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 March 31, 2003

                                    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 [ ]

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

Shares of common stock, par value $2.50, outstanding at April 28, 2003, were
44,021,408.






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Nicor Inc.                                                   Page i

Table of Contents

Part I - Financial Information

   Item 1. Financial Statements (Unaudited) ..................... 1
           Consolidated Statements of Operations:
             Three months ended
             March 31, 2003 and 2002 ............................ 2
           Consolidated Statements of Cash Flows:
             Three months ended
             March 31, 2003 and 2002 ............................ 3
           Consolidated Balance Sheets:
             March 31, 2003 and 2002, and
             December 31, 2002 .................................. 4
           Notes to the Consolidated Financial Statements ....... 5

   Item 2. Management's Discussion and Analysis of Financial
             Condition and Results of Operations ................16

   Item 3. Quantitative and Qualitative Disclosures about
             Market Risk ........................................25

   Item 4. Controls and Procedures ..............................25


Part II - Other Information

   Item 1. Legal Proceedings ....................................28

   Item 2. Change in Securities and Use of Proceeds..............28

   Item 6. Exhibits and Reports on Form 8-K .....................28

         Signature ..............................................29

         Certifications .........................................30

         Exhibit Index ..........................................32

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.
ICC..........Illinois Commerce Commission, the agency that regulates
             investor-owned Illinois utilities.
FERC.........Federal Energy Regulatory Commission, the agency that regulates the
             interstate transportation of natural gas, oil and electricity.
Mcf, MMcf,
Bcf......... Thousand cubic feet, million cubic feet, billion cubic feet.
PBR..........Performance-based rate, a regulatory plan that provided 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.


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Nicor Inc.                                                               Page 1
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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

The following condensed unaudited consolidated 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 2002 Annual Report on
Form 10-K.

The information furnished reflects, in the opinion of the company, all
adjustments (consisting only of normal recurring adjustments and adjustments to
reflect the change in accounting policy as described in the Notes to the
Consolidated Financial Statements - Cumulative Effect of Change in Accounting on
page 6) 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.


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Nicor Inc.                                                               Page 2
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Consolidated Statements of Operations (Unaudited)
(millions, except per share data)

                                                          Three months ended
                                                                March 31
                                                          --------------------
                                                              2003      2002
                                                          ----------  ---------
Operating revenues
   Gas distribution (includes revenue taxes of
    $62.4 and $36.4, respectively)                        $ 1,096.7   $  518.7
   Shipping                                                    66.4       59.8
   Other                                                        8.2        9.5
                                                          ----------  ---------
                                                            1,171.3      588.0
Operating expenses
   Gas distribution
    Cost of gas                                               862.9      315.0
    Operating and maintenance                                  58.5       49.4
    Depreciation                                               36.0       56.6
    Taxes, other than income taxes                             65.9       40.3
    Mercury-related costs (recoveries)                          (.3)        .2
    Property sale (gains) losses                                  -       (3.4)
   Shipping                                                    60.7       55.7
   All other                                                    6.3        9.2
                                                          ----------   --------
                                                            1,090.0      523.0
                                                          ----------   --------

Operating income                                               81.3       65.0
Equity investment income (loss), net                            1.3       (2.3)
Other income (expense), net                                      .5        1.1
Interest expense, net of amounts capitalized                    9.6        9.7
                                                          ----------   --------
Income before income taxes and cumulative
  effect of accounting change                                  73.5       54.1
Income taxes                                                   23.1       17.6
                                                          ----------   --------

Income before cumulative effect of accounting change           50.4       36.5
Cumulative effect of accounting change,
   net of $3.0 income tax benefit                              (4.5)         -
                                                          ----------   --------

Net income                                                     45.9       36.5
Dividends on preferred stock                                      -          -
                                                          ----------   --------

Earnings applicable to common stock                       $    45.9    $  36.5
                                                          ==========   ========

Average shares of common stock outstanding
   Basic                                                       44.0       44.3
   Diluted                                                     44.1       44.5

Earnings per average share of common stock
   Basic
    Before cumulative effect of accounting change          $   1.14    $   .82
    Cumulative effect of accounting change, net of tax         (.10)         -
                                                           ---------   --------
    Basic earnings per share                               $   1.04    $   .82
                                                           =========   ========

   Diluted
    Before cumulative effect of accounting change          $   1.14    $   .82
    Cumulative effect of accounting change, net of tax         (.10)         -
                                                           ---------   --------
    Diluted earnings per share                             $   1.04    $   .82
                                                           =========   ========

Dividends declared per share of common stock               $   .465    $  .460


The accompanying notes are an integral part of these statements.


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Nicor Inc.                                                               Page 3
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Consolidated Statements of Cash Flows (Unaudited)
(millions)
                                                           Three months ended
                                                                March 31
                                                          --------------------
                                                             2003       2002
                                                          ---------   --------
Operating activities
   Net income                                              $  45.9     $ 36.5
   Adjustments to reconcile net income to net cash flow
     provided from operating activities:
      Depreciation                                            40.4       60.8
      Deferred income tax expense                              9.9       12.2
      Cumulative effect of accounting change                   4.5          -
      Gains on sale of property, plant and equipment          (1.3)      (4.3)
      Changes in assets and liabilities:
        Receivables, less allowances                        (234.0)      (5.6)
        Gas in storage                                        31.8       15.3
        Deferred/accrued gas costs                           (93.3)     (60.9)
        Prepaid pension costs                                    -       (3.2)
        Other assets                                          33.6       10.6
        Accounts payable                                      63.7      (70.5)
        Accrued mercury-related costs (recoveries)             (.5)      (3.4)
        Temporary LIFO liquidation                           258.6      124.5
        Other liabilities                                      1.1       17.9
      Other                                                      -        4.2
                                                           --------   --------
   Net cash flow provided from operating activities          160.4      134.1
                                                           --------   --------

Investing activities
   Capital expenditures                                      (36.9)     (48.1)
   Net (increase) decrease in short-term investments          (1.0)       5.5
   Purchase of equity investments other than joint ventures    (.4)         -
   Loans to joint ventures                                       -      (39.1)
   Repayments from joint ventures                                -       28.7
   Net proceeds from sale of property, plant and equipment     1.8        5.0
   Other                                                        .3        1.3
                                                           --------   --------
   Net cash flow used for investing activities               (36.2)     (46.7)
                                                           --------   --------

Financing activities
   Short-term borrowings (repayments), net                  (125.0)     (60.0)
   Dividends paid                                            (20.3)     (19.6)
   Disbursements to reacquire stock                           (2.0)     (11.4)
   Other                                                        .8        3.6
                                                           --------   --------
   Net cash flow used for financing activities              (146.5)     (87.4)
                                                           --------   --------

Net decrease in cash and cash equivalents                    (22.3)         -

Cash and cash equivalents, beginning of period                75.2       14.0
                                                           --------   --------

Cash and cash equivalents, end of period                   $  52.9    $  14.0
                                                           ========   ========


The accompanying notes are an integral part of these statements.


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Nicor Inc.                                                               Page 4
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Consolidated Balance Sheets (Unaudited)
(millions)


                                           March 31   December 31    March 31
                                             2003        2002          2002
                                         -----------  -----------  -----------
            Assets
           -------
Current assets
   Cash and cash equivalents             $     52.9    $    75.2    $    14.0
   Short-term investments, at cost which
     approximates market                       26.7         25.7         28.7
   Receivables, less allowances of $26.4,
     $16.9 and $10.7, respectively            699.5        467.4        356.6
   Notes receivable - joint ventures              -            -         41.6
   Gas in storage                               8.7         52.3         28.1
   Deferred gas costs                          26.0            -            -
   Deferred income taxes                       34.0         34.9         45.3
   Other                                       34.0         52.2         25.8
                                         -----------  -----------  -----------
                                              881.8        707.7        540.1

Property, plant and equipment, at cost
   Gas distribution                         3,589.9      3,558.1      3,455.4
   Shipping                                   305.1        309.1        310.9
   Other                                        6.0          5.6          3.3
                                         -----------  -----------  -----------
                                            3,901.0      3,872.8      3,769.6
   Less accumulated depreciation            2,105.6      2,076.0      2,017.5
                                         -----------  -----------  -----------
                                            1,795.4      1,796.8      1,752.1

Prepaid pension costs                         177.1        177.1        167.5
Other assets                                  204.1        217.8        117.0
                                         -----------  -----------  -----------
                                          $ 3,058.4    $ 2,899.4    $ 2,576.7
                                         ===========  ===========  ===========

    Liabilities and Capitalization
    ------------------------------

Current liabilities
   Long-term obligations due
     within one year                     $    100.0    $   100.0    $       -
   Short-term borrowings                      190.0        315.0        217.0
   Accounts payable                           613.7        556.3        384.6
   Temporary LIFO liquidation                 258.6            -        124.5
   Accrued gas costs                              -         67.3         47.3
   Accrued mercury-related costs                4.9          5.0          6.3
   Accrued dividends payable                   20.5         20.3         20.4
   Other                                       41.1         34.7         29.7
                                         -----------   ----------   ----------
                                            1,228.8      1,098.6        829.8

Deferred credits and other liabilities
   Deferred income taxes                      395.9        386.1        337.0
   Regulatory income tax liability             61.3         62.2         65.4
   Unamortized investment tax credits          37.0         37.5         38.5
   Accrued mercury-related costs               18.0         18.4         27.3
   Other                                      163.6        167.7        112.8
                                         -----------   ----------   ----------
                                              675.8        671.9        581.0

Capitalization
   Long-term debt                             396.3        396.2        445.8
   Preferred stock                              2.0          4.3          6.1
   Common equity
    Common stock                              110.0        110.0        110.6
    Paid-in capital                             2.0          1.2            -
    Retained earnings                         649.2        623.8        602.3
    Unearned compensation                       (.3)         (.3)         (.4)
    Accumulated other comprehensive
      income (loss)                            (5.4)        (6.3)         1.5
                                         -----------   ----------   ----------
                                            1,153.8      1,128.9      1,165.9
                                         -----------   ----------   ----------
                                          $ 3,058.4    $ 2,899.4    $ 2,576.7
                                         ===========   ==========   ==========

The accompanying notes are an integral part of these statements.


