
    
    182,492
    
    
    
    183,086Retained earnings
    
    
    31,178
    
    
    
    40,187Total stockholders equity
    
    
    213,904
    
    
    
    223,508Total liabilities and stockholders equity.
    
    $
    259,034
    
    
    $
    267,511
  1




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SUPERIOR WELL SERVICES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF INCOME
 (Unaudited)
 Three Months EndedMarch 31,2006
    
    
    2007(in thousands, except per share data)Revenue
    
    $
    47,687
    
    
    $
    76,708Cost of revenue
    
    
    31,736
    
    
    
    53,986Gross profit
    
    
    15,951
    
    
    
    22,722Selling, general and administrative
expenses
    
    
    5,526
    
    
    
    8,448Operating income
    
    
    10,425
    
    
    
    14,274Interest expense
    
    
    38
    
    
    
    59Other income
    
    
    141
    
    
    
    559Income before income taxes
    
    
    10,528
    
    
    
    14,774Income taxesCurrent
    
    
    3,830
    
    
    
    4,144Deferred
    
    
    342
    
    
    
    1,6214,172
    
    
    
    5,765Net income
    
    $
    6,356
    
    
    $
    9,009Earnings per common share:Basic and fully diluted
    
    $
    0.33
    
    
    $
    0.39
  2




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SUPERIOR WELL SERVICES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
 (Unaudited)
 Superior Well Services, Inc.Additional Paid-in
    
    
    Retained EarningsCommon Stock
    
    
    Capital
    
    
    (Deficit)
    
    
    Total(in thousands)BALANCE, DECEMBER 31, 2005
    
    $
    194
    
    
    $
    91,944
    
    
    $
    (745
    )
    
    $
    91,393Net income
    
    
    
    
    
    
    
    
    
    
    6,356
    
    
    
    6,356Issuance of restricted stock awards
    
    
    3
    
    
    
    276
    
    
    
    
    
    
    
    279Share-based compensation
    
    
    
    
    
    
    435
    
    
    
    
    
    
    
    435BALANCE, MARCH 31, 2006
    
    $
    197
    
    
    $
    92,655
    
    
    $
    5,611
    
    
    $
    98,463BALANCE, DECEMBER 31, 2006
    
    $
    234
    
    
    $
    182,492
    
    
    $
    31,178
    
    
    $
    213,904Net income
    
    
    
    
    
    
    
    
    
    
    9,009
    
    
    
    9,009Issuance of restricted stock awards
    
    
    1
    
    
    
    119
    
    
    
    
    
    
    
    120Share-based compensation
    
    
    
    
    
    
    475
    
    
    
    
    
    
    
    475BALANCE, MARCH 31, 2007
    
    $
    235
    
    
    $
    183,086
    
    
    $
    40,187
    
    
    $
    223,508
  3




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SUPERIOR WELL SERVICES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 Three Months EndedMarch 312006
    
    
    2007(in thousands)Cash flows from operations:Net income
    
    $
    6,356
    
    
    $
    9,009Adjustments to reconcile net income to net
cash provided by operations:Deferred income taxes
    
    
    342
    
    
    
    1,621Depreciation and amortization
    
    
    2,993
    
    
    
    5,003Loss on disposal of equipment
    
    
    
    
    
    
    38Stock-based compensation
    
    
    435
    
    
    
    475Changes in assets and liabilities:Trade accounts receivable
    
    
    (4,946
    )
    
    
    (4,042
    )Inventory
    
    
    (730
    )
    
    
    (590
    )Prepaid expenses and other assets
    
    
    259
    
    
    
    196Accounts payable-trade
    
    
    (736
    )
    
    
    (3,024
    )Income taxes payable
    
    
    3,808
    
    
    
    3,094401 (k) plan contribution and
withholding
    
    
    (414
    )
    
    
    (104
    )Advance payments on servicing
contracts
    
    
    848
    
    
    
    260Accrued wages and health benefits
    
    
    806
    
    
    
    613Other accrued liabilities
    
    
    130
    
    
    
    (95
    )Net cash provided by operations
    
    
    9,151
    
    
    
    12,454Cash flows from investing:Expenditure for property, plant and
equipment, net of construction payables
    
    
    (14,672
    )
    
    
    (30,561
    )Purchase of short-term investments, net
    
    
    
    
    
    
    (11,148
    )Expenditures for acquisitions
    
    
    
    
    
    
    (7,931
    )Proceeds from sale of property, plant and
equipment
    
    
    
    
    
