##### 



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 March 31, 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(State or jurisdiction of
incorporation or organization)
    
    4899(Primary Standard Industrial
Classification Code Number)
    
    56-2027322(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 April 15, 2004, the registrant had only one outstanding class of common
stock, of which there were 48,279,518 shares outstanding.




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##### 



INDEX PART I  FINANCIAL INFORMATIONITEM 1  UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTSCondensed Consolidated Balance Sheets at March 31, 2004 (unaudited; Reorganized Company) and December 31, 2003 (Reorganized Company)
    
    
    3Unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 2004 (Reorganized Company), the two months ended March 31, 2003 (Reorganized
Company), and the one month ended January 31, 2003 (Predecessor Company)
    
    
    4Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2004 (Reorganized Company), the two months ended March 31, 2003 (Reorganized
Company) and the one month ended January 31, 2003 (Predecessor Company)
    
    
    5Notes to the Unaudited Condensed Consolidated Financial Statements
    
    
    6ITEM 2  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    22ITEM 3  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    44ITEM 4  CONTROLS AND PROCEDURES
    
    
    44PART II  OTHER INFORMATION
    
    
    44ITEM 1  LEGAL PROCEEDINGS
    
    
    44ITEM 2  CHANGES IN SECURITIES AND USE OF PROCEEDS
    
    
    44ITEM 3  DEFAULTS UPON SENIOR SECURITIES
    
    
    44ITEM 4  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    44ITEM 5  OTHER INFORMATION
    
    
    45ITEM 6  EXHIBITS AND REPORTS ON FORM 8-K
    
    
    45SIGNATURES
    
    
    47EXHIBITS
 2




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##### 



SPECTRASITE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
At March 31, 2004 and December 31, 2003 Reorganized
    
    ReorganizedCompany
    
    CompanyMarch 31, 2004
    
    December 31, 2003(unaudited)(dollars in thousands)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    84,329
    
    
    $
    60,410Accounts receivable, net of allowance of $6,918 and $7,849,
respectively
    
    
    9,067
    
    
    
    7,880Prepaid expenses and other
    
    
    14,492
    
    
    
    11,606Assets held for sale
    
    
    
    
    
    
    5,737Total current assets
    
    
    107,888
    
    
    
    85,633Property and equipment, net
    
    
    1,191,115
    
    
    
    1,207,626Customer contracts, net
    
    
    177,551
    
    
    
    179,359Other assets
    
    
    38,718
    
    
    
    39,990Total assets
    
    $
    1,515,272
    
    
    $
    1,512,608LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

    
    $
    8,657
    
    
    $
    11,482Accrued and other expenses
    
    
    81,010
    
    
    
    83,825Liabilities under SBC agreement
    
    
    48,721
    
    
    
    49,528Liabilities held for sale
    
    
    
    
    
    
    2,903Total current liabilities
    
    
    138,388
    
    
    
    147,738Long-term portion of credit facility
    
    
    439,155
    
    
    
    439,555Senior notes
    
    
    200,000
    
    
    
    200,000Other long-term liabilities
    
    
    56,056
    
    
    
    55,582Total long-term liabilities
    
    
    695,211
    
    
    
    695,137Stockholders equity:Common stock, $0.01 par value, 250,000,000 shares authorized,
48,216,194 and 47,750,453 issued and outstanding at March 31,
2004 and December 31, 2003, respectively
    
    
    482
    
    
    
    478Additional paid-in-capital
    
    
    693,747
    
    
    
    688,941Accumulated deficit
    
    
    (12,556
    )
    
    
    (19,686
    )Total stockholders equity
    
    
    681,673
    
    
    
    669,733Total liabilities and stockholders equity
    
    $
    1,515,272
    
    
    $
    1,512,608
 See accompanying notes. 3




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##### 



SPECTRASITE, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS Reorganized
    
    Reorganized
    
    PredecessorCompany
    
    Company
    
    CompanyThree Months
    
    Two Months
    
    One MonthEnded
    
    Ended
    
    EndedMarch 31,
    
    March 31,
    
    January 31,2004
    
    2003
    
    2003(in thousands, except per share amounts)Revenues
    
    $
    84,590
    
    
    $
    51,108
    
    
    $
    25,626Operating expenses:Costs of operations, excluding depreciation,
amortization and accretion expenses
    
    
    25,743
    
    
    
    17,080
    
    
    
    8,901Selling, general and administrative expenses
    
    
    12,042
    
    
    
    8,231
    
    
    
    4,003Depreciation, amortization and accretion expenses
    
    
    25,416
    
    
    
    16,652
    
    
    
    15,930Total operating expenses
    
    
    63,201
    
    
    
    41,963
    
    
    
    28,834Operating income (loss)
    
    
    21,389
    
    
    
    9,145
    
    
    
    (3,208
    )Other income (expense):Interest income
    
    
    214
    
    
    
    217
    
    
    
    137Interest expense
    
    
    (9,616
    )
    
    
    (9,261
    )
    
    
    (4,721
    )Gain on debt discharge
    
    
    
    
    
    
    
    
    
    
    1,034,764Other income (expense)
    
    
    (1,584
    )
    
    
    (1,229
    )
    
    
    (493
    )Total other income (expense)
    
    
    (10,986
    )
    
    
    (10,273
    )
    
    
    1,029,687Income (loss) from continuing operations
before income taxes
    
    
    10,403
    
    
    
    (1,128
    )
    
    
    1,026,479Income tax expense
    
    
    2,806
    
    
    
    578
    
    
    
    5Income (loss) from continuing operations
    
    
    7,597
    
    
    
    (1,706
    )
    
    
    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
    
    
    7,597
    
    
    
    (1,706
    )
    
    
    357,892Discontinued operations:Income (loss) from operations of discontinued broadcast services
division, net of income tax expense
    
    
    (124
    )
    
    
    14
    
    
    
    (686
    )Loss on disposal of discontinued broadcast services
division, net of income tax expense
    
    
    (343
    )
    
    
    
    
    
    
    Income (loss) before cumulative effect of
change in accounting principle
    
    
    7,130
    
    
    
    (1,692
    )
    
    
    357,206Cumulative effect of change in accounting
principle (Note 4)
    
    
    
    
    
    
    
    
    
    
    (12,236
    )Net income (loss)
    
    $
    7,130
    
    
    $
    (1,692
    )
    
    $
    344,970Basic earnings per share:Income (loss) from continuing operations
    
    $
    0.16
    
    
    $
    (0.04
    )
    
    $
    6.66Reorganization items
    
    
    
    
    
    
    
    
    
    
    (4.34
    )Discontinued operations
    
    
    (0.01
    )
    
    
    
    
    
    
    Cumulative effect of change in accounting
principle
    
    
    
    
    
    
    
    
    
    
    (0.08
    )Net income (loss)
    
    $
    0.15
    
    
    $
    (0.04
    )
    
    $
    2.24Diluted earnings per share:Income (loss) from continuing operations
    
    $
    0.15
    
    
    $
    (0.04
    )
    
    $
    6.66Reorganization items
    
    
    
    
    
    
    
    
    
    
    (4.34
    )Discontinued operations
    
    
    (0.01
    )
    
    
    
    
    
    
    Cumulative effect of change in accounting
principle
    
    
    
    
    
    
    
    
    
    
    (0.08
    )Net income (loss)
    
    $
    0.14
    
    
    $
    (0.04
    )
    
    $
    2.24Weighted average common shares outstanding
(basic)
    
    
    47,880
    
    
    
    47,174
    
    
    
    154,014Weighted average common shares outstanding
(diluted)
    
    
    52,368
    
    
    
    47,174
    
    
    
    154,014
 See accompanying notes. 4




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##### 



SPECTRASITE, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Reorganized
    
    Reorganized
    
    PredecessorCompany
    
    Company
    
    CompanyThree Months
    
    Two Months
    
    One MonthEnded
    
    Ended
    
    EndedMarch 31, 2004
    
    March 31, 2003
    
    January 31, 2003(in thousands)Operating activitiesNet income (loss)
    
    $
    7,130
    
    
    $
    (1,692
    )
    
    $
    344,970Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:Depreciation
    
    
    20,866
    
    
    
    13,889
    
    
    
    15,609Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    12,236Amortization of intangible assets
    
    
    3,855
    
    
    
    2,509
    
    
    
    252Amortization of debt issuance costs
    
    
    1,067
    
    
    
    790
    
    
    
    425Amortization of asset retirement obligation
    
    
    695
    
    
    
    429
    
    
    
    214Write-off of debt issuance costs
    
    
    7
    
    
    
    1,614
    
    
    
    (Gain) loss on disposal of assets
    
    
    175
    
    
    
    1,203
    
    
    
    (84
    )Write-off of customer contracts
    
    
    567
    
    
    
    
    
    
    
    Loss on disposal of discontinued operations
    
    
    343
    
    
    
    
    
    
    
    Deferred income taxes
    
    
    2,469
    
    
    
    
    
    
    
    Gain on debt discharge
    
    
    
    
    
    
    
    
    
    
    (1,034,764
    )Adjust accounts to fair value
    
    
    
    
    
    
    
    
    
    
    644,688Changes in operating assets and liabilities, net of
acquisitions:Accounts receivable
    
    
    (687
    )
    
    
    1,488
    
    
    
    5,045Costs and estimated earnings in excess of
billings, net
    
    
    
    
    
    
    (944
    )
    
    
    (272
    )Inventories
    
    
    
    
    
    
    184
    
    
    
    (2
    )Prepaid expenses and other
    
    
    (2,782
    )
    
    
    (1,003
    )
    
    
    (2,238
    )Accounts payable
    
    
    (2,822
    )
    
    
    (6,170
    )
    
    
    13,549Other liabilities
    
    
    (3,043
    )
    
    
    (370
    )
    
    
    6,264Net cash provided by operating activities
    
    
    27,840
    
    
    
    11,927
    
    
    
    5,892Investing activitiesPurchases of property and equipment
    
    
    (6,309
    )
    
    
    (2,255
    )
    
    
    (2,737
    )Acquisitions of towers
    
    
    (1,671
    )
    
    
    
    
    
    
    Disposal of discontinued operations, net of cash sold
    
    
    (551
    )
    
    
    
    
    
    
    Proceeds from the sale of assets
    
    
    714
    
    
    
    81,128
    
    
    
    Net cash provided by (used in) investing activities
    
    
    (7,817
    )
    
    
    78,873
    
    
    
    (2,737
    )Financing activitiesProceeds from issuance of common stock
    
    
    4,506
    
    
    
    
    
    
    
    Repayments of debt and capital leases
    
    
    (522
    )
    
    
    (76,128
    )
    
    
    (10,884
    )Repayments of executive notes
    
    
    304
    
    
    
    
    
    
    
    Debt issuance costs
    
    
    (392
    )
    
    
    
    
    
    
    Net cash provided by (used in) financing activities
    
    
    3,896
    
    
    
    (76,128
    )
    
    
    (10,884
    )Net increase (decrease) in cash and cash equivalents
    
    
    23,919
    
    
    
