NICOR INC, 10-K, 1994-03-24

NICOR INC
10-K, 1994-03-24
NATURAL GAS DISTRIBUTION

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K

(Mark One)

[ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1993
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to

Commission file number 1-7297

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

Illinois 36-2855175
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

1844 Ferry Road
Naperville, Illinois 60563-9600
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code (708) 305-9500

Securities registered pursuant to Section 12(b) of the Act:

Name of each exchange on
Title of each class which registered
Common Stock, par value $2.50 per share New York Stock Exchange
Chicago Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

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

As of February 28, 1994, 53,620,392 common shares were outstanding, and
the aggregate market value of voting securities held by non-affiliates of
the registrant was approximately $1.5 billion.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the company's 1994 Annual Meeting Definitive Proxy Statement,
dated March 9, 1994 are incorporated by reference into Part III.

NICOR Inc. Page i

Table of Contents

Item No. Page
Part I

1. Business................................................ 1

2. Properties.............................................. 9

3. Legal Proceedings....................................... 10

4. Submission of Matters to a Vote of Security Holders..... 10

Executive Officers of the Registrant.................... 11

Part II

5. Market for Registrant's Common Equity and Related
Stockholder Matters................................... 12

6. Selected Financial Data................................. 13

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

8. Financial Statements and Supplementary Data............. 25

9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................... 44

Part III

10. Directors and Executive Officers of the Registrant...... 44

11. Executive Compensation.................................. 44

12. Security Ownership of Certain Beneficial Owners
and Management........................................ 44

13. Certain Relationships and Related Transactions.......... 44

Part IV

14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K........................................... 45

Signatures.............................................. 53

Exhibit Index........................................... 54

NICOR Inc. Page 1

PART I

Item 1. Business

NICOR Inc. ("NICOR"), incorporated in 1976, is a diversified holding
company and through its wholly owned subsidiaries is engaged in gas
distribution (Northern Illinois Gas) and containerized shipping (Tropical
Shipping). NICOR previously conducted operations in the oil and gas
business, which were classified as discontinued in the first quarter of
1993. The sale of the oil and gas operations was completed in 1993.
NICOR had approximately 3,500 employees at year-end 1993.

Gas distribution, NICOR's primary segment, accounted for approximately 90
percent of NICOR's assets at December 31, 1993, up from 85 percent and 80
percent at December 31, 1992 and 1991, respectively. Northern Illinois
Gas' 1993 operating income was 92 percent of consolidated operating income
and 94 and 93 percent in 1992 and 1991, respectively. NICOR provides
financial information on both of its business segments in Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations on pages 14 through 24.

The mailing address of the company's general office is P.O. Box 3014,
Naperville, Illinois 60566-7014. The telephone number is (708) 305-9500.

Selected abbreviations:

FERC - Federal Energy Regulatory Commission

Ill.C.C. - Illinois Commerce Commission

Mcf, MMcf, Bcf - Thousand cubic feet, million cubic feet,
billion cubic feet

TEU - Twenty-foot equivalent unit

NICOR Inc. Page 2

Item 1. Business (continued)

GAS DISTRIBUTION

GENERAL

Northern Illinois Gas, formed in 1954, is one of the nation's largest gas
distribution utilities, serving nearly 1.8 million customers. The company
has approximately 2,300 employees, of which about 70 percent are covered
by provisions of a collective bargaining agreement which expires on
February 28, 1997. The company's service territory spans over 17,000
square miles, covering 544 communities and adjacent areas in 35 counties
and includes most of the northern third of Illinois outside the city of
Chicago. Franchise agreements with 474 municipalities have remaining
terms ranging up to 50 years, 62 percent of which expire in 20 years or
more.

Northern Illinois Gas' customer base is well-balanced. Nearly half of the
company's total gas deliveries are to residential customers, with about
one-third to industrial customers and the balance to commercial customers
(refer to Operating Statistics on page 7). In addition, the company's
five largest industrial customers operate in five distinct industries.
This diversification reduces the potential impact of industry-specific
economic swings.

Gas deliveries are seasonal since more than 50 percent are used for
heating. Typically, approximately 75 percent of deliveries and revenues
occur from October 1 to March 31.

CUSTOMER SERVICES

In addition to gas sales to all customer classes, Northern Illinois Gas
provides transportation, gas storage and supply backup services to
commercial and industrial customers who purchase their own gas supplies.
Transportation service provides customers the opportunity to lower their
overall costs by purchasing gas directly on the spot market and
transporting it to their facilities through the company's distribution
system. The company's supply backup to customers varies from zero to 100
percent. Northern Illinois Gas receives a margin generally comparable to
gas sales for transportation service with full backup, but it may receive
a somewhat reduced margin if less backup is requested.

Northern Illinois Gas continues to make a portion of its underground
storage capacity available to its transportation customers for a fee.
Approximately 5,500 customers contracted to use this storage-for-fee
service during the 1993-94 heating season. About 16 Bcf of storage
capacity is available under this program.

NICOR Inc. Page 3

Item 1. Business (continued)

markets. In late 1992, Northern Illinois Gas began offering account
management services to its transportation customers. The company works
with customers to optimize their gas acquisition and storage use, earning
fees based on the monthly savings produced. While the combined revenues
from these ventures are modest, these programs demonstrate the company's
commitment to developing nontraditional sources of income.

SOURCES OF GAS SUPPLY

In April 1992, the FERC issued Order 636. This order, which required
implementation by the pipelines for the 1993-94 heating season,
substantially restructured the interstate sale and transportation of gas.
The changes required by Order 636 are not expected to have a material
impact on the company's financial condition or results of operations. For
further information, see page 32, FERC Order 636.

Pipeline transportation contracts. By the end of 1993, all of Northern
Illinois Gas' pipeline suppliers had terminated virtually all of their
sales service to Northern Illinois Gas in compliance with FERC Order 636.
As a result, Northern Illinois Gas' sales service with the pipelines has
been converted to firm transportation service. The following table
summarizes firm transportation contracts in effect with major interstate
pipelines.

Total maximum
Date of Year of service daily contract
compliance with agreement quantities
Major pipelines FERC Order 636 expiration (Bcf)

Natural Gas Pipeline
Company of America
(NGPL) 12/1/93 1995 1.04

Midwestern Gas
Transmission Company
(Midwestern) 9/1/93 2000 .27

Northern Natural Gas
Company (Northern
Natural) 11/1/93 1997 .19

1.50

Firm supply. As a result of restructured pipeline services, Northern
Illinois Gas has arranged for a peak day volume of firm supply equal to
its firm transportation rights on the pipelines. The firm supply is
composed of (a) approximately 1.3 Bcf of firm direct supply (firm gas
supply purchased directly from producers or brokers), (b) .1 Bcf of firm
storage service, provided under contract with interstate pipelines, and
(c) .1 Bcf of supply from company-owned storage that is transported to
market areas by firm pipeline transportation.

NICOR Inc. Page 4

Item 1. Business (continued)

The combination of firm supply and firm transportation is intended to
replace sales service formerly provided by the pipelines.

Firm direct supply contracts generally cover a period of one to five
years.

Spot gas. The company purchased about 40 percent of its 1993 gas supplies
from producers and brokers on the spot market. Contracting for these
purchases is done on a short-term basis.

Summary of purchases. The sources of gas purchased for the past three
years were:

Year ended December 31
1993 1992 1991
Source Bcf % Bcf % Bcf %

Pipeline suppliers
NGPL 23.2 7.8 126.2 42.6 151.0 49.6
Midwestern 18.6 6.2 20.3 6.8 16.8 5.5
Northern Natural 1.0 .3 3.9 1.3 5.6 1.8
42.8 14.3 150.4 50.7 173.4 56.9

Firm direct supply 139.3 46.8 76.0 25.6 54.9 18.0
Spot gas 115.8 38.9 69.3 23.4 73.3 24.1
Other - - .7 .3 3.1 1.0

297.9 100.0 296.4 100.0 304.7 100.0

Prior to the implementation of restructured pipeline services in 1993,
Northern Illinois Gas purchased gas from pipeline suppliers at rates in
effect under tariffs filed with the FERC, which has regulatory
jurisdiction over interstate pipelines as to rates, terms of service and
various other matters. Prices of spot gas and firm direct purchases are
generally not regulated. Transportation rates of interstate pipelines
continue to be regulated by the FERC. Order 636 effectively deregulated
the rates charged by pipelines for gas supply. As a result, Northern
Illinois Gas will purchase all gas supplies on a deregulated basis, while
transportation rates will remain regulated.

Storage. Northern Illinois Gas operates seven underground gas storage
facilities. With approximately 165 Bcf of top storage, the company's
storage system is one of the largest in the gas distribution industry. On
an annual basis, the company cycles about 130 Bcf in and out of storage,
and continues to take steps to increase that volume. In addition,
Northern Illinois Gas leases about 34 Bcf of pipeline storage capacity.
Storage facilities provide supply flexibility, improve reliability of
deliveries and help reduce gas costs. Northern Illinois Gas is able to
meet about 60 percent of its peak day deliveries and about one-third of
its normal winter deliveries through storage withdrawals of gas purchased
during warm-weather months when prices are typically lower.

NICOR Inc. Page 5

Item 1. Business (continued)

The gas supply available to Northern Illinois Gas under the contracts and
storage noted above was adequate to meet the company's peak day and
seasonal requirements during 1993 and is expected to be adequate to meet
those requirements for 1994. In January 1994, the company provided record
deliveries with no customer curtailments. Northern Illinois Gas makes no
representations as to the existing or potential gas reserves of its
suppliers or as to any future gas supply curtailment.

COMPETITION/DEMAND

Northern Illinois Gas is the largest utility energy supplier in Illinois,
delivering about one-third of all utility energy consumed in the state.
More than 95 percent of all single-family homes in Northern Illinois Gas'
service territory are heated with natural gas. The company's gas services
compete with other forms of energy, such as electricity and oil. Demand
for gas may be influenced by such factors as weather, the economy, new
sources and uses of energy, customer conservation efforts, technological
advances, pricing of gas and competitive fuels, environmental
considerations, state and federal regulatory policies and the customers'
overall expectations about the future. Customer conservation efforts are
affected by many factors including the company's conservation programs
which encourage customers to evaluate their energy use.

Northern Illinois Gas' efforts to add new revenues in the commercial and
industrial markets continue to progress. Gas-fired electric power
generation has become the company's largest developing market. In
May 1993, Northern Illinois Gas began deliveries under a 10-year contract
with Commonwealth Edison Company (Edison) to provide gas to an electric-
generating station. The station, Edison's largest-capacity generating
facility, has been modified to allow the use of gas by three of its five
generating units. Initially, annual deliveries are expected to total 10
Bcf, with the potential to increase to more than 20 Bcf. In the first
eight months of the contract, Northern Illinois Gas delivered 6.5 Bcf of
gas to the station.

Cogeneration, the simultaneous production of electricity and heat from a
single fuel, such as natural gas, has grown steadily over the years and
now contributes 4 Bcf annually to the company's gas deliveries. Although
initial equipment costs are higher than electric systems, annual operating
costs are significantly lower and most customers gain a critical measure
of reliability.

Environmental concerns and initiatives are already having a positive
impact on the demand for natural gas. The most populous portion of
Northern Illinois Gas' service territory is subject to the compliance
provisions of the Clean Air Act. There are three primary growth
opportunities taking shape from Clean Air Act initiatives: large-tonnage
gas air conditioning, conversions of industrial plants from coal to
natural gas and natural gas vehicles.

Gas price increases relative to other energy sources can result in fuel
switching by some customers. However, Northern Illinois Gas is well-
positioned to deal with this situation because of rates and services

NICOR Inc. Page 6

Item 1. Business (continued)

designed to compete against alternative fuels and its competitively priced
supply of gas. In addition, the company has a rate which allows
negotiation with potential bypass customers, and no customer has bypassed
since the rate became effective in 1987. Direct connection to five
interstate pipeline companies and significant underground storage capacity
allow the company to maintain rates that are among the lowest in the
nation, while providing transportation customers with access to the spot
market and storage services. In addition, Northern Illinois Gas offers
commercial and industrial customers flexibility and competitive
alternatives in rates and service, increasing its ability to compete in
these markets.

REGULATION

Northern Illinois Gas is regulated by the Ill.C.C., which establishes the
rules and regulations governing utility rates and services in Illinois.
All investor-owned utilities operating in Illinois are regulated by the
Ill.C.C. The Ill.C.C. has seven members, each appointed for a five-year
term by the governor and confirmed by the Illinois Senate.

Rates are designed to allow Northern Illinois Gas to recover its gas,
operating and financial costs, and to provide an opportunity to earn a
fair return on investment. The cost of gas the company purchases for
customers is recovered through a monthly gas supply charge, which accounts
for approximately 70 percent of a typical residential customer's annual
bill. The company's cost of gas is passed on to the customer with no
markup.

PROPERTIES

The gas distribution, transmission and storage system includes
approximately 27,000 miles of steel, plastic and cast iron main;
approximately 24,000 miles of steel, plastic/aluminum composite, plastic
and copper service pipe connecting the mains to customers' premises; and
seven underground storage fields. Other properties include buildings,
land, motor vehicles, meters, regulators, compressors, construction
equipment, tools, and communication, computer and office equipment.

The principal real properties are held under easements, permits, licenses
or in fee. Land in fee is owned for essentially all administrative
offices and for certain transmission mains and underground storage fields.
Substantially all properties are subject to the lien of the indenture
securing the company's first mortgage bonds.

NICOR Inc. Page 7

Item 1. Business (continued)

NORTHERN ILLINOIS GAS OPERATING STATISTICS

Year ended December 31
1993 1992 1991
Operating revenues (millions):
Sales
Residential $ 989.2 $ 884.1 $ 804.6
Commercial 292.1 279.8 268.4
Industrial 55.4 58.2 66.7
1,336.7 1,222.1 1,139.7

Transportation
Commercial 38.8 43.6 40.9
Industrial 48.1 65.5 65.7
86.9 109.1 106.6

Revenue taxes and other 109.7 94.2 92.0

$1,533.3 $1,425.4 $1,338.3

Deliveries (Bcf):
Sales
Residential 222.7 213.6 208.1
Commercial 67.0 69.5 71.7
Industrial 13.7 15.9 19.9
303.4 299.0 299.7
Transportation
Commercial 50.0 44.7 42.7
Industrial 135.4 120.2 118.8
185.4 164.9 161.5

488.8 463.9 461.2

Percent of customers with gas
space heating 96.7% 96.5% 96.5%
Peak-day sendout (Bcf) 3.4 3.5 3.2
Average temperature on peak day
(degrees in Fahrenheit) 6 2 7
Degree days* (normal 6,176) 6,172 5,714 5,560
Colder (warmer) than normal - (7)% (10)%
Customers per employee (average) 748 720 689

Customers at end of period (thousands):
Residential 1,601.2 1,573.2 1,547.5
Commercial 154.9 153.4 152.1
Industrial 13.7 13.6 13.5

1,769.8 1,740.2 1,713.1

* Degree days - The number of degrees by which the daily mean temperature
falls below 65 degrees Fahrenheit.