    
    14Net cash used in investing
    
    
    (14,672
    )
    
    
    (49,626
    )Cash flows from financing:Principal payments on long-term debt
    
    
    (45
    )
    
    
    (41
    )Issuance of restricted stock awards
    
    
    279
    
    
    
    120Net cash provided by financing
    
    
    234
    
    
    
    79Net decrease in cash and cash equivalents
    
    
    (5,287
    )
    
    
    (37,093
    )Cash and cash equivalents, beginning of period
    
    
    10,765
    
    
    
    56,752Cash and cash equivalents, end of period
    
    $
    5,478
    
    
    $
    19,659Supplemental disclosure of cash flow data:Interest paid
    
    $
    16
    
    
    $
    60Income taxes paid
    
    
    69
    
    
    
    1,050
  4




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SUPERIOR WELL SERVICES, INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 1. Organization
     2. Summary of Significant Accounting Policies
 Basis of Presentation
  Estimates and Assumptions
  Cash, Cash Equivalents and Short-term Investments
  5




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SUPERIOR WELL SERVICES, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
    March 31,2007Government-sponsored enterprise
    
    $
    6,998Corporate obligations
    
    
    4,150Total held-to-maturity securities
    
    $
    11,148
 Trade Accounts Receivable
  Property, Plant and Equipment
     6




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SUPERIOR WELL SERVICES, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
  Revenue Recognition
  Inventories
  Insurance Expense
  Income Taxes
 Accounting for Income Taxes.
  Fair Value of Financial Instruments
  7




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SUPERIOR WELL SERVICES, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
  Goodwill and Intangible Assets
  Concentration of Credit Risk
  Stock Based Compensation
  Weighted average shares outstanding
   Recently Issued Guidance
  8




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SUPERIOR WELL SERVICES, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
   3. Debt
    2006
    
    
    2007Notes payable due through December 2010,
collateralized by specific buildings and equipment
    
    $
    198
    
    
    $
    184Mortgage notes payable to a bank with interest at the
banks prime lending rate minus 1%, payable in
monthly installments of $7,111 plus interest through
January 2019, collateralized by real property
    
    
    1,331
    
    
    
    1,304Note payable to sellers with an interest rate of 7%
due through September 2008, collateralized by
equipment
    
    
    450
    
    
    
    4501,979
    
    
    
    1,938Less  Payments due within one year
    
    
    382
    
    
    
    382Total
    
    $
    1,597
    
    
    $
    1,556
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SUPERIOR WELL SERVICES, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
  4. Income taxes
   Three months ended March 31,2006
    
    
    2007(amounts in thousands)Current:State and local
    
    $
    715
    
    
    $
    718U.S. federal
    
    
    3,115
    
    
    
    3,426Total current
    
    
    3,830
    
    
    
    4,144Deferred:State and local
    
    
    61
    
    
    
    287U.S. federal
    
    
    281
    
    
    
    1,334Total deferred
    
    
    342
    
    
    
    1,621Provision for income tax expense
    
    $
    4,172
    
    
    $
    5,765
  December 31,
    
    
    March 31,2006
    
    
    2007(amounts in thousands)Deferred tax assets:Restricted stock
    
    $
    589
    
    
    $
    426Accrued expenses and other
    
    
    207
    
    
    
    216Allowance for doubtful accounts receivable
    
    
    296
    
    
    
    326Total deferred tax assets
    
    
    1,092
    
    
    
    968Deferred tax liabilities:Depreciation differences on property, plant and equipment
    
    
    (15,133
    )
    
    
    (16,632
    )Total deferred tax liabilities
    
    
    (15,133
    )
    
    
    (16,632
    )Net deferred taxes
    
    $
    (14,041
    )
    
    $
    (15,664
    )
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SUPERIOR WELL SERVICES, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
  Three months ended March 31,2006
    
    
    2007(amounts in thousands)Income before income taxes
    
    $
    10,528
    
    
    $
    14,774Statutory U.S. income tax rate
    
    
    35
    %
    
    
    35
    %Tax expense using statutory U.S. income tax rate
    
    
    3,684
    
    
    
    5,171State income taxes
    
    
    504
    
    
    
    655Other
    
    
    (16
    )
    
    
    (61
    )Income tax expense
    
    $
    4,172
    
    
    $
    5,765Effective income tax rate
    
    
    40
    %
    
    
    39
    %
    5. 401(k) Plan
  6. Related-Party Transactions
  11




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SUPERIOR WELL SERVICES, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
  7.
    
    Commitments and Contingencies
     8.
    
