UNITED STATES
                     SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-Q


      [X]  Quarterly Report Pursuant to Section 13 or 15(d) of the
           Securities Exchange Act of 1934

           For the quarterly period ended June 30, 2002


                                       or


      [ ]  Transition Report Pursuant to Section 13 or 15(d) of
           the Securities Exchange Act of 1934





                     Registrant, State of              I.R.S. Employer
 Commission             Incorporation,                 Identification
 File Number      Address and Telephone Number             Number
------------    --------------------------------       ----------------

  1-7297         Nicor Inc.                             36-2855175
                 (An Illinois Corporation)
                 1844 Ferry Road
                 Naperville, Illinois 60563-9600
                 (630) 305-9500



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 and (2) has been subject to such filing requirements for
the past 90 days. Yes [X]* No [ ]

Shares of common stock, par value $2.50, outstanding at August 8, 2002, were
43,996,043.

*The company's new independent public accountant, Deloitte & Touche LLP, was
unable to complete the review of the condensed unaudited 2002 financial
statements included herein, as required by Rule 10-01(d) of Regulation S-X
promulgated under the Securities Act of 1934, due to uncertainties surrounding
the current review of the gas distribution segment's performance-based rate plan
referred to in the Contingencies note beginning on page 8.





<PAGE>


Nicor Inc.                                                   Page i
-------------------------------------------------------------------------
Table of Contents

Part I - Financial Information

   Item 1. Financial Statements (Unaudited) ................................ 1

           Consolidated Statements of Operations:
             Three and six months ended
             June 30, 2002 and 2001 ........................................ 2

           Consolidated Statements of Cash Flows:
             Six months ended
             June 30, 2002 and 2001 ........................................ 3

           Consolidated Balance Sheets:
             June 30, 2002 and 2001, and
             December 31, 2001 ............................................. 4

           Notes to the Consolidated Financial Statements .................. 5

   Item 2. Management's Discussion and Analysis of Financial
             Condition and Results of Operations ...........................14

   Item 3. Quantitative and Qualitative Disclosures about
             Market Risk ...................................................24

Part II - Other Information

Item 1.    Legal Proceedings................................................24

Item 2.    Changes in Securities and Use of Proceeds........................24

Item 4.    Submission of Matters to a Vote of Security Holders..............24

Item 5.    Other Information................................................25

Item 6.    Exhibits and Reports on Form 8-K.................................25

           Signature........................................................26

           Exhibit Index ...................................................27



Glossary

Degree day........The extent to which the daily average temperature falls below
                  65 degrees Fahrenheit. Normal weather for Nicor Gas' service
                  territory is about 6,000 degree days per year.
ICC...............Illinois Commerce Commission, the agency that regulates
                  investor-owned Illinois utilities.
Mcf, MMcf, Bcf....Thousand cubic feet, million cubic feet, billion cubic feet.
PBR...............Performance-based rate, a regulatory plan that provides
                  economic incentives based on natural gas cost performance.
TEU...............Twenty-foot equivalent unit, a measure of volume in
                  containerized shipping equal to one 20-foot-long container.



Nicor Inc.                                                   Page 1
---------------------------------------------------------------------------
PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

The company's new independent public accountant, Deloitte & Touche LLP, was
unable to complete the review of the condensed unaudited 2002 financial
statements included herein, as required by Rule 10-01(d) of Regulation S-X
promulgated under the Securities Act of 1934, due to uncertainties surrounding
the current review of the gas distribution segment's performance-based rate plan
referred to in the Contingencies note beginning on page 8. The company will file
an amendment to this Quarterly Report on Form 10-Q for the quarter ended June
30, 2002, as soon as practicable after the required review is completed.

Except as set forth above, the following condensed unaudited financial
statements of Nicor Inc. (Nicor) have been prepared by the company pursuant to
the rules and regulations of the Securities and Exchange Commission (SEC).
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States have been condensed or omitted pursuant to SEC rules and
regulations. The condensed financial statements should be read in conjunction
with the financial statements and the notes thereto included in the company's
latest Annual Report on Form 10-K.

The information furnished reflects, in the opinion of the company, all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair statement of the results for the interim periods presented. Results for the
interim periods presented are not necessarily indicative of the results to be
expected for the full fiscal year due to seasonal and other factors.


<PAGE>



Nicor Inc.                                                   Page 2
--------------------------------------------------------------------

Consolidated Statements of Operations (Unaudited)
(millions, except per share data)

                                     Three months ended      Six months ended
                                          June 30                June 30
                                     -------------------    -------------------
                                       2002       2001        2002       2001
                                     --------   --------    --------   --------

Operating revenues                   $  391.8   $  373.0    $1,008.8   $1,846.7
                                     --------   --------    --------  --------

Operating expenses
   Cost of gas                          189.9      181.2       537.5    1,355.8
   Operating and maintenance            107.5       90.4       212.9      191.8
   Depreciation                          26.9       25.8        87.8       84.4
   Taxes, other than income taxes        25.2       24.8        66.5       95.9
   Other                                    -       (2.1)         .2       (2.1)
                                     --------   --------    --------   --------
                                        349.5      320.1       904.9    1,725.8
                                     --------   --------    --------   --------

Operating income                         42.3       52.9       103.9      120.9

Other income (expense), net              (4.1)       (.3)       (3.7)       4.2
                                     --------   --------    --------   --------

Income before interest expense
   and income taxes                      38.2       52.6       100.2      125.1

Interest expense, net of amounts
   capitalized                            8.7       11.9        18.4       26.1
                                     --------   --------    --------   --------

Income before income taxes               29.5       40.7        81.8       99.0

Income taxes                              9.1       14.0        25.9       33.5
                                     --------   --------    --------   --------

Net income                               20.4       26.7        55.9       65.5

Dividends on preferred stock               .1         .1          .2         .1
                                     --------   --------    --------   --------

Earnings applicable to common stock  $   20.3   $   26.6    $   55.7   $   65.4
                                     ========   ========    ========   ========

Average shares of common stock
   outstanding
     Basic                               44.1       45.4        44.2       45.4
     Diluted                             44.3       45.5        44.4       45.5

Earnings per average share of
   common stock
     Basic                           $    .46   $    .59    $   1.26   $   1.44
     Diluted                              .46        .59        1.26       1.44

Dividends declared per share of
   common stock                      $    .46   $    .44    $    .92   $    .88



The accompanying notes are an integral part of these statements.






Nicor Inc.                                                   Page 3
--------------------------------------------------------------------

Consolidated Statements of Cash Flows (Unaudited)
(millions)

                                                           Six months ended
                                                                June 30
                                                          -------------------
                                                            2002       2001
                                                          --------   --------
Operating activities
   Net income                                             $   55.9   $   65.5
   Adjustments to reconcile net income to net cash flow
     provided from operating activities:
      Depreciation                                            87.8       84.4
      Deferred income tax expense                             23.2       18.4
      Gain on sale of property, plant and equipment           (4.5)       (.4)
      Changes in assets and liabilities:
        Receivables, less allowances                         132.2      260.1
        Gas in storage                                        (5.5)       6.3
        Deferred/accrued gas costs                           (50.8)     191.9
        Accounts payable                                     (94.4)    (332.5)
        Temporary LIFO liquidation                           114.6       29.1
        Prepaid pension costs                                 (6.4)     (16.7)
      Other                                                   14.2        5.5
                                                          --------   --------
   Net cash flow provided from operating activities          266.3      311.6
                                                          --------   --------

Investing activities
   Capital expenditures                                      (91.9)     (73.4)
   Net decrease (increase) in short-term investments          13.2       (3.1)
   Repayments from (loans to) joint ventures, net             29.8       (8.4)
   Investment in joint venture                               (16.5)         -
   Business acquisitions                                     (10.2)         -
   Net proceeds from sale of property, plant
      and equipment                                            7.8        1.1
   Other                                                       1.4       (6.0)
                                                          --------   --------
   Net cash flow used for investing activities               (66.4)     (89.8)
                                                          --------   --------

Financing activities
   Net proceeds from issuing long-term debt                   49.9      123.7
   Disbursements to retire long-term debt                        -      (50.0)
   Short-term borrowings (repayments), net                  (184.0)    (290.0)
   Dividends paid                                            (40.0)     (39.0)
   Disbursements to reacquire stock                          (25.1)     (10.7)
   Other                                                       3.3        (.1)
                                                          --------   --------
   Net cash flow used for financing activities              (195.9)    (266.1)
                                                          --------   --------

Net increase (decrease) in cash and cash equivalents           4.0      (44.3)

Cash and cash equivalents, beginning of period                10.7       55.8
                                                          --------   --------

Cash and cash equivalents, end of period                  $   14.7   $   11.5
                                                          ========   ========


The accompanying notes are an integral part of these statements.



