##### 



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 1934For the quarterly period ended September 30, 2004[  ]
    
    TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
 ACT OF 1934For 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. 1




---



##### 



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




---



##### 



SPECTRASITE, INC. AND SUBSIDIARIES 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 Reorganized CompanySeptember 30, 2004
    
    December 31, 2003(unaudited)(dollars in thousands, except per share amounts)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    83,620
    
    
    $
    60,410Accounts receivable, net of allowance of $6,408 and $7,849,
respectively
    
    
    8,435
    
    
    
    7,880Prepaid expenses and other
    
    
    14,221
    
    
    
    11,606Assets held for sale
    
    
    
    
    
    
    5,737Total current assets
    
    
    106,276
    
    
    
    85,633Property and equipment, net
    
    
    1,197,790
    
    
    
    1,207,626Customer contracts, net
    
    
    153,059
    
    
    
    179,359Other assets
    
    
    41,179
    
    
    
    39,990Total assets
    
    $
    1,498,304
    
    
    $
    1,512,608LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    4,008
    
    
    $
    11,482Accrued and other expenses
    
    
    43,101
    
    
    
    40,994Deferred revenue
    
    
    52,146
    
    
    
    42,831Liabilities under SBC agreement
    
    
    
    
    
    
    49,528Liabilities held for sale
    
    
    
    
    
    
    2,903Total current liabilities
    
    
    99,255
    
    
    
    147,738Long-term portion of credit facility
    
    
    438,155
    
    
    
    439,555Senior notes
    
    
    200,000
    
    
    
    200,000Long-term deferred revenue
    
    
    18,549
    
    
    
    16,846Other long-term liabilities
    
    
    40,871
    
    
    
    38,736Total long-term liabilities
    
    
    697,575
    
    
    
    695,137Stockholders 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
    
    
    
    478Additional paid-in-capital
    
    
    712,692
    
    
    
    688,941Treasury 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
    
    
    
    669,733Total liabilities and stockholders equity
    
    $
    1,498,304
    
    
    $
    1,512,608
 See accompanying notes. 3




---



##### 



SPECTRASITE, INC. AND SUBSIDIARIES 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 Reorganized Company
    
    PredecessorCompanyThree Months
    
    Three Months
    
    Nine Months
    
    Eight Months
    
    One MonthEnded
    
    Ended
    
    Ended
    
    Ended
    
    EndedSeptember 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
    
    
    $
    25,626Operating Expenses:Costs of operations, excluding
depreciation, amortization and accretion
expenses
    
    
    26,837
    
    
    
    26,044
    
    
    
    78,628
    
    
    
    68,859
    
    
    
    8,901Selling, general and administrative expenses
    
    
    13,655
    
    
    
    12,717
    
    
    
    39,208
    
    
    
    33,027
    
    
    
    4,003Depreciation, amortization and accretion
expenses
    
    
    26,343
    
    
    
    25,393
    
    
    
    77,281
    
    
    
    67,404
    
    
    
    15,930Total operating expenses
    
    
    66,835
    
    
    
    64,154
    
    
    
    195,117
    
    
    
    169,290
    
    
    
    28,834Operating income (loss)
    
    
    24,773
    
    
    
    15,345
    
    
    
    68,492
    
    
    
    38,883
    
    
    
    (3,208
    )Other income (expense):Interest income
    
    
    427
    
    
    
    143
    
    
    
    956
    
    
    
    639
    
    
    
    137Interest expense
    
    
    (10,063
    )
    
    
    (12,563
    )
    
    
    (29,344
    )
    
    
    (40,428
    )
    
    
    (4,721
    )Gain on debt discharge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,034,764Other income (expense)
    
    
    27,620
    
    
    
    1,134
    
    
    
    25,522
    
    
    
    (1,936
    )
    
    
    (493
    )Total other income (expense)
    
    
    17,984
    
    
    
    (11,286
    )
    
    
    (2,866
    )
    
    
    (41,725
    )
    
    
    1,029,687Income (loss) from continuing operations
before income taxes
    
    
    42,757
    
    
    
    4,059
    
    
    
    65,626
    
    
    
    (2,842
    )
    
    
    1,026,479Income tax expense:Income tax  current
    
    
    375
    
    
    
    597
    
    
    
    1,086
    
    
    
    1,270
    
    
    
    5Income tax  deferred
    
    
    16,610
    
    
    
    
    
    
    
    24,829
    
    
    
    
    
    
    
    Total income tax expense
    
    
    16,985
    
    
    
    597
    
    
    
    25,915
    
    
    
    1,270
    
    
    
    5Income (loss) from continuing operations
    
    
    25,772
    
    
    
    3,462
    
    
    