NICOR Inc. Page 8

Item 1. Business (continued)

SHIPPING

Tropical Shipping transports containerized freight between the Port of
Palm Beach, Florida and 22 ports in the Caribbean, Central America and
Mexico. The company is one of the largest transportation companies in the
region, carrying cargo primarily southbound for the tourist industry and
northbound for export trade. The company also provides additional support
services including trucking, intermodal, stevedoring and cargo insurance.

Most of Tropical Shipping's markets rely heavily on imports of food,
building materials and other essentials. The company has built leading
market shares in many of the ports it serves by offering dependable,
scheduled, on-time service at competitive prices. The company's
operations are subject to seasonal fluctuations related to tourist and
agricultural activity.

In 1993, two new vessels were added to the fleet, increasing the company's
ability to serve new ports and enhance operating efficiency. During the
year, Tropical Shipping began weekly service to Puerto Morelos, Mexico, a
port near Cancun in the Yucatan Peninsula. In addition, to capitalize on
economic growth in Nicaragua and El Salvador, Tropical Shipping contracted
with local truckers to transport cargo over land to and from its port
facilities in Honduras. The company also began a joint service with
Compagnie Generale Maritime of France, providing shipping services to five
ports in the eastern Caribbean which had not previously been served by the
company.

Tropical Shipping's fleet consists of 14 owned vessels with a container
capacity totaling approximately 3,100 TEUs. In addition, the company owns
containers, container handling equipment, chassis and other equipment.
Real property, the majority of which is leased, includes office buildings,
cargo handling facilities and warehouses located in the United States, as
well as in some of the ports served. Tropical Shipping also has sales
offices in Canada and England.

In 1994, Tropical Shipping will continue to emphasize strengthening
current market positions with emphasis on enhancing customer services,
streamlining operating processes and better controlling costs. While
southbound transportation services to tourist destinations continue to be
the company's largest revenue generator, increasing shipments of
northbound exports are expected to contribute to Tropical Shipping's
future growth. Both the North American Free Trade Agreement (NAFTA) and
the General Agreement on Tariffs and Trade (GATT) are expected to increase
U.S. trade with Mexico and South America over the long-term. Tropical
Shipping plans to expand its operations in a deliberate manner, using
market research and evaluation to determine whether to enter new niche
markets. This selective approach will continue as the company moves to
take advantage of the growing opportunities in trade with Mexico and
several countries in Central America and the Caribbean.

NICOR Inc. Page 9

Item 1. Business (concluded)

SERVICE CONTRACTS

NICOR Energy Services, a new company, offers annual contracts for repair
and/or maintenance services on residential heating and cooling systems. A
test market program for these services began in 1993 in selected
communities of northern Illinois. This test has been completed and, for
1994, the company is expanding its marketing efforts. Services are
provided by independent heating and air conditioning contractors.

ENVIRONMENTAL MATTERS

Information with respect to environmental matters is presented in the
Contingencies section of the Notes to the Consolidated Financial
Statements on page 41.

OTHER MATTERS

In April 1992, the FERC issued Order 636. This order, which required
implementation by the pipelines for the 1993-1994 heating season,
substantially restructured the interstate sale and transportation of gas.
The FERC also authorized pipelines to recover transition costs, such as
gas supply reformation and certain other costs caused by compliance with
Order 636.

On September 15, 1993, the Ill.C.C. initiated a proceeding in which the
primary purpose appears to be the determination of the proper method of
transition cost recovery by Illinois local gas distribution companies,
including Northern Illinois Gas. On March 9, 1994 the Ill.C.C. entered
an order authorizing the companies to recover prudently incurred
transition costs from sales customers and transportation customers with
firm standby service. The company believes that the changes required by
Order 636 will not have a material impact on the company's financial
condition or results of operations.

Item 2. Properties

Information with respect to this item concerning NICOR and its
subsidiaries' properties is included in Item 1, Business, above, and is
incorporated herein by reference. These properties are suitable, adequate
and utilized in the company's operations.

NICOR Inc. Page 10

Item 3. Legal Proceedings

Current environmental laws may require cleanup of certain former gas
manufacturing plant sites. The company believes that any such costs not
recovered from prior owners and other sources will be recoverable by
Northern Illinois Gas through its rates. This belief is based upon, among
other things, an Ill.C.C. authorization allowing recovery of such costs by
the company and a generic order issued by the Ill.C.C. in September 1992
which states that Illinois utilities may pass through prudently incurred
gas manufacturing plant cleanup costs to ratepayers over a five-year
period, but denies the utilities' request to recover capital costs on the
uncollected balances. In December 1993, the generic order was upheld by
the Illinois Appellate Court. On February 2, 1994 another party sought
leave to appeal from the Appellate Court's decision to the Illinois
Supreme Court. The Ill.C.C., the company and other utilities have opposed
that request. In January 1994, the company began recovery of cleanup
costs from its customers in accordance with an Ill.C.C.-approved cost
recovery plan. For further information, see page 41, Contingencies.

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

None.

NICOR Inc. Page 11

Executive Officers of the Registrant

Name Age Current Position and Background

Richard G. Cline 59 Chairman and Chief Executive Officer, NICOR
(since 1986), as well as President, NICOR
(1990 until May 1, 1994 and 1985-1987).

Thomas L. Fisher 49 President, NICOR (effective May 1, 1994),
as well as President and Chief Executive
Officer, Northern Illinois Gas (since
1988).

John J. Lannon 56 Senior Vice President and Chief Financial
Officer, NICOR (1988 until May 1, 1994).
Vice President Finance, NICOR (1984-1988).

John C. Flowers 55 Vice President Human Resources, NICOR
(since 1984), as well as Vice President
Personnel, Northern Illinois Gas (since
1993).

David L. Cyranoski 50 Vice President, Secretary and Controller,
NICOR (since 1992), as well as Vice
President and Controller, Northern Illinois
Gas (since 1984) and Secretary, Northern
Illinois Gas (since 1993).

Donald W. Lohrentz 57 Treasurer, NICOR (since 1987), as well as
Vice President Northern Illinois Gas (since
1985). Treasurer, Northern Illinois Gas
(1990-1993, 1984-1989).

Thomas A. Nardi 39 Vice President Business Development, NICOR
(effective May 1, 1994), as well as Vice
President, Northern Illinois Gas (since
1990). Secretary, Northern Illinois Gas
(1989-1992); Treasurer, Northern Illinois
Gas (1989-1990).

Executive officers of the company are elected annually by the Board of
Directors.

NICOR Inc. Page 12

PART II

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

NICOR common stock is listed on the New York and Chicago Stock Exchanges.
At February 28, 1994, there were approximately 45,500 common stockholders
of record. On March 8, 1994, the Board of Directors declared a quarterly
common stock dividend of 31.5 cents per share, payable May 1, 1994, to
stockholders of record March 31, 1994. This payment represents an annual
rate of $1.26 per share.

On March 10, 1993, the Board of Directors approved a two-for-one stock
split which was distributed on April 26, 1993 to stockholders of record
April 1, 1993. During 1993, the directors also authorized a program to
buy back shares of common stock having an aggregate market value of up to
$100 million. The purchases are being made as market conditions permit
through open market transactions over a period of several months.

The common stock price range and dividends declared per common share by
quarter for 1993 and 1992, restated for the two-for-one stock split in
April 1993, are as follows:

Stock price Dividends
Quarter High Low declared
1993
First $29-1/2 $24-1/8 $.305
Second 29-1/2 26-1/2 .305
Third 31-5/8 25-5/8 .305
Fourth 31-1/8 26-1/4 .305

1992
First $23-1/8 $19-7/8 $.295
Second 22-1/2 19 .295
Third 24-1/2 21-1/2 .295
Fourth 25-3/4 22-1/8 .295

<TABLE>
NICOR Inc. Page 13

Item 6. Selected Financial Data
<CAPTION>
Year ended December 31
(Millions, except per share data) 1993 1992 1991 1990 1989

<S> <C> <C> <C> <C> <C>
Operating revenues $1,673.9 $1,546.5 $1,457.1 $1,471.7 $1,558.9

Operating income $ 198.1 $ 188.3 $ 185.4 $ 181.1 $ 192.7

Net income
Continuing operations $ 109.4 $ 95.0 $ 99.6 $ 101.6 $ 110.5
Discontinued operations 2.3 13.3 9.0 11.9 9.4
$ 111.7 $ 108.3 $ 108.6 $ 113.5 $ 119.9

Earnings per share of common stock(a)
Continuing operations $ 1.97 $ 1.67 $ 1.70 $ 1.73 $ 1.83
Discontinued operations .04 .24 .15 .20 .16
$ 2.01 $ 1.91 $ 1.85 $ 1.93 $ 1.99

Dividends declared per share of common
stock(a) $ 1.22 $ 1.18 $ 1.12 $ 1.06 $ 1.00

Total assets $2,222.1 $2,339.2 $2,279.7 $2,179.9 $2,136.7

Capitalization
Long-term debt $ 458.9 $ 417.2 $ 458.0 $ 421.5 $ 391.7
Redeemable preferred and preference
stock 16.6 17.2 18.6 19.1 19.6
Nonredeemable preferred and preference
stock .1 .1 4.2 4.8 5.2
Common equity 703.9 711.6 703.9 676.3 654.8
$1,179.5 $1,146.1 $1,184.7 $1,121.7 $1,071.3

(a) Restated for the two-for-one stock split in April 1993.
</TABLE>

NICOR Inc. Page 14

Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations

The purpose of this financial review is to explain changes in NICOR's
operating results and financial condition from 1991 to 1993. This review
also discusses business trends and uncertainties that might affect NICOR.
A summary of operating performance during this period is presented below,
followed by a more detailed discussion. Certain abbreviations used herein
are defined on page 1.

Summary
NICOR has two business segments: gas distribution and shipping. Gas
distribution is NICOR's primary business, accounting for approximately 90
percent of consolidated assets at December 31, 1993, up from 85 percent at
the prior year-end. NICOR previously conducted operations in the oil and
gas business, which were classified as discontinued in the first quarter
of 1993. The sale of the oil and gas operations was completed in 1993.

NICOR's financial information has been restated to reflect the second
quarter 1993 two-for-one stock split and the discontinuation of the oil
and gas segment.

NICOR's 1993 net income of $111.7 million was up 3 percent from 1992 as
increased income from continuing operations more than offset the reduction
attributable to the discontinued oil and gas segment income. Income from
continuing operations rose to $109.4 million from $95 million in 1992 due
primarily to stronger operating results in both segments and the 1992
writedown of an equity investment. NICOR's 1992 net income of $108.3
million was relatively flat when compared with 1991 as a gain recognized
on the sale of the gas marketing and gas gathering businesses was offset
by lower income from continuing operations. Income from continuing
operations of $95 million was down 5 percent from 1991 as a slight
increase in operating income was more than offset by lower nonoperating
results.

Earnings per common share were $2.01, $1.91 and $1.85 in 1993, 1992 and
1991, respectively. Earnings per common share from continuing operations
were $1.97 in 1993 compared with $1.67 in 1992 and $1.70 in 1991. Per
share results benefited from about 2 percent fewer average shares
outstanding in 1993 compared with 1992 and about 3 percent fewer average
shares in 1992 compared with 1991. Dividends declared per common share
were $1.22, $1.18 and $1.12 for 1993, 1992 and 1991, respectively.

Gas distribution operating income comparisons reflect near normal weather
in 1993 and 7 percent and 10 percent warmer than normal weather in 1992
and 1991, respectively. In 1993, gas distribution operating income rose 4
percent to $187.6 million from 1992 due primarily to the impact of colder
weather which was partially offset by higher operating and maintenance
expenses. In 1992, operating income increased $4.2 million to $179.6
million as the impact of lower operating and maintenance expenses and
colder weather more than offset higher depreciation.

NICOR Inc. Page 15

Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)

In 1993, shipping operating income increased $3.6 million to $15.5 million
on the strength of higher volumes shipped. In 1992, operating income
declined 7 percent to $11.9 million as increased revenues were more than
offset by higher depreciation and other operating expenses.

Net cash flow from continuing operations has fluctuated significantly from
1991 to 1993 due mainly to changes in gas distribution working capital.
The increase from 1992 to 1993 was due primarily to the timing of the
recovery of higher gas costs from customers and the positive impact of
colder weather in the gas distribution segment. The decrease from 1991 to
1992 was due largely to increased working capital requirements related to
the impact of higher gas costs.

During 1993, the company refinanced about half of consolidated long-term
debt at lower interest rates, reducing annual interest expense by about
$5.5 million on the portion of the debt refinanced.

In 1993, a common stock repurchase program totaling $100 million was
initiated. In early 1992, NICOR completed the $50 million common stock
buy-back program initiated in 1991. During the last three years, the
company has repurchased and retired over four million common shares having
an aggregate market value of $102 million.

(Millions) 1993 1992 1991
Operating revenues
Gas distribution $1,533.3 $1,425.4 $1,338.3
Shipping 140.5 121.1 118.8
Other .1 - -

$1,673.9 $1,546.5 $1,457.1

Depreciation expense
Gas distribution $ 83.7 $ 81.8 $ 77.7
Shipping 12.8 12.9 11.7
Other - - -

$ 96.5 $ 94.7 $ 89.4

Operating income (loss)
Gas distribution $ 187.6 $ 179.6 $ 175.4
Shipping 15.5 11.9 12.8
Other (5.0) (3.2) (2.8)

$ 198.1 $ 188.3 $ 185.4

NICOR Inc. Page 16

Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)

Factors Affecting Business Performance
The following factors can impact year-to-year comparisons and may affect
the future performance of NICOR's businesses.

Gas distribution. Fluctuations in weather can have a significant impact
on year-to-year comparisons of gas distribution operating income and cash
flow, since more than 50 percent of deliveries are used for heating.
Significant changes in gas prices or economic conditions can also impact
gas usage. However, Northern Illinois Gas' large residential customer
base provides relative stability during weak economic periods. Also, the
industrial and commercial customer base is well-diversified, lessening the
impact of industry-specific economic swings.

Gas price increases relative to other energy sources can result in fuel
switching by some gas distribution customers. However, Northern Illinois
Gas is well-positioned to deal with this situation because of rates and
services designed to compete against alternative fuels and its
competitively priced supply of gas. In addition, the company has a rate
which allows negotiation with potential bypass customers, and no customer
has bypassed since the rate became effective in 1987. Direct connection
to five interstate pipeline companies and significant underground storage
capacity allow the company to maintain rates that are among the lowest in
the nation, while providing transportation customers with access to the
spot market and storage services. In addition, Northern Illinois Gas
offers commercial and industrial customers flexibility and competitive
alternatives in rates and service, increasing its ability to compete in
these markets.

