##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-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, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 Commission File Number 000-51435
 SUPERIOR WELL SERVICES, INC.
  Delaware
    
    20-2535684(State or other jurisdiction
    
    (I.R.S. Employerof incorporation or organization)
    
    Identification No.)
 1380 Rt. 286 East, Suite #121
Indiana, Pennsylvania 15701
 (724) 465-8904
 o þ
  o o þ
 o þ




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##### Table of Contents



SUPERIOR WELL SERVICES, INC. QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2006
 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
Statement of Changes in Capital
    
    
    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
    
    
    13Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    25Item 4.
    
    Controls and Procedures
    
    
    26PART II
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    27Item 1A.
    

Risk
Factors
    
    
    27Item 4.
    

Submission
of Matters to a Vote of Security Holders
    
    
    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 31,2005
    
    
    March 31, 2006(in thousands, except per share data)Current Assets:Cash and cash equivalents
    
    $
    10,765
    
    
    $
    5,478Trade accounts receivable, net of
allowance of $134 and $209,
respectively
    
    
    23,381
    
    
    
    28,327Inventories
    
    
    3,761
    
    
    
    4,491Prepaid expenses
    
    
    1,157
    
    
    
    905Deferred income taxes
    
    
    303
    
    
    
    516Total current assets
    
    
    39,367
    
    
    
    39,717Property, Plant and Equipment:Land
    
    
    420
    
    
    
    420Building and improvements
    
    
    1,842
    
    
    
    1,980Equipment and vehicles
    
    
    84,184
    
    
    
    98,899Construction in progress
    
    
    8,760
    
    
    
    7,93895,206
    
    
    
    109,237Accumulated depreciation
    
    
    (22,515
    )
    
    
    (25,437
    )Total property, plant and equipment, net
    
    
    72,691
    
    
    
    83,800Intangible assets, net of accumulated
amortization of $665 and $736,
respectively
    
    
    760
    
    
    
    689Other assets
    
    
    273
    
    
    
    266Total assets
    
    $
    113,091
    
    
    $
    124,472Current Liabilities:Accounts payable-trade
    
    $
    7,737
    
    
    $
    6,360Income taxes payable
    
    
    
    
    
    
    3,808Current portion of long-term debt
    
    
    179
    
    
    
    169401(k) plan contribution and withholding
    
    
    911
    
    
    
    497Advance payments on servicing contracts
    
    
    479
    
    
    
    1,327Accrued wages and health benefits
    
    
    841
    
    
    
    1,647Other accrued liabilities
    
    
    706
    
    
    
    836Total current liabilities
    
    
    10,853
    
    
    
    14,644Long-term debt
    
    
    1,258
    
    
    
    1,223Deferred income taxes
    
    
    9,587
    
    
    
    10,142Stockholders Equity:Common stock, voting, par $.01 per
share, 70,000,000 shares authorized,
19,376,667 and 19,655,567 shares issued
at December 31, 2005 and March 31,
2006, respectively
    
    
    194
    
    
    
    197Additional paid-in capital
    
    
    91,944
    
    
    
    92,655Retained earnings (deficit)
    
    
    (745
    )
    
    
    5,611Total stockholders equity
    
    
    91,393
    
    
    
    98,463Total liabilities and stockholders equity
    
    $
    113,091
    
    
    $
    124,472
  1




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##### Table of Contents



SUPERIOR WELL SERVICES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF INCOME
 (Unaudited)
 Three Months EndedMarch 31,20062005
    
    
    (Superior Well(Partnerships)
    
    
    Services, Inc.)(in thousands, except per share data)Revenue
    
    $
    26,025
    
    
    $
    47,687Cost of revenue
    
    
    17,380
    
    
    
    31,736Gross profit
    
    
    8,645
    
    
    
    15,951Selling, general and administrative
expenses
    
    
    3,281
    
    
    
    5,526Operating income
    
    
    5,364
    
    
    
    10,425Interest expense
    
    
    159
    
    
    
    38Other income
    
    
    10
    
    
    
    141Income before income taxes
    
    
    5,215
    
    
    
    10,528Income taxesCurrent
    
    
    
    
    
    
    3,830Deferred
    
    
    
    
    
    
    342
    
    
    