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

The following notes should be read in conjunction with the consolidated
financial statement notes included in the Nicor Inc. (Nicor) 2002 Annual Report
on Form 10-K.

ACCOUNTING POLICIES

Gas in storage. Gas distribution inventory is carried at cost applying 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.

Regulatory assets and liabilities. Northern Illinois Gas Company (Nicor Gas), a
wholly owned subsidiary of Nicor, is regulated by the Illinois Commerce
Commission (ICC), which establishes the rules and regulations governing utility
rates and services in Illinois. The company applies accounting standards that
recognize the economic effects of rate regulation and, accordingly, has recorded
regulatory assets and liabilities. The company had regulatory assets
(liabilities) as follows (in millions):

                                          March 31     December 31    March 31
                                            2003          2002          2002
                                       -------------  ------------  -----------
  Deferred (accrued) gas costs               $ 26.0       $ (67.3)     $ (47.3)
  Regulatory income tax liability             (61.3)        (62.2)       (65.4)
  Unamortized loss on reacquired debt          18.8          19.0         19.9
  Deferred (accrued)environmental costs        39.1          54.7         (4.0)
                                       -------------  ------------   ----------
                                             $ 22.6       $ (55.8)     $ (96.8)
                                       =============  ============   ==========

The unamortized loss on reacquired debt is classified in other noncurrent
assets. Deferred (accrued) environmental costs are included in other noncurrent
assets and other noncurrent liabilities, respectively.

In addition, consistent with its regulatory treatment, Nicor Gas depreciates
anticipated future removal costs over the useful lives of its property, plant
and equipment. The balance of removal costs in accumulated depreciation at March
31, 2003, December 31, 2002, and March 31, 2002 was approximately $635 million,
$625 million, and $590 million, respectively.

Revenue taxes. Nicor Gas classifies revenue taxes billed to customers as
operating revenues and related taxes due as operating expenses. Revenue taxes
included in operating expense for the quarters ended March 31, 2003 and 2002
were $61.5 million and $35.5 million, respectively.

Depreciation. Property, plant and equipment are depreciated over estimated
useful lives on a straight-line basis. The annual gas distribution composite
depreciation rate is 4.1 percent, which includes estimated future removal costs.
The estimated useful lives of vessels range from 20 to 25 years.

Effective January 1, 2003, Nicor Gas began using the straight-line method for
allocating annual depreciation to interim periods, the predominant method used
by other companies in its industry. Gas distribution depreciation was allocated
to interim periods based upon the level of weather-normalized gas deliveries in
2002. The pro forma effect of retroactive application of this change to the
quarter ended March 31, 2002 is given under Other Accounting Changes -
Depreciation on page 7.


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

Stock Options and Awards. Statement of Financial Accounting Standards (FAS) No.
123, Accounting for Stock-Based Compensation, encourages, but does not require,
entities to adopt the fair value method of accounting for stock-based
compensation plans. The fair value method would require the amortization of the
fair value of stock-based compensation at the date of grant over the related
vesting period. Nicor continues to apply the intrinsic value method of
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, for awards granted under its stock-based compensation plans. The
intrinsic value method does not require compensation expense to be recognized
based on Nicor's current option terms. If compensation expense for the stock
options had been recognized based upon the fair value method, the impact on the
company's net income would have been as follows:

                                                        Three months
                                                            ended
                                                           March 31
                                                      ----------------
                                                        2003     2002
                                                      -------- -------
   Net income (in millions)
        As reported                                     $ 45.9  $ 36.5
        Less:  Total stock-based employee
               compensation expense determined
               under the fair value method for all
               awards, net of tax                           .2      .1
                                                      -------- -------
        Pro forma                                       $ 45.7  $ 36.4
                                                      ======== =======

There would have been no impact on the company's reported first-quarter earnings
per share if compensation expense for stock options had been recognized based
upon the fair value method.

CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING

Effective January 1, 2003, Nicor's wholesale natural gas marketing business,
Nicor Enerchange, began applying accrual accounting rather than fair value
accounting to gas in storage and certain energy-related contracts, such as
storage contracts. The change in accounting method relates to a rescission of
Emerging Issues Task Force Consensus No. 98-10, Accounting for Contracts
Involved in Energy Trading and Risk Management Activities, and a prohibition
against recording inventory at fair value. Effective with the change, Nicor
recorded a $4.5 million cumulative effect loss from the change in accounting
principle, which was net of $3.0 million in income tax benefits. Pro forma
results for the quarter ended March 31, 2002, had the new method been applied
could not be reasonably determined and are therefore not presented.

Annual and interim results will be more volatile under the new accounting
method. Also, the industry is working to resolve certain technical accounting
application questions that remain, which could lead to further changes.


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

OTHER ACCOUNTING CHANGES

Depreciation. Effective January 1, 2003, Nicor Gas began using the straight-line
method for allocating annual depreciation to interim periods, the predominant
method used by other companies in its industry. Nicor's 2002 results include gas
distribution depreciation allocated based upon the level of weather-normalized
gas deliveries. The following table provides a comparison of Nicor's results as
reported for the first quarter of 2002 to pro forma results had gas distribution
depreciation been allocated on a straight-line basis (in millions except per
share data):

                                                  Three months ended
                                                    March 31, 2002
                                               ------------------------
                                                    As
                                                 Reported    Pro Forma
                                               -----------   ----------
   Gas distribution depreciation expense         $   56.6     $   34.4
   Operating income                                  65.0         87.2
   Income before income taxes                        54.1         76.3
   Net income                                        36.5         49.9
   Earnings per average share of common stock:
    Basic                                        $    .82     $   1.13
    Diluted                                           .82         1.12

Accounting for guarantees. In November 2002, the Financial Accounting Standards
Board (FASB) issued Interpretation No. 45, Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others. The interpretation expands the disclosure requirements for most
guarantees, including standby letters of credit. It also clarifies that at the
time a company issues a guarantee it must recognize an initial liability for the
fair value of the obligations it assumes under that guarantee, and it must
disclose that information in its financial statements. Nicor applied the
recognition provisions on a prospective basis, beginning January 1, 2003, and
recorded a $.2 million fair value liability in the first quarter of 2003.

Asset retirement obligations. In August 2001, the FASB issued FAS 143,
Accounting for Asset Retirement Obligations. This standard requires entities to
record the fair value of a liability for an asset retirement obligation in the
period in which the obligation is incurred. When the liability is initially
recorded, the entity capitalizes the cost by increasing the carrying amount of
the related long-lived asset. Over time, the liability is accreted to its
present value, and the capitalized cost is depreciated over the useful life of
the related asset. This standard became effective on January 1, 2003.

The obligation of retiring gas distribution, transmission, storage and certain
general plant assets at Nicor Gas meets the definition of a legal obligation
within the meaning of FAS 143. However, the company, like most other gas
distribution utility companies, has determined that due to the indefinite life
of such assets a liability is generally not measurable. On January 1, 2003, a
$3.5 million asset retirement obligation for the expected replacement of inside
mercury regulators was recorded at Nicor Gas. Certain costs associated with the
retirement of other items at Nicor companies, including polychlorinated
biphenyls, underground storage tanks and asbestos abatement, are determined to
be immaterial or cannot be measured at this time.


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

Nicor Gas continues its practice of accruing for future retirement costs as
accumulated depreciation, subject to cost-of-service utility rate regulation,
even when an asset removal obligation does not exist under FAS 143. Through
December 31, 2002, the company had accrued and recovered about $625 million
associated with the future removal of these long-lived assets.

No cumulative effect gain or loss was required as a result of adopting this
standard. The application of this standard did not have a material effect on the
company's financial position and results of operations.

ACCRUED UNBILLED REVENUES

Receivables include accrued unbilled revenues of $164.2 million, $142.9 million
and $65.3 million at March 31, 2003, December 31, 2002, and March 31, 2002,
respectively, related primarily to gas distribution operations. Nicor Gas
accrues revenues for estimated deliveries to customers from the date of their
last bill until the balance sheet date.

