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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

COMMISSION FILE NUMBER: 0-27217

SpectraSite Holdings, Inc.
(Name of registrant as specified in its charter)

SpectraSite Holdings, Inc.
100 Regency Forest Drive, Suite 400
Cary, North Carolina 27511
(919) 468-0112
(Address and telephone number of principal executive offices and principal place of business)

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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

YES          NO  X 

As of November 8, 2002, the registrant had only one outstanding class of common stock, of which there were 154,013,917 shares outstanding.

INDEX

2

See accompanying notes.

3

See accompanying notes.

4

See accompanying notes.

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1.     Description of Business, Basis of Presentation and Significant Accounting Policies

     SpectraSite Holdings, Inc. (“SpectraSite”) and its wholly owned subsidiaries (collectively referred to as the “Company”) are principally engaged in providing services to companies operating in the telecommunications and broadcast industries, including leasing antenna sites on multi-tenant towers, managing rooftop and in-building telecommunications access on commercial real estate and designing, constructing, modifying and maintaining broadcast towers in the United States.

Basis of Presentation

     The accompanying consolidated financial statements include the accounts of SpectraSite and its subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. As discussed in Note 6, the Company has decided to sell its network services division and the assets and liabilities of that division have been classified as held-for-sale in the accompanying balance sheets.

     The condensed consolidated financial statements have been prepared assuming SpectraSite Holdings, Inc. will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. SpectraSite Holdings, Inc. has incurred recurring operating losses, and it has working capital and shareholders’ deficits as of September 30, 2002. In addition, SpectraSite Holdings, Inc. announced that it has reached agreements with beneficial holders of approximately 66% of its senior notes (the “Senior Notes”), its senior discount notes (the “Senior Discount Notes”) and its senior convertible notes (the “Senior Convertible Notes”, and together with the Senior Notes and Senior Discount Notes, the “SpectraSite Notes”) to support a restructuring plan as discussed in Note 8. The restructuring plan will involve SpectraSite Holdings, Inc. and not SpectraSite Communications, Inc. or any of SpectraSite Communications, Inc.’s subsidiaries. The restructuring plan is also not currently expected to constitute an event of default under or otherwise adversely affect SpectraSite Communications, Inc.’s credit facility, which will continue to be serviced from operating cash flow by SpectraSite Communications, Inc. However, there can be no assurance that the restructuring plan will be executed as anticipated. The condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that might be necessary should SpectraSite Holdings, Inc. be unable to continue as a going concern.

Use of Estimates

     The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Revenue Recognition

     Site leasing revenues are recognized when earned based on lease agreements. Fixed escalation clauses present in certain lease agreements are recognized on a straight-line basis over the term of the lease. Broadcast service revenues related to construction activities are derived from service contracts that provide for billing on a time and materials or fixed price basis. For the time and materials contracts, revenues are recognized as services are performed. For fixed price contracts, revenues are recognized using the percentage-of-completion method measured by the percentage of contract costs incurred to date compared to estimated total contract costs. Costs and estimated earnings in excess of billings on uncompleted contracts represent revenues recognized in excess of amounts billed. Billings in excess of costs and estimated earnings on uncompleted contracts represent billings in excess of revenues recognized. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined.

Allowance for Uncollectible Accounts

     The Company evaluates the collectibility of accounts receivable based on a combination of factors. In circumstances where a specific customer is unable to meet its financial obligations, the Company records a specific allowance against amounts due to reduce the net recognized receivable to the amount it reasonably believes will be collected. For all other customers, the Company reserves a percentage of the remaining outstanding accounts receivable balance based on a review of the aging of customer balances, industry experience and the current economic environment. The allowance for uncollectible accounts, computed based on the above methodology, was $5.0 million and $7.0 million as of December 31, 2001 and September 30, 2002, respectively.

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Significant Customers

     The Company’s customer base consists of businesses operating in the wireless telecommunications and broadcast industries. The Company’s exposure to credit risk consists primarily of unsecured accounts receivable from these customers. One customer, which is a significant shareholder of the Company, accounted for 35% and 28% of revenues in the three months ended September 30, 2001 and 2002, respectively, and 37% and 29% in the nine months ended September 30, 2001 and 2002, respectively. In addition, another customer, that is an affiliate of another significant shareholder of the Company, accounted for 19% and 20% of revenues in the three months ended September 30, 2001 and 2002, respectively, and 16% and 20% in the nine months ended September 30, 2001 and 2002, respectively.