    39,711
    
    
    
    (4,112
    )
    
    
    1,026,474Reorganization 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
    )
    
    
    357,892Discontinued 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
    )
    
    
    357,206Cumulative effect of change in accounting
principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,236
    )Net income (loss)
    
    $
    26,964
    
    
    $
    3,214
    
    
    $
    40,436
    
    
    $
    (6,052
    )
    
    $
    344,970Basic earnings per share:Income (loss) from continuing operations
    
    $
    0.53
    
    
    $
    0.07
    
    
    $
    0.82
    
    
    $
    (0.09
    )
    
    $
    6.66Reorganization 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
    )
    
    $
    2.24Diluted earnings per share:Income (loss) from continuing operations
    
    $
    0.49
    
    
    $
    0.07
    
    
    $
    0.76
    
    
    $
    (0.09
    )
    
    $
    6.66Reorganization 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
 4




---



##### 



Reorganized Company
    
    PredecessorCompanyThree Months
    
    Three Months
    
    Nine Months
    
    Eight Months
    
    One MonthEnded
    
    Ended
    
    Ended
    
    Ended
    
    EndedSeptember 30,
    
    September 30,
    
    September 30,
    
    September 30,
    
    January 31,2004
    
    2003
    
    2004
    
    2003
    
    2003(in thousands, except per share amounts)Weighted average common shares outstanding
(basic)
    
    
    48,827
    
    
    
    47,507
    
    
    
    48,376
    
    
    
    47,325
    
    
    
    154,014Weighted average common shares outstanding
(diluted)
    
    
    52,433
    
    
    
    51,617
    
    
    
    52,085
    
    
    
    47,325
    
    
    
    154,014
 See accompanying notes. 5




---



##### 



SPECTRASITE, INC. AND SUBSIDIARIES 
 UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY (DEFICIT)
 (dollars in thousands)
 Common Stock
    
    AdditionalPaid-in
    
    Treasury Stock
    
    Retained Earnings
    

TotalStockholdersShares
    
    Amount
    
    Capital
    
    Shares
    
    Cost
    
    (Accumulated Deficit)
    
    EquityBalance at December 31, 2003
    
    
    47,750,453
    
    
    $
    478
    
    
    $
    688,941
    
    
    
    
    
    
    
    
    
    
    $
    (19,686
    )
    
    $
    669,733Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40,436
    
    
    
    40,436Employee option and warrant exercises
    
    
    1,542,527
    
    
    
    15
    
    
    
    21,987
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,002Non-cash compensation charges
    
    
    
    
    
    
    
    
    
    
    261
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    261Restricted stock grants, net of $239
unearned compensation
    
    
    7,500
    
    
    
    
    
    
    
    79
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    79Reserve 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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,425Balance at September 30, 2004
    
    
    49,436,346
    
    
    $
    494
    
    
    $
    712,692
    
    
    
    735,400
    
    
    $
    (32,462
    )
    
    $
    20,750
    
    
    $
    701,474
 See accompanying notes. 6




---



##### 



SPECTRASITE, INC. AND SUBSIDIARIES 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Reorganized Company
    
    PredecessorCompanyNine Months
    
    Eight Months
    
    One MonthEnded
    
    Ended
    
    EndedSeptember 30,
    
    September 30,
    
    January 31,2004
    
    2003
    
    2003(in thousands)Operating activitiesNet income (loss)
    
    $
    40,436
    
    
    $
    (6,052
    )
    
    $
    344,970Adjustments to reconcile net income (loss) to net cash
provided by operating activities:Depreciation
    
    
    64,866
    
    
    
    56,330
    
    
    
    15,609Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    12,236Amortization of intangible assets
    
    
    10,218
    
    
    
    10,041
    
    
    
    252Amortization of debt issuance costs
    
    
    3,258
    
    
    
    3,480
    
    
    
    425Amortization of asset retirement obligation
    
    
    2,197
    
    
    
    1,756
    
    
    
    214Non-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
    
    
    
    
    
    
    
    
    
    
    644,688Changes in operating assets and liabilities, net of
acquisitions:Accounts receivable
    
    
    (55
    )
    
    
    1,666
    
    
    
    5,045Costs 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
    )
    
    
    13,549Other liabilities
    
    
    (18,188
    )
    
    
    13,497
    
    
    
    6,264Net cash provided by operating activities
    
    
    115,092
    
    
    
    67,422
    
    
    
    5,892Investing activitiesPurchases 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 activitiesProceeds 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
    
    
    