BUSINESS SEGMENT INFORMATION

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

                                                      Three months ended
                                                            March 31
                                                     ---------------------
                                                        2003      2002
                                                     ---------- ----------
Operating revenues
   Gas distribution                                  $ 1,096.7    $ 518.7
   Shipping                                               66.4       59.8
   Other energy ventures                                  21.1        9.3
   Corporate and eliminations                            (12.9)        .2
                                                     ---------- ----------
                                                     $ 1,171.3    $ 588.0
                                                     ========== ==========

Operating income (loss)
   Gas distribution                                    $  73.7    $  60.6
   Shipping                                                5.7        4.1
   Other energy ventures                                   3.6         .6
   Corporate and eliminations                             (1.7)       (.3)
                                                     ---------- ----------
                                                       $  81.3    $  65.0
                                                     ========== ==========

Gas distribution operating revenues include customer charges paid, on behalf of
the customer, by a Nicor affiliate offering a utility-bill management product.
These gas distribution revenues have been eliminated in the consolidated
financial statements.


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

EQUITY INVESTMENT INCOME (LOSS)

Equity investment income (loss) includes the following (in millions):

                                           Three months ended
                                                 March 31
                                           --------------------
                                             2003       2002
                                           ---------  ---------
   Triton Container Investments (Triton)   $    1.3   $    1.0
   Nicor Energy                                   -       (2.9)
   All other                                      -        (.4)
                                           ---------  ---------
                                           $    1.3   $   (2.3)
                                           =========  =========

OTHER INCOME (EXPENSE), NET

Other income (expense), net includes the following (in millions):

                                           Three months ended
                                                 March 31
                                           --------------------
                                             2003       2002
                                           ---------  ---------
    Interest income                        $     .6   $     .9
    Other income                                 .2         .3
    Other expense                               (.3)       (.1)
                                           ---------  ---------
                                           $     .5   $    1.1
                                           =========  =========

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 ended
                                                 March 31
                                           --------------------
                                             2003       2002
                                           ---------  ---------
   Net income                              $   45.9   $   36.5
   Other comprehensive income (loss),
     net of tax                                  .9        1.8
                                           ---------  ---------
   Total comprehensive income              $   46.8   $   38.3
                                           =========  =========

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

Most of the $5.4 million net loss in accumulated other comprehensive income
(loss) at March 31, 2003, represents a net realized loss on financial
derivatives designated as hedges of interest payments on an anticipated 30-year
bond issuance. This loss will be amortized to interest expense over the life of
the bonds.


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

RELATED PARTY TRANSACTIONS

At March 31, 2002, Nicor had $31.7 million of short-term notes receivable at
market interest rates due from Horizon Pipeline, a 50/50 joint venture between
Nicor and Natural Gas Pipeline Company of America. There was no note receivable
due from Horizon Pipeline at March 31, 2003. In the first quarter of 2003,
Horizon Pipeline charged Nicor Gas $2.6 million for natural gas transportation
under rates that have been accepted by FERC.

At March 31, 2002, Nicor had $9.9 million of short-term notes receivable at
market interest rates due from Nicor Energy, a 50/50 joint venture with Dynegy
Marketing and Trade. Nicor's investment in Nicor Energy, including an $8.3
million note receivable, was written down to zero during the third quarter of
2002.

In 2002, Nicor Technologies, a wholly owned subsidiary of Nicor, began
purchasing engineering services from EN Engineering, a 50-percent-owned joint
venture. EN Engineering charged Nicor Technologies $.9 million and $1.1 million
for these services for the three-month periods ended March 31, 2003 and 2002,
respectively.

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 any amounts already recognized, it is
possible that the resolution of these contingencies, either individually or in
aggregate, will require the company to take charges against, or will result in
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, but is not expected to have a
material adverse impact on Nicor's liquidity or financial condition.

Performance-Based Rate (PBR) Plan. Nicor Gas' PBR plan for natural gas costs
went into effect in 2000 and was terminated by the company effective January 1,
2003. Under the PBR plan, Nicor Gas' total gas supply costs were compared to a
market-sensitive benchmark. Savings and losses relative to the benchmark were
determined annually and shared equally with sales customers. The PBR plan is
currently under Illinois Commerce Commission (ICC) review.

There are allegations that the company acted improperly in connection with the
PBR plan, and the ICC 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 (the ICC Proceedings). As a result of the
motion to reopen, Nicor Gas, the Cook County State's Attorney's Office (CCSAO),
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. In addition, the Illinois Attorney General's Office issued Civil
Investigation Demands (CIDs) to 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. The Securities and Exchange Commission (SEC) and the Office of the
United States Attorney for the Northern District of Illinois are also reviewing
the allegations that the company acted improperly in connection with the PBR
plan. The company has committed to cooperate fully in the reviews of the PBR
plan.


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

Pursuant to the agreement of all parties, including the company, the ICC
re-opened the 1999 and 2000 purchased gas adjustment filings for review of
certain transactions related to the PBR plan and consolidated the reviews of the
1999-2002 purchased gas adjustment filings with the PBR plan review.

Certain parties in the PBR plan review proceeding have indicated that they
believe substantial adjustments or penalties are warranted. In addition, on
February 5, 2003, the CCSAO and CUB filed a motion for $27 million in sanctions
against the company in the ICC Proceedings. In that motion, CCSAO and CUB
alleged that Nicor Gas' responses to certain CUB data requests were false. Also
on February 5, 2003, CUB stated in a press release that, in addition to $27
million in sanctions, it would seek additional refunds to consumers. On March 5,
2003, the ICC staff filed a response brief in support of CUB's motion for
sanctions. On May 1, 2003, the Administrative Law Judges issued a ruling denying
CUB and CCSAO's motion for sanctions, which ruling may be subject to review by
the ICC. It is not possible to determine how the ICC will resolve the claims of
CCSAO, CUB or other parties to the ICC Proceedings.

Nicor is unable to predict the outcome of any of the foregoing reviews or the
company's potential exposure thereunder. Due to the uncertainties surrounding
the PBR plan, Nicor Gas has not recognized a $26.9 million pretax gain from the
2002 PBR plan year. Because the PBR plan and historical utility gas costs are
still under ICC review, it is possible that the final outcome could be
materially different than the amounts reflected in the company's financial
statements as of March 31, 2003.

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' PBR plan. The named plaintiffs alleged 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 manipulating
the benchmark under the PBR plan. The named plaintiffs sought, on behalf of
themselves and the purported class, compensatory damages, prejudgment and
postjudgment interest, disgorgement of all profits, and restitution to
plaintiffs and the purported class. Nicor filed a Motion to Dismiss this action
on September 24, 2002. On December 4, 2002, the named plaintiffs voluntarily
dismissed the case, but indicated an intent to bring their claims before the
ICC. Nicor is unable to predict the outcome of any such proceeding or Nicor's
potential exposure related thereto and has not recorded a liability associated
with the potential outcome of this contingency.

Nicor Energy.  Nicor is a 50-percent owner of Nicor Energy, a
retail energy marketing joint venture with Dynegy Marketing and
Trade.

As a result of an audit and review process in 2002, accounting irregularities
were identified at Nicor Energy. Appropriate accounting adjustments were made in
restated financial statements previously filed with the SEC.

Nicor Energy has disposed of substantially all of its customer accounts and is
in the process of liquidating its remaining assets. Nicor's investment in Nicor
Energy was written down to zero in the third quarter of 2002 due to the
likelihood at that time that Nicor ultimately would not recover its investment
balance. Nicor's maximum exposure under guarantee commitments on behalf of Nicor
Energy as of April 23, 2003 was about $17.3 million. It is unlikely that Nicor
will be required to make payments under the guarantees.


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

SEC and U.S. Attorney Inquiries. In 2002, the staff of the SEC informed Nicor
and Nicor Energy that the SEC is conducting a formal inquiry regarding the PBR
plan and Nicor Energy. On January 28, 2003, Nicor Energy was advised by the SEC
Division of Enforcement that it intended to recommend to the SEC that it bring a
civil injunctive action against Nicor Energy, alleging that it violated Sections
10(b) and 13(b)(5) of the Securities Exchange Act of 1934. A representative of
the Office of the United States Attorney for the Northern District of Illinois
has notified Nicor that that office is conducting an inquiry on the same matters
that the SEC is investigating, and a grand jury is also reviewing these matters.

Securities Class Actions. Following a July 18, 2002 Nicor press release
concerning Nicor Energy and the PBR plan, several purported class actions were
brought against Nicor, Thomas Fisher (Chairman and CEO) and Kathleen Halloran
(Executive Vice President Finance and Administration). The actions were brought
in the United States District Court for the Northern District of Illinois,
Eastern Division, and have been consolidated. On February 14, 2003, plaintiffs
filed an amended complaint adding as defendants George Behrens (Vice President
of Administration and Treasurer), Philip Cali (former Executive Vice President
of Operations) and Arthur Andersen LLP, the company's former independent
auditor. The plaintiffs seek to represent a class consisting of all persons or
entities who purchased Nicor common stock on the open market during the period
from November 24, 1999 through and including July 19, 2002. They allege that the
defendants violated Section 10(b) and Section 20(a) of the Securities Exchange
Act of 1934 and Rule 10b-5 thereunder. Plaintiffs allege that during the class
period defendants misrepresented the PBR plan, Nicor's historical financial
condition and results of operations, and its future prospects. The class is
seeking compensatory damages, prejudgment interest, and attorneys' fees and
costs. On March 31, 2003, Nicor filed a motion to dismiss. 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 the outcome of this
contingency.