Property and Equipment

     Property and equipment, including towers, are recorded at cost and depreciated over their estimated useful lives. The Company capitalizes costs incurred in bringing towers to an operational state. Costs clearly associated with the acquisition, development and construction of towers are capitalized as a cost of that tower. Indirect costs that relate to several towers are capitalized and allocated to the towers to which the costs relate. Indirect costs that do not clearly relate to projects under development or construction are charged to operating expenses as incurred. Depreciation on property and equipment, excluding towers is computed using the straight-line method over the estimated useful lives of the assets ranging from three to fifteen years. Depreciation on towers is computed using the straight-line method over the estimated useful lives of 15 years for wireless towers and 30 years for broadcast towers. Amortization of assets recorded under capital leases is included in depreciation.

Restructuring and Non-recurring Charges

     In May 2002, the Company announced that it would terminate its build-to-suit programs with Cingular and other carriers and implement other cost-cutting measures as a part of the curtailment of tower development activities. As a result of these actions, the Company recorded restructuring charges of $24.3 million. Of this amount, $16.4 million was related to the write-off of work in progress related to sites in development that are to be terminated, $3.2 million was related to the costs of closing offices and $4.7 million was related to the costs of employee severance. In addition, we recorded a non-recurring impairment charge of $4.3 million to write-down the carrying value of 21 towers that are not marketable. The charge was based on the estimated discounted cash flows of the towers.

     Non-recurring charges for the nine months ended September 30, 2001 were $72.3 million, consisting of $35.8 million in non-recurring charges relating to rooftop management operations, $32.2 million in non-recurring charges relating to the decision to divest operations in Mexico and $4.3 million relating to the decision to close operations from the purchase of Vertical Properties. Of the $35.8 million relating to the consolidation of the rooftop management operations, $34.4 million related to the write-off of goodwill, $0.3 million related to the write-down of assets and $1.1 million was related to the costs of employee severance and other costs related to the consolidation of those operations. Of the $32.2 million relating to the divestiture of operations in Mexico, $10.7 million related to the write-off of goodwill, $17.6 related to the write-down of assets in Mexico and $3.9 million was related to the costs of employee severance and other costs related to the divestiture. Of the $4.3 million relating to Vertical Properties, $4.2 million was related to the write-off of goodwill and $0.1 million was related to the costs of employee severance and other costs related to the closing.

     The following table displays activity related to the accrued restructuring liability. Such liability is reflected in accrued and other expenses in the accompanying condensed consolidated balance sheets.

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Income Taxes

     The Company provides for income taxes at the end of each interim period using the liability method based on the estimated effective tax rate for the full fiscal year for each tax reporting entity. Any cumulative adjustments to the Company’s estimate are recorded in the interim period in which a change in the estimated annual effective rate is determined.

Earnings Per Share

     Basic and diluted earnings (loss) per share are calculated in accordance with Statement of Financial Accounting Standards No. 128 “Earnings per Share”. The Company has potential common stock equivalents related to its convertible notes, warrants and outstanding stock options. These potential common stock equivalents were not included in diluted earnings (loss) per share because the effect would have been antidilutive. Accordingly, basic and diluted net loss per share are the same for all periods presented.

Comprehensive Loss

     Other comprehensive gain (loss) consists of foreign currency translation adjustment and unrealized holding gains (losses) as follows:

Reclassifications

     Certain reclassifications have been made to the 2001 condensed consolidated financial statements to conform to the 2002 presentation. These reclassifications had no effect on previously reported net loss or shareholders’ equity.

Unaudited Interim Financial Statements

     The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial reporting and in accordance with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and disclosures normally required by generally accepted accounting principles for complete financial statements or those normally reflected in the Company’s Annual Report on Form 10-K. The financial information included herein reflects all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of results for interim periods. Results of interim periods are not necessarily indicative of the results to be expected for a full year.

2.     Property and Equipment

     Property and equipment consist of the following:

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3.     New Accounting Pronouncements

     On June 29, 2001, the Financial Accounting Standards Board (“FASB”) issued Statements of Financial Accounting Standards No. 141, Business Combinations (“SFAS 141”) and No. 142, Goodwill and Other Intangible Assets (“SFAS 142”). SFAS 141 eliminates the pooling-of-interests method of accounting for business combinations except for qualifying business combinations that were initiated prior to July 1, 2001. SFAS 141 also includes new criteria to recognize intangible assets separately from goodwill. The requirements of SFAS 141 are effective for any business combination accounted for by the purchase method that is completed after June 30, 2001. The application of SFAS 141 did not affect any of our previously reported amounts included in goodwill or other intangible assets.