    4,172Net income
    
    $
    5,215
    
    
    $
    6,356Pro forma data (unaudited):Historical income before taxes
    
    $
    5,215Pro forma income tax expense
    
    
    2,262Net income adjusted for pro forma
income tax expense
    
    $
    2,953Earnings per common share:Basic and fully diluted
    
    
    
    
    
    $
    0.33Pro forma basic and fully diluted
    
    $
    0.15
  2




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SUPERIOR WELL SERVICES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
 (Unaudited)
 Superior Well Services, Inc.Additional
    
    
    RetainedCommon
    
    
    Paid-in
    
    
    EarningsStock
    
    
    Capital
    
    
    (Deficit)
    
    
    Total(in thousands)BALANCE, DECEMBER 31, 2005
    
    $
    194
    
    
    $
    91,944
    
    
    $
    (745
    )
    
    $
    91,393Net income
    
    
    
    
    
    
    
    
    
    
    6,356
    
    
    
    6,356Issuance of restricted stock awards (Note 10)
    
    
    3
    
    
    
    276
    
    
    
    
    
    
    
    279Stock-based compensation (Note 10)
    
    
    
    
    
    
    435
    
    
    
    
    
    
    
    435BALANCE, MARCH 31, 2006
    
    $
    197
    
    
    $
    92,655
    
    
    $
    5,611
    
    
    $
    98,463
  SUPERIOR WELL SERVICES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENT OF CHANGES IN CAPITAL
 (Unaudited)
 PartnershipsAccumulatedPartners
    
    
    Comprehensive
    
    
    Less: NotesCapital
    
    
    Income
    
    
    Receivable
    
    
    Total(in thousands)BALANCE, DECEMBER 31, 2004
    
    $
    33,885
    
    
    $
    2
    
    
    $
    (68
    )
    
    $
    33,819Net income prior to reorganization
    
    
    5,215
    
    
    
    
    
    
    
    
    
    
    
    5,215Unrealized gains on interest rate swaps
    
    
    
    
    
    
    30
    
    
    
    
    
    
    
    30Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,245Distributions to partners
    
    
    (13
    )
    
    
    
    
    
    
    
    
    
    
    (13
    )Collection of notes receivable
    
    
    
    
    
    
    
    
    
    
    41
    
    
    
    41BALANCE, MARCH 31, 2005
    
    $
    39,087
    
    
    $
    32
    
    
    $
    (27
    )
    
    $
    39,092
  3




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SUPERIOR WELL SERVICES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 Three Months EndedMarch 3120062005
    
    
    (Superior Well(Partnerships)
    
    
    Services, Inc.)(in thousands)Cash flows from operations:Net income
    
    $
    5,215
    
    
    $
    6,356Adjustments to reconcile net income to net
cash provided by operations:Deferred income taxes
    
    
    
    
    
    
    342Depreciation and amortization
    
    
    1,595
    
    
    
    2,993Stock-based compensation
    
    
    
    
    
    
    435Changes in assets and liabilities:Trade accounts receivable
    
    
    (2,614
    )
    
    
    (4,946
    )Inventory
    
    
    (246
    )
    
    
    (730
    )Prepaid expenses and other assets
    
    
    (104
    )
    
    
    259Accounts payable
    
    
    254
    
    
    
    (1,377
    )Income taxes payable
    
    
    
    
    
    
    3,808401 (k) plan contribution and
withholding
    
    
    (440
    )
    
    
    (414
    )Advance payments on servicing
contracts
    
    
    278
    
    
    
    848Accrued wages and health benefits
    
    
    373
    
    
    
    806Other accrued liabilities
    
    
    312
    
    
    
    130Net cash provided by operations
    
    
    4,623
    
    
    
    8,510Cash flows from investing:Expenditure for property, plant and
equipment
    
    
    (6,425
    )
    
    
    (14,031
    )Notes receivable advances
    
    
    41
    
    
    
    Net cash used in investing
    
    
    (6,384
    )
    
    
    (14,031
    )Cash flows from financing:Principal payments on long-term debt
    
    
    (470
    )
    
    
    (45
    )Proceeds from notes payable, net
    
    
    1,932
    
    
    
    Issuance of restricted stock awards
(Note 10)
    
    
    
    
    
    
    279Distributions to partners
    
    
    (13
    )
    
    
    Net cash provided by financing
    
    
    1,449
    
    
    
    234Net (decrease) in cash and cash equivalents
    
    
    (312
    )
    
