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


                                    FORM 10-Q


      [X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
           SECURITIES EXCHANGE ACT OF 1934

           For the quarterly period ended June 30, 2004

                                       or

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



                          Commission File Number 1-7297

                                  NICOR INC.
            (Exact name of registrant as specified in its charter)



                  Illinois                             36-2855175
           (State of Incorporation)                (I.R.S. Employer
                                                 Identification Number)

              1844 Ferry Road
         Naperville, Illinois 60563-9600             (630) 305-9500
   (Address of principal executive offices)   (Registrant's telephone number)


      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 [ ]

      Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date. Common stock, par value
$2.50, outstanding at August 6, 2004, were 44,064,616 shares.




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Table of Contents

Part I - Financial Information
   Item 1. Financial Statements (Unaudited) ................................ 1
           Consolidated Statements of Operations:
             Three and six months ended
             June 30, 2004 and 2003 ........................................ 2
           Consolidated Statements of Cash Flows:
             Six months ended
             June 30, 2004 and 2003 ........................................ 3
           Consolidated Balance Sheets:
             June 30, 2004 and 2003, and
             December 31, 2003 ............................................. 4

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

   Item 2. Management's Discussion and Analysis of Financial
             Condition and Results of Operations ...........................19

   Item 3. Quantitative and Qualitative Disclosures about Market Risk.......33

   Item 4. Controls and Procedures .........................................33

Part II - Other Information
   Item 1. Legal Proceedings ...............................................34

   Item 2. Changes in Securities, Use of Proceeds and Issuer
             Purchases of Equity Securities ................................34

   Item 4. Submission of Matters to a Vote of Security Holders .............35

   Item 6. Exhibits and Reports on Form 8-K ................................36

           Signature .......................................................37

           Exhibit Index ...................................................38
Glossary

Degree day......The extent to which the daily average temperature falls below
                65 degrees Fahrenheit. Normal weather for Nicor Gas' service
                territory, for purposes of this report, is considered to be
                about 6,000 degree days per year.
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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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 2003 Annual Report on
Form 10-K/A (Amendment No. 1).

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





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Consolidated Statements of Operations (Unaudited)
(millions, except per share data)
                                          Three months ended  Six months ended
                                               June 30            June 30
                                          ------------------  -----------------
                                             2004     2003      2004      2003
                                           -------- -------   --------  -------

Operating revenues
   Gas distribution (includes revenue taxes
    of $25.2, $24.6, $96.1 and $86.9,
    respectively)                          $ 338.4 $ 379.5   $1,373.5  $1,476.2
   Shipping                                   72.4    67.1      140.2     133.6
   Other energy ventures                      33.5    17.5       85.2      38.6
   Corporate and eliminations                (14.8)  (11.3)     (53.7)    (24.3)
                                            ------- -------   --------  -------
                                             429.5   452.8    1,545.2   1,624.1
Operating expenses
   Gas distribution
    Cost of gas                              200.5   241.0      992.7   1,103.9
    Operating and maintenance                 54.6    54.7      118.5     113.1
    Depreciation                              37.4    36.0       74.6      72.1
    Taxes, other than income taxes            29.1    28.0      103.8      93.9
    Mercury-related costs (recoveries), net     .2   (17.4)        .1     (17.8)
    Property sale gains                       (5.5)    (.4)      (5.5)      (.4)
   Shipping                                   65.5    62.2      129.1     123.0
   Other energy ventures                      28.1    18.1       76.9      35.6
   Litigation charge                             -       -       38.5         -
   Other corporate expenses and eliminations (13.5)   (8.3)     (50.9)    (19.6)
                                            ------- -------   --------  -------
                                             396.4   413.9    1,477.8   1,503.8
                                            ------- -------   --------  -------

Operating income                              33.1    38.9       67.4     120.3
Equity investment income (loss), net           1.7     6.7        2.9       8.0
Other income (expense), net                     .9      .6        1.3       1.1
Interest expense, net of amounts capitalized   8.3     9.2       19.5      18.9
                                            ------- -------   --------  -------

Income before income taxes and cumulative
   effect of accounting change                27.4    37.0       52.1     110.5
Income taxes                                   7.9    13.2       13.1      36.3
                                            ------- -------   --------  -------

Income before cumulative effect of
   accounting change                          19.5    23.8       39.0      74.2
Cumulative effect of accounting change, net
   of $3.0 income tax benefit                    -       -          -      (4.5)
                                            ------- -------   --------  -------

Net income                                    19.5    23.8       39.0      69.7
Dividends on preferred stock                     -       -          -         -
                                            ------- -------   --------  -------

Earnings applicable to common stock         $ 19.5  $ 23.8    $  39.0   $  69.7
                                            ======= =======   ========  =======

Average shares of common stock outstanding
   Basic                                      44.1    44.0       44.0     44.0
   Diluted                                    44.3    44.2       44.2     44.1

Earnings per average share of common stock
   Basic
    Before cumulative effect of accounting
      change                                $  .44  $  .54    $   .89   $ 1.68
    Cumulative effect of accounting change,
      net of tax                                 -       -          -     (.10)
                                            ------- -------   --------  -------
    Basic earnings per share                $  .44  $  .54    $   .89   $ 1.58
                                            ======= =======   ========  =======

   Diluted
    Before cumulative effect of accounting
      change                                $  .44  $  .54    $   .88   $ 1.68
    Cumulative effect of accounting change,
      net of tax                                 -       -          -     (.10)
                                            ------- -------   --------  -------
    Diluted earnings per share              $  .44  $  .54    $   .88   $ 1.58
                                            ======= =======   ========  =======

Dividends declared per share of common
   stock                                    $ .465  $ .465    $   .93   $  .93


The accompanying notes are an integral part of these statements.



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Consolidated Statements of Cash Flows (Unaudited)
(millions)
                                                             Six months ended
                                                                 June 30
                                                           -------------------
                                                             2004       2003
                                                           --------  ---------
Operating activities
   Net income                                               $ 39.0     $ 69.7
   Adjustments to reconcile net income to net cash flow
     provided from operating activities:
      Depreciation                                            83.6       80.9
      Deferred income tax expense                              3.0       12.3
      Cumulative effect of accounting change                     -        4.5
      Gain on sale of property, plant and equipment           (5.5)      (1.7)
      Other noncash items                                      1.6       (6.5)
      Changes in assets and liabilities:
        Receivables, less allowances                         195.7      122.2
        Gas in storage                                       190.3        5.1
        Deferred/accrued gas costs                            (4.9)     (73.6)
        Prepaid pension costs                                 (2.2)         -
        Other assets                                         (20.6)      35.5
        Accounts payable                                      43.3     (104.8)
        Temporary last-in, first-out liquidation              77.8       18.0
        Other liabilities                                     34.0      (23.2)
                                                           --------  ---------
   Net cash flow provided from operating activities          635.1      138.4
                                                           --------  ---------

Investing activities
   Capital expenditures                                      (80.1)     (85.1)
   Purchases of restricted short-term investments            (38.5)         -
   Purchases of marketable securities                        (19.9)         -
   Proceeds from disposal of marketable securities             4.7          -
   Net decrease (increase) in other short-term investments     5.7       (6.5)
   Net proceeds from sale of property, plant and
     equipment                                                 7.4        2.4
   Repayments from joint ventures                                -        5.6
   Other investing activities                                  (.4)       (.4)
                                                           --------  ---------
   Net cash flow used for investing activities              (121.1)     (84.0)
                                                           --------  ---------

Financing activities
   Disbursements to retire long-term debt                        -     (100.0)
   Short-term borrowings (repayments), net                  (446.0)      20.0
   Dividends paid                                            (41.0)     (40.8)
   Borrowing against cash surrender value of life
     insurance policies                                       26.1          -
   Repayment of loan against cash surrender value of
     life insurance policies                                 (11.7)         -
   Disbursements to reacquire stock                              -       (2.3)
   Other financing activities                                  1.2         .8
                                                           --------  ---------
   Net cash flow used for financing activities              (471.4)    (122.3)
                                                           --------  ---------

Net increase (decrease) in cash and cash
   equivalents                                                42.6      (67.9)

Cash and cash equivalents, beginning of period                50.3       75.2
                                                           --------  ---------

Cash and cash equivalents, end of period                    $ 92.9     $  7.3
                                                           ========  =========

Supplemental schedule of noncash investing and financing activities:

One of Nicor's Directors and Officers insurance carriers paid $29 million into
an escrow account as described in Note 4.  Assets and liabilities were recorded
as follows:

    Restricted short-term investments                       $ 29.0          -
    Obligation related to restricted investments              29.0          -


The accompanying notes are an integral part of these statements.



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Consolidated Balance Sheets (Unaudited)
(millions)

                                            June 30    December 31    June 30
                                              2004        2003          2003
                                           ---------   -----------   ---------
            Assets
            ------
Current assets
   Cash and cash equivalents              $    92.9    $    50.3    $     7.3
   Restricted short-term investments           67.5            -            -
   Short-term investments, at cost which
     approximates market                       29.9         32.9         32.2
   Receivables, less allowances of $29.3,
     $21.2 and $24.6, respectively            281.1        476.8        343.3
   Gas in storage                              43.3        236.0         35.4
   Deferred gas costs                             -            -          6.3
   Deferred income taxes                       71.8         66.8         42.9
   Other                                       70.0         53.1         39.0
                                           ---------    ---------    ---------
                                              656.5        915.9        506.4
                                           ---------    ---------    ---------
Property, plant and equipment, at cost
   Gas distribution                         3,753.8      3,694.8      3,622.6
   Shipping                                   299.0        296.6        306.2
   Other                                        9.0          8.1          6.5
                                           ---------    ---------    ---------
                                            4,061.8      3,999.5      3,935.3
   Less accumulated depreciation            1,557.2      1,515.3      1,488.1
                                           ---------    ---------    ---------
                                            2,504.6      2,484.2      2,447.2
                                           ---------    ---------    ---------
Prepaid pension costs                         179.3        177.1        177.1
Other assets                                  216.1        220.0        198.2
                                           ---------    ---------    ---------
                                          $ 3,556.5    $ 3,797.2    $ 3,328.9
                                           =========    =========    =========

