SPECTRASITE INC - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


[X]		QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the quarterly period ended September 30, 2004

[ ]		TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the transition period from ___________ to _________

COMMISSION FILE NUMBER: 001-31769

SpectraSite, Inc.

(Exact Name of registrant as specified in its charter)


Delaware	4899	56-2027322
(State or jurisdiction of incorporation or organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification Number)

SpectraSite, Inc.
400 Regency Forest Drive
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 [X] No [ ]

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

Yes [X] No [ ]

As of November 2, 2004, the registrant had only one outstanding class of common stock, of which there were 48,776,917 shares outstanding.

SPECTRASITE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS


	Reorganized Company
	September 30, 2004			December 31, 2003
	(unaudited)
	(dollars in thousands, except per share amounts)
ASSETS
Current assets:
Cash and cash equivalents	$	83,620		$	60,410
Accounts receivable, net of allowance of $6,408 and $7,849, respectively		8,435			7,880
Prepaid expenses and other		14,221			11,606
Assets held for sale		—			5,737

Total current assets		106,276			85,633
Property and equipment, net		1,197,790			1,207,626
Customer contracts, net		153,059			179,359
Other assets		41,179			39,990

Total assets	$	1,498,304		$	1,512,608

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	4,008		$	11,482
Accrued and other expenses		43,101			40,994
Deferred revenue		52,146			42,831
Liabilities under SBC agreement		—			49,528
Liabilities held for sale		—			2,903

Total current liabilities		99,255			147,738

Long-term portion of credit facility		438,155			439,555
Senior notes		200,000			200,000
Long-term deferred revenue		18,549			16,846
Other long-term liabilities		40,871			38,736

Total long-term liabilities		697,575			695,137

Stockholders’ equity:
Common stock, $0.01 par value, 250,000,000 shares authorized, 49,436,346 and 47,750,453 issued at September 30, 2004 and December 31, 2003, respectively		494			478
Additional paid-in-capital		712,692			688,941
Treasury stock at cost (735,400 shares at September 30, 2004)		(32,462	)		—
Retained earnings (accumulated deficit)		20,750			(19,686	)

Total stockholders’ equity		701,474			669,733

Total liabilities and stockholders’ equity	$	1,498,304		$	1,512,608

See accompanying notes.

SPECTRASITE, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


	Reorganized Company												Predecessor Company
	Three Months			Three Months			Nine Months			Eight Months			One Month
	Ended			Ended			Ended			Ended			Ended
	September 30,			September 30,			September 30,			September 30,			January 31,
	2004			2003			2004			2003			2003
	(in thousands, except per share amounts)
Revenues	$	91,608		$	79,499		$	263,609		$	208,173		$	25,626
Operating Expenses:
Costs of operations, excluding depreciation, amortization and accretion expenses		26,837			26,044			78,628			68,859			8,901
Selling, general and administrative expenses		13,655			12,717			39,208			33,027			4,003
Depreciation, amortization and accretion expenses		26,343			25,393			77,281			67,404			15,930

Total operating expenses		66,835			64,154			195,117			169,290			28,834

Operating income (loss)		24,773			15,345			68,492			38,883			(3,208	)

Other income (expense):
Interest income		427			143			956			639			137
Interest expense		(10,063	)		(12,563	)		(29,344	)		(40,428	)		(4,721	)
Gain on debt discharge		—			—			—			—			1,034,764
Other income (expense)		27,620			1,134			25,522			(1,936	)		(493	)

Total other income (expense)		17,984			(11,286	)		(2,866	)		(41,725	)		1,029,687

Income (loss) from continuing operations before income taxes		42,757			4,059			65,626			(2,842	)		1,026,479
Income tax expense:
Income tax – current		375			597			1,086			1,270			5
Income tax – deferred		16,610			—			24,829			—			—

Total income tax expense		16,985			597			25,915			1,270			5

Income (loss) from continuing operations		25,772			3,462			39,711			(4,112	)		1,026,474
Reorganization items:
Adjust accounts to fair value		—			—			—			—			(644,688	)
Professional and other fees		—			—			—			—			(23,894	)

Total reorganization items		—			—			—			—			(668,582	)

Income (loss) before discontinued operations		25,772			3,462			39,711			(4,112	)		357,892
Discontinued operations:
Loss from operations of discontinued broadcast services division, net of income tax expense		—			(248	)		(124	)		(1,344	)		(686	)
Income (loss) on disposal of discontinued segment, net of income tax expense		1,192			—			849			(596	)		—

Income (loss) before cumulative effect of change in accounting principle		26,964			3,214			40,436			(6,052	)		357,206
Cumulative effect of change in accounting principle		—			—			—			—			(12,236	)

Net income (loss)	$	26,964		$	3,214		$	40,436		$	(6,052	)	$	344,970

Basic earnings per share:
Income (loss) from continuing operations	$	0.53		$	0.07		$	0.82		$	(0.09	)	$	6.66
Reorganization items		—			—			—			—			(4.34	)
Discontinued operations		0.02			—			0.02			(0.04	)		—
Cumulative effect of change in accounting principle		—			—			—			—			(0.08	)

Net income (loss)	$	0.55		$	0.07		$	0.84		$	(0.13	)	$	2.24

Diluted earnings per share:
Income (loss) from continuing operations	$	0.49		$	0.07		$	0.76		$	(0.09	)	$	6.66
Reorganization items		—			—			—			—			(4.34	)
Discontinued operations		0.02			(0.01	)		0.02			(0.04	)		—
Cumulative effect of change in accounting principle		—			—			—			—			(0.08	)

Net income (loss)	$	0.51		$	0.06		$	0.78		$	(0.13	)	$	2.24

SPECTRASITE, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)

(dollars in thousands)


	Common Stock				Additional Paid-in			Treasury Stock					Retained Earnings			Total Stockholders’
	Shares		Amount		Capital			Shares		Cost			(Accumulated Deficit)			Equity
Balance at December 31, 2003		47,750,453	$	478	$	688,941			—		—		$	(19,686	)	$	669,733
Net income		—		—		—			—		—			40,436			40,436
Employee option and warrant exercises		1,542,527		15		21,987			—		—			—			22,002
Non-cash compensation charges		—		—		261			—		—			—			261
Restricted stock grants, net of $239 unearned compensation		7,500		—		79			—		—			—			79
Reserve shares issued to claimants under Plan of Reorganization		135,866		1		(1	)		—		—			—			—
Purchases of common stock		—		—		—			735,400		(32,462	)		—			(32,462	)
Payments received on executive notes		—		—		1,425			—		—			—			1,425

Balance at September 30, 2004		49,436,346	$	494	$	712,692			735,400	$	(32,462	)	$	20,750		$	701,474

See accompanying notes.

SPECTRASITE, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


	Reorganized Company						Predecessor Company
	Nine Months			Eight Months			One Month
	Ended			Ended			Ended
	September 30,			September 30,			January 31,
	2004			2003			2003
				(in thousands)
Operating activities
Net income (loss)	$	40,436		$	(6,052	)	$	344,970
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation		64,866			56,330			15,609
Cumulative effect of change in accounting principle		—			—			12,236
Amortization of intangible assets		10,218			10,041			252
Amortization of debt issuance costs		3,258			3,480			425
Amortization of asset retirement obligation		2,197			1,756			214
Non-cash compensation charges		341			—			—
Write-off of debt issuance costs		24			8,938			—
(Gain) loss on disposal of assets		1,111			3,898			(84	)
Write-off of customer contracts		693			—			—
(Gain) loss on disposal of discontinued operations		(849	)		—			—
Deferred income taxes		24,829			—			—
Gain on sale of available-for-sale securities		—			(3,837	)		—
Gain on sale of subsidiary		—			(394	)		—
Gain on debt discharge		—			—			(1,034,764	)
Adjust accounts to fair value		—			—			644,688
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable		(55	)		1,666			5,045
Costs and estimated earnings in excess of billings, net		—			305			(272	)
Inventories		—			318			(2	)
Prepaid expenses and other		(6,072	)		(4,679	)		(2,238	)
Accounts payable		(7,717	)		(17,845	)		13,549
Other liabilities		(18,188	)		13,497			6,264

Net cash provided by operating activities		115,092			67,422			5,892

Investing activities
Purchases of property and equipment		(27,779	)		(10,143	)		(2,737	)
Acquisitions of towers and customer contracts		(53,566	)		(14,686	)		—
Disposal of discontinued operations, net of cash sold		(551	)		—			—
Proceeds from the sale of assets		1,713			81,349			—
Proceeds from the sale of available-for-sale securities		—			4,970			—
Proceeds from the sale of subsidiary		—			2,053			—

Net cash (used in) provided by investing activities		(80,183	)		63,543			(2,737	)

Financing activities
Proceeds from issuance of common stock		22,002			2,415			—
Proceeds from issuance of long-term debt		—			200,000			—
Repayments of debt and capital leases		(1,734	)		(343,389	)		(10,884	)
Payments received on executive notes		1,425			—			—
Debt issuance costs		(930	)		(7,373	)		—
Purchases of common stock		(32,462	)		—			—

Net cash used in financing activities		(11,699	)		(148,347	)		(10,884	)

Net increase (decrease) in cash and cash equivalents		23,210			(17,382	)		(7,729	)
Cash and cash equivalents at beginning of period		60,410			73,232			80,961

Cash and cash equivalents at end of period	$	83,620		$	55,850		$	73,232

SPECTRASITE, INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

SpectraSite, Inc. (“SpectraSite”), formerly known as SpectraSite Holdings, Inc., and its wholly owned subsidiaries (collectively referred to as the “Company”) are engaged in providing services to companies operating in the telecommunications and broadcast industries, including leasing and licensing antenna sites on multi-tenant towers, the licensing of distributed antenna systems within buildings, and managing, leasing and licensing rooftop telecommunications access on commercial real estate 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 this Note under Assets Held for Sale and Discontinued Operations, on March 1, 2004, the Company sold its broadcast services division. The assets and liabilities of that division as of December 31, 2003 have been classified as held-for-sale in the accompanying balance sheets.

In accordance with AICPA Statement of Position 90-7 Financial Reporting by Entities in Reorganization Under the Bankruptcy Code (“SOP 90-7”), the Company adopted fresh start accounting as of January 31, 2003, and the Company’s emergence from chapter 11 resulted in a new reporting entity. Under fresh start accounting, the reorganization value of the entity is allocated to the entity’s assets based on fair values, and liabilities are stated at the present value of amounts to be paid determined using appropriate current interest rates. The effective date is considered to be the close of business on January 31, 2003 for financial reporting purposes. The periods presented prior to January 31, 2003 have been designated “Predecessor Company” and the periods subsequent to January 31, 2003 have been designated “Reorganized Company.” As a result of the implementation of fresh start accounting, the financial statements of the Company after the effective date are not comparable to the Company’s financial statements for prior periods.

See Note 2 for a presentation of the unaudited pro forma balance sheet illustrating the effect of the Company’s Plan of Reorganization and the effect of implementing certain fresh start accounting adjustments.

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. Significant estimates that are susceptible to change include the Company’s estimate of the allowance for uncollectible accounts and the fair value of long-lived assets.

Cash and Cash Equivalents

The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.

Revenue Recognition

Revenues from leasing and licensing activities are recognized when earned based on lease or license agreements. Rate increases based on fixed escalation clauses that are included in certain lease or license agreements are recognized on a straight-line basis over the term of the lease or license. Revenues from fees, such as structural analysis fees and site inspection fees, are recognized upon delivery of the related product or service. Additionally, the Company generates revenues related to the management of sites on rooftops. Under each site management

agreement, the Company is entitled to a recurring fee based on a percentage of the gross revenue derived from the rooftop site subject to the agreement. The Company recognizes these recurring fees as revenue when earned.

Deferred Revenue

The Company recognizes revenue from leasing and licensing activities when earned based on the lease or license agreements. Payments received from customers in advance of the terms of these agreements are considered unearned. The unearned portion of customer payments are deferred upon receipt and then recognized as revenue ratably over the billing period as defined by the lease or license agreements.

Allowance for Uncollectible Accounts

The Company evaluates the collectibility of accounts receivable based on a combination of factors. In circumstances where a specific customer’s ability to meet its financial obligations to the Company is in question, the Company records a specific allowance against amounts due to reduce the net recognized receivable from that customer 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 $6.4 million and $7.8 million as of September 30, 2004 and December 31, 2003, respectively.

Available-for-Sale Securities

Available-for-sale securities are classified as Other assets in the condensed consolidated balance sheets and are stated at fair value, with any unrealized gains and losses reported in other comprehensive income. Realized gains and losses and declines in value judged to be other-than-temporary on available-for-sale securities are included in Other income (expense). The Company completed the sale of its available-for-sale securities on September 9, 2003 for proceeds of $5.0 million and recognized a gain on the sale of $3.8 million. This gain is included in Other income (expense) in the unaudited condensed consolidated statements of operations. As of September 30, 2004 and December 31, 2003, the Company held no available-for-sale securities.

Property and Equipment

Property and equipment built, purchased or leased under long-term leasehold agreements are recorded at cost and depreciated over their estimated useful lives. The Company capitalizes costs incurred in bringing property and equipment to an operational state. Costs clearly associated with the acquisition, development and construction of property and equipment are capitalized as a cost of the assets. Indirect project costs that relate to several projects are capitalized and allocated to the projects to which the costs relate. Indirect costs that do not clearly relate to projects under development or construction are charged to expense as incurred. In addition, upon initial recognition of a liability for the retirement of a purchased or constructed asset under Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations (“SFAS 143”), the cost of that liability is capitalized as part of the cost basis of the related asset and depreciated over the related life of the asset. 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 thirty-nine 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. Approximately $0.3 million and $0.6 million of interest was capitalized into the cost of property and equipment during the three and nine months ended September 30, 2004, respectively. No interest was capitalized into the cost of property and equipment during 2003.

Goodwill

The excess of the purchase price over the fair value of net assets acquired in purchase business combinations has been recorded as goodwill. Goodwill is evaluated for impairment on an annual basis or as impairment indicators are identified, in accordance with Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible

Assets (“SFAS 142”). On an ongoing basis, the Company assesses the recoverability of goodwill by determining the ability of the specific assets acquired to generate future cash flows sufficient to recover the unamortized goodwill over the remaining useful life. The Company estimates future cash flows based on the current performance of the acquired assets and its business plan for those assets. Changes in business conditions, major customers or other factors could result in changes in those estimates. Goodwill determined to be unrecoverable based on future cash flows is written off in the period in which such determination is made.

In connection with the Company’s adoption of fresh start accounting on January 31, 2003, impairment tests of goodwill were performed. As a result, $60.6 million of goodwill related to its wireless tower unit was written off. This charge is included in Reorganization items in the unaudited condensed consolidated statement of operations for the one month ended January 31, 2003. The Company has no recorded goodwill as of September 30, 2004 and December 31, 2003.

Customer Contracts

The Company assesses the value of customer contracts relating to existing leases or licenses on assets acquired and records such customer contracts at fair value at the date of acquisition. Upon completion of the Company’s reorganization and the implementation of fresh start accounting, the Company recorded intangible assets relating to the fair value of customer contracts in the amount of $190.9 million as of January 31, 2003. These contracts are amortized over the lesser of the remaining life of the lease contract or the remaining life of the related tower asset, not to exceed 15 years for wireless towers and 30 years for broadcast towers.

As discussed below under Income Taxes, deferred tax benefits related to federal and state net operating loss carryforwards and tax basis differences generated prior to the Company’s emergence from bankruptcy that are realized by the Company will be first utilized to reduce intangible assets until such intangible assets are reduced to zero and thereafter will be reported as additions to paid-in-capital. During the nine months ended September 30, 2004, the Company recognized deferred income tax expense and reduced its intangible assets by $24.8 million. Of the total $24.8 million reduction of intangible assets, $21.6 million was applied to customer contracts with the balance of $3.2 million being applied to other intangible assets. The following table summarizes activity with respect to customer contracts during the nine months ended September 30, 2004:


	Balance												Balance
	January 1,						Deferred Tax						September 30,
	2004			Additions			Benefit Reduction			Write-offs			2004
							(in thousands)
Customer contracts	$	190,929		$	5,551		$	(21,606	)	$	(754	)	$	174,120
Accumulated amortization		(11,570	)		(9,552	)		—			61			(21,061	)

Customer contracts, net	$	179,359		$	(4,001	)	$	(21,606	)	$	(693	)	$	153,059

The Company estimates amortization expense related to customer contracts to be approximately $11.3 million for each of the next five years.

Impairment of Long-Lived Assets

Long-lived assets, such as property and equipment, goodwill and purchased intangible assets, are evaluated for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. An impairment loss is recognized when estimated undiscounted future cash flows expected to result from the use of the asset plus net proceeds expected from disposition of the asset (if any) are less than the carrying value of the asset. When an impairment is identified, the carrying amount of the asset is reduced to its estimated fair value. Potential impairment of long-lived assets other than goodwill and purchased intangible assets with indefinite useful lives is evaluated using the guidance provided by Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-lived Assets (“SFAS 144”).

Derivative Financial Instruments

The Company accounts for derivative financial instruments in accordance with Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS 133”), as amended by Statement of Financial Accounting Standards No. 138, Accounting for Certain Instruments and Certain Hedging Activities (“SFAS 138”) and as further amended by Statement of Financial Accounting Standards No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities (“SFAS 149”). The Company records derivative financial instruments in the consolidated financial statements at fair value. Changes in the fair values of derivative financial instruments are either recognized in earnings or in stockholders’ equity as a component of other comprehensive income depending on whether the derivative financial instrument qualifies for hedge accounting as defined by SFAS 133. Changes in fair values of derivatives not qualifying for hedge accounting are reported in earnings as they occur.

In February 2003, the Company entered into an interest rate cap agreement at a cost of $0.8 million in order to limit exposure to fluctuations in interest rates on its variable rate credit facility. This transaction has not been designated as a fair value hedge. Accordingly, gains and losses from the change in the fair value of this instrument are recognized in other income and expense during the period of change. During the nine months ended September 30, 2004 and the eight months ended September 30, 2003, the Company recognized a loss on the change in the fair value of this instrument of $0.2 million and $0.4 million, respectively. As of September 30, 2004 and December 31, 2003, the carrying amounts (fair value) of this instrument were $0.004 million and $0.2 million, respectively, and are included in Other assets in the unaudited condensed consolidated balance sheets.

Liabilities under SBC Agreement

In connection with the Plan of Reorganization and the implementation of fresh start accounting on January 31, 2003, the Company recorded liabilities in the amount of $60.5 million related to its obligation to complete the lease or sublease of the remaining 600 towers under the SBC agreement as discussed in Note 5. This amount was determined as the difference between the estimated purchase price for the remaining 600 towers, including direct costs to place the towers in service, and the estimated fair value of the towers based on an independent valuation. At each closing, the liability was reduced by a portion of the purchase price of each tower. In addition, the liability was reduced by the amount of costs incurred to place the acquired towers in service. On February 17, 2004, the parties agreed to reduce the Company’s remaining commitment by five towers, down to 474. In connection with this reduction, the associated liability was reduced by $0.5 million and was recorded as Other income. On August 16, 2004, the Company completed its last closing under its agreement with SBC consisting of 191 towers for total cash consideration of $50.0 million. This acquisition was 276 towers less than the potential maximum number of towers contemplated to be leased or subleased under the Company’s agreement with SBC. As a result of not acquiring these 276 towers, the Company recognized $27.8 million as Other income through the reversal of liabilities originally recorded for these towers. In the nine months ended September 30, 2004, $18.5 million of the purchase price of 204 towers acquired and $0.8 million of acquisition costs were applied against the liability. The Company’s federal income tax obligation was not impacted by the recording or reversal of the liabilities related to its obligation under the SBC agreement.