    80,961Cash and cash equivalents at end of period
    
    $
    83,620
    
    
    $
    55,850
    
    
    $
    73,232
 7




---



##### 



Reorganized Company
    
    PredecessorCompanyNine Months
    
    Eight Months
    
    One MonthEnded
    
    Ended
    
    EndedSeptember 30,
    
    September 30,
    
    January 31,2004
    
    2003
    
    2003(in thousands)Supplemental disclosures of cash flow information:Cash paid for interest
    
    $
    23,056
    
    
    $
    19,718
    
    
    $
    4,265Cash paid for income taxes
    
    
    2,246
    
    
    
    1,915
    
    
    
    5Tower acquisitions applied against liability under SBC
agreement
    
    
    18,478
    
    
    
    4,538
    
    
    
    Supplemental disclosures of non-cash investing and
financing activities:Common stock issued for deposits
    
    $
    
    
    
    $
    
    
    
    $
    408Interest capitalized
    
    
    602
    
    
    
    
    
    
    
    Capital lease obligations incurred related to property and
equipment, net
    
    
    209
    
    
    
    162
    
    
    
    
 See accompanying notes. 8




---



##### 



SPECTRASITE, INC. AND SUBSIDIARIES 
  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 9




---



##### 



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 10




---



##### 



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
    
    
    
    
    
    
    
    
    
    
    
    
    
    BalanceJanuary 1,
    
    
    
    
    
    Deferred Tax
    
    
    
    
    
    September 30,2004
    
    Additions
    
    Benefit Reduction
    
    Write-offs
    
    2004(in thousands)Customer contracts
    
    $
    190,929
    
    
    $
    5,551
    
    
    $
    (21,606
    )
    
    $
    (754
    )
    
    $
    174,120Accumulated 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). 11




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##### 



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. 12




---



##### 



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 ofJanuary 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: PredecessorReorganized Company
    
    CompanyThree Months
    
    Three Months
    
    Nine Months
    
    Eight Months
    
    One MonthEnded
    
    Ended
    
    Ended
    
    Ended
    
    EndedSeptember 30,
    
    September 30,
    
    September 30,
    
    September 30,
    
    January 31,2004
    
    2003
    
    2004
    
    2003
    
    2003(in thousands)Broadcast services revenues
    
    $
    
    
    
    $
    4,361
    
    
    $
    1,754
    
    
    $
    11,242
    
    
    $
    1,167
 Assets and liabilities held for sale consist of the following: ReorganizedCompanyDecember 31, 2003(in thousands)Accounts receivable, net
    
    $
    1,455Costs and estimated earnings in excess of billings
    
    
    242Inventories
    
    
    2,008Prepaid expenses and other
    
    
    243Property and equipment, net
    
    
    1,782Other assets
    
    
    7Assets held for sale
    
    $
    5,737Accounts payable
    
    $
    542Accrued and other expenses
    
    
    945Billings in excess of costs and estimated earnings
    
    
    1,362Other long-term liabilities
    
    
    54Liabilities 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. 13




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##### 



Significant Customers The Companys customer base consists of businesses operating in the
wireless telecommunications and broadcast industries. The Companys exposure to
credit risk consists primarily of unsecured accounts receivable from these
customers. Customers representing 10% or more of the Companys consolidated revenues
are presented below for the applicable periods: PredecessorReorganized Company
    
    CompanyThree Months
    
    Three Months
    
    Nine Months
    
    Eight Months
    
    One MonthEnded
    
    Ended
    
    Ended
    
    Ended
    
    EndedSeptember 30,
    
    September 30,
    
    September 30,
    
    September 30,
    
    January 31,2004
    
    2003
    
    2004
    
    2003
    
    2003(dollars in thousands)Significant Customer
RevenueNextel 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. 14




---



##### 



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 CompanyLiability
    
    
    
    
    
    Liabilityat
    
    
    
    
    
    atDecember 31,
    
    Additions/
    
    Cash
    
    September 30,2003
    
    (Reductions)
    
    Payments
    
    2004(in thousands)Accrued restructuring liabilities:Reduced tower acquisition and developmentEmployee severance
    
    $
    1,118
    
    
    $
    (107
    )
    
    $
    (892
    )
    
    $
    119Lease 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
    )
    
    
    826445
    
    
    
    896
    
    
    
    (515
    )
    
    
    826Total
    
    $
    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. 15




---



##### 



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
    
    PredecessorCompanyThree Months
    
    Three Months
    
    Nine Months
    
    Eight Months
    
    One MonthEnded
    
    Ended
    
    Ended
    
    Ended
    
    EndedSeptember 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
    
    
    
    154,014Effect 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
 16




---



##### 



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
    
    PredecessorCompanyThree Months
    
    Three Months
    
    Nine Months
    
    Eight Months
    
    One MonthEnded
    
    Ended
    
    Ended
    
    Ended
    
    EndedSeptember 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
    )
    