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

Current liabilities
   Long-term obligations due
     within one year                      $      .2    $       -    $       -
   Short-term borrowings                      129.0        575.0        335.0
   Accounts payable                           428.7        385.4        445.2
   Temporary last-in, first-out liquidation    77.8            -         18.0
   Accrued gas costs                           42.1         47.0            -
   Dividends payable                           20.5         20.5         20.5
   Obligations related to restricted
     investments                               67.5            -            -
   Other                                       29.3         40.8         24.4
                                           ---------    ---------    ---------
                                              795.1      1,068.7        843.1
                                           ---------    ---------    ---------
Deferred credits and other liabilities
   Accrued future removal costs               694.0        670.0        645.0
   Deferred income taxes                      567.9        561.4        407.9
   Regulatory income tax liability             46.5         48.4         60.3
   Unamortized investment tax credits          34.2         35.6         36.5
   Other                                      167.9        161.6        179.5
                                           ---------    ---------    ---------
                                            1,510.5      1,477.0      1,329.2
                                           ---------    ---------    ---------
Capitalization
  Long-term obligations
    Long-term bonds                           495.0        495.1        396.4
    Mandatorily redeemable preferred stock      1.6          1.8            -
                                           ---------    ---------    ---------
                                              496.6        496.9        396.4
                                           ---------    ---------    ---------
  Mandatorily redeemable preferred stock         -            -          2.0

  Common equity
    Common stock                              110.1        110.1        110.1
    Paid-in capital                             4.7          3.6          1.9
    Retained earnings                         645.2        647.1        652.5
    Unearned compensation                       (.2)         (.2)         (.3)
    Accumulated other comprehensive
      income (loss), net                       (5.5)        (6.0)        (6.0)
                                           ---------    ---------    ---------
                                              754.3        754.6        758.2
                                           ---------    ---------    ---------
                                          $ 3,556.5    $ 3,797.2    $ 3,328.9
                                           =========    =========    =========


The accompanying notes are an integral part of these statements.



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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) 2003 Annual Report
on Form 10-K/A (Amendment No. 1). 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.

1.   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 estimated 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):

                                           June 30    December 31    June 30
                                             2004        2003          2003
                                          ---------  ------------   ---------

  Accrued future removal costs            $ (694.0)  $  (670.0)     $ (645.0)
  Deferred (accrued) gas costs               (42.1)      (47.0)          6.3
  Regulatory income tax liability            (46.5)      (48.4)        (60.3)
  Deferred environmental costs                31.5        37.0          33.5
  Unamortized losses on reacquired debt       20.4        20.9          18.5
  Other noncurrent regulatory assets           1.2           -             -
  Other noncurrent regulatory liabilities     (2.2)          -             -
                                          ---------  ------------   ---------
                                          $ (731.7)  $  (707.5)     $ (647.0)
                                          ========== ============   =========

Deferred environmental costs and unamortized losses on reacquired debt are
classified in other noncurrent assets. At December 31, 2003, accrued future
removal costs for all periods presented were reclassified from accumulated
depreciation to a noncurrent liability to conform to new guidance issued to the
utility industry. Accrued future removal costs at June 30, 2003 have similarly
been reclassified to conform to that presentation.

Marketable securities. Investments in marketable securities are classified into
held-to-maturity or available-for-sale categories. Securities are classified as
held-to-maturity when the company has the positive intent and ability to hold
the securities to maturity. The company carries held-to-maturity securities at
amortized cost. Securities not classified as held-to-maturity are classified as
available for sale and are carried at fair market value, with unrealized gains
and losses, net of tax, reported in common equity as a component of accumulated
other comprehensive income. Investments in both classifications are primarily
debt securities, which are included in either short-term investments or other
noncurrent assets based upon contractual maturity date. Nicor's shipping segment
held approximately $7.6 million, $7.3 million and $7.2 million of
held-to-maturity securities at June 30, 2004, December 31, 2003 and June 30,
2003, respectively. The recorded amount of these held-to-maturity securities
approximated fair value at June 30, 2004. Nicor's shipping segment held
approximately $15 million of available-for-sale securities at June 30, 2004 and
none in prior periods.



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Notes to the Consolidated Financial Statements (Unaudited) (continued)

Revenue taxes. Nicor Gas classifies revenue taxes billed to customers as
operating revenues and related taxes incurred as operating expenses. Revenue
taxes included in operating expense for the three and six months ended June 30,
2004 were $24.5 million and $94 million, respectively, and $23.9 million and
$85.4 million, respectively, for the same periods ending June 30, 2003.

Income taxes. The company's effective income tax rate declined to 29 percent and
25 percent for the three and six months ended June 30, 2004, respectively, from
36 percent and 33 percent for the corresponding 2003 periods. The decline in
2004 was due principally to reduced projected income, which causes a lower
effective income tax rate since permanent differences and tax credits are a
larger share of pretax income, and a favorable IRS settlement in the second
quarter of 2004 ($.7 million). In the first quarter, Nicor recorded an income
tax benefit on the securities class action litigation charge at its marginal
income tax rate of about 40 percent. As a result, the 25 percent effective
income tax rate for the six months ended June 30, 2004, is lower than the
estimated rate for the full year of 28 percent.

Stock Options and Awards. Nicor does not recognize compensation expense for
awards granted under its stock-based compensation plans as it continues to apply
the intrinsic value accounting method. The effect on net income and earnings per
share had it applied the fair value accounting method is as follows (in
millions, except per share data):

                                    Three months ended       Six months ended
                                          June 30                 June 30
                                    ------------------      ------------------
                                      2004      2003           2004      2003
                                    --------  --------      --------   -------

  Net income - as reported          $  19.5   $  23.8       $  39.0    $ 69.7
  Less:  Total stock-based
         employee compensation
         expense determined under
         the fair value method
         for all awards, net
         of tax                          .3        .1            .5        .3
                                    --------  --------      --------   -------
  Net income - pro forma            $  19.2   $  23.7       $  38.5    $ 69.4
                                    ========  ========      ========   =======

  Earnings per share
    Basic - as reported             $   .44   $   .54       $   .89    $ 1.58
    Basic - pro forma                   .44       .54           .88      1.58
    Diluted - as reported               .44       .54           .88      1.58
    Diluted - pro forma                 .43       .54           .87      1.57

2.   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 and transportation agreements. 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 million in income tax benefits.





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Notes to the Consolidated Financial Statements (Unaudited) (continued)

3.   NEW ACCOUNTING PRONOUNCEMENTS

Accounting for Medicare Prescription Drug, Improvement and Modernization Act. In
May 2004, the Financial Accounting Standards Board (FASB) issued FASB Staff
Position No. FAS 106-2, Accounting and Disclosure Requirements Related to the
Medicare Prescription Drug, Improvement and Modernization Act of 2003 (FSP FAS
106-2). The Medicare Prescription Drug, Improvement and Modernization Act of
2003 (the Act) provides a prescription drug benefit as well as a potential
federal subsidy to sponsors of certain retiree health care benefit plans. FSP
FAS 106-2 provides guidance on accounting for the effects of the Act, including
the potential subsidy, and requires public companies to reflect the impact by
the third quarter of 2004, if determinable and significant. This requires an
employer to determine whether the prescription drug benefits it provides are
actuarially equivalent to Medicare Part D, thereby making the employer eligible
for a subsidy under the Act.

These financial statements and accompanying notes do not reflect the effects of
FSP FAS 106-2. Without clarifying regulations, the company is unable to
determine the extent to which its prescription drug benefits are actuarially
equivalent. Any subsidy it might receive is not expected to have a significant
impact on periodic postretirement health care costs or net income.

Consolidation of Variable Interest Entities. In December 2003, the FASB issued
Interpretation 46(R), Consolidation of Variable Interest Entities (FIN 46R). FIN
46R addresses the application of Accounting Research Bulletin 51, Consolidated
Financial Statements, to certain entities in which equity investors do not have
the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support. FIN 46R was effective for Nicor on
January 1, 2004, and had no impact on the company's financial position or
results of operations.

4.    RESTRICTED SHORT-TERM INVESTMENTS

At June 30, 2004 Nicor had $67.5 million of restricted short-term investments
and a corresponding $67.5 million current liability. These amounts are comprised
of two escrow funds established in the second quarter of 2004. The first escrow
fund was established by a $38.5 million payment under an agreement to settle
securities class actions. Subsequent to final court approval of the settlement
in July 2004, lead plaintiff's counsel became the sole custodian of the escrow
fund. The second escrow fund was established through a $29 million deposit by
one of Nicor's Directors and Officers insurance carriers to be used to satisfy
Nicor directors' and officers' liabilities and expenses associated with claims
asserted against them.  (See also Note 14 Contingencies).

5.   ACCRUED UNBILLED REVENUES

Receivables include accrued unbilled revenues of $46.4 million, $140 million and
$57.4 million at June 30, 2004, December 31, 2003, and June 30, 2003,
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.




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Notes to the Consolidated Financial Statements (Unaudited) (continued)

6.   EQUITY INVESTMENT INCOME (LOSS), NET

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

                                       Three months ended     Six months ended
                                             June 30              June 30
                                       ------------------     ----------------
                                         2004      2003         2004     2003
                                       --------  --------     -------  -------

   Triton Container Investments
     (Triton)                           $  1.5    $  1.3       $ 3.0    $ 2.6
   Nicor Energy                              -       5.6           -      5.6
   Affordable housing investments          (.4)      (.4)        (.9)    (1.0)
   Horizon Pipeline                         .5        .4          .8       .7
   All other                                .1       (.2)          -       .1
                                       --------  --------     -------  -------
                                        $  1.7    $  6.7       $ 2.9    $ 8.0
                                       ========  ========     =======  =======

7.   OTHER INCOME (EXPENSE), NET

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

                                       Three months ended     Six months ended
                                             June 30              June 30
                                       ------------------     ----------------
                                         2004      2003         2004     2003
                                       --------  --------     -------  -------

  Interest income                       $   .7     $  .5       $ 1.1    $ 1.1
  Other income                              .3        .6          .5       .6
  Other expense                            (.1)      (.5)        (.3)     (.6)
                                       --------  --------     -------  -------
                                        $   .9     $  .6       $ 1.3    $ 1.1
                                       ========  ========     =======  =======

8.   COMPREHENSIVE INCOME

Total comprehensive income, as defined by FAS 130, Reporting Comprehensive
Income, is equal to net income plus other comprehensive income and is as follows
(in millions):

                                       Three months ended     Six months ended
                                             June 30              June 30
                                       ------------------     ----------------
                                         2004      2003         2004     2003
                                       --------  --------     -------  -------
  Net income                            $ 19.5    $ 23.8      $ 39.0   $ 69.7
  Other comprehensive income
    (loss), net of tax                      .4       (.6)         .5       .3
                                       --------  --------     -------  -------
  Total comprehensive income            $ 19.9    $ 23.2      $ 39.5   $ 70.0
                                       ========  ========     =======  =======

Net other comprehensive income (loss) 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 and other
equity-method investees.