Asset Retirement Obligations

The Company accounts for asset retirement obligations in accordance with 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 adopted SFAS 143 on January 1, 2003 in connection with certain ground leases that require removal of the tower upon expiration. Initial application of the new accounting method resulted in an increase in net property, plant and equipment of $23.2 million, recognition of an asset retirement obligation of $35.4 million, and a cumulative effect of change in accounting principle of $12.2 million.

This obligation is included in Other long term liabilities in the condensed consolidated balance sheets. The following table displays activity related to the asset retirement obligation:


	Liability as of							Liability as of
	January 1,					Accretion		September 30,
	2004		Reductions			Expense		2004
	(in thousands)
Asset retirement obligation	$	38,019	$	(28	)	$	2,197	$	40,188

Assets Held for Sale and Discontinued Operations

On December 16, 2003, the Company decided to sell its broadcast services division and on March 1, 2004, the division was sold. In conjunction with the sale, the Company recorded a provision for the loss on disposal of the broadcast services division of $17.0 million in 2003. In the nine months ended September 30, 2004, the Company recorded a gain on disposal of the broadcast services division of $0.8 million primarily through a reassessment of the collectibility of the promissory notes. The notes, along with the valuation allowance, were recorded by the Company at the time of sale at their estimated fair values. The valuation allowance is periodically evaluated against actual collection experience and its expectation of future collectibility. The results of the broadcast services division’s operations have been reported separately as discontinued operations in the unaudited condensed consolidated statements of operations. Prior period financial statements have been restated to present the operations of the division as a discontinued operation. Broadcast services revenues for all periods presented are as follows:

Predecessor

Reorganized Company

Company

Three Months

Nine Months

Eight Months

One Month

Ended

September 30,

January 31,

2004

2003

2004

2003

(in thousands)

Broadcast services revenues

—

4,361

1,754

11,242

1,167

Assets and liabilities held for sale consist of the following:


	Reorganized
	Company
	December 31, 2003
	(in thousands)
Accounts receivable, net	$	1,455
Costs and estimated earnings in excess of billings		242
Inventories		2,008
Prepaid expenses and other		243
Property and equipment, net		1,782
Other assets		7

Assets held for sale	$	5,737

Accounts payable	$	542
Accrued and other expenses		945
Billings in excess of costs and estimated earnings		1,362
Other long-term liabilities		54

Liabilities held for sale	$	2,903

As permitted under Statement of Financial Accounting Standards No. 95, Statement of Cash Flows, the statements of cash flows do not separately disclose the cash flows related to discontinued operations.

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.

Customers representing 10% or more of the Company’s consolidated revenues are presented below for the applicable periods:


													Predecessor
	Reorganized Company												Company
	Three Months			Three Months			Nine Months			Eight Months			One Month
	Ended			Ended			Ended			Ended			Ended
	September 30,			September 30,			September 30,			September 30,			January 31,
	2004			2003			2004			2003			2003
							(dollars in thousands)
Significant Customer Revenue
Nextel and affiliates	$	24,915		$	23,594		$	73,165		$	62,779		$	7,434
% Total Consolidated Revenue		27	%		30	%		28	%		30	%		29	%
Cingular**	$	19,481		$	16,515		$	56,049		$	42,080		$	5,853
% Total Consolidated Revenue		21	%		21	%		21	%		20	%		23	%
AT&T Wireless**	$	10,321			*		$	27,217			*			*
% Total Consolidated Revenue		11	%		*			10	%		*			*
Total Consolidated Revenue	$	91,608		$	79,499		$	263,609		$	208,173		$	25,626

* Represents less than 10% of Total Consolidated Revenue

** As of October 27, 2004, these two customers have merged.

Restructuring and Non-recurring Charges

In November 2001, the Company announced that it would reduce its planned new tower acquisition and construction programs for 2002. As a result of the reduced new tower activity, the Company recorded restructuring charges of $68.6 million. Of this amount, $26.0 million was related to the write-off of work in progress related to sites in development that the Company terminated, $4.8 million was related to the costs of closing certain offices and $2.8 million was related to the costs of severance for 201 employees. The Company also completed an amendment to modify its agreement to acquire leasehold and sub-leasehold interests in approximately 3,900 communications towers from affiliates of SBC Communications. This amendment provided for the number of towers to be subleased to be reduced by 300 and for the sublease date on at least 850 towers to be postponed to 2003 and 2004. In exchange for these modifications, the Company paid a contract amendment fee of $35.0 million that has been included in the restructuring charge in 2001.

In May 2002, the Company announced that it would terminate its build-to-suit programs with Cingular (the “Cingular BTS Termination”) 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 $23.1 million. Of this amount, $16.4 million was related to the write-off of work in progress related to sites in development that were terminated, $3.2 million was related to the costs of closing offices and $3.5 million was related to the costs of employee severance. In addition, the Company recorded a non-recurring impairment charge of $4.3 million to write-down the carrying value of 21 towers that were not marketable. The charge was based on the estimated discounted cash flows of the towers.

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. All activity, other than cash payments, for the period presented below is included in the determination of net income.


	Reorganized Company


	Liability								Liability
	at								at
	December 31,		Additions/			Cash			September 30,
	2003		(Reductions)			Payments			2004
			(in thousands)
Accrued restructuring liabilities:
Reduced tower acquisition and development
Employee severance	$	1,118	$	(107	)	$	(892	)	$	119
Lease termination and office closing		599		(701	)		(166	)		(268	)

		1,717		(808	)		(1,058	)		(149	)
Cingular BTS termination:
Employee severance		7		—			(7	)		—
Lease termination and office closing		438		896			(508	)		826

		445		896			(515	)		826

Total	$	2,162	$	88		$	(1,573	)	$	677

Income Taxes

The liability method is used in accounting for income taxes and deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities.

As part of the process of preparing its unaudited condensed consolidated financial statements, the Company is required to estimate income taxes in each of the jurisdictions in which it operates. This process involves estimating the actual current tax liability together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities. The Company then assesses the likelihood that its deferred tax assets will be recovered from future taxable income. To the extent that the Company believes that recovery is not likely, it establishes a valuation allowance. Significant management judgment is required in determining the provision for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against net deferred tax assets. The Company has recorded a 100% valuation allowance as of September 30, 2004 and December 31, 2003 on the deferred tax asset balance of $495.9 million and $520.7 million, respectively, due to uncertainties related to utilization of deferred tax assets, primarily related to net operating loss carryforwards, before they expire.

As discussed in Note 2, in accordance with SOP 90-7, the Company adopted “fresh start accounting” on January 31, 2003. Under SOP 90-7, deferred tax benefits related to federal and state net operating loss carryforwards and tax basis differences generated prior to the Company’s emergence from bankruptcy that are realized by the Company will be first utilized to reduce intangible assets until such intangible assets are reduced to zero and thereafter will be reported as additions to paid-in-capital. During the nine months ended September 30, 2004, the Company recognized deferred income tax expense and reduced its intangible assets by $24.8 million.

Earnings Per Share

On July 31, 2003, the Company’s Board of Directors approved a two-for-one forward stock split of SpectraSite, Inc.’s common stock, effected in the form of a common stock dividend to stockholders of record on August 14, 2003. The additional shares of common stock were mailed or delivered on or about August 21, 2003, by the Company’s transfer agent. All share and per share information for the Reorganized Company has been presented to reflect the stock split.

Basic and diluted earnings (loss) per share are calculated in accordance with Statement of Financial Accounting Standards No. 128 Earnings per Share (“SFAS 128”). During the one month ended January 31, 2003, the Company had potential common stock equivalents related to its convertible notes, warrants and outstanding stock options. Upon completion of the Company’s reorganization, the convertible notes were exchanged for shares of common stock, par value $0.01 per share and all outstanding warrants and stock options were cancelled. These potential common stock equivalents were not included in diluted earnings (loss) per share for the one month ended January 31, 2003 because the effect would have been antidilutive. Accordingly, basic and diluted net income (loss) per share are the same for the one month ended January 31, 2003.

As discussed in Note 2, under the Plan of Reorganization, the holders of 166,158,298 shares of the Predecessor Company’s common stock, par value $0.001 per share, outstanding as of February 10, 2003 (the “Old Common Stock”) received new warrants which were immediately exercisable into 2.5 million shares of the Reorganized Company’s common stock, par value $0.01 per share at a price of $16.00 per share. In addition, on February 10, 2003, the Company adopted the 2003 Equity Incentive Plan to grant equity-based incentives in common stock to employees and directors. Approximately 5.4 million options to purchase common stock were granted under this plan in March 2003. During the three and nine months ended September 30, 2004 and the three and eight months ended September 30, 2003, the Company had potential common stock equivalents related to its new warrants and outstanding stock options on common stock. These potential common stock equivalents were not included in diluted earnings (loss) per share for the eight months ended September 30, 2003 because the effect would have been antidilutive. Accordingly, basic and diluted net loss per share are the same for the eight months ended September 30, 2003. Included in diluted earnings per share were approximately 3.9 million and 4.5 million options to purchase common stock for the three and nine months ended September 30, 2004, respectively, and 5.4 million for the three months ended September 30, 2003. In addition, warrants exercisable into approximately 2.5 million shares of common stock were included in the calculation of diluted earnings per share for both the three and nine months ended September 30, 2004, and the three months ended September 30, 2003. No options or warrants were excluded from the calculation of diluted earnings per share for the three and nine months ended September 30, 2004 and the three months ended September 30, 2003, as all such options and warrants were dilutive. The shares used in the computation of the Company’s basic and diluted earnings per share are reconciled as follows:


	Reorganized Company								Predecessor
									Company
	Three Months		Three Months		Nine Months		Eight Months		One Month
	Ended		Ended		Ended		Ended		Ended
	September 30,		September 30,		September 30,		September 30,		January 31,
	2004		2003		2004		2003		2003
					(in thousands)
Weighted average common shares outstanding (basic)		48,827		47,507		48,376		47,325		154,014
Effect of dilutive stock options		2,025		2,934		2,215		—		—
Effect of dilutive warrants and awards		1,581		1,176		1,494		—		—

Weighted average common shares outstanding (diluted)		52,433		51,617		52,085		47,325		154,014

Comprehensive Income (Loss)

Other comprehensive income (loss) consists of foreign currency translation adjustments and unrealized holding gains (losses) on available-for-sale securities as follows:


	Reorganized Company										Predecessor Company
	Three Months		Three Months			Nine Months		Eight Months			One Month
	Ended		Ended			Ended		Ended			Ended
	September 30,		September 30,			September 30,		September 30,			January 31,
	2004		2003			2004		2003			2003
						(in thousands)
Reported net income (loss)	$	26,964	$	3,214		$	40,436	$	(6,052	)	$	344,970
Foreign currency translation adjustment		—		(189	)		—		—			(123	)
Unrealized holding losses arising during the period		—		(3,335	)		—		—			(200	)

Comprehensive income (loss)	$	26,964	$	(310	)	$	40,436	$	(6,052	)	$	344,647

Stock Options and Awards

The Company has elected under the provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock Based Compensation (“SFAS 123”), as amended by Statement of Financial Accounting Standards No. 148, Accounting for Stock Based Compensation — Transition and Disclosure (“SFAS 148”), to account for its employee stock options under the intrinsic value method in accordance with Accounting Principle Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”) and has not adopted the fair value method of accounting for stock based employee compensation. Companies that account for stock based compensation arrangements for their employees under APB 25 are required by SFAS 123 to disclose the pro forma effect on net income (loss) as if the fair value based method prescribed by SFAS 123 had been applied. The Company plans to continue to account for stock based compensation using the provisions of APB 25 and has adopted the disclosure requirements of SFAS 123 and SFAS 148.

During 1997, the Company adopted a stock option plan that provided for the purchase of Old Common Stock by key employees, directors, advisors and consultants of the Company. In connection with the Plan of Reorganization discussed in Note 2, all options issued under this plan were cancelled on February 10, 2003. Had compensation cost for the Company’s stock options been determined based on the fair value at the date of grant consistent with the provisions of SFAS 123, the Company’s net income and net income per share for the one month ended January 31, 2003 would have been as follows:


	Predecessor Company
	One Month Ended
	January 31, 2003
	(in thousands, except per
	share amounts)
Reported net income	$	344,970
Stock-based employee compensation cost that would have been included in net loss under the fair value method		(694	)

Adjusted net income	$	344,276

Basic and diluted income per share:
Reported net income	$	2.24
Stock-based employee compensation cost that would have been included in net loss under the fair value method		—

Adjusted net income	$	2.24

Also, on February 10, 2003, the Company adopted the 2003 Equity Incentive Plan to grant equity-based incentives in common stock to employees and directors. Had compensation cost for the Company’s stock options to purchase common stock been determined based on the fair value at the date of grant consistent with the provisions of SFAS 123, the Company’s net income (loss) and net income (loss) per share would have been as follows:


	Reorganized Company
	Three Months			Three Months			Nine Months			Eight Months
	Ended			Ended			Ended			Ended
	September 30,			September 30,			September 30,			September 30,
	2004			2003			2004			2003
				(in thousands, except per share amounts)
Reported net income (loss)	$	26,964		$	3,214		$	40,436		$	(6,052	)
Stock-based employee compensation cost that would have been included in net income (loss) under the fair value method		(1,676	)		(3,872	)		(4,717	)		(8,489	)

Adjusted net income (loss)	$	25,288		$	(658	)	$	35,719		$	(14,541	)

Basic income (loss) per share:
Reported net income (loss)	$	0.55		$	0.07		$	0.84		$	(0.13	)
Stock-based employee compensation cost that would have been included in net income (loss) under the fair value method		(0.03	)		(0.08	)		(0.10	)		(0.18	)

Adjusted net income (loss)	$	0.52		$	(0.01	)	$	0.74		$	(0.31	)

Diluted income (loss) per share:
Reported net income (loss)	$	0.51		$	0.06		$	0.78		$	(0.13	)
Stock-based employee compensation cost that would have been included in net income (loss) under the fair value method		(0.03	)		(0.07	)		(0.09	)		(0.18	)

Adjusted net income (loss)	$	0.48		$	(0.01	)	$	0.69		$	(0.31	)

The Company has revised its assumptions to include the appropriate vesting periods of options for the three and eight months ended September 30, 2003. The above table shows compensation expense as revised from its prior filings. This revision resulted in an increase to compensation cost of $2.1 million and $4.7 million for the three and eight months ended September 30, 2003, respectively. The corresponding change in pro forma basic and diluted income (loss) per share was ($0.04) and ($0.10) for the three and eight month periods ended September 30, 2003, respectively.

In addition, in connection with commencement of service on the Company’s Board of Directors, on July 28, 2004, each of the five new non-employee Directors received for nominal consideration 1,500 shares of restricted common stock of the Company for a total of 7,500 shares of restricted common stock. These shares were issued under the Company’s 2003 Equity Incentive Plan and are restricted until June 30, 2005, when they become fully vested. The Company will recognize an expense charge of $0.3 million on a straight-line basis over the restricted period. For the three months ended September 30, 2004, $0.079 million was charged to expense.

Share Repurchase Plan

On July 28, 2004, the Company’s Board of Directors authorized the repurchase of shares of the Company’s common stock up to an aggregate amount of $175.0 million. The Company has selected a financial institution to manage the repurchase of the Company’s shares. The share repurchase is subject to prevailing market conditions and other considerations. During the three months ended September 30, 2004, the Company repurchased 735,400 shares at an average price of $43.92 per share, which includes $0.03 per share commission. Including legal costs of $0.2 million, the Company’s cost basis for these shares was an average price of $44.14 per share. The Company holds all repurchased shares as treasury stock.

Treasury Stock

The Company records treasury stock purchases under the cost method whereby the purchase price, including legal costs and commissions, is charged to a contra equity account (treasury stock). The equity accounts from which the shares were originally issued are not adjusted for treasury stock purchases. In the event that treasury shares are reissued, proceeds in excess of cost will be accounted for as additional paid-in-capital. Any deficiency will be charged to retained earnings, unless paid-in-capital from previous share transactions exists, in which case the deficiency will be charged to that account, with any excess charged to retained earnings. The first-in, first-out (FIFO) method will be used to compute excesses and deficiencies upon subsequent share reissuances.

Contingencies

The Company is subject to various lawsuits and other legal proceedings, including regulatory, judicial and administrative matters, all of which have arisen in the ordinary course of business. Management accrues an estimate of expenses for any matters that are considered probable of occurring based on the facts and circumstances. Management believes that the ultimate resolution of these matters will not have a material adverse effect on the financial condition, results of operations or cash flows of the Company.

Reclassifications

Certain reclassifications have been made to the 2003 condensed consolidated financial statements to conform to the 2004 presentation. These reclassifications had no effect on previously reported net income (loss) or stockholders’ 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 and fresh start accounting adjustments for the Predecessor Company for the one month ended January 31, 2003, and normal recurring adjustments for the Reorganized Company for the three and nine months ended September 30, 2004 and for the three and eight months ended September 30, 2003), which are, in the opinion of management, necessary for a fair presentation of results for interim periods. As a result of the implementation of fresh start accounting as of January 31, 2003, the financial statements after that date are not comparable to the financial statements for prior periods because of the differences in the bases of accounting and the capital structure for the Predecessor Company and the Reorganized Company. Results of interim periods are not necessarily indicative of the results to be expected for a full year.

2. Plan of Reorganization

On November 15, 2002 (the “Petition Date”), SpectraSite filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Eastern District of North Carolina, Raleigh Division (the “Bankruptcy Court”). On November 18, 2002, SpectraSite filed a Proposed Plan of Reorganization and a Proposed Disclosure Statement with the Bankruptcy Court. A plan confirmation hearing was held on January 28, 2003 and the Proposed Plan of Reorganization, as modified on that date (the “Plan of Reorganization”), was confirmed by the Bankruptcy Court. The Plan of Reorganization became effective on February 10, 2003 (the “Effective Date”), thereby allowing SpectraSite to emerge from bankruptcy.

The Plan of Reorganization provided that, among other things, (i) in exchange for their notes, the holders of the 12 1/2% Senior Notes due 2010, the 6 3/4% Senior Convertible Notes due 2010, the 10 3/4% Senior Notes due 2010, the 11 1/4% Senior Discount Notes due 2009, the 12 7/8% Senior Discount Notes due 2010 and the 12% Senior Discount Notes due 2008 received their pro rata share of 47.5 million shares of the

Reorganized Company’s common stock, par value $0.01 per share; (ii) the holders of 166,158,298 shares of the Predecessor Company’s common stock received warrants immediately exercisable into 2.5 million shares of the Reorganized Company’s common stock at a price of $16.00 per share; and (iii) all other equity interests at the Effective Date, including outstanding warrants and options, were cancelled.

On March 29, 2004, the Company completed the final distribution of the shares of its common stock reserved for Allowed Claims under the Plan of Reorganization. In connection with the final distribution the Company distributed an aggregate of 135,866 shares of common stock to certain claim holders.

Prior to the Company’s Reorganization, as of January 31, 2003 the affected liabilities were presented as “Liabilities Subject to Compromise” in the Predecessor Company’s consolidated financial statements. These liabilities were settled in accordance with the Plan of Reorganization. The liabilities subject to compromise as of January 31, 2003 were as follows (in thousands):


10 3/4% Senior Notes Due 2010	$	200,000
12 1/2% Senior Notes Due 2010		200,000
6 3/4% Senior Convertible Notes Due 2010		200,000
12% Senior Discount Notes Due 2008, net of discount		208,479
11 1/4% Senior Discount Notes Due 2009, net of discount		502,644
12 7/8% Senior Discount Notes Due 2010, net of discount		418,580
Accrued interest		33,583

Total liabilities subject to compromise	$	1,763,286

SpectraSite incurred costs directly associated with the chapter 11 proceedings of $23.9 million in the one month ended January 31, 2003. These costs are included in reorganization expense in the unaudited condensed consolidated statement of operations.