Gas distribution operating statistics
1993 1992 1991
Customers at year-end
(Thousands)
Residential 1,601.2 1,573.2 1,547.5
Commercial 154.9 153.4 152.1
Industrial 13.7 13.6 13.5
1,769.8 1,740.2 1,713.1

Margin per Mcf delivered $ .88 $ .89 $ .88
Average gas cost per Mcf sold 3.26 2.95 2.67
Degree days 6,172 5,714 5,560
Colder (warmer) than normal - (7)% (10)%

In April 1992, the FERC issued Order 636. This order, which required
implementation by the pipelines for the 1993-1994 heating season,
substantially restructured the interstate sale and transportation of gas.
The changes required by Order 636 are not expected to have a material
impact on the company's financial condition or results of operations. For
further information, see page 32, FERC Order 636.

In 1993, Northern Illinois Gas began deliveries under a 10-year contract
with Commonwealth Edison Company (Edison) to provide gas to an electric-
generating station. The station, Edison's largest-capacity generating
facility, has been modified to allow the use of gas by three of its five

NICOR Inc. Page 17

Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)

generating units. Initial annual deliveries are expected to total 10 Bcf,
with the potential to increase to more than 20 Bcf. In the first eight
months of the contract, Northern Illinois Gas delivered 6.5 Bcf of gas to
the station.

Northern Illinois Gas is continuing to explore ways of enhancing
profitability that benefit ratepayers and shareholders alike. In 1993,
Northern Illinois Gas opened the Chicago Hub, the first market-area hub in
the United States owned and operated by a local distribution company. A
hub is a marketplace where natural gas buyers and sellers negotiate
physical and financial transactions to transport gas among pipelines and
markets. In late 1992, Northern Illinois Gas began offering account
management services to its transportation customers. The company works
with customers to optimize their gas acquisition and storage use, earning
fees based on the monthly savings produced. While the combined revenues
from these ventures are modest, these programs demonstrate the company's
commitment to developing nontraditional sources of income.

Northern Illinois Gas is regulated by the Ill.C.C. which establishes the
rules and regulations governing utility rates and services in Illinois.
Rates are designed to allow Northern Illinois Gas to recover its gas,
operating and financial costs, and to provide an opportunity to earn a
fair return on investment. Changes in the regulatory environment could
affect the longer-term performance of Northern Illinois Gas.

Shipping. Tropical Shipping's financial results can be significantly
affected by business conditions in the United States and the Caribbean.
Most of the markets served by Tropical Shipping depend on imports of food
and other essential provisions. Tourism is a key element in their
economies. A smaller but growing proportion of Tropical Shipping's
volumes are northbound shipments of exports from the Caribbean and Central
America. Recent trade agreements are expected to contribute to increased
U.S. trade with these areas, particularly in agricultural products and
assembled goods.

NICOR Inc. Page 18

Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)

Shipping operating statistics
1993 1992 1991
TEUs shipped
(Thousands)
Southbound 75.3 66.5 67.2
Northbound 16.1 13.3 12.6
Interisland 2.4 2.2 3.3
93.8 82.0 83.1

Ports served 22 16 16
Vessels owned 14 12 12

In early 1991, a joint venture was formed to manufacture and market
refrigerated cargo containers. In 1992, Tropical Shipping assumed the
remaining 50 percent interest in the investment because its partner could
not meet its commitments. This investment continued to incur losses and
the company wrote down its investment at year-end 1992. In late 1993, the
investment was sold with no additional effect on net income.

Service contracts. NICOR Energy Services, a new company, offers annual
contracts for repair and/or maintenance services on residential heating
and cooling systems. A test market program for these services began in
1993 in selected communities of northern Illinois. This test has been
completed and, for 1994, the company is expanding its marketing efforts.
Services are provided by independent heating and air conditioning
contractors.

Contingencies. In connection with the sale of the discontinued U.S. oil
and gas exploration and production operations, the company has agreed to
indemnify the purchaser against losses with respect to certain claims and
litigation. The largest potential liability relates to a dispute with the
producer of gas from one well who is claiming entitlement to natural gas
prices which are substantially higher than market. The company is also
conducting environmental investigations at certain barge-cleaning
facilities and former gas manufacturing plant sites. Although unable to
determine the outcome of these contingencies, management believes that
appropriate accruals have been recorded. Final disposition of these
matters is not expected to have a material impact on the company's
financial condition or results of operations. For further information,
see page 41, Contingencies.

Results of Operations
Details of various financial and operating information by segment can be
found in the tables throughout this review. The following discussion
summarizes the major items impacting NICOR's earnings.

Revenues. NICOR's operating revenues rose 8 percent to $1,673.9 million
in 1993 due primarily to the recovery from customers of higher gas costs
and the effect of 8 percent colder weather in the gas distribution
segment. Shipping revenues rose 16 percent to $140.5 million due mainly
to increased volumes shipped. Expanded services to several new ports and
improved volume in the U.S. Virgin Islands trade are largely responsible
for the increase.

NICOR Inc. Page 19

Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)

In 1992, NICOR's revenues rose 6 percent to $1,546.5 million due mainly to
the recovery of higher gas costs from customers in the gas distribution
segment. Shipping revenues rose $2.3 million as the impact of a higher
revenue cargo mix more than offset lower volumes shipped.

Margin. Gas distribution margin, defined as operating revenues less cost
of gas and revenue taxes which are both passed directly through to
customers, rose $18.6 million to $430.3 million in 1993 and $4.6 million
to $411.7 million in 1992 due mainly to the positive impact of colder
weather.

Operating and maintenance. In 1993, operating and maintenance expenses
increased $26.4 million to $256.1 million due primarily to higher U.S.
shore and outport costs in the shipping segment related largely to
increased volumes. In addition, expenses in the gas distribution segment
increased due mainly to higher bad debt provisions, which were associated
with additional revenues, and higher postretirement benefits expense.

In 1992, operating and maintenance expenses decreased $2.4 million to
$229.7 million due primarily to reduced pension and bad debt provisions in
the gas distribution segment partially offset by higher operating costs in
the shipping segment.

Depreciation. Depreciation rose 2 percent to $96.5 million in 1993 and 6
percent to $94.7 million in 1992, primarily as a result of depreciation on
additions in both segments.

Gas distribution margin components

Amount (Millions) Deliveries (Bcf)
1993 1992 1991 1993 1992 1991
Sales
Residential $ 989.2 $ 884.1 $ 804.6 222.7 213.6 208.1
Commercial 292.1 279.8 268.4 67.0 69.5 71.7
Industrial 55.4 58.2 66.7 13.7 15.9 19.9
1,336.7 1,222.1 1,139.7 303.4 299.0 299.7
Transportation
Commercial 38.8 43.6 40.9 50.0 44.7 42.7
Industrial 48.1 65.5 65.7 135.4 120.2 118.8
86.9 109.1 106.6 185.4 164.9 161.5
Revenue taxes
and other 109.7 94.2 92.0
Operating revenues 1,533.3 1,425.4 1,338.3
Cost of gas (1,007.1) (927.1) (847.4)
Revenue taxes (95.9) (86.6) (83.8)
$ 430.3 $ 411.7 $ 407.1 488.8 463.9 461.2

NICOR Inc. Page 20

Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)

Nonoperating items. Other income increased $10.3 million in 1993 and
decreased $6.6 million in 1992 due primarily to the 1992 writedown of an
equity investment in the shipping segment. Lower interest income,
resulting from reduced investment levels, also contributed to the decrease
in 1992.

Interest charges declined $5.3 million in 1993 due to the impact of lower
interest rates. In 1992, interest charges rose $2.4 million as higher
borrowing levels were partially offset by the impact of lower interest
rates. In 1993, interest capitalized decreased $2.5 million due primarily
to the completion of the new corporate headquarters in the gas
distribution segment and the completion of two vessels in the shipping
segment.

Effective income tax rates were 33.1 percent, 32.5 percent and 32 percent
for 1993, 1992 and 1991, respectively. The 1993 increase was due to the
change in the federal income tax rate from 34 percent to 35 percent
effective January 1, 1993. The increase in 1992 was attributable to the
impact in 1991 of the benefit of a timing difference reversed at an
originating rate which was higher than the 1991 statutory federal rate.

Discontinued operations. In 1992, NICOR Oil and Gas recorded a net gain
of $4.7 million on the sale of its U.S. gas gathering and marketing
operations and the planned disposal of its Canadian gas gathering
operations. In April 1993, the company announced its intention to divest
the entire oil and gas segment. U.S. exploration and production
operations were sold in the second quarter of 1993, and the Canadian gas
gathering operations were sold in the fourth quarter, with no additional
effect on net income. The sale of oil and gas operations is now complete.

Accounting pronouncements. In February 1992, the Financial Accounting
Standards Board (FASB) issued Statement No. 109, Accounting for Income
Taxes. Statement No. 109 requires adjustments to deferred income taxes
for tax rate changes and temporary differences between book and tax income
not previously recorded. The statement was adopted by recording a
cumulative effect adjustment on January 1, 1993 and did not have a
material impact on the company's financial condition or results of
operations. For further information, see page 33, Income Taxes.

In 1990, the FASB issued Statement No. 106, Employers' Accounting for
Postretirement Benefits Other Than Pensions. Statement No. 106 requires
accrual of postretirement benefits other than pensions during the years of
service in which they are earned. The company adopted Statement No. 106
prospectively as of January 1, 1993 by modifying its method of accruing
these costs and amortizing the transition obligation on a straight-line
basis over 20 years. Implementation of this statement increases other
postretirement benefit expense by approximately $3 million annually and
operating expense, after capitalization, by approximately $2 million
annually. For further information, see page 36, Other postretirement
benefits.

NICOR Inc. Page 21

Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)

In November 1992, the FASB issued Statement No. 112, Employers' Accounting
for Postemployment Benefits. This statement requires recognition of the
cost of postemployment benefits after employment but before retirement on
an accrual basis during the years that employees earn the benefits. The
statement requires adoption no later than the company's 1994 fiscal year
and must be adopted as a change in an accounting principle. The company
adopted Statement No. 112 on January 1, 1994. Implementation of this
statement is not expected to have a material impact on the company's
financial condition or results of operations.

Financial Condition and Liquidity
NICOR's financial condition is sound. Long-term debt as a percentage of
capitalization was 38.9 percent, 36.4 percent and 38.6 percent at year-end
1993, 1992 and 1991, respectively.

The company believes it has access to adequate resources to meet planned
capital expenditures, debt and stock redemptions, dividends and working
capital needs for 1994. These resources include net cash flow from
operating activities, access to capital markets, unused lines of credit
and short-term investments.

Operating. Net cash flow from continuing operations, NICOR's primary
source of cash, was $221.9 million in 1993, $42.7 million in 1992 and
$192.2 million in 1991. The increase in 1993 was due primarily to the
timing of the recovery of higher gas costs from customers and the positive
impact of colder weather in the gas distribution segment. The decrease
from 1991 to 1992 was due largely to increased working capital
requirements related to the impact of higher gas costs.

The working capital component of net cash flow from operating activities
can swing sharply from year to year due primarily to certain gas
distribution factors, including weather, the timing of collections from
customers and gas-purchasing practices. The company generally relies on
short-term financing to meet temporary increases in working capital needs.

Investing. NICOR's capital expenditures were $141.6 million in 1993
compared with $151.4 million in 1992 and $169.1 million in 1991. Gas
distribution capital expenditures were $127.4 million in 1993 compared
with $127.2 million in 1992 and $132.2 million in 1991. Capital
expenditures in 1992 and 1991 included amounts related to construction of
the new corporate headquarters. During the three-year period, about one-
third of gas distribution capital expenditures was related to new business
with the balance used for system improvements and general plant.

Shipping capital expenditures were $14.1 million in 1993 compared with
$24.2 million in 1992 and $36.9 million in 1991. The decrease in 1993
compared to 1992 and 1991 reflects the completion of progress payments on
the construction of two vessels.

Capital spending in 1994 is expected to be about $170 million with $155
million for gas distribution and $15 million for shipping. Gas
distribution capital expenditures are expected to increase as a result of

NICOR Inc. Page 22

Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)

the commencement of work on a two-year, $70 million construction project
to improve the gas transmission and storage system.

The U.S. exploration and production and the Canadian gas gathering
operations were sold in several transactions in 1993 for approximately
$140 million. Net proceeds from the sales are being used to fund working
capital requirements and the 1993 common stock buy-back program.

Financing. In December 1992, Northern Illinois Gas filed a $275 million
First Mortgage Bond shelf registration with the Securities and Exchange
Commission. During 1993, the company issued the following First Mortgage
Bonds (millions):

Maturity Interest rate Amount
1996 4.5 % $ 50.0
1997 5.5 25.0
1998 5.875 25.0
1999 6.25 25.0
2000 5.875 50.0
2023 7.375 50.0

$225.0

Net proceeds from the sale of bonds in 1993, together with other corporate
funds, were used for current year maturities and early retirements, as
follows (millions):

Maturity Interest rate Amount
1993 4.9375% $ 60.0
1996 9.25 75.0
1997 7.625 25.0
1998 8.0 22.5
2001 8.75 28.4
2016 8.75 47.0

$257.9

About half of the debt outstanding at the beginning of 1993 was refinanced
through the above issuances, reducing annual interest expense by about
$5.5 million on the portion of the debt refinanced. The remaining $50
million of the shelf registration is expected to be issued in 1994.

In 1993, Tropical Shipping refinanced $12.5 million of short-term notes
payable by issuing a 5.66% promissory note maturing December 1996.

In 1992, NICOR redeemed the $50 million 11.25% notes payable due in 1995.
The company financed this redemption with short-term borrowings, which
were reduced by proceeds from the sale of the gas gathering unit.

NICOR Inc. Page 23

Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)

Additionally, in 1992, Northern Illinois Gas issued $75 million of 8.25%
First Mortgage Bonds due in 2022, and $60 million 4.9375% notes payable
due March 1993. Proceeds from the issuances were used for general
corporate purposes and the redemption of 8.25%, 6.75% and 9% First
Mortgage Bonds due in 1993 and 1994.

NICOR and its subsidiaries maintain short- and long-term credit agreements
which, at December 31, 1993, allowed borrowings of up to $350 million and
$50 million, respectively. At December 31, 1993, $301.5 million of
commercial paper was outstanding, supported by certain of these
agreements, compared to $328 million at year-end 1992. The company had no
borrowings under these agreements at year-end 1993.

In January 1994, the Board of Directors authorized the redemption of the
company's 7.90% preference stock at a price of $505 per share plus the
amount of accrued and unpaid dividends, if any, thereon to the proposed
redemption date, May 1, 1994.