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Notes to the Consolidated Financial Statements (Unaudited) (continued)

9.   BUSINESS SEGMENT INFORMATION

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




                                                                   Other     Corporate
                                           Gas                    energy        and
                                      distribution   Shipping    ventures   eliminations    Total
                                      ------------  ----------  ---------  -------------  ---------

                                                                           

  Three months ended June 30, 2004
   Operating revenues
    External customers                $      323.9  $     72.4  $   33.2   $          -   $   429.5
    Intersegment                              14.5           -        .3          (14.8)          -
                                      ------------  ----------  ---------  -------------  ---------
                                      $      338.4  $     72.4  $   33.5   $      (14.8)  $   429.5
                                      ============  ==========  =========  =============  =========

   Operating income (loss)            $       22.1  $      6.9  $    5.4   $       (1.3)  $    33.1
                                      ============  ==========  =========  =============  =========

  Three months ended June 30, 2003
   Operating revenues
    External customers                $      368.7  $     67.1  $   17.0   $          -   $   452.8
    Intersegment                              10.8           -        .5          (11.3)          -
                                      ------------  ----------  ---------  -------------  ---------
                                      $      379.5  $     67.1  $   17.5   $      (11.3)  $   452.8
                                      ============  ==========  =========  =============  =========

   Operating income (loss)            $       37.6  $      4.9  $    (.6)  $       (3.0)  $    38.9
                                      ============  ==========  =========  =============  =========

  Six months ended June 30, 2004
   Operating revenues
    External customers                $    1,323.9  $    140.2  $   81.1   $          -   $ 1,545.2
    Intersegment                              49.6           -       4.1          (53.7)          -
                                      ------------  ----------  ---------  -------------  ---------
                                      $    1,373.5  $    140.2  $   85.2   $      (53.7)  $ 1,545.2
                                      ============  ==========  =========  =============  =========

   Operating income (loss)            $       89.3  $     11.1  $    8.3   $      (41.3)  $    67.4
                                      ============  ==========  =========  =============  =========

  Six months ended June 30, 2003
   Operating revenues
    External customers                $    1,452.6  $    133.6  $    37.9  $          -   $ 1,624.1
    Intersegment                              23.6           -         .7         (24.3)          -
                                      ------------  ----------  ---------  -------------  ---------
                                      $    1,476.2  $    133.6  $    38.6  $      (24.3)  $ 1,624.1
                                      ============  ==========  =========  =============  =========

   Operating income (loss)            $      111.4  $     10.6  $     3.0  $       (4.7)  $   120.3
                                      ============  ==========  =========  =============  =========



The majority of intersegment revenues represent Nicor Gas revenues related to
customers purchasing utility-bill management products from Nicor Solutions.
Under these products, Nicor Solutions bills a fixed amount to a customer and in
exchange pays the customer's utility bills from Nicor Gas. Intersegment revenues
have been eliminated in the consolidated financial statements.

The $41.3 million operating loss in the "Corporate and eliminations" column for
the six months ended June 30, 2004 includes a $38.5 million litigation charge
related to an agreement to settle securities class actions as described in Note
14 Contingencies - Securities Class Actions.




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

10.    FAIR VALUE OF FINANCIAL INSTRUMENTS

The recorded amount of short-term investments and short-term borrowings
approximates fair value because of the short maturity of the instruments.
Long-term debt outstanding, including current maturities, is recorded at the
principal balance outstanding. The principal balance of Nicor Gas' First
Mortgage Bonds outstanding was $500 million at June 30, 2004 and December 31,
2003, and $400 million at June 30, 2003. Based on quoted market interest rates,
the fair value of the company's First Mortgage Bonds outstanding, including
current maturities, was approximately $517 million, $530 million and $446
million at June 30, 2004, December 31, 2003 and June 30, 2003, respectively.

11.   POSTRETIREMENT BENEFITS

Nicor Gas maintains a noncontributory defined benefit pension plan covering
substantially all employees hired prior to 1998. Pension benefits are based on
years of service and highest average salary for management employees and job
level for unionized employees. The benefit obligation related to collectively
bargained benefits considers the company's past practice of regular benefit
increases to reflect current wages. Nicor Gas also provides health care and life
insurance benefits to eligible retired employees under a plan that includes a
limit on the company's share of cost for most future retirees. The company's
postretirement benefit costs have been considered in rate proceedings on the
accrual basis.

About one-fourth of the net periodic benefit cost or credit related to these
plans has been capitalized as a cost of constructing gas distribution facilities
and the remainder is included in gas distribution operating and maintenance
expense. Net periodic benefit cost (credit) included the following components
(in millions):

                                           Pension benefits    Other benefits
                                           ----------------    ---------------
                                             2004     2003      2004     2003
                                           -------  -------    -------  ------

Three months ended June 30
  Service cost                             $  2.2    $ 1.8      $  .6   $  .5
  Interest cost                               3.9      4.1        2.5     2.8
  Expected return on plan assets             (7.9)    (7.2)       (.2)    (.3)
  Recognized net actuarial loss                .5      1.1        1.2      .7
  Amortization of unrecognized
     transition obligation                      -        -          -      .8
  Amortization of prior service cost           .2       .2          -       -
                                           -------  -------    -------  ------
  Net periodic benefit cost (credit)       $ (1.1)   $   -      $ 4.1   $ 4.5
                                           =======  =======    =======  ======

Six months ended June 30
  Service cost                             $  4.5    $ 3.7      $ 1.2   $ 1.0
  Interest cost                               7.9      8.2        5.1     5.6
  Expected return on plan assets            (15.9)   (14.4)       (.5)    (.6)
  Recognized net actuarial loss               1.0      2.2        2.3     1.5
  Amortization of unrecognized
    transition obligation                       -        -          -     1.5
  Amortization of prior service cost           .3       .3          -       -
                                           -------  -------    -------  ------
  Net periodic benefit cost (credit)       $ (2.2)   $   -      $ 8.1   $ 9.0
                                           =======  =======    =======  ======



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

In 2003, the company amended the retiree health care plan as it applies to
non-unionized employees to improve consistency of benefits among participant
groups and reduce the company's share of plan costs effective January 1, 2004.
The resultant cost reduction is reflected in the 2004 net periodic benefit costs
presented above. In 2004, further cost-sharing amendments were made to the plan
for all employees. The impact of the 2004 amendments is not expected to be
material.

12.   RELATED PARTY TRANSACTIONS

Horizon Pipeline, a 50-percent-owned joint venture of Nicor, charged Nicor Gas
$2.6 million and $5.3 million for the three and six months ended June 30, 2004,
respectively, for natural gas transportation under rates that have been accepted
by the Federal Energy Regulatory Commission. For the three and six months ended
June 30, 2003, Horizon Pipeline charged Nicor Gas $2.5 million and $5.1 million,
respectively, for this service.

EN Engineering, a 50-percent-owned joint venture of Nicor, charged Nicor
Technologies, a wholly owned subsidiary of Nicor, $.9 million and $1.7 million
for the three and six months ended June 30, 2004, respectively, for engineering
and corrosion services. For the three and six months ended June 30, 2003, EN
Engineering charged Nicor Technologies $1.2 million and $2.1 million,
respectively, for these services.

13.   GUARANTEES AND INDEMNITIES

Nicor and certain subsidiaries enter into various financial and performance
guarantees and indemnities providing assurance to third parties.

Financial guarantees. The company has issued guarantees of affiliate obligations
to vendors and other third parties, requiring Nicor to repay the obligations
should its affiliates default. The obligations of the company's wholly owned
subsidiaries are reflected in Nicor's consolidated balance sheet, while the
obligations of its unconsolidated equity investments are not. As of June 30,
2004 Nicor had guaranteed the payment of approximately $1 million of lease
obligations in support of one of its unconsolidated equity investee's
operations.

Tropic Equipment Leasing Inc. (TEL), an indirectly wholly owned subsidiary of
Nicor, holds the company's interests in Triton, a cargo container leasing
company. TEL has a contingent liability to restore to zero any deficit in its
equity account for income tax purposes in the unlikely event that Triton is
liquidated and a deficit balance remains. This contingent liability continues
for the life of the Triton partnerships and any payment is effectively limited
to the assets of TEL, which were about $4 million at June 30, 2004. Nicor
believes the likelihood of any such payment by TEL is remote and has recorded no
liability for this contingency.

Performance guarantees. Nicor Services markets separately priced product
warranty contracts that provide for the repair of heating, ventilation and air
conditioning (HVAC) equipment, natural gas lines, and other appliances within
homes. Revenues from these product warranty contracts are recognized ratably
over the coverage period, and related repair costs are charged to expense as
incurred. Repair expenses of $1.1 million and $2 million were incurred in the
three and six months ended June 30, 2004, respectively, and $.7 million and $1.8
million, respectively, for the same periods last year.



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

Indemnities. In certain instances, Nicor has undertaken to indemnify current
property owners and others against costs associated with the effects and/or
remediation of contaminated sites for which the company may be responsible under
applicable federal or state environmental laws, generally with no limitation as
to the amount. Aside from liabilities recorded in connection with coal tar
cleanup, as discussed in Note 14 Contingencies - Manufactured Gas Plant Sites,
Nicor believes that the likelihood of payment under these indemnifications is
either remote or the amount would be immaterial. As such, no liability has been
recorded for these indemnifications.

Nicor has also indemnified, to the fullest extent permitted under the laws of
the State of Illinois and any other applicable laws, its present and former
directors, officers and employees against expenses they may incur in connection
with litigation they are a party to by reason of their association with the
company, subject to certain limitations. Through June 30, 2004 the company has
incurred approximately $1.5 million of legal defense costs for such individuals
in connection with this indemnification, of which $.5 million was reflected as
a liability at June 30, 2004.

14.   CONTINGENCIES

The following contingencies of Nicor are in various stages of investigation or
disposition. Although in some cases 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 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. Parties who were plaintiffs in a dismissed class action proceeding
against the company could potentially intervene in these proceedings. 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



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

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.

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 financial statements resulting
in a $24.8 million liability at June 30, 2004. Included in such $24.8 million
liability is a $4.1 million loss contingency. In addition, Nicor Gas estimates
that there is $26.9 million due to the company from the 2002 PBR plan year,
which has not been recognized in the financial statements due to uncertainties
surrounding the PBR plan. The net of these items and interest income on certain
components results in a $2.8 million reimbursement the company is seeking as of
June 30, 2004, pending resolution of the proceedings discussed below. The
company took steps to correct the weaknesses and deficiencies identified in the
detailed study of the adequacy of internal controls.