    
    (5,287
    )Cash and cash equivalents, beginning of period
    
    
    1,544
    
    
    
    10,765Cash and cash equivalents, end of period
    
    $
    1,232
    
    
    $
    5,478Supplemental disclosure of cash flow data:Interest paid
    
    $
    116
    
    
    $
    16Income taxes paid
    
    
    
    
    
    
    69
  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
  5




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SUPERIOR WELL SERVICES, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 Cash and Cash Equivalents
  Trade Accounts Receivable
  Property, Plant and Equipment
    Revenue Recognition
  Inventories
  6




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SUPERIOR WELL SERVICES, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 Insurance Expense
  Income Taxes
 Accounting for Income Taxes.
 Interest Rate Risk Management
  Fair Value of Financial Instruments
    Intangible Assets
  Concentration of Credit Risk
  7




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SUPERIOR WELL SERVICES, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
  Stock Based Compensation
  Weighted average shares outstanding
  Recently Issued Guidance
  3. Notes Receivable  Limited Partners
  4. Debt
  8




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SUPERIOR WELL SERVICES, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
     2005
    
    
    2006Notes payable due through December 2010,
collateralized by specific buildings and equipment
    
    $
    292
    
    
    $
    268Mortgage 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
    
    
    1,145
    
    
    
    1,1241,437
    
    
    
    1,392Less  Payments due within one year
    
    
    179
    
    
    
    169Total
    
    $
    1,258
    
    
    $
    1,223
 5. Note Payable
  6. Income taxes
    March 31, 2006Current:State and local
    
    $
    715U.S. federal
    
    
    3,115Total current
    
    
    3,830Deferred:State and local
    
    
    61U.S. federal
    
    
    281Total deferred
    
    
    342Provision for income tax expense
    
    $
    4,172
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SUPERIOR WELL SERVICES, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
  December 31,
    
    
    March 31,2005
    
    
    2006Deferred tax assets:Restricted stock
    
    $
    
    
    
    $
    172Accrued expenses and other
    
    
    252
    
    
    
    262Allowance for doubtful accounts receivable
    
    
    51
    
    
    
    82Total deferred tax assets
    
    
    303
    
    
    
    516Deferred tax liabilities:Depreciation differences on property, plant and equipment
    
    
    (9,587
    )
    
    
    (10,142
    )Total deferred
    
    
    (9,587
    )
    
    
    (10,142
    )Net deferred taxes
    
    $
    (9,284
    )
    
    $
    (9,626
    )
  Three monthsEnded March 31,2006Income before income taxes
    
    $
    10,528Statutory U.S. income tax rate
    
    
    35
    %Tax expense using statutory U.S. income tax rate
    
    
    3,684State income taxes
    
    
    504Other
    
    
    (16
    )Income tax expense
    
    $
    4,172Effective income tax rate
    
    
    40
    %
 7. 401(k) Plan
  8. Related-Party Transactions
   10




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SUPERIOR WELL SERVICES, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
     9. Commitments and Contingencies
     10. Stock Incentive Plan
  11




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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
    %
     12




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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 unaudited
consolidated financial statements and notes thereto included elsewhere in this report. The terms
Superior Well Services, Superior, we, us and our refer to Superior Well Services, Inc.,
together with its two operating partnerships, Superior Well Services, Ltd. and Bradford Resources,
Ltd., and their general partner, Superior GP, L.L.C., each of which became wholly owned
subsidiaries of Superior Well Services, Inc. in connection with its initial public offering.
 Overview
   Three Months Ended March 31,2005
    
    
    2006(Dollars in thousands)Technical pumping services
    
    $
    23,616
    
    
    
    90.7
    %
    
    $
    43,019
    
    
    
    90.2
    %Down-hole surveying services
    
    
    2,409
    
    
    
    9.3
    
    
    
    4,668
    
    
    
    9.8Total revenue
    
    $
    26,025
    
    
    
    100.0
    %
    
    $
    47,687
    
    
    
    100.0
    %
  Technical Pumping Services
  Down-Hole Surveying Services
  13




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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.
   14




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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.
  15




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Inventory Turnover Rates.
  Customer Satisfaction.
  Safety Performance.
  Our Industry
   16




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Our Growth Strategy
   Three Months Ended March 31,Region
    
    2005
    
    
    2006Appalachian
    
    $
    15,361
    
    
    
    59.0
    %
    
    $
    24,520
    
    
    