    $
    344,970Foreign 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 CompanyOne Month EndedJanuary 31, 2003(in thousands, except pershare amounts)Reported net income
    
    $
    344,970Stock-based employee compensation cost that
would have been included in net loss under the
fair value method
    
    
    (694
    )Adjusted net income
    
    $
    344,276Basic and diluted income per share:Reported net income
    
    $
    2.24Stock-based employee compensation cost that
would have been included in net loss under the
fair value method
    
    
    Adjusted net income
    
    $
    2.24
 17




---



##### 



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 CompanyThree Months
    
    Three Months
    
    Nine Months
    
    Eight MonthsEnded
    
    Ended
    
    Ended
    
    EndedSeptember 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. 18




---



##### 



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 19




---



##### 



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
    
    $
    200,00012 1/2% Senior Notes Due 2010
    
    
    200,0006 3/4% Senior Convertible Notes Due 2010
    
    
    200,00012% Senior Discount Notes Due 2008, net of discount
    
    
    208,47911 1/4% Senior Discount Notes Due 2009, net of discount
    
    
    502,64412 7/8% Senior Discount Notes Due 2010, net of discount
    
    
    418,580Accrued interest
    
    
    33,583Total 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
    
    
    
    
    
    ReorganizedCompany
    
    and Fresh Start
    
    
    
    
    
    CompanyJanuary 31, 2003
    
    Adjustments
    
    Ref.
    
    January 31, 2003(in thousands)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    73,442
    
    
    $
    (210
    )
    
    
    (1
    )
    
    $
    73,232Accounts receivable
    
    
    6,564
    
    
    
    
    
    
    
    
    
    
    
    6,564Prepaid expenses and other
    
    
    16,904
    
    
    
    (531
    )
    
    
    (2
    )
    
    
    16,373Assets held for sale
    
    
    24,518
    
    
    
    (3,050
    )
    
    
    (3
    )
    
    
    21,468Total current assets
    
    
    121,428
    
    
    
    (3,791
    )
    
    
    
    
    
    
    117,637Property and equipment, net
    
    
    2,293,522
    
    
    
    (954,160
    )
    
    
    (3
    )
    
    
    1,339,362Goodwill, net
    
    
    60,626
    
    
    
    (60,626
    )
    
    
    (2
    )
    
    
    Other assets
    
    
    101,999
    
    
    
    122,181
    
    
    
    (2),
    (4)
    
    
    224,180Total assets
    
    $
    2,577,575
    
    
    $
    (896,396
    )
    
    
    
    
    
    $
    1,681,179
 20




---



##### 



Predecessor
    

    Reorganization
    
    
    
    
    
    ReorganizedCompany
    
    and Fresh Start
    
    
    
    
    
    CompanyJanuary 31, 2003
    
    Adjustments
    
    Ref.
    
    January 31, 2003(in thousands)LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)Current liabilities:Accounts payable
    
    $
    9,508
    
    
    $
    16,184
    
    
    
    (1
    )
    
    $
    25,692Accrued and other expenses
    
    
    62,702
    
    
    
    7,796
    
    
    
    (1
    )
    
    
    70,498Current portion of liabilities under SBC contract
    
    
    
    
    
    
    30,251
    
    
    
    (5
    )
    
    
    30,251Current portion of credit facility
    
    
    2,244
    
    
    
    
    
    
    
    
    
    
    
    2,244Liabilities held for sale
    
    
    3,804
    
    
    
    
    
    
    
    
    
    
    
    3,804Total current liabilities
    
    
    78,258
    
    
    
    54,231
    
    
    
    
    
    
    
    132,489Long-term portion of credit facility
    
    
    780,711
    
    
    
    
    
    
    
    
    
    
    
    780,711Long-term portion of liabilities under SBC
contract
    
    
    
    
    
    
    30,251
    
    
    
    (5
    )
    
    
    30,251Other long-term liabilities
    
    
    51,998
    
    
    
    
    
    
    
    
    
    
    
    51,998Total long-term liabilities
    
    
    832,709
    
    
    
    30,251
    
    
    
    
    
    
    
    862,960Liabilities 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
    )
    
    
    472Additional paid-in-capital and warrants
    
    
    1,624,939
    
    
    
    (939,681
    )
    
    
    (4
    )
    
    
    685,258Accumulated other comprehensive income
    
    
    (684
    )
    
    
    684
    
    
    
    (6
    )
    
    
    Accumulated deficit
    
    
    (1,721,087
    )
    
    
    1,721,087
    
    
    
    (6
    )
    
    
    Total stockholders equity (deficit)
    
    
    (96,678
    )
    
    
    782,408
    
    
    
    
    
    
    