    14,672
    
    
    
    (7,729
    )Cash and cash equivalents at beginning of period
    
    
    60,410
    
    
    
    73,232
    
    
    
    80,961Cash and cash equivalents at end of period
    
    $
    84,329
    
    
    $
    87,904
    
    
    $
    73,232Supplemental disclosures of cash flow information:Cash paid for interest
    
    $
    5,202
    
    
    $
    3,263
    
    
    $
    4,265Cash paid for income taxes
    
    
    1,245
    
    
    
    602
    
    
    
    5Supplemental disclosures of non-cash investing
and financing activities:Common stock issued for deposits
    
    $
    
    
    
    $
    
    
    
    $
    408Tower acquisitions applied against liability under SBC
contract
    
    
    639
    
    
    
    
    
    
    
    Interest capitalized
    
    
    155
    
    
    
    
    
    
    
    Capital lease obligations incurred (terminated) related to
property and equipment
    
    
    (95
    )
    
    
    68
    
    
    
    
 See accompanying notes. 5




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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. Description of Business, Basis of Presentation and Significant Accounting Policies SpectraSite, Inc. (SpectraSite), formerly known as SpectraSite Holdings,
Inc., and its wholly owned subsidiaries (collectively referred to as the
Company) are engaged in providing services to companies operating in the
telecommunications and broadcast industries, including leasing and licensing
antenna sites on multi-tenant towers, the licensing of distributed antenna
systems within buildings, and managing, leasing and licensing rooftop
telecommunications access on commercial real estate in the United States. Basis of Presentation The accompanying consolidated financial statements include the accounts of
SpectraSite and its subsidiaries. All significant intercompany transactions and
balances have been eliminated in consolidation. As discussed in this Note under
Assets Held for Sale and Discontinued Operations, on March 1, 2004, the Company
sold its broadcast services division. The assets and liabilities of that
division as of December 31, 2003 have been classified as held-for-sale in the
accompanying balance sheets. In accordance with AICPA Statement of Position 90-7 Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code(SOP 90-7), the Company
adopted fresh start accounting as of January 31, 2003, and the Companys
emergence from chapter 11 resulted in a new reporting entity. Under fresh start
accounting, the reorganization value of the entity is allocated to the entitys
assets based on fair values, and liabilities are stated at the present value of
amounts to be paid determined using appropriate current interest rates. The
effective date is considered to be the close of business on January 31, 2003
for financial reporting purposes. The periods presented prior to January 31,
2003 have been designated Predecessor Company and the periods subsequent to
January 31, 2003 have been designated Reorganized Company. As a result of the
implementation of fresh start accounting, the financial statements of the
Company after the effective date are not comparable to the Companys financial
statements for prior periods. See Note 2 for a presentation of the unaudited pro forma balance sheet
illustrating the effect of the Companys Plan of Reorganization and the effect
of implementing certain fresh start accounting adjustments. Use of Estimates The preparation of financial statements in conformity with generally
accepted accounting principles in the United States requires management to make
estimates and assumptions that affect the amounts reported in the unaudited
condensed consolidated financial statements and accompanying notes. Actual
results could differ from those estimates. Significant estimates that are
susceptible to change include the Companys estimate of the allowance for
uncollectible accounts and the fair value of long-lived assets. Cash and Cash Equivalents The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. Revenue Recognition Revenues from leasing and licensing activities are recognized when earned
based on lease or license agreements. Rate increases based on fixed escalation
clauses that are included in certain lease or license agreements are recognized
on a straight-line basis over the term of the lease or license. Revenues from
fees, such as structural analysis fees and site inspection fees, are recognized
upon delivery of the related product or service. Additionally, the Company
generates revenues related to the management of sites on rooftops. Under each
site management agreement, the Company is entitled to a fee based on a
percentage of the gross revenue derived from the rooftop site subject to the
agreement. The Company recognizes this fee as revenue when earned. 6




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##### 



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 us 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 $6.9 million and $7.8 million
as of March 31, 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).
Unrealized holding gains (losses) related to these securities were $0.1 million
and ($0.2 million) for the two months ended March 31, 2003 and the one month
ended January 31, 2003, respectively. In 2003, the Company sold its
available-for-sale securities. As of March 31, 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 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. 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. Approximately $0.2 million of interest was
capitalized into the cost of property and equipment during the three months
ended March 31, 2004. No interest was capitalized into the cost of property
and equipment during the two months ended March 31, 2003 or the one month ended
January 31, 2003. Depreciation on property and equipment excluding towers is
computed using the straight-line method over the estimated useful lives of the
assets ranging from three to fifteen years. Depreciation on towers is computed
using the straight-line method over the estimated useful lives of 15 years for
wireless towers and 30 years for broadcast towers. Amortization of assets
recorded under capital leases is included in depreciation. Goodwill The excess of the purchase price over the fair value of net assets
acquired in purchase business combinations has been recorded as goodwill.
Goodwill is evaluated for impairment on an annual basis or as impairment
indicators are identified, in accordance with Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets(SFAS 142). On an
ongoing basis, the Company assesses the recoverability of goodwill by
determining the ability of the specific assets acquired to generate future cash
flows sufficient to recover the unamortized goodwill over the remaining useful
life. The Company estimates future cash flows based on the current performance
of the acquired assets and 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. 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 our wireless tower unit was written off.
This charge is included in Reorganization items in the unaudited condensed
consolidated financial statements. The Company has no recorded goodwill as of
March 31, 2004 and December 31, 2003. 7




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##### 



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. The following table summarizes
activity with respect to customer contracts during the three months ended March
31, 2004: Balance
    
    
    
    
    
    
    
    
    
    BalanceJanuary 1,
    
    
    
    
    
    
    
    
    
    March 31,2004
    
    Additions
    
    Writeoffs
    
    2004(in thousands)Customer contracts
    
    $
    190,929
    
    
    $
    2,002
    
    
    $
    (621
    )
    
    $
    192,310Accumulated amortization
    
    
    (11,570
    )
    
    
    (3,238
    )
    
    
    49
    
    
    
    (14,759
    )Customer contracts, net
    
    $
    179,359
    
    
    $
    (1,236
    )
    
    $
    (572
    )
    
    $
    177,551
 The Company expects amortization expense related to customer contracts to
be approximately $12.7 million for each of the five years from 2004 to 2008. 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. Effective January 1, 2002, potential
impairment of long-lived assets other than goodwill and purchased intangible
assets with indefinite useful lives is evaluated using the guidance provided by
Statement of Financial Accounting Standards No. 144, Accounting for the
Impairment or Disposal of Long-lived Assets(SFAS 144). Derivative Financial Instruments The Company accounts for derivative financial instruments in accordance
with Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities(SFAS 133), as amended by
Statement of Financial Accounting Standards No. 138, Accounting for Certain
Instruments and Certain Hedging Activities(SFAS 138) and as further amended
by Statement of Financial Accounting Standards No. 149, Amendment of Statement
133 on Derivative Instruments and Hedging Activities(SFAS 149). The Company
records derivative financial instruments in the consolidated financial
statements at fair value. Changes in the fair values of derivative financial
instruments are either recognized in earnings or in stockholders equity as a
component of other comprehensive income depending on whether the derivative
financial instrument qualifies for hedge accounting as defined by SFAS 133.
Changes in fair values of derivatives not qualifying for hedge accounting are
reported in earnings as they occur. In February 2003, the Company entered into an interest rate cap agreement
at a cost of $0.8 million in order to limit exposure to fluctuations in
interest rates on its variable rate credit facility. This transaction has not
been designated as a fair value hedge. Accordingly, gains and losses from the
change in the fair value of this instrument are recognized in other income and
expense during the period of change. During the three months ended March 31,
2004 and the two months ended March 31, 2003, the Company recognized a loss on
the change in the fair value of this instrument of $0.1 million and $0.2
million, respectively. As of March 31, 2004 and December 31, 2003, the
carrying amounts (fair value) of this instrument were $0.1 million and $0.2
million, respectively, and are included in Other assets in the unaudited
condensed consolidated balance sheets. 8




---



##### 



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 is reduced by a portion
of the purchase price of each tower. In addition, the liability is reduced by
the amount of costs incurred to place the acquired towers in service. In the
three months ended March 31, 2004, $0.6 million of the purchase price of 6
towers acquired and $0.2 million of acquisition costs were applied against the
liability. As of March 31, 2004 and December 31, 2003, the remaining liability
was $48.7 million and $49.5 million, respectively. Asset Retirement Obligations The Company accounts for asset retirement obligations in accordance with
Statement of Financial Accounting Standards No. 143, Accounting for Asset
Retirement Obligations(SFAS 143). SFAS 143 requires that the fair value of a
liability for an asset retirement obligation be recognized in the period in
which it is incurred if a reasonable estimate of fair value can be made. The
associated asset retirement costs are capitalized as part of the carrying
amount of the long-lived asset. The Company adopted SFAS 143 on January 1, 2003
in connection with certain ground leases that require removal of the tower upon
expiration. Application of the new rules resulted in an increase in net
property, plant and equipment of $23.2 million, recognition of an asset
retirement obligation of $35.4 million, and
a cumulative effect of change in accounting principle of $12.2 million.
This obligation is included in other long term liabilities in the condensed
consolidated balance sheets. The following table displays activity related to
the asset retirement obligation: Liabilityas of
    
    
    
    
    
    Revisions in
    
    Liability asJanuary 1,
    
    Accretion
    
    Estimated
    
    of March 31,2004
    
    Expense
    
    Cash Flows
    
    2004(in thousands)Asset retirement obligation
    
    $
    38,019
    
    
    $
    695
    
    
    $
    (4
    )
    
    $
    38,710
 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. Broadcast services
revenues for the three months ended March 31, 2004, the two months ended March
31, 2003 and the one month ended January 31, 2003 were $1.8 million, $3.5
million and $1.2 million, respectively. 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 three months ended March 31, 2004,
the Company recorded an additional loss on disposal of the broadcast services
division of $0.3 million. 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. Assets and liabilities held for sale consist of the following (in
thousands): ReorganizedCompanyDecember 31,2003Accounts 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
    