Nicor Inc.                                                        Page 4
--------------------------------------------------------------------------

Consolidated Balance Sheets (Unaudited)
(millions)


                                          June 30     December 31     June 30
                                            2002         2001           2001
                                        -----------   -----------   -----------
           Assets

Current assets
  Cash and cash equivalents             $      14.7   $      10.7   $      11.5
  Short-term investments, at cost
    which approximates market                  21.0          34.2          46.1
  Receivables, less allowances of $13.0,
    $12.3 and $19.1, respectively             222.4         354.6         398.7
  Notes receivable - joint ventures             1.4          31.2           9.6
  Gas in storage                               34.1          28.6          25.5
  Deferred income taxes                        28.1          33.9          48.1
  Other                                        26.2          24.7          17.2
                                        -----------   -----------   -----------
                                              347.9         517.9         556.7
                                        -----------   -----------   -----------
Property, plant and equipment, at cost
  Gas distribution                          3,491.9       3,425.6       3,340.6
  Shipping                                    307.7         304.6         289.7
  Other                                         3.9           2.8           2.2
                                        -----------   -----------   -----------
                                            3,803.5       3,733.0       3,632.5
  Less accumulated depreciation             2,037.8       1,964.4       1,920.7
                                        -----------   -----------   -----------
                                            1,765.7       1,768.6       1,711.8
                                        -----------   -----------   -----------

Prepaid pension costs                         170.7         164.3         159.5
Other assets                                  146.2         124.0          99.1
                                        -----------   -----------   -----------

                                        $   2,430.5   $   2,574.8   $   2,527.1
                                        ===========   ===========   ===========

Liabilities and Capitalization

Current liabilities
  Long-term obligations due within
    one year                            $     100.0   $         -   $     125.0
  Short-term borrowings                        93.0         277.0         152.0
  Accounts payable                            301.5         395.9         274.1
  Accrued gas costs                            49.1          99.9         142.7
  Accrued mercury-related costs                 4.2           7.0          54.2
  Temporary LIFO liquidation                  114.6             -          29.1
  Other                                        43.9          46.6          74.7
                                        -----------   -----------   -----------
                                              706.3         826.4         851.8
                                        -----------   -----------   -----------

Deferred credits and other liabilities
  Deferred income taxes                       348.2         328.8         313.5
  Regulatory income tax liability              64.4          66.3          68.4
  Unamortized investment tax credit            38.0          39.0          40.1
  Accrued mercury-related costs                28.6          30.0             -
  Other                                       121.2         104.2         103.4
                                        -----------   -----------   -----------
                                              600.4         568.3         525.4
                                        -----------   -----------   -----------

Capitalization
  Long-term debt                              395.9         446.4         421.1
  Preferred stock                               6.1           6.1           6.1
  Common equity
   Common stock                               110.1         111.0         113.1
   Retained earnings                          613.9         616.9         609.7
   Unearned compensation                        (.4)            -             -
   Accumulated other comprehensive income      (1.8)          (.3)          (.1)
                                        -----------   -----------   -----------
                                            1,123.8       1,180.1       1,149.9
                                        -----------   -----------   -----------
                                        $   2,430.5   $   2,574.8   $   2,527.1
                                        ===========   ===========   ===========





The accompanying notes are an integral part of these statements.




Nicor Inc.                                                   Page 5
--------------------------------------------------------------------------
Notes to the Consolidated Financial Statements (Unaudited)

The following notes should be read in conjunction with the financial statement
notes included in the Nicor Inc. (Nicor) 2001 Annual Report on Form 10-K.

ACCOUNTING POLICIES

Depreciation.  Depreciation for the gas distribution segment is
calculated using a straight-line method for the calendar year.
For interim periods, gas distribution segment depreciation is
allocated based on gas deliveries.

Gas in storage. The gas distribution segment's inventory is carried at cost on a
last-in, first-out (LIFO) method on a calendar-year basis. For interim periods,
the difference between current replacement cost and the LIFO cost for quantities
of gas temporarily withdrawn from storage is recorded in cost of gas and in
current liabilities as a temporary LIFO liquidation.

Reclassifications.  Certain reclassifications have been made to
conform the prior years' financial statements to the current
year's presentation.

NEW ACCOUNTING PRONOUNCEMENTS

During the second quarter of 2002, the Emerging Issues Task Force reached a
consensus on one item under review in Issue 02-03 regarding the accounting for
contracts involved in energy trading and risk management. The consensus requires
all mark-to-market gains and losses arising from energy trading contracts
(whether realized or unrealized) to be shown net in revenue in the consolidated
statement of operations beginning in the third quarter. The current practice of
Nicor Enerchange, one of Nicor's other energy ventures, is to separately display
revenues and expenses associated with realized gains and losses. The consensus
also requires disclosure of certain energy trading activity beginning in annual
periods ending after July 15, 2002. The implementation of this consensus will
materially affect the revenues and operating expenses of Nicor in equal and
offsetting amounts, however, it will not have any impact on the company's
financial condition or the overall results of operations.

In June 2002, the Financial Accounting Standards Board (FASB) issued Statement
No. 146, Accounting for Costs Associated with Exit or Disposal Activities. The
standard requires companies to recognize costs associated with exit or disposal
activities when they are incurred rather than at the date of a commitment to an
exit or disposal plan. The standard is effective for 2003. The company is
currently reviewing the requirements of this new standard and has not yet
determined whether implementation of the standard could have any impact on the
company's financial condition or results of operations.

GOODWILL

On January 1, 2002 the company implemented FASB Statement No. 142, Goodwill and
Other Intangible Assets. The company has completed the initial impairment test
required by the statement and there was no impairment. At June 30, 2002 the
company had $17.5 million of goodwill included in its balance sheet related
primarily to acquisitions over the past twelve months. In 2001, the company
amortized $.7 million of goodwill.





<PAGE>


Nicor Inc.                                                         Page 6
---------------------------------------------------------------------------
Notes to the Consolidated Financial Statements (Unaudited) (continued)

FIRST QUARTER RESTATEMENT

The company has restated and reduced its first quarter 2002 results to correct
for $4.3 million of pretax charges related to Nicor Energy and to defer a
previously recognized $2.3 million pretax gain related to the termination of an
interest rate hedging instrument. These restatements had the following effect on
the first quarter of 2002 (in millions):
                                           As
                                       Previously        As
                                        Reported      Restated
                                       ----------     --------
   Income before income taxes          $     58.9     $   52.3
   Net income                                39.9         35.5
   Earnings per average share of
    common stock:
       Basic                           $      .90     $    .80
       Diluted                                .90          .80


OTHER INCOME (EXPENSE)

Other income (expense), net consists primarily of results of unconsolidated
equity method investments and gains from property sales as follows (in
millions):

                                         Three months            Six months
                                            ended                  ended
                                           June 30                June 30
                                     -------------------    -------------------
                                       2002       2001        2002       2001
                                     --------   --------    --------   --------
Equity investment income (loss):
   Nicor Energy                      $   (5.7)  $   (3.3)   $  (10.9)  $  (1.6)
   All other                               .8         .2         1.5        .4
Gain on sale of properties                 .2         .4         4.5        .7
Interest income                            .4        1.7         1.3       4.2
Other                                      .2         .7         (.1)       .5
                                     --------   --------    --------   -------
                                     $   (4.1)  $   (0.3)   $   (3.7)  $   4.2
                                     ========   ========    ========   =======

COMPREHENSIVE INCOME

Total comprehensive income, as defined by FASB Statement No. 130, Reporting
Comprehensive Income, is equal to net income plus other comprehensive income and
is as follows (in millions):

                                       Three months            Six months
                                          ended                  ended
                                         June 30                June 30
                                  -------------------    -------------------
                                    2002       2001        2002       2001
                                  --------   --------    --------   --------

Net income                        $   20.4   $   26.7    $   55.9   $   65.5
Other comprehensive income
(loss), net of tax                    (3.2)       1.0        (1.5)         -
                                  --------   --------    --------   --------
Total comprehensive income        $   17.2   $   27.7    $   54.4   $   65.5
                                  ========   ========    ========   ========

Other comprehensive income (loss) for Nicor consisted of unrealized gains and
losses from derivative financial instruments accounted for as cash flow hedges,
including Nicor's share of amounts from joint ventures.