     Effective January 1, 2002, the Company adopted SFAS 142 which establishes new accounting and reporting requirements for goodwill and other intangible assets. Under SFAS 142, goodwill and intangible assets with indefinite lives are no longer amortized but are reviewed annually, or more frequently if impairment indicators arise, for impairment. Separable intangible assets that are not deemed to have an indefinite life will continue to be amortized over their useful lives. The amortization provisions of SFAS 142 requiring nonamortization of goodwill and indefinite lived intangible assets apply to goodwill and indefinite lived intangible assets acquired after June 30, 2001. With respect to goodwill and intangible assets acquired prior to July 1, 2001, we ceased amortization on January 1, 2002.

     The Company performed the first of the required impairment tests of goodwill by comparing the fair value of each of our reporting units with its carrying value. Fair value was determined using a discounted cash flow methodology. Based on our impairment tests, we recognized an adjustment of $376.8 million, or $2.45 per share, to reduce the carrying value of goodwill in our wireless services, broadcast tower, broadcast services and building units to its implied value. In accordance with SFAS 142, the impairment adjustment recognized at adoption of the new rules was reflected as a cumulative effect of accounting change in our first quarter 2002 statement of operations. Impairment adjustments recognized after adoption, if any, generally are required to be recognized as an operating expense.

     Actual results of operations for the three and nine months ended September 30, 2002 and pro forma results of operations for the three and nine months ended September 30, 2001 had we applied the nonamortization provisions of SFAS 142 in that period are as follows:

     In June 2001, FASB issued Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations (“SFAS 143”). SFAS 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. The Company is required to adopt SFAS 143 on January 1, 2003, in connection with some ground leases which require removal of the tower upon expiration. Due to the significant number of communications towers that the Company maintains and the extensive number of documents that must be reviewed and estimates that must be made to assess the effects of SFAS 143, the expected impact of adoption of SFAS 143 on the Company’s financial position or results of operations has not yet been determined.

     In August 2001, FASB issued Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS 144”). SFAS 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of and the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of Operations for a Disposal of a Segment of a Business. The Company adopted SFAS 144 as of January 1, 2002.

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4. Acquisition Activities

     SBC transaction — On August 25, 2000, the Company entered into an agreement to acquire leasehold and sub-leasehold interests in approximately 3,900 wireless communications towers from affiliates of SBC Communications (collectively, “SBC”) in exchange for $982.7 million in cash and $325.0 million in common stock. Under the agreement, and assuming the sublease of all 3,900 towers, the stock portion of the consideration was initially approximately 14.3 million shares valued at $22.74 per share. The stock consideration is subject to an adjustment payment to the extent the average closing price of SpectraSite’s common stock during the 60-day period immediately preceeding December 14, 2003 (the third anniversary of the initial closing) decreases from $22.74 down to a floor of $12.96. The adjustment payment may be accelerated if there is a change of control of SpectraSite or upon the occurrence of certain specified liquidity events. In any case, the adjustment payment is payable, at the Company’s option, in the form of cash or shares of common stock. The maximum amount potentially payable to satisfy the adjustment payment is approximately 10.8 million shares of common stock or $139.8 million in cash. The Company and SBC entered into a Lease and Sublease Agreement pursuant to which the Company manages, maintains and leases available space on the SBC towers and has the right to co-locate tenants on the towers. SBC is an anchor tenant on all of the towers and pays a monthly fee per tower of $1,470, subject to an annual adjustment. In addition, the Company had agreed to build towers for Cingular, an affiliate of SBC, through 2005 under an exclusive build-to-suit agreement, but this agreement was terminated on May 15, 2002.

     On November 14, 2001, the Company completed an amendment to the SBC acquisition agreements. This amendment reduced the maximum number of towers that the Company will lease or sublease by 300 towers, from 3,900 in the original agreement to 3,600 towers in the agreement as amended. From the initial closing on December 14, 2000 through a closing on February 25, 2002, the Company leased or subleased a total of 2,706 towers under the terms of the amended agreement. The parties agreed to complete the lease or sublease of the remaining 894 towers during the period beginning April 2003 and ending January 2004. In addition, pursuant to the amendment, the Company receives all new co-location revenue on the towers remaining to be subleased after February 25, 2002. The amendment also extends the December 14, 2003 stock adjustment date to the last date on which towers will be subleased, which is expected to be January 1, 2004. In the nine months ended September 30, 2002, the Company subleased 41 towers, for which it paid $10.1 million in cash and issued 146,569 shares of common stock valued at $1.7 million.