    
    945
 9




---



##### 



ReorganizedCompanyDecember 31,2003Billings 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. Significant Customers The Companys customer base consists of businesses operating in the
wireless telecommunications and broadcast industries, primarily in the United
States. The Companys exposure to credit risk consists primarily of unsecured
accounts receivable from these customers. One wireless customer and its affiliates accounted for $24.0 million,
$15.6 million and $7.4 million, or 28%, 31% and 29% of revenues for the three
months ended March 31, 2004, the two months ended March 31, 2003 and the one
month ended January 31, 2003, respectively. This customer was a significant
stockholder of the Predecessor Companys common stock. In addition, another
customer, which is an affiliate of a former significant stockholder of the
Predecessor Companys common stock, accounted for $18.2 million, $10.1 million
and $5.9 million, or 21%, 20% and 23% of revenues for the three months ended
March 31, 2004, the two months ended March 31, 2003 and the one month ended
January 31, 2003, respectively. This customer also accounted for $1.5 million
and $2.0 million or 10% and 13% of accounts receivable at March 31, 2004 and
December 31, 2003, respectively. Restructuring and Non-recurring Charges In November 2001, the Company announced that it would reduce its planned
new tower acquisition and construction programs for 2002. As a result of the
reduced new tower activity, the Company recorded restructuring charges of $68.6
million. Of this amount, $26.0 million was related to the write-off of work in
progress related to sites in development that the Company terminated, $4.8
million was related to the costs of closing certain offices and $2.8 million
was related to the costs of severance for 201 employees. The Company also
completed an amendment to modify its agreement to acquire leasehold and
sub-leasehold interests in approximately 3,900 communications towers from
affiliates of SBC Communications. This amendment provided for the number of
towers to be subleased to be reduced by 300 and for the sublease date on at
least 850 towers to be postponed to 2003 and 2004. In exchange for these
modifications, the Company paid a contract amendment fee of $35.0 million that
has been included in the restructuring charge in 2001. In May 2002, the Company announced that it would terminate its
build-to-suit programs with Cingular (the Cingular BTS Termination) and other
carriers and implement other cost-cutting measures as a part of the curtailment
of tower development activities. As a result of these actions, the Company
recorded restructuring charges of $23.1 million. Of this amount, $16.4 million
was related to the write-off of work in progress related to sites in
development that were terminated, $3.2 million was related to the costs of
closing offices and $3.5 million was related to the costs of employee
severance. In addition, the Company recorded a non-recurring impairment charge
of $4.3 million to write-down the carrying value of 21 towers that were not
marketable. The charge was based on the estimated discounted cash flows of the
towers. The following table displays activity related to the accrued restructuring
liability. Such liability is reflected in Accrued and other expenses in the
accompanying condensed consolidated balance sheets. Reorganized CompanyCashPayments forLiability as
    
    the Three Months
    
    Liability asof
    
    Ended
    
    ofDecember 31, 2003
    
    March 31, 2004
    
    March 31, 2004(in thousands)Accrued restructuring liabilities:Reduced tower acquisition and development
Employee severance
    
    $
    1,118
    
    
    $
    (454
    )
    
    $
    664Lease termination and office closing
    
    
    599
    
    
    
    (174
    )
    
    
    425
 10




---



##### 



Reorganized CompanyCashPayments forLiability as
    
    the Three Months
    
    Liability asof
    
    Ended
    
    ofDecember 31, 2003
    
    March 31, 2004
    
    March 31, 2004(in thousands)1,717
    
    
    
    (628
    )
    
    
    1,089Cingular BTS terminationEmployee severance
    
    
    7
    
    
    
    (7
    )
    
    
    Lease termination and office closing
    
    
    438
    
    
    
    (149
    )
    
    
    289445
    
    
    
    (156
    )
    
    
    289Total
    
    $
    2,162
    
    
    $
    (784
    )
    
    $
    1,378
 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 our 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
must then assess 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 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. The Company has recorded a 100% valuation
allowance as of March 31, 2004 and December 31, 2003 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 three months ended March
31, 2004, the Company recognized deferred income tax expense and reduced its
intangible assets by $2.8 million. Earnings Per Share On July 31, 2003, the Companys Board of Directors approved a two-for-one
forward stock split of Spectrasite, Inc.s common stock, effected in the form
of a common stock dividend to stockholders of record on August 14, 2003. The
additional shares of common stock were mailed or delivered on or about August
21, 2003, by the Companys transfer agent. All share and per share information
for the Reorganized Company has been presented to reflect the stock split. Basic and diluted earnings (loss) per share are calculated in accordance
with Statement of Financial Accounting Standards No. 128 Earnings per Share
(SFAS 128). During the one month ended January 31, 2003, the Company had
potential common stock equivalents related to its convertible notes, warrants
and outstanding stock options. Upon completion of the Companys reorganization,
the convertible notes were exchanged for shares of common stock, par value
$0.01 per share and all outstanding warrants and stock options were cancelled.
These potential common stock equivalents were not included in diluted earnings
(loss) per share for the one month ended January 31, 2003 because the effect
would have been antidilutive. Accordingly, basic and diluted net income (loss)
per share are the same for the one month ended January 31, 2003. As discussed in Note 2, under the Plan of Reorganization, the holders of
166,158,298 shares of 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 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 months ended March 31, 2004 and the two months ended
March 31, 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 two months ended March 31, 2003 because the effect would 11




---



##### 



have been
antidilutive. Accordingly, basic and diluted net loss per share are the same
for the two months ended March 31, 2003. For the three months ended March 31,
2004, there were approximately 5.1 million options to purchase common stock and
warrants exercisable into 2.5 million shares of common stock outstanding which
were included in the calculation of diluted earnings per share. No options or
warrants were excluded from the calculation of diluted earnings per share for
the three months ended March 31, 2004 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
    
    Reorganized
    
    PredecessorCompany
    
    Company
    
    CompanyThree Months
    
    Two Months
    
    One MonthEnded
    
    Ended
    
    EndedMarch 31,
    
    March 31,
    
    January 31,2004
    
    2003
    
    2003(in thousands)Weighted average common shares
outstanding (basic)
    
    
    47,880
    
    
    
    47,174
    
    
    
    154,014Effect of dilutive options
    
    
    3,088
    
    
    
    
    
    
    
    Effect of dilutive warrants
    
    
    1,400
    
    
    
    
    
    
    
    Weighted average common shares
outstanding (diluted)
    
    
    52,368
    
    
    
    47,174
    
    
    
    154,014
 Comprehensive Income (Loss) Other comprehensive income (loss) consists of foreign currency translation
adjustments and unrealized holding gains (losses) on available-for-sale
securities as follows (in thousands): Reorganized
    
    Reorganized
    
    PredecessorCompany
    
    Company
    
    CompanyThree Months
    
    Two Months
    
    One MonthEnded
    
    Ended
    
    EndedMarch 31, 2004
    
    March 31, 2003
    
    January 31, 2003Reported net income (loss)
    
    $
    7,130
    
    
    $
    (1,692
    )
    
    $
    344,970Foreign currency translation
Adjustment
    
    
    
    
    
    
    (5
    )
    
    
    (123
    )Unrealized holding gains
(losses) arising during
the period
    
    
    
    
    
    
    133
    
    
    
    (200
    )Comprehensive
income (loss)
    
    $
    7,130
    
    
    $
    (1,564
    )
    
    $
    344,647
 Stock Options 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 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 (in thousands): 12




---



##### 



PredecessorCompanyOne MonthEndedJanuary 31, 2003Reported net income (loss)
    
    $
    344,970Stock-based employee compensation cost
that would have been included in net loss
under the fair value method
    
    
    (694
    )Adjusted net income (loss)
    
    $
    344,276Basic and diluted income (loss) per share:Reported net income (loss)
    
    $
    2.24Stock-based employee compensation
cost that would have been included
in net loss under the fair value method
    
    
    Adjusted net income (loss)
    
    $
    2.24
 Also, on February 10, 2003, the Company adopted the 2003 Equity Incentive
Plan to grant equity-based incentives in common stock to employees and
directors. Had compensation cost for the Companys stock options to purchase
common stock been determined based on the fair value at the date of grant
consistent with the provisions of SFAS 123, the Companys net income (loss) and
net income (loss) per share for the three months ended March 31, 2004 and the
two months ended March 31, 2003 would have been as follows (in thousands): Reorganized
    
    ReorganizedCompany
    
    CompanyThree Months
    
    Two MonthsEnded
    
    EndedMarch 31, 2004
    
    March 31, 2003Reported net income (loss)
    
    $
    7,130
    
    
    $
    (1,692
    )Stock-based employee compensation cost
that would have been included in net income
(loss) under the fair value method
    
    
    (2,173
    )
    
    
    (343
    )Adjusted net income (loss)
    
    $
    4,957
    
    
    $
    (2,035
    )Basic income (loss) per share:Reported net income (loss)
    
    $
    0.15
    
    
    $
    (0.04
    )Stock-based employee compensation cost
that would have been included in net income
(loss) under the fair value method
    
    
    (0.05
    )
    
    
    Adjusted net income (loss)
    
    $
    0.10
    
    
    $
    (0.04
    )Diluted income (loss) per share:Reported net income (loss)
    
    $
    0.14
    
    
    $
    (0.04
    )Stock-based employee compensation cost
that would have been included in net income
(loss) under the fair value method
    
    
    (0.05
    )
    
    
    Adjusted net income (loss)
    
    $
    0.09
    
    
    $
    (0.04
    )
 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
expense 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. 13




---



##### 



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 months ended
March 31, 2004 and for the two months ended March 31, 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 common stock, par value $0.01 per share (New
Common Stock); (ii) the holders of 166,158,298 shares of common stock, par
value $0.001 per share, outstanding as of the Effective Date (the Old Common
Stock) received warrants immediately exercisable into 2.5 million shares of
New 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. 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 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 14




---



##### 



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: 15




---



##### 



Predecessor
    
    
    
    
    
    
    
    
    
    ReorganizedCompany
    
    Reorganization
    
    
    
    
    
    CompanyJanuary 31,
    
    and Fresh Start
    
    
    
    
    
    January 31,2003
    
    Adjustments
    
    Ref.
    
    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
    )
    
    
    
    
    
    $
    1,681,179LIABILITIES 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
     (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. 16




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##### 



3. Property and Equipment Property and equipment consist of the following: Reorganized
    
    ReorganizedCompany
    
    CompanyMarch 31, 2004
    
    December 31, 2003(in thousands)Towers
    
    $
    1,205,052
    
    
    $
    1,202,706Equipment
    
    
    22,704
    
    
    
    18,898Land
    
    
    14,691
    
    
    
    16,318Buildings
    
    
    25,783
    
    
    
    27,281Other
    
    
    8,595
    
    
    
    8,9011,276,825
    
    
    
    1,274,104Less accumulated depreciation
    
    
    (97,394
    )
    
    
    (77,580
    )1,179,431
    
    
    
    1,196,524Construction in progress
    
    
    11,684
    
    
    