Nicor Inc.                                                              Page 7
------------------------------------------------------------------------------
Notes to the Consolidated Financial Statements (Unaudited) (continued)


DEBT

In April 2002, Nicor Gas issued $50 million of 3 percent unsecured notes due in
April 2003 with proceeds to be used for general corporate purposes.

RELATED PARTY TRANSACTIONS

During the second quarter of 2002 Horizon Pipeline, a 50/50 joint venture
between Nicor and Natural Gas Pipeline Company of America (NGPL), put into
operation a 74-mile, 36-inch pipeline from Joliet, Illinois to near the
Wisconsin/Illinois border. The project was initially financed through short-term
loans from Nicor and Kinder Morgan, Inc., the parent company of NGPL. In May
2002, Horizon Pipeline financed the project with partnership equity and
non-recourse third party long-term debt and repaid the short-term loans. Nicor's
equity contribution was $16.5 million. Horizon Pipeline's capacity is nearly
fully subscribed under 10-year agreements, with Nicor Gas having contracted for
approximately 80 percent of the 380 MMcf per day initial capacity. In the second
quarter of 2002, Horizon Pipeline charged Nicor Gas $1.4 million for natural gas
transportation under FERC-approved rates. This transaction has been approved by
the Illinois Commerce Commission (ICC).

In 2002, Nicor Technologies, a wholly owned subsidiary of Nicor, began
purchasing gas distribution engineering services from EN Engineering, a
50-percent owned joint venture. EN Engineering charged Nicor Technologies $1.2
million and $2.3 million for these services for the three- and six-month periods
ended June 30, 2002, respectively.

In addition, Nicor has entered into various transactions with Nicor Energy,
which are described within the Nicor Energy section of Contingencies on page 8.

BUSINESS SEGMENT INFORMATION

Financial data by major business segment is presented below (in millions):

                                     Three months           Six months
                                        ended                 ended
                                       June 30               June 30
                                 -------------------    ------------------
                                   2002       2001        2002      2001
                                 --------   --------    --------   --------
Operating revenues
   Gas distribution              $  277.3   $  273.5    $  796.8   $1,620.1
   Shipping                          65.2       54.3       125.0      113.0
   Other energy ventures             60.8       48.4       103.1      141.8
   Corporate and eliminations       (11.5)      (3.2)      (16.1)     (28.2)
                                 --------   --------    --------   --------
                                 $  391.8   $  373.0    $1,008.8   $1,846.7
                                 ========   ========    ========   ========
Operating income (loss)
   Gas distribution              $   37.9   $   49.1    $   95.7   $  113.7
   Shipping                           3.7        3.6         6.9        6.9
   Other energy ventures              1.2        1.0         2.3        1.9
   Corporate and eliminations         (.5)       (.8)       (1.0)      (1.6)
                                 --------   --------    --------   --------
                                 $   42.3   $   52.9    $  103.9   $  120.9
                                 ========   ========    ========   ========


Nicor Inc.                                                         Page 8
---------------------------------------------------------------------------
Notes to the Consolidated Financial Statements (Unaudited) (continued)

Other energy ventures operating revenues include intercompany natural gas sales
to Nicor Gas of $4.3 million and $7.8 million for the 2002 three- and six-month
periods, respectively, and $2.7 million and $27.0 million for the same periods
in 2001. These intercompany revenues have been eliminated in the consolidated
financial statements.

CONTINGENCIES

The following contingencies of Nicor are in various stages of investigation or
disposition. Although the company is unable to estimate the amount of loss
reasonably possible in addition to the amount already recognized, if any, it is
possible that the resolution of these contingencies, either individually or in
aggregate, will require the company to restate prior period financial results
or take charges against or reductions in future earnings. It is the opinion of
management that the resolution of these contingencies, either individually or
in aggregate, could be material to earnings in a particular period. It is the
opinion of management that the resolution of these contingencies, either
individually or in aggregate, is not expected to have a material adverse impact
on Nicor's liquidity or financial condition.

Nicor Energy. In 2002, other income included a pretax loss of $5.7 million and
$10.9 million for the quarter and six-month periods, respectively, related to
the company's 50-percent share of operating results at Nicor Energy, a retail
energy marketing joint venture with Dynegy Inc. (Dynegy). These amounts include
negative pretax adjustments of $2.3 million and $5.6 million, respectively,
related to a year-end 2001 independent audit of Nicor Energy completed in May
2002. In the second quarter, as a result of the audit findings, the owners of
the venture and new Nicor Energy management commenced a review of Nicor Energy's
business strategy, accounting practices, controls and financial results. The
review process identified irregularities in accounting and additional accounting
errors and adjustments at Nicor Energy that were also part of the reason for the
losses referred to above. It is unknown at this time whether additional
adjustments will be required, although the review of financial results through
June 30, 2002 is substantially complete. Year-to-date losses from Nicor Energy
include some error corrections related to 2001 that the company does not
consider material.

At June 30, 2002, Nicor held a $1.3 million short-term note receivable from
Nicor Energy at market interest rates and had outstanding guarantees of $14
million related to the joint ventures' borrowings under a line of credit and
$4.4 million related to accounts payable. Nicor's maximum exposure under its
guarantee commitments on behalf of Nicor Energy is $15 million related to the
line of credit and $29 million related to payables and other commitments. In
addition, Dynegy has asked Nicor to guarantee up to $24 million of Nicor Energy
accounts payable for gas and electric purchases from Dynegy, and Nicor has not
acted on this request. While it is reasonably possible that Nicor will be
required to make payments under the guarantees, Nicor cannot estimate the
amount, and no liability has been recorded. Nicor had a negative $4.8 million
equity investment in Nicor Energy at June 30, 2002.

In April 2002, Nicor and Dynegy Inc. renegotiated their joint venture agreement
extending the original agreement, which would have expired in mid-2002, by five
years. Nicor Energy is dependent on the financial support of both equity
investors, and Dynegy is the joint venture's primary energy supplier. If either
equity investor fails to continue its support of the joint venture, the effect
on Nicor Energy could cause Nicor to make payments under the guarantees noted
above.

As a result of the adjustments, review process and other matters referred to
above, Nicor is currently evaluating alternatives to its continued involvement
with Nicor Energy. The outcome of this evaluation cannot be reasonably
estimated, although it is possible that the company may need to make payments
under its guarantees.


Nicor Inc.                                                          Page 9
----------------------------------------------------------------------------
Notes to the Consolidated Financial Statements (Unaudited) (continued)

Performance-Based Rate Plan. On January 1, 2000, Nicor Gas' performance-based
rate (PBR) plan for natural gas costs went into effect. Under the PBR plan,
Nicor Gas' total gas supply costs are compared to a market-sensitive benchmark.
Savings and losses relative to the benchmark are determined annually and are
shared equally with sales customers. Pursuant to the requirements of Illinois
law, the plan is currently under ICC review.

There have recently been allegations that the company acted improperly in
connection with the PBR plan, and the ICC has advised the company that it is
reviewing these allegations. On June 27, 2002 the Citizens Utility Board (CUB)
filed a motion to reopen the record in the ICC's proceedings to review the PBR
plan. As a result of the motion to reopen, Nicor Gas, the Cook County State's
Attorney's Office, the Staff of the ICC and CUB entered into a stipulation
providing for additional discovery. The Illinois Attorney General's Office has
also intervened in this matter. A status hearing has been set for September 4,
2002 to assess the status of discovery and to consider the need for additional
discovery. In addition, the Illinois Attorney General's Office issued Civil
Investigation Demands (CIDs) to the CUB and the ICC Staff. The CIDs ordered that
CUB and the ICC Staff produce all documents relating to any claims that Nicor
Gas may have presented, or caused to be presented, false information related to
its PBR plan. Other governmental agencies may be reviewing these allegations.
The company has committed to cooperate fully in the review of the PBR plan. In
response to these allegations, the Nicor Board of Directors has appointed a
special committee of independent, non-management directors to conduct an inquiry
into issues surrounding natural gas purchases, sales, transportation, storage
and such other matters as may come to the attention of the special committee in
the course of its investigation. This inquiry includes a review of transactions
with third parties, including the purchase of weather insurance, and
transactions with affiliates.

The company's earnings included pretax income of $14.9 million in 2001 and $12.2
million in 2000 related to the PBR plan. In 2002, operating income in the second
quarter includes the reversal of $3.8 million of pretax earnings estimated and
recorded in the first quarter relating to the company's PBR plan. As a result of
this reversal, the year-to-date 2002 period no longer includes any estimated PBR
plan results related to the 2002 plan year; however, it does include a negative
$1.3 million correction of 2001 PBR plan results. Nicor has estimated no results
for the 2002 PBR plan year because of the uncertainties surrounding the PBR
plan. The company is unable to predict the outcome of the review of the PBR plan
or the company's potential exposure thereto and has not recorded a liability
associated with this contingency.

