UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

COMMISSION FILE NUMBER: 001-31769

SpectraSite, Inc.

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 þ No o

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

Yes þ No o

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 þ No o

As of May 6, 2005, the registrant had only one outstanding class of common stock, of which there were 46,939,823 shares outstanding.

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INDEX

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SPECTRASITE, INC. AND SUBSIDIARIES

See accompanying notes.

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SPECTRASITE, INC. AND SUBSIDIARIES

See accompanying notes.

4

SPECTRASITE, INC. AND SUBSIDIARIES

See accompanying notes.

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SPECTRASITE, INC. AND SUBSIDIARIES

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See accompanying notes.

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SPECTRASITE, INC. AND SUBSIDIARIES

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

     SpectraSite, Inc. and its wholly owned subsidiaries (collectively referred to as the “Company”, “SpectraSite”, “we”, and “us”) 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.

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 the three months ended March 31, 2004 and 2005), which are, in the opinion of management, necessary for a fair presentation of results for interim periods. Results of interim periods are not necessarily indicative of the results to be expected for a full year.

Restatement of Previously Issued Financial Statements

     In the Company’s Annual Report on Form 10-K for the year ended December 31, 2004, filed on March 16, 2005, the Company restated its consolidated balance sheet as of December 31, 2003 and its consolidated statements of operations, stockholders’ equity and cash flows for the eleven months ended December 31, 2003. In addition, the restatement affected the two months ended March 31, 2003, the second and third quarters of 2003 and the first, second and third quarters of 2004. The restatement corrected errors relating to the Company’s accounting for (i) the recognition of ground lease rent expense related to certain ground leases underlying our tower sites, and (ii) the amortization of leasehold improvements (primarily wireless and broadcast towers).

     The following table presents the impact of the restatement adjustments described below on net income for the three months ended March 31, 2004:

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     The following tables present the impact of the restatement adjustments on the Company’s previously reported results for the three months ended March 31, 2004 on a condensed basis:

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, fair value of long-lived assets and asset retirement obligations.

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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 current term of the lease or license. The non-cash portion of revenues attributable to straight-line recognition was approximately $1.8 million and $3.0 million for the three months ended March 31, 2005 and 2004, respectively. Revenues from fees, such as structural analysis fees and site inspection fees, are recognized once an agreement has been executed, the price is fixed and determinable, delivery of services has occurred and collectibility is reasonably assured. Additionally, the Company generates revenues related to the management of sites on rooftops. Under each site management agreement, the Company is entitled to a recurring fee based on a percentage of the gross revenue derived from the rooftop site subject to the agreement. The Company recognizes these recurring fees as revenue when earned.

Deferred Revenue

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

Allowance for Uncollectible Accounts

     The Company evaluates the collectibility of accounts receivable based on a combination of factors. In circumstances where a specific customer’s ability to meet its financial obligations to the Company is in question, the Company records a specific allowance against amounts due to reduce the net recognized receivable from that customer to the amount it reasonably believes will be collected. For all other customers, the Company reserves a percentage of the remaining outstanding accounts receivable balance based on a review of the aging of customer balances, industry experience and the current economic environment. The allowance for uncollectible accounts, computed based on the above methodology, was $5.0 million and $5.9 million as of March 31, 2005 and December 31, 2004, respectively. Activity in the allowance for uncollectible accounts consisted of the following:

Costs of Operations

     Costs of operations consist of direct costs incurred to provide the related services including ground lease expense, tower maintenance, utilities and related real estate taxes. Ground lease expense is recognized on a straight-line basis over the lease term, including cancelable option periods where failure to exercise such options would result in an economic penalty such that at lease inception the renewal option is reasonably assured of being exercised. The non-cash portion of ground lease expense attributable to straight-line recognition was approximately $4.3 million and $4.8 million for the three months ended March 31, 2005 and 2004, respectively. Costs of operations do not include depreciation and amortization expense on the related assets.