In September 1992, NICOR called its $1.90 convertible preference stock for
redemption in December 1992, at a redemption price of $42 per share. Of
the shares outstanding, approximately 60,000 shares were converted into
NICOR common stock on a one-for-one basis with the balance redeemed for
cash.

In March 1993, NICOR announced a two-for-one stock split of the company's
common, preferred and preference stocks to stockholders of record April 1,
1993.

In March 1993, NICOR announced a $50 million stock repurchase program. In
September, the Board of Directors authorized an increase of up to $50
million in this program. The repurchases are being financed by a portion
of the proceeds from the 1993 sales of NICOR's oil and gas operations,
existing financial assets, cash flow and utilization of short-term
borrowings. During 1993, NICOR purchased and retired common shares having
an aggregate market value of $52 million.

In 1992, NICOR completed the $50 million common stock repurchase program
announced and begun in 1991. These repurchases were financed out of
existing financial assets, cash flow and utilization of short-term
borrowings.

The company increased its quarterly dividend during 1993 for the sixth
straight year. The company paid dividends of $68.1 million, $66.7 million
and $65.4 million in 1993, 1992 and 1991, respectively.

Restrictions imposed by regulatory agencies and loan agreements limiting
the amount of subsidiary net assets that can be transferred to NICOR are
not expected to have a material impact on NICOR's ability to meet its cash
obligations.

NICOR Inc. Page 24

Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (concluded)

Estimated Actual
(Millions) 1994 1993 1992 1991
Capital expenditures
Gas distribution $ 155 $ 127.4 $ 127.2 $ 132.2
Shipping 15 14.1 24.2 36.9
Other - .1 - -
$ 170 $ 141.6 $ 151.4 $ 169.1

Identifiable assets at December 31
Gas distribution $2,016.1 $1,972.9 $1,831.9
Shipping 204.5 187.6 228.7
Other 1.0 34.6 49.8
$2,221.6 $2,195.1 $2,110.4

NICOR Inc. Page 25

Item 8. Financial Statements and Supplementary Data

Page

Report of Independent Public Accountants 26

Financial Statements:

Consolidated Statement of Income 27

Consolidated Statement of Cash Flows 28

Consolidated Balance Sheet 29

Consolidated Statement of Capitalization 30

Consolidated Statement of Common Equity 31

Notes to the Consolidated Financial Statements 32

NICOR Inc. Page 26

Report of Independent Public Accountants

To the Shareholders and Board of Directors of NICOR Inc.:

We have audited the accompanying consolidated balance sheet and statement
of capitalization of NICOR Inc. (an Illinois corporation) and subsidiary
companies as of December 31, 1993 and 1992, and the related consolidated
statements of income, common equity and cash flows for each of the three
years in the period ended December 31, 1993. These financial statements
and the schedules referred to below are the responsibility of the
company's management. Our responsibility is to express an opinion on
these financial statements and schedules based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of NICOR Inc. and
subsidiary companies as of December 31, 1993 and 1992, and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1993, in conformity with generally accepted
accounting principles.

Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The financial statement schedules
listed in the accompanying index (page 45) are presented for purposes of
complying with the Securities and Exchange Commission's rules and are not
part of the basic financial statements. These schedules have been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, fairly state in all material
respects the financial data required to be set forth therein in relation
to the basic financial statements taken as a whole.

ARTHUR ANDERSEN & CO.

Chicago, Illinois
January 26, 1994

<TABLE>
NICOR Inc. Page 27

Consolidated Statement of Income
(Millions, except per share data)
<CAPTION>

Year ended December 31
1993 1992 1991

<S> <C> <C> <C>
Operating revenues $1,673.9 $1,546.5 $1,457.1

Operating expenses
Cost of gas 1,007.1 927.1 847.4
Operating and maintenance 256.1 229.7 232.1
Depreciation 96.5 94.7 89.4
Taxes, other than income taxes 116.1 106.7 102.8

1,475.8 1,358.2 1,271.7

Operating income 198.1 188.3 185.4

Other income (expense)
Interest income 1.9 2.1 7.5
Other, net 5.0 (5.5) (4.3)

6.9 (3.4) 3.2

Income before interest on debt and income taxes 205.0 184.9 188.6

Interest on debt, net of amounts capitalized 41.4 44.2 42.1

Income before income taxes 163.6 140.7 146.5

Income taxes 54.2 45.7 46.9

Income from continuing operations 109.4 95.0 99.6

Discontinued operations, net of income taxes
Income from operations 2.3 8.6 9.0
Gain on disposal, net - 4.7 -

2.3 13.3 9.0

Net income 111.7 108.3 108.6

Dividends on preferred and preference stock 1.0 1.2 1.3

Earnings applicable to common stock $ 110.7 $ 107.1 $ 107.3

Average shares of common stock outstanding 55.1 56.0 57.9

Earnings per average share of common stock
Continuing operations $ 1.97 $ 1.67 $ 1.70
Discontinued operations .04 .24 .15

$ 2.01 $ 1.91 $ 1.85

The accompanying notes are an integral part of this statement.
</TABLE>

<TABLE>
NICOR Inc. Page 28

Consolidated Statement of Cash Flows
(Millions)
<CAPTION>
Year ended December 31
1993 1992 1991
Operating activities
<S> <C> <C> <C>
Net income $ 111.7 $ 108.3 $ 108.6
Less income from discontinued operations 2.3 13.3 9.0
Income from continuing operations 109.4 95.0 99.6
Adjustments to reconcile income from continuing
operations to net cash flow provided from
continuing operations:
Depreciation 96.5 94.7 89.4
Deferred income tax expense (benefit) (13.9) (17.2) (25.1)
192.0 172.5 163.9
Change in working capital items and other:
Receivables, less allowances 12.2 (68.5) 13.3
Gas in storage 23.0 17.6 (8.8)
Deferred/accrued gas costs (14.5) (51.4) (5.1)
Accounts payable 13.0 (29.4) 9.1
Other (3.8) 1.9 19.8

Net cash flow provided from continuing operations 221.9 42.7 192.2
Net cash flow provided from (used for)
discontinued operations (12.3) 29.5 20.7

Net cash flow provided from operating activities 209.6 72.2 212.9

Investing activities
Capital expenditures (141.6) (151.4) (169.1)
Short- and long-term investments (17.2) 49.1 (2.7)
Proceeds from sales of discontinued operations 139.9 25.1 -
Other investing activities of discontinued operations (5.5) (19.2) (39.2)
Other 1.6 3.3 (8.9)

Net cash flow used for investing activities (22.8) (93.1) (219.9)

Financing activities
Net proceeds from issuing long-term debt 235.6 134.0 49.3
Disbursements to retire long-term debt (262.5) (123.7) (18.2)
Short-term borrowings (repayments), net (39.0) 114.5 56.5
Dividends paid (68.1) (66.7) (65.4)
Disbursements to reacquire stock (60.0) (41.0) (19.6)
Other 7.0 2.8 3.4

Net cash flow provided from (used for)
financing activities (187.0) 19.9 6.0

Net decrease in cash and cash equivalents (.2) (1.0) (1.0)

Cash and cash equivalents, beginning of year 10.7 11.7 12.7

Cash and cash equivalents, end of year $ 10.5 $ 10.7 $ 11.7

The accompanying notes are an integral part of this statement.
</TABLE>

<TABLE>
NICOR Inc. Page 29

Consolidated Balance Sheet
(Millions, except share data)
<CAPTION>
December 31
Assets 1993 1992

Current assets
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 10.5 $ 10.7
Short-term investments, at cost which
approximates market 51.6 29.3
Receivables, less allowances of $6.8 and $7.3,
respectively 277.2 308.6
Gas in storage, at last-in, first-out cost 97.8 120.8
Deferred gas costs 56.9 42.4
Other 15.0 17.1
509.0 528.9

Investments and other 56.4 43.6

Discontinued operations, net .5 144.1

Property, plant and equipment, at cost
Gas distribution 2,664.1 2,567.5
Shipping 219.8 211.8
Other .2 -
2,884.1 2,779.3
Less accumulated depreciation 1,227.9 1,156.7
1,656.2 1,622.6

$2,222.1 $2,339.2

Liabilities and capitalization

Current liabilities
Long-term obligations due within one year $ .3 $ 63.5
Short-term borrowings 304.0 343.0
Accounts payable 229.0 235.1
Other 51.0 52.7
584.3 694.3
Deferred credits and other liabilities
Deferred income taxes 168.2 299.5
Regulatory income tax liability 95.5 -
Unamortized investment tax credits 55.9 58.2
Other 138.7 141.1
458.3 498.8
Capitalization
Long-term debt 458.9 417.2
Preferred and preference stock 16.7 17.3
Common stock, par value $2.50, authorized 80,000,000 shares
(reserved for conversion and other purposes 4,516,774 and
4,850,588 shares, respectively), outstanding 53,958,806
and 55,769,928 shares, respectively 134.9 139.4
Paid-in capital 134.5 181.3
Retained earnings (since December 31, 1985) 434.5 390.9
1,179.5 1,146.1

$2,222.1 $2,339.2

The accompanying notes are an integral part of this statement.
</TABLE>

<TABLE>
NICOR Inc. Page 30

Consolidated Statement of Capitalization
(Millions, except share data)
<CAPTION>
December 31
1993 1992

First mortgage bonds
Maturity Interest rate
<S> <S> <S> <C> <C> <C> <C>
1995 8.7 % $ 50.0 $ 50.0
1996 9.25 - 75.0
1996 4.5 50.0 -
1997 7.625 - 25.0
1997 5.5 25.0 -
1998 8.0 - 22.5
1998 5.875 25.0 -
1999 6.25 25.0 -
2000 5.875 50.0 -
2001 8.75 - 28.4
2016 8.75 - 47.0
2019 9.0 50.0 50.0
2021 8.875 50.0 50.0
2022 8.25 75.0 75.0
2023 7.375 50.0 -
450.0 422.9
Less: Amount due within one year - 2.7
Unamortized debt discount, net of premium 3.6 3.0
446.4 37.8% 417.2 36.4%

Other long-term debt
Notes payable due 1993, 4.9375% - 60.0
Notes payable due 1996, 5.66% 12.5 -
Other - .5
12.5 60.5
Less amount due within one year - 60.5
12.5 1.1 - -

Preferred and preference stock
Cumulative, par value $50, authorized 1,600,000 shares
for preferred; and cumulative, without par value,
authorized 20,000,000 shares for preference
Redeemable preferred stock, 4.48% and 5% series,
outstanding 193,349 and 200,564 shares, respectively 9.7 10.0
Redeemable preference stock, 7.90% series, stated
value $500, outstanding 14,500 and 15,000 shares
respectively 7.2 7.5
16.9 17.5
Less amount due within one year .3 .3
16.6 1.4 17.2 1.5
Other .1 - .1 -

Common equity
Common stock 134.9 139.4
Paid-in capital 134.5 181.3
Retained earnings (since December 31, 1985) 434.5 390.9
703.9 59.7 711.6 62.1

$1,179.5 100.0% $1,146.1 100.0%

The accompanying notes are an integral part of this statement.
</TABLE>

<TABLE>
NICOR Inc. Page 31

Consolidated Statement of Common Equity
(Millions, except per share data)
<CAPTION>
Year ended December 31
1993 1992 1991
Common stock
<S> <C> <C> <C>
Balance at beginning of year $139.4 $143.3 $144.8
Issued and converted .8 .7 .6
Reacquired and cancelled (5.3) (4.6) (2.1)

Balance at end of year 134.9 139.4 143.3

Paid-in capital
Balance at beginning of year 181.3 211.1 224.6
Issued and converted 6.2 4.4 3.2
Reacquired and cancelled (54.1) (33.3) (16.8)
Other 1.1 (.9) .1

Balance at end of year 134.5 181.3 211.1

Retained earnings(a)
Balance at beginning of year 390.9 349.5 306.9
Net income 111.7 108.3 108.6
Dividends on common stock ($1.22, $1.18 and
$1.12 per share, respectively) (67.1) (65.7) (64.7)
Dividends on preferred and preference stock (1.0) (1.2) (1.3)

Balance at end of year 434.5 390.9 349.5

Total common equity at end of year $703.9 $711.6 $703.9

(a) Since December 31, 1985.

The accompanying notes are an integral part of this statement.
</TABLE>

NICOR Inc. Page 32

Notes to the Consolidated Financial Statements

Accounting Policies
Consolidation. The financial statements include the accounts of NICOR
Inc. and its subsidiaries. All significant intercompany transactions are
eliminated. Certain reclassifications were made to conform the prior
years' financial statements to the current year presentation.

Operating revenues and gas costs. Northern Illinois Gas' revenues include
estimated amounts for gas delivered but not yet billed. The cost of gas
purchased, adjusted for inventory activity, is reflected in volumetric
charges to customers through operation of the Uniform Purchased Gas
Adjustment Clause (PGA). Any difference between PGA revenues and
recoverable gas costs is deferred or accrued with a corresponding decrease
or increase in cost of gas. This difference is amortized as it is
collected from or refunded to customers through the PGA.

Depreciation. Property, plant and equipment are depreciated over
estimated useful lives on a straight-line basis. The gas distribution
plant composite depreciation rate is 3.7 percent. The useful life
estimates of vessels range from 15-25 years.

Income taxes. Deferred income taxes are provided for temporary
differences between the bases of assets and liabilities for tax and
financial reporting purposes. Although the federal investment tax credit
has been eliminated, Northern Illinois Gas continues to amortize prior
deferred amounts to income over the lives of the applicable properties.
Income taxes have not been provided on approximately $90 million of
cumulative undistributed foreign earnings through December 31, 1986 which
are considered indefinitely reinvested in foreign operations.

Cash and cash equivalents. The company considers investments purchased
with a maturity of three months or less to be cash equivalents.

Receivable credit risk. NICOR's subsidiaries each have a diversified base
of customers, typical for their industries, and prudent creditworthiness
policies which limit risk.

FERC Order 636
In April 1992, the FERC issued Order 636. This order, which required
implementation by the pipelines for the 1993-1994 heating season,
substantially restructured the interstate sale and transportation of gas.
The FERC also authorized pipelines to recover transition costs, such as
gas supply reformation and certain other costs caused by compliance with
Order 636. Virtually all of these costs are expected to be included in
future pipeline transportation rates as demand surcharges. Although
Northern Illinois Gas' major pipeline suppliers have submitted cost
recovery filings to the FERC, the FERC has not completed actions on those
filings and additional filings to the FERC are expected. The transition
costs Northern Illinois Gas will ultimately incur over the next several
years are dependent upon the future market price of natural gas, pipeline
negotiations with producers and other factors and are uncertain at this
time; however, the amount is expected to be substantial.