Shareholder Derivative Lawsuits. Also following Nicor's issuance of the press
release concerning Nicor Energy and the PBR plan, three purported derivative
lawsuits were brought against Thomas Fisher (Chairman and CEO), Kathleen
Halloran (Executive Vice President Finance and Administration) and all members
of Nicor's Board of Directors (the "individual defendants"). Nicor was named as
a nominal defendant in all three suits, which have since been consolidated in an
amended complaint filed on January 27, 2003, which was further amended on April
15, 2003. The actions were brought in the Circuit Court of Cook County,
Illinois, Chancery Division. The plaintiffs allege that the individual
defendants breached their fiduciary duties to Nicor by allegedly causing or
allowing Nicor to disseminate to the market materially misleading and inaccurate
information, and failing to establish and maintain adequate accounting controls.
Plaintiffs also contend that two of the defendants (Mr. Fisher and Mr. Birdsall)
engaged in improper insider selling of Nicor stock at inflated prices. The
plaintiffs seek compensatory and punitive damages, attorneys' fees and costs,
and other relief against the individual defendants on behalf of Nicor but do not
seek any damages against the company.

Hub Services. Nicor Gas offers interstate transportation and storage services,
which are regulated by the Federal Energy Regulatory Commission (FERC), as well
as certain intrastate interruptible transportation and storage services which
are regulated by the ICC. During a periodic rate case that was filed with FERC,
Nicor Gas determined that refunds were due to certain customers of these
services. Nicor Gas accrued customer refunds and other costs totaling $1.4
million in the years 2000 to 2002. On March 14, 2003, FERC issued an order
approving a settlement with Nicor Gas.


<PAGE>
Nicor Inc.                                                              Page 13
-------------------------------------------------------------------------------
Notes to the Consolidated Financial Statements (Unaudited)(continued)

Other FERC Matters. In 2002, Nicor Gas determined that it may not have complied
with regulations of FERC governing the release of certain transportation and
storage capacity that it contracts for with interstate pipelines, and the
company brought these matters to the attention of FERC. The company accrued a
$.4 million liability associated with these matters in the fourth quarter of
2002. On March 14, 2003, FERC issued an order approving a settlement with Nicor
Gas.

Fixed Bill Service. On July 17, 2002, a purported class action was filed in the
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 (ICFA) 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. Nicor Services
offered a fixed bill product under which it pays the annual gas service portion
of a customer's Nicor utility bill in exchange for twelve equal monthly payments
by the customer to Nicor Services, regardless of changes in the price of natural
gas or weather. The plaintiff is seeking compensatory damages, prejudgment and
postjudgment interest, punitive damages, attorneys' fees and injunctive relief.
On September 6, 2002, Nicor Gas and Nicor Services filed a Motion to Dismiss
this action. On November 26, 2002, the court dismissed the complaint without
prejudice, but allowed the plaintiff to file an amended complaint. The plaintiff
filed an amended complaint on December 10, 2002, which names only Nicor Services
as a defendant, and which purports to state claims under the ICFA and for breach
of contract. The court subsequently ordered the plaintiff to file another
amended complaint by April 29, 2003. Nicor is unable to predict the outcome of
this litigation or to reasonably estimate its potential exposure related thereto
and has not recorded a liability associated with this contingency.

Troy Grove Facility. On October 15, 2002, Nicor Gas voluntarily disclosed a
potential violation of certain air pollution regulations and statutes to both
the United States Environmental Protection Agency (U.S. EPA) and the Illinois
Environmental Protection Agency (IEPA) related to commencement of construction
of certain compressor equipment at its Troy Grove storage field prior to the
issuance of a Prevention of Significant Deterioration (PSD) Permit. Based on
various communications between Nicor Gas and IEPA, the company does not expect
the resolution of this matter to have a material adverse impact on the company's
financial condition or results of operations.

Horizon Pipeline Lien. The general contractor on the construction of the Horizon
Pipeline (Horizon), filed a $5.7 million Notice of Claim for Lien against
Horizon. The contractor has since asserted that an additional $3 million is due.
Nicor is unable to predict the outcome of this matter, Horizon's potential
exposure related thereto or any potential impact on Nicor's investment in
Horizon.

Mercury.  Nicor Gas has incurred, and expects to continue to incur, costs
related to its historical use of mercury in various kinds of company equipment.

Nicor Gas is a defendant in several private lawsuits, all in the Circuit Courts
of Cook and DuPage Counties, Illinois, claiming a variety of unquantified
damages (including bodily injury, property and punitive damages) allegedly
caused by mercury-containing regulators. Under the terms of a class action
settlement agreement, Nicor Gas will continue, until 2006, 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 by
2005. The class action settlement permitted class members to "opt out" of the
settlement and pursue their claims individually. Approximately 160 households
have opted out of the class. Of those, 45 households had traces of mercury, and
Nicor Gas has settled with seven households.


<PAGE>
Nicor Inc.                                                              Page 14
-------------------------------------------------------------------------------
Notes to the Consolidated Financial Statements (Unaudited)(continued)

As of March 31, 2003, Nicor Gas had remaining an estimated liability of $22.9
million, representing 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.

Nicor Gas continues to vigorously pursue recovery from insurers and independent
contractors that had performed work for the company. When received, these
recoveries are recorded as a reduction to gas distribution operating expense. At
this stage, it is not possible to estimate the likelihood of additional
recoveries and Nicor Gas has not accrued any such recoveries in its financial
statements.

The final disposition of these mercury-related matters is not expected to have a
material adverse impact on the company's financial condition.

Manufactured Gas Plant Sites. Manufactured gas plants were used in the 1800's
and early to mid 1900's to produce manufactured gas from coal, creating 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 for certain properties. More detailed
investigations and remedial activities are complete, in progress or planned at
many of these sites. The results of the detailed site-by-site investigations
determines the extent additional remediation is necessary and provides a basis
for estimating 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, subject to annual prudence
reviews.

In December 2001, a purported 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 ongoing cleanup of a former
manufactured gas plant site in Oak Park, Illinois is inadequate. Since then,
three additional lawsuits have been filed in that court related to this same
former manufactured gas plant site. These lawsuits seek, in part, unspecified
damages for property damage, nuisance, various personal injuries and one death
that allegedly resulted from exposure to contaminants allegedly emanating from
the site, and punitive damages. 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 MWRDGC) under the Federal Comprehensive
Environmental Response, Compensation and Liability Act seeking recovery of past
and future remediation costs and a declaration of the level of appropriate
cleanup for a former manufactured gas plant site in Skokie, Illinois now owned
by the MWRDGC. In January 2003, the suit was amended to include a claim under
the Federal Resource Conservation and Recovery Act. The suit was filed in the
United States District Court for the Northern District of Illinois. 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.


<PAGE>
Nicor Inc.                                                              Page 15
-------------------------------------------------------------------------------
Notes to the Consolidated Financial Statements (Unaudited)(concluded)

Since costs and recoveries relating to the cleanup of manufactured gas plant
sites are passed directly through to customers in accordance with ICC
regulations, subject to an annual ICC prudence review, the final disposition of
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 16
-------------------------------------------------------------------------------
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) 2002 Annual Report on
Form 10-K.

SUMMARY

Nicor's 2003 quarterly earnings were significantly impacted by a change in the
method of allocating annual depreciation to interim periods in the gas
distribution segment. Effective January 1, 2003, the gas distribution segment
began using a straight-line method to allocate annual depreciation to interim
periods, a method predominantly used by others in the industry. While this
change has a significant impact on quarterly results, it has no impact on
depreciation for the full year. Nicor's first quarter 2002 results include gas
distribution depreciation allocated based upon the level of weather-normalized
gas deliveries. The following table provides a comparison of Nicor's results as
reported for the first quarter of 2003 and 2002, and the pro forma results for
the first quarter of 2002 had gas distribution depreciation been allocated on a
straight-line basis (in millions except per share data):

                                             Three months ended March 31
                                            ------------------------------
                                                         2002      2002
                                                          As        Pro
                                               2003     Reported   Forma
                                            --------- ---------- ---------
Income before cumulative effect of
  accounting change                           $ 50.4     $ 36.5    $ 49.9
Net income                                      45.9       36.5      49.9
Earnings per average share of common stock:
   Diluted - before cumulative effect
               of accounting change           $ 1.14     $  .82    $ 1.12
   Diluted                                      1.04        .82      1.12

The 2003 net income and diluted earnings per share increases over reported 2002
results are attributable primarily to higher operating results in the gas
distribution and shipping segments and at Nicor's other energy ventures. The gas
distribution segment increase was due primarily to the positive effect of the
new interim depreciation allocation method, which more than offset higher
operating and maintenance expenses. Improved results from Nicor's equity
investments also contributed to the increase.

Net income for 2003 was negatively affected by a $4.5 million cumulative effect
loss from an accounting change at Nicor Enerchange, Nicor's wholesale natural
gas marketing company. With the change, Nicor Enerchange now applies accrual
accounting rather than fair value accounting to gas in storage and certain
energy-related contracts.