In accordance with SOP 90-7, the Company adopted fresh start accounting as of January 31, 2003 and the Company’s emergence from bankruptcy resulted in a new reporting entity. Under fresh start accounting, the reorganization value of the entity is allocated to the entity’s assets based on fair values, and liabilities are stated at the present value of amounts to be paid determined at appropriate current interest rates. The net effect of all fresh start accounting adjustments resulted in a charge of $644.7 million, which is reflected in the consolidated statement of operations for the one month ended January 31, 2003. The effective date is considered to be the close of business on January 31, 2003 for financial reporting purposes. As a result of the implementation of fresh start accounting, the financial statements of the Company after January 31, 2003 are not comparable to the Company’s financial statements for prior periods.

The reorganization value used in adopting fresh start accounting was $685.7 million based on the fair market value of the senior notes, senior discount notes and senior convertible notes at the Effective Date, the date these instruments were exchanged for common stock and the value of warrants issued on that date based on the Black-Scholes option pricing model. The value of the warrants at the Effective Date was $10.8 million.

The reorganization and the adoption of fresh start accounting resulted in the following adjustments to the Company’s Unaudited Condensed Consolidated Balance Sheet as of January 31, 2003:


	Predecessor		Reorganization						Reorganized
	Company		and Fresh Start						Company
	January 31, 2003		Adjustments			Ref.			January 31, 2003
			(in thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	73,442	$	(210	)		(1	)	$	73,232
Accounts receivable		6,564		—						6,564
Prepaid expenses and other		16,904		(531	)		(2	)		16,373
Assets held for sale		24,518		(3,050	)		(3	)		21,468

Total current assets		121,428		(3,791	)					117,637
Property and equipment, net		2,293,522		(954,160	)		(3	)		1,339,362
Goodwill, net		60,626		(60,626	)		(2	)		—
Other assets		101,999		122,181			(2),	(4)		224,180

Total assets	$	2,577,575	$	(896,396	)				$	1,681,179


	Predecessor			Reorganization						Reorganized
	Company			and Fresh Start						Company
	January 31, 2003			Adjustments			Ref.			January 31, 2003
				(in thousands)
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	9,508		$	16,184			(1	)	$	25,692
Accrued and other expenses		62,702			7,796			(1	)		70,498
Current portion of liabilities under SBC contract		—			30,251			(5	)		30,251
Current portion of credit facility		2,244			—						2,244
Liabilities held for sale		3,804			—						3,804

Total current liabilities		78,258			54,231						132,489

Long-term portion of credit facility		780,711			—						780,711
Long-term portion of liabilities under SBC contract		—			30,251			(5	)		30,251
Other long-term liabilities		51,998			—						51,998

Total long-term liabilities		832,709			30,251						862,960

Liabilities subject to compromise		1,763,286			(1,763,286	)		(4	)		—

Stockholders’ equity (deficit):
Common stock, $0.001 par value, 300,000,000 shares authorized, 154,013,917 issued and outstanding at January 31, 2003 (Predecessor Company); $0.01 par value, 250,000,000 shares authorized, 47,174,170 issued and outstanding at January 31, 2003 (Reorganized Company)		154			318			(4	)		472
Additional paid-in-capital and warrants		1,624,939			(939,681	)		(4	)		685,258
Accumulated other comprehensive income		(684	)		684			(6	)		—
Accumulated deficit		(1,721,087	)		1,721,087			(6	)		—

Total stockholders’ equity (deficit)		(96,678	)		782,408						685,730

Total liabilities and stockholders’ equity (deficit)	$	2,577,575		$	(896,396	)				$	1,681,179

References:

(1)		To reflect cash requirements for reorganization costs paid in January 2003 and accrual for remaining reorganization costs.

(2)		To record Prepaid expenses and other, Goodwill, and Other assets at fair value.

(3)		To record Property and equipment at fair value.

(4)		To reflect the discharge of the Senior Notes, Senior Discount Notes and Senior Convertible Notes including the related debt issuance costs included in other assets; the cancellation of Old Common Stock, warrants and options; and the issuance of the common stock and warrants.

(5)		To record liabilities related to the Company’s commitment to purchase certain assets at prices in excess of fair value.

(6)		To reflect the elimination of the accumulated other comprehensive income and accumulated deficit as of January 31, 2003.

3. Property and Equipment

Property and equipment consist of the following:


	Reorganized Company
	September 30,			December 31,
	2004			2003
	(in thousands)
Towers	$	1,237,398		$	1,202,706
Equipment		25,539			18,898
Land		19,242			16,318
Buildings		25,775			27,281
Other		11,077			8,901

		1,319,031			1,274,104
Less accumulated depreciation		(141,186	)		(77,580	)

		1,177,845			1,196,524
Construction in progress		19,945			11,102

Property and equipment, net	$	1,197,790		$	1,207,626

4. Recent Accounting Pronouncements

In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities (“FIN 46”). FIN 46 requires an investor with a majority of the variable interests in a variable interest entity (“VIE”) to consolidate the entity and also requires majority and significant variable interest investors to provide certain disclosures. A VIE is an entity in which the equity investors do not have a controlling interest, or the equity investment at risk is insufficient to finance the entity’s activities without receiving additional subordinated financial support from the other parties. For arrangements entered into with VIEs created prior to January 31, 2003, the provisions of FIN 46 are required to be adopted at the beginning of the first interim or annual period ending after March 15, 2004. The Company has reviewed its investments and other arrangements and determined that none of its investee companies are VIEs. The Company has not invested in any new VIEs created after January 31, 2003.

5. Acquisition and Disposition 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 Old Common Stock. Under the agreement, and assuming the lease or 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 was subject to an adjustment payment to the extent the average closing price of the Old Common Stock during the 60-day period immediately preceding December 14, 2003 (the third anniversary of the initial closing) decreased from $22.74 to a floor of $12.96. The adjustment payment would be accelerated if there were a change of control of SpectraSite or upon the occurrence of certain specified liquidity events. In any case, the adjustment payment was payable, at the Company’s option, in the form of cash or shares of Old Common Stock. The maximum amount potentially payable to satisfy the adjustment payment was approximately 10.8 million shares of Old 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 add customers to the towers. The average term of the lease or sublease for all sites at the inception of the agreement was approximately 27 years, assuming renewals or extensions of the underlying ground leases for the sites. SBC is an anchor customer on all of the towers and pays a minimum monthly fee per tower of $1,621, 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.

Subject to the conditions described in the Lease and Sublease Agreement, SBC also has the right to substitute other available space on the tower for the reserved space, and a right of first refusal as to available space that the Company intends to sublease to a third party. For the first 300 times SBC exercises its right of first refusal, SBC is required to pay the Company a recurring fee for the applicable space equal to the lesser of the fee that would have been charged to the proposed third-party and a fee that is proportional to the monthly fee under the sublease. After the first 300 times that SBC exercises its right of first refusal, SBC is required to pay the Company a recurring fee for the applicable space equal to the recurring fee that would have been charged to the third party.

The Company had the option to purchase the sites subject to the lease or sublease upon the expiration of the lease or sublease as to those sites. The purchase price for each site was a fixed amount stated in the sublease for that site plus the fair market value of certain alterations made to the related tower by SBC. The aggregate purchase option price for the towers leased and subleased to date was approximately $250.9 million as of September 30, 2004 and will accrete at a rate of 10% per year to the applicable expiration of the lease or sublease of a site. For all such sites purchased by the Company, SBC shall have the right to continue to lease the reserved space for successive one year terms at a rent equal to the lesser of the agreed upon market rate and the then current monthly fee, which shall be subject to an annual increase based on changes in the consumer price index.

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 is committed to lease or sublease by 300 towers, from 3,900 in the original agreement to 3,600 towers in the agreement as amended. As consideration for entering into the amendment, the Company paid SBC a fee of $35.0 million that was expensed. On November 14, 2002, the Company completed a further amendment to the SBC acquisition agreements. This amendment further reduced the maximum number of towers that the Company is committed to lease or sublease by 294 towers, from 3,600 in the amended agreement to 3,306 towers in the agreement as further amended. In addition, on February 10, 2003, in connection with the Plan of Reorganization, the Company sold its rights to 545 SBC towers in California and Nevada to Cingular for an aggregate purchase price of $81.0 million and paid SBC a fee of $7.5 million related to the 294 reduction in the maximum number of towers that it is committed to lease or sublease. This fee is included in Reorganization Items — Professional and Other Fees in the Unaudited Condensed Consolidated Financial Statements. Because these 545 towers were adjusted to fair value as part of fresh start accounting, no gain or loss was recognized on the sale. In the one month ended January 31, 2003, revenues and costs of site leasing operations, excluding depreciation, amortization and accretion expenses, related to the 545 towers, were $1.2 million and $0.5 million, respectively. In the eight months ended September 30, 2003, comparable revenues and costs of site leasing operations, excluding depreciation, amortization and accretion expenses, related to the 545 towers, were $0.4 million and $0.2 million, respectively.

As of December 31, 2002, the Company had issued approximately 9.9 million shares of Old Common Stock to SBC pursuant to the SBC acquisition agreements. As part of the Plan of Reorganization discussed in Note 2, on February 10, 2003 the Company issued to SBC 12.1 million shares of Old Common Stock in full satisfaction of any obligation to issue SBC further stock or make any further adjustment payment. Of the 12.1 million shares, the Company issued 7.5 million shares of Old Common Stock in connection with the adjustment payment described above and 4.7 million shares of Old Common Stock as an advance payment on the purchase of the remaining 600 towers. All of these shares of Old Common Stock were exchanged for new warrants under the Plan of Reorganization.

From the initial closing on December 14, 2000 through June 30, 2004, the Company leased or subleased a net total of 2,285 towers under the terms of the amended agreement. During the six months ended June 30, 2004, the parties agreed to reduce the Company’s remaining commitment by five towers, leaving 467 towers to lease or sublease during the third quarter of 2004. On August 16, 2004, the Company completed its last closing under its agreement with SBC consisting of 191 towers for total cash consideration of $50.0 million. This acquisition was 276 towers less than the potential maximum number of towers contemplated to be leased or subleased under the Company’s agreement with SBC. As a result of not acquiring these remaining 276 towers, the Company recognized $27.8 million as Other income through the reversal of liabilities originally recorded for these towers. The Company’s federal tax obligation was not impacted by the recording or reversal of the liabilities related to its obligation under the SBC agreement.

6. Financing Transactions

Credit Facility

SpectraSite Communications, Inc. (“Communications”), a wholly-owned subsidiary of SpectraSite, is party to an amended and restated credit facility (the “credit facility”) totaling $638.2 million. The credit facility includes a $200.0 million revolving credit facility, which may be drawn at any time, subject to the satisfaction of certain conditions precedent. The amount available will be reduced (and, if necessary, any amounts outstanding must be repaid) in quarterly installments beginning on September 30, 2005 and ending on June 30, 2007. The credit facility also includes a $187.0 million multiple draw term loan that is fully drawn and which must be repaid in quarterly installments beginning on March 31, 2006 and ending on June 30, 2007 and a $251.2 million term loan that is fully drawn and which must be repaid in quarterly installments beginning on September 30, 2007 and ending on December 31, 2007.

With the proceeds of the sale of towers to Cingular discussed in Note 5, Communications repaid $31.4 million of the multiple draw term loan and $42.1 million of the term loan on February 11, 2003. In addition, Communications repaid $1.1 million of the multiple draw term loan and $1.4 million of the term loan on February 19, 2003. In connection with these repayments, Communications wrote off $1.6 million in debt issuance costs. These charges are included in interest expense in the unaudited condensed consolidated statement of operations.

On May 14, 2003, Communications amended its credit facility to reduce the unused $300 million commitment under the revolving credit facility by $100 million in exchange for moderately increasing the ratios in its leverage covenant in future periods. In connection with this reduction, Communications wrote off $2.0 million in debt issuance costs. This charge is included in interest expense in the unaudited condensed consolidated statement of operations.

With the proceeds from the issuance of the 8 1/4% Senior Notes Due 2010 discussed below, Communications repaid $83.0 million of the multiple draw term loan and $111.5 million of the term loan on May 21, 2003. In addition, Communications repaid $1.1 million of the multiple draw term loan and $1.4 million of the term loan on June 24, 2003 and $12.8 million of the multiple draw term loan and $17.2 of the term loan on June 30, 2003. In connection with these repayments, Communications wrote off $4.6 million in debt issuance costs. This charge is included in interest expense in the unaudited condensed consolidated statement of operations.

On December 29, 2003, Communications repaid $0.2 million of the multiple draw term loan and $0.2 million of the term loan with proceeds from the sale of Metrosite. In connection with these repayments, Communications wrote off approximately $7,700 in debt issuance costs.

$175 million that could be used to repurchase SpectraSite, Inc.’s common stock or to pay dividends to its stockholders, (ii) tightens the existing borrower leverage ratio, and (iii) provides for certain other documentation changes.

On September 3, 2004, Communications repaid $0.4 million of the multiple term draw loan and $0.6 million of the term loan with the proceeds associated with the sale of the broadcast services division. In connection with these repayments, Communications wrote off approximately $17,000 in debt issuance costs. This charge is included in interest expense in the unaudited condensed consolidated statement of operations.

As of September 30, 2004, Communications has $438.2 million outstanding under the credit facility. The remaining $200.0 million under the credit facility was undrawn, with the exception of an outstanding balance of $7.9 million consisting of standby letters of credit. Under the terms of the credit facility, the Company could borrow approximately $192.1 million under the revolving credit facility as of September 30, 2004.

At September 30, 2004, amounts due under the credit facility are as follows:


	Maturities
	(in thousands)
2004	$	—
2005		—
2006		80,170
2007		357,985
2008		—

Total	$	438,155

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. The term loan bears interest, at Communications’ option, at either Canadian Imperial Bank of Commerce’s base rate plus 0.75% per annum or the Eurodollar rate plus 2.00% per annum. The weighted average interest rate on outstanding borrowings under the credit facility as of September 30, 2004 was 3.87%.

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 (as defined in the credit facility).

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 (as defined in the credit facility), a minimum interest coverage ratio and a minimum fixed charge coverage ratio.

The following table summarizes activity with respect to our credit facility from January 1, 2004 through September 30, 2004:


	Amount Owed
										Undrawn
	Multiple Draw Term Loan			Term Loan			Total			Revolving Credit Facility Commitment
	(in thousands)
Balance, January 1, 2004	$	187,581		$	251,974		$	439,555		$	200,000
Repayments		(598	)		(802	)		(1,400	)		—

Balance, September 30, 2004	$	186,983		$	251,172		$	438,155		$	200,000

8 1/4% Senior Notes Due 2010 (“8 1/4% Senior Notes”)

On May 21, 2003, SpectraSite issued $200.0 million aggregate principal amount of 8 1/4% Senior Notes due 2010 for proceeds of $194.5 million, net of debt issuance costs. Semi-annual interest payments for the 8 1/4% Senior Notes are due on each May 15 and November 15 beginning on November 15, 2003. The Company is required to comply with certain covenants under the terms of the 8 1/4% Senior Notes that restrict the Company’s ability to incur additional indebtedness and make certain payments, among other covenants.

7. Business Segments

The Company operates in two business segments: wireless and broadcast. The Company’s operations are segmented and managed along its product and service lines. The wireless segment provides for leasing and licensing of antenna sites on multi-tenant towers and distributed antenna systems for a diverse range of wireless communication services. The broadcast segment offers leasing, subleasing and licensing of antenna sites for broadcast communication services. Prior to its decision to sell its broadcast services division, the Company also offered a broad range of broadcast development services, including broadcast tower design and construction and antenna installation. These services were included in the broadcast segment. Prior period financial information has been restated to present the operations of the Company’s broadcast services division as a discontinued operation.

The measurement of profit or loss currently used by management to evaluate the results of operations of the Company and its operating segments is Adjusted EBITDA. For the periods prior to January 31, 2003, Adjusted EBITDA consists of net income (loss) before depreciation, amortization and accretion expenses, interest, gain on debt discharge, income tax expense (benefit), reorganization items, discontinued operations, cumulative effect of change in accounting principle and write-offs of investments in and loans to affiliates. For the periods subsequent to January 31, 2003, Adjusted EBITDA consists of net income (loss) before depreciation, amortization and accretion expenses, interest, income tax expense (benefit) and, if applicable, before discontinued operations and cumulative effect of change in accounting principle. The Company uses a different definition of Adjusted EBITDA for the fiscal periods prior to its reorganization to enable investors to view its operating performance on a consistent basis before the impact of the items discussed above on the Predecessor Company. Each of these historical items was incurred prior to, or in connection with, its bankruptcy. The Company more fully discusses Adjusted EBITDA and the limitations of this financial measure under “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Non-GAAP Financial Measures — Adjusted EBITDA.” Adjusted EBITDA, as defined above, may not be comparable to a similarly titled measure employed by other companies and is not a measure of performance calculated in accordance with GAAP.

Summarized financial information concerning the reportable segments is shown in the following table. The “Other” column represents amounts excluded from specific segments, such as income taxes, corporate general and administrative expenses 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. Virtually all reported segment revenues are generated from external customers as intersegment revenues are not significant.


	Wireless		Broadcast		Other			Total
	(in thousands)
Three months ended September 30, 2004 (Reorganized Company)
Revenues	$	85,575	$	6,033	$	—		$	91,608
Adjusted EBITDA		81,111		5,203		(7,578	)		78,736
Assets		1,301,392		97,925		98,987			1,498,304
Additions to property and equipment		38,240		974		974			40,188
Three months ended September 30, 2003 (Reorganized Company)
Revenues	$	73,805	$	5,694	$	—		$	79,499
Adjusted EBITDA		46,636		2,095		(6,859	)		41,872


	Wireless		Broadcast		Other			Total
	(in thousands)
Assets		1,342,517		88,319		96,635			1,527,471
Additions to property and equipment		3,049		760		1,016			4,825
Nine months ended September 30, 2004 (Reorganized Company)
Revenues	$	246,164	$	17,445	$	—		$	263,609
Adjusted EBITDA		179,358		14,872		(22,935	)		171,295
Assets		1,301,392		97,925		98,987			1,498,304
Additions to property and equipment		53,151		3,258		3,027			59,436
Eight months ended September 30, 2003 (Reorganized Company)
Revenues	$	193,246	$	14,927	$	—		$	208,173
Adjusted EBITDA		112,999		9,539		(18,187	)		104,351
Assets		1,342,517		88,319		96,635			1,527,471
Additions to property and equipment		14,665		2,286		2,475			19,426
One month ended January 31, 2003 (Predecessor Company)
Revenues	$	23,855	$	1,771	$	—		$	25,626
Adjusted EBITDA		12,586		1,420		(1,777	)		12,229
Assets		1,407,710		155,795		117,674			1,681,179
Additions to property and equipment		257		861		1,619			2,737

The following table shows a breakdown of the significant components included in the “Other” column in the segment disclosure above:


	Reorganized Company												Predecessor Company
	Three Months			Three Months			Nine Months			Eight Months			One Month
	Ended			Ended			Ended			Ended			Ended
	September 30,			September 30,			September 30,			September 30,			January 31,
	2004			2003			2004			2003			2003
							(in thousands)
Adjusted EBITDA:
Corporate selling, general and administrative expenses, excluding corporate non-cash compensation charges	$	(7,688	)	$	(5,728	)	$	(21,210	)	$	(15,958	)	$	(1,777	)
Corporate other income/(expense)		190			(1,131	)		(1,384	)		(2,229	)		—
Corporate non-cash compensation charges		(80	)		—			(341	)		—			—

Total Adjusted EBITDA	$	(7,578	)	$	(6,859	)	$	(22,935	)	$	(18,187	)	$	(1,777	)

Assets:
Cash and cash equivalents	$	83,620		$	55,850		$	83,620		$	55,850		$	73,232
Debt issuance costs		15,367			17,929			15,367			17,929			22,974
Assets held for sale		—			22,856			—			22,856			21,468

Total assets	$	98,987		$	96,635		$	98,987		$	96,635		$	117,674

Additions to property and equipment:
Corporate additions to property and equipment	$	974		$	750		$	3,027		$	1,657		$	1,610
Additions to property and equipment related to assets held for sale		—			266			—			818			9

Total additions to property and equipment	$	974		$	1,016		$	3,027		$	2,475		$	1,619

A reconciliation of income (loss) from continuing operations before income taxes is as follows:


	Reorganized Company												Predecessor Company
	Three Months			Three Months			Nine Months			Eight Months			One Month
	Ended			Ended			Ended			Ended			Ended
	September 30,			September 30,			September 30,			September 30,			January 31,
	2004			2003			2004			2003			2003
							(in thousands)
Income (loss) from continuing operations before income taxes	$	42,757		$	4,059		$	65,626		$	(2,842	)	$	1,026,479
Add: Depreciation, amortization and accretion expenses		26,343			25,393			77,281			67,404			15,930
Less: Interest income		(427	)		(143	)		(956	)		(639	)		(137	)
Add: Interest expense		10,063			12,563			29,344			40,428			4,721
Less: Gain on debt discharge		—			—			—			—			(1,034,764	)

Adjusted EBITDA	$	78,736		$	41,872		$	171,295		$	104,351		$	12,229

8. Related Party Transactions

Transactions with Executive Officers

In August 1999, we loaned David P. Tomick, the Company’s Chief Financial Officer at the time, $325,000 in connection with the exercise of stock options to acquire the common stock of the Predecessor Company. The loan bore interest at the applicable federal rate under the Internal Revenue Code, 5.36% per annum, and would have matured in August 2004. In May 2004, Mr. Tomick repaid this loan in full and Mr. Tomick has no further financial obligations owing to the Company.