On July 22, 2002, a purported class action was filed against Nicor Gas and Nicor
in the Circuit Court of Cook County, Illinois, on behalf of all customers of
Nicor Gas who at any time from January 2000 through the present were subject to
Nicor Gas's PBR plan. The plaintiff alleges claims for breach of contract,
unjust enrichment and violation of the Illinois Consumer Fraud and Deceptive
Practices Act, and that the class sustained damages as a result of Nicor Gas
improperly enriching itself by manipulating the benchmark under the PBR. The
class is seeking compensatory damages, prejudgment and postjudgment interest,
and disgorgement of all profits. Nicor is unable to predict the outcome of this
litigation or Nicor's potential exposure related thereto and has not recorded a
liability associated with this contingency.

SEC Inquiry. Following Nicor's issuance of a press release on July 18, 2002
that included comments concerning Nicor Energy and the PBR plan, the staff of
the Securities and Exchange Commission informed Nicor that it is conducting an
informal inquiry.



Nicor Inc.                                                       Page 10
---------------------------------------------------------------------------
Notes to the Consolidated Financial Statements (Unaudited) (continued)

Securities Class Actions. Also following Nicor's issuance of the press release
concerning Nicor Energy and the PBR plan, three purported class actions have
been brought against Nicor, Thomas Fisher (Chairman, President and CEO) and
Kathleen Halloran (Executive Vice President Finance and Administration) on
behalf of all persons or entities who purchased Nicor common stock in the open
market during a specified period ending in July 2002. The actions were brought
in the United States District Court for the Northern District of Illinois,
Eastern Division. The plaintiffs allege that the defendants violated sec. 10(b)
and sec. 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.
Plaintiffs allege that during the class period defendants misrepresented Nicor's
historical financial condition and results of operations and its future
prospects. In addition, various newswire services have reported that additional
class actions have been filed against Nicor, although Nicor has not been served
with complaints in any such additional actions. The class is seeking
compensatory damages, prejudgment interest, attorneys' fees and costs and other
equitable relief. Nicor is unable to predict the outcome of this litigation or
Nicor's potential exposure related thereto and has not recorded a liability
associated with this contingency.

Hub Services. Pursuant to a Federal Energy Regulatory Commission (FERC) Order,
Nicor Gas was issued a limited jurisdiction blanket certificate authorizing
Nicor Gas to provide interstate transportation services, including storage
services (Interstate Hub Services). FERC regulates the terms and conditions, as
well as rates, for interstate services. A periodic rate case was recently filed
with FERC. In the course of this proceeding, Nicor Gas determined that refunds
are due customers who purchased certain Hub Services. Accordingly, Nicor has
accrued and will be refunding service fees plus interest in the amount of
approximately $.5 million to customers of Hub Services and is investigating to
determine whether any additional refunds or other charges are appropriate. Nicor
Gas also offers certain interruptible transportation and storage services
pursuant to tariffs on file with the ICC, which regulates such intrastate
services. Nicor Gas is investigating to determine whether refunds or charges are
appropriate related to its provision of such ICC jurisdictional services. Nicor
Gas cannot estimate the amount of any such additional refunds and has not
recorded a liability associated with this contingency.

Mercury Program. Nicor Gas has incurred, and expects to continue to incur,
significant costs related to its historical use of mercury in various kinds of
company equipment. Prior to 1961, gas regulators containing small quantities of
mercury were installed in homes. These gas regulators reduce the pressure of
natural gas flow from the service line to the inside of the home. During the
third quarter of 2000, the company learned that in certain instances some
mercury was spilled or left in residences.

As a result, in September 2000, Nicor Gas was named as a defendant in a civil
lawsuit (the "Attorney General's Lawsuit") brought by the Illinois Attorney
General and the State's Attorneys of Cook, DuPage and Will Counties, Illinois,
seeking, among other things, to compel the company to inspect and clean up all
homes and other sites that may have been affected by mercury from company
equipment. The Circuit Court of Cook County hearing this action entered two
preliminary injunctions requiring Nicor Gas, among other things, to conduct
inspections and, where necessary, to clean up mercury, to pay for relocating
residents until cleanup is completed, and to pay for medical screening of
potentially affected persons. Potentially affected homes are being inspected
using mercury vapor analyzers. Nicor Gas has called on every such home, although
it still has been unable to gain entry to some homes. Approximately 1,070 homes
have been found to have traces of mercury requiring cleanup.

On October 10, 2001 Nicor Gas entered into a settlement agreement with respect
to the Attorney General's Lawsuit, and on the same date the Circuit Court of
Cook County entered an order approving the settlement. Under the settlement,
Nicor Gas is paying a total of approximately $2.25 million over a 5-year period.
Of this amount, $.4 million will be used to reimburse the plaintiffs for their
costs and the balance will be used to fund environmental programs.

Nicor Inc.                                                      Page 11
-----------------------------------------------------------------------------
Notes to the Consolidated Financial Statements (Unaudited) (continued)

In addition, Nicor Gas will continue for a period of five years to provide
medical screening to persons who may have been exposed to mercury from
Nicor Gas equipment.

Nicor Gas was also the subject of an Administrative Order, and an amendment
thereto, issued during the third quarter of 2000 by the U.S. Environmental
Protection Agency (EPA) pursuant to Section 106 of the Comprehensive
Environmental Response, Compensation and Liabilities Act. The order required the
company, among other things, to develop and implement work plans to address
mercury spills at recycling centers where mercury regulators may have been
taken, at company facilities where regulators and mercury may have been
temporarily stored and at commercial/industrial sites where mercury-containing
equipment may have been used in metering facilities. Pursuant to the injunctions
and the EPA order, Nicor Gas has completed the work described above for all
affected recycling centers, commercial/industrial sites and company facilities.
On July 12, 2001, Nicor Gas received a Notice of Completion letter from the EPA
regarding the work performed under the Section 106 order.

In addition to the matters described above, Nicor Gas has been named a defendant
in several private lawsuits, all in the Circuit Courts of Cook and DuPage
Counties, claiming a variety of unquantified damages (including bodily injury,
property and punitive damages) allegedly caused by mercury-containing
regulators. One of the lawsuits in the Circuit Court of Cook County involves
five previous class actions that were consolidated before a single judge. On
October 10, 2001, Nicor Gas entered into an agreement to settle the class action
litigation. Under the terms of that agreement, Nicor Gas has paid a total of
approximately $1.85 million, will continue for a period of five years to provide
medical screening to persons exposed to mercury from its equipment, and will use
its best efforts to replace any remaining inside residential mercury regulators
within four years. The class action settlement permitted class members to "opt
out" of the settlement and pursue their claims individually. On February 7,
2002, the Circuit Court of Cook County entered a final order approving the class
action settlement. The "opt out" period has ended and approximately 160
households have opted out of the class. Of those, 42 households had traces of
mercury, and Nicor Gas has settled with four households.

Nicor Gas charged $148 million to other operating expense in the third quarter
of 2000 for estimated obligations related to the previously described work and
for legal defense costs. A $9 million adjustment lowered the mercury-related
reserve and reduced other operating expense in the third quarter of 2001
reflecting a lower number of homes expected to be found with traces of mercury
requiring cleanup, a lower average cleanup and repair cost and estimated costs
of litigation. Through June 30, 2002, the company has incurred $106.2 million in
associated costs, leaving a $32.8 million estimated liability. The remaining
liability represents management's best estimate of future costs, including
potential liabilities relating to remaining lawsuits, based on an evaluation of
currently available information. Actual costs may vary from this estimate. The
company will continue to reassess its estimated obligation and will record any
necessary adjustment, which could be material to operating results in the period
recorded.

The company has certain insurance policies, has notified its insurers, and is
vigorously pursuing recovery of mercury-related costs pursuant to its insurance
coverage. In January 2001, the company filed suit in the Circuit Court of Cook
County against certain of its insurance carriers for a declaration that the
company's mercury-related losses are covered, and for the recovery of those
losses. Nicor Gas is also pursuing certain insurance recoveries through
arbitration. In addition, some of the removals of mercury- containing regulators
were conducted by independent contractors working for the company. In November
2000, the company filed suit in the Circuit Court of Cook County seeking
indemnification and contribution from these contractors and their insurance
carriers. Through June 30, 2002, Nicor Gas has recovered, net of related
expenses, $2.9 million from certain insurance carriers of the company and its


Nicor Inc.                                                      Page 12
--------------------------------------------------------------------------
Notes to the Consolidated Financial Statements (Unaudited) (continued)

independent contractors. These recoveries have been recorded as a reduction to
other operating expense. Subsequent to June 30, 2002, Nicor Gas reached an
agreement with an insurer wherein Nicor Gas will recover approximately $20
million, net of related costs, which will be included in the company's results
of operations for the third quarter of 2002. At this stage, it is not possible
to estimate the likelihood of additional recoveries from insurance carriers or
other third parties related to the mercury spills, and Nicor Gas has not
recorded any such recoveries in its financial statements.