     On May 15, 2002, the Company entered into agreements with SBC and Cingular Wireless LLC (“Cingular”) to terminate its build-to-suit agreement, transfer Communications’ lease or sublease interests in certain SBC towers to Cingular and reduce Communications’ future sublease commitment. The transaction (except the termination of the build-to-suit agreement, which became effective immediately) was subject to the successful consummation of the Refinancing Transactions (described in Note 5) or other similar transactions that reduce SpectraSite’s indebtedness by at least $200 million, the consent of SpectraSite’s bank credit facility lenders and other customary closing conditions. The closing conditions were not all met by August 15, 2002, and the transactions (except the termination of the build-to-suit agreement) have not closed. Completion of SpectraSite’s restructuring plan (described in Note 8) is subject to the completion of a transaction with either Cingular or SBC subject to approval by the holders of the SpectraSite Notes who are party to the Forbearance and Lock-Up Agreements (described in Note 8).

     As of September 30, 2002, the Company has issued approximately 9.9 million shares of common stock to SBC pursuant to the SBC acquisition agreements. Assuming the sublease of all 3,600 towers, the Company will be required to issue to SBC an additional 3.3 million shares to complete the lease or sublease of the remaining 894 towers, for a total of approximately 13.2 million shares. Based on the closing market price of the Company’s common stock on September 30, 2002, the Company would be required to issue approximately 10 million additional shares of common stock to SBC under the stock adjustment provisions described above.

5.     Financing Transactions

Credit Facility

     SpectraSite Communications, Inc. (“Communications”), a wholly-owned subsidiary of SpectraSite, is party to an amended and restated credit facility. In August 2002, Communications amended its credit facility to provide, among other things, for a reduction in the aggregate borrowing capacity from $1.3 billion to $1.085 billion. The August 2002 amendment also provides for an overall loosening of certain of the credit facility’s financial covenants until the earlier of September 30, 2003 or the date that SpectraSite completes an acceptable restructuring of its high yield indebtedness (as defined in the credit agreement) and an increase in the interest rates under the credit facility by 50 basis points per annum until SpectraSite completes an acceptable restructuring of

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its high yield indebtedness. The credit facility includes a $300.0 million revolving credit facility, which may be drawn at any time, subject to the satisfaction of certain conditions precedent (including the absence of a materially adverse effect (as defined in the credit agreement) and the absence of any defaults). The amount available will be reduced (and, if necessary, the amounts outstanding must be repaid) in quarterly installments beginning on June 30, 2004 and ending on June 30, 2007. The credit facility also includes a $335.0 million multiple draw term loan that is fully drawn and which must be repaid in quarterly installments beginning on June 30, 2005 and ending on June 30, 2007 and a $450.0 million term loan that is fully drawn and which will, from September 30, 2003 through June 30, 2007, amortize at a rate of 0.25% per quarter and be payable in quarterly installments and, from July 1, 2007 through December 31, 2007, amortize at a rate of 48% per quarter and be payable on September 30, 2007 and December 31, 2007. Communications has $785.0 million outstanding under the credit facility at September 30, 2002. The remaining $300.0 million under the credit facility was undrawn. Under the terms of the credit facility, the Company could borrow approximately $147 million of available funds under the revolving credit facility as of September 30, 2002 while remaining in compliance with the credit agreement's covenants.

     Prior to the date that SpectraSite completes an acceptable restructuring of its high yield indebtedness, the revolving credit loans and the multiple draw term loans bear interest, at its option, at either Canadian Imperial Bank of Commerce’s base rate plus an applicable margin of 2.50% per annum or the Eurodollar rate plus an applicable margin of 3.75% per annum. After the date of such a restructuring, the revolving credit loans and the multiple draw term loans bear interest, at Communications’ option, at either Canadian Imperial Bank of Commerce’s base rate plus an applicable margin ranging from 2.00% to 1.00% per annum or the Eurodollar rate plus an applicable margin ranging from 3.25% to 2.25% per annum, depending on Communications’ leverage ratio at the end of the preceding fiscal quarter.

     Prior to the date that SpectraSite completes an acceptable restructuring of its high yield indebtedness, the term loan bears interest, at its option, at either Canadian Imperial Bank of Commerce’s base rate plus 3.25% per annum or the Eurodollar rate plus 4.50% per annum. After the date of such a restructuring, the term loan bears interest, at Communications’ option, at either Canadian Imperial Bank of Commerce’s base rate plus 2.75% per annum or the Eurodollar rate plus 4.00% per annum.