NICOR Inc. Page 33

Notes to the Consolidated Financial Statements (continued)

On September 15, 1993, the Ill.C.C. initiated a proceeding in which the
primary purpose appears to be the determination of the proper method of
transition cost recovery by Illinois local gas distribution companies,
including Northern Illinois Gas. The company believes it will be able to
fully recover these costs from its customers and that the changes required
by Order 636 will not have a material impact on the company's financial
condition or results of operations. Appropriate accruals for transition
costs incurred through December 31, 1993 have been recorded.

Short-Term Investments
The recorded amount of short-term investments approximates fair value
because of the short maturity of the instruments.

Gas in Storage
Based on the average cost of gas purchased in December 1993 and 1992, the
estimated current replacement cost of gas in inventory at December 31,
1993 and 1992 exceeded the last-in, first-out cost by approximately $292
million and $346 million, respectively.

Income Taxes
Effective January 1, 1993 the company adopted Financial Accounting
Standards Board (FASB) Statement No. 109, Accounting for Income Taxes,
which requires adjustments to deferred income taxes for tax rate changes
and temporary differences between book and tax income not previously
recorded. The company's required adjustments related primarily to
Northern Illinois Gas and included certain reclassifications and the
recording of additional assets and liabilities to reflect the financial
impact of expected regulatory actions. Initial application of the
statement was recorded as a cumulative effect of a change in accounting
principle and had no material impact on the company's financial condition
or results of operations.

A $15.5 million reduction in deferred income taxes resulting from the
adoption of FASB Statement No. 109 by the oil and gas segment was not
recognized in income but was classified as a reserve for impairment of
discontinued operations.

The components of income tax expense are presented below:

(Millions) 1993 1992 1991
Current
Federal $ 63.1 $ 60.9 $ 65.9
State 7.3 4.1 8.2
70.4 65.0 74.1
Deferred
Federal (12.1) (18.0) (21.0)
State (1.8) .8 (4.1)
(13.9) (17.2) (25.1)

Amortization of ITC, net (2.3) (2.1) (2.1)

Income tax expense $ 54.2 $ 45.7 $ 46.9

NICOR Inc. Page 34

Notes to the Consolidated Financial Statements (continued)

The temporary differences which gave rise to significant portions of the
net deferred tax liability at December 31, 1993 were as follows:

(Millions) 1993
Deferred tax liabilities
Property, plant and equipment $ 231.0
Investment in foreign subsidiaries 26.0
Deferred gas costs 22.6
Other 20.9
300.5
Deferred tax assets
Unamortized investment tax credit 36.8
Regulatory income tax liability 23.3
Other 64.0
124.1

Net deferred tax liability $ 176.4

During 1992 and 1991, significant timing differences generating deferred
income tax expense were:

(Millions) 1992 1991

Take-or-pay costs $(24.6) $(18.9)
Deferred/accrued gas costs 18.4 1.7
Foreign subsidiaries' income
(recognition) deferral (10.2) 5.3
Pensions 5.5 4.5
Unbilled revenues - (10.4)
Other, net (6.3) (7.3)

$(17.2) $(25.1)

The effective combined federal and state income tax rate was 33.1 percent,
32.5 percent and 32 percent in 1993, 1992 and 1991, respectively.
Differences between federal income taxes computed using the statutory
rate, 35 percent for 1993 and 34 percent for 1992 and 1991, and reported
income tax expense are shown below:

(Millions) 1993 1992 1991
Federal income taxes using
statutory rate $ 57.3 $ 47.8 $ 49.8
State income taxes, net 3.8 3.8 3.7
Timing differences reversed at
originating tax rates (.4) (1.5) (4.8)
Amortization of investment tax credits (2.7) (2.7) (2.8)
Other, net (3.8) (1.7) 1.0

Income tax expense $ 54.2 $ 45.7 $ 46.9

Income tax payments during 1993, 1992 and 1991 were $71.5 million, $69.6
million and $63.1 million, respectively.

NICOR Inc. Page 35

Notes to the Consolidated Financial Statements (continued)

Discontinued Operations
The net gain on disposal for 1992 of $4.7 million, net of $.2 million
related income tax expense, represents a gain on the sale of the U.S. gas
gathering and marketing operations net of an estimated loss on the
disposal of Canadian gas gathering operations. In April 1993, the company
announced its intention to divest the entire oil and gas segment. U.S.
exploration and production operations were sold in the second quarter of
1993, and the Canadian gas gathering operations were sold in October 1993,
with no additional effect on net income. This completes the sale of oil
and gas operations.

Net property, plant and equipment and other noncurrent assets of the oil
and gas segment have been segregated in the balance sheet as Discontinued
operations, net.

Summarized financial results of the discontinued operations were:

(Millions) 1993 1992 1991

Operating revenues $ 15.9 $ 65.2 $ 59.0

Income before income taxes $ 3.5 $ 12.0 $ 11.2
Income taxes 1.2 3.4 2.2

Income from discontinued operations $ 2.3 $ 8.6 $ 9.0

Postemployment Benefits
Pension benefits. Northern Illinois Gas maintains noncontributory defined
benefit pension plans covering substantially all employees. Pension
benefits consider job level or the highest average salary earned during
five consecutive years of employment and years of service. The plans are
funded currently to the extent deductible for federal income tax purposes.
Plan assets are invested primarily in corporate and government securities.

Net periodic pension cost (benefit) included:

(Millions) 1993 1992 1991

Service cost $ 6.7 $ 6.3 $ 6.5
Interest cost 20.4 19.2 18.9
Loss (return) on plan assets (41.9) (33.6) (74.2)
Net amortization and deferral 3.7 (5.3) 41.7

$(11.1) $(13.4) $ (7.1)

Expected long-term rate of return
on plan assets 8.5% 8.5% 8.5%

NICOR Inc. Page 36

Notes to the Consolidated Financial Statements (continued)

The following table reflects the funded status of the plans at October 1,
1993 and 1992 reconciled to amounts recorded in the financial statements
at December 31, 1993 and 1992, respectively:

(Millions) 1993 1992

Vested benefits $ 221.1 $ 179.0
Nonvested benefits 16.9 24.7
Accumulated benefit obligation 238.0 203.7
Effect of assumed increase in
compensation level 36.8 42.1
Projected benefit obligation 274.8 245.8
Plan assets at market value 384.7 387.8
Plan assets in excess of projected
benefit obligation 109.9 142.0
Unrecognized net gain (60.7) (101.2)
Unrecognized net transition asset (31.6) (35.4)
Unrecognized prior service cost 4.1 4.1
Other 3.0 3.4

Prepaid pension cost $ 24.7 $ 12.9

Weighted average discount rate 7.0% 8.0%
Rate of compensation increase 4-5 5-6

Northern Illinois Gas has historically amended the collectively bargained
pension plan every two to three years so that such pension benefits are
based on the most current wages. Northern Illinois Gas intends, subject
to collective bargaining, to continue making similar amendments to the
plan. These future amendments have been anticipated and are reflected in
the projected benefit obligation and pension expense.

Other postretirement benefits. Health care and life insurance benefits
are provided for retired employees if they reach retirement age while
working for Northern Illinois Gas. The plans are funded to the extent
deductible for federal income tax purposes. Plan assets are invested
primarily in corporate and government securities.

FASB Statement No. 106, Employers' Accounting for Postretirement Benefits
Other Than Pensions, requires that the expected cost of these benefits be
charged to expense during the years that employees earn the benefits. The
company adopted FASB Statement No. 106 prospectively as of January 1, 1993
by modifying its method of accruing these costs and amortizing the
transition obligation on a straight-line basis over 20 years.

NICOR Inc. Page 37

Notes to the Consolidated Financial Statements (continued)

Net periodic postretirement benefit cost for 1993 included:

(Millions)
Service cost $ 1.9
Interest cost 7.5
Loss (return) on plan assets (1.0)
Amortization of transition obligation 3.7
Net amortization and deferral .3

$ 12.4

Expected long-term rate of return on plan assets 8.5%

The cost of these benefits recognized in 1992 and 1991 was $9 million and
$8.7 million, respectively, and included current costs and amortization of
unfunded prior service costs over a 30-year period.

The following table reflects the funded status for the company's
postretirement health care and life insurance plans at October 1, 1993
reconciled to amounts recorded at December 31, 1993:

(Millions)
Accumulated postretirement benefit obligation (APBO):
Retirees $ 68.1
Fully eligible active plan participants 22.2
Other active plan participants 29.9
Total APBO 120.2
Plan assets at market value 9.3
APBO in excess of plan assets (110.9)
Unrecognized transition obligation 71.0
Unrecognized net loss 16.7
Other (1.1)

Accrued postretirement benefit cost $ (24.3)

Weighted average discount rate 7.0%
Rate of compensation increase 4-5

For measurement purposes, a health care cost trend rate of 14 percent was
assumed for 1994; the rate was assumed to decrease gradually to 5 percent
for 2003 and remain at that level thereafter. The health care cost trend
rate assumption has a significant effect on the amounts reported.
Increasing the assumed health care cost trend rate by 1 percentage point
would increase the APBO as of December 31, 1993 by about $15 million, the
aggregate of the service and interest cost components of net
postretirement health care costs for 1993 by approximately $1.5 million
and operating expense, after capitalization, by approximately $1 million.

NICOR Inc. Page 38

Notes to the Consolidated Financial Statements (continued)

Other postemployment benefits. In November 1992, the FASB issued
Statement No. 112, Employers' Accounting for Postemployment Benefits.
This statement requires recognition of the cost of postemployment benefits
after employment but before retirement on an accrual basis during the
years that employees earn the benefits. The statement requires adoption
no later than the company's 1994 fiscal year and must be adopted as a
change in an accounting principle. The company adopted Statement No. 112
on January 1, 1994. Implementation of this statement is not expected to
have a material impact on the company's financial condition or results of
operations.

Short- and Long-Term Debt
The recorded amount of short-term borrowings approximates fair value
because of the short maturity of the instruments.

The company establishes lines of credit with major domestic and foreign
banks to satisfy short-term borrowing needs. At December 31, 1993,
available lines of credit totaled $350 million, including $297 million of
seasonal lines. Commitment fees of up to 1/5 percent per annum were paid
on these lines.

At December 31, 1993, a $50 million unused revolving bank line of credit
was available with a commitment fee of 3/16 percent per annum.

All credit agreements have variable interest-rate options tied to short-
term markets. The lines of credit supported outstanding commercial paper
of $301.5 million and $328 million at December 31, 1993 and 1992,
respectively.

Bank cash balances averaged about $8 million during 1993, which partially
compensated for the cost of maintaining accounts and other banking
services. Such demand balances may be withdrawn at any time.

Based on quoted market interest rates, the recorded amount of the long-
term debt outstanding, including current maturities, approximates fair
value.

First mortgage bonds are secured by liens on substantially all gas
distribution property and franchises.

Interest payments, net of amounts capitalized, for both long- and short-
term borrowings were $44.5 million, $44 million and $41.5 million during
1993, 1992 and 1991, respectively.

Interest on debt was net of amounts capitalized of $.3 million, $2.8
million and $2.5 million in 1993, 1992 and 1991, respectively.

NICOR Inc. Page 39

Notes to the Consolidated Financial Statements (continued)

Sinking Fund and Maturities
The amounts necessary to fulfill mandatory sinking fund requirements and
maturities are shown below:

(Millions) 1994 1995 1996 1997 1998

Long-term debt $ - $50.0 $62.5 $25.0 $25.0
Preferred and
preference stock .3 .6 .6 .6 .8

$ .3 $50.6 $63.1 $25.6 $25.8

Redeemable Preferred and Preference Stock

Annual cumulative Optional
sinking fund redemp- Liquida-
requirement tion tion
Class Series Shares Price price price

Preferred 4.48% 6,000 $ 50.50 $ 51.06 $ 51.06
5.00 4,000 50.50 51.00 51.00
Preference 7.90 500 500.00 505.00 500.00

The default provisions of the preferred and preference shares generally
state that no redemption of the respective class may take place unless all
shares of each respective series are redeemed. They also provide that no
shares may be purchased except pursuant to offers of sale made by holders
of the respective class of shares in response to an invitation for
tenders.

In January 1994, the Board of Directors authorized the redemption of the
company's 7.90% preference stock at a price of $505 per share on May 1,
1994.

Stock Options
NICOR has a plan which permits the granting of stock options, alternate
stock rights, restricted stock and performance units to key executives and
managerial employees. Performance units may be paid in shares of the
company's common stock, cash or a combination of the two. The stock
option purchase price may not be less than the fair market value on the
date of grant. Under the plan, 2,500,000 shares of the company's common
stock were available for grant.

NICOR Inc. Page 40

Notes to the Consolidated Financial Statements (continued)

A summary of stock option activity follows:
Number Option price
of shares per share

December 31, 1990 252,280 $13.3125-18.50
Granted 112,000 21.25 -21.6875
Exercised (101,480) 13.3125-18.50
Cancelled (14,000) 15.875 -21.375

December 31, 1991 248,800 13.3125-21.6875
Granted 318,000 19.625
Exercised (69,400) 14.0625-21.375
Cancelled (9,000) 15.875 -21.6875

December 31, 1992 488,400 13.3125-21.375
Granted 163,400 28.9375
Exercised (220,400) 13.3125-21.375
Cancelled (2,600) 28.9375

December 31, 1993 428,800 15.875 -28.9375

Options exercisable at
December 31, 1993 148,000

At December 31, 1993, 6,000 shares of restricted stock and 29,372
performance units were outstanding and 1,592,228 shares remained available
for future grant under the plan. The performance units were cancelled in
January 1994.

Change in Common Shares
On March 10, 1993, the Board of Directors approved a two-for-one stock
split of the company's common, preferred and preference stocks to
stockholders of record April 1, 1993. All references to prior year number
of shares and per share information in the consolidated financial
statements have been restated to reflect the stock split.

Changes in common shares outstanding are summarized below:

(Thousands) 1993 1992 1991

Beginning of year 55,770 57,300 57,932
Issued and converted 330 286 228
Reacquired and cancelled (2,141) (1,816) (860)

End of year 53,959 55,770 57,300

NICOR repurchased 666,900 shares in 1991 and 1,680,870 shares in 1992
under a common stock repurchase program. In 1993, the company announced
another common stock repurchase program to buy shares having an aggregate
market value of up to $100 million. Under this program, NICOR repurchased
1,877,575 shares in 1993.

NICOR Inc. Page 41

Notes to the Consolidated Financial Statements (continued)

Retained Earnings
In 1985, pursuant to a Board of Directors' resolution and in accordance
with the Illinois Business Corporation Act, the deficit in retained
earnings was charged against paid-in capital.

Industry Segment Information
See Item 7, Management's Discussion and Analysis of Financial Condition
and Results of Operations for industry segment information regarding
operating revenues, depreciation, operating income, identifiable assets
and capital expenditures.