    Stock Incentive Plan
    12




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SUPERIOR WELL SERVICES, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 Percentage of Total NumberOf Restricted Shares as to WhichNumber of Full Years
    
    Forfeiture Restrictions LapseLess than 1 year
    
    
    0
    %1 year
    
    
    15
    %2 years
    
    
    30
    %3 years
    
    
    45
    %4 years
    
    
    60
    %5 years or more
    
    
    100
    %
  WeightedAverage GrantNumber of
    
    
    Date Fair Valueshares
    
    
    Per ShareNonvested at December 31, 2005
    
    
    
    
    
    $
    Granted
    
    
    290,900
    
    
    
    28.48Vested
    
    
    
    
    
    
    Forfeited
    
    
    (5,000
    )
    
    
    28.56Nonvested at December 31, 2006
    
    
    285,900
    
    
    
    28.47Granted
    
    
    119,700
    
    
    
    22.88Vested
    
    
    (40,600
    )
    
    
    28.47Forfeited
    
    
    (6,485
    )
    
    
    Nonvested at March 31, 2007
    
    
    358,515
    
    
    $
    26.60
  13




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 The following discussion and analysis should be read in conjunction with the consolidated
financial statements and notes thereto included elsewhere in this report. This discussion contains
forward-looking statements that reflect managements current views with respect to future events
and financial performance. Our actual results may differ materially form those anticipated in
these forward-looking statements or as a result of certain factors such as those set forth below
under Forward-Looking Statements.
 Overview
   Three Months Ended March 31,2006
    
    
    2007(Dollars in thousands)Technical pumping services
    
    $
    43,019
    
    
    
    90.2
    %
    
    $
    67,280
    
    
    
    87.7
    %Down-hole surveying services
    
    
    4,668
    
    
    
    9.8
    
    
    
    9,428
    
    
    
    12.3Total revenue
    
    $
    47,687
    
    
    
    100.0
    %
    
    $
    76,708
    
    
    
    100.0
    %
  Technical Pumping Services
  Down-Hole Surveying Services
  14




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How We Generate Our Revenue
   How We Evaluate Our Operations
  Operating Income per Operating Region.
   Material and Labor Expenses as a Percentage of Revenue.
   15




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Selling, General and Administrative Expenses as a Percentage of Revenue.
  EBITDA.
  
    
    as a measure of operating performance because it assists us in comparing our
performance on a consistent basis, since it removes the impact of our capital structure
and asset base from our operating results;
    
    as a measure for planning and forecasting overall expectations and for evaluating
actual results against such expectations;
    
    to assess compliance with financial ratios and covenants included in credit facilities;
    
    in communications with lenders concerning our financial performance; and
    
    to evaluate the viability of potential acquisitions and overall rates of return.
 How We Manage Our Operations
  Service Crew Performance.
  Equipment Maintenance Performance.
  16




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Customer Satisfaction.
  Safety Performance.
  Our Industry
   Our Growth Strategy
  17




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Three Months Ended March 31,Region
    
    2006
    
    
    2007Appalachian
    
    $
    24,520
    
    
    
    51.4
    %
    
    $
    32,533
    
    
    
    42.4
    %Southeast
    
    
    12,389
    
    
    
    26.0
    
    
    
    13,126
    
    
    
    17.1Rocky Mountain
    
    
    1,114
    
    
    
    2.3
    
    
    
    8,420
    
    
    
    11.0Southwest
    
    
    
    
    
    
    
    
    
    
    8,472
    
    
    
    11.0Mid-Continent
    
    
    9,664
    
    
    
    20.3
    
    
    
    14,157
    
    
    
    18.5Total
    
    $
    47,687
    
    
    
    100.0
    %
    
    $
    76,708
    
    
    
    100.0
    %
   Cautionary Statement Regarding Forward-Looking Statements
  
    
    a decrease in domestic spending by the oil and natural gas exploration and production industry;
    
    a decline in or substantial volatility of crude oil and natural gas commodity prices;
    
    the loss of one or more significant customers;
    
    the loss of or interruption in operations of one or more key suppliers;
    
    the incurrence of significant costs and liabilities in the future resulting from our
failure to comply with new or existing environmental regulations or an accidental release
of hazardous substances into the environment; and
    
    other financial, operational and legal risks and uncertainties detailed from time to
time in our Securities and Exchange Commission (SEC) filings.
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Our Results of Operations
   Three Months Ended March 31,Statement of Operations Data:
    