Nicor Gas will not seek recovery of the costs associated with these mercury
spills from its customers, and any proceeds from insurance carriers or third
parties will be retained by the company to offset costs incurred.

Fixed Bill Service. On July 17, 2002, a purported class action was filed in
Circuit Court of Cook County, Illinois against Nicor Energy Services Company
(Nicor Services) and Nicor Gas alleging violation of the Illinois Consumer Fraud
and Deceptive Practices Act by Nicor Services and Nicor Gas relating to the
Fixed Bill Service offered by Nicor Services and a conspiracy claim against
Nicor Gas arising out of marketing efforts by Nicor Services. The Fixed Bill
program is a service that is offered to Nicor Gas residential customers which
allows the customer to pay twelve equal monthly amounts for their annual gas
service based upon the gas use profile of their home. The class is seeking
compensatory damages, prejudgment and postjudgment interest, punitive damages,
attorneys' fees and other equitable relief. Nicor is unable to predict the
outcome of this litigation or Nicor's potential exposure related thereto. Nicor
cannot estimate and has not recorded a liability associated with this
contingency.

Manufactured Gas Plant Sites. Gas manufacturing plants were used in the early to
mid 1900's to produce natural gas from coal, producing a coal tar byproduct.
Current environmental laws may require the cleanup of coal tar at certain former
manufactured gas plant sites.

To date, Nicor Gas has identified about 40 properties for which it may, in part,
be responsible. Most of these properties are not presently owned by the company.
Information regarding preliminary site reviews has been presented to the
Illinois Environmental Protection Agency. More detailed investigations and
remedial activities are either in progress or planned at many of these sites.
The results of continued testing and analysis should determine to what extent
additional remediation is necessary and may provide a basis for estimating any
additional future costs which, based on industry experience, could be
significant. In accordance with ICC authorization, the company is and has been
recovering these costs from its customers.

In December 1995, Nicor Gas filed suit in the Circuit Court of Cook County
against certain insurance carriers seeking recovery of environmental cleanup
costs of certain former manufactured gas plant sites. Nicor Gas reached a
settlement with one of the insurance carriers, and in February 2000, the court
dismissed the company's case on summary judgment motions by certain other
defendants. The company filed an appeal in March 2000. In May 2001, Nicor Gas
reached a recovery settlement with certain insurance carriers who were involved
in this appeal. Management cannot predict the outcome of the lawsuit against the
remaining insurance carriers. All such recoveries are refunded to the company's
customers.

In December 2001, a putative class action lawsuit was filed against Exelon
Corporation, Commonwealth Edison Company and Nicor Gas in the Circuit Court of
Cook County alleging, among other things, that the proposed residential cleanup
of a manufactured gas plant site in Oak Park, Illinois was inadequate.


Nicor Inc.                                                       Page 13
--------------------------------------------------------------------------
Notes to the Consolidated Financial Statements (Unaudited) (concluded)

The lawsuit claims that houses might have to be razed or removed and asks that
residents be compensated for the alleged loss in the value of their homes and
other monetary damages. An amended complaint adding additional plaintiffs and,
as defendants, the Village of Oak Park and the Oak Park Park District, was filed
in April 2002. Management cannot predict the outcome of this litigation or the
company's potential exposure thereto and has not recorded a liability associated
with this contingency.

In April 2002, Nicor Gas was named as a defendant, together with Commonwealth
Edison Company, in a lawsuit brought by the Metropolitan Water Reclamation
District of Greater Chicago (the MWRD) under the Comprehensive Environmental
Response, Compensation and Liability Act seeking the recovery of past and future
remediation costs and a declaration of the level of cleanup for a former
manufactured gas plant site in Skokie, Illinois now owned by the MWRD. The suit
was filed in federal court in Chicago and the company has filed responsive
pleadings. Management cannot predict the outcome of this litigation or the
company's potential exposure thereto and has not recorded a liability associated
with this contingency.

Since costs and recoveries relating to the cleanup of these manufactured gas
plant sites are passed directly through to customers in accordance with ICC
regulations, subject to an ICC prudence review, the final disposition of these
manufactured gas plant matters is not expected to have a material impact on the
company's financial condition or results of operations.

Other. In addition to the matters set forth above, the company is involved in
legal or administrative proceedings before various courts and agencies with
respect to rates, taxes and other matters. Although unable to determine the
outcome of these other contingencies, management believes that appropriate
accruals for them have been recorded.

<PAGE>


Nicor Inc.                                                  Page 14
---------------------------------------------------------------------------
Item 2. Management's Discussion and Analysis of Financial Condition
        and Results of Operations

The following discussion should be read in conjunction with the Management's
Discussion and Analysis section of the Nicor Inc. (Nicor) 2001 Annual Report on
Form 10-K.

SUMMARY

Nicor's diluted earnings per share for the three- and six-month periods ended
June 30, 2002, were $.46 and $1.26, respectively, compared to diluted earnings
per share of $.59 and $1.44, respectively, for the same periods in 2001. Second
quarter net income was $20.4 million in 2002 compared to $26.7 million in 2001.
Net income for the six-month period decreased to $55.9 million from $65.5
million a year ago. The decrease in net income in both periods was primarily
attributable to lower operating results in the gas distribution segment and
lower equity investment results from Nicor Energy, LLC (Nicor Energy), the
company's 50-percent-owned retail energy marketing joint venture. Both 2002
periods were positively affected by lower net interest expense compared to the
prior-year periods. Per share results in both periods were favorably affected by
the company's common stock repurchase program.

Operating income. Operating income (loss) by major business segment was (in
millions):

                                   Three months            Six months
                                       ended                 ended
                                      June 30                June 30
                               -------------------    -------------------
                                 2002       2001        2002       2001
                               --------   --------    --------   --------

   Gas distribution            $   37.9   $   49.1    $   95.7   $  113.7
   Shipping                         3.7        3.6         6.9        6.9
   Other energy ventures            1.2        1.0         2.3        1.9
   Corporate and eliminations       (.5)       (.8)       (1.0)      (1.6)
                               --------   --------    --------   --------
                               $   42.3   $   52.9    $  103.9   $  120.9
                               ========   ========    ========   ========

The following summarizes operating income comparisons for major business
segments:

o  Gas distribution operating income decreased in the second quarter to $37.9
   million, from $49.1 million a year ago. For the six months ended June 30,
   2002, operating income decreased to $95.7 million, from $113.7 million in
   2001. The two primary factors causing lower quarter and six-month period
   results were the performance-based rate (PBR) plan and higher operating
   costs, including increased depreciation expense.

   Nicor Gas recorded PBR plan results of $(4.2) million and $1.7 million for
   the second quarter of 2002 and 2001, respectively, and $(1.3) million and
   $4.2 million for the six months ended June 30, 2002 and 2001, respectively.
   The year-to-date 2002 period no longer includes any estimated PBR plan
   results related to the 2002 plan year due to the developments described in
   the performance-based rate section beginning on page 9. The year-to-date
   period also includes negative pretax corrections of 2001 PBR plan results of
   $.4 million and $1.3 million recorded in the three- and six-month periods
   ended June 30, 2002, respectively.

   Positive contributions for the quarter relating to increased natural gas
   deliveries due to colder weather were somewhat offset by a related reduction
   of accrued weather-protection benefits. Other positive factors impacting both
   periods include increased natural gas deliveries unrelated to weather and
   lower natural gas costs to operate company equipment and facilities.

Nicor Inc.                                                  Page 15
----------------------------------------------------------------------------
Item 2. Management's Discussion and Analysis of Financial Condition
        and Results of Operations (continued)

o  Containerized shipping operating income was essentially flat for the three-
   and six-month periods compared to a year ago. Increased revenues relating to
   higher volumes shipped attributable to acquisitions were offset by the impact
   of lower average prices and higher operating expenses relating to the
   increased volumes and acquisition transition costs.

o  Other energy venture operating income rose for the quarter and year-to-date
   periods due to improved results at Nicor Enerchange, a wholesale natural gas
   marketing business.