In September 1999, we loaned Timothy G. Biltz $500,000 to purchase a home as a relocation incentive. This loan bore interest at 5.82% per annum and would have matured in September 2004. In March 2004, Mr. Biltz repaid this loan in full and Mr. Biltz has no further financial obligations owing to the Company.

In January 2000, we loaned Stephen H. Clark $1,100,000 in connection with the exercise of stock options to acquire 512,500 shares of the common stock of the Predecessor Company. This loan bore interest at 5.80% per annum and would have matured in December 2004. In June 2004, Mr. Clark repaid this loan in full and Mr. Clark has no further financial obligations owing to the Company.

9. Subsequent Events

Chief Financial Officer Appointment

Effective November 1, 2004, the Company appointed Mark A. Slaven as its new Chief Financial Officer. Mr. Slaven served as 3Com Corporation’s Executive Vice President, Finance and Chief Financial Officer from March 2003 to August 2004 and 3Com’s Senior Vice President, Finance and Chief Financial Officer from June 2002 to March 2003. Prior to his appointment to this role, Mr. Slaven served as 3Com’s Vice President of Treasury, Tax, Trade and Investor Relations. Prior to that time, Mr. Slaven had been 3Com’s Vice President and Treasurer since August 2000. From June 1997 until August 2000, Mr. Slaven served as 3Com’s Vice President of Finance for Supply Chain Operations. Prior to U.S. Robotics’ acquisition by 3Com in 1997, Mr. Slaven was U.S. Robotics’ Vice President of Finance for its manufacturing division. Before joining U.S. Robotics, Mr. Slaven was Chief Financial Officer of the personal printer division at

LexMark International, Inc. Prior to that, Mr. Slaven served as Chief Financial Officer of various other divisions of Lexmark. Mr. Slaven also serves as a director of Terayon Communications Systems, Inc.

Proposed New Credit Facility

On October 15, 2004, the Company announced that Communications received commitments from a group of lenders for the full amount of a new $900 million senior secured credit facility in advance of their efforts to syndicate the facility with a larger group of financial institutions. These commitments are subject to negotiation, execution and delivery of definitive loan documentation and various other conditions, including approval by the Board of Directors. Borrowings under the new facility would be used to repay Communications’ existing senior secured credit facility and for general corporate purposes.

Board Resignations

The Company announced October 4, 2004, that it reduced the size of its Board of Directors from ten members to eight members effective with the resignations of Robert Katz and Richard Masson. On October 11, 2004, the Board approved the acceleration of all remaining 8,000 unvested stock options of the resigning Board members. The Company will recognize an expense charge in the amount of $0.3 million during the fourth quarter of 2004 as a result of the accelerated vestings.

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

You should read the following discussion in conjunction with “Risk Factors” and our unaudited condensed consolidated financial statements included elsewhere in this report. Some of the statements in the following discussion are forward-looking statements. See “Special Note Regarding Forward-Looking Statements.”

Executive Overview

We are one of the largest, in terms of number of towers, and fastest growing, in terms of revenue growth, wireless tower operators in the United States. Our business is owning, leasing and licensing antenna sites on wireless and broadcast towers, owning and licensing in-building shared infrastructure systems and managing rooftop telecommunications access on commercial real estate. We owned or operated 7,802 towers and in-building systems as of September 30, 2004, located primarily in the top 100 basic trading area markets in the United States.

The economic and industry-wide factors relevant to our business fall into two broad categories: growth of wireless communication services and growth of the physical network elements that support wireless communication. Historically, wireless networks primarily have supported voice communications. More recently, a variety of data applications have been introduced and are being supported on wireless networks. Some of the key performance indicators that we regularly monitor to evaluate growth trends affecting wireless network usage include gross wireless subscriber additions, wireless subscriber churn and minutes of use per wireless subscriber. Growth of the wireless network infrastructure is required to provide broader geographical wireless coverage and additional capacity for existing subscribers within coverage areas. To support this growth, the wireless service providers regularly deploy capital to improve and expand their networks. These wireless service providers largely comprise our customer base. In addition to tracking the capital expenditure activities and plans of our customers and other wireless providers, we monitor financial performance of each customer and the state of the financial markets on which our customers depend for access to new capital.

Our business consists of our wireless and broadcast segments. For the nine months ended September 30, 2004, all of our revenues came from our leasing and licensing operations within these segments. Factors affecting the growth in our wireless revenues include, among other things, the rate at which wireless carriers choose to deploy capital to improve and expand their wireless networks and variable contractual escalation clauses associated with existing site leasing and licensing agreements.

The material opportunities, challenges and risks of our business have changed significantly over the past two years. We have reshaped our business operations and reduced our debt levels in order to minimize the impact of short-term variables in market demand. Specifically, we discontinued a major program of building new towers in mid-2002, completed the sale of our network services division in late 2002, restructured our balance sheet through a bankruptcy process completed in early 2003 and sold the operations of our broadcast services division in March 2004. Today, all of our revenues come from site leasing and licensing operations. Our growth opportunities are primarily linked to organic revenue growth on our existing portfolio of assets. We also see potential opportunities on a more limited basis with the development of new in-building neutral host assets.

Generally, our leasing and licensing agreements are specific to each site and are for an initial term of five to ten years and are renewable for additional pre-determined periods at the option of the customer. Payments under leasing and licensing agreements are generally made on a monthly basis, and revenue from each agreement is recorded monthly. Rate increases based on fixed escalation clauses included in certain lease and licensing agreements are recognized on a straight-line basis over the terms of the agreement. We also generate revenue by providing engineering and site inspection services to our customers for a fee. Revenues from fees originate at the time the customer applies for space on our towers or we provide certain services required in order to process the customer’s application. Additionally, we generate revenues related to the management of sites on rooftops. Under each site management agreement, we are entitled to a recurring fee based on a percentage of the gross revenue derived from the rooftop site subject to the agreement. We recognize these recurring fees as revenue when earned.

Costs of operations consist primarily of ground rent, maintenance, utilities and taxes. Because our tower operating expenses generally do not increase significantly as we add additional customers, once a tower has an anchor customer, additional customers provide significant incremental cash flow. Fluctuations in our profit margin are therefore directly related to the incremental number of customers on each site and the amount of fees generated in a particular period.

Selling, general and administrative expenses have two major components. The first component consists of expenses necessary to support our site leasing and licensing operations such as sales, marketing and property management functions. The second component includes expenses that are incurred to support all of our business segments, such as legal, finance, human resources and other administrative support.

Discontinued Operations

We anticipate that, in the foreseeable future, the delay and uncertainty regarding the requirements of digital television multicasting will continue to restrict the amount of capital that broadcasters will invest in tower modification and construction. As a result of the trend of declining sales and profitability in our broadcast services division, we evaluated our alternatives to maximize stockholder value. On December 16, 2003, we decided to discontinue the operations of this division. In connection with this decision, we recorded a loss on disposal of the division of $17.0 million in the fourth quarter of 2003. The related assets and liabilities were reclassified as held for sale and recorded at estimated fair market value. On March 1, 2004, we closed the sale of this division. In the nine months ended September 30, 2004, the Company recorded additional income on the sale of $0.8 million. Revenues for broadcast services were $38.1 million and $26.8 million for the years ended December 31, 2001 and 2002, respectively. Broadcast services revenues were $1.2 million and $13.1 million for the one month ended January 31, 2003 and the eleven months ended December 31, 2003, respectively.

The results of operations for the broadcast services division has been reported separately as discontinued operations in the balance sheets and statements of operations. Prior period financial statements have been restated to present the operations of the division as a discontinued operation.

Plan of Reorganization

The financial difficulties experienced by the telecommunications and broadcast industries in recent years have severely impacted capital availability within the wireless telecommunications and broadcast sectors. Many of our customers were forced to reduce capital expenditures, which in turn impeded our revenue and earnings growth and,

therefore, our ability to service our long-term debt. We incurred net losses of approximately $157.6 million in 2000, $654.8 million in 2001 and $775.0 million in 2002. After a review of our business and our prospects, we concluded that recoveries to creditors and equity holders would be maximized by a consensual restructuring.

On November 15, 2002, we filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Eastern District of North Carolina, Raleigh Division. On November 18, 2002, we filed a Proposed Plan of Reorganization with the Bankruptcy Court. A plan confirmation hearing was held on January 28, 2003, and the Proposed Plan of Reorganization, as modified on that date (the “Plan of Reorganization”), was confirmed by the Bankruptcy Court. All conditions precedent to the effectiveness of the Plan of Reorganization were met by February 10, 2003, thereby allowing us to emerge from bankruptcy. Our emergence from bankruptcy and adoption of fresh start accounting resulted in the extinguishment of approximately $1.76 billion of indebtedness and significantly reduced our interest expense and our depreciation, amortization, and accretion expenses. In addition to our reorganization, we have taken a number of other measures to minimize the potential net losses in the future, including the sale of non-performing assets and the reduction of overhead and capital expenditures.

As a result of our reorganization, we have achieved profitability sooner than if we had not filed a voluntary petition for bankruptcy. We expect the portion of our significant customers’ capital expenditures related to network improvements and coverage enhancements to remain at current levels for the foreseeable future. As customers continue to add antenna sites to our towers, we expect revenues associated with our tower assets to increase. Because a significant percentage of tower operating costs are fixed and do not increase with additional customers, we expect that our margins will increase as we add additional customers on towers.

Our Plan of Reorganization provided for the distribution of 47.5 million shares of our common stock to our general unsecured creditors, including former noteholders, and new warrants to purchase an aggregate of 2.5 million shares of common stock at an exercise price of $16.00 per share to the holders of our Old Common Stock. These warrants expire on February 10, 2010. In addition, pursuant to the Plan of Reorganization, all outstanding shares of Old Common Stock and all outstanding options and warrants to purchase Old Common Stock that were outstanding on February 10, 2003 were cancelled. New options representing an aggregate of 10.0% of our fully diluted common stock were issued to our management.

On March 29, 2004, we completed the final distribution of the shares of our common stock reserved for Allowed Claims under the Plan of Reorganization. In connection with the final distribution we distributed an aggregate of 135,866 shares of common stock to certain claim holders.

Tower Acquisitions and Dispositions

Our portfolio has grown from 106 towers as of December 31, 1998, to 7,802 towers and in-building systems as of September 30, 2004. We have accomplished this growth through acquisitions and new construction (principally pursuant to build-to-suit arrangements). The majority of our towers were acquired from (or built under agreements with) affiliates of SBC and Nextel.

Our original agreement with SBC called for us to acquire leasehold and subleasehold interests in approximately 3,900 towers over approximately two years and to commit to build towers for Cingular, an affiliate of SBC. Subsequent amendments to these agreements have resulted in a reduction in the number of towers to be leased or subleased to a maximum of 3,301 towers and in the termination of the build-to-suit arrangement. See Note 5 to our unaudited condensed consolidated financial statements, “Acquisition and Disposition Activities — SBC Transaction.” We reduced our acquisition program and terminated our build-to-suit program in order to limit our required capital expenditures and to achieve additional financial flexibility. In November 2001, we paid a fee of $35 million in connection with the first of these amendments. On February 10, 2003, we sold our interest in 545 SBC towers in California and Nevada to Cingular for an aggregate purchase price of $81.0 million and paid SBC a fee of $7.5 million related to the last of the reductions in the maximum number of towers that we will lease or sublease. In connection with these transactions, we received a net cash payment of $73.5 million, which we used to repay a portion of the indebtedness outstanding under our credit facility, significantly reduced our capital expenditure

commitments, extended the timeline to meet our remaining commitments and maintained a mutually profitable commercial relationship with a significant customer. The 545 towers sold represented approximately 7% of our owned and operated tower portfolio at December 31, 2002 and generally were characterized by lower revenues per tower than other towers in our portfolio. We do not expect the sale of our interest in the 545 towers to materially impact our future operating performance.

The following table presents a comparison of the revenues and costs of operations (excluding depreciation, amortization and accretion expenses) for the 545 SBC towers for the periods shown.


	Reorganized			Predecessor
	Company			Company
	Eight Months			One Month
	Ended			Ended
	September 30,			January 31,
	2003			2003
	(dollars in thousands)
Revenues attributed to 545 SBC Towers	$	387		$	1,202
Total Revenues		208,173			25,626
Percent of Total Revenues		0.2	%		4.7	%
Costs of Operations (excluding depreciation, amortization and accretion expenses)	$	200		$	465
Total Cost of Operations (excluding depreciation, amortization and accretion expenses)		68,859			8,901
Percent of Total Cost of Operations (excluding depreciation, amortization and accretion expenses)		0.3	%		5.2	%

Share Repurchase Plan

On July 28, 2004, the Company’s Board of Directors authorized the repurchase of shares of the Company’s common stock up to an aggregate amount of $175.0 million. The Company has selected a financial institution to manage the repurchase of the Company’s shares. The share repurchase is subject to prevailing market conditions and other considerations. During the three months ended September 30, 2004, the company repurchased 735,400 shares at an average price of $43.92 per share, which includes a $0.03 per share commission. Including legal costs of $0.2 million, the Company’s cost basis for these shares was an average price of $44.14 per share. The Company holds all repurchased shares as treasury stock. For more information about these repurchases, see Part II, Item 2 of this report.

Special Note Regarding Forward-Looking Statements

This report, and other oral statements made from time to time by our representatives, contain forward-looking statements within the meaning of Section 27A of the Securities Act, Section 21E of the Securities Exchange Act of 1934, as amended and the Private Securities Litigation Reform Act of 1995 that are subject to risks and uncertainties. You should not place undue reliance on those statements because they are subject to numerous uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control. Forward-looking statements include information concerning our possible or assumed future results of operations, including descriptions of our business strategy. These statements often include words such as “may,” “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate” or similar expressions. These statements are based on assumptions that we have made in light of our industry experience as well as our perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances. As you read and consider this report, you should understand that these statements are not guarantees of performance or results. They involve risks, uncertainties and assumptions. Although we believe that these forward-looking statements are based on reasonable assumptions, you should be aware that many factors could affect our actual financial results or results of operations and could cause actual results to differ materially from those in the forward-looking statements.

These factors include but are not limited to:

• dependence on demand for wireless communications and related infrastructure;

• our ability to add customers on our towers;

• market conditions;

• consolidation in the wireless industry;

• material adverse changes in economic conditions in the markets we serve;

• dependence upon a small number of significant customers;

• competition from others in the communications tower industry including the impact of technological developments;

• future regulatory actions and conditions in our operating areas;

• technological innovation;

• the integration of our operations with those of towers or businesses we have acquired or may acquire in the future and the realization of the expected benefits;

• disputes with our current and prospective customers and lessors;

• our leveraged capital structure and capital requirements;

• the need for additional financing to provide operating and growth capital; and

• other risks and uncertainties as may be detailed from time to time in our public announcements and SEC filings.

You should keep in mind that any forward-looking statement made by us in this report, or elsewhere, speaks only as of the date on which we make it. New risks and uncertainties come up from time to time, and it is impossible for us to predict these events or how they may affect us. We have no duty to, and do not intend to, update or revise the forward-looking statements in this report after the date of this report. In light of these risks and uncertainties, you should keep in mind that any forward-looking statement made in this report or elsewhere might not occur.

Results of Operations

Three Months Ended September 30, 2004 and the Three Months Ended September 30, 2003

The following table provides a comparison of the results of our operations and Adjusted EBITDA for the periods presented:


	Reorganized Company
	Three Months		Three Months
	Ended		Ended
	September 30,		September 30,
	2004		2003
	(dollars in thousands)
Revenues:
Wireless	$	85,575	$	73,805
Broadcast		6,033		5,694


	Reorganized Company
	Three Months			Three Months
	Ended			Ended
	September 30,			September 30,
	2004			2003
	(dollars in thousands)
Total revenues		91,608			79,499

Operating expenses:
Cost of operations, excluding depreciation, amortization and accretion expenses:
Wireless		26,248			25,589
Broadcast		589			455

Total cost of operations, excluding depreciation, amortization and accretion expenses		26,837			26,044

Selling, general and administrative expenses:
Wireless		5,646			6,296
Broadcast		241			693
Other		7,768			5,728

Total selling, general and administrative expenses		13,655			12,717

Depreciation, amortization and accretion expenses:
Wireless		24,337			24,555
Broadcast		2,006			838

Total depreciation, amortization and accretion expenses		26,343			25,393

Total operating expenses		66,835			64,154

Operating income		24,773			15,345

Other income (expense):
Interest income		427			143
Interest expense		(10,063	)		(12,563	)
Other income		27,620			1,134

Total other income (expense)		17,984			(11,286	)

Income from continuing operations before income taxes		42,757			4,059
Income tax expense:
Income tax – current		375			597
Income tax – deferred		16,610			—

Total Income tax expense		16,985			597

Income from continuing operations		25,772			3,462
Discontinued operations (net of income taxes):
Loss from operations of discontinued broadcast services division, net of income tax expense		—			(248	)
Income from disposal of discontinued segment, net of income tax expense		1,192			—

Net income	$	26,964		$	3,214

Adjusted EBITDA:
Wireless		81,111			46,636
Broadcast		5,203			2,095
Other:
Corporate selling, general and administrative expenses, non-cash compensation charges and other expenses		(7,578	)		(6,859	)

Total Adjusted EBITDA	$	78,736		$	41,872

Revenues. Our revenues for the third quarter of 2004 were $91.6 million, compared to revenues of $79.5 million for the three months ended September 30, 2004. The year over year increase in our revenues was derived from new and amended site leasing agreements, rent escalations included in existing site leasing and licensing agreements, new sites acquired or built during the period, and increases in fee revenues. Same site year over year revenue growth for the three months ended September 30, 2004 was $6.5 million or 9%. In determining same site revenue growth, only sites owned and operated during the entire third quarter of 2003 and the entire third quarter of 2004 were included. Revenues on the 260 SBC sites acquired since September 30, 2003 were $3.8 million, including the one-time recognition of deferred revenue associated with previously marketed SBC sites totaling $2.0 million, for the three months ended September 30, 2004. Fee revenues were $2.7 million and $1.2 million for the three months ended September 30, 2004 and the three months ended September 30, 2003, respectively. We owned or operated 7,802 towers and in-building systems at September 30, 2004, as compared to 7,509 towers and in-building systems at September 30, 2003.