     Communications is required to pay a commitment fee of between 1.375% and 0.500% per annum in respect of the undrawn portions of the revolving credit facility, depending on the undrawn amount. Communications may be required to prepay the credit facility in part upon the occurrence of certain events, such as a sale of assets, the incurrence of certain additional indebtedness, certain changes to the SBC transaction or the generation of excess cash flow.

     SpectraSite and each of Communications’ domestic subsidiaries have guaranteed the obligations under the credit facility. The credit facility is further secured by substantially all the tangible and intangible assets of Communications and its domestic subsidiaries, a pledge of all of the capital stock of Communications and its domestic subsidiaries and 66% of the capital stock of Communications’ foreign subsidiaries. The credit facility contains a number of covenants that, among other things, restrict Communications’ ability to incur additional indebtedness; create liens on assets; make investments or acquisitions or engage in mergers or consolidations; dispose of assets; enter into new lines of business; engage in certain transactions with affiliates; and pay dividends or make capital distributions. In addition, the credit facility requires compliance with certain financial covenants, including a requirement that Communications and its subsidiaries, on a consolidated basis, maintain a maximum ratio of total debt to annualized EBITDA, a minimum interest coverage ratio and a minimum fixed charge coverage ratio.

     Two of the banks in the eighty member bank group have advised Communications and the agent for the banks that they are of the view that the conditions to funding under the credit facility are not currently met. In addition, one of those two banks has also asserted that the August 2002 amendment is not effective. The Company disagrees with these positions, believes the August 2002 amendment is effective and all of the conditions to funding are currently satisfied and expects all of the banks to honor all of their obligations under the credit agreement. The agent and the other lead arranger for the banks have advised the banks and Communications that they disagree with the positions of those two banks.

Senior Notes

     SpectraSite did not pay $10.8 million of interest due September 15, 2002 on its 10 3/4% senior notes. On October 15, 2002, the 30-day grace period for such non-payment expired, creating an event of default that is continuing. In addition, SpectraSite announced that it has reached agreements with beneficial holders of approximately 66% of the SpectraSite Notes to support a restructuring plan as discussed in Note 8. As a result, $400 million principal amount of Senior Notes, $1.113 billion accreted value of Senior Discount Notes, $200 million of Senior Convertible Notes and accrued interest of $26.3 million have been classified as current liabilities in the unaudited balance sheet as of September 30, 2002.

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Refinancing Transactions

     In May 2002, the Company proposed a series of transactions (the “Refinancing Transactions”) as part of an effort to reduce commitments for capital expenditures, reduce indebtedness and reduce ongoing interest payments. These included the agreements with SBC and Cingular described in Note 4 “Acquisition Activities”. In connection with the Refinancing Transactions, SpectraSite created a new, wholly-owned subsidiary, SpectraSite Intermediate Holdings, LLC (“Intermediate Holdings”). SpectraSite and Intermediate Holdings entered into a Funding Agreement pursuant to which SpectraSite and Intermediate Holdings agreed to issue to certain affiliates of up to $350 million aggregate principal amount of secured convertible term notes (the “New Term Notes”). Of the proceeds from the issuance of the New Term Notes, $10 million were to be used to refinance indebtedness under Communications’ existing credit facility. The remainder was to be used to fund purchases of SpectraSite’s outstanding Senior Notes and Senior Discount Notes pursuant to tender offers (the “Tender Offers”) or in the open market.

     SpectraSite and Intermediate Holdings also commenced offers to exchange (the “Exchange Offers”) up to $75 million of new notes to be issued by SpectraSite and Intermediate Holdings (the “Exchange Notes”) for Senior Notes and Senior Discount Notes outstanding following the Tender Offers.

     In connection with the execution of the Funding Agreement on May 15, 2002, SpectraSite paid certain affiliates of Welsh Carson (“the Lenders”) a fee of $2.6 million, equal to 0.75% of the aggregate principal amount of New Term Notes that the Lenders had committed to fund. SpectraSite also paid the Lenders $2.6 million related to their expenses associated with the Funding Agreement.

     On July 12, 2002 SpectraSite, Intermediate Holdings and the Lenders terminated the Funding Agreement. Also on that day, the Tender Offers expired without being consummated and the Exchange Offers (which were conditioned on the successful completion of the Tender Offers) were terminated. The Company has recorded $11.2 million related to expenses incurred in connection with the terminated Refinancing Transactions in other expenses in the statement of operations for the nine months ended September 30, 2002.