    11,102Property and equipment, net
    
    $
    1,191,115
    
    
    $
    1,207,626
 4. Recent Accounting Pronouncements In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities(FIN 46). FIN 46 requires an investor with a
majority of the variable interests in a variable interest entity (VIE) to
consolidate the entity and also requires majority and significant variable
interest investors to provide certain disclosures. A VIE is an entity in which
the equity investors do not have a controlling interest, or the equity
investment at risk is insufficient to finance the entitys activities without
receiving additional subordinated financial support from the other parties. For
arrangements entered into with VIEs created prior to January 31, 2003, the
provisions of FIN 46 are required to be adopted at the beginning of the first
interim or annual period ending after March 15, 2004. The Company has reviewed
its investments and other arrangements and determined that none of its investee
companies are VIEs. The Company has not invested in any new VIEs created after
January 31, 2003. 5. Acquisition and Disposition Activities SBC Transaction On August 25, 2000, the Company entered into an agreement to acquire
leasehold and sub-leasehold interests in approximately 3,900 wireless
communications towers from affiliates of SBC Communications (collectively,
SBC) in exchange for $982.7 million in cash and $325.0 million in Old Common
Stock. Under the agreement, and assuming the lease or sublease of all 3,900
towers, the stock portion of the consideration was initially approximately 14.3
million shares valued at $22.74 per share. The stock consideration was subject
to an adjustment payment to the extent the average closing price of the Old
Common Stock during the 60-day period immediately preceding December 14, 2003
(the third anniversary of the initial closing) decreased from $22.74 to a floor
of $12.96. The adjustment payment would be accelerated if there were a change
of control of SpectraSite or upon the occurrence of certain specified liquidity
events. In any case, the adjustment payment was payable, at the Companys
option, in the form of cash or shares of Old Common Stock. The maximum amount
potentially payable to satisfy the adjustment payment was approximately 10.8
million shares of Old Common Stock or $139.8 million in cash. The Company and
SBC entered into a Lease and Sublease Agreement pursuant to which the Company
manages, maintains and leases available space on the SBC towers and has the
right to add customers to the towers. The average term of the lease or sublease
for all sites at the inception of the agreement was approximately 27 years,
assuming renewals or extensions of the underlying ground leases for the sites.
SBC is an anchor customer on all of the towers and pays a minimum monthly fee
per tower of $1,621, subject to an annual adjustment. In addition, the Company
had agreed to build towers for Cingular, an affiliate of SBC, through 2005
under an exclusive build-to-suit agreement, but this agreement was terminated
on May 15, 2002. Subject to the conditions described in the Lease and Sublease Agreement,
SBC also has the right to substitute other available space on the tower for the
reserved space, and a right of first refusal as to available space that the
Company intends to sublease to a third party. For the first 300 times SBC
exercises its right of first refusal, SBC is required to pay the Company a
recurring fee for the applicable space equal to the lesser of the fee that
would have 17




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##### 



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 will have 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 will be 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 $220.2 million as of March 31,
2004 and will accrete at a rate of 10% per year to the applicable expiration of
the
lease or sublease of a site. In the event that the Company purchases such
sites, 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. In
addition, pursuant to the amendment, the Company receives all new revenue on
the towers remaining to be leased or subleased after February 25, 2002. 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 two months ended March 31, 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. As a result,
at all future closings with SBC, the stock portion of the payment for each site
has been paid in full. From the initial closing on December 14, 2000 through a closing on
February 16, 2004, the Company leased or subleased a total of 2,827 towers
under the terms of the amended agreement. In addition, during the quarter ended
March 31, 2004, the parties agreed to reduce the Companys remaining commitment
by five towers, down to 474. The parties agreed to complete the lease or
sublease of the remaining 474 towers during the second and third quarters of
2004. The total consideration paid for the rights to the 474 towers is
expected to be approximately $123 million. 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 is charged against the liability.
In the three months ended March 31, 2004, the Company leased or subleased 6
towers, for which it paid $1.7 million in cash. Of this amount, $0.6 million
was charged against the liability, $1.0 million was capitalized as property and
equipment and $0.1 million was recorded as customer 18




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##### 



contracts. The Company did
not lease or sublease any towers in the two months ended March 31, 2003 or the
one month ended January 31, 2003. 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 $639.2 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 $187.4 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
$251.8 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. 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. 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. As of March 31, 2004, Communications has $439.2 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 March 31, 2004. At March 31, 2004, amounts due under the credit facility are as follows: Maturities(in thousands)2004
    
    $
    2005
    
    
    2006
    
    
    80,8542007
    
    
    358,3012008
    
    
    Total
    
    $
    439,155
 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 1.00% per annum or
the Eurodollar rate plus 2.25% per annum. The weighted average interest rate on
outstanding borrowings under the credit facility as of March 31, 2004 was
3.51%. 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). 19




---



##### 



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. 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. Our
operations are segmented and managed along our 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 our 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 writeoffs 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, 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. 20




---



##### 



Wireless
    
    Broadcast
    
    Other
    
    Total(in thousands)Three months ended March 31, 2004
(Reorganized Company)Revenues
    
    $
    78,940
    
    
    $
    5,650
    
    
    $
    
    
    
    $
    84,590Adjusted EBITDA
    
    
    47,536
    
    
    
    4,845
    
    
    
    (7,160
    )
    
    
    45,221Assets
    
    
    1,323,113
    
    
    
    90,794
    
    
    
    101,365
    
    
    
    1,515,272Additions to property and equipment
    
    
    5,033
    
    
    
    1,182
    
    
    
    1,031
    
    
    
    7,246Two months ended March 31, 2003
(Reorganized Company)Revenues
    
    $
    47,434
    
    
    $
    3,674
    
    
    $
    
    
    
    $
    51,108Adjusted EBITDA
    
    
    25,688
    
    
    
    2,984
    
    
    
    (4,104
    )
    
    
    24,568Assets
    
    
    1,378,310
    
    
    
    88,090
    
    
    
    131,087
    
    
    
    1,597,487Additions to property and equipment
    
    
    1,245
    
    
    
    361
    
    
    
    717
    
    
    
    2,323One 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 (in thousands): Reorganized
    
    Reorganized
    
    PredecessorCompany
    
    Company
    
    CompanyThree Months
    
    Two Months
    
    One MonthEnded
    
    Ended
    
    EndedMarch 31,
    
    March 31,
    
    January 31,2004
    
    2003
    
    2003Adjusted EBITDA:Corporate selling, general and administrative
expenses, excluding corporate non-cash
compensation charges
    
    $
    (7,160
    )
    
    $
    (4,104
    )
    
    $
    (1,777
    )Total Adjusted EBITDA
    
    $
    (7,160
    )
    
    $
    (4,104
    )
    
    $
    (1,777
    )Assets:Cash and cash equivalents
    
    $
    84,329
    
    
    $
    87,904
    
    
    $
    73,232Debt issuance costs
    
    
    17,036
    
    
    
    20,627
    
    
    
    22,974Assets held for sale
    
    
    
    
    
    
    22,556
    
    
    
    21,468Total assets
    
    $
    101,365
    
    
    $
    131,087
    
    
    $
    117,674Additions to property and equipment:Corporate additions to property
and equipment
    
    $
    1,031
    
    
    $
    443
    
    
    $
    1,610Additions to property and equipment related to
assets held for sale
    
    
    
    
    
    
    274
    
    
    
    9Total additions to property and equipment
    
    $
    1,031
    
    
    $
    717
    
    
    $
    1,619
 A reconciliation of income (loss) from continuing operations before income
taxes to Adjusted EBITDA is as follows (in thousands): Reorganized
    
    Reorganized
    
    PredecessorCompany
    
    Company
    
    CompanyThree Months
    
    Two Months
    
    One MonthEnded
    
    Ended
    
    EndedMarch 31,
    
    March 31,
    
    January 31,2004
    
    2003
    
    2003Income (loss) from continuing operations
before income taxes
    
    $
    10,403
    
    
    $
    (1,128
    )
    
    $
    1,026,479Add: Depreciation, amortization and
accretion expenses
    
    
    25,416
    
    
    
    16,652
    
    
    
    15,930Less: Interest income
    
    
    (214
    )
    
    
    (217
    )
    
    
    (137
    )Add: Interest expense
    
    
    9,616
    
    
    
    9,261
    
    
    
    4,721Less: Gain on debt discharge
    
    
    
    
    
    
    
    
    
    
    (1,034,764
    )Adjusted EBITDA
    
    $
    45,221
    
    
    $
    24,568
    
    
    $
    12,229
 21




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##### 



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 7,582 towers and in-building systems as of March
31, 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
three months ended March 31, 2004, all of our revenues came from our leasing
and licensing operations within these segments. Factors affecting the growth in
our wireless revenues include, among other things, the rate at which wireless
carriers choose to deploy capital to improve and expand their wireless networks
and variable contractual escalation clauses associated with existing site
leasing and licensing agreements. The material opportunities, challenges and risks of our business have
changed significantly over the past two years. We have reshaped our business
operations and reduced our debt levels in order to minimize the impact of
short-term variabilities in market demand. Specifically, we discontinued a
major program of building new towers in mid-2002, we completed the sale of our
network services division in late 2002, we restructured our balance sheet
through a bankruptcy process completed in early 2003 and we 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 fee based on a percentage of the gross revenue
derived from the rooftop site subject to the agreement. We recognize this fee
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 is built
for 22




---



##### 



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 and recorded an additional loss on the sale of $0.3 million.
Revenues for broadcast services were $38.1 million and $26.8 million for the
years ended December 31, 2001 and 2002, respectively. Broadcast services
revenues were $1.2 million and $13.1 million for the one month ended January
31, 2003 and the eleven months ended December 31, 2003, respectively. The results of operations for the broadcast services division has been
reported separately as discontinued operations in the balance sheets and
statements of operations. Prior period financial statements have been restated
to present the operations of the division as a discontinued operation. Plan of Reorganization The financial difficulties experienced by the telecommunications and
broadcast industries in recent years have severely impacted capital
availability within the wireless telecommunications and broadcast sectors. Many
of our customers were forced to reduce capital expenditures, which in turn
impeded our revenue and earnings growth and, therefore, our ability to service
our long-term debt. We incurred net losses of approximately $157.6 million in
2000, $654.8 million in 2001 and $775.0 million in 2002. After a review of our
business and our prospects, we concluded that recoveries to creditors and
equity holders would be maximized by a consensual restructuring. On November 15, 2002, we filed a voluntary petition for relief under
chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the
Eastern District of North Carolina, Raleigh Division. On November 18, 2002, we
filed a Proposed Plan of Reorganization with the Bankruptcy Court. A plan
confirmation hearing was held on January 28, 2003, and the Proposed Plan of
Reorganization, as modified on that date (the Plan of Reorganization), was
confirmed by the Bankruptcy Court. All conditions precedent to the
effectiveness of the Plan of Reorganization were met by February 10, 2003,
thereby allowing us to emerge from bankruptcy. Our emergence from bankruptcy
and adoption of fresh start accounting resulted in the extinguishment of
approximately $1.76 billion of indebtedness and significantly reduced our
interest expense and our depreciation, amortization, and accretion expenses. In
addition to our reorganization, we have taken a number of other measures to
minimize the potential net losses in the future, including the sale of
non-performing assets and the reduction of overhead and capital expenditures. As a result of our reorganization, we expect to achieve 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. 23