Customers representing 10% or more of the Company’s consolidated revenues are presented below for all applicable periods:


	Reorganized Company
	Three Months			Three Months
	Ended			Ended
	September 30,			September 30,
	2004			2003
	(dollars in thousands)
Significant Customer Revenue
Nextel and affiliates	$	24,915		$	23,594
% Total Consolidated Revenue		27	%		30	%
Cingular**	$	19,481		$	16,515
% Total Consolidated Revenue		21	%		21	%
AT&T Wireless**	$	10,321			*
% Total Consolidated Revenue		11	%		*
Total Consolidated Revenue	$	91,608		$	79,499

* Represents less than 10% of Total Consolidated Revenue
** As of October 27, 2004, these two customers have merged.

Accounts receivable, net of allowance, increased by $0.6 million from December 31, 2003 to September 30, 2004. The increase in accounts receivable is primarily due to the timing of cash collections on account. Our allowance has declined $1.4 million in 2004 primarily due to recoveries of amounts previously reserved offset by write-offs of accounts receivable. We analyze the adequacy of our accounts receivable allowance on a periodic basis to ensure that we appropriately reflect the amount we expect to collect. The economic factors affecting the wireless communications industry as a whole, our customers’ ability to meet their financial obligations and the age of our outstanding accounts receivable are all factors we take into consideration when evaluating the adequacy of our estimate for the allowance for doubtful accounts.

Costs of Operations, Excluding Depreciation, Amortization and Accretion Expenses. Costs of operations, excluding depreciation, amortization and accretion expenses as a percentage of revenues were 29% for the three months ended September 30, 2004 and 33% for the three months ended September 30, 2003. Costs of operations, excluding depreciation, amortization and accretion expenses, for the wireless segment as a percentage of wireless segment revenues were 31% for the three months ended September 30, 2004 and 35% for the three months ended September 30, 2003. In 2004, costs of operations, excluding depreciation, amortization and accretion expenses as a percentage of revenues for the wireless segment declined as a result of increased revenues generated from new customers on existing towers while costs remained relatively flat. Wireless costs of operations also included the one-time recognition of deferred ground rent associated with previously marketed SBC sites totaling $0.2 million for the three months ended September 20, 2004. Broadcast leasing costs of operations, excluding depreciation, amortization and accretion expenses, as a percentage of broadcast leasing revenues were 10% for the three months ended September 30, 2004 and 8% for the three months ended September 30, 2003. In 2004, costs of operations, excluding depreciation, amortization and accretion expenses as a percentage of revenues for the broadcast segment were primarily affected by higher property taxes. As our wireless and broadcast leasing operations mature, we expect that additional customers on towers will generate increases in our margins for wireless and broadcast leasing operations and in cash flow because a significant percentage of tower operating costs are fixed and do not increase with additional customers.

Selling, General and Administrative Expenses. A significant portion of our selling, general and administrative expenses does not increase when we add incremental revenues to our sites. Selling, general and administrative expenses were 15% of total revenues for the three months ended September 30, 2004 and 16% of total revenues for the three months ended September 30, 2003. Selling, general and administrative expenses for 2004 as a percentage of revenues decreased from 2003 levels due primarily to increased revenues from new customers on existing towers. The increase in selling, general and administrative expenses is largely attributable to the recognition of a one-time charge of $1.1 million associated with certain costs incurred for severance pay, as well as payroll taxes associated with stock option exercises in connection with the termination of our former Chief Financial Officer.

Selling, general and administrative expenses for our wireless segment were 7% and 9% of wireless revenues for the three months ended September 30, 2004 and 2003, respectively. Selling, general and administrative expenses for our broadcast segment as a percentage of broadcast revenues were 4% and 12% for the three months ended September 30, 2004 and 2003, respectively.

Selling, general and administrative expenses not specific to the above business segments were 8% of total revenues for the three months ended September 30, 2004, and 7% of total revenues for the three months ended September 30, 2003.

Depreciation, Amortization and Accretion Expenses. Depreciation, amortization and accretion expenses were $26.3 million for the three months ended September 30, 2004, representing an increase of $1.0 million from the three months ended September 30, 2003. The net increase is primarily due to the net increase in depreciation and accretion expenses associated with the Company’s asset retirement obligations.

Other Income (Expense). Other income, net, was $27.6 million in the three months ended September 30, 2004. Other income of $27.4 million is attributable to the wireless segment, consisting primarily of $27.8 million of income associated with a reduction in the Company’s commitment to purchase towers under the SBC agreement, partially offset by $0.3 million of loss on sale of assets and $0.1 million of customer contract write-offs. Other income (expense), net, not specific to any business segment totaled $0.2 million of income.

Other income, net, was $1.1 million in the three months ended September 30, 2003. The wireless segment accounted for $4.7 million of income, consisting primarily of $3.8 million of income on sale of the Ubiquitel stock, a gain of $0.7 million from the sale of WCLI (a subsidiary), and a gain of $0.2 million on sale of fixed assets. The three months ended September 30, 2003 also included other expenses of $2.5 million in the broadcast segment, related to the impairment write-down of one of our broadcast towers. Other income (expense), net, not specific to any business segment was an expense of $1.1 million and consisted primarily of $1.2 million in SEC filing expenses, less income of $0.1 million to write our interest rate cap up to fair value.

Interest Expense. Interest expense for the three months ended September 30, 2004 of $10.1 million consisted primarily of $4.8 million of interest on our credit facility, $4.1 million of interest on our Senior Notes and amortization of debt issuance costs of $1.1 million plus other interest of $0.4 million, less $0.3 million of capitalized interest. Interest expense for the three months ended September 30, 2003 consisted primarily of $6.4 million of interest on our credit facility, $4.2 million of interest on our Senior Notes, amortization of debt issuance costs of $1.0 million, write-offs of debt issuance costs of $0.8 million, and other interest of $0.1 million.

Income Tax Expense. Income tax expense was $17.0 million for the three months ended September 30, 2004, representing an increase of $16.4 million from the three months ended September 30, 2003. The increase in income tax expense results from a $38.7 million increase in taxable income from continuing operations over the same period last year and the recognition of deferred income tax expense. To the extent we believe our deferred tax assets will be recovered from future taxable income, we have recognized deferred income tax expense. In the three months ended September 30, 2004, we have recognized deferred income tax expense and reduced our intangible assets by $16.6 million.

Discontinued Operations. On December 16, 2003, we decided to discontinue our broadcast services division. This division was sold on March 1, 2004. Losses from operations of this division were $0.2 million for the three months ended September 30, 2003. In the three months ended September 30, 2004, the Company recorded a gain on disposal of the broadcast services division of $1.2 million primarily related to a reassessment of the collectibility of the promissory notes. The notes, which are reduced by a valuation allowance, were recorded by the Company at the time of sale at their estimated fair values. The valuation allowance is periodically evaluated based on actual collection experience and our expectation of future collectibility.

Nine Months Ended September 30, 2004, Eight Months Ended September 30, 2003 and the One Month Ended January 31, 2003

On January 28, 2003, the Bankruptcy Court confirmed our Plan of Reorganization, and we emerged from bankruptcy on February 10, 2003. As a result of the implementation of fresh start accounting as of January 31, 2003, our results of operations after that date are not comparable to results reported in prior periods because of differences in the bases of accounting and the capital structure for the Predecessor Company and the Reorganized Company. See Note 2 to the unaudited condensed consolidated financial statements for additional information on the consummation of the Plan of Reorganization and implementation of fresh start accounting.

The following table provides a comparison of the results of our operations and Adjusted EBITDA for the periods presented:



	Reorganized Company						Predecessor Company
	Nine Months			Eight Months			One Month
	Ended			Ended			Ended
	September 30,			September 30,			January 31,
	2004			2003			2003
	(dollars in thousands)
Revenues:
Wireless	$	246,164		$	193,246		$	23,855
Broadcast		17,445			14,927			1,771

Total revenues		263,609			208,173			25,626

Operating expenses:
Cost of operations, excluding depreciation, amortization and accretion expenses:
Wireless		76,771			67,435			8,657
Broadcast		1,857			1,424			244

Total cost of operations, excluding depreciation, amortization and accretion expenses		78,628			68,859			8,901

Selling, general and administrative expenses:
Wireless		16,941			15,556			2,119
Broadcast		716			1,513			107
Other		21,551			15,958			1,777

Total selling, general and administrative expenses		39,208			33,027			4,003

Depreciation, amortization and accretion expenses:
Wireless		73,423			64,733			15,516
Broadcast		3,858			2,671			414

Total depreciation, amortization and accretion expenses		77,281			67,404			15,930

Total operating expenses	$	195,117		$	169,290		$	28,834

Operating income (loss)	$	68,492		$	38,883		$	(3,208	)

Other income (expense):
Interest income	$	956		$	639		$	137
Interest expense		(29,344	)		(40,428	)		(4,721	)
Gain on debt discharge		—			—			1,034,764
Other income (expense)		25,522			(1,936	)		(493	)

Total other income (expense)	$	(2,866	)	$	(41,725	)	$	1,029,687

Income (loss) from continuing operations before income Taxes	$	65,626		$	(2,842	)	$	1,026,479
Income tax expense:
Income tax – current		1,086			1,270			5
Income tax – deferred		24,829			—			—

Total Income tax expense		25,915			1,270			5

Income (loss) from continuing operations		39,711			(4,112	)		1,026,474



	Reorganized Company						Predecessor Company
	Nine Months			Eight Months			One Month
	Ended			Ended			Ended
	September 30,			September 30,			January 31,
	2004			2003			2003
	(dollars in thousands)
Reorganization items:
Adjust accounts to fair value		—			—			(644,688	)
Professional and other fees		—			—			(23,894	)

Total reorganization items	$	—		$	—		$	(668,582	)

Income (loss) before discontinued operations	$	39,711		$	(4,112	)	$	357,892
Discontinued operations (net of income taxes):
Loss from operations of discontinued segment, net of income tax expense		(124	)		(1,344	)		(686	)
Income (loss) on disposal of discontinued segment, net of income tax expense		849			(596	)		—

Income (loss) before cumulative effect of change in accounting principle	$	40,436		$	(6,052	)	$	357,206
Cumulative effect of change in accounting principle		—			—			(12,236	)

Net income (loss)	$	40,436		$	(6,052	)	$	344,970

Adjusted EBITDA:
Wireless		179,358			112,999			12,586
Broadcast		14,872			9,539			1,420
Other:
Corporate selling, general and administrative expenses, non-cash compensation charges and other expenses		(22,935	)		(18,187	)		(1,777	)

Total Adjusted EBITDA	$	171,295		$	104,351		$	12,229

Revenues. Revenues in 2004 were primarily affected by incremental revenue derived from new and amended site leasing agreements, rent escalations included in existing site leasing and licensing agreements, new sites acquired or built during the period, and increases in fee revenues. Revenues on the 260 SBC sites acquired since September 30, 2003 were $5.5 million, including the one-time recognition of deferred revenue associated with previously marketed SBC sites totaling $2.1 million, for the nine months ended September 30, 2004. Fee revenues were $7.1 million, $3.6 million and $0.2 million for the nine months ended September 30, 2004, the eight months ended September 30, 2003 and the one month ended January 31, 2003, respectively. We owned or operated 7,802 towers and in-building systems at September 30, 2004, as compared to 7,509 towers and in-building systems at September 30, 2003.

Customers representing 10% or more of the Company’s consolidated revenues are presented below for all applicable periods:


	Reorganized Company						Predecessor Company
	Nine Months			Eight Months			One Month
	Ended			Ended			Ended
	September 30,			September 30,			January 31,
	2004			2003			2003
	(dollars in thousands)
Significant Customer Revenue
Nextel and affiliates	$	73,165		$	62,779		$	7,434
% Total Consolidated Revenue		28	%		30	%		29	%
Cingular**	$	56,049		$	42,080		$	5,853
% Total Consolidated Revenue		21	%		20	%		23	%
AT&T Wireless**	$	27,217			*			*
% Total Consolidated Revenue		10	%		*			*
Total Consolidated Revenue	$	263,609		$	208,173		$	25,626

* Represents less than 10% of Total Consolidated Revenue

** As of October 27, 2004, these two customers have merged.

Costs of Operations, Excluding Depreciation, Amortization and Accretion Expenses. Costs of operations, excluding depreciation, amortization and accretion expenses as a percentage of revenues were 30% for the nine months ended September 30, 2004, 33% for the eight months ended September 30, 2003 and 35% for the one month ended January 31, 2003. Costs of operations, excluding depreciation, amortization and accretion expenses, for the wireless segment as a percentage of wireless segment revenues were 31% for the nine months ended September 30, 2004, 35% for the eight months ended September 30, 2003 and 36% for the one month ended January 31, 2003. Wireless costs of operations also included the one-time recognition of deferred ground rent associated with previously marketed SBC sites totaling $0.2 million for the nine months ended September 30, 2004. Broadcast leasing costs of operations, excluding depreciation, amortization and accretion expenses, as a percentage of broadcast leasing revenues were 11% for the nine months ended September 30, 2004, 10% for the eight months ended September 30, 2003 and 14% for the one month ended January 31, 2003. In 2004, costs of operations, excluding depreciation, amortization and accretion expenses as a percentage of revenues for the broadcast segment were primarily affected by higher property taxes. As our wireless and broadcast leasing operations mature, we expect that additional customers on towers will generate increases in our margins for wireless and broadcast leasing operations and in cash flow because a significant percentage of tower operating costs are fixed and do not increase with additional customers.

Selling, General and Administrative Expenses. A significant portion of our selling, general and administrative expenses does not increase when we add incremental revenues to our sites. Selling, general and administrative expenses were 15% of total revenues for the nine months ended September 30, 2004. Selling, general and administrative expenses were 16% of total revenues for both the eight months ended September 30, 2003 and the one month ended January 31, 2003. Selling, general and administrative expenses for 2004 as a percentage of revenues decreased from 2003 levels due primarily to increased revenues from new customers on existing towers. A significant portion of the increase in selling, general and administrative expenses stems from consulting and professional fees for Sarbanes-Oxley Act implementation and related expenses associated with compliance initiatives put in place over the past year, and costs associated with the search for additional board members. In addition, we recognized a one-time charge of $1.1 million associated with certain costs incurred for severance pay, as well as payroll taxes associated with stock option exercises in connection with the termination of our former Chief Financial Officer.

Selling, general and administrative expenses for our wireless segment were 7%, 8% and 9% of wireless revenues for the nine months ended September 30, 2004, the eight months ended September 30, 2003 and the one month ended January 31, 2003, respectively. Selling, general and administrative expenses for our broadcast segment as a percentage of broadcast revenues were 4%, 10% and 6% for the nine months ended September 30, 2004, the eight months ended September 30, 2003 and the one month ended January 31, 2003, respectively.

Selling, general and administrative expenses not specific to the above business segments were 8% of total revenues for the nine months ended September 30, 2004, 8% of total revenues for the eight months ended September 30, 2003 and 7% for the one month ended January 31, 2003.

Depreciation, Amortization, and Accretion Expenses. Depreciation, amortization and accretion expenses were $77.3 million for the nine months ended September 30, 2004, representing a decline of $6.1 million from the combined eight months ended September 30, 2003 and the one month ended January 31, 2003. The net overall decline across both the wireless and broadcast segments is the result of implementing fresh start accounting which reduced the depreciable basis of property and equipment. See Note 2 for a more detailed discussion of the effect of the Company’s Plan of Reorganization and the effect of implementing certain fresh start adjustments. Partially

offsetting the overall decline were net increases across both segments in depreciation and accretion expenses associated with the Company’s asset retirement obligations.

Other Income (Expense). Other income, net, was $25.5 million in the nine months ended September 30, 2004. The nine months ended September 30, 2004 included other income of $26.9 million in the wireless segment, consisting primarily of $28.3 million of income associated with a reduction in the Company’s commitment to purchase towers under the SBC agreement, partially offset by $1.1 million of loss on sale of assets and $0.7 million of write-offs of customer contracts relating to communications towers that were sold. Other expenses not specific to any business segment were $1.4 million, consisting primarily of $1.6 million of expenses related to the public offering of shares of our common stock and $0.2 million related to the write-down of our interest rate cap to fair value, partially offset by miscellaneous income of $0.5 million.

Other expense, net, was $1.9 million and $0.5 million in the eight months ended September 30, 2003 and the one month ended January 31, 2003, respectively. The eight months ended September 30, 2003 included net other income of $2.8 million in the wireless segment, primarily consisting of $3.8 million of income on the sale of Ubiquitel stock and a gain of $0.4 million from the sale of WCLI (a subsidiary), netted with $1.4 million in losses on sale of assets and a loss of $0.6 million in the disposal of our operations in Mexico (a subsidiary). The eight months ended September 30, 2003 also included other expenses of $2.5 million in the broadcast segment, related to the impairment write-down of one of our broadcast towers. Other expense not specific to any business segment was $2.2 million, consisting primarily of $1.2 million of SEC filing expenses, $0.5 million in additional reorganization charges, $0.4 million related to the write-down of our interest rate cap to fair value, and $0.1 million of expenses related to miscellaneous write-offs and adjustments. For the one month ended January 31, 2003, the $0.5 million of other expense related to the wireless segment and consisted of $0.6 million related to losses from investments in affiliates accounted for under the equity method offset by a gain on sale of assets of $0.1 million.

Interest Expense. Interest expense for the nine months ended September 30, 2004 consisted primarily of $14.0 million of interest on our credit facility, $12.1 million of interest on our Senior Notes, amortization of debt issuance costs of $3.3 million, and other interest of $0.6 million, less $0.6 million of capitalized interest. Interest expense for the eight months ended September 30, 2003 consisted primarily of $21.3 million of interest on our credit facility, $6.3 million of interest on our Senior Notes, amortization of debt issuance costs of $3.5 million, write-offs of debt issuance costs of $8.9 million, and other interest of $0.4 million. Interest expense for the one month ended January 31, 2003 consisted of $4.3 million of interest on our credit facility and amortization of debt issuance costs of $0.4 million.

Income Tax Expense. Income tax expense was $25.9 million for the nine months ended September 30, 2004, representing an increase of $24.6 million over the combined eight months ended September 30, 2003 and the one month ended January 31, 2003. The increase in income tax expense results from an increase in taxable income from continuing operations over the same period last year and the recognition of deferred income tax expense. To the extent we believe our deferred tax assets will be recovered from future taxable income, we have recognized deferred income tax expense. In the nine months ended September 30, 2004, we have recognized deferred income tax expense and reduced our intangible assets by $24.8 million.

Gain on Debt Discharge. On February 10, 2003, we emerged from bankruptcy, and the holders of the indebtedness extinguished pursuant to our Plan of Reorganization received their pro rata share of 47.5 million shares of common stock in exchange for their notes. The excess of the carrying value of the extinguished indebtedness, net of the related debt issuance costs, over the reorganization value used in adopting fresh start accounting was recorded as a gain on debt discharge of $1.03 billion in the one month ended January 31, 2003.