Operating income. Operating income (loss) by major business segment is presented
below (in millions):

                                               Three months ended
                                                    March 31
                                               ------------------
                                                 2003      2002
                                               --------  --------
   Gas distribution                            $  73.7   $  60.6
   Shipping                                        5.7       4.1
   Other energy ventures                           3.6        .6
   Corporate and eliminations                     (1.7)      (.3)
                                               --------  --------
                                               $  81.3   $  65.0
                                               ========  ========


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

The following summarizes operating income comparisons for major business
segments:

o  Gas distribution operating income increased $13.1 million in the first
   quarter of 2003 due primarily to the positive impact of the new interim
   depreciation allocation method ($22.2 million) and increased gas distribution
   margin ($4.1 million), due primarily to increased customer demand related
   largely to colder weather. Partially offsetting these positive factors were
   higher operating and maintenance expenses ($9.1 million) in 2003, including a
   small pension expense in the 2003 period compared with a pension credit in
   2002 and higher bad debt expenses. The absence of property sale gains also
   unfavorably impacted first-quarter 2003 operating results compared with a
   year ago. These factors are discussed in more detail in the Results of
   Operations section on the following page.

o  Shipping segment operating income increased $1.6 million compared to the
   prior-year period due primarily to greater volumes shipped related largely to
   a 2002 acquisition.

o  Operating income at Nicor's other energy ventures increased $3.0 million in
   2003 due primarily to higher operating income from Nicor's wholesale natural
   gas marketing business, Nicor Enerchange ($1.3 million) and improved results
   from Nicor's energy-related products and services businesses ($1.2 million).
   The higher results at Nicor Enerchange are due to the application of a
   required new accounting method. Improvements for Nicor's energy-related
   products and services businesses are related primarily to a new product
   introduced in early 2002 and additional customers.

Equity investment income (loss). Equity investment income increased to $1.3
million in the first quarter of 2003 compared to a loss of $2.3 million a year
ago. Nicor recorded no gain or loss from Nicor Energy, Nicor's retail energy
marketing joint venture, in 2003 compared to a $2.9 million loss in the 2002
period. Developments related to this investment are more fully described in the
Notes to the Consolidated Financial Statements - Contingencies - Nicor Energy on
page 11.

Other income (expense). Other income (expense) decreased from $1.1 million in
the first quarter of 2002 to $.5 million in the first quarter of 2003 due
primarily to lower interest income this year. The decrease in interest income
was related to both lower interest rates and lower average investment levels.

Cumulative effect of accounting change. The cumulative effect of an accounting
change related to the application of accrual accounting, rather than fair value
accounting, to gas in storage and certain energy-related contracts, such as
storage contracts, at Nicor Enerchange. Annual and interim results are subject
to greater volatility because of the adoption of the new accounting method.


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

RESULTS OF OPERATIONS

The following discussion provides additional information about the major items
impacting Nicor's results of operations.

Operating revenues. Operating revenues by major business segment are presented
below (in millions):

                                                  Three months ended
                                                       March 31
                                                ---------------------
                                                   2003        2002
                                                ----------   --------
   Gas distribution                             $ 1,096.7    $ 518.7
   Shipping                                          66.4       59.8
   Other energy ventures                             21.1        9.3
   Corporate and eliminations                       (12.9)        .2
                                                ----------   --------
                                                $ 1,171.3    $ 588.0
                                                ==========   ========

Gas distribution revenues increased significantly in the first quarter of 2003
compared with a year ago due primarily to higher natural gas costs, which are
passed directly through to customers without markup, and colder weather. The
average cost of natural gas sold in the 2003 period was more than double the
comparable 2002 period. The revenue effect of higher natural gas costs was
approximately $420 million and colder weather increased revenues by about $80
million. First quarter 2003 shipping revenues increased due primarily to greater
volumes shipped ($5.6 million) related primarily to an acquisition that occurred
in mid-2002. The increase in revenues for other energy ventures is due primarily
to a new product introduced in early 2002 and additional customers at Nicor's
energy-related products and services businesses ($13.3 million). Corporate and
eliminations reflects primarily the elimination of gas distribution revenues
against other energy venture expenses for customers purchasing a new
utility-bill management product.

Gas distribution margin. Nicor utilizes a measure it refers to as "gas
distribution margin" to evaluate the operating income impact of gas distribution
revenues. Gas distribution revenues include gas costs, which are passed directly
through to customers without markup, and revenue taxes, for which Nicor Gas
earns only a small administrative fee. These items often cause significant
fluctuations in gas distribution revenues, and yet they have virtually no direct
impact on gas distribution operating income. Therefore, Nicor Gas and many other
gas utility companies exclude these items in evaluating performance.

A reconciliation of gas distribution revenues and margin follows (in millions):

                                                  Three months ended
                                                       March 31
                                                --------------------
                                                   2003       2002
                                                ----------  --------
Gas distribution revenues                       $ 1,096.7   $ 518.7
Cost of gas                                        (862.9)   (315.0)
Revenue tax expense                                 (61.5)    (35.5)
                                                ---------- ---------
Gas distribution margin                         $   172.3   $ 168.2
                                                ========== =========


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

Gas distribution margin in 2003 was positively impacted by increased deliveries
from higher customer demand ($6.0 million). Higher customer demand was driven
primarily by colder weather than the prior year ($10.7 million), partially
offset by an unfavorable variance from the company's weather protection in 2003
compared to 2002 ($7.0 million), and higher demand unrelated to weather ($2.3
million). Increased customer finance charges ($1.7 million) related to larger
customer bills also contributed to the 2003 increase. These improvements were
partially offset by the absence of results from the PBR plan in 2003 ($2.2
million), which was discontinued beginning January 1, 2003, and the Chicago Hub
($.9 million).

Gas distribution operating and maintenance expense. Gas distribution operating
and maintenance expense increased $9.1 million in the first quarter of 2003 to
$58.5 million. The increase from the prior-year period was due primarily to
lower pension credits ($2.4 million), increased bad debt expense ($2.2 million),
higher costs of natural gas used to operate company equipment and facilities
($1.4 million) and increased health care and insurance costs ($1.7 million). Gas
distribution operating and maintenance expense included $.3 million of pension
expense in 2003 compared with $2.1 million of pension credits in 2002. The
higher bad debt and company-use gas expenses are related to higher average
natural gas costs in 2003 compared to 2002.

Gas distribution depreciation. Depreciation in the gas distribution segment
decreased significantly due to the change to a straight-line interim
depreciation allocation method. Previously, Nicor Gas allocated depreciation to
interim periods based upon the level of weather-normalized gas deliveries each
quarter. Gas distribution depreciation would have been $22.2 million lower than
reported in the first quarter of 2002 had interim depreciation been allocated on
a straight-line basis.

Gas distribution property sale (gains) losses. Property sale gains and losses
vary from year-to-year depending upon property sales activity. The company
continues to assess its ownership of real estate holdings.

Shipping operating expenses. Shipping segment operating expenses rose $5.0
million in the first quarter of 2003 due to higher operating costs, related
primarily to increased volumes shipped, partially offset by increased property
sale gains ($.4 million). The higher costs included voyage and transportation
($2.0 million), fuel ($1.5 million), wages and benefits ($1.0 million) and
leased equipment ($.5 million). Higher fuel costs in 2003 related both to
additional ports served and higher fuel prices.

All other operating expenses. The $2.9 million decrease in all other operating
expenses was due primarily to lower operating expenses from the company's former
energy system and design activities ($2.5 million). Operating expenses at
Nicor's energy-related products and services businesses increased $12.1 million
due to a new product and additional customers. These increased expenses are
largely eliminated in Nicor's consolidated financial statements.


<PAGE>
Nicor Inc.                                                              Page 20
-------------------------------------------------------------------------------

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
                                                    March 31
                                               -------------------
                                                 2003      2002
                                               ---------  --------
Operating revenues (millions)
   Sales
    Residential                                 $ 765.8   $ 340.2
    Commercial                                    171.9      64.3
    Industrial                                     26.8      10.7
                                               ---------  --------
                                                  964.5     415.2
                                               ---------  --------
   Transportation
    Residential                                     7.1       3.1
    Commercial                                     25.9      25.7
    Industrial                                     11.3      11.0
    Other                                           5.1       2.5
                                               ---------  --------
                                                   49.4      42.3
                                               ---------  --------
   Other revenues
    Revenue taxes                                  62.4      36.4
    Environmental cost recovery                    15.7      12.0
    Performance-based rate plan                       -       2.2
    Chicago Hub                                     2.4       3.3
    Weather insurance                              (3.5)      3.5
    Other                                           5.8       3.8
                                               ---------  --------
                                                   82.8      61.2
                                               ---------  --------
                                               $ 1,096.7  $ 518.7
                                               =========  ========
Deliveries (Bcf)
   Sales
    Residential                                   107.6      94.7
    Commercial                                     23.4      17.2
    Industrial                                      3.7       3.1
                                               ---------  --------
                                                  134.7     115.0
                                               ---------  --------
   Transportation
    Residential                                     8.1       3.2
    Commercial                                     39.7      39.8
    Industrial                                     36.5      37.7
                                               ---------  --------
                                                   84.3      80.7
                                               ---------  --------
                                                  219.0     195.7
                                               =========  ========
Customers at end of period (thousands)
   Sales
    Residential                                 1,748.9   1,777.0
    Commercial                                    111.0     105.5
    Industrial                                      7.1       6.9
                                               ---------  --------
                                                1,867.0   1,889.4
                                               ---------  --------
   Transportation
    Residential                                   122.4      58.2
    Commercial                                     61.2      64.7
    Industrial                                      6.6       6.9
                                               ---------  --------
                                                  190.2     129.8
                                               ---------  --------
                                                2,057.2   2,019.2
                                               =========  ========

Other statistics
   Degree days                                    3,254     2,723
   Percent colder (warmer) than normal             5.5%   (11.7)%
   Average gas cost per Mcf sold                 $ 6.36    $ 2.71


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

SHIPPING STATISTICS

                                                Three months ended
                                                      March 31
                                               --------------------
                                                 2003        2002
                                               ---------  ---------
TEUs shipped (thousands)                           42.7       39.1
Revenue per TEU                                 $ 1,549    $ 1,532
Ports served                                         24         21
Vessels operated                                     17         16

FINANCIAL CONDITION AND LIQUIDITY

Operating cash flows. Net cash flow provided from operating activities increased
$26.3 million to $160.4 million in the first quarter from $134.1 million in the
year earlier period. Year-to-year changes in operating cash flow result largely
from fluctuations in working capital items occurring mainly in the gas
distribution segment due to factors such as 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.