Other income (expense). Other income (expense) decreased in the second quarter
of 2002 to $(4.1) million compared to $(.3) million in the second quarter a year
ago. Other income (expense) decreased to $(3.7) million in the 2002 year-to-date
period from $4.2 million a year ago. The decline in both periods was largely due
to poorer operating results at Nicor Energy, including the negative adjustments
described in the Nicor Energy section on page 8. Year-to-date results were
favorably affected by increased property sale gains.

Interest expense. Interest expense for the quarter decreased from $11.9 million
in 2001 to $8.7 million in 2002. For the year-to-date period, interest expense
decreased from $26.1 million in 2001 to $18.4 million in 2002. The decline in
both periods was due to lower average borrowing levels and interest rates.
Reduced natural gas costs in the first quarter of 2002 compared to 2001
contributed to the lower borrowing levels.

Income taxes. The company's effective income tax rate decreased for the three-
and six-month periods due to positive adjustments resulting from the completion
of an income tax audit in the first quarter of 2002.

Outlook. Management currently estimates 2002 diluted earnings per common share
to be in the range of $2.95 to $3.10 and anticipates that third quarter diluted
earnings will be in the range of $.70 to $.80 per share. These estimates include
a pretax mercury-related insurance recovery of about $20 million, net of
associated expenses, expected in the third quarter. These estimates also assume
normal weather for the rest of the year, no further mercury-related charges or
credits, no income or negative charges related to the PBR plan and no additional
negative charges related to Nicor Energy.





Nicor Inc.                                                         Page 16
----------------------------------------------------------------------------
Item 2. Management's Discussion and Analysis of Financial Condition
        and Results of Operations (continued)

RESULTS OF OPERATIONS

Details of various financial and operating information by segment can be found
in the tables on pages 22 and 23. The following discussion summarizes the major
items impacting Nicor's earnings.

Operating revenues. Operating revenues by major business segment were (in
millions):

                                    Three months          Six months
                                      ended                 ended
                                     June 30               June 30
                              -------------------    -------------------
                                2002       2001        2002       2001
                              --------   --------    --------   --------

   Gas distribution           $  277.3   $  273.5    $  796.8   $1,620.1
   Shipping                       65.2       54.3       125.0      113.0
   Other energy ventures          60.8       48.4       103.1      141.8
   Corporate and eliminations    (11.5)      (3.2)      (16.1)     (28.2)
                              --------   --------    --------   --------
                              $  391.8   $  373.0    $1,008.8   $1,846.7
                              ========   ========    ========   ========

Gas distribution revenues decreased for the six-month period due primarily to
significantly lower natural gas prices, which are passed directly through to
customers without markup. For the quarter, the impact of lower natural gas
prices was offset by the effect of colder weather than in 2001.

For both 2002 periods, shipping segment revenues reflect an increase in volumes
shipped compared to a year ago due primarily to acquisitions and increased
year-to-year volumes in existing markets, partially offset by lower average
prices.

The quarterly increase in revenues for other energy ventures was due primarily
to increased business activity at Nicor Enerchange and Nicor Services. The
year-to-date decrease for other energy ventures was due primarily to the impact
of lower natural gas prices in the first quarter of 2002 compared to 2001 on
Nicor Enerchange. The elimination of sales from Nicor Enerchange to Nicor Gas is
reflected in corporate and eliminations.

Gas distribution margin. Gas distribution margin, defined as operating revenues
less cost of gas and revenue taxes, which are both passed directly through to
customers, was $109.3 million in the second quarter of 2002 compared to $110.3
million for the same period a year ago. For the quarter, the effect of higher
deliveries, resulting from 45 percent colder weather than last year and
increased demand not related to weather, was offset by the reduction of weather
protection benefits and negative adjustments related to the PBR plan. For the
2002 six-month period, gas distribution margin decreased to $275.2 million
compared to $280.0 million in 2001. The 2002 six-month period's margin includes
a $1.3 million loss from the PBR plan compared to income of $4.2 million in
2001. In both periods, the positive effect of lower natural gas prices on the
cost of gas used to operate company equipment and facilities was more than
offset by lower revenue from customer finance charges, which was also affected
by the change in natural gas prices.

Operating and maintenance. Operating and maintenance expense for 2002 increased
$17.1 million to $107.5 million, and $21.1 million to $212.9 million, in the
three- and six-month periods, respectively, and relates to several businesses.
The increase in the gas distribution segment was related primarily to the
negative effects of smaller pension credits, higher health care costs and
increased bad debt expense. Shipping segment operating expenses rose due to
higher volumes shipped and acquisition transition costs.


Nicor Inc.                                                          Page 17
------------------------------------------------------------------------------
Item 2. Management's Discussion and Analysis of Financial Condition
        and Results of Operations (continued)

The increase at Nicor's other energy ventures was associated largely with the
addition of new customers and products at Nicor Services.

FINANCIAL CONDITION AND LIQUIDITY

Operating cash flows. Net cash flow from operating activities decreased $45.3
million to $266.3 million for the six months ended June 30, 2002, due primarily
to changes in working capital items in the gas distribution segment. Working
capital can swing sharply due to certain gas distribution factors including
weather, the price of gas, the timing of collections from customers and gas
purchasing practices. The company generally relies on short-term financing to
meet temporary increases in working capital needs.

Investing activities. 2002 capital expenditures are estimated at $200 million, a
$20 million increase from the projection included in Nicor's latest Annual
Report on Form 10-K. The increase is due primarily to storage field improvements
in the gas distribution segment.

During the second quarter of 2002, Horizon Pipeline, a 50/50 joint venture
between Nicor and Natural Gas Pipeline Company of America (NGPL), put into
operation a 74-mile, 36-inch pipeline from Joliet, Illinois to near the
Wisconsin/Illinois border. The project was initially financed through short-term
loans from Nicor and Kinder Morgan, Inc., the parent company of NGPL. In May
2002, Horizon Pipeline financed the project with partnership equity and
non-recourse third party long-term debt and repaid the short-term loans. Nicor's
equity contribution was $16.5 million.

In April 2002, Tropical Shipping, a subsidiary of Nicor, purchased certain
assets of Tecmarine Lines Inc. and TMX Logistics Inc. for cash, thereby
expanding its network of Caribbean and South American destinations. The
acquisition is expected to increase Tropical Shipping's annual volumes by about
10 to 15 percent.

Financing activities. Nicor and its gas distribution subsidiary maintain
short-term line of credit agreements with major domestic and foreign banks. At
June 30, 2002, these agreements, which serve as backup for the issuance of
commercial paper, allow for borrowings up to $415 million, and the company had
$93 million of commercial paper borrowings outstanding. The company had line of
credit agreements with eight banks at June 30, 2002 all of which expire by
September 30, 2002.

Nicor and Nicor Gas continue to have debt ratings that are among the highest in
the gas distribution industry. However, because of uncertainties pertaining to
the energy industry in general and to the company, as described in Contingencies
beginning on page 8, the rating agencies have indicated that they have put Nicor
and Nicor Gas' debt ratings under review for possible downgrade or on credit
watch with negative implications. Standard & Poor's has not put the company's
commercial paper on credit watch. The company's primary banks have indicated
that they would expect to renew their line of credit agreements with Nicor and
Nicor Gas. The company's relative cost of financing will likely increase.

Nicor believes it is in compliance with its debt covenants and will remain so
even if its debt ratings are lowered. Furthermore, Nicor believes it will
continue to be able to generate sufficient capital resources to fund its capital
expenditures and other cash requirements.

In April 2002, Nicor Gas issued $50 million of 3 percent unsecured notes due in
April 2003 with the proceeds to be used for general corporate purposes.


Nicor Inc.                                                           Page 18
-----------------------------------------------------------------------------
Item 2. Management's Discussion and Analysis of Financial Condition
        and Results of Operations (continued)

Under an existing common stock repurchase program, Nicor purchased and retired
128,000 common shares during the second quarter of 2002 at an aggregate cost of
$6.0 million. For the six-month period, Nicor purchased 389,000 common shares at
an aggregate cost of $16.9 million. Purchases may be made from time to time
through open market transactions and to the extent cash flow is available after
other investment opportunities.

On May 1 and August 1, 2002, Nicor paid quarterly dividends on common stock of
46 cents per share. In July 2002, Nicor announced that its Board of Directors
declared a quarterly common stock dividend of 46 cents per share, payable
November 1, 2002, to stockholders of record September 30, 2002.