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.

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. CUB has filed an appeal of the motion for
sanctions with the ICC, and the ICC has indicated that it will not rule on the
appeal until the final disposition of the ICC proceedings. It is not possible to
determine how the ICC will resolve the claims of CCSAO, CUB or other parties to
the ICC Proceedings.

In November 2003, the ICC staff, CUB, CCSAO and the Illinois Attorney General's
Office (IAGO) filed their respective direct testimony in the ICC Proceedings.
The ICC staff is seeking refunds to customers of approximately $108 million and
CUB and CCSAO were jointly seeking refunds to customers of approximately $143
million. The IAGO direct testimony alleges adjustments in a range from $145
million to $190 million. The IAGO testimony as filed is presently unclear as to
the amount which IAGO seeks to have refunded to customers. On February 27, 2004
the above referenced intervenors filed their rebuttal testimony in the ICC
Proceedings. In such rebuttal testimony, CUB and CCSAO amended the alleged
amount to be refunded to customers from approximately $143 million to $190
million. Nicor Gas filed rebuttal testimony in January 2004, which is consistent
with the findings of the special committee Report and, as noted above, seeks a
reimbursement to Nicor Gas of approximately $2.8 million. The parties to the ICC
Proceedings have agreed to a stay of the evidentiary hearings on this matter in
order to undertake additional third party discovery from Entergy-Koch Trading,
LP (EKT), a natural gas, storage and transportation trader and consultant with
whom Nicor did business under the PBR plan.

During the course of the SEC investigation discussed below, the company became
aware of additional information relating to the activities of individuals
affecting the PBR plan for the period from 1999 through 2002, including
information consisting of third party documents and recordings of telephone
conversations from EKT.  The company has recently obtained access to and
reviewed this information.




Nicor Inc.                                                              Page 14
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Notes to the Consolidated Financial Statements (Unaudited) (continued)

The company's management has determined this information does not affect the
company's previously issued financial statements.  In addition, the company's
management has determined that no adjustment to the accrual for loss
contingencies in the company's second quarter financial statements is required
as a result of this information.

Although the Report of the special committee's counsel did not find that there
was criminal activity or fraud, a review of this newly available information
(which was not available to the independent counsel who prepared the Report)
and recent re-interviews of certain Nicor Gas personnel indicate that certain
Nicor Gas personnel may have engaged in potentially fraudulent conduct regarding
the PBR plan in violation of company policy, and in possible violation of SEC
rules and applicable law.  Further, certain Nicor Gas personnel also may have
attempted to conceal their conduct in connection with an ICC review of the
PBR plan.  The company continues to cooperate with the SEC, the U.S. Attorney's
office and the ICC on this matter and to review and produce additional documents
as requested by these agencies.  The company also will review any third party
information the company obtains.  The company has recently terminated four
employees in connection with this matter.

Nicor is unable to predict the outcome of any of the foregoing reviews or the
company's potential exposure thereunder.  Because the PBR plan and historical
gas costs are still under ICC review, the final outcome could be materially
different than the amounts reflected in the company's financial statements
as of June 30, 2004.

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 by
Nicor in restated financial statements previously filed with the United States
Securities and Exchange Commission (SEC).

Nicor Energy has disposed of all of its customer accounts and is in the process
of liquidating its remaining assets and resolving remaining contingent
liabilities. Nicor's investment in Nicor Energy was written off in the third
quarter of 2002 due to the belief at that time that Nicor ultimately would not
recover its investment balance. During 2003, Nicor recorded gains of $9.6
million upon the receipt of cash from Nicor Energy. No recoveries occurred in
the six months ended June 30, 2004, and any future gains or losses are not
expected to be material.

On December 10, 2003, the United States Attorney for the Northern District of
Illinois indicted three former employees of Nicor Energy and an outside lawyer
for Nicor Energy. The indictments alleged that the defendants fraudulently
deprived Nicor Energy of their honest services and caused a loss to investors
in Nicor Inc. and Dynegy Inc. During the time period covered by the indictments,
Nicor Energy was a stand alone entity with its own management and was operated
independently from Nicor Inc. and Nicor Gas. None of the individuals indicted
are employees of Nicor Inc. or Nicor Gas nor were they at the time of the
charged conduct. The three former employees of Nicor Energy have pled guilty to
certain charges. Separately, on December 10, 2003, the SEC filed its own civil
enforcement action against the same three former employees and one additional
former employee of Nicor Energy.  While Nicor is unable to predict the final
outcome of these matters, the resolution of such matters is not expected to
have a material adverse impact on the company's financial condition or results
of operations.




Nicor Inc.                                                              Page 15
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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 both the
PBR plan and Nicor Energy. 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. In April 2004,
Nicor 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,
alleging that Nicor violated Sections 17(a) of the Securities Act of 1933 and
Sections 10(b) and 13(a) of the Securities Exchange Act of 1934 and Rules 10b-5,
12b-20, 13a-1 and 13a-13 thereunder. The SEC may also seek injunctive relief,
disgorgement and civil penalties. The SEC staff invited Nicor to make a formal
response (known as a Wells Submission) with respect to the proposed
recommendation. In June 2004, Nicor filed its Wells Submission with the SEC.
In addition, in connection with the SEC's invitation to the company to make a
Wells Submission, the SEC informed the company of additional sources of
information relating to activities affecting the PBR plan, the status of which
is addressed in detail in the Performance-Based Rate (PBR) Plan section set
forth above.  Nicor is unable to predict the outcome of these inquiries or
Nicor's potential exposure related thereto and has not recorded a liability
associated with the outcome of these contingencies.

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
(former Executive Vice President Finance and Administration and former
Executive Vice President and Chief Risk Officer). 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 and
Treasurer), Philip Cali (former Executive Vice President of Operations) and
Arthur Andersen LLP, the company's former independent auditor.  The plaintiffs
sought 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 alleged that the
defendants violated Section 10(b) and Section 20(a) of the Securities Exchange
Act of 1934 and Rule 10b-5 thereunder. Plaintiffs alleged 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 sought
compensatory damages, prejudgment interest, and attorneys' fees and costs. On
April 16, 2004 Nicor announced that its board of directors had approved an
agreement to settle the above referenced action. Under the terms of the
settlement, all claims against Nicor and Nicor-related defendants have been
dismissed without any finding or admission of wrongdoing or liability, for a
payment of $38.5 million. On July 13, 2004 the court granted final approval of
the settlement. All appeal rights expire on August 12, 2004. In the first
quarter of 2004 the company recorded an accrual, as a litigation charge,
of $38.5 million related to this agreement (the related liability is
included in other current liabilities). See Note 4 Restricted Short-Term
Investments.



Nicor Inc.                                                              Page 16
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Notes to the Consolidated Financial Statements (Unaudited) (continued)

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 (former Executive Vice President Finance and Administration and former
Executive Vice President and Chief Risk Officer) 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. 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, failing to establish and maintain adequate accounting controls and
approving the PBR plan despite allegedly knowing that the plan was unlawful or
that ICC approval would be improperly obtained. 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. On May 8, 2003, Nicor filed a Motion to Dismiss. On October 7, 2003,
the Court granted Nicor's Motion to Dismiss and Plaintiffs were granted leave to
file a Consolidated Third Amended Complaint. In November 2003, the Plaintiffs
filed a Consolidated Third Amended Complaint and in December 2003, Nicor filed a
Motion to Dismiss. The Court denied Nicor's Motion to Dismiss on March 26, 2004.
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.

Fixed Bill Service. On April 29, 2003, a second amended purported class action
complaint was filed in the Circuit Court of Cook County, Illinois against Nicor
Energy Services Company (Nicor Services) alleging violation of the Illinois
Consumer Fraud and Deceptive Practices Act (ICFA) by Nicor Services relating to
the fixed bill service offered by Nicor Services. Nicor Services offered a fixed
bill product under which it paid the annual gas service portion of a customer's
Nicor Gas 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.
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.

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. On May 23, 2003, Horizon filed a Declaratory Judgment Complaint in the
United States District Court for the District of Colorado seeking resolution of
this dispute. On June 23, 2003, the general contractor filed an answer and
counterclaim to Horizon's complaint seeking in excess of $11 million in damages
from Horizon. On June 25, 2004 the parties to the above referenced actions
entered into a final settlement agreement. In consideration for a payment of
$6.8 million by Horizon to the general contractor, which was capitalized by
Horizon as a construction cost, all claims by the parties have been dismissed
with prejudice and all recorded liens have been or will be released.

FERC Stipulation. On August 2, 2004, Nicor Gas entered into a settlement with
the Federal Energy Regulatory Commission (FERC) that resolves an investigation
by the Office of Market Oversight and Investigations involving the sharing of
confidential storage information with one of Nicor Gas' interstate storage
customers in violation of FERC's regulations. FERC's regulations prohibit the
provision of



Nicor Inc.                                                              Page 17
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Notes to the Consolidated Financial Statements (Unaudited) (continued)

undue preferences among customers. There was no evidence that Nicor Gas
profited either directly or indirectly by communicating its storage
information to its customer. Under the settlement, Nicor Gas will pay a civil
penalty in the amount of $600,000, and will implement a compliance plan to
prevent similar violations in the future.  The June 30, 2004 financial
statements include an accrual for this penalty.

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. Nicor Gas is currently
defending claims brought by 30 households.

As of June 30, 2004, Nicor Gas had remaining an estimated liability of $20.9
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 pursue recovery from insurers and independent contractors
that had performed work for the company, but believes that it has now collected
the majority of such recoveries. When received, these recoveries are recorded as
a reduction to gas distribution operating expense. Nicor Gas recovered
approximately $18 million and $20 million of pretax mercury-related costs, net
of legal fees, from insurers and independent contractors in 2003 and 2002,
respectively. Amounts recovered during the six months ended June 30, 2004 were
immaterial.

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 (IEPA) 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 determine the extent additional remediation is necessary and
provide 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.



Nicor Inc.                                                              Page 18
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Notes to the Consolidated Financial Statements (Unaudited) (concluded)

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,
additional lawsuits have been filed related to this same former manufactured gas
plant site. These lawsuits seek, in part, unspecified damages for property
damage, nuisance, and various personal injuries 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.