     The Funding Agreement provides that if SpectraSite commences or enters into an alternative transaction which restructures, repurchases or retires at least $200 million in aggregate face value of its indebtedness before January 12, 2003, then the Lenders have the right to provide all or a portion of the financing required to fund such alternative transaction. This financing would be provided on the same terms as agreed to in the Funding Agreement. In addition, if the alternative transaction does not require at least $100 million of financing, then SpectraSite would be required to pay an additional fee of $10.5 million to the Lenders. Any such fee would be a general unsecured claim in the bankruptcy case contemplated by the reorganization (described in Note 8).

6.     Assets Held for Sale and Discontinued Operations

     During the third quarter of 2002, the Company decided to sell its network services division. The transaction is expected to occur prior to December 31, 2002. There can be no assurance that the Company will reach an acceptable agreement with respect to such transaction or that such transaction will be completed by the expected date. Network services’ revenues for the three months ended September 30, 2001 and 2002 were $55.9 million and $30.2 million, respectively. Revenues for the nine months ended September 30, 2001 and 2002 were $154.6 million and $107.8 million, respectively. In conjunction with the proposed sale, the Company recorded a provision for the estimated loss on disposal of the network services division of $45.6 million. The results of the network services’ operations have been reported separately as discontinued operations in the Statements of Operations. Prior period financial statements have been restated to present the operations of the division as a discontinued operation.

     In August 2002, the Company retained Lazard Freres to assist in the sale of the network services division. Lazard conducted an auction process with twelve participants to determine the net realizable value of the division. The assets and liabilities of the discontinued operations have been recorded at their estimated net realizable value based on tentative sale negotiations in the accompanying balance sheets; however, there can be no assurance that a transaction will be completed on that basis. Assets and liabilities held for sale consist of the following:

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7.     Business Segments

     Prior to its decision to sell its network services division, the Company operated in two business segments: site leasing and network services. As a result of the decision to sell network services, the Company has changed its internal organization so that it now operates in two new business segments: wireless and broadcast. Prior period information has been restated to conform to the current organization. The wireless segment provides for leasing and subleasing of antenna sites on multi-tenant towers for a diverse range of wireless communication services. The broadcast segment offers leasing and subleasing of antenna sites for broadcast communication services and a broad range of broadcast development services, including broadcast tower design and construction and antenna installation.

     In evaluating financial performance, management focuses on operating profit (loss), excluding depreciation and amortization and restructuring and non-recurring charges. This measure of operating profit (loss) is also before interest income, interest expense, other income (expense) and income taxes. All reported segment revenues are generated from external customers as intersegment revenues are not significant.

     Summarized financial information concerning the reportable segments as of and for the three and nine months ended September 30, 2002 and 2001 is shown in the following table. The “Other” column represents amounts excluded from specific segments, such as income taxes, corporate general and administrative expenses, depreciation and amortization, restructuring and other non-recurring charges and interest. In addition, “Other” also includes corporate assets such as cash and cash equivalents, tangible and intangible assets and income tax accounts that have not been allocated to a specific segment.

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8.     Reorganization Proceedings

     On November 6, 2002, SpectraSite Holdings, Inc. announced that it has reached agreements with beneficial holders of approximately 66% of the SpectraSite Notes to support a restructuring plan (the “Forbearance and Lock-Up Agreements”). Under the agreed terms of the plan, 100% of SpectraSite Holding, Inc.’s existing debt will be exchanged for 100% of the reorganized SpectraSite Holdings, Inc.’s new common stock, subject to dilution from warrants to purchase new common stock to be issued to the existing common stock holders in exchange for their existing common stock and by options to be issued to management to buy new common stock under a new stock option plan.

     The restructuring plan will involve SpectraSite Holdings, Inc. and not SpectraSite Communications, Inc. or any of SpectraSite Communications, Inc.’s subsidiaries. The restructuring plan is also not currently expected to adversely affect SpectraSite Communications, Inc.’s credit facility, which will continue to be serviced from operating cash flow by SpectraSite Communications, Inc. The restructuring plan will not result in a default under the credit facility unless SpectraSite Communications, Inc. is unable to show projected compliance with the credit agreement upon completion of the restructuring plan. To implement the plan, SpectraSite Holdings, Inc. will file in Federal court a pre-arranged Plan of Reorganization under Chapter 11 of the U.S. Bankruptcy Code. The agreements with the holders of the SpectraSite Notes will terminate if the Plan is not filed by November 15, 2002, which date may be extended by the parties to the agreements.