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##### 



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, par value $0.001 per share (the 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 7,582
towers and in-building systems as of March 31, 2004. We have accomplished this
growth through acquisitions and new construction (principally pursuant to
build-to-suit arrangements). The majority of our towers were acquired from (or
built under agreements with) affiliates of SBC and Nextel. Our original agreement with SBC called for us to acquire leasehold and
subleasehold interests in approximately 3,900 towers over approximately two
years and to commit to build towers for Cingular, an affiliate of SBC.
Subsequent amendments to these agreements have resulted in a reduction in the
number of towers to be leased or subleased to a maximum of 3,301 towers and in
the termination of the build-to-suit arrangement. See Note 5 to our unaudited
condensed consolidated financial statements, Acquisition and Disposition
Activities  SBC Transaction. We reduced our acquisition program and
terminated our build-to-suit program in order to limit our required capital
expenditures and to achieve additional financial flexibility. In November 2001,
we paid a fee of $35 million in connection with the first of these amendments.
On February 10, 2003, we sold our interest in 545 SBC towers in California and
Nevada to Cingular for an aggregate purchase price of $81.0 million and paid
SBC a fee of $7.5 million related to the last of the reductions in the maximum
number of towers that we will lease or sublease. In connection with these
transactions, we received a net cash payment of $73.5 million, which we used to
repay a portion of the indebtedness outstanding under our credit facility,
significantly reduced our capital expenditure commitments, extended the
timeline to meet our remaining commitments and maintained a mutually profitable
commercial relationship with a significant customer. The 545 towers sold
represented approximately 7% of our owned and operated tower portfolio at
December 31, 2002 and generally were characterized by lower revenues per tower
than other towers in our portfolio. We do not expect the sale of our interest
in the 545 towers to materially impact our future operating performance. For the one month ended January 31, 2003, these 545 towers represented
$1.2 million of a total of $25.6 million of revenues and $0.5 million of a
total of $8.9 million of costs of operations, excluding depreciation,
amortization and accretion expenses. For the two months ended March 31, 2003,
these towers represented $0.4 million of a total of $51.1 million of revenues
and $0.2 million of a total of $17.1 million in costs of operations, excluding
depreciation, amortization and accretion expenses. 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
    
    CompanyTwo Months
    
    One MonthEnded
    
    EndedMarch 31,
    
    January 31,2003
    
    2003Revenues attributed to 545 SBC Towers
    
    $
    368
    
    
    $
    1,202Total Revenues
    
    
    51,108
    
    
    
    25,626Percent of Total Revenues
    
    
    0.7
    %
    
    
    4.7
    %Costs of Operations (excluding depreciation, amortization and accretion expenses)
    
    $
    195
    
    
    $
    465Total Cost of Operations (excluding depreciation, amortization and accretion expenses)
    
    
    17,080
    
    
    
    8,901Percent of Total Cost of Operations (excluding depreciation, amortization and accretion expenses)
    
    
    1.1
    %
    
    
    5.2
    %
 24




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##### 



We remain contractually obligated to acquire leasehold and subleasehold
interests in up to an additional 474 towers from SBC through August 2004 for
aggregate payments of approximately $123.2 million. Special Note Regarding Forward-Looking Statements This report, and other oral statements made from time to time by our
representatives, contain forward-looking statements within the meaning of
Section 27A of the Securities Act, Section 21E of the Securities Exchange Act
of 1934, as amended and the Private Securities Litigation Reform Act of 1995
that are subject to risks and uncertainties. You should not place undue
reliance on those statements because they are subject to numerous uncertainties
and factors relating to our operations and business environment, all of which
are difficult to predict and many of which are beyond our control.
Forward-looking statements include information concerning our possible or
assumed future results of operations, including descriptions of our business
strategy. These statements often include words such as may, believe,
expect, anticipate, intend, plan, estimate or similar expressions.
These statements are based on assumptions that we have made in light of our
industry experience as well as our perceptions of historical trends, current
conditions, expected future developments and other factors we believe are
appropriate under the circumstances. As you read and consider this report, you
should understand that these statements are not guarantees of performance or
results. They involve risks, uncertainties and assumptions. Although we believe
that these forward-looking statements are based on reasonable assumptions, you
should be aware that many factors could affect our actual financial results or
results of operations and could cause actual results to differ materially from
those in the forward-looking statements. These factors include but are not
limited to:  
    
    dependence on demand for wireless communications and related infrastructure;
    
    our ability to add customers on our towers;
    
    market conditions;
    
    consolidation in the wireless industry;
    
    material adverse changes in economic conditions in the markets we serve;
    
    our leveraged capital structure and capital requirements;
    
    future regulatory actions and conditions in our operating areas;
    
    competition from others in the communications tower industry including the impact of technological developments;
    
    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;
    
    dependence upon a small number of significant customers;
    
    disputes with our current and prospective customers and lessors;
    
    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 25




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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 March 31, 2004, Two Months Ended March 31, 2003 and the One
Month Ended January 31, 2003 On January 28, 2003, our Plan of Reorganization was confirmed by the
Bankruptcy Court, 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
    
    Reorganized Company
    
    Predecessor CompanyThree Months Ended
    
    Two Months Ended
    
    One Month EndedMarch 31,
    
    March 31,
    
    January 31,2004
    
    2003
    
    2003(in thousands)Revenues:Wireless
    
    $
    78,940
    
    
    $
    47,434
    
    
    $
    23,855Broadcast
    
    
    5,650
    
    
    
    3,674
    
    
    
    1,771Total revenues
    
    
    84,590
    
    
    
    51,108
    
    
    
    25,626Operating expenses:Cost of operations, excluding depreciation, amortization
and accretion expenses:Wireless
    
    
    25,167
    
    
    
    16,724
    
    
    
    8,657Broadcast
    
    
    576
    
    
    
    356
    
    
    
    244Total cost of operations, excluding depreciation,
amortization and accretion expenses
    
    
    25,743
    
    
    
    17,080
    
    
    
    8,901Selling, general and administrative expenses:Wireless
    
    
    5,766
    
    
    
    3,793
    
    
    
    2,119Broadcast
    
    
    229
    
    
    
    334
    
    
    
    107Other
    
    
    6,047
    
    
    
    4,104
    
    
    
    1,777Total selling, general and administrative expenses
    
    
    12,042
    
    
    
    8,231
    
    
    
    4,003Depreciation, amortization and accretion expenses:Wireless
    
    
    24,463
    
    
    
    15,845
    
    
    
    15,516Broadcast
    
    
    953
    
    
    
    807
    
    
    
    414Total depreciation, amortization and accretion
expenses
    
    
    25,416
    
    
    
    16,652
    
    
    
    15,930Total operating expenses
    
    $
    63,201
    
    
    $
    41,963
    
    
    $
    28,834Operating income (loss)
    
    $
    21,389
    
    
    $
    9,145
    
    
    $
    (3,208
    )Other income (expense):Interest income
    
    $
    214
    
    
    $
    217
    
    
    $
    137Interest expense
    
    
    (9,616
    )
    
    
    (9,261
    )
    
    
    (4,721
    )Gain on debt discharge
    
    
    
    
    
    
    
    
    
    
    1,034,764Other income (expense)
    
    
    (1,584
    )
    
    
    (1,229
    )
    
    
    (493
    )Total other income (expense)
    
    $
    (10,986
    )
    
    $
    (10,273
    )
    
    $
    1,029,687Income (loss) from continuing operations before income
taxes
    
    $
    10,403
    
    
    $
    (1,128
    )
    
    $
    1,026,479Income tax expense
    
    
    2,806
    
    
    
    578
    
    
    
    5
 26




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##### 



Reorganized Company
    
    Reorganized Company
    
    Predecessor CompanyThree Months Ended
    
    Two Months Ended
    
    One Month EndedMarch 31,
    
    March 31,
    
    January 31,2004
    
    2003
    
    2003(in thousands)Income (loss) from continuing operations
    
    
    7,597
    
    
    
    (1,706
    )
    
    
    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
    
    $
    7,597
    
    
    $
    (1,706
    )
    
    $
    357,892Discontinued operations (net of income taxes):Income (loss) from operations of discontinued broadcast
services division, net of income tax expense
    
    
    (124
    )
    
    
    14
    
    
    
    (686
    )Loss on disposal of discontinued broadcast
services division, net of income tax expense
    
    
    (343
    )
    
    
    
    
    
    
    Income (loss) before cumulative effect of change in
accounting principle
    
    $
    7,130
    
    
    $
    (1,692
    )
    
    $
    357,206Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    (12,236
    )Net income (loss)
    
    $
    7,130
    
    
    $
    (1,692
    )
    
    $
    344,970Adjusted EBITDA:Wireless
    
    
    47,536
    
    
    
    25,688
    
    
    
    12,586Broadcast
    
    
    4,845
    
    
    
    2,984
    
    
    
    1,420Other:Corporate selling, general and administrative expenses,
excluding corporate non-cash compensation charges
    
    
    (7,160
    )
    
    
    (4,104
    )
    
    
    (1,777
    )Total Adjusted EBITDA
    
    $
    45,221
    
    
    $
    24,568
    
    
    $
    12,229
 Revenues.Revenues in 2004 were primarily affected by incremental revenue
in 2004 from new customers on sites that were part of our portfolio on March
31, 2003, revenues derived from sites acquired or built subsequent to March 31,
2003 and increases in fee revenues, offset by reductions in revenues relating
to the 545 SBC towers sold in February 2003. Fee revenues were $1.7 million,
$0.8 million and $0.2 million for the three months ended March 31, 2004, the
two months ended March 31, 2003 and the one month ended January 31, 2003,
respectively. Based on trailing twelve-months revenue on the towers that we
owned or operated as of March 31, 2003 and March 31, 2004, same tower revenue
growth was 10%. We owned or operated 7,582 towers and in-building systems at
March 31, 2004, as compared to 7,488 towers and in-building systems at March
31, 2003. For the three months ended March 31, 2004, the two months ended March 31,
2003 and the one month ended January 31, 2003, one wireless customer, which was
a significant stockholder prior to our reorganization, and its affiliates
accounted for $24.0 million, $15.6 million and $7.4 million or 28%, 31% and 29%
of our revenues, respectively. In addition, another wireless customer, which
was an affiliate of a significant stockholder prior to our reorganization,
accounted for $18.2 million, $10.1 million and $5.9 million or 21%, 20% and 23%
of our revenues in the three months ended March 31, 2004, the two months ended
March 31, 2003 and the one month ended January 31, 2003, respectively. Both of
these customers remain significant customers, but neither they nor their
affiliates are significant stockholders following our reorganization and thus
are no longer considered to be our related parties. Accounts receivable, net of allowance, increased by $1.2 million from
December 31, 2003 to March 31, 2004. The increase in accounts receivable is
primarily due to the timing of cash collections on account. Our allowance
decreased in 2004 due to write-offs of accounts receivable, offset by
recoveries of amounts previously reserved. 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 three months
ended March 31, 2004, 33% for the two months ended March 31, 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 32% for the three months ended
March 31, 2004, 35% for the two months ended March 31, 2003 and 36% for the one
month ended January 31, 2003. Broadcast leasing costs of operations, excluding
depreciation, amortization and accretion expenses, as a percentage of broadcast 27