Financing activities. Nicor Inc. and Nicor Gas maintain short-term line of
credit agreements with major domestic and foreign banks. At March 31, 2003,
these agreements, which serve as backup for the issuance of commercial paper,
allowed for borrowings up to $334 million, and the company had $190 million of
commercial paper borrowings outstanding.

In April 2003, Moody's Investors Service downgraded the long-term debt ratings
of Nicor and Nicor Gas from Aa1 to Aa3, while affirming their short-term
ratings. Standard and Poor's Rating Services and Fitch Ratings affirmed Nicor
and Nicor Gas' short-term and long-term debt ratings, which continue to be among
the highest in the gas distribution industry. All three rating agencies removed
the debt ratings from negative ratings watch.

On April 30, 2003, Nicor announced a quarterly dividend on common stock of 46.5
cents per share payable August 1, 2003.

FACTORS AFFECTING BUSINESS PERFORMANCE

Critical accounting policies. Nicor made several changes to its accounting
policies in the first quarter of 2003, including a change to the method of
allocating annual depreciation to interim periods. This change had a significant
favorable impact on first-quarter results and will have an adverse impact on
second- and third-quarter results. It will have no impact on full-year results.
For further information about Nicor's accounting changes, see the Notes to the
Consolidated Financial Statements - Cumulative Effect of Change in Accounting
and - Other Accounting Changes beginning on page 6, which explain all material
changes to the company's critical accounting policies since December 31, 2002.


<PAGE>
Nicor Inc.                                                              Page 22
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Item 2. Management's Discussion and Analysis of Financial Condition
        and Results of Operations (continued)

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 any amounts already
recognized, it is possible that the resolution of these contingencies, either
individually or in aggregate, will require the company to take charges against,
or will result in 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, but is not
expected to have a material adverse impact on Nicor's liquidity or financial
condition.

Performance-based rate plan. Nicor Gas' PBR plan for natural gas costs went into
effect in 2000 and was terminated by the company effective January 1, 2003.
Under the PBR plan, Nicor Gas' total gas supply costs were compared to a
market-sensitive benchmark. Savings and losses relative to the benchmark were
determined annually and shared equally with sales customers.

There are allegations that the company acted improperly in connection with the
PBR plan, and the Illinois Commerce Commission (ICC) and others are 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 (the
ICC Proceedings). As a result of the motion to reopen, Nicor Gas, the Cook
County State's Attorney Office (CCSAO), 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. In addition, the Illinois
Attorney General's Office issued Civil Investigation Demands (CIDs) to 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. The Securities and
Exchange Commission (SEC) and the Office of the United States Attorney for the
Northern District of Illinois are also reviewing the allegations that the
company acted improperly in connection with the PBR plan. The company has
committed to cooperate fully in the reviews of the PBR plan.

In response to these allegations, on July 18, 2002, the Nicor Board of Directors
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. The special committee
presented the report of its counsel (Report) to Nicor's Board of Directors on
October 28, 2002. The findings of the Report include:

o  Certain transactions increased customer costs in the aggregate amount of
   approximately $15 million.
o  No improper Nicor affiliated-party transactions or improper hedging
   activities were identified.
o  Inadvertent accounting errors occurred, sometimes to the benefit of customers
   and sometimes to the benefit of Nicor Gas.
o  No criminal activity or fraud was identified.

In response, the Nicor Board of Directors directed the company's management to,
among other things, make appropriate adjustments to account for, and fully
address, the adverse consequences to ratepayers of the items noted in the
Report, and conduct a detailed study of the adequacy of internal accounting and
regulatory controls. The adjustments were made in restated financial statements
previously filed with the SEC, and the study of internal controls is ongoing.


<PAGE>
Nicor Inc.                                                              Page 23
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Item 2. Management's Discussion and Analysis of Financial Condition
        and Results of Operations (continued)

Pursuant to the agreement of all parties, including the company, the ICC
re-opened the 1999 and 2000 purchased gas adjustment filings for review of
certain transactions related to the PBR plan and consolidated the reviews of the
1999-2002 purchased gas adjustment filings with the PBR plan review. Certain
parties in the PBR plan review proceeding have indicated disagreement with the
findings in the Report or have indicated that they believe substantially greater
adjustments or penalties are warranted. In addition, on February 5, 2003, the
CCSAO and CUB filed a motion for $27 million in sanctions against the company in
the ICC Proceedings. In that motion, CCSAO and CUB alleged that Nicor Gas'
responses to certain CUB data requests were false. Also on February 5, 2003, CUB
stated in a press release that, in addition to $27 million in sanctions, it
would seek refunds to consumers in an amount much greater than the $15 million
of adjustments identified in the Report. On March 5, 2003, the ICC staff filed a
response brief in support of CUB's motion for sanctions. On May 1, 2003, the
Administrative Law Judges issued a ruling denying CUB and CCSAO's motion for
sanctions, which ruling may be subject to review by the ICC. It is not possible
to determine how the ICC will resolve the claims of CCSAO, CUB or other parties
to the ICC Proceedings.

Nicor is unable to predict the outcome of any of the foregoing reviews or the
company's potential exposure thereunder. Due to the uncertainties surrounding
the PBR plan, Nicor Gas has not recognized a $26.9 million pretax gain from the
2002 PBR plan year. Because the PBR plan and historical utility gas costs are
still under ICC review, it is possible that the final outcome could be
materially different than the amounts reflected in the company's financial
statements as of March 31, 2003.

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' PBR plan. The named plaintiffs alleged 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 manipulating
the benchmark under the PBR plan. The named plaintiffs sought, on behalf of
themselves and the purported class, compensatory damages, prejudgment and
postjudgment interest, disgorgement of all profits, and restitution to
plaintiffs and the purported class. Nicor filed a Motion to Dismiss this action
on September 24, 2002. On December 4, 2002, the named plaintiffs voluntarily
dismissed the case, but indicated an intent to bring their claims before the
ICC. Nicor is unable to predict the outcome of any such proceeding or Nicor's
potential exposure related thereto and has not recorded a liability associated
with the potential outcome of this contingency.

Nicor Energy. Significant developments have occurred relating to Nicor's
50-percent interest in Nicor Energy.  Accounting irregularities at Nicor Energy
were identified in 2002.  Information about these developments is
presented within the Notes to the Consolidated Financial Statements -
Contingencies - Nicor Energy on page 11.

SEC and U.S. Attorney Inquiries. In 2002, the staff of the SEC informed Nicor
and Nicor Energy that the SEC is conducting a formal inquiry regarding the PBR
plan and Nicor Energy. On January 28, 2003, Nicor Energy was advised by the SEC
Division of Enforcement that it intended to recommend to the SEC that it bring a
civil injunctive action against Nicor Energy, alleging that it violated Sections
10(b) and 13(b)(5) of the Securities Exchange Act of 1934. A representative of
the Office of the United States Attorney for the Northern District of Illinois
has notified Nicor that that office is conducting an inquiry on the same matters
that the SEC is investigating, and a grand jury is also reviewing these matters.


<PAGE>
Nicor Inc.                                                              Page 24
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Item 2. Management's Discussion and Analysis of Financial Condition
        and Results of Operations (continued)

Securities Class Actions. Nicor and certain of its executives are defendants in
a consolidated class action lawsuit. Information about this action is presented
within the Notes to the Consolidated Financial Statements - Contingencies -
Securities Class Actions on page 12.

Shareholder Derivative Lawsuits. Certain Nicor executives and all members of its
Board of Directors are defendants in a consolidated derivative lawsuit. Further
information about this lawsuit is presented within the Notes to the Consolidated
Financial Statements - Contingencies - Shareholder Derivative Lawsuits on page
12.

Mercury. Future operating results may be impacted by adjustments to the
company's estimated mercury liability or by related recoveries. Additional
information about mercury contingencies is presented in the Notes to the
Consolidated Financial Statements - Contingencies - Mercury beginning on page
13.