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 a recent Illinois Supreme Court decision, the court affirmed the
appellate court's decision to permit proceedings to move forward against Nicor
Gas relating to a home explosion, which resulted in a fatality, allegedly caused
by a faulty gas appliance connector installed by the homeowner. Although unable
to determine the ultimate outcome of the above-referenced proceeding, the
resolution is not expected to have a material adverse impact on the company's
financial condition or results of operations. The company is unable to predict
any potential operational impact of the Illinois Supreme Court decision on
Nicor.

On April 27, 2004 one of Nicor's Directors and Officers (D&O) insurance carriers
agreed to pay $29 million to a third party escrow agent on behalf of Nicor and
its insured directors and officers to be used to satisfy Nicor directors' and
officers' liabilities and expenses associated with claims asserted against them
in a securities class action, a related shareholder derivative lawsuit and
related matters, with any remaining balance to be paid to Nicor. Nicor's
financial statements do not reflect any benefit related to such potential
future payment because the amount of funds held in escrow ultimately
attributable to Nicor, if any, is not presently determinable. Nicor also
continues to seek coverage from its other D&O insurance carrier for additional
coverage in connection with the same matters but is unable to predict the
outcome of this matter and therefore no additional potential insurance
recoveries have been reflected in the financial statements.

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
general claims, rates, taxes, environmental, gas costs prudence reviews and
other matters. Although unable to determine the ultimate outcome of these other
contingencies, management believes that it has recorded appropriate liabilities
when reasonably estimable.



Nicor Inc.                                                              Page 19
-------------------------------------------------------------------------------

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) 2003 Annual Report on
Form 10-K/A (Amendment No. 1). 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.

SUMMARY

Nicor's 2004 year-to-date earnings were significantly impacted by a $38.5
million pretax litigation charge recorded in the first quarter of 2004 related
to an agreement in April 2004 to settle securities class actions. The charge
reduced net income by $23.2 million and diluted earnings per share by $.52. More
information about this agreement is presented within the Notes to the
Consolidated Financial Statements - Note 14 - Contingencies - Securities Class
Actions. The following table provides a comparison of Nicor's results as
reported for the second quarter and year-to-date periods of 2004 and 2003 (in
millions, except per share data):

                                                            Three months ended
                                                                  June 30
                                                            ------------------
                                                              2004      2003
                                                            --------  --------
   Net income                                               $  19.5   $  23.8
   Diluted earnings per average share of common stock           .44       .54


                                                             Six months ended
                                                                  June 30
                                                            ------------------
                                                              2004      2003
                                                            --------  --------

   Income before cumulative effect of accounting
      change                                                 $  39.0   $ 74.2
   Net income                                                   39.0     69.7

   Earnings per average share of common stock:
     Diluted -  before cumulative effect of
       accounting change                                         .88     1.68
     Diluted                                                     .88     1.58

Second quarter 2004 net income and diluted earnings per share decreased compared
to the reported 2003 amounts due primarily to lower operating results in the gas
distribution segment and a decrease in equity investment income relating to
Nicor Energy. These negative impacts relate primarily to the absence of
insurance and other recoveries that occurred in 2003. Partially offsetting these
negative factors were higher operating results at Nicor's other energy ventures
and in the shipping segment.

Net income and diluted earnings per share for the 2004 year-to-date period
decreased due primarily to the first-quarter 2004 litigation charge. Also
contributing to the decrease were lower operating results in the gas
distribution segment and a decrease in equity investment income, both relating
to the absence of recoveries noted above, and the impacts of rising operating
costs and warmer weather on Nicor Gas. Partially offsetting these negative
factors were higher operating results at Nicor's other energy ventures and in
the shipping segment. In the first quarter of 2003, a $4.5 million cumulative
effect loss from an accounting change was recorded for Nicor Enerchange, Nicor's
wholesale natural gas marketing company.



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

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

                                       Three months ended     Six months ended
                                             June 30              June 30
                                       ------------------     ----------------
                                        2004       2003        2004     2003
                                       --------  --------     -------- -------

   Gas distribution                    $  22.1   $  37.6      $  89.3  $ 111.4
   Shipping                                6.9       4.9         11.1     10.6
   Other energy ventures                   5.4       (.6)         8.3      3.0
   Corporate and eliminations             (1.3)     (3.0)       (41.3)    (4.7)
                                       --------  --------     -------- -------
                                       $  33.1   $  38.9      $  67.4  $ 120.3
                                       ========  ========     ======== =======

The following summarizes operating income comparisons for major business
segments:

o  Gas distribution operating income decreased $15.5 million in the second
   quarter of 2004 compared to the 2003 second quarter due primarily to the
   absence of recoveries relating to the mercury inspection and repair program
   in the 2003 quarter ($17.4 million, net of recovery costs), lower natural gas
   deliveries due to warmer weather (approximately $2.4 million), and higher
   depreciation expense ($1.4 million). These negative factors were partially
   offset by an increase in property sale gains in the second quarter of 2004
   ($5.1 million). The $22.1 million decrease in operating income for the
   six-month period was due primarily to decreased net mercury-related
   recoveries ($17.9 million), the negative impact of warmer weather than in
   2003 (approximately $3.5 million), higher operating and maintenance expenses
   ($5.4 million), and higher depreciation expense ($2.5 million). These
   negative factors were partially offset by an increase in property sale gains
   ($5.1 million).

o  Shipping operating income increased $2 million and $.5 million for the
   quarter and six-months ended June 30, 2004, respectively, compared to the
   year-earlier periods, due to the impact of higher volumes shipped, partially
   offset by cost increases unrelated to volumes and lower average rates related
   to a change in cargo mix.

o  Operating income at Nicor's other energy ventures increased $6 million in the
   second quarter of 2004 compared to the 2003 second quarter due primarily to
   higher operating results at Nicor Solutions, one of Nicor's retail
   energy-related products and services businesses ($7.5 million), partially
   offset by lower operating results at Nicor Enerchange, the company's
   wholesale natural gas marketing business ($1.3 million). The $5.3 million
   increase in operating income for the six-month period was due primarily to
   higher operating results at Nicor Enerchange ($3.1 million) and Nicor
   Solutions ($1.3 million), and the absence of prior-year losses from former
   business activities ($1.1 million).

o  Corporate and eliminations operating loss decreased $1.7 million in the
   second quarter of 2004 compared to the 2003 second quarter due primarily to
   lower legal expenses ($1.2 million). The $36.6 million increase in corporate
   and eliminations operating loss for the six-month period is due to the
   first-quarter 2004 litigation charge ($38.5 million) related to the
   securities class actions.

These factors are discussed in more detail in the Results of Operations section.



Nicor Inc.                                                              Page 21
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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     Six months ended
                                            June 30              June 30
                                      -------------------   -------------------
                                        2004       2003        2004     2003
                                      --------   --------   --------- ---------
   Gas distribution                   $ 338.4    $ 379.5    $ 1,373.5 $ 1,476.2
   Shipping                              72.4       67.1        140.2     133.6
   Other energy ventures                 33.5       17.5         85.2      38.6
   Corporate and eliminations           (14.8)     (11.3)       (53.7)    (24.3)
                                      --------   --------   --------- ---------
                                      $ 429.5    $ 452.8    $ 1,545.2 $ 1,624.1
                                      ========   ========   ========= =========

Gas distribution revenues decreased in the quarter and year-to-date periods of
2004 compared with a year ago due primarily to warmer weather. Revenues also
decreased due to lower natural gas costs, which are passed directly through to
customers without markup subject to Illinois Commerce Commission (ICC) review.
Warmer weather decreased revenues by approximately $30 million and $80 million
for the three and six months ended June 30, 2004, respectively. The revenue
effect of lower natural gas costs was $14 million and $18 million for the
three-month and six-month periods, respectively.

Second quarter 2004 shipping revenues increased $5.3 million due to higher
volumes shipped ($7.3 million) partially offset by lower average rates ($1.1
million) and decreased charter activity ($.9 million). The $6.6 million increase
for the six-month period related primarily to higher volumes shipped ($11.8
million) partially offset by lower average rates ($4 million) and decreased
charter activity ($1.2 million). Higher volumes reflect increased tourism and
construction activity in the Caribbean region while lower average rates reflect
a change in cargo mix.

The increase in second quarter and year-to-date revenues for other energy
ventures resulted primarily from higher revenues at Nicor Solutions, reflecting
increases in the number of customers purchasing utility-bill management
products. For the quarter, the $16 million revenue increase resulted from higher
revenue at Nicor Solutions ($14.8 million) and Nicor Services ($2.3 million),
partially offset by decreased revenues from Nicor Enerchange ($.8 million). For
the six-month period, the $46.6 million increase in revenues for other energy
ventures resulted primarily from higher revenues at Nicor Solutions ($38.6
million). Also contributing to the increased year-to-date revenues were higher
revenues at Nicor Enerchange ($4.4 million) and Nicor Services ($4.2 million).

Corporate and eliminations reflects primarily the elimination of intersegment
revenues, as described in the Notes to the Consolidated Financial Statements -
Note 9 Business Segment Information.



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

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 natural gas costs, which are passed
directly through to customers without markup, subject to ICC review, and revenue
taxes, for which Nicor Gas earns 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 excludes these items in evaluating performance.

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

                                    Three months ended      Six months ended
                                          June 30               June 30
                                    ------------------   ----------------------
                                      2004      2003          2004     2003
                                    --------  --------   ----------  ----------
Gas distribution revenues           $ 338.4   $ 379.5    $ 1,373.5   $ 1,476.2
Cost of gas                          (200.5)   (241.0)      (992.7)   (1,103.9)
Revenue tax expense                   (24.5)    (23.9)       (94.0)      (85.4)
                                    --------  --------   ----------  ----------
Gas distribution margin             $ 113.4   $ 114.6    $   286.8   $   286.9
                                    ========  ========   ==========  ==========

For the quarter, gas distribution margin decreased slightly due primarily to
lower natural gas deliveries due to warmer weather (approximately $2.4 million)
and lower average rates charged during the period ($1.1 million). These negative
factors were partially offset by larger contributions from the Chicago Hub ($1.5
million) and increased natural gas deliveries unrelated to weather ($.7
million).

For the six-month period, gas distribution margin remained essentially
unchanged. Positively impacting margin were increased natural gas deliveries
unrelated to weather ($1.8 million), higher revenue tax administration fees ($.6
million), increased customer finance and late payment charges ($.6 million), and
larger contributions from the Chicago Hub ($.5 million). These positive factors
were offset by the negative impact of warmer weather than in 2003 (approximately
$3.5 million).