Reorganization Items. In accordance with AICPA Statement of Position 90-7 Financial Reporting by Entities in Reorganization Under the Bankruptcy Code (“SOP 90-7”), we adopted fresh start accounting as of January 31, 2003, and our emergence from bankruptcy resulted in a new reporting entity. Under fresh start accounting, the reorganization value of the entity is allocated to the entity’s assets based on fair values, and liabilities are stated at the present value of amounts to be paid determined using appropriate current interest rates. The net effect of all fresh start accounting adjustments resulted in a charge of $644.7 million, which is recorded in the one month ended January 31, 2003. In addition, we incurred costs directly associated with the chapter 11 proceedings of $23.9 million

in the one month ended January 31, 2003. These costs are included in reorganization items in the consolidated statement of operations.

Discontinued Operations. On December 16, 2003, we decided to discontinue our broadcast services division. This division was sold on March 1, 2004. Losses from operations of this division were $0.1 million, $1.3 million and $0.7 million for the nine months ended September 30, 2004, the eight months ended September 30, 2003 and the one month ended January 31, 2003, respectively. In the nine months ended September 30, 2004, the Company recorded a gain on disposal of the broadcast services division of $0.8 million primarily related to a reassessment of the collectibility of the promissory notes. The notes, which are reduced by a valuation allowance, were recorded by the Company at the time of sale at their estimated fair values. The valuation allowance is periodically evaluated based on actual collection experience and our expectation of future collectibility. In the eight months ended September 30, 2003, the Company recorded a loss on disposal of the network services business. This amount consisted of the settlement of a disputed item related to the disposal of our network services business.

Liquidity and Capital Resources

We are a holding company whose only significant asset is the outstanding capital stock of our subsidiary, Communications. Our only source of cash to pay our obligations is distributions from Communications.

As a result of the reorganization and implementation of fresh start accounting, our results of operations after January 31, 2003 are not comparable to results reported in prior periods because of differences in the bases of accounting and the capital structure for the Predecessor Company and the Reorganized Company.

Cash Flows

Cash provided by operating activities was $115.1 million for the nine months ended September 30, 2004. Cash provided by operating activities was $67.4 million for the eight months ended September 30, 2003 and $5.9 million for the one month ended January 31, 2003. The increase in cash provided by operating activities in 2004 is primarily attributable to increased operating income.

Cash used in investing activities was $80.2 million for the nine months ended September 30, 2004. Cash provided by investing activities was $63.5 million for the eight months ended September 30, 2003 and cash used in investing activities was $2.7 million for the one month ended January 31, 2003. Investing activities for the nine months ended September 30, 2004 consisted primarily of $27.8 million of purchases of property and equipment and $53.6 million in acquisitions of towers and customer contracts, primarily related to towers leased and subleased from SBC. Investing activities for the eight months ended September 30, 2003 consisted primarily of proceeds received from the sale of the 545 SBC towers of $81.0 million, proceeds from the sale of an investment in available-for-sale securities of $5.0 million and proceeds from the sale of our Canadian leasing operations for $2.1 million. In addition, we invested $24.8 million and $2.7 million in purchases of property and equipment and acquisitions, primarily related to the acquisition and construction of communications towers, in the eight months ended September 30, 2003 and the one month ended January 31, 2003.

Cash used in financing activities was $11.7 million in the nine months ended September 30, 2004. Cash used in financing activities was $148.3 million in the eight months ended September 30, 2003 and $10.9 million in the one month ended January 31, 2003. Cash used in financing activities for the nine months ended September 30, 2004 consisted primarily of $22.0 million in proceeds from the issuance of common stock related to the exercise of stock options and repayment of executive notes of $1.4 million, offset by repurchases of common stock of $32.5 million, $1.4 million of payments on our credit facility, payments on capital leases of $0.3 million and payments of $0.9 million of additional debt issuance costs. Cash used in financing activities for the eight months ended September 30, 2003 consisted primarily of $200.0 million in proceeds from the issuance of our 8 1/4% Senior Notes Due 2010 and $2.4 million in proceeds from the issuance of common stock, offset by $343.0 million of payments on our credit facility, payments on capital leases of $0.4 million and $7.4 million in debt issuance costs related to the Senior Notes. Cash used in financing activities for the one month ended January 31, 2003 consisted of payments on capital leases of $10.9 million, which includes the prepayment of a capital lease in connection with the exercise of our purchase option on our corporate headquarters.

Financing Transactions

On February 11, 2004, we completed an underwritten public offering of our common stock, whereby approximately 10.4 million shares of common stock were sold by four of our existing stockholders, including an over-allotment option exercised by the underwriters. The selling stockholders received net proceeds of $347.8 million from the offering. In connection with this offering, we incurred costs of approximately $0.9 million in the nine months ended September 30, 2004.

On May 10, 2004, we completed an underwritten public offering of our common stock, whereby approximately 10.4 million shares of common stock were sold by three of our existing stockholders, including an over-allotment option exercised by the underwriters. The selling stockholders received net proceeds of $316.1 million from the offering. In connection with this offering, we incurred costs of approximately $0.5 million in the nine months ended September 30, 2004.

On July 28, 2004, the Company’s Board of Directors authorized the repurchase of shares of the Company’s common stock up to an aggregate amount of $175.0 million. The Company has selected a financial institution to manage the repurchase of the Company’s shares. The share repurchase is subject to prevailing market conditions and other considerations. During the three months ended September 30, 2004, the Company repurchased 735,400 shares at an average price of $43.92 per share, which includes a $0.03 per share commission. Including legal costs of $0.2 million, the Company’s cost basis for these shares was an average price of $44.14 per share. The Company holds all repurchased shares as treasury shares. For more information about these repurchases, see Part II, Item 2 of this report.

Credit Facility

Our principal operating subsidiary, Communications, is party to an amended and restated credit facility with lending commitments totaling approximately $638.2 million. The credit facility includes a revolving credit facility with a borrowing limit of $200.0 million, subject to compliance with covenants and the satisfaction of certain conditions precedent. As of September 30, 2004, Communications could borrow up to approximately $192.1 million of the $200.0 million under the revolving credit facility. The maximum amount available will be reduced (and, if necessary, any amounts outstanding must be repaid) in quarterly installments beginning on September 30, 2005 and ending on June 30, 2007. The credit facility also includes a multiple-draw term loan that is fully drawn and which must be repaid in quarterly installments beginning on March 31, 2006 and ending on June 30, 2007, and a term loan that is fully drawn and which must be repaid in quarterly installments beginning on September 30, 2007 and ending on December 31, 2007. As of September 30, 2004, $187.0 million was outstanding under the multiple draw term loan and $251.2 million was outstanding under the term loan.

On February 9, 2004, Communications completed an amendment to its credit facility to replace the existing term loan with a new term loan that is substantially the same as the existing term loan, except that the interest rate was reduced from, at Communications’ option, Canadian Imperial Bank of Commerce’s base rate plus 1.75% per annum or the Eurodollar rate plus 3.00% per annum to Canadian Imperial Bank of Commerce’s base rate plus 1.00% per annum or the Eurodollar rate plus 2.25% per annum. The amendment also provides that the interest rate margins will automatically be further reduced if Communications’ credit ratings improve.

In February 2003, we entered into an interest rate cap agreement in order to limit exposure to fluctuations in interest rates on our variable rate credit facility. This transaction is not designated as a fair value hedge. Accordingly, gains and losses from the change in the fair value of this instrument are recognized in other income and expense. As of September 30, 2004, the carrying amount and fair value of this instrument was $0.004 million and is included in Other assets in the unaudited consolidated financial statements.

With the proceeds of the sale of 545 towers to Cingular, Communications repaid $31.4 million of the multiple draw term loan and $42.1 million of the term loan on February 11, 2003. In addition, Communications repaid $1.1 million of the multiple draw term loan and $1.4 million of the term loan on February 19, 2003. In connection with these repayments, Communications wrote off $1.6 million in debt issuance costs. This charge is included in interest expense in the unaudited consolidated statement of operations.

On March 1, 2004, Communications repaid $0.2 million of the multiple draw term loan and $0.2 million of the term loan. In connection with these repayments, Communications wrote off approximately $7,000 in debt issuance costs. This charge is included in interest expense in the unaudited consolidated statement of operations.

On June 29, 2004, Communications amended its credit facility. This amendment, (i) provides for a $216.5 million basket that permits Communications to repurchase SpectraSite, Inc.’s existing debt with a sublimit of up to $175 million that could be used to repurchase SpectraSite, Inc.’s common stock or to pay dividends to its stockholders, (ii) tightens the existing borrower leverage ratio, and (iii) provides for certain other documentation changes.

On September 3, 2004, Communications repaid $0.4 million of the multiple term draw loan and $0.6 million of the term loan with the proceeds from the sale of the broadcast services division. In connection with these repayments, Communications wrote off approximately $17,000 in debt issuance costs. This charge is included in interest expense in the unaudited condensed consolidated statement of operations.

The following table summarizes activity with respect to our credit facility from January 1, 2004 through September 30, 2004:


	Amount Owed									Undrawn
	Multiple									Revolving
	Draw									Credit Facility
	Term Loan			Term Loan			Total			Commitment
				(in thousands)
Balance, January 1, 2004	$	187,581		$	251,974		$	439,555		$	200,000
Repayments		(598	)		(802	)		(1,400	)		—

Balance, September 30, 2004	$	186,983		$	251,172		$	438,155		$	200,000

Liquidity and Commitments

We emerged from bankruptcy in February 2003. As a result, $1.76 billion of previously outstanding indebtedness was cancelled. Communications, the borrower under the credit facility, and our other subsidiaries were not part of the bankruptcy. The credit facility has remained in place during, and since, the reorganization.

We had cash and cash equivalents of $83.6 million at September 30, 2004 and $60.4 million at December 31, 2003. We also had $438.2 million outstanding under our credit facility at September 30, 2004 and $439.6 million outstanding at December 31, 2003. The revolving portion of our credit facility was undrawn. Our ability to borrow under the revolving credit facility is limited by the financial covenants regarding the total debt to Annualized EBITDA (as defined in the credit agreement) and interest and fixed charge coverage ratios of Communications and its subsidiaries. Communications could borrow an additional $192.1 million under the revolving credit facility as of September 30, 2004. Our ability to borrow under the credit facility’s financial covenants will increase or decrease as our Annualized EBITDA (as defined in the credit facility) increases or decreases. The weighted average interest rate on outstanding borrowings under the credit facility was 3.87% as of September 30, 2004 and 3.95% as of December 31, 2003. Giving effect to the amendment discussed above, the weighted average interest rate on outstanding borrowings under the credit facility as of December 31, 2003 would have been 3.51%.

On August 16, 2004, the Company completed its last closing under its agreement with SBC consisting of 191 towers for total cash consideration of $50.0 million. We may acquire additional towers from various third parties in the future and will continue to make capital expenditures to improve our existing towers and to install new in-building neutral host distributed antenna systems. We believe that cash flow from operations, available cash on hand and availability under our credit facility will be sufficient to fund our capital expenditures and other currently anticipated cash needs for the foreseeable future. Our ability to meet these needs from cash provided by operating activities will depend on the demand for wireless services, developments in competing technologies and our ability to add new customers, as well as general economic, financial, competitive, legislative, regulatory and other factors, many of which are beyond our control. In addition, if we make additional acquisitions or pursue other opportunities or if our estimates prove inaccurate, we may seek additional sources of debt or equity capital or reduce our capital expenditures and any related acquisition activity.

The following table provides a summary of our material debt, lease and other contractual commitments as of September 30, 2004:


	Payments Due by Period
Contractual			Less than
Obligations	Total		1 Year		1-3 Years		4-5 Years		After 5 Years
			(in thousands)
Credit Facility	$	438,155	$	—	$	80,170	$	357,985	$	—
Senior Notes		200,000		—		—		—		200,000
Capital Lease Payments		997		469		528		—		—
Operating Leases Payments		327,192		65,730		97,714		57,136		106,612
Asset Retirement Obligations		40,188		188		1,428		1,974		36,598

Total Contractual Cash Obligations	$	1,006,532	$	66,387	$	179,840	$	417,095	$	343,210

In addition, we had standby letters of credit of $7.9 million and surety bonds of $2.9 million outstanding at September 30, 2004, most of which expire within one year.

Non-GAAP Financial Measures

Adjusted EBITDA. Adjusted EBITDA consists of net income (loss) before depreciation, amortization and accretion expenses, interest, income tax expenses (benefit) and, if applicable, before discontinued operations and cumulative effect of change in accounting principle. For the periods prior to January 31, 2003, Adjusted EBITDA also excludes gain on debt discharge, reorganization items, and write-offs of investments in and loans to affiliates. We use a different definition of Adjusted EBITDA for the fiscal periods prior to our reorganization to enable investors to view our operating performance on a consistent basis before the impact of the items discussed above on the Predecessor Company. Each of these historical items was incurred prior to, or in connection with, our bankruptcy and is excluded from Adjusted EBITDA to reflect, as accurately as possible, the results of our core operations. Management does not expect any of these items to have a material financial impact on our operations on a going-forward basis because none of these pre-reorganization items is expected to occur in the foreseeable future.

Adjusted EBITDA may not be comparable to a similarly titled measure employed by other companies, including companies in the tower sector, and is not a measure of performance calculated in accordance with accounting principles generally accepted in the United States, or “GAAP.”

We use Adjusted EBITDA as a measure of operating performance. Adjusted EBITDA should not be considered in isolation or as a substitute for operating income, net income or loss, cash flows provided by operating, investing and financing activities or other income statement or cash flow statement data prepared in accordance with GAAP.

We believe Adjusted EBITDA is useful to an investor in evaluating our operating performance because:

• it is the primary measure used by our management to evaluate the economic productivity of our operations, including the efficiency of our employees and the profitability associated with their performance, the realization of contract revenue under our long-term contracts, our ability to obtain and maintain our customers and our ability to operate our leasing and licensing business effectively;

• it is widely used in the wireless tower industry to measure operating performance without regard to items such as depreciation and amortization, which can vary depending upon accounting methods and the book value of assets; and

• we believe it helps investors meaningfully evaluate and compare the results of our operations from period to period by removing the impact of our capital structure (primarily interest charges from our outstanding debt) and asset base (primarily depreciation and amortization) from our operating results.

Our management uses Adjusted EBITDA:

• as a measurement of operating performance because it assists us in comparing our operating performance on a consistent basis as it removes the impact of our capital structure (primarily interest charges from our outstanding debt) and asset base (primarily depreciation and amortization) from our operating results;

• in presentations to our Board of Directors to enable it to have the same measurement of operating performance used by management;

• for planning purposes, including the preparation of our annual operating budget;

• for compensation purposes, including the basis for incentive quarterly and annual bonuses for certain employees, including our sales force;

• as a valuation measure in strategic analyses in connection with the purchase and sale of assets; and

• with respect to compliance with our credit facility, which requires us to maintain certain financial ratios based on Annualized EBITDA (as defined in our credit agreement).

There are material limitations to using a measure such as Adjusted EBITDA, including the difficulty associated with comparing results among more than one company and the inability to analyze certain significant items, including depreciation and interest expense, that directly affect our net income or loss. Management compensates for these limitations by considering the economic effect of the excluded expense items independently as well as in connection with its analysis of net income. Adjusted EBITDA should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP.

Adjusted EBITDA was calculated as follows for the periods presented:


	Reorganized Company												Predecessor Company
	Three Months			Three Months			Nine Months			Eight Months			One Month
	Ended			Ended			Ended			Ended			Ended
	September 30,			September 30,			September 30,			September 30,			January 31,
	2004			2003			2004			2003			2003
	(in thousands)
Net income (loss)	$	26,964		$	3,214		$	40,436		$	(6,052	)	$	344,970
Depreciation, amortization and accretion expenses		26,343			25,393			77,281			67,404			15,930
Interest income		(427	)		(143	)		(956	)		(639	)		(137	)
Interest expense		10,063			12,563			29,344			40,428			4,721
Gain on debt discharge		—			—			—			—			(1,034,764	)
Income tax expense		16,985			597			25,915			1,270			5
Reorganization items:
Adjust accounts to fair value		—			—			—			—			644,688
Professional and other fees		—			—			—			—			23,894
Loss from operations of discontinued segment, net of income tax expense		—			248			124			1,344			686
Loss (income) on disposal of discontinued segment		(1,192	)		—			(849	)		596			—
Cumulative effect of change in accounting principle		—			—			—			—			12,236

Adjusted EBITDA	$	78,736		$	41,872		$	171,295		$	104,351		$	12,229

Free Cash Flow. Free cash flow (deficit), as we have defined it, is calculated as cash provided by operating activities less purchases of property and equipment. We believe free cash flow to be relevant and useful information to our investors as this measure is used by our management in evaluating our liquidity and the cash generated by our consolidated operating businesses. Our definition of free cash flow does not take into consideration cash provided by or used for acquisitions or sales of tower assets or cash used to acquire other businesses. Additionally, our definition of free cash flow does not reflect cash used to make mandatory repayments of our debt obligations. The limitations of using this measure include the difficulty in analyzing the impact on our operating cash flow of certain discretionary expenditures, such as purchases of property and equipment and our mandatory debt service requirements. Management compensates for these limitations by analyzing the economic effect of these expenditures and asset dispositions independently as well as in connection with the analysis of our cash flow. Free cash flow reflects cash available for financing activities, to strengthen our balance sheet, or cash available for strategic investments, including acquisitions of tower assets or businesses. We believe free cash flow should be

considered in addition to, but not as a substitute for, other measures of liquidity reported in accordance with GAAP. Free cash flow, as we have defined it, may not be comparable to similarly titled measures reported by other companies. Free cash flow (deficit) was calculated as follows for the periods presented:


	Reorganized Company												Predecessor Company
	Three Months			Three Months			Nine Months			Eight Months			One Month
	Ended			Ended			Ended			Ended			Ended
	September 30,			September 30,			September 30,			September 30,			January 31,
	2004			2003			2004			2003			2003
	(in thousands)
Net cash provided by operating activities	$	43,593		$	34,863		$	115,092		$	67,422		$	5,892
Less: Purchases of property and equipment		(10,734	)		(3,962	)		(27,779	)		(10,143	)		(2,737	)

Free cash flow	$	32,859		$	30,901		$	87,313		$	57,279		$	3,155

Cash flow provided by (used in) investing activities and cash flows provided by (used in) financing activities for the periods presented are as follows:


	Reorganized Company												Predecessor Company
	Three Months			Three Months			Nine Months			Eight Months			One Month
	Ended			Ended			Ended			Ended			Ended
	September 30,			September 30,			September 30,			September 30,			January 31,
	2004			2003			2004			2003			2003
	(in thousands)
Net cash (used in) provided by investing activities	$	(60,185	)	$	1,850		$	(80,183	)	$	63,543		$	(2,737	)

Net cash used in financing activities	$	(26,633	)	$	(39,616	)	$	(11,699	)	$	(148,347	)	$	(10,884	)

Description of Critical Accounting Policies

The preparation of our financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and judgments that affect our reported amounts of assets and liabilities, revenues and expenses. We have identified the following critical accounting policies that affect the more significant estimates and judgments used in the preparation of our consolidated financial statements. On an on-going basis, we evaluate our estimates, including those related to the matters described below. These estimates are based on the information that is currently available to us and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could vary from those estimates under different assumptions or conditions.

Revenue Recognition

Revenues are recognized when earned based on lease and license agreements. Rate increases based on fixed escalation clauses that are included in certain lease and license agreements are recognized on a straight-line basis over the term of the lease or license. Revenues from fees, such as engineering and site inspection fees, are recognized upon delivery of the related products and services to the customer. Additionally, we generate revenues related to the management of sites on rooftops. Under each site management agreement, we are entitled to a recurring fee based on a percentage of the gross revenue derived from the rooftop site subject to the agreement. We recognize these recurring fees as revenue when earned.