    685,730Total 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. 21




---



##### 



3. Property and Equipment Property and equipment consist of the following: Reorganized CompanySeptember 30,
    
    December 31,2004
    
    2003(in thousands)Towers
    
    $
    1,237,398
    
    
    $
    1,202,706Equipment
    
    
    25,539
    
    
    
    18,898Land
    
    
    19,242
    
    
    
    16,318Buildings
    
    
    25,775
    
    
    
    27,281Other
    
    
    11,077
    
    
    
    8,9011,319,031
    
    
    
    1,274,104Less accumulated depreciation
    
    
    (141,186
    )
    
    
    (77,580
    )1,177,845
    
    
    
    1,196,524Construction in progress
    
    
    19,945
    
    
    
    11,102Property 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. 22




---



##### 



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. 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. At each closing,
a portion of the purchase price of each tower was charged against the
liability. In the nine months ended September 30, 2004, the Company leased or
subleased 204 towers, for which it paid $53.6 million in cash. Of this amount,
$18.5 million was charged against the liability, $31.5 million was capitalized
as property and equipment and $3.6 million was recorded as customer contracts.
In the eight months ended September 30, 2003, the Company leased or subleased
59 towers, for which it paid $14.7 million in cash. Of this amount, $4.5
million was charged against the liability, and $10.2 million was capitalized as
property and equipment.
The Company did not lease or sublease any towers in the one month ended January
31, 2003. 23




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##### 



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. 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. 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 24




---



##### 



$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
    
    
    80,1702007
    
    
    357,9852008
    
    
    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. 25




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##### 



The
following table summarizes activity with respect to our credit
facility from January 1, 2004 through September 30, 2004: Amount OwedUndrawnMultipleDrawTerm Loan
    
    Term Loan
    
    Total
    
    RevolvingCredit FacilityCommitment(in thousands)Balance,
January 1, 2004
    
    $
    187,581
    
    
    $
    251,974
    
    
    $
    439,555
    
    
    $
    200,000Repayments
    
    
    (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
    
    
    $
    
    
    
    $
    91,608Adjusted EBITDA
    
    
    81,111
    
    
    
    5,203
    
    
    
    (7,578
    )
    
    
    78,736Assets
    
    
    1,301,392
    
    
    
    97,925
    
    
    
    98,987
    
    
    
    1,498,304Additions to property and equipment
    
    
    38,240
    
    
    
    974
    
    
    
    974
    
    
    
    40,188Three months ended September 30,
2003 (Reorganized Company)Revenues
    
    $
    73,805
    
    
    $
    5,694
    
    
    $
    
    
    
    $
    79,499Adjusted EBITDA
    
    
    46,636
    
    
    
    2,095
    
    
    
    (6,859
    )
    
    
    41,872
 26




---



##### 



Wireless
    
    Broadcast
    
    Other
    
    Total(in thousands)Assets
    
    
    1,342,517
    
    
    
    88,319
    
    
    
    96,635
    
    
    
    1,527,471Additions to property and equipment
    
    
    3,049
    
    
    
    760
    
    
    
    1,016
    
    
    
    4,825Nine months ended September 30,
2004 (Reorganized Company)Revenues
    
    $
    246,164
    
    
    $
    17,445
    
    
    $
    
    
    
    $
    263,609Adjusted EBITDA
    
    
    179,358
    
    
    
    14,872
    
    
    
    (22,935
    )
    
    
    171,295Assets
    
    
    1,301,392
    
    
    
    97,925
    
    
    
    98,987
    
    
    
    1,498,304Additions to property and equipment
    
    
    53,151
    
    
    
    3,258
    
    
    
    3,027
    
    
    
    59,436Eight months ended September 30,
2003 (Reorganized Company)Revenues
    
    $
    193,246
    
    
    $
    14,927
    
    
    $
    
    
    
    $
    208,173Adjusted EBITDA
    
    
    112,999
    
    
    
    9,539
    
    
    
    (18,187
    )
    
    
    104,351Assets
    
    
    1,342,517
    
    
    
    88,319
    
    
    
    96,635
    
    
    
    1,527,471Additions to property and equipment
    
    
    14,665
    
    
    
    2,286
    
    
    
    2,475
    
    
    
    19,426One month ended January 31, 2003
(Predecessor Company)Revenues
    
    $
    23,855
    
    
    $
    1,771
    
    
    $
    
    
    
    $
    25,626Adjusted EBITDA
    
    
    12,586
    
    
    
    1,420
    
    
    
    (1,777
    )
    
    
    12,229Assets
    
    
    1,407,710
    
    
    
    155,795
    
    
    
    117,674
    
    
    