Contingencies
The company is involved in legal or administrative proceedings before
various courts and agencies with respect to rates, taxes and other
matters.

In connection with the sale of the discontinued U.S. oil and gas
exploration and production operations, the company has agreed to indemnify
the purchaser against losses with respect to certain claims and
litigation. The largest potential liability relates to a dispute with the
producer of gas from one well who is claiming entitlement to Natural Gas
Policy Act (NGPA) Section 108 prices, which are substantially higher than
market prices, for production since 1989. While the FERC initially upheld
an Administrative Law Judge's decision in favor of NICOR Exploration
Company, it subsequently reversed itself and found for the producer.
NICOR Exploration Company has requested a hearing before the FERC and
intends to continue its appeal of the matter if not satisfactorily
resolved by the FERC. If NGPA 108 prices were determined to be applicable
and the gas purchase contracts were determined to be in effect, the
estimated additional cost including interest through December 31, 1993
could be about $10 million. The potential additional cost after December
31, 1993 is dependent on production rates, the mechanical condition and
economic life of the well, the difference between market prices and NGPA
108 prices, and other factors and therefore cannot be reasonably estimated
at this time.

Current environmental laws require treatment of certain waste materials
that may have been generated by barge-cleaning facilities previously owned
and operated by certain subsidiaries of NICOR. The cost of evaluation and
cleanup of such facilities is currently estimated to range from $10
million to $15 million. The company is evaluating whether any of these
costs will be recoverable from insurance or other sources.

Current environmental laws may require cleanup of certain former gas
manufacturing plant sites. Northern Illinois Gas currently owns 15
properties and formerly owned 15 properties believed to be the location of
such sites and has reviewed all owned properties along with one formerly
owned site. The company has prioritized the sites currently owned for
further testing and analysis and plans to test the higher risk owned sites
first to determine the extent of any remediation necessary. Reviews of
the remaining 14 formerly owned sites are being conducted.

NICOR Inc. Page 42

Notes to the Consolidated Financial Statements (continued)

Northern Illinois Gas understands that three of the 16 sites that have
been reviewed contain residues and waste materials that do not meet some
current environmental specifications. Two of these sites are owned and
the other was formerly owned by Northern Illinois Gas. Additional testing
and analysis on these sites will be conducted.

The results of continued reviews, testing and analysis should determine
whether any further testing or any remediation is necessary and may
provide a basis for estimating any additional costs to be incurred. While
such costs, based on industry experience, could be significant, the
company believes that any such costs not recovered from prior owners and
other sources will be recoverable by Northern Illinois Gas through its
rates. This belief is based upon, among other things, an Ill.C.C.
authorization allowing recovery of such costs by the company and a generic
order issued by the Ill.C.C. in September 1992 which states that Illinois
utilities may pass through prudently incurred gas manufacturing plant
cleanup costs to ratepayers over a five-year period, but denies the
utilities' request to recover capital costs on the uncollected balances.
In December 1993, the generic order was upheld by the Illinois Appellate
Court. Another party has indicated that it intends to seek leave to
appeal from the Appellate Court's decision. In January 1994, the company
began recovery of cleanup costs from its customers in accordance with an
Ill.C.C.-approved cost recovery plan.

Although unable to determine the outcome of these contingencies,
management believes that appropriate accruals have been recorded. Final
disposition of these matters is not expected to have a material impact on
the company's financial condition or results of operations.

NICOR Inc. Page 43

Notes to the Consolidated Financial Statements (concluded)

Quarterly Results (Unaudited)
Quarterly results fluctuate due mainly to the seasonal nature of the gas
distribution business.

1993 Quarter ended
(Millions,
except per share data) Mar. 31 June 30 Sept. 30 Dec. 31
Operating revenues $672.6 $278.1 $185.5 $537.8
Operating income 79.9 34.0 21.1 63.1
Income from continuing
operations 46.4 16.7 9.2 37.2
Discontinued operations,
net 2.3 - - -
Net income 48.7 16.7 9.2 37.2
Earnings per share
Continuing operations $ .83 $ .29 $ .16 $ .68
Discontinued operations .04 - - -
$ .87 $ .29 $ .16 $ .68

1992 Quarter ended

Mar. 31 June 30 Sept. 30 Dec. 31
Operating revenues $563.8 $244.5 $171.5 $566.7
Operating income 69.4 33.6 22.5 62.9
Income from continuing
operations 38.6 16.1 9.0 31.3
Discontinued operations,
net 1.3 1.4 2.5 8.1
Net income 39.9 17.5 11.5 39.4
Earnings per share
Continuing operations $ .68 $ .28 $ .16 $ .56
Discontinued operations .02 .03 .04 .14
$ .70 $ .31 $ .20 $ .70

NICOR Inc. Page 44

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

None.

PART III

Items 10 and 11. Directors and Executive Officers of the Registrant and
Executive Compensation

Information on directors and executive compensation is contained on pages
2 through 7 and 13 through 17 of the Definitive Proxy Statement, dated
March 9, 1994, and is incorporated herein by reference. Information
relating to the executive officers of the registrant is provided on page
11 in Part I of this document.

Item 12. Security Ownership of Certain Beneficial Owners and Management

Information on shares beneficially owned by directors, nominees for
directors and executive officers is contained on page 7 of the Definitive
Proxy Statement, dated March 9, 1994, and is incorporated herein by
reference.

Item 13. Certain Relationships and Related Transactions

None.

NICOR Inc. Page 45

PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K

(a) 1) Financial Statements:

For the following information, see Part II, Item 8 on page 25.

Report of Independent Public Accountants
Consolidated Financial Statements:
As of December 31, 1993 and 1992 -
Balance Sheet
Statement of Capitalization
For the years ended December 31, 1993, 1992 and 1991 -
Statement of Income
Statement of Cash Flows
Statement of Common Equity
Notes to the Consolidated Financial Statements

2) Financial Statement Schedules:

Schedule
Number Page

Report of Independent Public Accountants 26
V Property, Plant and Equipment 46
VI Accumulated Depreciation, Depletion and
Amortization of Property, Plant and
Equipment 48
VIII Valuation and Qualifying Accounts 50
IX Short-Term Borrowings 51
X Supplementary Income Statement Information 52

Certain reclassifications were made to conform the prior years'
schedules to the current year presentation. Schedules other
than those listed are omitted because they are either not
required or not applicable.

3) Exhibits Filed:

See Exhibit Index on pages 54 through 58 filed herewith.

(b) The company did not file a report on Form 8-K during the fourth
quarter of 1993.

<TABLE>

NICOR Inc. Page 46

Schedule V-A

PROPERTY, PLANT AND EQUIPMENT
(Millions)
<CAPTION>

Column A Column B Column C Column D Column E Column F
Retirements Other
Balance at (at cost or changes- Balance at
beginning Additions estimated add end of
Classification(a) of period at cost(b) cost) (deduct) period

1993

Gas distribution
<S> <C> <C> <C> <C> <C> <C> <C>
(see Schedule V-B) $2,567.5 $ 118.0 $ 21.2 $ (.2) $2,664.1
Shipping 211.8 14.1 2.9 (3.2) 219.8
Other - .1 - .1 .2
$2,779.3 $ 132.2 $ 24.1 $ (3.3) $2,884.1

1992

Gas distribution
(see Schedule V-B) $2,473.5 $ 124.0 $ 30.0 $ - $2,567.5
Shipping 190.8 24.2 3.2 - 211.8
$2,664.3 $ 148.2 $ 33.2 $ - $2,779.3

1991

Gas distribution
(see Schedule V-B) $2,356.8 $ 132.2 $ 15.5 $ - $2,473.5
Shipping 157.7 36.9 3.7 (.1) 190.8
$2,514.5 $ 169.1 $ 19.2 $ (.1) $2,664.3

(a) Property, plant and equipment are depreciated over estimated useful lives on a straight-
line basis. The gas distribution plant is depreciated using a composite rate of 3.7
percent. The useful life estimates of the vessels are 15-25 years.

(b) Additions were acquired in the normal course of business.
</TABLE>

<TABLE>
NICOR Inc. Page 47

Schedule V-B

PROPERTY, PLANT AND EQUIPMENT--GAS DISTRIBUTION SEGMENT
(Millions)
<CAPTION>

1993

<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Production $ 82.1 $ - $ 2.6 $ - $ 79.5
Storage 384.0 5.1 .7 - 388.4
Transmission 225.2 5.9 .1 - 231.0
Distribution 1,651.0 90.9 8.9 - 1,733.0
General 179.7 13.3 8.9 (.2) 183.9
Construction work in progress 9.2 2.8 - - 12.0
Gas exploration investments 36.3 - - - 36.3
$2,567.5 $ 118.0 $ 21.2 $ (.2) $2,664.1

1992

Production $ 82.2 $ - $ .1 $ - $ 82.1
Storage 378.5 5.9 .4 - 384.0
Transmission 220.6 4.8 .2 - 225.2
Distribution 1,585.1 73.3 7.4 - 1,651.0
General 138.5 63.1 21.9 - 179.7
Construction work in progress 32.3 (23.1) - - 9.2
Gas exploration investments 36.3 - - - 36.3
$2,473.5 $ 124.0 $ 30.0 $ - $2,567.5

1991

Production $ 82.2 $ - $ - $ - $ 82.2
Storage 372.0 6.8 .3 - 378.5
Transmission 219.3 2.8 1.5 - 220.6
Distribution 1,505.4 87.3 7.6 - 1,585.1
General 130.5 14.1 6.1 - 138.5
Construction work in progress 11.1 21.2 - - 32.3
Gas exploration investments 36.3 - - - 36.3
$2,356.8 $ 132.2 $ 15.5 $ - $2,473.5

(a) The straight-line method of depreciation is used for all classes of depreciable property,
plant and equipment using a composite rate of 3.7 percent.

(b) Additions to gas distribution plant were acquired in the normal course of business.
</TABLE>

<TABLE>
NICOR Inc. Page 48

Schedule VI-A

ACCUMULATED DEPRECIATION, DEPLETION AND
AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
(Millions)
<CAPTION>

Column A Column B Column C Column D Column E Column F
Additions Other
Balance at charged to changes- Balance at
beginning costs and Retirements add end of
Description of period expenses (net) (deduct) period

1993

Gas distribution
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(see Schedule VI-B) $1,069.3 $ 83.7 $ 28.1 $ 5.6(a) $1,130.5
Shipping 87.4 12.8 2.5 (.3) 97.4
$1,156.7 $ 96.5 $ 30.6 $ 5.3 $1,227.9

1992

Gas distribution
(see Schedule VI-B) $1,014.8 $ 81.8 $ 33.3 $ 6.0(a) $1,069.3
Shipping 76.5 12.9 2.0 - 87.4
$1,091.3 $ 94.7 $ 35.3 $ 6.0 $1,156.7

1991

Gas distribution
(see Schedule VI-B) $ 953.3 $ 77.7 $ 22.3 $ 6.1(a) $1,014.8
Shipping 67.7 11.7 2.9 - 76.5
$1,021.0 $ 89.4 $ 25.2 $ 6.1 $1,091.3

(a) Depreciation charged to clearing accounts.
</TABLE>

<TABLE>
NICOR Inc. Page 49

Schedule VI-B

ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION
OF PROPERTY, PLANT AND EQUIPMENT--GAS DISTRIBUTION SEGMENT
(Millions)
<CAPTION>

1993

<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Production $ 82.0 $ (2.4) $ - $ - $ 79.6
Storage 148.2 9.6 .8 - 157.0
Transmission 97.0 8.1 .3 - 104.8
Distribution 679.0 61.6 16.8 - 723.8
General 26.8 6.8 10.2 5.6 29.0
Gas exploration investments 36.3 - - - 36.3
$1,069.3 $ 83.7 $ 28.1 $ 5.6 $1,130.5

1992

Production $ 82.0 $ - $ - $ - $ 82.0
Storage 139.1 9.6 .5 - 148.2
Transmission 89.9 8.4 1.3 - 97.0
Distribution 629.7 59.0 9.7 - 679.0
General 37.8 4.8 21.8 6.0 26.8
Gas exploration investments 36.3 - - - 36.3
$1,014.8 $ 81.8 $ 33.3 $ 6.0 $1,069.3

1991

Production $ 82.1 $ - $ .1 $ - $ 82.0
Storage 130.0 9.5 .4 - 139.1
Transmission 83.9 8.1 2.1 - 89.9
Distribution 586.6 56.9 13.8 - 629.7
General 34.4 3.2 5.9 6.1 37.8
Gas exploration investments 36.3 - - - 36.3
$ 953.3 $ 77.7 $ 22.3 $ 6.1 $1,014.8

(a) Depreciation charged to clearing accounts.
</TABLE>

<TABLE>
NICOR Inc. Page 50

Schedule VIII

VALUATION AND QUALIFYING ACCOUNTS
(Millions)
<CAPTION>

Column A Column B Column C Column D Column E
Additions
Balance at Charged to Charged Balance at
beginning costs and to other end of
Description of period expenses accounts Deductions period

1993

Allowance
for uncollectible
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
accounts receivable $ 7.3 $ 8.8 $ - $ 9.3(a) $ 6.8
Reserve for estimated
future costs related to
discontinued businesses 17.2 9.4 - 6.6(b) 20.0

1992

Allowance
for uncollectible
accounts receivable $ 7.8 $ 6.1 $ - $ 6.6(a) $ 7.3
Reserve for estimated
future costs related to
discontinued businesses 20.3 - - 3.1(b) 17.2

1991

Allowance
for uncollectible
accounts receivable $ 7.3 $ 8.4 $ - $ 7.9(a) $ 7.8
Reserve for estimated
future costs related to
discontinued businesses 24.2 - - 3.9(b) 20.3

(a) Accounts receivable written off, net of collections.

(b) Costs, operating results and dispositions related to discontinued businesses charged to reserve.
</TABLE>

<TABLE>
NICOR Inc. Page 51

Schedule IX

SHORT-TERM BORROWINGS
(Millions)
<CAPTION>

Column A Column B Column C Column D Column E Column F
Maximum Average Weighted
Category of Weighted amount amount average
aggregate Balance at average outstanding outstanding interest rate
short-term end of interest during the during the during the
borrowings period rate period period(a) period(a)

1993

Commercial
<S> <C> <C> <C> <C> <C> <C> <C> <C>
paper $ 301.5 3.25% $ 328.0 $ 133.1 3.17%

Bank loans 2.5 4.60 15.0 14.2 4.65

$ 304.0

1992

Commercial
paper $ 328.0 3.33% $ 342.0 $ 122.3 3.55%

Bank loans 15.0 5.85 63.5 18.5 5.03

$ 343.0

1991

Commercial
paper $ 213.5 4.92% $ 221.5 $ 57.4 5.91%

Bank loans 15.0 5.01 15.0 11.8 6.32

$ 228.5

(a) Based on outstanding daily balance.
</TABLE>

<TABLE>
NICOR Inc. Page 52

Schedule X

SUPPLEMENTARY INCOME STATEMENT INFORMATION
(Millions)
<CAPTION>

Column A Column B

Charged to costs and expenses

Item 1993 1992 1991

<S> <C> <C> <C> <C> <C> <C>
Maintenance and repairs $ 26.1 $ 25.7 $ 23.5

Taxes, other than payroll and
income taxes:
State utility taxes $ 70.2 $ 64.2 $ 63.3
Municipal utility tax 25.7 22.4 20.6
Other 12.7 13.0 12.1
</TABLE>

NICOR Inc. Page 53

Signatures

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

NICOR Inc.