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Investments in Other Entities

     The Company makes strategic investments in companies that have developed or are developing innovative wireless technology. Investments in corporate entities with less than a 20% voting interest are generally accounted for under the cost method. Investments in entities where the Company owns less than twenty percent but has the ability to exercise significant influence over operating and financial policies of the entity or where the Company owns more than twenty percent of the voting stock of the individual entity, but not in excess of fifty percent, are accounted for using the equity method. The Company’s investments are in companies that are not publicly traded, and, therefore, no established market for these securities exists. The Company reviews the fair value of its investments on a regular basis to evaluate the carrying value of the investments in these companies. If the Company believes that the carrying value of an investment is carried at an amount in excess of fair value and the decline is other than temporary, the Company records an impairment charge to adjust the carrying value to market value. As of March 31, 2005 and December 31, 2004, the Company’s investments in other entities were accounted for using the cost method and the carrying value was $2.0 million.

Property and Equipment

     Property and equipment built, purchased or leased under long-term leasehold agreements are recorded at cost. Self-constructed assets include both direct and indirect costs associated with construction as well as capitalized interest. Approximately $0.3 million and $0.2 million of interest was capitalized for the three months ended March 31, 2005 and 2004, respectively. 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 is recorded using the straight-line method over the estimated useful lives of the related assets. Property and equipment acquired through capitalized leases and leasehold improvements (primarily wireless and broadcast towers) are amortized over the shorter of the lease term or their estimated useful life. Lease terms include cancelable option periods where failure to exercise such options would result in an economic penalty such that at lease inception the renewal option is reasonably assured of exercise. The estimated useful lives of our significant property and equipment classifications are as follows:

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 goodwill over the remaining useful life. The Company estimates future cash flows based on the current performance of the acquired assets and its business plan for those assets. Changes in business conditions, major customers or other factors could result in changes in those estimates. Goodwill determined to be unrecoverable based on future cash flows is written off in the period in which such determination is made. The Company had no recorded goodwill as of December 31, 2004 and $2.8 million of goodwill as of March 31, 2005. Goodwill as of March 31, 2005 is associated with the acquisition of Green Mountain Wireless, Inc., a New Hampshire corporation. See Note 4 for further discussion of this acquisition.

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Intangible Assets Subject to Amortization

     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” on January 31, 2003. Under SOP 90-7, deferred tax benefits related to federal and state net operating loss carry-forwards 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, 2005, the Company recognized deferred income tax expense and reduced its customer contracts by $7.3 million.

     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 (including renewal options) or the remaining life of the related tower asset, not to exceed 15 years for wireless towers and 30 years for broadcast towers. Changes in customer contracts for the three months ended March 31, 2005 consisted of the following:

     The Company estimates amortization expense related to customer contracts to be approximately $11.5 million for each of the next five years.

     Right to Lease Agreements

     The Company has entered into Right to Lease agreements with various licensees to provide access to interior space for in-building equipment. The initial access fees for these agreements are amortized over a period of either 3 or 10 years, depending on the terms of the lease agreement. Changes in right to lease agreements for the three months ended March 31, 2005 consisted of the following:

     The Company estimates amortization expense related to right to lease agreements to be approximately $0.1 million per year through 2006 and decrease to approximately $0.05 million per year from 2007 through 2009.

Debt Issuance Costs

     The Company capitalizes costs relating to the issuance of long-term debt and senior notes. These capitalized debt issuance costs are included in Other assets in the accompanying consolidated balance sheets. These costs are amortized to interest expense using the straight-line method over the term of the related debt.

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     The following table summarizes activity with respect to debt issuance costs for the three months ended March 31, 2005:

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 in accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS 144”). 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.

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 value of derivative financial instruments are either recognized in earnings or in stockholders’ equity (deficit) as a component of accumulated other comprehensive income (loss) 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, 2005 and 2004, the Company recognized a loss on the change in the fair value of this instrument of approximately $200 and $0.1 million, respectively. The carrying amount and fair value of this instrument was negligible as of March 31, 2005 and December 31, 2004 and is included in Other assets in the accompanying consolidated balance sheets.

     In December 2004, the Company entered into an interest rate swap agreement 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. The carrying amount and fair value of this instrument was $7.9 million and $0.6 million as of March 31, 2005 and December 31, 2004, respectively, and is included in Other assets in the consolidated balance sheet. During the three months ended March 31, 2005, the Company recognized a gain on the change in fair value of this instrument of $7.3 million. Including the effect of the interest rate swap, the weighted average interest rate on outstanding borrowings under the credit facility was 5.07% and 4.83% as of March 31, 2005 and December 31, 2004, respectively.