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ITEM 2– MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Business Overview

     We are one of the largest wireless tower operators in the United States and a leading provider of construction services to the broadcast industry in the United States. Our businesses include the ownership and leasing of antenna sites on towers, managing rooftop and in-building telecommunications access on commercial real estate and designing, constructing, modifying and maintaining broadcast towers in the U.S. As of September 30, 2002, we owned or operated 7,999 towers as compared to 7,925 towers at December 31, 2001.

     During the third quarter of 2002, we decided to sell our network services division. The transaction is expected to occur prior to December 31, 2002. There can be no assurance that we will reach an acceptable agreement with respect to such transaction or that such transaction will be completed by the expected date. Network services’ revenues for the three months ended September 30, 2001 and 2002 were $55.9 million and $30.2 million, respectively. Revenues for the nine months ended September 30, 2001 and 2002 were $154.6 million and $107.8 million, respectively. In conjunction with the proposed sale, we recorded a provision for the estimated loss on disposal of the network services division of $45.6 million. The results of the network services’ operations have been reported separately as discontinued operations in the Statements of Operations. Prior period financial statements have been restated to present the operations of the division as a discontinued operation.

     On November 6, 2002, SpectraSite Holdings, Inc announced that it has reached agreements with beneficial holders of approximately 66% of its senior notes (the “Senior Notes”), its senior discount notes (the “Senior Discount Notes”) and its senior convertible notes (the “Senior Convertible Notes”, and together with the Senior Notes and Senior Discount Notes, the “SpectraSite Notes”) to support a restructuring plan. Under the agreed terms of the plan, 100% of SpectraSite Holdings, Inc.’s existing debt will be exchanged for 100% of the reorganized SpectraSite Holdings, Inc.’s common stock, subject to dilution from warrants to purchase new common stock to be issued to the existing common stock holders in exchange for their existing common stock and by options to be issued to management to buy new common stock under a new stock option plan.

     The restructuring plan will involve SpectraSite Holdings, Inc. and not SpectraSite Communications, Inc. or any of SpectraSite Communications, Inc.’s subsidiaries. The restructuring plan is also not currently expected to constitute an event of default under or otherwise adversely affect SpectraSite Communications, Inc.’s credit facility, which will continue to be serviced from operating cash flow by SpectraSite Communications, Inc. To implement the restructuring plan, SpectraSite Holdings, Inc. will file in Federal court a pre-arranged Plan of Reorganization under Chapter 11 of the U.S. Bankruptcy Code. The agreements with the holders of the SpectraSite Notes will terminate if the Plan is not filed by November 15, 2002, which date may be extended by the parties to the agreements.

     This discussion contains forward-looking statements, including statements concerning possible or assumed future results of operations and liquidity. Our representatives may also make oral forward-looking statements from time to time. You should understand that the factors described below, in addition to those discussed in our report on Form 10-K for the year ended December 31, 2001 under Item 1a. “Risk Factors,” could affect our future results and could cause those results to differ materially from those expressed in such forward-looking statements. These factors include:

	•		substantial leverage and capital requirements, even after implementation of the restructuring plan;
	•		dependence on demand for wireless communications;
	•		the success of our tower construction program;
	•		our ability to co-locate additional tenants on our towers;
	•		material adverse changes in economic conditions in the markets we serve;
	•		future regulatory actions and conditions in our operating areas;
	•		competition from others in the communications tower industry and technological innovation;
	•		the integration of our operations with those of businesses we have acquired or may acquire in the future and the realization of the expected benefits; and
	•		other risks and uncertainties as may be detailed from time to time in our public announcements and SEC filings.

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Acquisition Activity

2002 Acquisitions

     SBC—On August 25, 2000, we entered into an agreement to acquire leasehold and sub-leasehold interests in approximately 3,900 wireless communications towers from affiliates of SBC Communications (collectively, “SBC”) in exchange for $982.7 million in cash and $325.0 million in common stock. Under the agreement, and assuming the sublease of all 3,900 towers, the stock portion of the consideration was initially approximately 14.3 million shares valued at $22.74 per share. The stock consideration is subject to an adjustment payment to the extent the average closing price of SpectraSite’s common stock during the 60-day period immediately preceding December 14, 2003 (the third anniversary of the initial closing) decreases from $22.74 down to a floor of $12.96. The adjustment payment may be accelerated if there is a change of control of SpectraSite or upon the occurrence of certain specified liquidity events. In any case, the adjustment payment is payable by us, at our option, in the form of cash or shares of our common stock. The maximum amount potentially payable by us to satisfy the adjustment payment is approximately 10.8 million shares of common stock or $139.8 million in cash. We and SBC entered into a Lease and Sublease Agreement pursuant to which we manage, maintain and lease available space on the SBC towers and have the right to co-locate tenants on the towers. SBC is an anchor tenant on all of the towers and pays a monthly fee per tower of $1,470, subject toan annual adjustment. In addition, we had agreed to build towers for Cingular, an affiliate of SBC, through 2005, under an exclusive build-to-suit agreement, but this agreement was terminated on May 15, 2002.