    2006
    
    
    2007Revenues:Technical pumping services
    
    $
    43,019
    
    
    $
    67,280Down-hole surveying services
    
    
    4,668
    
    
    
    9,428Total revenues
    
    
    47,687
    
    
    
    76,708Expenses:Cost of revenue
    
    
    31,736
    
    
    
    53,986Selling, general and administrative
    
    
    5,526
    
    
    
    8,448Total expense
    
    
    37,262
    
    
    
    62,434Operating income
    
    $
    10,425
    
    
    $
    14,274
 Three Months Ended March 31, 2007 Compared to Three Months Ended March 31, 2006
 Revenue.
  19




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Cost of Revenue.
  Selling, General and Administrative Expenses (SG&A).
  Operating Income.
  Items Impacting Comparability of Our Financial Results
  20




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Changes in Our Legal Structure.
  Non-cash compensation expense.
  Liquidity and Capital Resources
  Financial Condition and Cash Flows
 Financial Condition.
  Cash flows from operations.
  21




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Cash flows used in investing activities.
  Cash flows from financing activities.
  Capital Requirements
  
    
    expansion capital expenditures, such as those to acquire additional equipment and
other assets to grow our business; and
    
    maintenance or upgrade capital expenditures, which are capital expenditures made to
extend the useful life of partially or fully depreciated assets or to upgrade the
operational capabilities of existing assets.
   Off-Balance Sheet Arrangements
  Description of Our Indebtedness
  22




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Recent Accounting Pronouncements
   Critical Accounting Policies
   23




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Revenue Recognition
   Property, Plant and Equipment
  Impairment of Long-Lived Assets
   
    
    changes in general economic conditions in regions in which our services are located;
    
    the price of natural gas and crude oil;
    
    our ability to negotiate favorable sales arrangements; and
    
    our competition from other service providers.
  24




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Goodwill and Other Intangible Assets
  Contingent Liabilities
  Insurance Expenses
  Stock Based Compensation
  Non-GAAP Accounting Measures
  
    
    as a measure of operating performance because it assists us in comparing our performance
on a consistent basis as it removes the impact of our capital structure and asset base from
our operating results;
    
    as a measure for planning and forecasting overall expectations and for evaluating actual
results against such expectations;
    
    to assess compliance with financial ratios and covenants included in credit facilities;
    
    in communications with lenders concerning our financial performance; and
    
    to evaluate the viability of potential acquisitions and overall rates of return.
 25




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Three Months EndedMarch 31,2006
    
    
    2007Reconciliation of EBITDA to Net Income:Net income (1)
    
    $
    6,356
    
    
    $
    9,009Income tax expense
    
    
    4,172
    
    
    
    5,765Interest expense
    
    
    38
    
    
    
    59Depreciation and amortization
    
    
    2,993
    
    
    
    5,003EBITDA
    
    $
    13,559
    
    
    $
    19,836
 
 Item 3. Quantitative and Qualitative Disclosures about Market Risk.
  Interest Rate Risk.
 Concentration of Credit Risk.
 Commodity Price Risk.
 
 Item 4. Controls and Procedures.
   26




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PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings.
  
 Item 1.A. Risk Factors.
  
 Item 6. Exhibits.
  27




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SIGNATURES
  SUPERIOR WELL SERVICES, INC.
RegistrantDated:  May 10, 2007
    By:
    /s/ David E. WallaceDavid E. WallaceChief Executive Officer and
Chairman of the Board of DirectorsDated:  May10, 2007
    By:
    /s/ Thomas W. StoelkThomas W. StoelkVice President and Chief Financial Officer 28




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##### Table of Contents



INDEX TO EXHIBITS
 OF
 SUPERIOR WELL SERVICES, INC.
 (a)
    
    Exhibits
 31.1*
    
    Sarbanes-Oxley Section 302 certification of David E. Wallace for
Superior Well Services, Inc. for the March 31, 2007 Quarterly
Report on Form 10-Q.31.2*
    
    Sarbanes-Oxley Section 302 certification of Thomas W. Stoelk for
Superior Well Services, Inc. for the March 31, 2007 Quarterly
Report on Form 10-Q.32.1*
    
    Sarbanes-Oxley Section 906 certification of David E. Wallace for
Superior Well Services, Inc. for the March 31, 2007 Quarterly
Report on Form 10-Q.32.2*
    
    Sarbanes-Oxley Section 906 certification of Thomas W. Stoelk for
Superior Well Services, Inc. for the March 31, 2007 Quarterly
Report on Form 10-Q.
 
 *
    
    Filed herewith. 29