Gas distribution operating and maintenance expense. Gas distribution operating
and maintenance expense remained essentially unchanged at $54.6 million in the
second quarter of 2004 versus $54.7 million in the 2003 quarter. The $5.4
million increase in the six-month period was due primarily to higher bad debt
expense ($4.8 million), an increase to the estimated liability for legal defense
costs related to the PBR plan review ($3 million), higher payroll costs ($2.1
million), and higher costs related to property and casualty insurance ($1.2
million). These negative factors were partially offset by the absence of
expenses related to a 2003 service outage ($2 million), higher pension credits
($1.8 million), and the absence of weather protection expense in 2004 ($1.4
million).

Mercury-related costs (recoveries), net. In the second quarter of 2003, Nicor
Gas recovered approximately $17.4 million of mercury-related costs, net of legal
fees, from insurers and independent contractors.

Property sale gains. In June 2004, Nicor Gas realized a $5.5 million gain on the
sale of land.



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

Shipping operating expenses. Shipping segment operating expenses increased $3.3
million in the second quarter of 2004 due primarily to higher expenses related
to an increase in volumes shipped. Other cost increases included higher leased
equipment repair expenses ($1.2 million) and the absence of a favorable 2003 bad
debt adjustment ($.8 million).

For the 2004 six-month period, shipping segment operating expenses increased
$6.1 million to $129.1 million due primarily to higher expenses related to an
increase in volumes shipped. Other cost increases included higher wage and
benefit costs ($1.8 million), the absence of a vessel sale gain recognized in
the first quarter of 2003 ($1.3 million), increased leased equipment repair
expenses ($.8 million), and the absence of the prior-year bad debt adjustment
($.8 million).

Other energy ventures operating expenses. The $10 million increase in the second
quarter 2004 operating expenses compared to 2003 was due primarily to increased
expenses at Nicor Solutions ($7.3 million) largely associated with increased
revenues. Also contributing to the increase were higher expenses at Nicor
Services ($2.8 million).

The $41.3 million increase in the 2004 year-to-date operating expenses compared
to 2003 was due primarily to higher expenses at Nicor Solutions ($37.3 million)
largely associated with increased revenues. Also contributing to the
year-to-date increase were higher expenses at Nicor Services ($4.5 million) and
Nicor Enerchange ($1.3 million). Partially offsetting the negative factors was a
decrease in expenses related to former business activities ($1.2 million,
respectively).

Litigation charge. The year-to-date 2004 litigation charge ($38.5 million)
relates to an agreement to settle the securities class actions. More information
about this agreement is presented within the Notes to the Consolidated Financial
Statements - Note 14 Contingencies - Securities Class Actions.

Other corporate operating expenses and eliminations. Other corporate operating
expenses were $1.6 million and $2.9 million in the second quarter of 2004 and
2003, respectively. The decrease is attributable primarily to lower corporate
legal expenses ($1.2 million). Intercompany eliminations aggregated $15.1
million and $11.2 million in the second quarter of 2004 and 2003, respectively,
related primarily to utility-bill management products.

For the six-month period, other corporate operating expenses were $1.6 million
and $4.6 million in 2004 and 2003, respectively. The decrease is attributable
primarily to lower legal expenses ($2 million). Intercompany eliminations
aggregated $52.5 million and $24.2 million in the 2004 and 2003 year-to-date
periods, respectively, related primarily to utility-bill management products.

Equity investment income (loss), net. Quarterly equity investment income (loss)
decreased from $6.7 million in 2003 to $1.7 million in 2004 and decreased for
the six-month period from $8 million in 2003 to $2.9 million in 2004 due
primarily to $5.6 million of cash received in 2003 on the previously written off
investment in Nicor Energy. Developments related to this investment are more
fully described in the Notes to the Consolidated Financial Statements - Note 14
Contingencies - Nicor Energy.



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

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

Interest expense. Interest expense for the three months ended June 30, 2004
decreased $.9 million, due primarily to lower average borrowing levels and lower
estimated interest on income tax matters, partially offset by the impact of
higher effective interest rates. The reduction in estimated interest expense on
income tax matters relates to a favorable IRS settlement in 2004.

For the year-to-date period, interest expense increased $.6 million, due to the
effect of higher average borrowing levels, partially offset by lower estimated
interest expense on income tax matters.

Income taxes. The company's effective income tax rate declined to 29 percent and
25 percent for the three and six months ended June 30, 2004, respectively, from
36 percent and 33 percent for the corresponding 2003 periods. The decline in
2004 was due principally to reduced projected income, which causes a lower
effective income tax rate since permanent differences and tax credits are a
larger share of pretax income, and a favorable IRS settlement in the second
quarter of 2004 ($.7 million). In the first quarter, Nicor recorded an income
tax benefit on the securities class action litigation charge at its marginal
income tax rate of about 40 percent. As a result, the 25 percent effective
income tax rate for the six months ended June 30, 2004, is lower than the
estimated rate for the full year of 28 percent.

Cumulative effect of accounting change. The cumulative effect of a January 1,
2003 required accounting change relates to the application of accrual
accounting, rather than fair value accounting, to gas in storage and certain
energy-related contracts, such as storage and transportation contracts, at Nicor
Enerchange.



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

Gas Distribution Statistics


                                   Three months ended    Six months ended
                                         June 30              June 30
                                   ------------------   --------------------
                                     2004      2003        2004      2003
                                   --------  --------   ---------  ---------
Operating revenues (millions)
   Sales
    Residential                     $ 216.2   $ 250.5    $  936.2  $ 1,016.3
    Commercial                         48.3      53.0       206.3      224.9
    Industrial                          5.8       6.6        28.5       33.4
                                   --------  --------   ---------  ---------
                                      270.3     310.1     1,171.0    1,274.6
                                   --------  --------   ---------  ---------
   Transportation
    Residential                         5.0       4.7        13.1       11.8
    Commercial                         13.8      14.6        38.9       40.6
    Industrial                          9.4      10.0        20.3       21.3
    Other                               2.2       4.1         7.4        9.1
                                   --------  --------   ---------  ---------
                                       30.4      33.4        79.7       82.8
                                   --------  --------   ---------  ---------

   Other revenues
    Revenue taxes                      25.2      24.6        96.1       86.9
    Environmental cost recovery         3.3       4.0         9.9       19.7
    Chicago Hub                         2.6       1.1         4.0        3.5
    Weather insurance                     -         -           -       (3.5)
    Other                               6.6       6.3        12.8       12.2
                                   --------  --------   ---------  ---------
                                       37.7      36.0       122.8      118.8
                                   --------  --------   ---------  ---------
                                    $ 338.4   $ 379.5   $ 1,373.5  $ 1,476.2
                                   ========  ========   =========  =========

Deliveries (Bcf)
   Sales
    Residential                        24.9      28.4       124.9      136.0
    Commercial                          5.8       6.3        27.4       29.7
    Industrial                           .7        .8         3.9        4.5
                                   --------  --------   ---------   --------
                                       31.4      35.5       156.2      170.2
                                   --------  --------   ---------   --------
   Transportation
    Residential                         2.1       2.1        10.9       10.3
    Commercial                         12.3      13.4        49.7       53.1
    Industrial                         26.2      25.5        63.1       62.0
                                   --------  --------   ---------   --------
                                       40.6      41.0       123.7      125.4
                                   --------  --------   ---------   --------
                                       72.0      76.5       279.9      295.6
                                   ========  ========   =========   ========

Customers at end of period (thousands)
   Sales
    Residential                     1,769.5   1,740.7
    Commercial                        115.9     111.5
    Industrial                          7.4       7.1
                                   --------  --------
                                    1,892.8   1,859.3
                                   --------  --------
   Transportation
    Residential                       133.9     127.5
    Commercial                         57.3      59.2
    Industrial                          6.0       6.4
                                   --------  --------
                                      197.2     193.1
                                   --------  --------
                                    2,090.0   2,052.4
                                   ========  ========

Other statistics
   Degree days                          591       743       3,621      3,997
   Colder (warmer) than normal        (12)%       10%        (4)%         6%
   Average gas cost per Mcf sold     $ 6.28    $ 6.64      $ 6.30     $ 6.42



Nicor Inc.                                                              Page 26
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Item 2. Management's Discussion and Analysis of Financial Condition
        and Results of Operations (continued)

Shipping Statistics

                                        Three months ended    Six months ended
                                              June 30             June 30
                                        ------------------    -----------------
                                          2004     2003         2004     2003
                                        --------  --------    -------- --------

TEUs shipped (thousands)                   46.8      42.2        92.5     84.9
Revenue per TEU                         $ 1,546   $ 1,570     $ 1,516  $ 1,559
Ports served                                 24        24
Vessels operated                             17        16

FINANCIAL CONDITION AND LIQUIDITY

Operating cash flows. The gas distribution business is highly seasonal and
operating cash flow may fluctuate significantly during the year and from
year-to-year due to factors such as weather, natural gas prices, the timing of
collections from customers, and natural gas purchasing and storage practices.
The company relies on short-term financing to meet seasonal increases in working
capital needs. Cash requirements generally increase over the third and fourth
quarters due to increases in natural gas purchases, gas in storage and accounts
receivable. Over the first and second quarters, positive cash flow generally
results from the sale of gas in storage and the collection of accounts
receivable. This cash is typically used to reduce short-term debt to near zero
during the second quarter. As discussed in the 2003 Form 10-K/A (Amendment No.
1), the 2003 year-end gas in storage balance was higher than a year earlier due
to an increased quantity of owned natural gas.

In the fourth quarter of 2003, Nicor received an income tax refund of
approximately $100 million attributable to a tax loss carryback associated with
a change in tax accounting methods, subject to future Internal Revenue Service
review and approval. Decisions by taxing authorities may significantly impact
the company's cash flow.

Investing activities. In April 2004, Nicor transferred $38.5 million to
restricted short-term investments in an escrow account in response to the
agreement to settle the securities class actions.  One of Nicor's Directors
and Officers insurance carriers also paid $29 million into an escrow account
for use in settling outstanding shareholder litigation.

In June 2004, Nicor Gas realized net proceeds of $7.2 million on the sale of
land.

In the second quarter of 2004, Tropical Shipping sold $15 million of short-term
investments and invested the proceeds in available-for-sale marketable
securities. Additional information about these investments is presented in the
Notes to the Consolidated Financial Statements - Note 1 - Accounting Policies -
Marketable Securities.