    1,681,179Additions 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
    
    PredecessorCompanyThree Months
    
    Three Months
    
    Nine Months
    
    Eight Months
    
    One MonthEnded
    
    Ended
    
    Ended
    
    Ended
    
    EndedSeptember 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
    
    
    $
    73,232Debt issuance costs
    
    
    15,367
    
    
    
    17,929
    
    
    
    15,367
    
    
    
    17,929
    
    
    
    22,974Assets held for sale
    
    
    
    
    
    
    22,856
    
    
    
    
    
    
    
    22,856
    
    
    
    21,468Total assets
    
    $
    98,987
    
    
    $
    96,635
    
    
    $
    98,987
    
    
    $
    96,635
    
    
    $
    117,674Additions to
property and
equipment:Corporate additions
to property and
equipment
    
    $
    974
    
    
    $
    750
    
    
    $
    3,027
    
    
    $
    1,657
    
    
    $
    1,610Additions to
property and
equipment related
to assets held for
sale
    
    
    
    
    
    
    266
    
    
    
    
    
    
    
    818
    
    
    
    9Total additions to
property and
equipment
    
    $
    974
    
    
    $
    1,016
    
    
    $
    3,027
    
    
    $
    2,475
    
    
    $
    1,619
 27




---



##### 



A reconciliation of income (loss) from continuing operations before income
taxes is as follows: Reorganized Company
    
    PredecessorCompanyThree Months
    
    Three Months
    
    Nine Months
    
    Eight Months
    
    One MonthEnded
    
    Ended
    
    Ended
    
    Ended
    
    EndedSeptember 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
    )
    
    $
    1,026,479Add: Depreciation,
amortization and
accretion expenses
    
    
    26,343
    
    
    
    25,393
    
    
    
    77,281
    
    
    
    67,404
    
    
    
    15,930Less: Interest income
    
    
    (427
    )
    
    
    (143
    )
    
    
    (956
    )
    
    
    (639
    )
    
    
    (137
    )Add: Interest expense
    
    
    10,063
    
    
    
    12,563
    
    
    
    29,344
    
    
    
    40,428
    
    
    
    4,721Less: 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 28




---



##### 



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. 29




---



##### 



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, 30




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##### 



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 31




---



##### 



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
    
    PredecessorCompany
    
    CompanyEight Months
    
    One MonthEnded
    
    EndedSeptember 30,
    
    January 31,2003
    
    2003(dollars in thousands)Revenues attributed to 545 SBC Towers
    
    $
    387
    
    
    $
    1,202Total Revenues
    
    
    208,173
    
    
    
    25,626Percent of Total Revenues
    
    
    0.2
    %
    
    
    4.7
    %Costs of Operations (excluding
depreciation, amortization and
accretion expenses)
    
    $
    200
    
    
    $
    465Total Cost of Operations (excluding
depreciation, amortization and
accretion expenses)
    
    
    68,859
    
    
    
    8,901Percent 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. 32




---



##### 



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 CompanyThree Months
    
    Three MonthsEnded
    
    EndedSeptember 30,
    
    September 30,2004
    
    2003(dollars in thousands)Revenues:Wireless
    
    $
    85,575
    
    
    $
    73,805Broadcast
    
    
    6,033
    
    
    
    5,694
 33




---



##### 



Reorganized CompanyThree Months
    
    Three MonthsEnded
    
    EndedSeptember 30,
    
    September 30,2004
    
    2003(dollars in thousands)Total revenues
    
    
    91,608
    
    
    
    79,499Operating expenses:Cost of operations, excluding depreciation, amortization and accretion
expenses:Wireless
    
    
    26,248
    
    
    
    25,589Broadcast
    
    
    589
    
    
    
    455Total cost of operations, excluding depreciation, amortization
and accretion expenses
    
    
    26,837
    
    
    
    26,044Selling, general and administrative expenses:Wireless
    
    
    5,646
    
    
    
    6,296Broadcast
    
    
    241
    
    
    
    693Other
    
    
    7,768
    
    
    
    5,728Total selling, general and administrative expenses
    
    
    13,655
    
    
    
    12,717Depreciation, amortization and accretion expenses:Wireless
    
    
    24,337
    
    
    
    24,555Broadcast
    
    
    2,006
    
    
    
    838Total depreciation, amortization and accretion expenses
    
    
    26,343
    
    
    
    25,393Total operating expenses
    
    
    66,835
    
    
    
    64,154Operating income
    
    
    24,773
    
    
    
    15,345Other income (expense):Interest income
    
    
    427
    
    
    
    143Interest expense
    
    
    (10,063
    )
    
    
    (12,563
    )Other income
    
    
    27,620
    
    
    
    1,134Total other income (expense)
    
    
    17,984
    
    
    