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leasing revenues were 10% for the three months ended March 31, 2004, 10% for
the two months ended March 31, 2003 and 14% for the one month ended January 31,
2003. Costs of operations, excluding depreciation, amortization and accretion
expenses, as a percentage of revenues for the wireless and broadcast segments
in 2004 were primarily affected by increased revenues generated from new
customers on existing towers. 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 14% of total revenues for the three months ended March 31, 2004. Selling,
general and administrative expenses were 16% of total revenues for both the two
months ended March 31, 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. Selling, general and administrative expenses for our wireless segment were
7%, 8% and 9% of wireless revenues for the three months ended March 31, 2004,
the two months ended March 31, 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%, 9% and 6% for the three
months ended March 31, 2004, the two months ended March 31, 2003 and the one
month ended January 31, 2003, respectively. Selling, general and administrative expenses not specific to the above
business segments were 7% of total revenues for the three months ended March
31, 2004, 8% of total revenues for the two months ended March 31, 2003 and 7%
for the one month ended January 31, 2003. Other Income (Expense).Other income (expense), net was an expense of $1.6
million in the three months ended March 31, 2004. The three months ended March
31, 2004 included net other expense of $0.5 million in the wireless segment,
consisting primarily of $0.6 million of write-offs of customer contracts
relating to communications towers that were sold. Other expense not specific
to any business segment was $1.1 million, consisting primarily of $0.9 million
of expenses related to the public offering of shares of our common stock and
$0.1 million related to the writedown of our interest rate cap to fair value. Other income (expense), net was an expense of $1.2 million and $0.5
million in the two months ended March 31, 2003 and the one month ended January
31, 2003, respectively. Other expense for the two months ended March 31, 2003
related to the wireless segment and consisted primarily of losses on sales of
assets. 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. Adjusted EBITDA.As a result of the factors discussed above, Adjusted
EBITDA was $45.2 million, $24.6 million and $12.2 million for the three months
ended March 31, 2004, the two months ended March 31, 2003 and the one month
ended January 31, 2003, respectively. Depreciation, Amortization and Accretion Expenses.Depreciation,
amortization and accretion expenses for 2004 remained relatively consistent
with 2003 levels. Interest Income.Interest income for 2004 was affected by higher cash
balances on hand offset by lower interest rates. Interest Expense.Interest expense in 2004 was affected by the
extinguishment of indebtedness pursuant to our Plan of Reorganization and a
reduction of amounts outstanding under our credit facility. Interest expense
for the three months ended March 31, 2004 consisted of $4.6 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, less $0.2 million of
capitalized interest. Interest expense for the two months ended March 31, 2003
consisted of $6.9 million of interest on our credit facility, amortization of
debt issuance costs of $0.8 million and write-off of debt issuance costs of
$1.6 28




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##### 



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. 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 at appropriate current interest rates. The net
effect of all fresh start accounting adjustments resulted in a charge of $644.7
million, which is recorded in the one month ended January 31, 2003. In
addition, we incurred costs directly associated with the chapter 11 proceedings
of $23.9 million in the one month ended January 31, 2003. These costs are
included in reorganization items in the consolidated statement of operations. Discontinued Operations.On December 16, 2003, we decided to discontinue
our broadcast services division. This division was sold on March 1, 2004.
Income (losses) from operations of this division were ($0.1) million, $14,000
and ($0.7) million for the three months ended March 31, 2004, the two months
ended March 31, 2003 and the one month ended January 31, 2003, respectively. Net Income (Loss).As a result of the factors discussed above, net income
for the three months ended March 31, 2004 was $7.1 million, net loss for the
two months ended March 31, 2003 was $1.7 million and net income for the one
month ended January 31, 2003 was $345.0 million. 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 $27.8 million for the three
months ended March 31, 2004. Cash provided by operating activities was $11.9
million for the two months ended March 31, 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 $7.8 million for the three months
ended March 31, 2004. Cash provided by investing activities was $78.9 million
for the two months ended March 31, 2003 and cash used in investing activities
was $2.7 million for the one month ended January 31, 2003. Investing activities
for the three months ended March 31, 2004 consisted primarily of $6.3 million
of purchases of property and equipment and $1.7 million in acquisitions of
towers. Investing activities for the two months ended March 31, 2003 consisted
primarily of proceeds received from the sale of the 545 SBC towers of $81.0
million. In addition, we invested $2.3 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 two months ended March 31,
2003 and the one month ended January 31, 2003. Cash provided by financing activities was $3.9 million in the three months
ended March 31, 2004. Cash used in financing activities was $76.1 million in
the two months ended March 31, 2003 and $10.9 million in the one month ended
January 31, 2003. Cash provided by financing activities for the three months
ended March 31, 2004 consisted 29




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##### 



primarily of $4.5 million in proceeds from the issuance of common stock
related to the exercise of stock options, offset by $0.4 million of payments on
our credit facility and payments on capital leases of $0.1 million. Cash used
in financing activities for the two months ended March 31, 2003 consisted of
repayments on our credit facility of $76.0 million and payments on capital
leases of $0.1 million. Cash used in financing activities for the one month
ended January 31, 2003 consisted of payments on capital leases of $10.9
million, which includes the prepayment of a capital lease in connection with
the exercise of our purchase option on our corporate headquarters. Financing Transactions On February 11, 2004, we completed an underwritten public offering of our
common stock, whereby approximately 10.4 million shares of common stock were
sold by four of our existing stockholders, including an over-allotment option
exercised by the underwriters. The selling stockholders received net proceeds
of $347.8 million from the offering. In connection with this offering, we
incurred costs of approximately $0.9 million in the three months ended March
31, 2004. Credit Facility Our principal operating subsidiary, Communications, is party to an amended
and restated credit facility with lending commitments totaling approximately
$639.2 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 March 31, 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 March 31, 2004, $187.4 million was
outstanding under the multiple draw term loan and $251.8 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 1.00% per annum or
the Eurodollar rate plus 2.25% per annum. The weighted average interest rate on
outstanding borrowings under the credit facility as of March 31, 2004 was
3.51%. 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 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 March 31, 2004, the carrying
amount and fair value of this instrument was $0.1 million and is included in
Other Assets in the 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). 30




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##### 



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. 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 consolidated
statement of operations. 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 consolidated statement of operations. The following table summarizes activity with respect to our credit
facility from January 1, 2004 through March 31, 2004: Amount OwedUndrawnMultiple
    
    
    
    
    
    
    
    
    
    RevolvingDraw
    
    
    
    
    
    
    
    
    
    Credit FacilityTerm Loan
    
    Term Loan
    
    Total
    
    Commitment(In thousands)Balance, January 1, 2004
    
    $
    187,581
    
    
    $
    251,974
    
    
    $
    439,555
    
    
    $
    200,000Other repayments
    
    
    (171
    )
    
    
    (229
    )
    
    
    (400
    )
    
    
    Balance, March 31, 2004
    
    $
    187,410
    
    
    $
    251,745
    
    
    $
    439,155
    
    
    $
    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 $84.3 million at March 31, 2004 and
$60.4 million at December 31, 2003. We also had $439.2 million outstanding
under our credit facility at March 31, 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 March 31, 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 3.51% as of March 31, 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%. 31




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##### 



We are contractually obligated to acquire leasehold and sub-leasehold
interests in up to an additional 474 towers from SBC through August 2004. These
commitments will require a maximum of $123.2 million in the remainder of 2004.
In addition, we 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 next three
years. 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
the scope of tower construction and acquisition activity. The following table provides a summary of our material debt, lease and
other contractual commitments as of March 31, 2004: Payments Due by PeriodLess thanContractual Obligations
    
    Total
    
    1 Year
    
    1-3 Years
    
    4-5 Years
    
    After 5 Years(in thousands)Credit Facility
    
    $
    439,155
    
    
    $
    
    
    
    $
    134,132
    
    
    $
    305,023
    
    
    $
    Senior Notes
    
    
    200,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    200,000Capital Lease Payments
    
    
    887
    
    
    
    476
    
    
    
    411
    
    
    
    
    
    
    
    Operating Leases Payments
    
    
    314,999
    
    
    
    62,850
    
    
    
    92,229
    
    
    
    48,977
    
    
    
    110,943Asset Retirement Obligations
    
    
    38,710
    
    
    
    537
    
    
    
    766
    
    
    
    1,643
    
    
    
    35,764SBC Tower Purchase Commitment(1)
    
    
    123,240
    
    
    
    123,240
    
    
    
    
    
    
    
    
    
    
    
    Total Contractual Cash Obligations
    
    $
    1,116,991
    
    
    $
    187,103
    
    
    $
    227,538
    
    
    $
    355,643
    
    
    $
    346,707
   (1)
    
    Based on the estimated average purchase price of towers to be acquired
from SBC. In addition, we had standby letters of credit of $7.9 million and
performance bonds of $5.5 million outstanding at March 31, 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, 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: 32




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##### 




    
    it is the primary measure used by our management to evaluate the
economic productivity of our operations, including the efficiency of our
employees and the profitability associated with their performance, the
realization of contract revenue under our long-term contracts, our
ability to obtain and maintain our customers and our ability to operate
our leasing and licensing business effectively;
    
    it is widely used in the wireless tower industry to measure operating
performance without regard to items such as depreciation and
amortization, which can vary depending upon accounting methods and the
book value of assets; and
    
    we believe it helps investors meaningfully evaluate and compare the
results of our operations from period to period by removing the impact
of our capital structure (primarily interest charges from our
outstanding debt) and asset base (primarily depreciation and
amortization) from our operating results.Our management uses Adjusted EBITDA:
    
    as a measurement of operating performance because it assists us in
comparing our operating performance on a consistent basis as it removes
the impact of our capital structure (primarily interest charges from our
outstanding debt) and asset base (primarily depreciation and
amortization) from our operating results;
    
    in presentations to our Board of Directors to enable it to have the
same measurement of operating performance used by management;
    
    for planning purposes, including the preparation of our annual
operating budget;
    
    for compensation purposes, including the basis for incentive
quarterly and annual bonuses for certain employees, including our sales
force;
    
    as a valuation measure in strategic analyses in connection with the
purchase and sale of assets; and
    
    with respect to compliance with our credit facility, which requires
us to maintain certain financial ratios based on Annualized EBITDA (as
defined in our credit agreement). There are material limitations to using a measure such as Adjusted EBITDA,
including the difficulty associated with comparing results among more than one
company and the inability to analyze certain significant items, including
depreciation and interest expense, that directly affect our net income or loss.
Management compensates for these limitations by considering the economic effect
of the excluded expense items independently as well as in connection with its
analysis of net income. Adjusted EBITDA should be considered in addition to,
but not as a substitute for, other measures of financial performance reported
in accordance with GAAP. Adjusted EBITDA was calculated as follows for the periods presented: Reorganized
    
    Reorganized
    
    PredecessorCompany
    
    Company
    
    CompanyThree Months
    
    Two Months
    
    One MonthEnded
    
    Ended
    
    EndedMarch 31,
    
    March 31,
    
    January 31,2004
    
    2003
    
    2003(in thousands)Net income (loss)
    
    $
    7,130
    
    
    $
    (1,692
    )
    
    $
    344,970Depreciation, amortization and
accretion expenses
    
    
    25,416
    
    
    