FACTORS AFFECTING BUSINESS

Contingencies. Future operating results could be materially impacted by
contingencies discussed under the heading Contingencies beginning on page 8,
which is hereby incorporated by reference.

Critical accounting policies and estimates. Nicor prepares its consolidated
financial statements in accordance with accounting principles generally accepted
in the United States, which regularly requires Nicor management to exercise
judgment in the selection and application of accounting methods. The application
of accounting methods includes making estimates using subjective assumptions and
judgments about matters that are inherently uncertain.

The selection of accounting methods and the use of estimates affects Nicor's
reported results and financial condition. The company has adopted several
significant accounting policies that are important to understanding its
financial statements and are described in the Accounting Policies footnote
beginning on page 30 of Nicor's 2001 Annual Report on Form 10-K. Management is
also required to make significant estimates which are similarly described in the
footnotes of that annual report on Form 10-K. Although there are numerous areas
in which Nicor management selects methods and makes estimates, it believes that
those requiring among the most critical judgments involve derivative
instruments, unbilled revenues, credit risk and loss contingencies, because
those judgments are susceptible to material change and could materially impact
Nicor's financial statements.

The rules for determining whether a contract meets the criteria for derivative
instrument accounting, or whether a derivative qualifies for hedge accounting
treatment, are numerous and complex. The treatment of a single contract may vary
from period to period depending upon accounting elections and changes in
management's assessment of the likelihood of future hedged transactions. As a
result, management judgment is required in the determination of the appropriate
accounting treatment. In addition, the estimated fair value of derivative
instruments may change significantly from period to period depending upon market
projections. These determinations and changes in estimates may have a material
impact on reported results.

Certain Nicor subsidiaries and affiliates estimate revenues for gas and electric
deliveries not billed to customers from the last billing date to month-end
(unbilled revenues). Unbilled revenue estimates are dependent upon a number of
factors which may require management judgment, including projections of gas
costs, weather and customer usage. These estimates are adjusted when actual
billings occur, and changes in estimates can be material.



Nicor Inc.                                                        Page 19
---------------------------------------------------------------------------
Item 2. Management's Discussion and Analysis of Financial Condition
        and Results of Operations (continued)

Nicor's subsidiaries and affiliates are required to estimate credit risk in
establishing allowances for doubtful accounts and in estimating the fair values
of certain derivative instruments and energy-related trading contracts, with
counterparty credit risk being an especially difficult and critical judgment.
Actual credit losses could vary materially from Nicor's estimates.

Nicor records loss contingencies as liabilities when it is probable that a
liability has been incurred and the amount of loss is reasonably estimable.
Nicor and its subsidiaries and affiliates are involved in various legal
proceedings and exposed to various loss contingencies, the most significant of
which are described beginning on page 8. These loss contingencies are often
resolved in stages over long time periods, estimates may change significantly
from period to period, and the company's ultimate obligations may differ
materially from its estimates.

Pension investment returns. Nicor Gas maintains noncontributory defined benefit
pension plans covering substantially all employees hired prior to 1998. For
valuation purposes Nicor Gas utilizes an October 1 measurement date to determine
the company's annual pension expense or credit.  Since October 1, 2001, the
pension plan has experienced negative investment returns, consistent with market
conditions, and it is not possible to project what the value of the plan assets
will be at the 2002 measurement date. It is likely that lower-than-anticipated
asset values, in conjunction with possible assumption changes, would negatively
impact the company's pension credit and operating income in 2003 and could be
material. The pension plans are adequately funded.  Market performance could
impact future company contributions but should not impact participant benefits.

Health care costs. Health care costs have been rising and additional increases
would negatively impact Nicor's results of operations in future periods.

Market risk. The company is exposed to market risk in the normal course of its
business operations, including the risk of loss arising from adverse changes in
natural gas and electricity commodity prices and interest rates. It is Nicor's
practice to manage these risks utilizing derivative instruments and other
methods, as deemed appropriate. This section updates the Commodity Price Risk
and Counterparty Credit Risk sections of the market risk disclosure in Nicor's
latest Annual Report on Form 10-K.

Commodity price risk. With regard to commodity price risk, the company has
established policies and procedures governing the management of such risks and
the use of derivative commodity instruments to hedge its exposure to such risks.
A risk management committee oversees compliance with such policies and
procedures. The company utilizes various techniques to limit, measure and
monitor market risk, including limits based on volume, dollar amounts, and
duration, and in some cases value at risk (VaR). VaR is the potential loss for
an instrument or portfolio from adverse changes in market factors, for a
specified time period and at a specified confidence level. The risk management
committee has established exposure limits at such a level that any adverse
results are not expected to have a material adverse effect on the results of
operations or the financial condition of the company. The company's policies and
procedures continue to evolve with its businesses and are subject to ongoing
review and modification.





Nicor Inc.                                                       Page 20
---------------------------------------------------------------------------
Item 2. Management's Discussion and Analysis of Financial Condition
        and Results of Operations (continued)

In accordance with SEC disclosure requirements, Nicor performs sensitivity
analyses to assess the potential loss in earnings based upon a hypothetical 10
percent adverse change in market prices. Management does not believe that
sensitivity analyses alone provide an accurate or reliable method for monitoring
and controlling risks and therefore relies on the experience and judgment of its
management to revise strategies and adjust positions as deemed necessary. Losses
in excess of the amounts determined in sensitivity analyses could occur if
market prices exceed the 10 percent shift used for the analyses. Based on the
company's unhedged positions at June 30, 2002, a 10 percent decrease in natural
gas prices at June 30, 2002 would have decreased Nicor's earnings by about $.5
million. In addition, substantial increases in natural gas prices may indirectly
impact Nicor Gas' earnings by increasing the cost of gas used by the company,
bad debt expense and other operating expenses. Higher natural gas prices may
also lead to lower customer gas consumption.

Nicor's regulated utility, Nicor Gas, is generally not exposed to market risk
caused by changes in commodity prices because of Illinois rate regulation
allowing for the recovery of natural gas supply costs from customers. However,
Nicor Gas has a PBR plan for natural gas costs which creates some exposure to
commodity price risk. The company's exposure to this market risk is partially
mitigated because the PBR plan compares actual gas costs to a market-sensitive
benchmark as opposed to a fixed benchmark. Other risks related to the PBR plan
are described in the Performance-Based Rate Plan section beginning on page 9.

In 2002, Nicor Services began offering Nicor Gas customers a 12-month
fixed-price alternative to their monthly utility bills regardless of natural gas
prices or weather. The commodity risk of this product is partially hedged using
swap agreements. Management also believes it has taken appropriate steps to
manage other risks of loss associated with this product.

Nicor's other energy businesses are subject to natural gas and electricity
commodity price risk, arising primarily from fixed-price purchase and sale
agreements and natural gas inventories. Derivative commodity instruments such as
futures, options, forwards and swaps may be used to hedge this risk.

Counterparty credit risk. The company is also exposed to credit risk in the
event a hedging transaction counterparty or supplier defaults on a contract to
pay for or deliver product at agreed-upon terms and conditions. To manage this
risk, the company has established procedures to determine and monitor the
creditworthiness of counterparties, to require guarantees or collateral back-up,
and to limit its exposure to any one counterparty. Nicor is also entering into
master netting arrangements to mitigate counterparty credit risk.





Nicor Inc.                                                         Page 21
--------------------------------------------------------------------------
Item 2. Management's Discussion and Analysis of Financial Condition
        and Results of Operations (continued)

Energy trading activities. At June 30, 2002, Nicor Enerchange, Nicor's wholesale
natural gas marketing business, had contracts outstanding with the following
fair values (in millions):

                                                    Maturity
                                             ---------------------------
                                Total          Less than       1 to 3
Source of Fair Value         Fair Value          1 Year         Years
--------------------       --------------    ------------     ----------

Prices actively quoted        $  3.8            $  3.6          $  0.2
Prices based on an option
  pricing model                  0.4               0.4               -
                              ------            ------          ------
Total                         $  4.2            $  4.0          $  0.2

The above fair values exclude $25.8 million attributable to natural gas
inventory (net of borrowed gas) which is valued at quoted spot market prices.

OTHER

The company sponsors defined contribution plans covering essentially all
domestic employees. Under the plans employees may elect to make contributions
that are partially matched by the company. In addition, substantially all Nicor
Gas employees hired after 1997 receive a separate company contribution to this
plan. These plans involve risk for the participants, who direct their
contributions and company contributions into various investment options,
including numerous mutual funds, a stable value fund and a Nicor stock fund.