Liabilities under SBC Agreement

     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 agreements with affiliates of SBC Communications (“SBC”). 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

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service, and the estimated fair value of the towers based on an independent valuation. At each closing, the liability was reduced by a portion of the purchase price of each tower. In addition, the liability was reduced by the amount of costs incurred to place the acquired towers in service. In the three months ended March 31, 2004, the Company leased or subleased 6 towers, for which it paid $1.7 million, of which $0.6 million was charged against the liability. In addition, on February 17, 2004, the parties agreed to reduce the Company’s remaining commitment by five towers. In connection with this reduction, the associated liability was reduced by $0.5 million and was recorded as Other income. On August 16, 2004, the Company completed its last closing under its agreement with SBC.

Assets Held for Sale and Discontinued Operations

     On December 16, 2003, the Company decided to sell its broadcast services division and, on March 1, 2004, the division was sold. In connection with the sale, the Company recorded promissory notes receivable from the buyer. At the time of sale, the notes receivable were recorded at their estimated fair value by recording a valuation allowance against the notes. During the three months ended March 31, 2004, the Company recorded a loss on disposal of the division of $0.3 million. The valuation allowance is periodically evaluated against actual collection experience and estimates of future collectibility. In the three months ended March 31, 2005, the Company recorded a gain of $0.3 million on the disposal of the division relating to the partial collection and re-evaluation of the collectibility of the notes receivable as of March 31, 2005. The results of the broadcast services operations have been reported separately as discontinued operations in the unaudited consolidated statements of operations. As permitted under Statement of Financial Accounting Standards No. 95, “Statement of Cash Flows,” the statements of cash flows do not separately disclose the cash flows related to discontinued operations.

Significant Customers

     The Company’s customer base consists of businesses operating in the wireless telecommunications and broadcast industries. The Company’s exposure to credit risk consists primarily of unsecured accounts receivable from these customers.

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

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Restructuring and Non-recurring Charges

     The following table displays activity related to the accrued restructuring liability. Such liability is reflected in Accrued and other expenses in the accompanying condensed consolidated balance sheets. All activity, other than cash payments, for the period presented below is included in the determination of net income.

Accounting for Income Taxes

     As part of the process of preparing its 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 it believes that recovery is not likely, a valuation allowance must be established. 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 valuation allowance of $523.5 million and $530.8 million as of March 31, 2005 and December 31, 2004, respectively, due to uncertainties related to utilization of deferred tax assets, primarily consisting of net operating loss carryforwards and tax basis in fixed assets.

     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 carry-forwards and tax basis differences generated prior to its emergence from bankruptcy that are realized by it 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, 2005 and 2004, the Company recognized deferred income tax expense and reduced its intangible assets by $7.3 million and $0.4 million, respectively.

Earnings Per Share

     Basic and diluted income (loss) per share are calculated in accordance with Statement of Financial Accounting Standards No. 128, Earnings per Share (“SFAS 128”). During the three months ended March 31, 2005 and 2004, the Company had potential common stock equivalents related to its new warrants and outstanding stock options on common stock. Approximately 3.5 million options to purchase common stock and warrants exercisable into approximately 2.0 million shares of common stock were included in the calculation of diluted earnings per share for the three months ended March 31, 2005. Approximately 5.1 million options to purchase common stock and warrants exercisable into approximately 2.5 million shares of common stock were included in the calculation of diluted earnings per share for the three months ended March 31, 2004. The shares used in computation of the Company’s basic and diluted earnings per share are reconciled as follows:

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     On November 19, 2004, the Company repurchased 2,693,481 shares of common stock at a purchase price of $150.0 million under an accelerated stock buyback agreement (the “ASB”) with Goldman Sachs & Co. Under the ASB, the repurchased shares are subject to a market price adjustment provision which may require settlement in either cash or stock by the Company based on the volume weighted average market trading price of the Company’s shares from November 19, 2004 through March 18, 2005. Based on average trading prices of the Company’s shares through December 31, 2004, the estimated fair value of the market price adjustment was $3.8 million. At the end of the trading period on March 18, 2005, the market price adjustment was approximately $9.4 million, which was settled in cash on April 29, 2005. In accordance with the provisions of Emerging Issues Task Force Topic D-72, Effect of Contracts That May Be Settled in Stock or Cash on the Computation of Diluted Earnings per Share, the change in fair value of the market price adjustment during the three months ended March 31, 2005 of $5.6 million has been deducted from net income for purposes of computing diluted net income per share. The following table reconciles net income, as reported, to the adjusted net income used to compute diluted earnings per share:

     For the year ended December 31, 2004, the Company computed diluted earnings per share assuming the ASB market price adjustment would be settled through a net share settlement. Accordingly, the estimated shares issuable based on the fair market value of the ASB contract at December 31, 2004 was originally included in the weighted average shares outstanding used to compute diluted earnings per share. Had the Company reflected the cash settlement of the ASB market price in the computation of diluted earnings per share for the year ended December 31, 2004, such per share amounts would have decreased from $0.47 per share to $0.40 per share.

Stock Options and Awards

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

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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.

     On February 10, 2003, the Company adopted the 2003 Equity Incentive Plan to grant equity-based incentives in common stock to employees and directors. The maximum number of shares which can be issued under the plan, as amended, does not exceed 6.0 million shares. Stock options are granted under various stock option agreements and each stock option agreement contains specific terms.

     In March 2003, the Company granted approximately 5.4 million options to purchase common stock under this plan. In general, the initial options granted to employees vest and become exercisable as follows: 20% on the grant date, 50% ratably over a thirty-six month period commencing one month after date of grant and 30% which vest automatically on the sixth anniversary of the grant date. Vesting of this 30% could be accelerated upon the achievement of certain performance milestones approved by the Board of Directors (the “Performance Arrangement”). In general, options granted to employees subsequent to the initial grant vest and become exercisable as follows: 70% ratably over a thirty-six month period commencing one month after date of grant and 30% under the Performance Arrangement. Options granted to members of the board of directors vest 20% on the grant date and 80% ratably over a thirty-six month period commencing one month after date of grant.

     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, 2005 and 2004 would have been as follows:

     In addition, in connection with commencement of service on the Company’s Board of Directors, on July 28, 2004, each of the five new non-employee Directors received for nominal consideration 1,500 shares of restricted common stock of the Company for a total of 7,500 shares of restricted common stock. These shares were issued under the Company’s 2003 Equity Incentive Plan and are restricted until June 30, 2005, when they become fully vested. The Company will recognize an expense of $0.3 million on a straight-line basis over the restricted period. For the year ended December 31, 2004 and the three months ended March 31, 2005, $159,000 and $79,000 was charged to expense, respectively.

Share Repurchase Plan

     On July 28, 2004, the Board of Directors authorized the repurchase of shares of the Company’s common stock up to an aggregate amount of $175.0 million. On November 22, 2004, the Board of Directors authorized an increase

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of $125.0 million for a total repurchase authorization of $300.0 million.

     On November 22, 2004, the Company announced the repurchase of approximately $150.0 million of its outstanding common stock, or approximately 2.7 million shares, under the ASB with Goldman, Sachs & Co. Under the ASB, the repurchased shares are subject to a market price adjustment provision which requires that we make a payment in either cash or stock based on the volume weighted average market trading price of our shares from November 19, 2004, through March 18, 2005. The Company elected to settle the obligation with payment in cash and, on April 29, 2005, pursuant to the market price adjustment provision in the ASB, the Company paid approximately $9.4 million to Goldman, Sachs & Co.

     As of March 31, 2005, the Company had repurchased 3,679,881 shares at an average price of $55.75 per share including commissions and the ASB market price adjustment provision. Including legal costs of $0.3 million, the Company’s cost basis for these shares was an average price of $55.83 per share. No shares were purchased in the three months ended March 31, 2005. The Company holds all repurchased shares as treasury stock.

Treasury Stock

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

Asset Retirement Obligations

     Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations (“SFAS 143”) requires that the fair value of legal obligations associated with the retirement of long-lived assets be recognized in the period in which the obligation 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 related long-lived asset and allocated to expense over the useful life of the asset. The Company records asset retirement obligations related to certain ground leases that require removal of the tower asset upon expiration. These obligations are included in Other long term liabilities in the consolidated balance sheets. The following table displays activity related to the asset retirement obligations:

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Commitments and 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 2004 consolidated financial statements to conform to the 2005 presentation. These reclassifications had no effect on net income or stockholders’ equity as previously reported.

2. Property and Equipment

     Property and equipment consist of the following:

3. Recently Issued Accounting Pronouncements

     In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123 (revised 2004), Share Based Payment (“SFAS 123(R)”). SFAS 123(R) replaces Statement of Financial Standards No. 123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees. SFAS 123(R) requires that the cost resulting from all share-based payment transactions be recognized in the financial statements using the fair value method. The provisions of SFAS 123(R) are effective for public entities that do not file as small business issuers as of the beginning of the first interim or annual reporting period of the first fiscal year that begins on or after June 15, 2005. Accordingly, the adoption of the SFAS 123(R) fair value method will have a significant impact on our results of operations, although it will have no impact on our overall financial position. The impact of adoption of SFAS 123(R) cannot be predicted at this time because it will depend on levels of share-based payments granted in the future. However, had we adopted SFAS 123(R) in prior periods, the impact of the standard would have approximated the impact of SFAS 123 as described in the disclosure of pro forma net income (loss) and earnings (loss) per share in Note 1 to our consolidated financial statements. SFAS 123(R) also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as required under Financial Accounting Standards No. 95, Statement of Cash Flows. We will recognize excess tax benefits when those benefits reduce current income taxes payable. SFAS 123(R) permits public companies to adopt its requirements using one of two methods:

	•	A modified prospective method in which compensation cost is recognized beginning with the effective date (a) based on the requirements of SFAS 123(R) for all share-based payments granted after the effective date and (b) based on the requirements of SFAS 123 for all awards granted to employees and directors prior to that effective date of SFAS 123(R) that remain unvested on the effective date.
	•	A modified retrospective method which includes the requirements of the modified prospective method described above, but also permits entities to restate based on the amounts previously recognized under SFAS 123 for purposes of pro forma disclosures either (a) all prior periods presented or (b) prior interim periods of the year of adoption.

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     The Company has not made a determination as to the method that will be utilized.

4. Acquisition and Disposition Activities

     General — Acquisition activity, asset acquisitions and business combinations are accounted for using the purchase method of accounting. For business combinations, the purchase prices have been allocated to the net assets acquired, principally tangible and intangible assets, and the liabilities assumed based on their estimated fair values at the date of acquisition. The excess of the purchase price over the estimated fair value of the net assets acquired has been recorded as goodwill and other intangible assets. The operating results of these acquisitions have been included in the Company’s consolidated results of operations from the date of acquisition. For asset acquisitions, the cost was assigned to the assets acquired.

     2005 Acquisitions — SpectraSite Outdoor Distributed Antenna System Networks — On January 12, 2005, we acquired the outstanding common stock of Green Mountain Wireless, Inc., a New Hampshire corporation (“Green Mountain”), for cash consideration of $2.8 million after certain working capital adjustments. Green Mountain, which operates under SpectraSite Outdoor DAS Networks, Inc., a Delaware corporation (“SODN”), specializes in the construction and operation of outdoor shared distributed antenna systems within the New England region. The excess purchase price over the net asset value on the date of the acquisition is attributable to our assessment of future business opportunities in the distributed antenna systems industry.

     The SODN purchase was accounted for as a purchase business combination and the purchase price was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their respective fair values on the acquisition date. The results of SODN are included in our consolidated results from and after January 12, 2005.

     The following table summarizes the preliminary allocation of the purchase price to the assets acquired and liabilities assumed at the date of acquisition:

     The $2.8 million of goodwill was assigned to our wireless segment. The allocated goodwill is not deductible for income tax purposes.

     2004 Acquisitions — SBC transaction — Pursuant to an agreement with SBC, the Company leased or subleased approximately 2,500 towers from SBC between December 2000 and August 2004. During the three months ended March 31, 2004, the Company leased or subleased 6 towers from SBC under this agreement. 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.

     The Company has the option to purchase the sites subject to the lease or sublease upon the expiration of the lease or sublease as to those sites. The purchase price for each site was a fixed amount stated in the sublease for that site plus the fair market value of certain alterations made to the related tower by SBC. The aggregate purchase option price for the towers leased and subleased to date was approximately $262.8 million as of March 31, 2005, and will accrete at a rate of 10% per year to the applicable expiration of the lease or sublease of a site. For all such sites

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purchased by the Company, SBC has 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 is subject to an annual increase based on changes in the consumer price index.

5. Financing Transactions

Credit Facility

     SpectraSite Communications, Inc. (“Communications”), a wholly-owned subsidiary of SpectraSite, entered into a $900.0 million senior secured credit facility on November 19, 2004, with a syndicate of lenders led by Toronto Dominion Securities (USA) LLC (“TD”), and Citigroup Global Markets Inc. The credit facility replaces Communications’ previous facility of $638.2 million, of which $438.2 million was drawn as of the closing of this facility. Proceeds from borrowings of $450.0 million made at closing under the new facility were used to repay Communications’ previous senior secured credit facility including all related fees and expenses. SpectraSite anticipates using the facility for general corporate purposes, including acquisitions and financing distributions to its stockholders. On November 29, 2004, Communications borrowed an additional $100.0 million under its multiple draw term loan. As of March 31, 2005, the credit facility includes:

	•	a $200.0 million undrawn revolving credit facility, against which $4.9 million of letters of credit are outstanding, maturing on November 19, 2011;
	•	a $300.0 million multiple draw term loan that has $150.0 million outstanding and which must be repaid in quarterly installments which begin on December 31, 2006 and end on November 19, 2011; and
	•	a $399.0 million term loan that is fully drawn and which must be repaid in quarterly installments which began on March 31, 2005 and end on May 19, 2012.

     As of March 31, 2005 and December 31, 2004, Communications has $549.0 million and $550.0 million outstanding under the credit facility, respectively. In addition, under the terms of the credit facility, Communications could borrow approximately $195.1 million under the revolving credit facility and $150.0 million under the multiple draw term loan while remaining in compliance with the applicable covenants as of March 31, 2005.

     At March 31, 2005, amounts due under the credit facility are:

     The revolving credit loan and the multiple draw term loan bear interest, at Communications’ option, at either TD’s base rate plus an applicable margin ranging from 0.00% to 1.00% per annum or the Eurodollar rate plus an applicable margin ranging from 1.00% to 2.00% 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 TD’s base rate plus 0.50% per annum or the Eurodollar rate plus 1.50% per annum. The weighted average interest rate on outstanding borrowings under the credit facility as of March 31, 2005 was 4.60%.

     In February 2003, Communications entered into an interest rate cap agreement in order to limit exposure to fluctuations in interest rates on its variable rate credit facility. This transaction is not designated as a fair value hedge. Accordingly, gains and losses from the change in the fair value of this instrument are recognized in other income and expense. The carrying amount and fair value of this instrument was negligible as of March 31, 2005 and December 31, 2004 and is included in Other assets in the accompanying consolidated balance sheets.

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     In December 2004, Communications entered into an interest rate swap agreement in order to limit exposure to fluctuations in interest rates on its variable rate credit facility. This transaction is not designated as a fair value hedge. Accordingly, gains and losses from the change in the fair value of this instrument are recognized in other income and expense. As of March 31, 2005 and December 31, 2004, the carrying amount and fair value of this instrument was $7.9 million and $0.6 million and is included in Other assets in the consolidated balance sheet. Including the effect of the interest rate swap, the weighted average interest rate on outstanding borrowings under the credit facility was 5.07% and 4.83% as of March 31, 2005 and December 31, 2004, respectively.

     Communications is required to pay a commitment fee of between 0.375% and 0.500% per annum in respect to the undrawn portions of the revolving credit facility and multiple draw term loan, 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 or the incurrence of certain additional indebtedness.

     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 agreement), a minimum interest coverage ratio and a minimum fixed charge coverage ratio.

     The following table summarizes activity with respect to Communications’ credit facility from December 31, 2004 through March 31, 2005:

Previous Credit Facility

     On November 19, 2004, Communications repaid $187.0 million of the multiple draw term loan and $251.2 million of the term loan of its previous credit facility with the proceeds associated with its new credit facility. In connection with these repayments, Communications wrote off approximately $9.8 million in debt issuance costs.

     The following table summarizes activity with respect to Communications’ previous credit facility from January 1, 2004 through November 19, 2004:

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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.

Letters of Credit and Performance Bonds

     In addition, the Company had standby letters of credit of $5.0 million, consisting of $4.9 million under our new credit facility and $0.1 million under our previous credit facility, and performance bonds of $2.7 million outstanding at March 31, 2005, most of which expire within one year.

6. 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 information has been restated to conform to the current organization.

     The measurement of profit or loss used by management to evaluate the results of operations of the Company and its operating segments is Adjusted EBITDA. 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. 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.

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

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

7. Subsequent Events

     On April 29, 2005, the Company paid Goldman, Sachs & Co. approximately $9.4 million in cash in settlement of its obligations under the ASB. For a discussion of the Company’s settlement of the ASB, see Note 1 under “Earnings Per Share” and “Share Repurchase Plan.”

     On May 3, 2005, the Company entered into an Agreement and Plan of Merger with American Tower Corporation providing for, among other things, the merger of SpectraSite with a wholly owned subsidiary of American Tower. For a discussion of the proposed merger, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Proposed Merger with American Tower.”

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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 7,826 towers and in-building systems as of March 31, 2005, located primarily in the top 100 BTA markets in the United States.

     Our business consists of our wireless and broadcast segments. For the three months ended March 31, 2005, approximately 94% of our revenues came from our wireless segment and approximately 6% of our revenues came from our broadcast segment. The majority of our revenue growth during the first quarter of 2005 was attributable to incremental revenue derived from new and amended site leasing and licensing agreements, rent escalations included in existing site leasing and licensing agreements, and new sites acquired or built during the year. Factors affecting the growth in our revenues include, among other things, the rate at which wireless carriers deploy capital to improve and expand their wireless networks and variable contractual escalation clauses associated with existing site leasing and licensing agreements.

     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 comprise a large percentage of our customer base. In addition to tracking the capital expenditure activities and plans of our customers and other wireless providers, we monitor the financial performance of our largest customers and the state of the financial markets on which all of our customers depend for access to new capital.

     The material opportunities, challenges and risks of our business have changed significantly over the past three years. We have reshaped our business operations and reduced our debt levels in order to minimize the impact of short-term variability 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 sold the operations of our broadcast services division in March 2004. Today, all of our revenues come from site leasing and licensing operations.

     Generally, our leasing and licensing agreements are specific to each site 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 initial term 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 these recurring fees as revenue when earned.

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

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

Proposed Merger with American Tower Corporation

     On May 3, 2005, SpectraSite entered into an Agreement and Plan of Merger with American Tower Corporation providing for, among other things, the merger of SpectraSite with a wholly owned subsidiary of American Tower. Under the terms of the merger agreement, each share of our common stock will be converted into the right to receive 3.575 shares of American Tower’s Class A common stock. Our stockholders will receive approximately 181.0 million shares in the transaction. The transaction is expected to be tax free for U.S. federal income tax purposes for stockholders of both companies. Consummation of the merger is subject to certain conditions, including approval by our stockholders, approval by American Tower’s stockholders, receipt of regulatory approvals and other customary closing conditions. While there can be no assurances that the merger will be completed or as to the timing thereof, the transaction is expected to close in the second half of 2005. The merger agreement contains certain termination rights for SpectraSite and American Tower and further provides for the payment of a termination fee of $110 million upon termination of the merger agreement under specified circumstances involving an alternative transaction.

     The combined company’s board of directors will consist of 10 directors, six from American Tower and four from our Board of Directors. Two of the directors of the Board of Directors of the combined company shall be Stephen H. Clark, our Chief Executive Officer, and Timothy G. Biltz, our Chief Operating Officer. The combined company will have its corporate headquarters in Boston, Massachusetts, the current headquarters of American Tower. The current Chief Executive Officer and Chairman of the board of directors of American Tower will continue to serve as Chief Executive Officer and Chairman of the combined company.

Discontinued Operations

     On December 16, 2003, we decided to sell our broadcast services division and on March 1, 2004, the division was sold. In connection with the sale, we recorded promissory notes receivable from the buyer. At the time of sale, the notes receivable were recorded at their estimated fair value by recording a valuation allowance against the notes. During the three months ended March 31, 2004, we recorded a loss on disposal of the division of $0.3 million. The valuation allowance is periodically evaluated against actual collection experience and estimates of future collectibility. In the three months ended March 31, 2005, we recorded a gain on the disposal of the division relating to the partial collection and re-evaluation of the collectibility of the notes receivable as of March 31, 2005. The results of the broadcast services’ operations have been reported separately as discontinued operations in the Statements of Operations.

Tower Acquisitions and Dispositions

     Our portfolio has grown from 106 towers as of December 31, 1998, to 7,826 towers and in-building systems as of March 31, 2005. 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 sub-leasehold interests in approximately 3,900 towers over approximately two years and to commit to build towers for Cingular, an affiliate of SBC.

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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. 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. 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 previous 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. The sale of our interest in the 545 towers did not materially impact our future operating performance.

     In connection with the Plan of Reorganization and the implementation of fresh start accounting on January 31, 2003, we recorded liabilities in the amount of $60.5 million related to our obligation to complete the lease or sublease of the remaining 600 towers under the SBC agreement as discussed in Note 1 to our unaudited consolidated financial statements. This amount was determined as the difference between the estimated purchase price for the remaining 600 towers, including direct costs to place the towers in service, and the estimated fair value of the towers based on an independent valuation. At each closing, the liability was reduced by a portion of the purchase price of each tower. In addition, the liability was reduced by the amount of costs incurred to place the acquired towers in service.

     From January 31, 2003 through February 16, 2004, we leased or subleased 121 towers, for which we paid $32.0 million reducing our commitment to 479 towers to be leased or subleased under the SBC agreement. On February 17, 2004, the parties agreed to reduce our remaining commitment by five towers, down to 474. In connection with this reduction, the associated liability was reduced by $0.5 million and was recorded as Other income. From February 18, 2004 through August 15, 2004, we leased or subleased 7 towers, for which we paid $1.9 million reducing our commitment to 467 towers to be leased or subleased under the SBC agreement. On August 16, 2004, we completed our last closing under our agreement with SBC consisting of 191 towers for total cash consideration of $50.0 million. This acquisition was 276 towers less than the potential maximum number of towers contemplated to be leased or subleased under our agreement with SBC. As a result of not acquiring these 276 towers, we recognized $29.2 million as Other income through the reversal of liabilities originally recorded for these towers. As of March 31, 2005, we have no further obligations to lease or sublease any towers under the SBC acquisition agreement. Our federal income tax obligation was not impacted by the recording or reversal of the liabilities related to our obligation under the SBC agreement.

Share Repurchase Plan

     On July 28, 2004, the Board of Directors authorized the repurchase of shares of the Company’s common stock up to an aggregate amount of $175.0 million. On November 22, 2004, the Board of Directors authorized an increase of $125.0 million for a total repurchase authorization of $300.0 million.

     On November 22, 2004, we announced the repurchase of approximately $150.0 million of our outstanding common stock, or approximately 2.7 million shares, under the ASB with Goldman, Sachs & Co. Under the ASB, the repurchased shares are subject to a market price adjustment provision which requires that we make a payment in either cash or stock based on the volume weighted average market trading price of our shares from November 19, 2004, through March 18, 2005. We elected to settle the obligation with payment in cash and, on April 29, 2005, pursuant to the market price adjustment provision in the ASB, we paid approximately $9.4 million to Goldman, Sachs & Co.

     As of March 31, 2005, we had repurchased 3,679,881 shares at an average price of $55.75 per share including commission. Including legal costs of $0.3 million, the Company’s cost basis for these shares was an average price of $55.83 per share. We did not repurchase any shares during the three months ended March 31, 2005. We hold all repurchased shares as treasury stock. For more information about these repurchases, reference Part II, Item 2 of this report.

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Results of Operations

Three Months Ended March 31, 2005 and the Three Months Ended March 31, 2004

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