Financing activities. Nicor Inc. and Nicor Gas maintain short-term line of
credit agreements with major domestic and foreign banks. These agreements, which
serve as backup for the issuance of commercial paper, allow for borrowings of
$500 million through September 2004. The company is currently in the process of
establishing new revolving credit facilities to replace these agreements. The
company had $129 million of commercial paper borrowings outstanding at June 30,
2004. The company is in



Nicor Inc.                                                              Page 27
-------------------------------------------------------------------------------

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

compliance with the covenants relating to its short-term line of credit
agreements at June 30, 2004. The company expects that funding from commercial
paper and related backup line of credit agreements will continue to be
available in the foreseeable future and sufficient to meet estimated cash
requirements.

On April 15, 2004, Nicor announced a quarterly dividend on common stock of 46.5
cents per share payable August 1, 2004. On July 15, 2004, Nicor announced a
quarterly dividend on common stock of 46.5 cents per share payable November 1,
2004.

On June 29, 2004, Fitch Ratings (Fitch) downgraded Nicor Inc.'s long-term
ratings to A, Nicor Gas' First Mortgage Bonds from AA to AA-, and affirmed Nicor
Inc.'s and Nicor Gas' commercial paper at F1 and F1+, respectively. Fitch
revised the ratings outlook for the company to Stable from Negative.

Contractual obligations. In addition to the long-term debt obligations reported
in the company's 2003 Annual Report on Form 10-K/A (Amendment No. 1), the
company was obligated to make related interest payments as of December 31, 2003
as follows (in millions):

                                         Payments due by period
                                 ---------------------------------------------
                                            Less                       More
                                           Than 1    1-3      3-5      than 5
                                  Total     Year    years    years     years
                                 --------  -------  -------  -------  --------

 Fixed interest
   on long-term debt              $ 432.1   $ 30.5   $ 60.8   $ 53.7   $ 287.1


CRITICAL ACCOUNTING ESTIMATES

See Management's Discussion and Analysis - Critical Accounting Estimates in the
2003 Annual Report on Form 10-K/A (Amendment No. 1) for a detailed discussion of
the company's critical accounting policies.




Nicor Inc.                                                              Page 28
-------------------------------------------------------------------------------

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

FACTORS THAT MAY AFFECT BUSINESS PERFORMANCE

Weather. Natural gas deliveries are temperature-sensitive and seasonal since
about one-half of all deliveries are used for space heating. Typically, about 70
percent of deliveries and revenues occur from October through March.
Fluctuations in weather have the potential to significantly impact year-to-year
comparisons of operating income and cash flow.

In the first quarter of 2003, Nicor Gas purchased earnings protection against
the impact of significantly warmer-than-normal or colder-than-normal weather. No
such protection has been in effect since the first quarter of 2003. It is
estimated that a 100-degree-day variation from normal weather affects Nicor's
gas-distribution earnings by about 2-1/2 cents per share, and since mid-2003
Nicor bears the partially offsetting weather risk associated with the
utility-bill management products marketed by Nicor Solutions. The amount of this
offset will vary depending upon the time of year, weather patterns, the number
of customers for these products and the market price for natural gas. In the
three and six months ended June 30, 2004, the weather impact of utility-bill
management products was insignificant. The company continues to evaluate its
coverage options to determine whether it wishes to purchase any external weather
protection.

Gas distribution operating and maintenance expenses. Operating and maintenance
expenses at Nicor Gas have increased in recent years, and it is expected that
they will continue to rise in the near future. As regulated by the ICC, base
rates are designed to allow the company an opportunity to recover its costs and
to earn a fair return for its investors. These base rates are determined as part
of a rate relief proceeding, the last of which was completed in 1996 for Nicor
Gas. Nicor Gas has the option to seek ICC approval for a base rate increase
through a rate relief proceeding, which generally takes about one year.

Gas distribution labor negotiations. On April 7, 2004, Nicor Gas announced that
the International Brotherhood of Electrical Workers Local 19 ratified a new
five-year labor agreement which expires on February 28, 2009. This agreement
covers approximately 1,500 physical and clerical employees of Nicor Gas.

Property sales. Property sale gains and losses vary from year-to-year depending
upon property sales activity, and the company continues to assess its ownership
of real estate holdings.

Contingencies. The following contingencies of Nicor are in various stages of
investigation or disposition. Although in some cases 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. The PBR is
currently under Illinois Commerce Commission (ICC) review.



Nicor Inc.                                                              Page 29
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Item 2. Management's Discussion and Analysis of Financial Condition
        and Results of Operations (continued)

There are allegations that the company acted improperly in connection with the
PBR plan, and the 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. Parties who were plaintiffs in a dismissed class action proceeding
against the company could potentially intervene in these proceedings. 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 financial statements resulting
in a $24.8 million liability at June 30, 2004. Included in such $24.8 million
liability is a $4.1 million loss contingency. In addition, Nicor Gas estimates
that there is $26.9 million due to the company from the 2002 PBR plan year,
which has not been recognized in the financial statements due to uncertainties
surrounding the PBR plan. The net of these items and interest income on certain
components results in a $2.8 million reimbursement the company is seeking as of
June 30, 2004, pending resolution of the proceedings discussed below. The
company took steps to correct the weaknesses and deficiencies identified in the
detailed study of the adequacy of internal controls.

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.

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. CUB has



Nicor Inc.                                                              Page 30
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Item 2. Management's Discussion and Analysis of Financial Condition
        and Results of Operations (continued)

filed an appeal of the motion for sanctions with the ICC, and the ICC has
indicated that it will not rule on the appeal until the final disposition of the
ICC proceedings. It is not possible to determine how the ICC will resolve the
claims of CCSAO, CUB or other parties to the ICC Proceedings.

In November 2003, the ICC staff, CUB, CCSAO and the Illinois Attorney General's
Office (IAGO) filed their respective direct testimony in the ICC Proceedings.
The ICC staff is seeking refunds to customers of approximately $108 million and
CUB and CCSAO were jointly seeking refunds to customers of approximately $143
million. The IAGO direct testimony alleges adjustments in a range from $145
million to $190 million. The IAGO testimony as filed is presently unclear as to
the amount which IAGO seeks to have refunded to customers. On February 27, 2004
the above referenced intervenors filed their rebuttal testimony in the ICC
Proceedings. In such rebuttal testimony, CUB and CCSAO amended the alleged
amount to be refunded to customers from approximately $143 million to $190
million. Nicor Gas filed rebuttal testimony in January 2004, which is consistent
with the findings of the special committee Report and, as noted above, seeks a
reimbursement to Nicor Gas of approximately $2.8 million. The parties to the
ICC Proceedings have agreed to a stay of the evidentiary hearings on this
matter in order to undertake additional third party discovery from Entergy-Koch
Trading, LP (EKT), a natural gas, storage and transportation trader and
consultant with whom Nicor did business under the PBR plan.

During the course of the SEC investigation discussed below, the company became
aware of additional sources of information relating to the activities of
individuals affecting the PBR plan for the period from 1999 through 2002,
including information consisting of third party documents and recordings of
telephone conversations from EKT.  The company has recently obtained access to
and reviewed this information.  The company's management has determined this
information does not affect the company's previously issued financial
statements.  In addition, the company's management has determined that no
adjustment to the accrual for loss contingencies in the company's second quarter
financial statments is required as a result of this information.

Although the Report of the special committee's counsel did not find that there
was criminal activity or fraud, a review of this newly available information
(which was not available to the independent counsel who prepared the Report)
and recent re-interviews of certain Nicor Gas personnel indicate that certain
Nicor Gas personnel may have engaged in potentially fraudulent conduct regarding
the PBR plan in violation of company policy, and in possible violation of SEC
rules and applicable law.  Further, certain Nicor Gas personnel also may have
attempted to conceal their conduct in connection with an ICC review of the
PBR plan.  The company continues to cooperate with the SEC, the U.S. Attorney's
office and the ICC on this matter and to review and produce additional documents
as requested by these agencies.  The company also will review any third party
information the company obtains.  The company has recently terminated four
employees in connection with this matter.

Nicor is unable to predict the outcome of any of the foregoing reviews or the
company's potential exposure thereunder. Because the PBR plan and historical gas
costs are still under ICC review, the final outcome could be materially
different than the amounts reflected in the company's financial statements as of
June 30, 2004.



Nicor Inc.                                                              Page 31
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Item 2. Management's Discussion and Analysis of Financial Condition
        and Results of Operations (continued)

Nicor Energy. Significant developments occurred in 2002 and 2003 relating to
Nicor's 50-percent interest in Nicor Energy. Information about these
developments is presented within the Notes to the Consolidated Financial
Statements - Note 14 Contingencies - Nicor Energy.

On December 10, 2003, the United States Attorney for the Northern District of
Illinois indicted three former employees of Nicor Energy and an outside lawyer
for Nicor Energy. The indictments alleged that the defendants fraudulently
deprived Nicor Energy of their honest services and caused a loss to investors
in Nicor Inc. and Dynegy Inc. During the time period covered by the indictments,
Nicor Energy was a stand alone entity with its own management and was operated
independently from Nicor Inc. and Nicor Gas. None of the individuals indicted
are employees of Nicor Inc. or Nicor Gas nor were they at the time of the
charged conduct. The three former employees of Nicor Energy have pled guilty to
certain charges. Separately, on December 10, 2003, the United States Securities
and Exchange Commission (SEC) filed its own civil enforcement action against
the same three former employees and one additional former employee of Nicor
Energy. While Nicor is unable to predict the final outcome of these matters,
the resolution of such matters is not expected to have a material adverse impact
on the company's financial condition or results of operations.

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 both the
PBR plan and Nicor Energy. 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. In April 2004,
Nicor 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,
alleging that Nicor violated Sections 17(a) of the Securities Act of 1933 and
Sections 10(b) and 13(a) of the Securities Exchange Act of 1934 and Rules 10b-5,
12b-20, 13a-1 and 13a-13 thereunder. The SEC may also seek injunctive relief,
disgorgement and civil penalties. The SEC staff invited Nicor to make a formal
response (known as a Wells Submission) with respect to the proposed
recommendation. In June 2004, Nicor filed its Wells Submission with the SEC.
In addition, in connection with the SEC's invitation to the company to make a
Wells Submission, the SEC informed the company of additional sources of
information relating to activities affecting the PBR plan, the status of which
is addressed in detail in the Performance-Based Rate (PBR) Plan section set
forth above.  Nicor is unable to predict the outcome of these inquiries or
Nicor's potential exposure related thereto and has not recorded a liability
associated with the outcome of these contingencies.

Securities Class Actions. Nicor and certain of its executives were defendants in
a consolidated class action lawsuit. Information about the settlement of this
action is presented within the Notes to the Consolidated Financial Statements -
Note 14 Contingencies - Securities Class Actions.