    16,652
    
    
    
    15,930Interest income
    
    
    (214
    )
    
    
    (217
    )
    
    
    (137
    )Interest expense
    
    
    9,616
    
    
    
    9,261
    
    
    
    4,721Gain on debt discharge
    
    
    
    
    
    
    
    
    
    
    (1,034,764
    )Income tax expense
    
    
    2,806
    
    
    
    578
    
    
    
    5Reorganization items:Adjust accounts to fair value
    
    
    
    
    
    
    
    
    
    
    644,688Professional and other fees
    
    
    
    
    
    
    
    
    
    
    23,894Loss (income) from operations
of discontinued segment, net of
income tax expense
    
    
    124
    
    
    
    (14
    )
    
    
    686
 33




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##### 



Reorganized
    
    Reorganized
    
    PredecessorCompany
    
    Company
    
    CompanyThree Months
    
    Two Months
    
    One MonthEnded
    
    Ended
    
    EndedMarch 31,
    
    March 31,
    
    January 31,2004
    
    2003
    
    2003(in thousands)Loss on disposal of
discontinued segment
    
    
    343
    
    
    
    
    
    
    
    Cumulative effect of change in
accounting principle
    
    
    
    
    
    
    
    
    
    
    12,236Adjusted EBITDA
    
    $
    45,221
    
    
    $
    24,568
    
    
    $
    12,229
 Free Cash Flow.Free cash flow (deficit), as we have defined it, is
calculated as cash provided by operating activities less purchases of property
and equipment. We believe free cash flow to be relevant and useful information
to our investors as this measure is used by our management in evaluating our
liquidity and the cash generated by our consolidated operating businesses. Our
definition of free cash flow does not take into consideration cash provided by
or used for acquisitions or sales of tower assets or cash used to acquire other
businesses. Additionally, our definition of free cash flow does not reflect
cash used to make mandatory repayments of our debt obligations. The limitations
of using this measure include the difficulty in analyzing the impact on our
operating cash flow of certain discretionary expenditures, such as purchases of
property and equipment and our mandatory debt service requirements. Management
compensates for these limitations by analyzing the economic effect of these
expenditures and asset dispositions independently as well as in connection with
the analysis of our cash flow. Free cash flow reflects cash available for
financing activities, to strengthen our balance sheet, or cash available for
strategic investments, including acquisitions of tower assets or businesses. We
believe free cash flow should be considered in addition to, but not as a
substitute for, other measures of liquidity reported in accordance with GAAP.
Free cash flow, as we have defined it, may not be comparable to similarly
titled measures reported by other companies. Free cash flow (deficit) was
calculated as follows for the periods presented: Reorganized
    
    Reorganized
    
    PredecessorCompany
    
    Company
    
    CompanyThree Months
    
    Two Months
    
    One MonthEnded
    
    Ended
    
    EndedMarch 31,
    
    March 31,
    
    January 31,2004
    
    2003
    
    2003(in thousands)Net cash provided by
operating activities
    
    $
    27,840
    
    
    $
    11,927
    
    
    $
    5,892Less: Purchases of property and equipment
    
    
    (6,309
    )
    
    
    (2,255
    )
    
    
    (2,737
    )Free cash flow (deficit)
    
    $
    21,531
    
    
    $
    9,672
    
    
    $
    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
    
    Reorganized
    
    PredecessorCompany
    
    Company
    
    CompanyThree Months
    
    Two Months
    
    One MonthEnded
    
    Ended
    
    EndedMarch 31,
    
    March 31,
    
    January 31,2004
    
    2003
    
    2003(in thousands)Net cash provided by (used in)
investing activities
    
    $
    (7,817
    )
    
    $
    78,873
    
    
    $
    (2,737
    )Net cash provided by (used in)
financing activities
    
    $
    3,896
    
    
    $
    (76,128
    )
    
    $
    (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. 34




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##### 



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 fee based on a percentage of the gross revenue derived from the
rooftop site subject to the agreement. We recognize this fee 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, substantial down-grading of credit ratings), we
record a specific allowance against amounts due to reduce the net recognized
receivable from that customer to the amount we reasonably believe will be
collected. For all other customers, we reserve a percentage of the remaining
outstanding accounts receivable balance based on a review of the aging of
customer balances, industry experience and the current economic environment. If
circumstances change (e.g., higher than expected defaults or an unexpected
material adverse change in one or more significant customers ability to meet
its financial obligations to us), our estimates of the recoverability of
amounts due us could be reduced by a material amount. Property and Equipment Property and equipment built, purchased, leased or licensed under
long-term leasehold or license agreements are capitalized at cost and
depreciated over their estimated useful lives. We capitalize costs incurred in
bringing property and equipment to an operational state. Costs clearly
associated with the acquisition, development and construction of property and
equipment are capitalized as a cost of the assets. Indirect costs that relate
to several assets are capitalized and allocated to the assets to which the
costs relate. Indirect costs that do not clearly relate to projects under
development or construction are charged to expense as incurred. Estimates and
cost allocations are reviewed at the end of each financial reporting period.
Costs are revised and reallocated as necessary for material changes on the
basis of current estimates. In addition, upon initial recognition of a
liability for the retirement of a purchased or constructed asset under
Statement of Financial Accounting Standards No. 143, Accounting for Asset
Retirement Obligations,the cost of that liability is capitalized as part of
the cost basis of the related asset and depreciated over the related life of
the asset. Depreciation on property and equipment excluding towers is computed
using the straight-line method over the estimated useful lives of the assets
ranging from three to fifteen years. Depreciation on towers is computed using
the straight-line method over the estimated useful lives of 15 years for
wireless towers and 30 years for broadcast towers. Amortization of assets
recorded under capital leases is included in depreciation. 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. Fresh Start Accounting 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 35




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##### 



the present value of amounts to be paid determined using appropriate current
interest rates. The effective date is considered to be the close of business on
January 31, 2003 for financial reporting purposes. The periods presented prior
to January 31, 2003 have been designated Predecessor Company and the periods
subsequent to January 31, 2003 have been designated Reorganized Company. As a
result of the implementation of fresh start accounting, the financial
statements of the Company after the effective date are not comparable to the
Companys financial statements for prior periods. Impairment of Long-lived Assets 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. Effective January 1, 2002, 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 as of March 31, 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. 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 36




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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. Risks Relating to Our Business We emerged from a chapter 11 bankruptcy reorganization in February 2003, have a
history of losses and may not maintain profitability. Because we emerged from bankruptcy in February 2003 and have a history of
losses, we cannot assure you that we will maintain profitability in the near
future. We emerged from our chapter 11 bankruptcy reorganization as a new
reporting entity on February 10, 2003, approximately three months after filing
a voluntary petition for bankruptcy reorganization. Prior to our
reorganization, we incurred net losses of approximately $654.8 million in 2001
and $775.0 million in 2002. In connection with our reorganization, we adopted
fresh start accounting as of January 31, 2003. The net effect of all fresh
start accounting adjustments resulted in a charge of $644.7 million, which is
reflected in the statement of operations for the one month ended January 31,
2003. After our reorganization, we incurred net losses of approximately $19.7
million for the eleven months ended December 31, 2003 and earned net income of
$7.1 million in the three months ended March 31, 2004. If we cannot achieve and
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. 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. 37




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##### 



A decrease in the demand for our wireless communications sites and our ability
to secure additional customers could negatively impact our ability to achieve
and maintain profitability. Our business depends on demand for communications sites from wireless
service providers, which in turn, depends on consumer demand for wireless
services. A reduction in demand for our communications sites or increased
competition for additional customers could have an adverse effect on our
business. Our wireless service provider customers lease and license
communications sites on our towers based on a number of factors, including the
level of demand by consumers for wireless services, the financial condition and
access to capital of those providers, the strategy of providers with respect to
owning, leasing or sharing communications sites, available spectrum and related
infrastructure, competitive pricing, consolidation among our customers and
potential customers, government regulation of communications licenses, changes
in telecommunications regulations, the characteristics of each companys
technology and geographic terrain. Any decrease in the demand for our
communications sites from current levels or in our ability to secure additional
customers could decrease our ability to become and remain profitable and could
decrease the value of your investment. The financial and operating difficulties in the wireless telecommunications
sector, which have negatively affected some of our customers, could adversely
impact our revenues and profitability. The slowdown and intense competition in the wireless and
telecommunications industries over the past several years have impaired the
financial condition of some of our customers. The financial uncertainties
facing our customers could reduce demand for our communications sites, increase
our bad debt expense and reduce prices on new customer contracts. In addition,
we may be negatively impacted by our customers limited access to debt and
equity capital, which may constrain their ability to conduct business with us.
As a result, our growth strategy, revenues and profitability may be adversely
affected. An increase in the spectrum available for wireless services may impact the
demand for our communication towers, which may negatively impact our operating
results. It is expected that additional spectrum for the provision of wireless services
will be made available over the next few years. For example, the FCC is
required to make available for commercial use a portion of the frequency
spectrum currently reserved for government use. Some portion of this spectrum
may be used to create new land mobile services or to expand existing offerings.
Further, the FCC has auctioned or announced plans to auction large blocks of
spectrum that will in the future be used to expand existing wireless networks
and to create new or advanced wireless services. This additional spectrum could
be used to replace existing spectrum and could be deployed in a manner that
reduces the need for communications towers to transmit signals over existing
spectrum. Any increased spectrum could have an adverse impact on our business
and may impair our operating results. Because a significant portion of our revenue depends on a small number of
customers, the loss of any of these customers could decrease our revenues. A significant portion of our revenue is derived from a small number of
customers. For example, Nextel (including its affiliates) and Cingular
represented approximately 29% and 23%, respectively, of our revenues for the
one month ended January 31, 2003, 30% and 20%, respectively, of our revenues
for the eleven months ended December 31, 2003 and 28% and 21% of our revenues
for the three months ended March 31, 2004. If Nextel, Cingular 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, 38