    (11,286
    )Income from continuing operations before income taxes
    
    
    42,757
    
    
    
    4,059Income tax expense:Income tax  current
    
    
    375
    
    
    
    597Income tax  deferred
    
    
    16,610
    
    
    
    Total Income tax expense
    
    
    16,985
    
    
    
    597Income from continuing operations
    
    
    25,772
    
    
    
    3,462Discontinued 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
    
    
    $
    3,214Adjusted EBITDA:Wireless
    
    
    81,111
    
    
    
    46,636Broadcast
    
    
    5,203
    
    
    
    2,095Other: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. 34




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##### 



Customers representing 10% or more of the Companys consolidated revenues
are presented below for all applicable periods: Reorganized CompanyThree Months
    
    Three MonthsEnded
    
    EndedSeptember 30,
    
    September 30,2004
    
    2003(dollars in thousands)Significant Customer RevenueNextel 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. 35




---



##### 



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. 36




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##### 



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
    
    PredecessorCompanyNine Months
    
    Eight Months
    
    One MonthEnded
    
    Ended
    
    EndedSeptember 30,
    
    September 30,
    
    January 31,2004
    
    2003
    
    2003(dollars in thousands)Revenues:Wireless
    
    $
    246,164
    
    
    $
    193,246
    
    
    $
    23,855Broadcast
    
    
    17,445
    
    
    
    14,927
    
    
    
    1,771Total revenues
    
    
    263,609
    
    
    
    208,173
    
    
    
    25,626Operating expenses:Cost of operations, excluding depreciation,
amortization and accretion expenses:Wireless
    
    
    76,771
    
    
    
    67,435
    
    
    
    8,657Broadcast
    
    
    1,857
    
    
    
    1,424
    
    
    
    244Total cost of operations, excluding
depreciation, amortization and accretion
expenses
    
    
    78,628
    
    
    
    68,859
    
    
    
    8,901Selling, general and administrative expenses:Wireless
    
    
    16,941
    
    
    
    15,556
    
    
    
    2,119Broadcast
    
    
    716
    
    
    
    1,513
    
    
    
    107Other
    
    
    21,551
    
    
    
    15,958
    
    
    
    1,777Total selling, general and administrative expenses
    
    
    39,208
    
    
    
    33,027
    
    
    
    4,003Depreciation, amortization and accretion expenses:Wireless
    
    
    73,423
    
    
    
    64,733
    
    
    
    15,516Broadcast
    
    
    3,858
    
    
    
    2,671
    
    
    
    414Total depreciation, amortization and accretion
expenses
    
    
    77,281
    
    
    
    67,404
    
    
    
    15,930Total operating expenses
    
    $
    195,117
    
    
    $
    169,290
    
    
    $
    28,834Operating income (loss)
    
    $
    68,492
    
    
    $
    38,883
    
    
    $
    (3,208
    )Other income (expense):Interest income
    
    $
    956
    
    
    $
    639
    
    
    $
    137Interest expense
    
    
    (29,344
    )
    
    
    (40,428
    )
    
    
    (4,721
    )Gain on debt discharge
    
    
    
    
    
    
    
    
    
    
    1,034,764Other income (expense)
    
    
    25,522
    
    
    
    (1,936
    )
    
    
    (493
    )Total other income (expense)
    
    $
    (2,866
    )
    
    $
    (41,725
    )
    
    $
    1,029,687Income (loss) from continuing operations before income
Taxes
    
    $
    65,626
    
    
    $
    (2,842
    )
    
    $
    1,026,479Income tax expense:Income tax  current
    
    
    1,086
    
    
    
    1,270
    
    
    
    5Income tax  deferred
    
    
    24,829
    
    
    
    
    
    
    
    Total Income tax expense
    
    
    25,915
    
    
    
    1,270
    
    
    
    5Income (loss) from continuing operations
    
    
    39,711
    
    
    
    (4,112
    )
    
    
    1,026,474
 37




---



##### 



Reorganized Company
    
    PredecessorCompanyNine Months
    
    Eight Months
    
    One MonthEnded
    
    Ended
    
    EndedSeptember 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
    )
    
    $
    357,892Discontinued 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
    )
    
    $
    357,206Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    (12,236
    )Net income (loss)
    
    $
    40,436
    
    
    $
    (6,052
    )
    
    $
    344,970Adjusted EBITDA:Wireless
    
    
    179,358
    
    
    
    112,999
    
    
    
    12,586Broadcast
    
    
    14,872
    
    
    
    9,539
    
    
    
    1,420Other: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
    
    PredecessorCompanyNine Months
    
    Eight Months
    
    One MonthEnded
    
    Ended
    
    EndedSeptember 30,
    
    September 30,
    
    January 31,2004
    
    2003
    
    2003(dollars in thousands)Significant Customer RevenueNextel 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. 38




