SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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FORM 10-Q

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|X|  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002

OR

|_|   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

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Commission file number 1-9999

AVERAGE COMPANY

Incorporated pursuant to the Laws of New York State

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Internal Revenue Service — Employer Identification No. 11-5555555

180 East Shore Road, Normville, New York 10000

(516) 222-4444

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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  |_|

The total number of shares of the registrant’s Common Stock, $5 par value, outstanding on September 30, 2002, was 112,164,116.

AVERAGE COMPANY

Page
  Part I-- FINANCIAL INFORMATION      
       Item 1. Financial Statements 
                 Statements of Income: 
                   Three Months Ended September 30, 2002  2  
                   Nine Months Ended September 30, 2002  3  
                 Balance Sheet  4  
                 Statement of Cash Flows  6  
                 Notes to Financial Statements  7  
       Item 2. Management's Discussion and Analysis of Financial Condition  10  
  Part II-- OTHER INFORMATION  
       Item 1. Legal Proceedings  16  
       Item 2. Changes in Securities  16  
       Item 3. Defaults Upon Senior Securities  16  
       Item 4. Submission of Matters to a Vote of Security Holders  16  
       Item 5. Other Information  16  
       Item 6. Exhibits and Reports on Form 8-K  16  
       Signature  17  

AVERAGE COMPANY
STATEMENT OF INCOME
(unaudited)
(in thousands of dollars — except per share amounts)

Three Months Ended
September 30
2002
 2001
Revenues:          
  Electric  $ 805,969   $ 710,190  
  Gas  43,731   37,539  
      Total Revenues  849,700   747,729  
Expenses: 
  Operations-- fuel and purchased power  187,879   170,086  
  Operations-- other  98,829   93,601  
  Maintenance  26,524   38,785  
  Depreciation and amortization  30,797   30,133  
  Base financial component amortization  25,243   25,243  
  Regulatory liability component amortization  (22,143 ) (22,143 )
  Other regulatory amortizations  20,285   (17,794 )
  Rate moderation component  29,043   (8,933 )
  Operating taxes  109,469   102,226  
  Federal income tax (credit)-- current  2,226   (63 )
  Federal income tax-- deferred and other  77,564   79,788  
      Total Expenses  585,716   490,929  
          Operating Income  263,984   256,800  
Other Income and (Deductions): 
  Rate moderation component carrying charges  11,045   10,970  
  Class Settlement  (5,954 ) (4,796 )
  Other income and deductions  4,579   2,997  
  Allowance for other funds used  629   744  
  Federal income tax credit-- deferred and other  3,451   2,869  
      Total Other Income and (Deductions)  13,750   12,784  
          Income Before Interest Charges  277,734   269,584  
Interest Charges and (Credits): 
  Interest on long-term debt  118,069   112,982  
  Other interest  16,372   16,522  
  Allowance for borrowed funds  (1,256 ) (1,308 )
      Total Interest Charges and (Credits)  133,185   128,196  
  Net Income  144,549   141,388  
  Preferred stock dividend requirements  13,527   15,093  
          Earnings for Common Stock  $ 131,022   $ 126,295  
Average Common Shares Outstanding (000)  112,147   111,399  
Earnings per Common Share  $       1.17   $       1.14  
Dividends Declared per Common Share  $       .445   $       .435  

See Notes to Financial Statements

AVERAGE COMPANY
STATEMENT OF INCOME
(unaudited)
(in thousands of dollars — except per share amounts)

Nine Months Ended
September 30
2002
 2001
Revenues:          
  Electric  $1,845,547   $1,721,701  
  Gas  369,475   304,288  
      Total Revenues  2,215,022   2,025,989  
Expenses: 
  Operations-- fuel and purchased power  619,944   545,446  
  Operations-- other  291,937   273,130  
  Maintenance  85,428   105,654  
  Depreciation and amortization  91,176   89,059  
  Base financial component amortization  75,728   75,728  
  Regulatory liability component amortization  (66,429 ) (66,429 )
  Other regulatory amortizations  (16,027 ) (22,254 )
  Rate moderation component  61,728   (27,391 )
  Operating taxes  288,304   294,299  
  Federal income tax-- current  4,525   2,737  
  Federal income tax-- deferred and other  154,730   152,514  
      Total Expenses  1,591,044   1,422,493  
          Operating Income  623,978   603,496  
Other Income and (Deductions): 
  Rate moderation component carrying charges  32,769   31,592  
  Class Settlement  (17,570 ) (16,413 )
  Other income and deductions  17,230   15,045  
  Allowance for other funds  1,483   2,478  
  Federal income tax credit-- deferred and other  11,384   8,126  
      Total Other Income and (Deductions)  45,296   40,828  
          Income Before Interest Charges  669,274   644,324  
Interest Charges and (Credits): 
  Other interest  50,788   45,429  
  Allowance for borrowed funds  (2,629 ) (3,956 )
      Total Interest Charges and (Credits)  400,058   376,943  
Net Income  269,216   267,381  
  Preferred stock dividend requirements  42,457   49,492  
          Earnings for Common Stock  $226,759   $217,889  
Average Common Shares Outstanding (000)  111,966   111,386  
Earnings per Common Share  $2.03   $1.96  
Dividends Declared per Common Share  $1.315   $1.285  

See Notes to Financial Statements

AVERAGE COMPANY

BALANCE SHEET
(in thousands of dollars)

September 30
2002
 December 31
2001
(unaudited)
 (audited)
                                                     ASSETS          
Utility Plant 
  Electric  $  3,510,652   $  3,429,803  
  Gas  828,643   760,635  
  Common  194,857   172,703  
  Construction work in progress  128,703   161,663  
  Nuclear fuel in process and in reactor  25,043   19,216  
   4,687,898   4,544,020  
Less-- Accumulated depreciation  1,439,778   1,382,872  
      Total Net Utility Plant  3,248,120   3,161,148  
Nonutility Property & Other Investments  23,021   20,730  
Current Assets 
  Cash and cash equivalents  344,013   309,485  
  Special deposits  28,199   23,683  
  Customer accounts receivable  309,298   208,049  
  Other accounts receivable  3,946   6,937  
  Accrued unbilled revenues  162,188   143,172  
  Materials and supplies at average cost  77,377   86,482  
  Fuel oil at average cost  43,221   51,702  
  Gas in storage at average cost  78,180   47,002  
  Prepayments and other current assets  42,474   40,402  
          Total Current Assets  1,088,896   916,914  
Regulatory Assets 
  Base financial component  3,609,704   3,685,432  
  Rate moderation component  639,643   651,657  
  Post settlement costs  714,175   586,045  
  Regulatory tax assets  1,143,184   --  
  Other  772,252   298,009  
          Total Regulatory Assets  6,878,958   5,221,143  
Deferred Charges 
  Unamortized cost of issuing securities  361,574   380,267  
  Accumulated deferred income taxes  694,609   511,898  
  Other  37,329   36,524  
          Total Deferred Charges  1,093,512   928,689  
              Total Assets  $12,332,507   $10,248,624  

See Notes to Financial Statements.

AVERAGE COMPANY

BALANCE SHEET (continued)
(in thousands of dollars)

September 30
2002
 December 31
2001
(unaudited) (audited)
                                         CAPITALIZATION AND LIABILITIES          
Capitalization: 
  Long-term debt  $   4,962,733   $   4,755,733  
  Unamortized premium and (discount) on debt  (17,696 ) (14,731 )
   4,945,037   4,741,002  
    Preferred stock--redemption required  596,900   557,900  
    Preferred stock--no redemption required  119,077   154,276  
      Total Preferred Stock  715,977   712,176  
  Common stock  560,821   558,002  
  Premium on capital stock  1,006,600   998,089  
  Capital stock expense  (49,026 ) (39,304 )
  Retained earnings  747,786   667,988  
      Total Common Shareowners' Equity  2,266,181   2,184,775  
          Total Capitalization  7,927,195   7,637,953  
Current Liabilities: 
  Current maturities of long-term debt  600,000   590,000  
  Current redemption requirements  4,800   8,200  
  Accounts payable and accrued expenses  214,744   286,102  
  Accrued taxes  39,653   67,525  
  Accrued interest  153,107   131,179  
  Dividends payable  54,255   53,966  
  Class Settlement  30,000   30,000  
  Customer deposits  26,712   24,815  
      Total Current Liabilities  1,123,271   1,191,787  
Regulatory Liabilities: 
  1989 Settlement Credits  157,384   164,294  
  Other  343,954   100,470  
      Total Regulatory Liabilities  501,338   264,764  
Deferred Credits: 
  Class Settlement  165,940   167,066  
  Accumulated deferred income taxes  2,198,333   970,373  
  Other  12,137   9,871  
      Total Deferred Credits  2,376,410   1,147,310  
Reserves for Claims, Damages, Pensions 
  and Other Postretirement Benefits  404,293   6,810  
Commitments and Contingencies  --   --  
          Total Capitalization and Liabilities  $ 12,332,507   $ 10,248,624  

See Notes to Financial Statements

AVERAGE COMPANY

STATEMENT OF CASH FLOWS
(unaudited)
(in thousands of dollars)

Nine Months Ended
September 30
2002
 2001
Operating Activities:          
  Net Income  $ 269,216   $    267,381  
  Adjustments to reconcile net income to net cash 
       provided by operating activities: 
    Depreciation and amortization  91,176   89,059  
    Provision for doubtful accounts  14,165   12,345  
    Base financial component amortization  75,728   75,728  
    Regulatory liability component amortization  (66,429 ) (66,429 )
    Rate moderation component  61,728   (27,391 )
    Rate moderation component carrying charges  (32,769 ) (31,592 )
    Other regulatory amortizations  (16,027 ) (22,254 )
    Class Settlement  17,570   16,413  
    Amortization of cost of issuing securities  39,176   28,576  
    Federal income taxes--deferred and other  143,346   144,388  
    Allowance for other funds  (1,483 ) (2,478 )
    Other  15,462   7,409  
Changes in operating assets and liabilities: 
  Accounts receivable  (112,422 ) (52,634 )
  Accrued unbilled revenues  (19,016 ) (31,819 )
  Materials and supplies, fuel oil and gas  (13,592 ) (18,811 )
  Prepayments and other current assets  (2,072 ) (663 )
  Accounts payable and accrued expenses  (71,358 ) (35,985 )
  Accrued taxes  (27,872 ) (5,290 )
  Accrued interest  21,928   64,547  
  Other  (42,264 ) (16,136 )
      Net Cash Provided by Operating Activities  344,191   394,364  
Investing Activities: 
  Construction and nuclear fuel expenditures  (175,925 ) (168,962 )
  Post settlement costs  (140,172 ) (152,651 )
  Supplemental decommissioning fund  --   (9,829 )
  Other