FORWARD-LOOKING INFORMATION

Although management believes its statements about earnings expectations and
other forwarding-looking information are based on reasonable assumptions, actual
results may vary materially from stated expectations. Factors that could cause
materially different results include, but are not limited to, legal
contingencies, the matters referred to in the Contingencies section beginning on
page 8, weather conditions, natural gas and electricity prices, interest rates,
borrowing needs, credit conditions, economic and market conditions, health care
costs, energy conservation, legislative and regulatory actions, asset sales, any
future mercury-related charges or credits, additional adjustments related to
Nicor Energy, and PBR plan review results or adjustments.  These forward-looking
statements speak only as of the date of this filing, and the company assumes no
obligation to update any forward-looking statements.


Nicor Inc.                                                Page 22
------------------------------------------------------------------

Item 2. Management's Discussion and Analysis of Financial Condition
        and Results of Operations (continued)

GAS DISTRIBUTION STATISTICS

Operating revenues, deliveries, customers and other statistics are presented
below.

                                  Three months ended        Six months ended
                                        June 30                 June 30
                                  -------------------     -------------------
                                    2002       2001         2002       2001
                                  --------   --------     --------   --------
Operating revenues (millions):
   Sales
    Residential                   $  179.2   $  171.3     $  519.3   $1,164.5
    Commercial                        35.4       33.5         99.8      222.0
    Industrial                         6.9        4.0         17.6       33.9
                                  --------   --------     --------   --------
                                     221.5      208.8        636.7    1,420.4
                                  --------   --------     --------   --------
   Transportation
    Residential                        2.9        2.0          6.0        4.9
    Commercial                        16.0       14.6         41.7       42.4
    Industrial                        11.1       11.0         22.1       23.0
    Other                              2.0        2.0          4.5        6.0
                                  --------   --------     --------   --------
                                      32.0       29.6         74.3       76.3
                                  --------   --------     --------   --------

   Other revenues
    Revenue taxes                     20.4       20.6         56.8       87.1
    Environmental cost recovery        3.4        2.7         15.4       13.1
    Performance-based rate plan       (4.2)       1.7         (1.3)       4.2
    Chicago Hub                        2.8        2.8          6.1        5.5
    Weather protection                (2.9)         -           .6          -
    Other                              4.3        7.3          8.2       13.5
                                  --------   --------     --------   --------
                                      23.8       35.1         85.8      123.4
                                  --------   --------     --------   --------
                                  $  277.3   $  273.5     $  796.8   $1,620.1
                                  ========   ========     ========   ========

Deliveries (Bcf):
   Sales
    Residential                       31.2       23.5        125.9      125.9
    Commercial                         6.5        5.0         23.7       24.3
    Industrial                         1.3         .7          4.5        3.8
                                  --------   --------     --------   --------
                                      39.0       29.2        154.1      154.0
                                  --------   --------     --------   --------
   Transportation
    Residential                        1.3         .7          4.5        3.8
    Commercial                        14.6       11.8         54.3       52.7
    Industrial                        36.2       31.5         73.9       71.1
                                  --------   --------     --------   --------
                                      52.1       44.0        132.7      127.6
                                  --------   --------     --------   --------
                                      91.1       73.2        286.8      281.6
                                  ========   ========     ========   ========

Customers at end of period (thousands):
   Sales
    Residential                    1,733.7    1,746.2
    Commercial                       106.6       97.5
    Industrial                         6.9        6.4
                                  --------   --------
                                   1,847.2    1,850.1
                                  --------   --------
   Transportation
    Residential                      103.7       63.3
    Commercial                        62.4       69.4
    Industrial                         6.8        7.4
                                  --------   --------
                                     172.9      140.1
                                  --------   --------
                                   2,020.1    1,990.2
                                  ========   ========

Other statistics:
   Degree days                         774        535        3,497     3,639
   Average gas cost per Mcf       $   3.72   $   4.84     $   2.99   $  8.11



Nicor Inc.                                                Page 23
------------------------------------------------------------------

Item 2. Management's Discussion and Analysis of Financial Condition
        and Results of Operations (concluded)

SHIPPING STATISTICS

                                  Three months ended        Six months ended
                                       June 30                  June 30
                                  -------------------     -------------------
                                    2002       2001         2002       2001
                                  --------   --------     --------   --------

TEUs shipped (thousands):
   Southbound                         33.5       28.5         65.3       59.5
   Northbound                          5.2        4.5          9.4        9.1
   Interisland                         5.1        1.6          8.1        3.1
                                  --------   --------     --------   --------
                                      43.8       34.6         82.8       71.7
                                  ========   ========     ========   ========

Other statistics:
   Revenue per TEU                $  1,489   $  1,568     $  1,509   $  1,576
   Ports served                         26         23
   Vessels operated                     19         16






Nicor Inc.                                                  Page 24
------------------------------------------------------------------------

Item 3. Quantitative and Qualitative Disclosures about Market Risk

For disclosures about market risk, see Market Risk beginning on page 19, which
is incorporated herein by reference.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

For information concerning legal proceedings, see Contingencies beginning on
page 8, which is incorporated herein by reference.

Item 2.       Changes in Securities and Use of Proceeds

(a)   and (b)  Not applicable.

(c) During the quarter ended June 30, 2002, the company reacquired and issued an
   aggregate of 22,888 shares of its common stock to Richard C. Dykstra in
   connection with the purchase of the assets and assumed liabilities of D.M.
   Dykstra & Company. The shares were issued pursuant to exemptions under Rule
   506 of Regulation D of the Securities Act of 1933, as amended. The issuance
   was effected without general solicitation or advertising, and the purchaser
   is an accredited investor or a sophisticated investor with access to
   information regarding the company, its business, and its common stock.

(d)   Not applicable.

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

The Annual Meeting of Stockholders of the company was held on April 18, 2002,
for the purpose of electing the Board of Directors and re-approval of the Nicor
Inc. 1997 Long-Term Incentive Plan, as amended. Proxies for the meeting were
solicited pursuant to Section 14(a) of the Securities Exchange Act of 1934 and
there has been no solicitation in opposition to the board of directors'
solicitation. Voting results reported below are for shares eligible to vote as
of the record date, February 20, 2002. There were no "broker nonvotes."

Nominees for directors, as listed in the proxy statement, were elected as
indicated below:

                                          Shares        Shares
                                          Voted          Voted
                      Nominee              FOR         WITHHELD
         ----------------------         -----------    ----------
         Robert M. Beavers, Jr.         38,195,123       727,464
         Bruce P. Bickner               38,189,374       736,017
         John H. Birdsall, III          37,826,828     1,064,983
         Thomas A. Donahoe              38,177,094       739,506
         Thomas L. Fisher               38,410,478       534,940
         John E. Jones                  38,359,634       571,916
         Dennis J. Keller               38,404,300       535,038
         William A. Osborn              38,425,128       521,041
         John Rau                       38,421,906       522,453
         John F. Riordan                37,712,016       545,684
         Patricia A. Wier               38,383,182       563,805


Nicor Inc.                                                          Page 25
----------------------------------------------------------------------------
Item 4.   Submission of Matters to a Vote of Security Holders (concluded)

The proposal to re-approve the Nicor Inc. 1997 Long-Term Incentive Plan, as
amended, was approved with 32,922,877 shares voted for, 5,079,828 shares voted
against and 787,085 shares voted abstain or withheld.

Item 5. Other Information

Because of the inability of the company's independent public accountant to
complete their review of the condensed unaudited 2002 financial statements
included herein, as required by Rule 10-01(d) of Regulation S-X (see Item 1),
the company's Chief Executive Officer and Chief Financial Officer are unable to
complete the statement required under 18 U.S.C. sec. 1350 (Section 906 of the
Sarbanes-Oxley Act of 2002).

Item 6. Exhibits and Reports on Form 8-K

   (a)  See Exhibit Index on page 27 filed herewith.

   (b) On May 3, 2002, the company filed a notice of change in auditor
       on Form 8-K.


<PAGE>


Nicor Inc.                                                  Page 26
--------------------------------------------------------------------------
Signature

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



                                            Nicor Inc.


Date     August 13, 2002           By   /s/ KATHLEEN L. HALLORAN
      --------------------            -----------------------------
                                            Kathleen L. Halloran
                                            Executive Vice President
                                            Finance and Administration





<PAGE>


Nicor Inc.                                                  Page 27
-------------------------------------------------------------------------
Exhibit Index

   Exhibit
   Number              Description of Document
  ---------      -------------------------------------------------------

     10.01       2002 Incentive Compensation Plan.

     99.01       Letter regarding Sarbanes-Oxley Act of 2002.