Allowance for Uncollectible Accounts

We evaluate the collectibility of our accounts receivable based on a combination of factors. In circumstances where we are aware that a specific customer’s ability to meet its financial obligations to us is in question (e.g., bankruptcy filings or a substantial down-grading of credit ratings), we record a specific allowance against amounts

due to reduce the net recognized receivable from that customer to the amount we reasonably believe will be collected. For all other customers, we reserve 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. If circumstances change (e.g., higher than expected defaults or an unexpected material adverse change in one or more significant customer’s ability to meet its financial obligations to us), our estimates of the recoverability of amounts due us could be reduced by a material amount.

Property and Equipment

Property and equipment built, purchased, leased or licensed under long-term leasehold or license agreements are capitalized at cost and depreciated over their estimated useful lives. We capitalize costs incurred in bringing property and equipment to an operational state. Costs clearly associated with the acquisition, development and construction of property and equipment are capitalized as a cost of the assets. Indirect costs that relate to several assets are capitalized and allocated to the assets to which the costs relate. Indirect costs that do not clearly relate to projects under development or construction are charged to expense as incurred. Estimates and cost allocations are reviewed at the end of each financial reporting period. Costs are revised and reallocated as necessary for material changes on the basis of current estimates. In addition, upon initial recognition of a liability for the retirement of a purchased or constructed asset under Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations, the cost of that liability is capitalized as part of the cost basis of the related asset and depreciated over the related life of the asset. 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 thirty-nine 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.

Goodwill

The excess of the purchase price over the fair value of net assets acquired in purchase business combinations is recorded as goodwill. Goodwill is evaluated for impairment on an annual basis or as impairment indicators are identified, in accordance with Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets. On an ongoing basis, we assess the recoverability of goodwill by determining the ability of the specific assets acquired to generate future cash flows sufficient to recover the unamortized goodwill over the remaining useful life. We estimate future cash flows based on the current performance of the acquired assets and our business plan for those assets. Changes in business conditions, major customers or other factors could result in changes in those estimates. Goodwill determined to be unrecoverable based on future cash flows is written-off in the period in which such determination is made.

Customer Contracts

Fresh Start Accounting

In accordance with SOP 90-7, the Company adopted fresh start accounting as of January 31, 2003, and the Company’s emergence from chapter 11 resulted in a new reporting entity. Under fresh start accounting, the reorganization value of the entity is allocated to the entity’s assets based on fair values, and liabilities are stated at the present value of amounts to be paid determined using appropriate current interest rates. The effective date is considered to be the close of business on January 31, 2003 for financial reporting purposes. The periods presented prior to January 31, 2003 have been designated “Predecessor Company” and the periods subsequent to January 31,

2003 have been designated “Reorganized Company.” As a result of the implementation of fresh start accounting, the financial statements of the Company after the effective date are not comparable to the Company’s financial statements for prior periods.

Impairment of Long-lived Assets

Accounting for Income Taxes

As part of the process of preparing our consolidated financial statements, we are required to estimate income taxes in each of the jurisdictions in which we operate. This process involves estimating the actual current tax liability together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income. To the extent that we believe that recovery is not likely, we must establish a valuation allowance. Significant management judgment is required in determining the provision for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against net deferred tax assets. We have recorded a 100% valuation allowance on the net deferred tax asset as of September 30, 2004, due to uncertainties related to utilization of deferred tax assets, primarily relating to net operating loss carryforwards, before they expire. In accordance with SOP 90-7, reductions in the valuation allowance that relate to deferred tax assets generated before emergence from bankruptcy will reduce intangible assets to zero and then increase additional paid-in capital. In the nine months ended September 30, 2004, we have recognized deferred income tax expense and reduced our intangible assets by $24.8 million.

Derivative Financial Instruments

Derivative financial instruments are accounted for in accordance with Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS 133”), as amended by Statement of Financial Accounting Standards No. 138, Accounting for Certain Instruments and Certain Hedging Activities (“SFAS 138”) and as further amended by Statement of Financial Accounting Standards No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. All derivative financial instruments are recorded in the consolidated financial statements at fair value. Changes in the fair values of derivative financial instruments are either recognized in earnings or in stockholders’ equity as a component of other comprehensive income depending on whether the derivative financial instrument qualifies for hedge accounting as defined by SFAS 133. Changes in fair values of derivatives not qualifying for hedge accounting are reported in the statement of operations as they occur.

Recently Issued Accounting Pronouncements

March 15, 2004. We have reviewed our investments and other arrangements and determined that none of our investee companies are VIEs. We have not invested in any new VIEs created after January 31, 2003.

Inflation

Some of our expenses, such as those for marketing, wages and benefits, generally increase with inflation. However, we do not believe that our financial results have been, or will be, adversely affected by inflation in a material way.

Risk Factors

The following risk factors should be read carefully in connection with evaluating our business and the forward-looking statements contained in this report and other statements we make or our representatives make from time to time. Any of the following risks could materially adversely affect our business, our operating results, our financial condition and the actual outcome of matters as to which forward-looking statements are made in this report.

Consolidation in the wireless industry could decrease the demand for our sites and may lead to reductions in our revenues.

Various wireless service providers, which are our primary existing and potential customers, could enter into mergers, acquisitions or joint ventures with each other over time. These consolidations could reduce the size of our customer base and have a negative impact on the demand for our services. Recent regulatory developments have made consolidation in the wireless industry easier and more likely. For example, the Federal Communications Commission, or “FCC,” has recently eliminated the spectrum aggregation cap in a geographic area in favor of a case-by-case review of spectrum transactions, enabled the ownership by a single entity of interests in both cellular carriers in an overlapping cellular service area and authorized spectrum leasing for a variety of wireless radio services. It is possible that at least some wireless service providers may take advantage of this relaxation of spectrum and ownership limitations and consolidate their businesses. Any industry consolidation could decrease the demand for our sites, which may lead to reductions in our revenues.

A decrease in the demand for our wireless communications sites and our ability to secure additional customers could negatively impact our ability to achieve and maintain profitability.

Our business depends on demand for communications sites from wireless service providers, which in turn, depends on consumer demand for wireless services. A reduction in demand for our communications sites or increased competition for additional customers could have an adverse effect on our business. Our wireless service provider customers lease and license communications sites on our towers based on a number of factors, including the level of demand by consumers for wireless services, the financial condition and access to capital of those providers, the strategy of providers with respect to owning, leasing or sharing communications sites, available spectrum and related infrastructure, competitive pricing, consolidation among our customers and potential customers, government regulation of communications licenses, changes in telecommunications regulations, the characteristics of each company’s technology and geographic terrain. Any decrease in the demand for our communications sites from current levels or in our ability to secure additional customers could decrease our ability to become and remain profitable and could decrease the value of your investment.

The financial and operating difficulties in the wireless telecommunications sector, which have negatively affected some of our customers, could adversely impact our revenues and profitability.

The slowdown and intense competition in the wireless and telecommunications industries over the past several years have impaired the financial condition of some of our customers. The financial uncertainties facing our customers could reduce demand for our communications sites, increase our bad debt expense and reduce prices on new customer contracts. In addition, we may be negatively impacted by our customers’ limited access to debt and equity capital, which may constrain their ability to conduct business with us. As a result, our growth strategy, revenues and profitability may be adversely affected.

An increase in the spectrum available for wireless services may impact the demand for our communication towers, which may negatively impact our operating results.

It is expected that additional spectrum for the provision of wireless services will be made available over the next few years. For example, the FCC is required to make available for commercial use a portion of the frequency spectrum currently reserved for government use. Some portion of this spectrum may be used to create new land mobile services or to expand existing offerings. Further, the FCC has auctioned or announced plans to auction large blocks of spectrum that will in the future be used to expand existing wireless networks and to create new or advanced wireless services. This additional spectrum could be used to replace existing spectrum and could be deployed in a manner that reduces the need for communications towers to transmit signals over existing spectrum. Any increased spectrum could have an adverse impact on our business and may impair our operating results.

Because a significant portion of our revenue depends on a small number of customers, the loss of any of these customers could decrease our revenues.

A significant portion of our revenue is derived from a small number of customers. For example, Nextel (including its affiliates) and Cingular represented approximately 29% and 23%, respectively, of our revenues for the one month ended January 31, 2003, and 30% and 20%, respectively, of our revenues for the eleven months ended December 31, 2003. Nextel (including its affiliates), Cingular, and AT&T Wireless represented approximately 28%, 21% and 10% of our revenues for the nine months ended September 30, 2004. If Nextel, Cingular, AT&T Wireless or any of our other customers suffer financial difficulties or are unwilling or unable to perform their obligations under their agreements with us, our revenues could be adversely affected.

In addition, from time to time in the ordinary course of our business, we have experienced conflicts or disputes with some of our customers and lessors. Most of these disputes relate to the interpretation of terms in our contracts. While we seek to resolve conflicts amicably and have generally resolved customer disputes on commercially reasonable terms, these disputes could lead to increased tensions and damaged relationships with these entities. In some cases, a dispute could result in a termination of our contracts with customers or lessors, some of whom are key to our business. In addition, if we are unable to resolve these differences amicably, we may be forced to litigate these disputes in order to enforce or defend our rights. Damaged or terminated relationships with our key customers, or any related litigation, could hurt our business and lead to decreased revenues (including as a result of losing a customer or lessor) or increased costs, any of which may have a negative impact on our operating results.

If we are unable to successfully compete, our business will suffer.

We believe that tower location and capacity, price, quality of service and density within a geographic market historically have been, and will continue to be, the most significant competitive factors affecting our site operations business. We compete for customers with:

• wireless service providers that own and operate their own towers and lease, or may in the future decide to lease, antenna space to other providers;

• other independent tower operators; and

• owners of non-tower antenna sites, including rooftops, water towers and other alternate structures.

Some of our competitors have significantly more financial resources than we do. The intense competition in our industry may make it more difficult for us to attract new customers, increase our gross margins or maintain or increase our market share.

Competing technologies and other service options offer alternatives to ground-based antenna systems and allow our customers to increase wireless capacity without increased use of ground-based facilities, both of which could reduce the demand for our sites.

Most types of wireless and broadcast services currently require ground-based network facilities, including communications sites for transmission and reception. The development and growth of communications and other new technologies that do not require ground-based sites could reduce the demand for space on our towers. For example, the growth in delivery of video, voice and data services by satellites, which allow communication directly to users’ terminals without the use of ground-based facilities, could lessen demand for our sites. Moreover, the FCC has issued licenses for several additional satellite systems (including low earth orbit systems) that are intended to provide more advanced, high-speed data services directly to consumers. These satellite systems compete with land-based wireless communications systems, thereby reducing the demand for the services that we provide. Technological developments are also making it possible for carriers to expand their use of existing facilities to provide service without additional tower facilities. The increased use by carriers of signal combining and related technologies, which allow two or more carriers to provide services on different transmission frequencies using the communications antenna and other facilities normally used by only one carrier, could reduce the demand for tower-based broadcast transmissions and antenna space. In addition to sharing transmitters, carriers are sharing (or considering the sharing of) telecommunications infrastructure in ways that might adversely impact the growth of our business. Furthermore, wireless service providers frequently enter into agreements with competitors allowing them to utilize one another’s wireless communications facilities to accommodate customers who are out of range of their home providers’ services, so that the home providers do not need to lease space for their own antennas on communications sites we own. Any of the conditions and developments described above could reduce demand for our ground-based antenna sites, and may have an adverse effect on our business and revenues.

We may be unable to modify towers and add new customers, which could negatively impact our growth strategy and our business.

Our business depends on our ability to modify towers and add new customers as they expand their tower network infrastructure. Regulatory and other barriers could adversely affect our ability to modify towers in accordance with the requirements of our customers, and, as a result, we may not be able to meet our customers’ requirements. Our ability to modify towers and add new customers to towers may be affected by a number of factors beyond our control, including zoning and local permitting requirements, Federal Aviation Administration, or “FAA,” considerations, FCC tower registration procedures, availability of tower components and construction equipment, availability of skilled construction personnel, weather conditions and environmental compliance issues. In addition, because public concern over tower proliferation has grown in recent years, many communities now restrict tower modifications or delay granting permits required for adding new customers. In addition, we may not be able to overcome the barriers to modifying towers or adding new customers. Our failure to complete the necessary modifications could have an adverse effect on our growth strategy and our business.

We may encounter difficulties in integrating acquisitions with our operations, which could limit our revenue growth and our ability to achieve or sustain profitability.

From December 2000 through August 2004, we leased or subleased a net total of 2,476 towers under the terms of certain acquisition agreements, as amended, from affiliates of SBC Communications (“SBC”). The process of integrating acquired operations into our existing operations may result in unforeseen operating difficulties, divert managerial attention or require significant financial resources. These leases or subleases and other future acquisitions may require us to incur additional indebtedness and contingent liabilities, which may limit our revenue growth and our ability to achieve or sustain profitability. Alternatively, future acquisitions may be financed through the issuance of additional equity, which would dilute your interest as a stockholder. Moreover, any future acquisitions may not generate any additional income for us or provide any benefit to our business.

We emerged from a chapter 11 bankruptcy reorganization in February 2003, have a history of losses and may not maintain profitability.

Because we emerged from bankruptcy in February 2003 and have a history of losses, we cannot assure you that we will maintain profitability in the near future. We emerged from our chapter 11 bankruptcy reorganization as a new reporting entity on February 10, 2003, approximately three months after filing a voluntary petition for bankruptcy reorganization. Prior to our reorganization, we incurred net losses of approximately $654.8 million in 2001 and $775.0 million in 2002. In connection with our reorganization, we adopted fresh start accounting as of January 31, 2003. The net effect of all fresh start accounting adjustments resulted in a charge of $644.7 million, which is reflected in the statement of operations for the one month ended January 31, 2003. After our reorganization, we incurred net losses of approximately $19.7 million for the eleven months ended December 31, 2003 and earned net income of $40.4 million in the nine months ended September 30, 2004. If we cannot maintain profitability, the value of your investment in our company may decline.

You may not be able to compare our historical financial information to our current financial information, which will make it more difficult to evaluate an investment in our company.

As a result of our emergence from bankruptcy in February 2003, we are operating our business with a new capital structure, and are subject to the fresh start accounting prescribed by generally accepted accounting principles. Accordingly, unlike other companies that have not previously filed for bankruptcy protection, our financial condition and results of operations are not comparable to the financial condition and results of operations reflected in our historical financial statements contained in this report. Without historical financial statements to compare to our current performance, it may be more difficult for you to assess our future prospects when evaluating an investment in our common stock.

Any loss of senior executive officers could adversely affect our ability to effectively manage our business.

Our future performance depends largely on the continued services of senior executive officers. This dependence is particular to our business because the skills, knowledge, technical experience and customer relationships of our senior executive officers are essential to obtaining and maintaining these relationships and executing our business plan. Although our Chief Executive Officer, Chief Operating Officer and Chief Financial Officer have employment agreements with SpectraSite, the loss of any key employee may have a detrimental effect on our ability to effectively manage our business.

Our failure to comply with federal, state and local laws and regulations could result in our being fined, liable for damages and, in some cases, losing our right to conduct some of our business.

We are subject to a variety of regulations, including those at the federal, state and local levels. Both the FCC and the FAA regulate towers and other sites used for wireless communications transmitters and receivers. In addition, under the FCC’s rules, we are fully liable for the acts or omissions of our contractors. We generally indemnify our customers against any failure by us to comply with applicable standards. Our failure to comply with any applicable laws and regulations (including as a result of acts or omissions of our contractors, which may be beyond our control) may lead to monetary forfeitures or other enforcement actions, as well as civil penalties, contractual liability and tort liability and, in some cases, losing our right to conduct some of our business, any of which could have an adverse impact on our business.

We also are subject to local regulations and restrictions that typically require tower owners to obtain a permit or other approval from local officials or community standards organizations prior to tower construction or modification. Local regulations could delay or prevent new tower construction or modifications, as well as increase our costs, any of which could adversely impact our ability to implement or achieve our business objectives.

The FCC recently implemented a voluntary tower construction notification system that is intended to streamline the approval process for new towers. Tower companies have been encouraged to submit information on proposed construction in this new on-line notification system, which will then be used to notify and solicit comment from

relevant state, local, and tribal government agencies. The FCC also recently adopted a new nationwide programmatic agreement that modifies, and in some cases streamlines, procedures for obtaining construction approval for tower facilities. It is not known at this time what effect, if any, these new regulatory undertakings will have on our business.

Because we generally lease, sublease, or license the land under our towers, our business may be adversely affected if we fail to protect our rights under our contracts.

Our real property interests relating to towers primarily consist of leasehold and sub-leasehold interests, private easements and licenses, and easements and rights-of-way granted by governmental entities. A loss of these interests for any reason, including losses arising from the bankruptcy of a significant number of our lessors, from the default by a significant number of our lessors under their mortgage financing or from a challenge to our interest in the real property, would interfere with our ability to conduct our business and generate revenues. Our ability to protect our rights against persons claiming superior rights in towers or real property depends on our ability to:

• recover under title insurance policies, the policy limits of which may be less than the purchase price of a particular tower;

• in the absence of title insurance coverage, recover under title warranties given by tower sellers, which warranties often terminate after the expiration of a specific period, typically one to three years;

• recover from landlords under title covenants contained in lease agreements; and

• obtain so-called “non-disturbance agreements” from mortgagees and superior lienholders of the land under our towers.

Our inability to protect our rights to the land under our towers could have a material adverse affect on our business and operating results.

Our failure to comply with environmental laws could result in liability and claims for damages.

We are subject to environmental laws and regulations that impose liability without regard to fault. These laws and regulations place responsibility on us to investigate potential environmental and other effects of operations and to disclose any significant effects in an environmental assessment prior to constructing a tower or adding a new customer on a tower. These effects may include any adverse impact on historically or culturally significant sites. In the event the FCC determines that one of our towers would have a significant environmental impact, the FCC would be required to prepare an environmental impact statement. This regulatory process could be costly to us and could significantly delay our registration of a particular tower. In addition, we are subject to environmental laws that may require investigation and clean up of any contamination at facilities we own or operate or at third-party waste disposal sites. These laws could impose liability even if we did not know of, or were not responsible for, the contamination. Although we believe that we currently have no material liability under applicable environmental laws, the costs of complying with existing or future environmental laws, responding to petitions filed by environmental protection groups, investigating and remediating any contaminated real property and resolving any related liability could have a material adverse effect on our business.

Our towers may be damaged by disaster and other unforeseen damage for which our self-insurance may not provide adequate coverage.

Our towers are subject to risks associated with natural disasters, such as ice and wind storms, tornadoes, floods, hurricanes and earthquakes, as well as other unforeseen damage. We self-insure almost all of our towers against these risks. Since our inception, two of our towers have been destroyed by high wind, one has collapsed due to unknown causes, resulting in fatalities, and several tower sites have suffered minor damage due to flooding. In addition, we own, lease and license a large number of towers in geographic areas, including Texas, California, Illinois, Florida, Alabama and Ohio, that have historically been subject to natural disasters, such as high winds,

floods, earthquakes and severe weather. A tower accident for which we do not have adequate insurance reserves or have no insurance, or a large amount of damage to a group of towers, could decrease the value of our assets and have an adverse effect on our operating results.

If radio frequency emissions from our towers are demonstrated, or perceived, to cause negative health effects, our business and revenues may be adversely affected.

The safety guidelines for radio frequency emissions from our sites require us to undertake safety measures to protect workers whose activities bring them into proximity with the emitters and to restrict access to our sites by others. If radio frequency emissions are found, or perceived, to be harmful, our customers and possibly our company could face lawsuits claiming damages from these emissions, and demand for wireless services and new towers, and thus our business and revenues could be adversely affected. Although we have not been subject to any claims relating to radio frequency emissions, we cannot assure you that these claims will not arise in the future or that they will not negatively impact our business.