     On November 14, 2001, we completed an amendment to the SBC acquisition agreements. This amendment reduced the maximum number of towers that we will lease or sublease by 300 towers, from 3,900 in the original agreement to 3,600 towers in the agreement as amended. From the initial closing on December 14, 2000 through a closing on February 25, 2002, we leased or subleased a total of 2,706 towers and under the terms of the amended agreement, the parties agreed to complete the lease or sublease of the remaining 894 towers during the period beginning April 2003 and ending January 2004. In addition, pursuant to the amendment, we will receive all new co-location revenue on the towers remaining to be subleased after February 25, 2002. The amendment also extends the December 14, 2003 stock adjustment date to the last date on which towers will be subleased, which is expected to be January 1, 2004. In the nine months ended September 30, 2002, we subleased 41 towers, for which we paid $10.1 million in cash and issued 146,569 shares of common stock valued at $1.7 million.

     As of September 30, 2002, we have issued approximately 9.9 million shares of common stock to SBC pursuant to the SBC acquisition agreements. Assuming the sublease of all 3,600 towers, we will be required to issue to SBC an additional 3.3 million shares to complete the lease or sublease of the remaining 894 towers, for a total of approximately 13.2 million shares. Based on the closing market price of our common stock on September 30, 2002, we would be required to issue approximately 10 million additional shares of common stock to SBC under the stock adjustment provisions described above.

Results of Operations

Three months ended September 30, 2002 compared to the results for the three months ended September 30, 2001.

     Consolidated revenues for the three months ended September 30, 2002 were $79.3 million, an increase of $12.8 million from the three months ended September 30, 2001. Revenues from site leasing increased to $72.0 million for the three months ended September 30, 2002 from $58.2 million for the three months ended September 30, 2001. The increase was primarily as a result of incremental revenue in 2002 from new co-location tenants on towers that were part of our portfolio on September 30, 2001 and revenues derived from towers acquired or built subsequent to September 30, 2001. During the three months ended September 30, 2002, we executed 13 leases for new tenants on new towers representing annualized revenue of $0.4 million upon lease commencement. We executed 293 leases for new tenants on existing towers representing annualized revenue of $5.8 million upon lease commencement. In addition, we increased annualized revenues from existing tenants on existing towers by $2.7 million, including $0.3 million related to rent escalation provisions of existing leases. Existing tenants terminated 38 leases representing annualized revenue of $0.5 million. Same tower revenue growth, based on trailing twelve-months revenue on the towers that we owned as of September 30, 2001 was 18%, and same tower cash flow increased 34%. We owned or operated 7,999 communications towers at September 30, 2002 compared to 7,550 communications towers at September 30, 2001.

     Revenues from broadcast services decreased to $7.3 million for the three months ended September 30, 2002 compared to $8.4 million in the three months ended September 30, 2001. The decrease was primarily due to a change in the service mix from large broadcast tower installations to smaller broadcast tower modifications resulting in lower tower fabrication revenues.

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     Costs of operations increased to $32.7 million for the three months ended September 30, 2002 from $30.8 million for the three months ended September 30, 2001. Costs of operations for site leasing as a percentage of site leasing revenues decreased to 38.1% for the three months ended September 30, 2002 from 42.4% for the three months ended September 30, 2001. This decline was the result of lower average tower maintenance and repair costs as our network services group personnel began performing all such work in early 2002. In addition, the increase in site leasing revenues described above contributed to the improvement in the cost of operations percentage. As our site leasing operations mature, additional tenants on a tower are expected to generate decreases in costs of operations for site leasing as a percentage of site leasing revenues and increases in cash flow because a significant proportion of tower operating costs are fixed and do not increase with additional tenants.

     Assuming commencement of all executed leases and based on estimated normal recurring tower operating expenses, annualized revenue per tower and estimated tower cash flow margins per tower are as follows at September 30, 2002: