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SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

For the fiscal year ended October 31, 2002

For the Transition period from __________ to __________

Commission file number: 0-17517

SEA PINES ASSOCIATES, INC.

Registrant’s telephone number, including area code:   (843) 785-3333

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

None

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

Common Stock (No Par)
(Title of Class)

Series A Cumulative Preferred Stock ($0.722 Dividend
Rate/$7.60 Liquidation Preference and Redemption Price)
(Title of Class)

     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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [  ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act.) Yes [  ]    No [X]

There is presently no established public trading market for shares of the registrant’s common stock, no par value, and there has been very limited trading in such shares since their original issuance in 1987. Accordingly, trading activity in the common stock of the registrant does not currently represent a reliable indicator of the aggregate market value of the common stock of the registrant held by non-affiliates of the registrant and the registrant is unable to estimate such value.

     The number of shares outstanding of the registrant’s common stock as of December 31, 2002 was 3,573,400.

DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the registrant’s Proxy Statement in connection with its 2003 Annual Meeting of Shareholders are incorporated by reference into Part III.

PART I

THIS REPORT ON FORM 10-K AND OTHER STATEMENTS ISSUED OR MADE FROM TIME TO TIME BY THE COMPANY OR ITS REPRESENTATIVES CONTAIN STATEMENTS WHICH MAY CONSTITUTE “FORWARD-LOOKING STATEMENTS” WITHIN THE MEANING OF THE SECURITIES ACT OF 1933, AS AMENDED, AND THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THOSE STATEMENTS INCLUDE STATEMENTS REGARDING THE INTENT, BELIEF OR CURRENT EXPECTATIONS OF THE COMPANY AND MEMBERS OF ITS MANAGEMENT TEAM, AS WELL AS THE ASSUMPTIONS ON WHICH SUCH STATEMENTS ARE BASED. THE INVESTMENT COMMUNITY IS CAUTIONED THAT ANY SUCH FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE RISKS AND UNCERTAINTIES, AND THAT ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY SUCH FORWARD-LOOKING STATEMENTS. IMPORTANT FACTORS CURRENTLY KNOWN TO MANAGEMENT THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN FORWARD-LOOKING STATEMENTS INCLUDE THOSE SET FORTH IN THIS REPORT, AND THOSE CONTAINED IN THE SAFE HARBOR COMPLIANCE STATEMENT FOR FORWARD-LOOKING STATEMENTS INCLUDED AS EXHIBIT 99.1 TO THIS REPORT ON FORM 10-K, WHICH FACTORS ARE HEREBY INCORPORATED HEREIN BY REFERENCE. THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE OR REVISE FORWARD-LOOKING STATEMENTS TO REFLECT CHANGED ASSUMPTIONS, THE OCCURRENCE OF UNANTICIPATED EVENTS OR CHANGES TO FUTURE OPERATING RESULTS OVER TIME.

Item 1. Business.

     (a)  General Development of Business. Sea Pines Associates, Inc. was incorporated under South Carolina law on May 4, 1987. As used in this report on Form 10-K, except where the context otherwise indicates, the “Company” means Sea Pines Associates, Inc. and its subsidiaries. The Company was principally organized to acquire, own and operate certain resort assets located in Sea Pines, a 5,300-acre master planned resort community on Hilton Head Island, South Carolina.

     Subsidiaries of the Company include Sea Pines Company, Inc. (“SPC”), Sea Pines Real Estate Company, Inc. (“SPREC”), Sea Pines Associates Trust I, and Fifth Golf Course Club, Inc., all of which are wholly-owned.

     SPC is a full-service resort, which owns and operates The Inn at Harbour Town, three golf courses, tennis and various other recreational facilities, home and villa rental management operations, conference facilities, and food and beverage services. SPREC provides real estate brokerage services for buyers and sellers of real estate on Hilton Head Island and its neighboring communities. Fifth Golf Course Club, Inc. owns certain acreage which could be used for outdoor recreational purposes. Sea Pines Associates Trust I holds certain company debentures as security for notes it has issued.

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     (b)  Financial Information Relating to Industry Segments. See Note 14 to the consolidated financial statements contained elsewhere herein for business segment information.

     (c)  Narrative Description of Business. The Company’s operations were conducted primarily in two reportable business segments for the year ended October 31, 2002. These segments are organized by the type of operations: (1) resort operations, including home and villa rental management operations, a 60-room inn, golf course operations, conference facilities, food and beverage operations, and various other recreational activities; and (2) real estate brokerage for buyers and sellers of real estate in the Hilton Head Island, South Carolina area.

          1. Resort Operations. Resort operations consist primarily of the operation of three resort golf courses, a racquet club facility, home and villa rental management operations, a 60-room inn, conference facilities, retail outlets, food service operations, and other recreational facilities. For fiscal year 2002, resort operations accounted for approximately $34,892,000 (68%) of the Company’s total revenues, with golf and tennis activity revenues representing $15,284,000 (30%) and home and villa rental management operations revenues representing $11,606,000 (23%). For fiscal year 2001, resort operations accounted for approximately $33,734,000 (67%) of the Company’s total revenues, with golf and tennis activities responsible for revenues of approximately $14,540,000 (29%) and home and villa rental management operations responsible for revenues of approximately $11,822,000 (23%). For fiscal year 2000, resort operations accounted for approximately $29,670,000 (61%) of the Company’s total revenues, with golf and tennis activities responsible for revenues of approximately $12,710,000 (26%) and home and villa rental management operations responsible for revenues of approximately $12,436,000 (25%).

     During each of the fiscal years 2002, 2001 and 2000, approximately 70% of golf and tennis revenues and 100% of inn revenues and home and villa rentals were derived from vacation and conference use at Sea Pines. The remaining golf and tennis revenues, approximately 30%, were generated from Hilton Head Island residents. As a result, the Company believes its future success is dependent upon Hilton Head (in general) and Sea Pines (in particular) continuing to be considered as prime destination resort areas, with appropriate lodging and conference facilities.

     During fiscal years 2002, 2001 and 2000, residents and vacationers utilizing accommodations at Sea Pines accounted for approximately 85% of the use of the Company’s golf and tennis facilities, with the remainder attributable to use by persons residing outside Sea Pines. Fees charged to the general public for use of the Company’s facilities are typically higher than the fees charged to persons residing within Sea Pines. The Company is also a party to certain use and access agreements with several developments and hotels located both inside and outside of Sea Pines. These agreements generally provide the guests of those particular developments and hotels with access to the Company’s facilities at rates slightly lower than those available to the general public. In addition, the Company will occasionally offer special discounts and package rates as part of its ongoing promotional activities.

     Vacation use is seasonal with the highest period being from March through November and the lowest period from December through February. Substantial fixed costs continue during the non-peak period, leading to major seasonal fluctuations in operating income.

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     The Company believes that its resort operations are relatively stable. Nevertheless, economic conditions and other factors do adversely affect tourism on Hilton Head, and may have a negative impact on the resort operations of the Company. Because of its location on the Atlantic coast, Hilton Head is susceptible to adverse weather conditions and resulting damage from hurricanes, as well as the potential for damage from a major oil or hazardous waste spill. Although Hilton Head’s location away from major oil drilling operations and industrial sites greatly reduces the risk of the latter occurrence, there can be no assurance that such damage will never occur. The Company maintains property and casualty insurance in amounts that it believes to be adequate including coverage for business interruption. Furthermore, access to the Company’s facilities is dependent upon adequate means of transportation at a reasonable cost. In the future, fuel shortages, increases in fuel costs and other events which might inhibit or restrict airplane or automobile travel could have a negative impact on the Company’s operations, depending on the severity and duration of the interruption or price increase.

     The Company is generally subject to various local and regional land use and environmental regulations, ordinances and restrictive covenants. The Company believes that it is currently in compliance with all such applicable regulations and covenants and does not expect that compliance in the future will have any material effect on the operations or the profitability of the Company.

     Resort operations are subject to significant competition from various competing facilities on Hilton Head, as well as other destination resorts in South Carolina, Georgia and Florida. Specifically, the Company believes its golf courses are directly competitive with approximately 20 golf courses located on Hilton Head outside of Sea Pines. However, in as much as golf course play is in large part dictated by the number of guests utilizing accommodations within Sea Pines, the overall success of the Company’s operations will continue to be dependent on Sea Pines maintaining its reputation as a premier golf and tennis resort. The Company believes that its rates are competitive compared to other facilities of comparable quality and reputation in the southeastern region and expects that its facilities will continue to compete favorably due to location, quality, design and the established reputation of Sea Pines.

     One of the Company’s golf courses hosts the annual Heritage Golf Tournament, a nationally televised professional golf tournament. Although the facility usage fee for this tournament does not constitute a major source of income, the event has a significant favorable impact on the Company’s lodging, food and beverage and retail business. Moreover, the tournament’s extensive media coverage provides substantial marketing benefits resulting in an enhanced national reputation of Sea Pines and the Company’s facilities. Loss of the tournament would negatively affect the Company in all these respects.

     The Company’s golf and tennis operations consist primarily of marketing and maintaining the Company’s facilities. The Company receives court fees, greens fees, cart rental fees, and income from merchandise sales. The Company’s tennis facility and the three resort golf courses are open to the general public. Maintenance and overhead expenses associated with the Company’s golf and tennis operations remain generally stable regardless of the volume of facility usage. The Company’s current and future financial results are substantially dependent upon the revenues generated from the

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usage of its facilities, which revenues are a function of both the volume of usage and the fee levels the Company is in a position to charge in its market area.

     The Company’s resort operations employed approximately 329 people as of December 31, 2002.

          2. Real Estate Brokerage. SPREC is engaged primarily in the brokerage of residential real estate on Hilton Head Island and its neighboring communities. The Company competes with other real estate brokerage firms in the Hilton Head Island area.

     SPREC maintains 15 offices, five located within Sea Pines, six located outside of Sea Pines on Hilton Head Island and four located off Hilton Head Island in the surrounding Beaufort County area.

     For fiscal year 2002, real estate brokerage operations accounted for approximately $16,250,000 (32%) of the Company’s total revenues. For fiscal year 2001, real estate brokerage operations accounted for approximately $16,610,000 (33%) of the Company’s total revenues. For fiscal year 2000, real estate brokerage operations accounted for approximately $19,169,000 (39%) of the Company’s total revenues.

     While brokerage activities are not tied directly to vacation and conference activities, any general decrease in visitors to Hilton Head Island can result in slower residential real estate sales. Furthermore, the sluggish national economy and decline in air travel are anticipated to suppress real estate brokerage revenues to some degree for an indeterminate period.

     SPREC employed 34 people, and had approximately 116 non-employee sales agents, as of December 31, 2002.

     (d)  Financial Information About Foreign and Domestic Operations and Export Sales. All of the Company’s operations are confined to Beaufort and Jasper Counties in South Carolina. See Item 1(a).

Item 2. Properties.

     (a)  Golf Facilities. SPC owns three 18-hole resort golf courses known as the Harbour Town Golf Links, the Ocean Course, and the Sea Marsh Course, all of which are located within Sea Pines. Each of the Company’s golf courses is substantially utilized during the peak occupancy period on Hilton Head Island, which is March through November.

     The Harbour Town Golf Links property consists of approximately 136 acres, including a driving range. Harbour Town is the site of the Heritage Golf Tournament, an annual tournament on the PGA Tour. Adjacent to the Harbour Town Golf Links is the Harbour Town Clubhouse, which contains a pro shop, a restaurant, and other small meeting and dining facilities.

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     The Sea Marsh Golf Course contains approximately 92 acres, and the Ocean Course contains approximately 97 acres. There is a driving range, that contains approximately 11.6 acres, located adjacent to, and shared by, the Ocean and Sea Marsh golf courses.

     (b)  Tennis Facility. SPC owns and operates a tennis complex in the Harbour Town area of Sea Pines known as the Sea Pines Racquet Club.

     (c)  The Inn at Harbour Town. In November 2000, the Company completed construction of a small inn in the Harbour Town area. The Inn at Harbour Town is a 47,000 square-foot facility featuring 60 inn rooms and is adjacent to and provides views of the Harbour Town Golf Links.

     (d)  Harbour Town Conference Center. The Company operates the Harbour Town Conference Center located adjacent to the Harbour Town Golf Links Clubhouse. The Harbour Town Conference Center is a 16,000 square-foot facility and is available for both group conferences and social functions.

     (e)  Equestrian Facilities. SPC owns a tract of land known as Lawton Stables, which contains approximately 21.8 acres. The stables are leased to a stable operator who provides boarding, lessons, and trail rides.

     (f)  Plantation Club. SPC owns a tract of land with improvements thereon known as the Plantation Club site containing approximately 9.4 acres. It includes the golf pro shop associated with the Ocean and Sea Marsh golf courses as well as conference facilities, food and beverage facilities, a health and fitness center, a swimming pool, and a bike rental store.

     (g)  Other Recreational Facilities. In the vicinity of the Harbour Town Golf Links, SPC owns and operates recreational areas containing a playground, a swimming pool, and a snack bar.

     SPC also owns and operates a Beach Club in the vicinity of the Plantation Club, containing a retail shop, an outdoor food and beverage facility, and a real estate office.

     (h)  Undeveloped Tracts/Development Rights. SPC owns a number of undeveloped tracts of land within Sea Pines briefly described as follows:

	1.		Sea Pines Academy Tract — approximately 3 acres;
	2.		Sea Pines Center Residual — approximately 1.4 acres;
	3.		Harbour Town Main Parking Tract — approximately 3.2 acres;
	4.		Artists Area Tract — approximately 1.5 acres;
	5.		Cordillo Parkway Tract — approximately 6 acres; and

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6.

Outdoor Recreation Tract — approximately 9 acres.

     (i)  Forest Preserve. SPC owns a 495-acre tract of land known as the Sea Pines Forest Preserve. Various recreational activities are permitted to be conducted on 181 of these acres. A golf course is one possible use, but construction of a golf course would require the approval of 75% of Sea Pines property owners voting on such issue.

     The portion of the Forest Preserve not reserved for outdoor recreation is designated as a wild life preserve. In August 1993, the Company made a commitment to donate approximately 404 acres of the wildlife preserve to a not-for-profit organization on Hilton Head Island, South Carolina. As of October 31, 2002, approximately 90 of the 404 acres had been donated and title transferred. The remaining 314 acres are leased to the same not-for-profit organization for a minimal amount.

     (j)  Welcome Center. SPC owns a 6-acre tract of land, which is the site of the Sea Pines Welcome Center. This is a 23,000-square foot facility, which contains the Company’s executive and administrative offices, the lodging front office facilities, and the main office facility for SPREC.

     (k)  Liberty Oak Cafe. SPC owns a 1.6-acre tract of land and improvements known as the Liberty Oak Cafe. This is an outdoor food and beverage facility used for catered functions.

     (l)  Leases. SPC currently leases approximately 31,000 square feet of space used for the golf maintenance facilities, and SPREC leases approximately 19,749 square feet of office space in eight locations throughout the Hilton Head Island area.

     (m)  Other Real Estate. SPC owns a small office building in the Harbour Town area known as the Saddlebag Building, which is leased to a third party, and three small commercial buildings in Harbour Town, one of which currently serves as a sales office for SPREC and one serves as the Harbour Town Bakery.

     Substantially all of the Company’s properties are subject to liens as described in Item 7, Management’s Discussion and Analysis of Financial Conditions and Results of Operations.

Item 3. Legal Proceedings.

     The Company is subject to claims and suits in the ordinary course of business. In management’s opinion, no currently pending claims and suits against the Company will have a material adverse effect on the Company.

Item 4. Submission of Matters to a Vote of Security Holders.

     None.

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PART II

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters.

     (a)  Market Information. There is no established public trading market for the Company’s common stock. The Company’s capital stock was originally issued in 1987 in units consisting of 750 shares of common stock and 500 shares of Series A preferred stock. From 1987 through February 2000, virtually all transactions in the Company’s common stock and preferred stock were completed in units as originally issued. Transactions in such units traded sporadically on a bid and ask basis through the over the counter market at Robinson-Humphrey Company in Atlanta, Georgia. In February 2000, the Company completed an exchange offer in which holders of preferred stock could exchange preferred stock for common stock or trust preferred securities. Since the exchange offer closed in February 2000, there has been very limited trading of the Company’s common stock. Through its transfer agent, the Company is aware of only 20 transfers of shares of common stock occurring during the fiscal year ended October 31, 2002. The Company has no official data as to the prices at which any of these transfers took place. Consequently, the Company is unable to provide high and low closing sales prices for shares of its common stock for the fiscal years ended October 31, 2002 and October 31, 2001.

     In May 2000, the Company established a bulletin board on its web site that allows persons the ability to post their interest in buying or selling the Company’s securities. This bulletin board allows offers to be posted in all three of the Company’s outstanding securities: common stock, Series A preferred stock, and trust preferred securities. The bulletin board can be accessed on the Company’s web site on the World Wide Web at www.seapines.com. Offering prices on the bulletin board to purchase the Company’s common stock during the fiscal year ended October 31, 2002 ranged from $2.50 to $6.00 per share. Recent posted offers have ranged from $2.50 to $4.50 per share.

     Neither the Company nor any of its affiliates will (a) receive any compensation for creating or maintaining the bulletin board or for its use, (b) be involved in any purchase or sale negotiations arising from the bulletin board, (c) give advice regarding the merits or shortcomings of any particular trade, (d) use the bulletin board, directly or indirectly, to offer to buy or sell securities except in compliance with all securities laws, or (e) receive, transfer, or hold any funds or securities as an incident of operating the bulletin board.

     (b)  Holders. As of December 31, 2002, there were approximately 550 holders of record of shares of common stock.

     (c)  Dividends. The Articles of Incorporation of the Company provide for dividends on the preferred stock of $0.722 per share per annum to be paid in arrears. As of October 31, 2002, the Company has paid all accrued dividends on the preferred stock applicable to all years ended on or before October 31, 2001.

     At its December 16, 2002, Board of Directors meeting, the Company declared a cash dividend of $0.722 per share for fiscal year 2002 payable to holders of Series A Cumulative

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Preferred Stock. This dividend is payable in equal quarterly installments of approximately $0.18 per share on January 15, 2003, April 15, 2003, July 15, 2003, and October 15, 2003, to shareholders of record on January 1, 2003, April 1, 2003, July 1, 2003 and October 1, 2003, respectively.

     The Company has not paid any dividends on its common stock and has no present intention of paying such dividends in the foreseeable future.

     (d)  Securities Authorized for Issuance Under Equity Compensation Plans

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Item 6. Selected Financial Data.

     The following selected consolidated financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” and with the consolidated financial statements and notes thereto, which are included elsewhere in this annual report.

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Item 7. Management’s Discussion and Analysis of Financial Conditions and Results of Operation.

Results of Operations

     The Company’s operations are conducted primarily through two wholly owned subsidiaries. Sea Pines Company, Inc. operates all of the resort assets, including a 60-room inn, conference facilities, three resort golf courses, a tennis center, home and villa rental management operations, retail sales outlets, food service operations, and other resort recreational facilities. Sea Pines Real Estate Company, Inc. is an independent real estate brokerage firm with 15 offices serving Hilton Head Island and its neighboring communities.

Critical Accounting Policies

In preparation of its financial statements, the Company applies accounting principles generally accepted in the United States. The application of generally accepted accounting principles may require management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying results.

As discussed in Note 1 to the Company’s consolidated financial statements, revenue from resort operations is recognized as goods are sold and services are provided and revenue from real estate brokerage is recognized when the title passes to the buyer. As a result, the Company’s revenue recognition process does not involve significant judgments or estimates.

As discussed in Note 1 to the Company’s consolidated financial statements, an impairment loss is recognized whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. In order to evaluate for potential impairment the Company compares estimates of future cash flows expected from the use of the asset to the carrying amount of the asset. Management believes that the Company’s estimates of future cash flows are based on reasonable and supportable assumptions and represent the Company’s best estimates of the cash flows expected to result from the use of the corresponding assets. As disclosed in the consolidated financial statements, the Company has not incurred any impairment losses for the years ended October 31, 2002, 2001 or 2000.

2002 Compared to 2001

Revenues

     The Company reported revenues of $51,142,000 for fiscal year 2002, a $798,000, or 1.6%, increase over fiscal year 2001.

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     The primary factors contributing to the $798,000 increase in revenues were as follows:

	•		Golf revenue in fiscal year 2002 increased by $377,000, or 3.2%, as compared to 2001. This increase was due to the Harbour Town Golf Links being open for all twelve months of 2002 as compared to only being open for ten months of 2001. The golf course was closed for eight months beginning with the third quarter of 2000 through part of the first quarter of 2001 to complete a major restoration project.
	•		Food and beverage operations generated revenues of $4,444,000 in fiscal year 2002. This represents an increase of $355,000, or 8.7%, over 2001. This increase was due to increased revenue in the catering operations, Harbour Town Bakery and the Sea Pines Beach Club.
	•		The Inn at Harbour Town generated revenues of $2,667,000 in fiscal year 2002. This represents an increase of $294,000, or 12.4%, over 2001. Total occupied room nights were 13,516 as compared to 12,599 during 2001. The average daily rate was $187.97 during 2002, an increase of $7.87, or 4.4%, from the same period in 2001.
	•		Revenues from the Company’s rental management operation in 2002 decreased by $217,000, or 1.8%, compared with 2001. This decrease is primarily the result of current economic conditions and the decline in air travel. Guest occupied unit nights decreased 4.4% in fiscal year 2002, totaling 53,510 for the year. The average daily rate of $208.67 in fiscal year 2002 was a 3.1% increase over the average daily rate in 2001 of $202.43.
	•		Gross commission revenue in fiscal year 2002 from the real estate brokerage operation decreased by $360,000, or 2.2%, as compared to 2001. This decrease was primarily the result of the economic downturn during the first six months of fiscal 2002, which adversely affected the second-home sales market.

Cost of revenues

     Cost of revenues were $36,263,000 in fiscal year 2002, representing a 1.0% decrease from fiscal year 2001. This decrease is primarily due to a decrease in commission expense from real estate brokerage operations.

Expenses

     Sales and marketing expenses were $3,022,000 in fiscal year 2002, representing a 4.4% decrease from fiscal year 2001. This decrease is primarily the result of reduced real estate marketing costs.

     General and administrative expenses decreased by $397,000, or 5.9%, totaling $6,366,000 for the year. This decrease was primarily the result of lower medical claims paid by the Company’s self-funded medical plan and a reduction in property tax expense. These decreases were partially offset by increases in insurance costs.

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     Depreciation and amortization expense increased by $85,000, or 3.4%, and totaled $2,589,000 in fiscal year 2002. This increase was the result of a full year’s depreciation on the Inn at Harbour Town and the Harbour Town Golf Links restoration project. Both of these projects were completed during fiscal year 2001, and depreciation expense applied only to the period the facilities were in operation.

Other income (expense)

	•		The Company adopted Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities,” effective November 1, 2000. This accounting standard requires the Company to report changes in the value of its interest rate swap agreements in its operations. The value of these agreements is greatest when interest rates are high enough to bring the rate protection into play. Falling interest rates during fiscal year 2002 made the rate protection less relevant, causing the fair value of the agreements to decline by $381,000. This charge is a non-cash expense in 2002. If interest rates rise in the future, there will be a gain reported. If the swap agreements remain in effect until their expiration date in 2005, the cumulative total of all related income and expense entries will equal zero.
	•		Interest expense decreased by $379,000, or 13.7%, during fiscal year 2002 as compared 2001. This decrease is attributable to lower interest rates during fiscal year 2002 and lower outstanding debt balances.

2001 Compared to 2000

Revenues

     The Company reported revenues of $50,344,000 for fiscal year 2001, a $1,505,000, or 3.1%, increase over fiscal year 2000.

     The primary factors contributing to the $1,505,000 increase in revenues were as follows:

	•		Golf revenue in fiscal year 2001 increased by $1,839,000, or 18.6%, as compared to 2000. The increase was due to the reopening of the Harbour Town Golf Links in December 2000. The golf course was closed for eight months beginning with the third quarter of fiscal 2000 to complete a major restoration project.
	•		Food and beverage operations generated revenues of $4,089,000 in fiscal year 2001. These revenues represent an increase of $513,000, or 14.5%, over 2000. This increase was due to an increased focus on the catering business and increased revenue at the Heritage Grill and in the golf food and beverage operation due to the Harbour Town Golf Links reopening as mentioned above.

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	•		Revenues from the Company’s rental management operation in 2001 decreased by $614,000, or 4.9%, compared with 2000. This decrease is primarily the result of the current economic downturn and the decline in air travel following the events of September 11, 2001. Guest occupied unit nights decreased 12.8% in fiscal year 2001, totaling 55,968 for the year. The average daily rate of $202.43 in fiscal year 2001 was an 8.2% increase over the average daily rate in 2000 of $187.05.
	•		The Inn at Harbour Town opened in November 2000, and revenues totaled $2,372,000 during the first year of operation.
	•		Gross commission revenue in fiscal year 2001 from the real estate brokerage operation decreased by $2,559,000, or 13.3%, as compared to 2000. The soft national economy has significantly adversely affected the second-home sales market.

Cost of revenues

     Cost of revenues were $36,626,000 in fiscal year 2001, representing a 1.9% decrease from fiscal year 2000. This decline is the net result of the $1,769,000 decrease in commissions paid to the Company’s real estate agents, offset by a $1,046,000 increase in payments to owners on the Company’s rental management program and increased cost of sales from food and beverage operations.

Expenses

     Sales and marketing expenses were $3,161,000 in fiscal 2001, representing a 6.0% increase from fiscal year 2000. This cost increase is due to increased marketing efforts to promote The Inn at Harbour Town and special promotions to maintain guest volume in the face of the current economic slowdown.

     General and administrative expenses increased by $939,000, or 16.1%, totaling $6,763,000 for the year. This increase primarily results from higher medical claims paid by the Company’s self-funded medical plan. Medical claims increased by $564,000 in fiscal 2001, or 48%, as compared to fiscal 2000.

     Depreciation and amortization expense increased by $907,000, or 56.8%, and totaled $2,504,000 in fiscal year 2001. This increase results from depreciation of the Company’s new Harbour Town assets.

Other income (expense)

     The increase in operating income in 2001 was more than offset by increases in non-operating charges. Other expenses increased from $1,575,000 in 2000 to $4,394,000 in 2001. Two items account for most of this increase:

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	•		The Company adopted Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities,” effective November 1, 2000. This new accounting standard requires the Company to report changes in the value of its interest rate swap agreements in the Consolidated Statement of Operations. The value of these agreements is greatest when interest rates are high enough to bring the rate protection into play. Falling interest rates during fiscal year 2001 made the rate protection less relevant, causing the fair value of the agreements to decline by $1,896,000. This charge is a non-cash expense in 2001. If interest rates rise in the future, there will be a gain reported. If the swap agreements remain in effect until their expiration date in 2005, the cumulative total of all related income and expense entries will equal zero.
	•		Interest expense on the Company’s debt increased by $1,345,000, or 94.3%, in fiscal year 2001 as compared to fiscal year 2000. This increase is attributable to the increase in outstanding debt from the construction of the new Harbour Town assets and interest on the junior subordinated debentures which were issued by the Company in February 2000.

     Gain on the sale of assets totaled $172,000 for the fiscal year 2001. These gains were the result of the sale of a Company-owned condominium and certain other assets.

     Exchange offer costs in fiscal year 2001 decreased as a result of the completion of the exchange offer in February 2000. Legal fees and professional fees in the amount of $294,000 were incurred in connection with the exchange offer. Of that amount, $202,000 was expensed in fiscal year 2000 and the remaining amount was capitalized and is being amortized over 30 years.

Income taxes

     The significant increase in the valuation allowance in the year ended October 31, 2001 is due to the Company’s review of its estimate of realization, of deferred tax assets, primarily related to the loss on the interest rate swaps.

Liquidity and Capital Resources

     Cash and cash equivalents increased by $1,520,000 during fiscal 2002 and totaled approximately $3,062,000 at October 31, 2002, of which $2,488,000 was restricted. Working capital increased at October 31, 2002 by $1,907,000 resulting in a working capital deficit of $1,329,000.

     Under a master credit agreement with its corporate lender, the Company maintains three loan facilities: a term loan, a revolving line of credit and a seasonal line of credit. Available funds under these three loan facilities total $38,740,000, of which $33,540,000 was outstanding at October 31, 2002. The Company reduced the outstanding balance under these three loan facilities by $2,459,000 during fiscal year 2002.

     The term loan had an outstanding principal balance of $15,940,000 as of October 31, 2002 and matures on November 1, 2008.

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     The revolving line of credit was pre-approved by the bank for use in the construction of the Harbour Town construction projects. The available balance under the revolving line of credit totals $18,300,000, of which $17,600,000 was outstanding as of October 31, 2002.

     The available balance under the seasonal line of credit totals $4,500,000 and is used to meet cash requirements during the Company’s off-season winter months. As of October 31, 2002, the seasonal line of credit had no outstanding balance.

     In November 2002, the Company completed a modification to its master credit agreement with its principal corporate lender. The modification extended the revolving line of credit note maturity date and the seasonal line of credit maturity date from November 1, 2003 to November 1, 2007 and revised certain loan covenant requirements.

     The Company has two interest rates swap agreements which effectively fix the interest rate on $24,000,000 of the principal amount outstanding under the loan facilities described above. The amount of $18,000,000 has been fixed at 5.24% per annum plus a credit margin ranging from 1.40% to 1.65%, and the amount of $6,000,000 has been fixed at 6.58% plus a credit margin ranging from 1.40% to 1.65%.

Recent Developments

     The Heritage Classic Foundation (the “Foundation”), parent organization of The Heritage golf tournament, dismissed WorldCom as the tournament’s title sponsor in July 2002, shortly before WorldCom declared bankruptcy.

     The Company has a contract with the Foundation (which runs through 2006) that parallels the Foundation’s contract with the PGA Tour. The Company provides the tournament site and certain services necessary to the hosting of the tournament. In exchange, the Company receives a site fee and a course preparation fee to compensate for the loss of revenue resulting from the course closure and the additional expenses incurred in preparing the course for the tournament. Other financial benefits include increased pro shop apparel sales, and increased lodging and catering revenue.

     The Foundation’s board and staff are now working to find new funding sources to sponsor the tournament. The Company is cooperating with the board and staff of the Foundation in their efforts to assure the tournament’s continued success.

Item 7a. Quantitative and Qualitative Disclosures About Market Risk

     On September 30, 1998, the Company entered into an interest rate swap agreement, which effectively fixed the interest rate on $18 million of principal amount outstanding under the three loan facilities the Company maintains with its corporate lender at 5.24% plus a credit margin ranging from 1.40% to 1.65%, based on the calculation of certain financial ratios, for a period ending November 10, 2005. The lender has the option of calling the swap agreement on November 10, 2003.

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     The Company entered into a second interest rate swap agreement on May 4, 2000, which effectively fixed the interest rate on an additional $6 million of principal amount at 6.58% plus a credit margin ranging from 1.40% to 1.65% for a period ending November 1, 2005.

     The Company has significantly reduced its interest rate risk exposure by entering into these two swap agreements. A change in the LIBOR rate would affect the rate at which the Company could borrow funds in excess of the $24 million fixed by the above swap agreements.

Item 8. Financial Statements and Supplementary Data.

     The audited Consolidated Financial Statements of the Company which include supplementary data are attached hereto beginning at page F-1.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

          None.

PART III

Item 10. Directors and Executive Officers of the Registrant.

Item 11. Executive Compensation.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Item 13. Certain Relationships and Related Transactions.

     Information called for by Part III (Items 10, 11, 12 and 13) has been omitted as the Company intends to file with the Securities and Exchange Commission not later than 120 days after the close of its fiscal year ended October 31, 2001 a definitive Proxy Statement pursuant to Regulation 14A. Such information is set forth in such Proxy Statement, (i) with respect to Item 10, under the caption “Election of Directors,” “Section 16(a) Beneficial Ownership Reporting Compliance” and “Executive Officers,” (ii) with respect to Item 11, under the caption “Executive Compensation” and “Compensation of Directors”, (iii) with respect to Item 12, under the caption “Ownership of Voting Securities in Excess of Five Percent by Beneficial Owners” and “Stock Ownership of Management and Directors” and (iv) with respect to Item 13, under the caption “Certain Transactions” and is hereby incorporated by reference.

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PART IV

Item 14. Controls and Procedures

     Within 90 days of the filing of this report, the Company’s Chief Executive Officer and Chief Financial Officer conducted an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-14 and 15d-14). Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective to make known to them in a timely fashion material information related to the Company required to be filed in this report. There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect internal controls subsequent to the date of their evaluation.

Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

(a)(1)-(2)

Financial Statements and Schedules:

     The financial statements and schedules listed in the accompanying Index to Consolidated Financial Statements at page F-1 herein are filed as part of this report.

     All other schedules for which provision is made in the applicable regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted.

     (3)  Exhibits:

     The exhibits listed on the accompanying Exhibit Index at pages E-1 to E-4 are filed as part of this report.

(b)

Reports on Form 8-K:

     None.

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SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant, Sea Pines Associates, Inc., has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

     Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant, Sea Pines Associates, Inc., and in the capacities and on the dates indicated.

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20

CERTIFICATIONS

I, Michael E. Lawrence, certify that:

1.		I have reviewed this annual report on Form 10-K of Sea Pines Associates, Inc.;
2.		Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3.		Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4.		The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

	a)		designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
	b)		evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and
	c)		presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

21

b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.

The registrant’s other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: January 17, 2003

I, Steven P. Birdwell, certify that:

1.		I have reviewed this annual report on Form 10-K of Sea Pines Associates, Inc.;
2.		Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3.		Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4.		The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

	a)		designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
	b)		evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

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c)

presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

	a)		all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
	b)		any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.

The registrant’s other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: January 17, 2003

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EXHIBIT INDEX

Pursuant to Item 601 of Regulation S-K

E-1

E-2

E-3

E-4

Index to Consolidated Financial Statements

F-1

Report of Independent Auditors

Board of Directors and Shareholders
Sea Pines Associates, Inc.

We have audited the accompanying consolidated balance sheets of Sea Pines Associates, Inc. (the “Company”) as of October 31, 2002 and 2001, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the three years in the period ended October 31, 2002. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Sea Pines Associates, Inc. at October 31, 2002 and 2001, and the consolidated results of its operations and its cash flows for each of the three years in the period ended October 31, 2002 in conformity with accounting principles generally accepted in the United States.

F-2

Sea Pines Associates, Inc.

Consolidated Balance Sheets
(In thousands)

F-3

Sea Pines Associates, Inc.

Consolidated Balance Sheets
(In thousands, except share amounts)

See accompanying notes.

F-4

Sea Pines Associates, Inc.

Consolidated Statements of Operations
(In thousands, except per share amounts)

See accompanying notes.

F-5

Sea Pines Associates, Inc.

Consolidated Statements of Shareholders’ Equity
(In thousands)

See accompanying notes.

F-6

Sea Pines Associates, Inc.

Consolidated Statements of Cash Flows
(In thousands)