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##### 



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 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 39




---



##### 



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 40




---



##### 



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. 41




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##### 



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. 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%. 42




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##### 



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. 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. 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 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. 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. 43




---



##### 



The following table summarizes activity with respect to our credit
facility from January 1, 2004 through September 30, 2004: Amount Owed
    
    UndrawnMultiple
    
    
    
    
    
    
    
    
    
    RevolvingDraw
    
    
    
    
    
    
    
    
    
    Credit FacilityTerm Loan
    
    Term Loan
    
    Total
    
    Commitment(in thousands)Balance, January 1, 2004
    
    $
    187,581
    
    
    $
    251,974
    
    
    $
    439,555
    
    
    $
    200,000Repayments
    
    
    (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 PeriodContractual
    
    
    
    
    
    Less thanObligations
    
    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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    200,000Capital Lease Payments
    
    
    997
    
    
    
    469
    
    
    
    528
    
    
    
    
    
    
    
    Operating Leases Payments
    
    
    327,192
    
    
    
    65,730
    
    
    
    97,714
    
    
    
    57,136
    
    
    
    106,612Asset Retirement Obligations
    
    
    40,188
    
    
    
    188
    
    
    
    1,428
    
    
    
    1,974
    
    
    
    36,598Total Contractual Cash Obligations
    
    $
    1,006,532
    
    
    $
    66,387
    
    
    $
    179,840
    
    
    $
    417,095
    
    
    $
    343,210
 44




---



##### 



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; 45




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
    
    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
    
    PredecessorCompanyThree Months
    
    Three Months
    
    Nine Months
    
    Eight Months
    
    One MonthEnded
    
    Ended
    
    Ended
    
    Ended
    
    EndedSeptember 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
    )
    
    $
    344,970Depreciation,
amortization and
accretion expenses
    
    
    26,343
    
    
    
    25,393
    
    
    
    77,281
    
    
    
    67,404
    
    
    
    15,930Interest income
    
    
    (427
    )
    
    
    (143
    )
    
    
    (956
    )
    
    
    (639
    )
    
    
    (137
    )Interest expense
    
    
    10,063
    
    
    
    12,563
    
    
    
    29,344
    
    
    
    40,428
    
    
    
    4,721Gain on debt discharge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,034,764
    )Income tax expense
    
    
    16,985
    
    
    
    597
    
    
    
    25,915
    
    
    
    1,270
    
    
    
    5Reorganization items:Adjust accounts to
fair value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    644,688Professional and
other fees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,894Loss from
operations of
discontinued segment,
net of income tax
expense
    
    
    
    
    
    
    248
    
    
    
    124
    
    
    
    1,344
    
    
    
    686Loss (income) on
disposal of
discontinued segment
    
    
    (1,192
    )
    
    
    
    
    
    
    (849
    )
    
    
    596
    
    
    
    Cumulative effect of
change in accounting
principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,236Adjusted 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 46




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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
    
    PredecessorCompanyThree Months
    
    Three Months
    
    Nine Months
    
    Eight Months
    
    One MonthEnded
    
    Ended
    
    Ended
    
    Ended
    
    EndedSeptember 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
    
    
    $
    5,892Less: 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
    
    PredecessorCompanyThree Months
    
    Three Months
    
    Nine Months
    
    Eight Months
    
    One MonthEnded
    
    Ended
    
    Ended
    
    Ended
    
    EndedSeptember 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 47




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##### 



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 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. 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, 48




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##### 



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 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. 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 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 49




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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. 50




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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. 51




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##### 



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. 52




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##### 



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 53




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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, 54




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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. 55




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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, 56




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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 Date2004
    
    2005
    
    2006
    
    2007
    
    2008
    
    Thereafter
    
    Total(dollars in thousands)Long-term obligations:Fixed rate
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    200,000
    
    
    $
    200,000Average 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, 57




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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 ofShares Purchased as
    
    Shares that May YetPart of Publicly
    
    Be Purchased UnderTotal Number of
    
    Average Price Paid
    
    Announced Plans or
    
    the Plans orPeriod
    
    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. 58




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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 ExhibitNumber
    
    Description2.1
    
    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 59




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SIGNATURES Pursuant to the requirements of the Securities Exchange Act of the 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. SPECTRASITE, INC./s/ STEPHEN H. CLARKStephen H. ClarkPresident and Chief Executive Officer/s/ MARK A. SLAVENMark A. SlavenChief Financial Officer
 Date: November 3, 2004 60




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EXHIBIT INDEX ExhibitNumber
    
    Description2.1
    
    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 61