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or any related litigation, could hurt our business and lead to decreased
revenues (including as a result of losing a customer or lessor) or increased
costs, any of which may have a negative impact on our operating results. If we are unable to successfully compete, our business will suffer. We believe that tower location and capacity, price, quality of service and
density within a geographic market historically have been, and will continue to
be, the most significant competitive factors affecting our site operations
business. We compete for customers with:  
    
    wireless service providers that own and operate their own towers
and lease, or may in the future decide to lease, antenna space to other
providers;
    
    other independent tower operators; and
    
    owners of non-tower antenna sites, including rooftops, water towers and other alternate structures. Some of our competitors have significantly more financial resources than
we do. The intense competition in our industry may make it more difficult for
us to attract new customers, increase our gross margins or maintain or increase
our market share. Competing technologies and other service options offer alternatives to
ground-based antenna systems and allow our customers to increase wireless
capacity without increased use of ground-based facilities, both of which could
reduce the demand for our sites. Most types of wireless and broadcast services currently require
ground-based network facilities, including communications sites for
transmission and reception. The development and growth of communications and
other new technologies that do not require ground-based sites could reduce the
demand for space on our towers. For example, the growth in delivery of video,
voice and data services by satellites, which allow communication directly to
users terminals without the use of ground-based facilities, could lessen
demand for our sites. Moreover, the FCC has issued licenses for several
additional satellite systems (including low earth orbit systems) that are
intended to provide more advanced, high-speed data services directly to
consumers. These satellite systems compete with land-based wireless
communications systems, thereby reducing the demand for the services that we
provide. Technological developments are also making it possible for carriers to
expand their use of existing facilities to provide service without additional
tower facilities. The increased use by carriers of signal combining and related
technologies, which allow two or more carriers to provide services on different
transmission frequencies using the communications antenna and other facilities
normally used by only one carrier, could reduce the demand for tower-based
broadcast transmissions and antenna space. In addition to sharing transmitters,
carriers are sharing (or considering the sharing of) telecommunications
infrastructure in ways that might adversely impact the growth of our business.
Furthermore, wireless service providers frequently enter into agreements with
competitors allowing them to utilize one anothers wireless communications
facilities to accommodate customers who are out of range of their home
providers services, so that the home providers do not need to lease space for
their own antennas on communications sites we own. Any of the conditions and
developments described above could reduce demand for our ground-based antenna
sites, and may have an adverse effect on our business and revenues. We may be unable to modify towers and add new customers, which could negatively
impact our growth strategy and our business. Our business depends on our ability to modify towers and add new customers
as they expand their tower network infrastructure. Regulatory and other
barriers could adversely affect our ability to modify towers in accordance with
the requirements of our customers, and, as a result, we may not be able to meet
our customers requirements. Our ability to modify towers and add new customers
to towers may be affected by a number of factors beyond our control, including
zoning and local permitting requirements, Federal Aviation Administration, or
FAA, considerations, FCC tower registration procedures, availability of tower
components and construction equipment, availability of skilled construction
personnel, weather conditions and environmental compliance issues. In addition,
because public concern over tower proliferation has grown in recent years, many
communities now restrict tower modifications or delay granting permits required
for adding new customers. In addition, we may not be 39




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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. We have agreed to complete the lease or sublease of 474 towers from
affiliates of SBC Communications (SBC) between May and August 2004. 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, these acquisitions may be
financed through the issuance of additional equity, which would dilute your
interest as a stockholder. Moreover, any future acquisitions may not generate
any additional income for us or provide any benefit to our business. We may be unable to attract and retain key personnel, which would adversely
affect our ability to effectively manage our business. Our future performance depends largely on the continued services of senior
executive officers, including, but not limited to, our Chief Executive Officer,
Stephen H. Clark, our Chief Operating Officer, Timothy G. Biltz, and our Chief
Financial Officer, David P. Tomick. 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
Messrs. Clark, Biltz and Tomick each has an employment agreement with
SpectraSite, the loss of any of these key employees would likely 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. 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; 40




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
    
    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. 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
approximately 25 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 and Ohio, that have historically
been subject to natural disasters, such as high winds, floods, earthquakes and
severe weather. A tower accident for which we do not have adequate insurance
reserves or have no insurance, or a large amount of damage to a group of
towers, could decrease the value of our assets and have an adverse effect on
our operating results. If radio frequency emissions from our towers are demonstrated, or perceived, to
cause negative health effects, our business and revenues may be adversely
affected. The safety guidelines for radio frequency emissions from our sites require
us to undertake safety measures to protect workers whose activities bring them
into proximity with the emitters and to restrict access to our sites by others.
If radio frequency emissions are found, or perceived, to be harmful, our
customers and possibly our company could face lawsuits claiming damages from
these emissions, and demand for wireless services and new towers, and thus our
business and revenues could be adversely affected. Although we have not been
subject to any claims relating to radio frequency emissions, we cannot assure
you that these claims will not arise in the future or that they will not
negatively impact our business. Our indebtedness could impair our financial condition and make it more
difficult for us to fund our operations. We are, and may continue to be, leveraged. As of March 31, 2004, we had
$640.0 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; 41




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
    
    limit our ability to obtain additional financing;
    
    require the dedication of a substantial portion of our cash flow
from operations to the payment of principal of, and interest on, our
indebtedness, reducing available cash flow to fund other projects;
    
    limit our flexibility in planning for, or reacting to, changes in our business and the industry; and
    
    place us at a competitive disadvantage relative to less leveraged competitors. Our ability to generate sufficient cash flow from operations to pay the
principal of, and interest on, our indebtedness is uncertain. In particular, we
may not meet our anticipated revenue growth and operating expense targets, and,
as a result, our future debt service obligations, including our obligations on
our senior notes, could exceed cash available to us. Further, we may not be
able to refinance any of our indebtedness on commercially reasonable terms or
at all. In addition, we may be able to incur significant additional indebtedness
in the future. To the extent new debt is added to our current debt levels, the
risks described above would increase, which could have a material adverse
effect on our operations and our ability to run our business. Repayment of the principal of our outstanding indebtedness, including our
senior notes, may require additional financing that we cannot assure you will
be available to us. We have historically financed our operations primarily with indebtedness.
Our ability to generate sufficient cash flow from operations to make scheduled
payments on our debt obligations, including our senior notes, will continue to
depend on our future financial performance. In addition, we currently
anticipate that, in order to pay the principal of our outstanding indebtedness,
including our senior notes, or to repay such indebtedness upon a change of
control as defined in the instruments governing our indebtedness, we may be
required to adopt one or more alternatives, such as refinancing our
indebtedness or selling our equity securities or the equity securities or
assets of our subsidiaries. We cannot assure you that we could affect any of
the foregoing alternatives on terms satisfactory to us, that any of the
foregoing alternatives would enable us to pay the interest or principal of our
indebtedness or that any of such alternatives would be permitted by the terms
of our credit facility and other indebtedness then in effect. The terms of our credit facility and the indenture relating to our senior notes
may restrict our current and future operations, which could adversely affect
our ability to respond to changes in our business and to manage our operations. Our credit facility and the indenture relating to our senior notes
contain, and any future indebtedness of ours would likely contain, a number of
restrictive covenants that impose significant operating and financial
restrictions on us, including restrictions on our ability to, among other
things:  
    
    incur additional debt;
    
    pay dividends and make other restricted payments;
    
    create liens;
    
    make investments;
    
    engage in sales of assets and subsidiary stock;
    
    enter into sale-leaseback transactions;
    
    enter into transactions with affiliates;
    
    transfer all or substantially all of our assets or enter into merger or consolidation transactions; and 42




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
    
    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 March 31, 2004, we had
48,216,194 shares of common stock outstanding and we have reserved an
additional 5,285,880 shares of common stock for issuance under our stock option
plan and 2,497,876 shares of common stock for issuance upon the exercise of
warrants. All of our outstanding shares of common stock, as well as the shares
of common stock issuable upon exercise of outstanding stock options and
warrants, are or will be freely tradable without restriction or further
registration under the federal securities laws, except to the extent they are
held by one of our affiliates, as that term is defined in Rule 144 under the
Securities Act. In connection with the February 2004 secondary public offering of our
common stock, we, the selling stockholders and our current directors and
executive officers agreed with the underwriters not to dispose of or hedge any
of their common stock or securities convertible into or exchangeable for shares
of common stock during the period of 90 days after the date of the final
prospectus for such offering, except for sales to us and sales pursuant to
certain pre-arranged trading plans adopted by certain of our executive officers
under Rule 10b5-1 promulgated by the Securities and Exchange Commission, or
with the prior written consent of Goldman, Sachs & Co. After the expiration of the 90 day lock-up period set forth in the
agreement pursuant to which all of the selling stockholders and our directors
and executive officers are parties, and subject to certain exceptions set forth
therein, these individuals and entities will be entitled to dispose of their
remaining shares, although the shares of common stock held by our affiliates
will continue to be subject to the volume and other restrictions of Rule 144
under the Securities Act. In addition, the underwriters may, in their sole
discretion and at any time without notice, release all or a portion of the
shares subject to the lock-up. The shares that are released from the lock-up
will be freely tradable without restriction or further registration under the
federal securities laws, except to the extent they are held by one of our
affiliates. Three stockholders holding an aggregate of approximately 10.3 million
shares of our common stock (including shares issuable upon the exercise of
outstanding options) have the right (subject to limited conditions) to require
us to file registration statements covering their shares or to include their
shares in registration statements that we may file for ourselves or other
stockholders. Sales by these stockholders in a registered public offering would
not be subject to the limitations of Rule 144 under the Securities Act. In
October 2003, certain of our executive officers entered into Rule 10b5-1
trading plans with respect to their anticipated sales of our common stock upon
the exercise 43




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of stock options held by such officers. These sales began in February 2004 and
may continue during 2004 and thereafter. 44




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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 March 31, 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 March 31, 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 March 31, 2004 and December 31, 2003, we had $439.2 million and
$439.6 million, respectively, of variable rate debt outstanding under our
credit facility at a weighted average interest rate of 3.51% and 3.95%,
respectively. A 1% increase in the interest rate on our variable rate debt
would have increased interest expense by approximately $1.1 million, $1.2
million and $0.7 million in the three months ended March 31, 2004, the two
months ended March 31, 2003 and the one month ended January 31, 2003,
respectively. In addition, as of March 31, 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 March 31, 2004,
the carrying amount and fair value of this instrument was $0.1 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 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. PART II  OTHER INFORMATION Item 1.Legal Proceedings None. Item 2.Changes in Securities and Use of Proceeds None. Item 3.Defaults Upon Senior Securities None. Item 4.Submission of Matters to a Vote of Security Holders 45




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None. Item 5.Other Information None. Item 6.Exhibits and Reports on Form 8-K (a)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
    
    Amendment No. 5 to the Credit Agreement, dated February 9, 2004, by
and among SpectraSite Communications, Inc., as Borrower, and
certain other parties thereto. Incorporated by reference to exhibit
no. 10.9 to the Registrants Form 10-K for the year ended December
31, 2003.31.1*
    
    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 and 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(b) Reports on Form 8-K On February 2, 2004, the Registrant filed a current report on Form 8-K
related to a press release announcing the Registrants financial results for
the quarter ended December 31, 2003. 46




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On February 25, 2004, the Registrant filed a current report on Form 8-K
related to certain Regulation FD disclosure concerning restated selected
quarterly financial data for the period ended December 31, 2003. 47




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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/ DAVID P. TOMICKDavid P. TomickExecutive Vice President, Chief Financial Officer andAssistant Secretary/s/ GABRIELA GONZALEZGabriela GonzalezSenior Vice President and Corporate Controller, PrincipalAccounting Officer
 Date: April 21, 2004 48




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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
    
    Amendment No. 5 to the Credit Agreement, dated February 9, 2004, by
and among SpectraSite Communications, Inc., as Borrower, and
certain other parties thereto. Incorporated by reference to exhibit
no. 10.9 to the Registrants Form 10-K for the year ended December
31, 2003.31.1*
    
    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 and 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 49