Date March 24, 1994 By JOHN J. LANNON
John J. Lannon
Senior Vice President and
Chief Financial Officer

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

Signature Title Date

RICHARD G. CLINE Chairman, President, Chief
Richard G. Cline Executive Officer and Director

JOHN J. LANNON Senior Vice President, Chief
John J. Lannon Financial Officer and Principal
Accounting Officer

ROBERT M. BEAVERS, JR.* Director

JOHN H. BIRDSALL, III* Director

W. H. CLARK* Director

THOMAS L. FISHER* Director March 24, 1994

JOHN E. JONES* Director

PAUL R. JUDY* Director

CHARLES S. LOCKE* Director

SIDNEY R. PETERSEN* Director

DANIEL R. TOLL* Director

PATRICIA A. WIER* Director

*By DAVID L. CYRANOSKI
David L. Cyranoski (Attorney-in-fact)

NICOR Inc. Page 54

Exhibit Index

Exhibit
Number Description of Document

3.01 * Articles of Incorporation of the company. (File No. 2-55451,
Form S-14 for March 1976, NICOR Inc., Exhibit 1-03 and Exhibit
B of Amendment No. 1 thereto.)

3.02 * Amendment to Articles of Incorporation of the company. (File
No. 2-68777, Form S-16 for August 1980, NICOR Inc., Exhibit
2-01.)

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

3.04 * Amendment to Articles of Incorporation of the company. (File
No. 1-7297, Form 10-Q for March 1987, NICOR Inc., Exhibit
19-01.)

3.05 * By-Laws of the company as amended by the company's Board of
Directors on January 28, 1992, effective April 16, 1992. (File
No. 1-7297, Form 10-K for 1991, NICOR Inc., Exhibit 3-05.)

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

4.01 * Indenture of Commonwealth Edison Company to Continental
Illinois National Bank and Trust Company of Chicago, Trustee,
dated as of January 1, 1954. (File No. 1-1839, Form 8-K for
February 1954, Northern Illinois Gas Company, Exhibit 2.)

4.02 * Indenture of Adoption of Northern Illinois Gas Company to
Continental Illinois National Bank and Trust Company of
Chicago, Trustee, dated February 9, 1954. (File No. 1-1839,
Form 8-K for February 1954, Northern Illinois Gas Company,
Exhibit 3.)

4.03 * Supplemental Indenture, dated June 1, 1963, of Northern
Illinois Gas Company to Continental Illinois National Bank and
Trust Company of Chicago, Trustee, under Indenture dated as of
January 1, 1954. (File No. 2-21490, Form S-9, Northern
Illinois Gas Company, Exhibit 2-8.)

4.04 * Supplemental Indenture, dated May 1, 1966, of Northern Illinois
Gas Company to Continental Illinois National Bank and Trust
Company of Chicago, Trustee, under Indenture dated as of
January 1, 1954. (File No. 2-25292, Form S-9, Northern
Illinois Gas Company, Exhibit 2-4.)

4.05 * Supplemental Indenture, dated June 1, 1971, of Northern
Illinois Gas Company to Continental Illinois National Bank and
Trust Company of Chicago, Trustee, under Indenture dated as of
January 1, 1954. (File No. 2-44647, Form S-7, Northern
Illinois Gas Company, Exhibit 2-03.)

NICOR Inc. Page 55

Exhibit Index (continued)

Exhibit
Number Description of Document

4.06 * Supplemental Indenture, dated April 30, 1976, between the
company and Continental Illinois National Bank and Trust
Company of Chicago, Trustee, under Indenture dated as of
January 1, 1954. (File No. 2-56578, Form S-9, Northern
Illinois Gas Company, Exhibit 2-25.)

4.07 * Supplemental Indenture, dated April 30, 1976, of Northern
Illinois Gas Company to Continental Illinois National Bank and
Trust Company of Chicago, Trustee, under Indenture dated as of
January 1, 1954. (File No. 2-56578, Form S-9, Northern
Illinois Gas Company, Exhibit 2-21.)

4.08 * Supplemental Indenture, dated July 1, 1989, of Northern
Illinois Gas Company to Continental Bank, National Association,
Trustee, under Indenture dated as of January 1, 1954. (File
No. 1-7296, Form 8-K for June 1989, Northern Illinois Gas
Company, Exhibit 4-01.)

4.09 * Supplemental Indenture, dated July 15, 1990, of Northern
Illinois Gas Company to Continental Bank, National Association,
Trustee, under Indenture dated as of January 1, 1954. (File
No. 1-7296, Form 8-K for July 1990, Northern Illinois Gas
Company, Exhibit 4-01.)

4.10 * Supplemental Indenture, dated August 15, 1991, of Northern
Illinois Gas Company to Continental Bank, National Association,
Trustee, under Indenture dated as of January 1, 1954. (File
No. 1-7296, Form 8-K for August 1991, Northern Illinois Gas
Company, Exhibit 4-01.)

4.11 * Supplemental Indenture, dated July 15, 1992, of Northern
Illinois Gas Company to Continental Bank, National Association,
Trustee, under Indenture dated as of January 1, 1954. (File
No. 1-7296, Form 10-Q for June 1992, Northern Illinois Gas
Company, Exhibit 4-01.)

4.12 * Supplemental Indenture, dated February 1, 1993, of Northern
Illinois Gas Company to Continental Bank, National Association,
Trustee, under Indenture dated as of January 1, 1954. (File
No. 1-7296, Form 10-K for 1992, Northern Illinois Gas Company,
Exhibit 4-17.)

4.13 * Supplemental Indenture, dated March 15, 1993, of Northern
Illinois Gas Company to Continental Bank, National Association,
Trustee, under Indenture dated as of January 1, 1954. (File
No. 1-7296, Form 10-Q for March 1993, Northern Illinois Gas
Company, Exhibit 4-01.)

NICOR Inc. Page 56

Exhibit Index (continued)

Exhibit
Number Description of Document

4.14 * Supplemental Indenture, dated May 1, 1993, of Northern Illinois
Gas Company to Continental Bank, National Association, Trustee,
under Indenture dated as of January 1, 1954. (File No. 1-7296,
Form 10-Q for March 1993, Northern Illinois Gas Company,
Exhibit 4-02.)

4.15 * Supplemental Indenture, dated July 1, 1993, of Northern
Illinois Gas Company to Continental Bank, National Association,
Trustee, under Indenture dated as of January 1, 1954. (File
No. 1-7296, Form 10-Q for June 1993, Northern Illinois Gas
Company, Exhibit 4-01.)

Other debt instruments are omitted in accordance with Item
601(b)(4)(iii)(A) of Regulation S-K. Copies of such agreements
will be furnished to the Commission upon request.

10.01 * Storage Service Agreement under Rate Schedule S-1 between
Northern Illinois Gas Company and Natural Gas Pipeline Company
of America, dated November 16, 1990. (File No. 1-7296, Form
10-K for 1990, Northern Illinois Gas Company, Exhibit 10-04.)

10.02 * Security Payment Plan. (File No. 1-7297, Form 10-K for 1980,
NICOR Inc., Exhibit 10-09.)

10.03 * 1984 NICOR Officers' Capital Accumulation Plan Participation
Agreement. (File No. 1-7297, Form 10-K for 1988, NICOR Inc.,
Exhibit 10-10.)

10.03(a)* 1985 NICOR Officers' Capital Accumulation Plan Participation
Agreement. (File No. 1-7297, Form 10-K for 1988, NICOR Inc.,
Exhibit 10-10(a).)

10.04 * 1984 NICOR Directors' Capital Accumulation Plan Participation
Agreement. (File No. 1-7297, Form 10-K for 1983, NICOR Inc.,
Exhibit 10-13.)

10.04(a)* 1985 NICOR Directors' Capital Accumulation Plan Participation
Agreement. (File No. 1-7297, Form 10-K for 1984, NICOR Inc.,
Exhibit 10-13(a).)

10.05 * Directors' Deferred Compensation Plan. (File No. 1-7297,
Form 10-K for 1983, NICOR Inc., Exhibit 10-16.)

10.06 * Restricted Stock and Supplemental Pension Agreement dated
July 10, 1985, between Richard G. Cline and the company. (File
No. 1-7297, Form 10-Q for September 1985, NICOR Inc.,
Exhibit 19-03.)

NICOR Inc. Page 57

Exhibit Index (continued)

Exhibit
Number Description of Document

10.07 * Directors' Pension Plan. (File No. 1-7297, Form 10-K for 1985,
NICOR Inc., Exhibit 10-18.)

10.08 * Flexible Spending Account for Executives. (File No. 1-7297,
Form 10-K for 1986, NICOR Inc., Exhibit 10-20.)

10.09 * Amendment and Restatement of the Northern Illinois Gas Company
Incentive Compensation Plan. (File No. 1-7297, Form 10-K for
1986, NICOR Inc., Exhibit 10-21.)

10.10 * NICOR Inc. 1989 Long-Term Incentive Plan. (Filed with NICOR
Inc. Proxy Statement, dated April 20, 1989, Exhibit A.)

10.11 * Supplemental Benefit Agreement, dated September 13, 1989,
between Richard G. Cline and the company. (File No. 1-7297,
Form 10-Q for September 1989, NICOR Inc., Exhibit 19-01.)

10.12 * NI-Gas Supplementary Retirement Plan. (File No. 1-7297,
Form 10-K for 1989, NICOR Inc., Exhibit 10-24.)

10.13 * NI-Gas Supplementary Savings Plan. (File No. 1-7297, Form 10-K
for 1989, NICOR Inc., Exhibit 10-25.)

10.14 * NICOR Salary Deferral Plan. (File No. 1-7297, Form 10-K for
1989, NICOR Inc., Exhibit 10-29.)

10.15 * 1993 NICOR Incentive Compensation Plan. (File No. 1-7297,
Form 10-K for 1992, NICOR Inc., Exhibit 10-22.)

10.16 * 1993 NI-Gas Incentive Compensation Plan. (File No. 1-7297,
Form 10-K for 1992, NICOR Inc., Exhibit 10-23.)

10.17 * 1993 Long-Term Incentive Program. (File No. 1-7297, Form 10-K
for 1992, NICOR Inc., Exhibit 10-24.)

10.18 1994 NICOR Incentive Compensation Plan.

10.19 1994 NI-Gas Incentive Compensation Plan.

10.20 1994 Long-Term Incentive Program.

10.21 * Summary of temporary employment agreement between John H.
Birdsall, III and Birdsall, Inc. (Included in NICOR Inc. Proxy
Statement dated March 9, 1994, pages 6 and 7.)

Exhibits 10.02 through 10.21 constitute management contracts and
compensatory plans and arrangements required to be filed as exhibits to
this form pursuant to Item 14(c) of Form 10-K.

NICOR Inc. Page 58

Exhibit Index (concluded)

Exhibit
Number Description of Document

21.01 Subsidiaries.

23.01 Consent of Independent Public Accountants.

24.01 Powers of Attorney.

* 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.

NICOR Inc.
Form 10-K
Exhibit 10.18

1994
NICOR INCENTIVE COMPENSATION PLAN

A. The 1994 NICOR Incentive Compensation Plan is designed to link
participant incentive compensation to the accomplishment of important
objectives--both financial goals and defined strategic plans. It
ties the pay an individual receives to his performance and that of
the Company. This plan is intended to provide a flexible framework
for a performance bonus program for NICOR.

B. Purpose

The purpose of this Plan is to provide an annual incentive plan which
supports the longer-term strategic planning process. This is done by
linking pay to the performance of tasks which focus on objectives of
strategic importance.

C. Eligible Group

Officers of NICOR. Participation should be limited to those
employees in positions which enable them to make significant
contributions to the performance and growth of the Company.

D. Components of Plan

Compensation Objective
Bonus Targets
Performance Targets
Goal Setting Guidelines
Program Schedule
Form of Payment

Compensation Objective

Base Salary + Bonus Target - Short-Term Compensation Objective

An individual's short-term compensation objective will be based on
salary plus a bonus, expected to be earned if agreed-upon performance
targets are met. Under certain conditions, short-term compensation
above or below targets may be paid.

Base salaries will be managed at the industry average which will be
determined annually by survey data. Bonus targets will be set based
on the individual's grade level and Compensation Objective, such that
total compensation objectives are managed at the level as determined
by the Compensation Committee to remain competitive with industry.

-2-

Bonus Target

The bonus target amount varies according to pay, salary grade and
ability to impact the organization. The higher responsibility and
impact levels, the greater the dollars at risk.

Performance Targets

Performance criteria would focus on the achievement of agreed-upon
and documented strategic goals. Performance targets will include
measures of financial performance, the ability to meet budget levels
and individual or group performance objectives. An individual's
target may include all three types of goals, weighted by the grade
level and responsibilities involved. Each particular performance
target will be assigned weighting reflected as a percentage of
compensation objective.

Goal Setting Guidelines

The most important aspect of this Plan will be in establishing
effective goals. In addition to the goals which will be measured by
Company financial performance, realistic, operational management
goals must be established and agreed upon by both the participant and
his supervisor for Company, Division, Project or Individual
performance. As well as being realistic, the goals should be
measurable wherever possible by quantifiable performance criteria.
It is recognized that measurement of some goals will require
subjective assessments on criteria mutually agreed between an
individual and his/her supervisor. Goals must be consistent with the
longer-term strategic plan.

A set of guidelines will be devised by the NICOR Human Resources
Department to aid in this process. These guidelines will provide
direction as to goal formulation and reporting.

Amount of bonus payment for financial/budget related goals can vary
above and below target based upon results achieved. For targets met,
bonus amount will be 100% of target. When targets are exceeded or
are not reached, bonus will be proportionately more or less than the
target.

Project or individual goals which are not quantifiable will be
evaluated by the participant's superior based on performance and will
fall into one of five categories of achievement: unsatisfactory;
less than expected, but acceptable given facts and circumstances;
expected; more than expected, but less than outstanding; and
outstanding performance. Accordingly, performance at, below or above
expected performance will result in awards relative to performance.
The award range will be: less than 100% to zero, and 100% to 150%.

-3-

The Compensation Committee may make appropriate upward or downward
adjustments if, after taking into consideration all of the facts and
circumstances of the performance period, it determines that
adjustments are warranted.