    51.4
    %Southeast
    
    
    7,541
    
    
    
    29.0
    
    
    
    12,389
    
    
    
    26.0Rocky Mountain
    
    
    
    
    
    
    
    
    
    
    1,114
    
    
    
    2.3Mid-Continent
    
    
    3,123
    
    
    
    12.0
    
    
    
    9,664
    
    
    
    20.3Total
    
    $
    26,025
    
    
    
    100.0
    %
    
    $
    47,687
    
    
    
    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;
 17




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##### Table of Contents




    
    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 filings.
  Our Results of Operations
   Three Months Ended March 31,Statement of Operations Data:
    
    2005
    
    
    2006Revenues:Technical pumping services
    
    $
    23,616
    
    
    $
    43,019Down-hole surveying services
    
    
    2,409
    
    
    
    4,668Total revenues
    
    
    26,025
    
    
    
    47,687Expenses:Cost of revenue
    
    
    17,380
    
    
    
    31,736Selling, general and administrative
    
    
    3,281
    
    
    
    5,526Total expense
    
    
    20,661
    
    
    
    37,262Operating income
    
    $
    5,364
    
    
    $
    10,425
 18




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Three Months Ended March 31, 2006 Compared to Three Months Ended March 31, 2005
 Revenue.
    Cost of Revenue.
  Selling, General and Administrative Expenses (SG&A).
  19




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Operating Income.
  Impacting Comparability of Our Financial Results
  Changes in Our Legal Structure.
   Public Company Expenses.
  20




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Non-cash compensation expense.
  Liquidity and Capital Resources
  Financial Condition and Cash Flows
 Financial Condition.
  Cash flows from operations.
  Cash flows used in investing activities.
  Cash flows from financing activities.
  21




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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 extend the useful life or upgrade the
operational capabilities of existing assets.
   Off-Balance Sheet Arrangements
  Description of Our Indebtedness
   Recent Accounting Pronouncements
  22




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Critical Accounting Policies
   Revenue Recognition
   Property, Plant and Equipment
  Impairment of Long-Lived Assets
 Accounting for the Impairment or Disposal of Long-Lived
Assets,
  23




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
    
    changes in general economic conditions in regions in which our services are located;
    
    the price of crude oil and natural gas;
    
    our ability to negotiate favorable sales arrangements; and
    
    our competition from other service providers.
  Intangible Assets
  Contingent Liabilities
  Insurance Expenses
   24




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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.
  Three Months EndedMarch 31,20062005
    
    
    (Superior Well(Partnerships)
    
    
    Services, Inc.)Reconciliation of EBITDA to Net Income:Net income (1)
    
    $
    2,953
    
    
    $
    6,356Income tax expense
    
    
    2,262
    
    
    
    4,172Interest expense
    
    
    159
    
    
    
    38Depreciation and amortization
    
    
    1,595
    
    
    
    2,993EBITDA
    
    $
    6,969
    
    
    $
    13,559
 
 (1)-2005 amounts include pro forma income tax expense 
 Item 3. Quantitative and Qualitative Disclosures about Market Risk.
  Interest Rate Risk.
 Concentration of Credit Risk.
 25




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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 4. Submission of Matters to a Vote of Security Holders
  Number ofNames
    
    Affirmative Votes
    
    Against
    
    Number WithheldMark A. Snyder
    
    
    16,239,238
    
    
    
    
    
    
    
    1,289,562Anthony J. Mendicino
    
    
    16,139,879
    
    
    
    
    
    
    
    1,388,921
   Number ofAffirmative
    
    
    
    
    
    NumberVotes
    
    Against
    
    WithheldRatification of
appointment of
Schneider Downs &
Co., Inc.
    
    
    15,517,377
    
    
    
    2,010,778
    
    
    
    645
 
 Item 6. Exhibits.
  27




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SIGNATURES
  SUPERIOR WELL SERVICES, INC.
  RegistrantDated:  May 9, 2006
    By:

/s/
 David E. WallaceDavid E. WallaceChief Executive Officer and
Chairman of the Board of DirectorsDated:  May 9, 2006
    By:

/s/  Thomas
W. StoelkThomas W. StoelkVice President and Chief Financial Officer 28




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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, 2006 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, 2006
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, 2006 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, 2006 Quarterly
Report on Form 10-Q.
 
 *
    
    Filed herewith. 29