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 - Note 14 Contingencies - Shareholder Derivative Lawsuits.

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 - Note 14 Contingencies - Mercury.



Nicor Inc.                                                              Page 32
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Item 2. Management's Discussion and Analysis of Financial Condition
        and Results of Operations (continued)

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 - Note 14 Contingencies - Manufactured Gas
Plant Sites.

Fixed Bill Service. Nicor Energy Services Company is a defendant in a purported
class action. Information about this lawsuit is presented within the Notes to
the Consolidated Financial Statements - Note 14 Contingencies - Fixed Bill
Service.

Horizon Pipeline Lien. Horizon Pipeline, LLC was a party to a lien action
relating to the construction of the Horizon Pipeline. Information about the
settlement of this action is presented within the Notes to the Consolidated
Financial Statements - Note 14 Contingencies - Horizon Pipeline Lien.

FERC Stipulation. Nicor Gas entered into a settlement with the Federal Energy
Regulatory Commission (FERC). Further information about this settlement is
presented within the Notes to the Consolidated Financial Statements - Note 14
Contingencies - FERC Stipulation.

Other contingencies. The company is involved in legal or administrative
proceedings before various courts and agencies with respect to general claims,
rates, taxes, environmental, gas costs prudence reviews and other matters.
See the Notes to the Consolidated Financial Statements - Note 14 Contingencies.

On April 27, 2004 one of Nicor's Directors and Officers (D&O) insurance carriers
agreed to pay $29 million to a third party escrow agent on behalf of Nicor and
its insured directors and officers to be used to satisfy Nicor directors' and
officers' liabilities and expenses associated with claims asserted against them
in a securities class action, a shareholder derivative lawsuit and related
matters, with any remaining balance to be paid to Nicor. Nicor's financial
statements do not reflect any benefit related to such future payment because the
amount of funds to be held in escrow ultimately attributable to Nicor, if any,
is not presently determinable. Nicor also continues to seek coverage from its
other D&O insurance carrier for additional coverage in connection with the same
matters but is unable to predict the outcome of this matter and therefore no
potential insurance recoveries have been reflected in the financial statements.

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
2003 Annual Report on Form 10-K/A (Amendment No. 1).

Energy trading activities. At June 30, 2004, Nicor Enerchange, Nicor's wholesale
natural gas marketing business, held derivative contracts with the following
fair values (in millions):

                                                            Maturity
                                                   ---------------------------
                                          Total    Less than  1 to 3   3 to 5
Source of Fair Value                   Fair Value   1 Year     Years    Years
----------------------------------     ----------  ---------  -------  -------

Prices actively quoted                  $    2.5    $   2.2   $   .3    $   -
Prices based on pricing models                 -          -        -        -
                                       ----------  ---------  -------  -------
Total                                   $    2.5    $   2.2   $   .3    $   -
                                       ==========  =========  =======  =======



Nicor Inc.                                                              Page 33
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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 and affiliates. Although Nicor believes these
statements are based on reasonable assumptions, actual results may vary
materially from stated expectations. Such forward-looking statements may be
identified by the use of forward-looking words or phrases such as "anticipate,"
"believe," "expect," "intend," "may," "planned," "potential," "should," "will,"
"would," "project," "estimate," or similar phrases. Actual results may differ
materially from those indicated in the company's forward-looking statements due
to the direct or indirect effects of legal contingencies (including litigation)
and the resolution of those issues, including the effects of an ICC review and
SEC and U.S. Attorney inquiries, and undue reliance should not be placed on such
statements. 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 or
recoveries; legal costs; borrowing needs; interest rates; credit conditions;
economic and market conditions; Caribbean tourism; energy conservation;
legislative and regulatory actions; tax rulings or audit results; asset sales;
significant unplanned capital needs; future mercury-related charges or credits;
changes in accounting principles, methods, judgments or estimates; performance
of major suppliers and contractors; labor relations; and acts of terrorism.
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, which is incorporated herein by reference.

Item 4. Controls and Procedures

The company carried out an evaluation under the supervision and with the
participation of the company's management, including its Chief Executive Officer
and Chief Financial Officer, of the effectiveness of the design and operation of
the company's disclosure controls and procedures as of the end of the period
covered by this Quarterly Report on Form 10-Q (the "Evaluation").

In designing and evaluating the disclosure controls and procedures, management
recognizes that any disclosure controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives, and management is required to apply its judgment in
evaluating the cost-benefit relationship of possible disclosure controls and
procedures. Based on the Evaluation, the company's Chief Executive Officer and
Chief Financial Officer concluded that the company's disclosure controls and
procedures, as of the end of the period covered by this Quarterly Report on Form
10-Q, were effective at the reasonable assurance level 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.

There has been no change in the company's internal controls over financial
reporting during the company's most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the company's internal
control over financial reporting.



Nicor Inc.                                                              Page 34
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PART II - OTHER INFORMATION

Item 1. Legal Proceedings

See Management's Discussion and Analysis - Contingencies and the Notes to the
Consolidated Financial Statements - Note 14 Contingencies, which are
incorporated herein by reference.

Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity
        Securities

                                                 (c) Total         (d)
                                                 Number of     Approximate
                                                 Shares        Dollar Value
                                                 Purchased     of Shares that
                                                 as Part of    May Yet Be
                        (a) Total                Publicly      Purchased
                        Number of   (b) Average  Announced     Under the
                        Shares      Price Paid   Plans or      Plans or
   Period               Purchased   per Share    Programs (1)  Programs (1)
--------------------    ----------  -----------  ------------  ------------

April 1 to 30, 2004             -    $       -            -     $21,513,176
May 1 to 31, 2004               -            -            -     $21,513,176
June 1 to 30, 2004              -            -            -     $21,513,176
                        ----------  -----------  -----------
                                -    $       -            -
                        ==========  ===========  ===========

(1) In September 2001, Nicor announced a $50 million common stock repurchase
    program, under which Nicor may purchase its common stock as market
    conditions permit through open market transactions and to the extent cash
    flow is available after other cash needs and investment opportunities.
    There were no repurchases under this program in 2004. At June 30, 2004,
    $21,513,176 remained authorized for the repurchase of common stock.








Nicor Inc.                                                              Page 35
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Item 4. Submission of Matters to a Vote of Securities Holders

The Annual Meeting of Stockholders of the company was held on April 15, 2004,
for the purpose of electing the Board of Directors. Proxies for the meeting were
solicited pursuant to Section 14(a) of the Securities Exchange Act of 1934 and
there has been no solicitation in opposition to the board of directors'
solicitation. Voting results reported below are for shares eligible to vote as
of the record date, February 17, 2004.

Nominees for directors, as listed in the proxy statement, were elected as
indicated below. There were no "broker nonvotes." Votes were cast as follows:

               Nominee                      For          Withheld
         ----------------------         -----------    ------------

         Robert M. Beavers, Jr.         36,394,566       1,057,588
         Bruce P. Bickner               35,518,119       1,934,035
         John H. Birdsall, III          26,510,872      10,941,282
         Thomas A. Donahoe              35,509,946       1,942,208
         Thomas L. Fisher               36,329,507       1,122,647
         John E. Jones                  35,295,976       2,156,178
         Dennis J. Keller               36,582,400         869,754
         William A. Osborn              35,770,499       1,681,655
         John Rau                       35,773,636       1,678,518
         John F. Riordan                36,356,877       1,095,277
         Russ M. Strobel                36,386,566       1,065,588
         Patricia A. Wier               36,334,438       1,117,716

The stockholders ratified the appointment of Deloitte and Touche LLP as
independent public accountants of the company for 2004. Votes were cast as
follows:

            For            Against         Abstain
        -------------    ------------    ------------

         36,437,486        670,874         343,798

The stockholders approved a stockholder proposal regarding shareholder rights
plan implementation.  The proposal requested that the board of directors submit
the adoption, maintenance or extension of any poison pill to a shareholder vote.
Also, once this proposal is adopted, dilution or removal of this proposal is
requested to be submitted to a shareholder vote at the earliest possible
shareholder election.  Under the proposal the board of directors has discretion
to set the earliest election date and in responding to shareholder votes.
Votes were cast as follows:
                                                          Broker
            For            Against         Abstain      Non-Votes
        -------------    ------------    ------------   ----------

         16,529,240      10,805,558       1,026,025     9,091,331




Nicor Inc.                                                              Page 36
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Item 6. Exhibits and Reports on Form 8-K

  (a)   See Exhibit Index beginning on page 38 filed herewith.

  (b)   On April 15, 2004, Nicor furnished a Form 8-K*, under Item 9, regarding
        remarks of Thomas L. Fisher, Chairman and Chief Executive Officer, to be
        made at the Annual Meeting of Stockholders on April 15, 2004.

        On April 19, 2004, Nicor filed a Form 8-K under Item 5, regarding a
        press release dated April 16, 2004 announcing updates on pending legal
        proceedings.

        On April 28, 2004, Nicor filed a Form 8-K, under Item 5, regarding a
        press release dated April 27, 2004 announcing an insurance settlement.

        On April 30, 2004, Nicor furnished a Form 8-K* under Items 7 and 12,
        regarding a press release dated April 29, 2004 announcing earnings for
        the quarter ended March 31, 2004 and providing 2004 earnings guidance.

        On May 3, 2004, Nicor furnished a Form 8-K*, under Item 9, regarding an
        analyst presentation of May 3, 2004.

        * This furnished Form 8-K is not to be deemed filed or incorporated by
        reference into any filing.





Nicor Inc.                                                              Page 37
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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.

   August 9, 2004                       /s/ JEFFREY L. METZ
  ----------------                      --------------------------------
     (Date)                             Jeffrey L. Metz
                                        Vice President and Controller
                                        (Chief Accounting Officer)





Nicor Inc.                                                              Page 38
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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 January 15, 2004.  (File No.
             1-7297, Form 10-K for 2003, Nicor Inc., Exhibit 3.09.)

    10.1     Stipulation of Settlement of Securities Class Action dated
             as of April 23, 2004.

    10.2     Agreement and Mutual Release, dated as of April 23, 2004,
             among Nicor Inc., the D&O Insurance Carrier and the
             individuals on the signature page thereto.

    10.3     Escrow Agreement, dated as of April 23, 2004, among Nicor Inc.,
             BNY Midwest Trust Company and the individuals on the signature
             blocks thereto.

    31.1     Rule 13a-14(a)/15d-14(a) Certification.

    31.2     Rule 13a-14(a)/15d-14(a) Certification.

    32.1     Section 1350 Certification.

    32.2     Section 1350 Certification.





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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.