Plan Schedule

The 1994 NICOR Incentive Compensation Plan runs on a calendar year
basis, with the strategic planning cycle and budgeting process the
primary link to performance and bonus targets. Responsibility for
determination of financial results will be with the Accounting
Department. A program for review will be established and Individual,
Project, Division or Company goal performance will be reviewed at
least twice each performance year.

Year-end results should be available and evaluated by February 15.
Following approval of the Compensation Committee and Board at the
February or March meeting, bonuses will be payable to participants.

Form of Payment

All awards will be paid in cash, less required taxes. A participant
may elect by writing to the Compensation Committee prior to the end
of the fiscal year to have all or a portion of the following year's
incentive award deferred and paid in no more than five annual
installments beginning either with the date of termination or
retirement, or in a lump sum within six months after termination of
employment or retirement. In addition, with the consent of the
Compensation Committee, the participant may, at the time of making
such election, designate some other date for the commencement of such
deferred payment. Further, the participant may submit a request to
change the original deferral period. The request must be submitted
in writing to the Compensation Committee who will take into
consideration the particular facts and circumstances in its final
determination.

An amount which is deferred shall be credited with compounded
interest equal to the prime rate applied on a quarterly basis.

E. Integration with Existing Programs

Base salaries will be managed with range standards at the industry
average for comparable positions, with total compensation objectives
to be managed at a level appropriate with the performance of the
Company within industry, as determined by the Compensation Committee.
Salaries will be monitored each year and increases granted based on
merit and range standard. Bonus targets will be set as a percentage
of base salary. A change, other than the annual salary review, in
the Compensation Objective

-4-

will customarily occur during the year only through promotion to
various levels, at which time the base salary and bonus target are
also likely to change.

Promotion of an employee during the year or reassignment to
responsibilities in which new performance objectives apply will
result in proration of the existing performance objectives and bonus
target and assignment of new performance objectives as the
Compensation Committee shall determine. Promotion into the Plan
would involve a promotional increase, but eligibility for bonus would
be delayed unless the participant is able to produce positive results
in the remaining time, as determined by the Compensation Committee.

If a participant voluntarily terminates or is terminated for cause
prior to the end of the performance period, then no award shall be
granted. In the event a participant shall die, become disabled,
retire or is terminated without cause before the end of the
performance period, then the Compensation Committee will authorize
payment of an award to the participant, or beneficiary, in such
amount as the Committee deems appropriate.

F. Responsibility

Acceptance and success of this Plan will depend on documented,
realistic goals that are fair, understandable and measurable.
Considerable management focus and involvement will be required for
goals to be established, communicated and monitored.

The Human Resources Department will be responsible for the
administration of the system for the Company. This will include:

1) monitoring industry salary and total compensation levels,

2) recommending structural changes in base salary and compensation
objective adjustments,

3) reviewing eligibility and performance targets,

4) monitoring performance targets through the Accounting
Department,

5) communicating progress report to participants, and,

6) progress and exception reporting to Compensation Committee.

-5-

The 1994 NICOR Incentive Compensation Plan and changes to its
performance targets and measurement criteria will be reviewed and
approved by the Compensation Committee.

In establishing the actual bonus awards to be made, the Compensation
Committee may take into account all of the facts and circumstances
which exist during the year and may make appropriate upward or
downward revisions in performance criteria, add or delete objectives,
or change the relative percentages assigned to the various
performance objectives.

G. Amendment and Termination

The Board of Directors may amend or terminate the Plan at any time
without the consent of the participants. No such amendment or
termination shall negatively impact any participant's amount which
accrued under the Plan prior to the calendar year in which the
amendment is made.

Summary

The primary focus of this Plan is to link employee and Company
performance and performance bonus through an incentive plan. It
provides the necessary emphasis on accountability for actions and
decisions and enables people to gain personally through significant
efforts which contribute to the Company's present and future success.

NICOR Human Resources Department

NICOR Inc.
Form 10-K
Exhibit 10.19

1994
NI-GAS INCENTIVE COMPENSATION PLAN

A. Purpose

B. Eligible Group

Officers of NI-Gas in Salary Grades EX-1 or higher. Participation
should be limited to those employees in positions which enable them
to make significant contributions to the performance and growth of
the Company.

C. Components of Plan

Compensation Objective
Bonus Targets
Performance Targets
Goal Setting Guidelines
Program Schedule
Form of Payment

Compensation Objective

Base Salary + Bonus Target - Short-Term Compensation Objective

Standards for base salaries will be managed at the appropriate
industry quartile which will be determined by survey data. Bonus
targets will be set based on the individual's grade level and
Compensation Objective, such that total compensation objectives are
managed at the level as determined by the Compensation Committee to
remain competitive with industry.

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Bonus Target

The bonus target amount varies according to pay and salary grade.
The higher responsibility, the greater the dollars at risk.

Performance Targets

Performance criteria focus on the achievement of agreed-upon and
documented strategic goals. Performance targets may include measures
of financial performance, defined group objectives or individual
performance objectives. Each particular performance target will be
assigned weighting reflected as a percentage of bonus target.

Goal Setting Guidelines

The most important aspect of this Plan will be in establishing
effective goals. In addition to the goals which will be measured by
Company financial performance, realistic, operational management
goals must be established. As well as being realistic, the goals
should be measurable wherever possible by quantifiable performance
criteria. It is recognized that measurement of some goals will
require subjective assessments of performance. Goals must be
consistent with the longer-term strategic plan.

Amount of bonus payment for financial/budget related goals can vary
above and below target based upon results achieved. For targets met,
bonus amount will be 100% of bonus target. When targets are exceeded
or are not reached, bonus will be proportionately more or less than
the target.

Project goals which are not quantifiable will be evaluated by the NI-
Gas C.E.O. based on performance and will fall into one of five
categories of achievement: unsatisfactory; less than expected, but
acceptable given facts and circumstances; expected; more than
expected, but less than outstanding; and outstanding performance.
Accordingly, performance at, below or above expected performance will
result in awards relative to performance.

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Plan Schedule

The 1994 NI-Gas Incentive Compensation Plan runs on a calendar year
basis, with the strategic planning cycle and budgeting process the
primary link to performance and bonus targets. Responsibility for
determination of financial results will be with the Accounting
Department. A program for review will be established and Project or
Company goal performance will be reviewed at least twice each
performance year.

Year-end results should be available and evaluated in February.
Following approval of the Compensation Committee and Board at the
February meeting, bonuses will be payable to participants.

Form of Payment

All awards will be paid in cash, less required taxes.

D. Integration with Existing Programs

Base salaries will be managed with range standards at the appropriate
industry quartile for comparable positions, with total compensation
objectives to be managed at a level appropriate with the performance
of the Company within industry, as determined by the Compensation
Committee. Salaries will be monitored each year and increases
granted based on merit and range standard. Bonus targets will be set
as a percentage of base salary. A change, other than the annual
salary review, in the Compensation Objective will customarily occur
during the year only through promotion to various levels, at which
time the base salary and bonus target are also likely to change.

Promotion into an Executive Salary Grade would create eligibility for
bonus at an amount prorated on a monthly basis (i.e., eligible for
the plan 9 months - 9/12 of an annual bonus).

If a participant voluntarily terminates or is terminated for cause
prior to the end of the performance period, then the participant will
be entitled to no award. In the event a participant shall die,
become disabled, or retire before the end of the performance period,
an award is payable prorated on a monthly basis or the Compensation
Committee may

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authorize payment of an award to the participant, or beneficiary, in
such other amount as the Committee deems appropriate.

E. Responsibility

The Human Resources Department will be responsible for the
administration of the system for the Company. This will include:

1) monitoring industry salary and total compensation levels,

2) recommending structural changes in base salary and compensation
objective adjustments, and,

3) assisting the NI-Gas C.E.O. in progress and exception reporting
to the Compensation Committee.

The NI-Gas C.E.O. shall be responsible for:

1) reviewing industry salary and compensation levels and approving
recommendations before presentation to the Compensation
Committee,

2) approving structural changes in base salary and compensation
objective adjustments before presentation to the Compensation
Committee,

3) recommending eligibility, performance targets and goals to the
Compensation Committee,

4) monitoring performance targets through the Accounting
Department and other sources of necessary documentation,

5) communicating progress reports to the participants, and,

6) reporting performance results and making award recommendations
to the Compensation Committee.

The Company's 1994 NI-Gas Incentive Compensation Plan and changes to
its performance targets and measurement criteria will be reviewed and
approved by the Compensation Committee.

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F. Amendment and Termination

Summary

The primary focus of this Plan is to link Company performance and
participant performance through an incentive plan. It enables people
to gain personally through the accomplishment of defined objectives
which are expected to contribute to the achievement of shareholder
value and to the Company's present and future success.

NICOR Human Resources Department

NICOR Inc.
Form 10-K
Exhibit 10.20

1994 Long-Term Incentive Program

At the January 1993 meeting of the Compensation Committee, the Committee
approved the 1993 Long-Term Incentive Plan. The Plan was discussed over a
series of meetings with the Committee, management and an executive
compensation consultant. Participants and awards were made at the April
meeting of the Committee. Management recommends the same approach be used
in 1994. Participants and awards will be proposed for approval at the
April meeting of the Committee. Shown below is a full description of the
proposed Long-Term Plan for 1994.

Summary of 1994 Long-Term Incentive Program

- - Combination of Stock Options (SOs) and Dividend Units (DUs).

- Annual grants of both, generally on a one-for-one basis.

- Nothing prevents the Committee from granting either freestanding
stock options or dividend units.

- - SOs have a ten-year term and would vest after three years.

- - DUs would accumulate dividend equivalents over a three-year period,
and would pay out based on total shareholder return over the period.

- - SOs and DUs would be freestanding.

- - The company will also continue to make selected use of restricted
stock.

Description of Stock Options

- - Option exercise price set at fair market value on date of grant.

- - Options vest after three years (100% in year 3).

- - Options expire ten years from date of grant.

- - Options can be NQSOs or ISOs; NICOR plans to grant NQSOs in 1994.

- 2 -

Description of Dividend Units

- - Each dividend unit accumulates all of the dividends paid on one share
of NICOR stock during the three-year period. As an example, if
NICOR's annual dividend grows at $0.05 per year from its current level
of $1.22, each unit would be worth $3.81 at the end of three years:

Year Annual Dividend Dividend Unit Value
1994 $1.22 $1.22
1995 $1.27 $2.49
1996 $1.32 $3.81

- - Accrued dividend equivalents are not reinvested in company stock, nor
is any interest paid on accrued dividends.

- - Dividend units accumulate no additional value after the end of the
three-year period.

- - Dividend units will pay out in cash.

How Dividend Unit Payouts are Determined

- - All dividend units pay out at the end of three years.

- - The payout is modified by a performance multiplier which ranges from 0
to 1.5.

- - The multiplier is based on NICOR total shareholder return (TSR) over
the three-year performance period, as compared to the performance of a
utility industry peer group (S&P utility group).

- 3 -

- - The following schedule shows the proposed dividend unit performance
multiplier schedule:

Dividend Unit
Performance Multiplier Schedule

NICOR TSR Performance
Percentile Relative Dividend Unit
To S&P Utility Group Payout Multiple
25th Percentile or Higher 1.5 X
40th Percentile 1.0 X
50th Percentile .75 X
60th Percentile .5 X
75th Percentile .25 X
Below 75th Percentile 0 X

- - If NICOR total shareholder return for the three-year period is
negative, the dividend unit payout multiple will be zero.

Termination Provisions

In the case of death, disability or retirement:

- - Non-vested options and dividend units held for more than one year (as
of the date of death, disability or retirement) will vest and/or pay
out in full.

- - The full number of dividend units will pay out at the end of the
three-year performance cycle, based on the normal per-unit
performance/pay out guidelines.

- - Vested options will remain exercisable for three years after the date
of death, disability or retirement.

- - The Compensation Committee can override these provisions at its
discretion.

In the case of termination of employment for any other reason, there will
be no accelerated vesting of unvested options and dividend units. Vested
options will remain exercisable for three months after the date of
termination. The Compensation Committee can override these provisions at
its discretion.

NICOR Human Resources
January, 1994

NICOR Inc.
Form 10-K
Exhibit 21.01

NICOR Inc.
Subsidiaries
At December 31, 1993*

State or
Jurisdiction of
Incorporation
Registrant

NICOR Inc. Illinois

Subsidiaries of Registrant

Gas Distribution
Northern Illinois Gas Company Illinois
NI-Gas Exploration, Inc. Illinois

Shipping
Birdsall, Inc. Florida
Belize Container Terminals, Ltd. Belize
Birdsall de Mexico, S.A. Mexico
Birdsall Shipping Co., Ltd. (85%) Liberia
Birdsall Shipping, S.A. (67%) Panama
Flotrin Air, Inc. Florida
Seven Seas Insurance Company, Inc. Florida
Transfresca, S.A. Honduras
Tropic Fresh, Inc. Delaware
Tropical Shipping and Construction Co., Ltd. Bahamas
Birdsall Shipping Co., Ltd. (15%) Liberia
Birdsall Shipping, S.A. (33%) Panama
Container Terminals, Ltd. Bahamas
Freship, S.A. Dominican
Republic
Seven Seas Insurance Company, Ltd. Bahamas
Tropic Express, Ltd. Bahamas
Tropical Shipping, Inc. Delaware
Tropical Shipping of Canada, Inc. Delaware
NICOR National Inc. Delaware
NICOR National Illinois Inc. Delaware
NICOR National Louisiana Inc. Delaware

Oil and Gas
NICOR Oil and Gas Corporation Delaware
NICOR Exploration International Company Delaware
NICOR Exploration Canada Ltd. Delaware
Reliance Pipeline Company Delaware
Reliance USA Inc. Delaware

Extractive
NICOR Mining Inc. Delaware

Other
NICOR Energy Services Company Delaware

These wholly owned subsidiaries are included in the consolidated financial
statements of NICOR Inc.

* List includes active subsidiaries only.

NICOR Inc.
Form 10-K
Exhibit 23.01

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation
by reference of our report, dated January 26, 1994, included in this
Form 10-K, into the company's previously filed Form S-3 Registration
Statement in connection with the NICOR Automatic Dividend Reinvestment and
Stock Purchase Plan (No. 33-27711), and Form S-8 Registration Statements
in connection with the NICOR Employee Stock Purchase Plan (No. 33-1732),
the NI-Gas Savings Investment Plan (No. 33-41805), the NI-Gas Thrift Plan
(No. 33-41804) and the NICOR 1989 Long-Term Incentive Plan (No. 33-31029).

ARTHUR ANDERSEN & CO.

Chicago, Illinois
March 24, 1994

NICOR Inc.
Form 10-K
Exhibit 24.01

POWER OF ATTORNEY