Our indebtedness could impair our financial condition and make it more difficult for us to fund our operations.

We are, and may continue to be, leveraged. As of September 30, 2004, we had $638.2 million of consolidated indebtedness. Our indebtedness could have important negative consequences for us. For example, it could:

• increase our vulnerability to general adverse economic and industry conditions;

• limit our ability to obtain additional financing;

• require the dedication of a substantial portion of our cash flow from operations to the payment of principal of, and interest on, our indebtedness, reducing available cash flow to fund other projects;

• limit our flexibility in planning for, or reacting to, changes in our business and the industry; and

• place us at a competitive disadvantage relative to less leveraged competitors.

Our ability to generate sufficient cash flow from operations to pay the principal of, and interest on, our indebtedness is uncertain. In particular, we may not meet our anticipated revenue growth and operating expense targets, and, as a result, our future debt service obligations, including our obligations on our senior notes, could exceed cash available to us. Further, we may not be able to refinance any of our indebtedness on commercially reasonable terms or at all.

In addition, we may be able to incur significant additional indebtedness in the future. To the extent new debt is added to our current debt levels, the risks described above would increase, which could have a material adverse effect on our operations and our ability to run our business.

Repayment of the principal of our outstanding indebtedness, including our senior notes, may require additional financing that we cannot assure you will be available to us.

We have historically financed our operations primarily with indebtedness. Our ability to generate sufficient cash flow from operations to make scheduled payments on our debt obligations, including our senior notes, will continue to depend on our future financial performance. In addition, we currently anticipate that, in order to pay the principal of our outstanding indebtedness, including our senior notes, or to repay such indebtedness upon a change of control as defined in the instruments governing our indebtedness, we may be required to adopt one or more alternatives, such as refinancing our indebtedness or selling our equity securities or the equity securities or assets of our subsidiaries. We cannot assure you that we could affect any of the foregoing alternatives on terms satisfactory to us, that any of the foregoing alternatives would enable us to pay the interest or principal of our indebtedness or that any of such alternatives would be permitted by the terms of our credit facility and other indebtedness then in effect.

The terms of our credit facility and the indenture relating to our senior notes may restrict our current and future operations, which could adversely affect our ability to respond to changes in our business and to manage our operations.

Our credit facility and the indenture relating to our senior notes contain, and any future indebtedness of ours would likely contain, a number of restrictive covenants that impose significant operating and financial restrictions on us, including restrictions on our ability to, among other things:

• incur additional debt;

• pay dividends and make other restricted payments;

• create liens;

• make investments;

• engage in sales of assets and subsidiary stock;

• enter into sale-leaseback transactions;

• enter into transactions with affiliates;

• transfer all or substantially all of our assets or enter into merger or consolidation transactions; and

• make capital expenditures.

The credit facility also requires us to maintain certain financial ratios. A failure by us to comply with the covenants or financial ratios contained in the credit facility could result in an event of default under the facility which could adversely affect our ability to respond to changes in our business and manage our operations. In the event of any default under our credit facility, the lenders under our credit facility will not be required to lend any additional amounts to us. Our lenders also could elect to declare all amounts outstanding, to be due and payable, require us to apply all of our available cash to repay these amounts or prevent us from making debt service payments on our senior notes, any of which could result in an event of default under our senior notes. If the indebtedness under our credit facility or our senior notes were to be accelerated, there can be no assurance that our assets would be sufficient to repay this indebtedness in full.

If Communications is unable to distribute cash to us, we may be unable to satisfy our outstanding debt obligations.

Communications’ credit facility imposes restrictions on our subsidiaries’ ability to distribute cash to us. As a holding company, we are dependent on our subsidiaries, including primarily Communications, for our cash flow. If Communications is unable to distribute cash to us for any reason, including due to restrictions in the credit facility, we would be unable to pay dividends or possibly to satisfy our obligations under our debt instruments.

Sales of our common stock could adversely affect our stock price and could impair our future ability to raise capital.

Sales of a substantial number of shares of our common stock into the public market, or the perception that these sales could occur, could adversely affect our stock price and could impair our future ability to raise capital through an offering of our equity securities. As of September 30, 2004, we had 49,436,346 shares of common stock issued and we have reserved an additional 4,073,414 shares of common stock for issuance under our stock option plan and 2,497,690 shares of common stock for issuance upon the exercise of warrants. All of our outstanding shares of common stock, as well as the shares of common stock issuable upon exercise of outstanding stock options and warrants, are or will be freely tradable without restriction or further registration under the federal securities laws,

except to the extent they are held by one of our affiliates, as that term is defined in Rule 144 under the Securities Act.

ITEM 3 — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We use financial instruments, including fixed and variable rate debt, to finance our operations. The information below summarizes our market risks associated with debt obligations outstanding as of September 30, 2004 and December 31, 2003. The following table presents principal cash flows and related weighted average interest rates by fiscal year of maturity of our fixed rate debt as of September 30, 2004:


	Expected Maturity Date
	2004		2005		2006		2007		2008		Thereafter			Total
	(dollars in thousands)
Long-term obligations:
Fixed rate	$	—	$	—	$	—	$	—	$	—	$	200,000		$	200,000
Average interest rate		—		—		—		—		—		8.25	%		8.25	%

As of September 30, 2004 and December 31, 2003, we had $438.2 million and $439.6 million, respectively, of variable rate debt outstanding under our credit facility at a weighted average interest rate of 3.87% and 3.95%, respectively. A 1% increase in the interest rate on our variable rate debt would have increased interest expense by approximately $3.3 million, $4.0 million and $0.7 million in the nine months ended September 30, 2004, the eight months ended September 30, 2003 and the one month ended January 31, 2003, respectively.

In addition, as of September 30, 2004, we have an interest rate cap on $375.0 million of the variable rate debt outstanding under our credit facility, which caps our LIBOR risk at 7.0% through February 10, 2006. As of September 30, 2004, the carrying amount and fair value of this instrument was $0.004 million.

ITEM 4 — CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures.

We have conducted an evaluation, under the supervision of and participation by our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective to ensure that the information required to be filed in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms.

Changes in Internal Controls.

There were no significant changes that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II — OTHER INFORMATION

ITEM 1 — LEGAL PROCEEDINGS

On April 23, 2004, Winstar Communications, LLC and Winstar of New York, LLC (collectively, “Winstar”) filed a class action lawsuit in the United States District Court for the Southern District of New York against more than 800 owners and managers of commercial real estate properties that have entered into leases or other arrangements with Winstar. The defendants include real estate investment trusts, privately held commercial real estate companies, the Building Owners and Managers Association of New York (“BOMA”) and SpectraSite Building Group, Inc., one of our subsidiaries. The suit asserts claims for violations of federal and state antitrust law,

and federal communications law, and seeks an unspecified amount of monetary damages and specific performance. The claims are premised upon the allegations, among others, that the defendants, through BOMA and other rooftop managers including SpectraSite Building Group, Inc., conspired to fix rental prices of building access for telecommunications services by disseminating non-public pricing information among the defendants that stabilized building access rates for competitive telecommunications providers such as Winstar. Although the suit is in its early stage, we believe that it is without merit. On August 13, 2004, the defendants filed a motion to dismiss the action, which remains pending. While we are unable to predict the outcome of this suit, we do not expect it to have a material adverse effect on our business or financial condition.

ITEM 2 — UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On July 28, 2004, the Company announced that its Board of Directors authorized the repurchase of shares of the Company’s common stock up to an aggregate amount of $175.0 million. The share repurchase is subject to prevailing market conditions and other considerations. The Company will hold any repurchased shares as treasury shares. The table below sets forth information with respect to our repurchases of our common stock during the three months ended September 30, 2004.


					Total Number of		Maximum Number of
					Shares Purchased as		Shares that May Yet
					Part of Publicly		Be Purchased Under
	Total Number of		Average Price Paid		Announced Plans or		the Plans or
Period	Shares Purchased		Per Share (1)		Programs (2)		Programs (2)
Month #1 (7/1/04 – 7/31/04)		—	$	—		—		—
Month #2 (8/1/04 – 8/31/04)		305,000	$	43.10		305,000		3,601,535	(3)
Month #3 (9/1/04 – 9/30/04)		430,400	$	44.49		430,400		3,068,905	(4)

Total:		735,400	$	43.92		735,400		3,068,905	(4)

(1) Includes commission of $0.03 per share.

(2) The repurchase program is being effected by our management from time to time, depending on market conditions and other factors, through open market purchases or privately negotiated transactions. Our Board of Directors authorized us to engage one or more financial institutions to assist us with managing the repurchase of our shares of common stock under this repurchase program. The Company has selected a financial institution to manage the repurchase of the Company’s shares. This repurchase program has no expiration or termination date.

(3) Based on a closing price of SpectraSite common stock of $44.94 per share on August 31, 2004.

(4) Based on a closing price of SpectraSite common stock of $46.50 per share on September 30, 2004.

ITEM 5 — OTHER INFORMATION

Effective June 30, 2004, the Company expanded the size of its Board of Directors to ten members by adding six new members, five of whom are independent under the applicable rules. In connection with commencement of service on the Company’s Board of Directors, on July 28, 2004, each of the five new non-employee Directors received for nominal consideration 1,500 shares of restricted common stock of the Company for a total of 7,500 shares of restricted common stock. These shares were issued under the Company’s 2003 Equity Incentive Plan and are restricted until June 30, 2005, at which time they become fully vested. Accordingly, the Company will recognize an expense charge in the amount of $0.3 million over the restricted period.

Effective October 11, 2004, the Company reduced the size of its Board of Directors to eight members in connection with the resignations of two Directors who are affiliated with former significant stockholders of the Company. In connection with these resignations, the Company approved the acceleration of the remaining 8,000 unvested stock options beneficially owned by these members. The Company will recognize an expense charge in the amount of $0.3 million in 2004 as a result of these accelerated vesting. Six of the eight current members of the Company’s Board are independent under the applicable rules.

On November 1, 2004, the Company announced the hiring of Mark A. Slaven as the Company’s Chief Financial Officer. For information about the terms of Mr. Slaven’s employment, please refer to the Company’s Form 8-K filed on November 2, 2004.

ITEM 6 — EXHIBITS


Exhibit
Number		Description
2.1		Agreement to Sublease, dated as of August 25, 2000, by and among SBC Wireless, Inc. and certain of its affiliates, the Registrant, and Southern Towers, Inc. (the “SBC Agreement”). Incorporated by reference to exhibit no. 10.1 to the Registrant’s Form 8-K dated August 25, 2000 and filed August 31, 2000.

2.2		Amendment No. 1 to the SBC Agreement, dated December 14, 2000. Incorporated by reference to exhibit no. 2.8 to the registration statement on Form S-3 of the Registrant, file no. 333-45728.

2.3		Amendment No. 2 to the SBC Agreement, dated November 14, 2001. Incorporated by reference to exhibit no. 2.5 to the Registrant’s Form 10-K for the year ended December 31, 2001.

2.4		Amendment No. 3 to the SBC Agreement, dated January 31, 2002. Incorporated by reference to exhibit no. 2.6 to the Registrant’s Form 10-K for the year ended December 31, 2001.

2.5		Amendment No. 4 to the SBC Agreement, dated February 25, 2002. Incorporated by reference to exhibit no. 2.7 to the Registrant’s Form 10-K for the year ended December 31, 2001.

3.1		Third Amended and Restated Certificate of Incorporation of the Registrant. Incorporated by reference to exhibit no. 2.1 to the Registrant’s Form 8-K dated February 11, 2003.

3.2		Third Amended and Restated Bylaws of the Registrant. Incorporated by reference to exhibit no. 3.2 to the Registrant’s Form 10-K for the year ended December 31, 2003.

10.1		Employment Agreement dated as of November 1, 2004, by and between the Registrant and Mark A. Slaven. Incorporated by reference to exhibit no. 10.1 to the Registrant’s Form 8-K dated November 2, 2004.

10.2		Stock Option Agreement dated as of November 1, 2004, by and between the Registrant and Mark A. Slaven. Incorporated by reference to exhibit no. 10.2 to the Registrant’s Form 8-K dated November 2, 2004.

31.1*		Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* Filed herewith

EXHIBIT INDEX


Exhibit
Number		Description
2.1		Agreement to Sublease, dated as of August 25, 2000, by and among SBC Wireless, Inc. and certain of its affiliates, the Registrant, and Southern Towers, Inc. (the “SBC Agreement”). Incorporated by reference to exhibit no. 10.1 to the Registrant’s Form 8-K dated August 25, 2000 and filed August 31, 2000.

2.2		Amendment No. 1 to the SBC Agreement, dated December 14, 2000. Incorporated by reference to exhibit no. 2.8 to the registration statement on Form S-3 of the Registrant, file no. 333-45728.

2.3		Amendment No. 2 to the SBC Agreement, dated November 14, 2001. Incorporated by reference to exhibit no. 2.5 to the Registrant’s Form 10-K for the year ended December 31, 2001.

2.4		Amendment No. 3 to the SBC Agreement, dated January 31, 2002. Incorporated by reference to exhibit no. 2.6 to the Registrant’s Form 10-K for the year ended December 31, 2001.

2.5		Amendment No. 4 to the SBC Agreement, dated February 25, 2002. Incorporated by reference to exhibit no. 2.7 to the Registrant’s Form 10-K for the year ended December 31, 2001.

3.1		Third Amended and Restated Certificate of Incorporation of the Registrant. Incorporated by reference to exhibit no. 2.1 to the Registrant’s Form 8-K dated February 11, 2003.

3.2		Third Amended and Restated Bylaws of the Registrant. Incorporated by reference to exhibit no. 3.2 to the Registrant’s Form 10-K for the year ended December 31, 2003.

10.1		Employment Agreement dated as of November 1, 2004, by and between the Registrant and Mark A. Slaven, Incorporated by reference to exhibit no. 10.1 to the Registrant’s Form 8-K dated November 2, 2004.

10.2		Stock Option Agreement dated as of November 1, 2004, by and between the Registrant and Mark A. Slaven, Incorporated by reference to exhibit no. 10.2 to the Registrant’s Form 8-K dated November 2, 2004.

31.1*		Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

• Filed herewith


PART I — FINANCIAL INFORMATION
ITEM 1 — UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets at September 30, 2004 (unaudited; Reorganized Company) and December 31, 2003 (Reorganized Company)			3
Unaudited Condensed Consolidated Statements of Operations for the three months ended September 30, 2004 (Reorganized Company), the three months ended September 30, 2003 (Reorganized Company), the nine months ended September 30, 2004 (Reorganized Company), the eight months ended September 30, 2003 (Reorganized Company), and the one month ended January 31, 2003 (Predecessor Company)			4
Unaudited Consolidated Statement of Stockholders’ Equity for the nine months ended September 30, 2004 (Reorganized Company)			6
Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2004 (Reorganized Company), the eight months ended September 30, 2003 (Reorganized Company) and the one month ended January 31, 2003 (Predecessor Company)			7
Notes to the Unaudited Condensed Consolidated Financial Statements			9
ITEM 2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			29
ITEM 3 — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			57
ITEM 4 — CONTROLS AND PROCEDURES			57
PART II — OTHER INFORMATION
ITEM 1 — LEGAL PROCEEDINGS			57
ITEM 2 — UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			58
ITEM 5 — OTHER INFORMATION			59
ITEM 6 — EXHIBITS			59
SIGNATURES			60
EXHIBITS

*		Represents less than 10% of Total Consolidated Revenue

**		As of October 27, 2004, these two customers have merged.

•		dependence on demand for wireless communications and related infrastructure;

•		our ability to add customers on our towers;

•		market conditions;

•		consolidation in the wireless industry;

•		material adverse changes in economic conditions in the markets we serve;

•		dependence upon a small number of significant customers;

•		competition from others in the communications tower industry including the impact of technological developments;

•		future regulatory actions and conditions in our operating areas;

•		technological innovation;

•		the integration of our operations with those of towers or businesses we have acquired or may acquire in the future and the realization of the expected benefits;

•		disputes with our current and prospective customers and lessors;

•		our leveraged capital structure and capital requirements;

•		the need for additional financing to provide operating and growth capital; and

•		other risks and uncertainties as may be detailed from time to time in our public announcements and SEC filings.

•		it is the primary measure used by our management to evaluate the economic productivity of our operations, including the efficiency of our employees and the profitability associated with their performance, the realization of contract revenue under our long-term contracts, our ability to obtain and maintain our customers and our ability to operate our leasing and licensing business effectively;

•		it is widely used in the wireless tower industry to measure operating performance without regard to items such as depreciation and amortization, which can vary depending upon accounting methods and the book value of assets; and

•		we believe it helps investors meaningfully evaluate and compare the results of our operations from period to period by removing the impact of our capital structure (primarily interest charges from our outstanding debt) and asset base (primarily depreciation and amortization) from our operating results.

•		as a measurement of operating performance because it assists us in comparing our operating performance on a consistent basis as it removes the impact of our capital structure (primarily interest charges from our outstanding debt) and asset base (primarily depreciation and amortization) from our operating results;

•		in presentations to our Board of Directors to enable it to have the same measurement of operating performance used by management;

•		for planning purposes, including the preparation of our annual operating budget;

•		for compensation purposes, including the basis for incentive quarterly and annual bonuses for certain employees, including our sales force;

•		as a valuation measure in strategic analyses in connection with the purchase and sale of assets; and

•		with respect to compliance with our credit facility, which requires us to maintain certain financial ratios based on Annualized EBITDA (as defined in our credit agreement).

•		wireless service providers that own and operate their own towers and lease, or may in the future decide to lease, antenna space to other providers;

•		other independent tower operators; and

•		owners of non-tower antenna sites, including rooftops, water towers and other alternate structures.

•		recover under title insurance policies, the policy limits of which may be less than the purchase price of a particular tower;

•		in the absence of title insurance coverage, recover under title warranties given by tower sellers, which warranties often terminate after the expiration of a specific period, typically one to three years;

•		recover from landlords under title covenants contained in lease agreements; and

•		obtain so-called “non-disturbance agreements” from mortgagees and superior lienholders of the land under our towers.

•		increase our vulnerability to general adverse economic and industry conditions;

•		limit our ability to obtain additional financing;

•		require the dedication of a substantial portion of our cash flow from operations to the payment of principal of, and interest on, our indebtedness, reducing available cash flow to fund other projects;

•		limit our flexibility in planning for, or reacting to, changes in our business and the industry; and

•		place us at a competitive disadvantage relative to less leveraged competitors.

•		incur additional debt;

•		pay dividends and make other restricted payments;

•		create liens;

•		make investments;

•		engage in sales of assets and subsidiary stock;

•		enter into sale-leaseback transactions;

•		enter into transactions with affiliates;

•		transfer all or substantially all of our assets or enter into merger or consolidation transactions; and

•		make capital expenditures.

(1)		Includes commission of $0.03 per share.

(2)		The repurchase program is being effected by our management from time to time, depending on market conditions and other factors, through open market purchases or privately negotiated transactions. Our Board of Directors authorized us to engage one or more financial institutions to assist us with managing the repurchase of our shares of common stock under this repurchase program. The Company has selected a financial institution to manage the repurchase of the Company’s shares. This repurchase program has no expiration or termination date.

(3)		Based on a closing price of SpectraSite common stock of $44.94 per share on August 31, 2004.

(4)		Based on a closing price of SpectraSite common stock of $46.50 per share on September 30, 2004.


		SPECTRASITE, INC.

		/s/ STEPHEN H. CLARK

		Stephen H. Clark
		President and Chief Executive Officer

		/s/ MARK A. SLAVEN

		Mark A. Slaven
		Chief Financial Officer