Manufactured gas plant sites. The company is conducting environmental
investigations and remedial activities at former manufactured gas plant sites.
Additional information about these sites is presented in the Notes to the
Consolidated Financial Statements - Contingencies - Manufactured Gas Plant Sites
beginning on page 14.

Other contingencies. The company is involved in legal or administrative
proceedings before various courts and agencies with respect to rates, taxes and
other matters. See the Notes to the Consolidated Financial Statements -
Contingencies beginning on page 10.

Market risk. Nicor 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 fuel commodity prices, and interest rates. There has been no
material change in the company's exposure to market risk since the filing of the
2002 Annual Report on Form 10-K.

Energy trading activities. At March 31, 2003, Nicor Enerchange, Nicor's
wholesale natural gas marketing business, held derivative contracts with the
following fair values (in millions):

                                                            Maturity
                                                   ---------------------------
                                           Total
                                           Fair    Less than  1 to 3   3 to 5
Source of Fair Value                       Value    1 Year    Years    Years
-----------------------------            --------- --------- -------- --------
Prices actively quoted                    $   4.5   $   4.6   $  (.1)  $    -
Prices based on pricing models                 .1        .1        -        -
                                         --------- --------- -------- --------
Total                                    $    4.6   $   4.7   $  (.1)  $    -
                                         ========= ========= ======== ========



<PAGE>
Nicor Inc.                                                              Page 25
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Item 2. Management's Discussion and Analysis of Financial Condition
        and Results of Operations (concluded)

CAUTION CONCERNING FORWARD-LOOKING STATEMENTS

This document includes certain forward-looking statements about the expectations
of Nicor and its subsidiaries. Although Nicor believes these statements are
based on reasonable assumptions, actual results may vary materially from stated
expectations. Actual results may differ materially from those indicated in the
company's forward-looking statements due to the direct or indirect effects of
the results of legal contingencies (including litigation) and the resolution of
those issues, including the effects of an ICC review. Other factors that could
cause materially different results include, but are not limited to, weather
conditions; natural gas and other fuel prices; fair value accounting
adjustments; health care costs; insurance costs; borrowing needs; interest
rates; credit conditions; economic and market conditions; Caribbean tourism;
energy conservation; legislative and regulatory actions, results, or
adjustments; additional adjustments related to Nicor's retail energy marketing
joint venture; asset sales; significant unplanned capital needs and any future
mercury-related charges or credits. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date of
this filing. Nicor undertakes no obligation to publicly release any revision to
these forward-looking statements to reflect events or circumstances after the
date of this filing.


Item 3. Quantitative and Qualitative Disclosures about Market Risk

For disclosures about market risk, see Management's Discussion and Analysis -
Market Risk on page 24, which is incorporated herein by reference.


Item 4.  Controls and Procedures

Immediately following the Signatures section of this Quarterly Report are
certifications of the company's CEO and the CFO required in accord with Section
302 of the Sarbanes-Oxley Act of 2002 (the "Section 302 Certification"). This
portion of our Quarterly Report on Form 10-Q is our disclosure of the results of
our controls evaluation referred to in paragraphs (4), (5) and (6) of the
Section 302 Certification and should be read in conjunction with the Section 302
Certification for a more complete understanding of the topics presented.

In July 2002, in response to allegations that Nicor Gas acted improperly in
connection with its performance-based rate plan for natural gas costs, the Nicor
Board of Directors appointed a special committee of independent, non-management
directors to conduct an inquiry into issues surrounding natural gas purchases,
sales, transportation and storage, and certain other matters. In addition,
following up on the work of the committee, the Nicor Board of Directors later
directed Nicor's management to, among other things, (a) undertake a reaudit of
the Nicor and Nicor Gas financial statements for the years 1999 through 2001 and
a review of subsequent quarterly periods, (b) amend any filings with the SEC as
necessary, and (c) conduct a detailed study of the adequacy of internal
accounting and regulatory controls. See Notes to Consolidated Financial
Statements - Contingencies.

To assist management in assessing the control environment and related issues
associated with Nicor's natural gas supply, transport, storage and marketing
activities, including Nicor Gas Hub administration and Nicor Enerchange trading
("gas supply activities"), Nicor retained a consulting firm with experience in
internal controls and the energy industry that is not and has not been the
company's external auditor.


<PAGE>
Nicor Inc.                                                              Page 26
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Item 4.  Controls and Procedures (continued)

Through this review of gas supply activities ("gas supply review"), it was
observed that:

o  Although key controls have been designed to facilitate the complete and
   accurate capture and processing of gas supply activities, many control
   activities are not standardized. As such, the reliability and effectiveness
   of these control processes are dependent on interpretation and execution by
   business unit personnel.
o  Existing processes provide limited oversight and monitoring to ensure that
   transaction activities and control procedures are performed reliably and
   consistent with management expectations.
o  As a result, gas supply activities are not adequately documented, overly
   dependent on people, and not supported by formal training or communication of
   controls.

In light of the foregoing, and reflecting the consultant's work related to gas
supply activities, management has concluded that the following steps related to
gas supply activities should be undertaken:

o  Enhance the effectiveness of corporate governance and independent oversight
   of gas supply activities by creating a formal risk management function and
   expanding senior management oversight through the company's risk management
   committee.
o  Enhance senior management monitoring and oversight of gas supply activities
   by creating formal reporting frameworks designed to effectively communicate
   performance, existing risk profile/position, and compliance with
   policies/procedures.
o  Enhance the communication of senior management's expectations regarding
   objectives, risk tolerances, and business practices in connection with gas
   supply activities by creating codified and standardized policies and
   procedures for these activities.
o  Given the high degree of regulatory oversight and review over gas supply
   activities, develop formal documentation and retention standards for key
   decision-making and transaction activities that are subject to regulatory
   review.
o  For each business unit responsible for gas supply contract negotiation and
   execution, establish a dedicated contract administration function as well as
   a contract compliance program.
o  Develop formal contracting standards, including practices and procedures
   surrounding contract execution, contract review and approval and contract
   modification.

In May 2002, the company engaged new accountants, Deloitte & Touche LLP ("D&T"),
who were asked in October to audit the company's 1999, 2000 and 2001 restated
financial statements in addition to its audit of 2002 financial statements. In
connection with the completion of its audit of, and the issuance of an
unqualified report on, Nicor's and Nicor Gas' restated financial statements for
the years ended December 31, 1999, 2000 and 2001, D&T issued a letter dated
February 28, 2003 (the "D&T Letter"), in which it identified to management and
the Audit Committee of the Board of Directors certain deficiencies that existed
in the design or operation of Nicor Gas' internal accounting controls which,
considered collectively, constituted a material weakness in Nicor Gas' internal
controls pursuant to standards established by the American Institute of
Certified Public Accountants. Such deficiencies at Nicor Gas' regulated gas
purchasing operations included significant weaknesses in the design of controls
surrounding execution, monitoring and accounting for gas commodity,
transportation, storage and related contracts due, in part, to the lack of a
centralized independent back office for these activities. D&T also concluded
that these weaknesses had resulted in errors that affected gas purchase costs,
inventory, regulatory assets and liabilities, and results of the
performance-based rate plan, and led to a restatement of Nicor's and Nicor Gas'
financial statements. D&T has made the following recommendations to Nicor and
Nicor Gas with respect to these deficiencies:


<PAGE>
Nicor Inc.                                                              Page 27
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Item 4. Controls and Procedures (continued)

o  Establish a centralized, independent back office function for gas supply
   activities, staffed with an adequate number of appropriately skilled
   individuals.
o  Charge the gas supply back office function with responsibility for, among
   other matters, contract analysis to determine correct accounting treatment,
   ensuring that contract terms are followed, overseeing the contract approval
   process and contract administration.

Within the 90 days prior to the date of filing this Quarterly Report on Form
10-Q, the company carried out an evaluation under the supervision and with the
participation of the company's management, including its principal executive
officer and principal financial officer, of the effectiveness of the design and
operation of the company's disclosure controls and procedures (the
"Evaluation").

During the course of the Evaluation, the company's principal executive officer
and principal financial officer took note of, and considered as part of the
company's disclosure controls and procedures (as defined in the Rule 13a-14
under the Securities Exchange Act of 1934), additional procedures performed and
controls instituted by the company (the "Additional Procedures") to supplement
its internal controls in order to mitigate the effect of the weaknesses and
deficiencies identified in the gas supply review and the D&T Letter and to
prevent misstatements or omissions in its consolidated financial statements
resulting from such factors. Based on the Evaluation, the company's Chief
Executive Officer and Chief Financial Officer concluded, as of the date of the
Evaluation, that the company's disclosure controls and procedures, including the
Additional Procedures, were effective to ensure that information required to be
disclosed by the company in reports that it files or submits under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in SEC rules and forms.

Management has considered the matters referred to above, D&T's recommendations
with respect thereto and the gas supply review in connection with management's
general evaluation of the company's internal controls in particular and its
disclosure controls and procedures generally. The company has accepted the
recommendations identified in the D&T Letter and in the gas supply review. The
company's management has assigned a high priority to the short-term and
long-term correction of the internal control weaknesses and deficiencies
identified by D&T and in the gas supply review, and has implemented and
continues to implement changes to the company's policies, procedures, systems
and personnel to address these issues. The company's management has implemented
or is in the process of implementing the following changes based upon the D&T
Letter and the gas supply review:

o  The company has dedicated, and will continue to dedicate, additional internal
   audit and external resources to the assessment of the internal controls of
   the company.
o  New policies with respect to the approval and authorization of all
   transactions related to gas supply activities and affiliated transactions are
   being developed and adopted, some of which are now in place.
o  Additional gas supply purchasing testing was performed to verify that prices
   are consistent with market rates.
o  Personnel in gas supply accounting now report directly to the company's
   Controller.
o  The company's Risk Management Committee has increased its oversight level,
   and a new Chief Risk Officer position is being established.
o  An outside consultant has been retained to coordinate documentation and
   implementation of appropriate processes, procedures and controls changes, and
   has been assigned a number of full-time employees and has commenced this
   process.
o  The company has implemented, and will continue to implement, controls
   designed to ensure compliance with regulatory rules and mandates.


<PAGE>
Nicor Inc.                                                              Page 28
-------------------------------------------------------------------------------
Item 4.  Controls and Procedures (concluded)

o  A review of contract administration processes is underway to develop and
   implement a more effective method of contract administration, including
   documentation of related policies and procedures.

The company will continue to evaluate and implement corrective actions to
improve the effectiveness of its disclosure controls and procedures, and will
take further actions as dictated by such continuing reviews. These actions will
include additional procedures to supplement its internal controls in order to
prevent misstatements or omissions in its financial statements resulting from
factors such as the weaknesses and deficiencies identified in the gas supply
review and the D&T Letter. The steps taken and to be taken to correct the
weaknesses and deficiencies identified in the gas supply review and the D&T
Letter have constituted and will constitute significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of the Evaluation.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

For information concerning legal proceedings, see the Notes to the Consolidated
Financial Statements - Contingencies beginning on page 10 and Management's
Discussion and Analysis - Contingencies beginning on page 22, which are
incorporated herein by reference.

Item 2. Change in Securities and Use of Proceeds

(a) and (b) Not applicable

(c)         On March 18, 2003, the company sold 59,450 shares of its
            common stock to four individuals in connection with the
            purchase of the assets and assumption of the liabilities
            of a heating and air conditioning business owned by those
            individuals.  The shares were sold without registration
            under the Securities Act of 1933, pursuant to an exemption
            under Rule 505 of Regulation D under the Securities Act of
            1933.  The issuance was effected without general
            solicitation or advertising.

(d)         Not applicable.

Item 6. Exhibits and Reports on Form 8-K

(a)   See Exhibit Index beginning on page 32 filed herewith.

(b)   On March 5, 2003, Nicor filed a Form 8-K regarding a press release
      announcing (i) 2002 and restated prior period financial results and (ii)
      2003 earnings guidance.

      On March 11, 2003, Nicor filed a Form 8-K regarding a press release about
      Nicor Energy.


<PAGE>
Nicor Inc.                                                             Page 29
-------------------------------------------------------------------------------
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 May 2, 2003                        /s/ KATHLEEN L. HALLORAN
        ------------                      -----------------------------
                                           Kathleen L. Halloran
                                           Executive Vice President
                                           Finance and Administration



<PAGE>
Nicor Inc.                                                              Page 30
-------------------------------------------------------------------------------

                                  Certification

I, Thomas L. Fisher, Chairman and Chief Executive Officer of Nicor Inc.,
  certify that:

1) I have reviewed this quarterly report on Form 10-Q of Nicor Inc.;

2) Based on my knowledge, this quarterly report does not contain any untrue
   statement of a material fact or omit to state a material fact necessary to
   make the statements made, in light of the circumstances under which such
   statements were made, not misleading with respect to the period covered by
   this quarterly report;

3) Based on my knowledge, the financial statements, and other financial
   information included in this quarterly report, fairly present in all material
   respects the financial condition, results of operations and cash flows of the
   registrant as of, and for, the periods presented in this quarterly report;

4) The registrant's other certifying officer and I are responsible for
   establishing and maintaining disclosure controls and procedures (as defined
   in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

   a) designed such disclosure controls and procedures to ensure that material
      information relating to the registrant, including its consolidated
      subsidiaries, is made known to us by others within those entities,
      particularly during the period in which this quarterly report is being
      prepared;

   b) evaluated the effectiveness of the registrant's disclosure controls and
      procedures as of a date within 90 days prior to the filing date of this
      quarterly report (the "Evaluation Date"); and

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

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

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

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

6) The registrant's other certifying officer and I have indicated in this
   quarterly report whether or not there were significant changes in internal
   controls or in other factors that could significantly affect internal
   controls subsequent to the date of our most recent evaluation, including any
   corrective actions with regard to significant deficiencies and material
   weaknesses.



   Date May 2, 2003                        /s/ THOMAS L.FISHER
        -----------                        ------------------------------------
                                           Thomas L. Fisher
                                           Chairman and Chief Executive Officer


<PAGE>
Nicor Inc.                                                              Page 31
-------------------------------------------------------------------------------

                         Certification

I, Kathleen L. Halloran, Executive Vice President Finance and
Administration of Nicor Inc., certify that:

1) I have reviewed this quarterly report on Form 10-Q of Nicor Inc.;

2) Based on my knowledge, this quarterly report does not contain any untrue
   statement of a material fact or omit to state a material fact necessary to
   make the statements made, in light of the circumstances under which such
   statements were made, not misleading with respect to the period covered by
   this quarterly report;

3) Based on my knowledge, the financial statements, and other financial
   information included in this quarterly report, fairly present in all material
   respects the financial condition, results of operations and cash flows of the
   registrant as of, and for, the periods presented in this quarterly report;

4) The registrant's other certifying officer and I are responsible for
   establishing and maintaining disclosure controls and procedures (as defined
   in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

   a) designed such disclosure controls and procedures to ensure that material
      information relating to the registrant, including its consolidated
      subsidiaries, is made known to us by others within those entities,
      particularly during the period in which this quarterly report is being
      prepared;

   b) evaluated the effectiveness of the registrant's disclosure controls and
      procedures as of a date within 90 days prior to the filing date of this
      quarterly report (the "Evaluation Date"); and

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

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

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

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

6) The registrant's other certifying officer and I have indicated in this
   quarterly report whether or not there were significant changes in internal
   controls or in other factors that could significantly affect internal
   controls subsequent to the date of our most recent evaluation, including any
   corrective actions with regard to significant deficiencies and material
   weaknesses.


   Date    May 2, 2003                     /s/ KATHLEEN L.HALLORAN
           -----------                     -----------------------
                                           Kathleen L. Halloran
                                           Executive Vice President
                                           Finance and Administration



<PAGE>
Nicor Inc.                                                              Page 32
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Exhibit Index

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

    3.01 * Articles of Incorporation of the company.  (File No.
           2-55451, Form S-14, Nicor Inc., Exhibit 1-03 and
           Exhibit B of Amendment No. 1 thereto.)

    3.02 * Amendment to Articles of Incorporation of the company.
           (Proxy Statement dated April 20, 1979, Nicor Inc., Item
           3 thereto.)

    3.03 * Amendment to Articles of Incorporation of the company.
           (File No. 2-68777, Form S-16, Nicor Inc., Exhibit 2-01.)

    3.04 * Amendment to Articles of Incorporation of the company.
           (File No. 1-7297, Form 10-K for 1985, Nicor Inc.,
           Exhibit 3-03.)

    3.05 * Amendment to Articles of Incorporation of the
           company.  (Proxy Statement dated March 12, 1987, Nicor
           Inc., Exhibit A and Exhibit B thereto.)

    3.06 * Amendment to Articles of Incorporation of the company.
           (File No. 1-7297, Form 10-K for 1992, Nicor Inc.,
           Exhibit 3-06.)

    3.07 * Amendments to Articles of Incorporation of the
           company.  (Proxy Statement dated March 9, 1994, Nicor
           Inc., Exhibit A-1 and Exhibit B thereto.)

    3.08 * Amendment to Articles of Incorporation of the company.
           (Proxy Statement dated March 6, 1998, Nicor Inc., Item
           2 thereto.)

    3.09 * By-Laws of the company as amended by the company's
           Board of Directors on May 3, 1995.  (File No. 1-7297,
           Form 10-Q for March 1995, Nicor Inc., Exhibit 3(ii).01.)

    10.01  2003 Long-Term Incentive Program.

    10.02  2003 Incentive Compensation Plan.

    18.01  Preferability Letter regarding Change in Accounting of
           Interim Depreciation.

    99.01  Certification Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant
           to Section 906 of the Sarbanes-Oxley Act of 2002.

    99.02  Certification Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant
           to Section 906 of the Sarbanes-Oxley Act of 2002.



<PAGE>
Nicor Inc.                                                              Page 33
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Exhibit Index (concluded)

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

*    These exhibits have been previously filed with the Securities and Exchange
     Commission as exhibits to registration statements or to other filings with
     the Commission and are incorporated herein as exhibits by reference. The
     file number and exhibit number of each such exhibit, where applicable, are
     stated, in parentheses, in the description of such exhibit.

   Upon written request, the company will furnish free of charge a copy of any
   exhibit. Requests should be sent to Investor Relations at the corporate
   headquarters.