NICOR INC, 10-K405, 1995-03-24

NICOR INC
10-K405, 1995-03-24
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, 1994
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. [ X ]

As of February 28, 1995, 51,097,328 common shares were outstanding, and the
aggregate market value of voting securities held by non-affiliates of the
registrant was approximately $1.3 billion.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the company's 1995 Annual Meeting Definitive Proxy Statement,
dated March 22, 1995 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....................................... 9

4. Submission of Matters to a Vote of Security Holders..... 9

Executive Officers of the Registrant.................... 10

Part II

5. Market for Registrant's Common Equity and Related
Stockholder Matters................................... 11

6. Selected Financial Data................................. 12

7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................... 13

8. Financial Statements and Supplementary Data............. 26

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 Schedule, and Reports
on Form 8-K........................................... 45

Signatures.............................................. 47

Exhibit Index........................................... 48

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 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
3,400 employees at year-end 1994.

Gas distribution, NICOR's primary segment, accounted for approximately 90
percent of NICOR's assets at December 31, 1994 and 1993, up from 85 percent
at December 31, 1992. Northern Illinois Gas' operating income ranged from
91 percent to 94 percent of consolidated operating income during the three
years ended December 31, 1994. 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 13 through 25.

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.

GAS DISTRIBUTION

General

Northern Illinois Gas, formed in 1954, is one of the nation's largest gas
distribution utilities, serving more than 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, 53 percent of which expire in 20 years or more.

The Northern Illinois Gas service territory has a stable economic base that
provides strong and balanced demand among residential, commercial and
industrial customers. Residential customers account for about 45 percent of
the company's total gas deliveries, while industrial and commercial
customers account for approximately 30 percent and 25 percent of deliveries,
respectively (refer to Operating Statistics on page 20). In addition, the
company's five largest industrial customers operate in five distinct
industries and account for less than 10 percent of total deliveries. This
diversification reduces the potential impact of industry-specific economic
swings.

Gas deliveries are seasonal since approximately 50 percent are used for
space heating. Typically, 70 to 75 percent of deliveries and revenues occur
from October 1 to March 31.

NICOR Inc. Page 2

Item 1. Business (continued)

Customer Services

In addition to gas sales to all customer classes, Northern Illinois Gas
provides transportation, storage and 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 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. The company
also started a new service for the 1994-1995 heating season which makes
underground storage capacity available to transportation customers, gas
brokers and marketers for a fee. About 18 Bcf of storage capacity is
available under these two programs and approximately 7,100 customers,
brokers and marketers contracted to use the company's storage-for-fee
services during the 1994-1995 heating season. In addition, in 1993, the
company entered into a two-year agreement to lease 2 Bcf of storage capacity
to a gas marketer.

Northern Illinois Gas is continuing to explore ways of enhancing
profitability that benefit ratepayers and shareholders alike. In 1994, the
company entered into a five-year agreement with an interstate pipeline
company to transport gas from the pipeline through the Northern Illinois Gas
system to a neighboring gas distribution utility. The agreement, which
calls for Northern Illinois Gas to deliver up to 125 MMcf per day beginning
in late 1995, is pending Ill.C.C. approvals. In 1993, the company entered
into a partnership to develop 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 buyers and sellers of natural gas negotiate
transactions to transport or temporarily borrow or store gas supplies. In
late 1992, Northern Illinois Gas began offering account management services
to its transportation customers. These services include nominations for gas
acquisition, verification of customer purchases, gas storage management and
specialized customer billing. The company currently manages accounts for
about 1,500 of its 17,600 transportation customers. While the combined
operating results from these activities are modest, these ventures
demonstrate the company's commitment to developing nontraditional sources of
income.

NICOR Inc. Page 3

Item 1. Business (continued)

Sources of Gas Supply

Northern Illinois Gas contracts separately for gas supply, pipeline
transportation and leased storage services. The company also owns extensive
underground storage facilities located within its service territory.

FERC Order 636, issued in April 1992, substantially restructured the
interstate sale and transportation of gas beginning with the 1993-1994
heating season. Prior to FERC Order 636, Northern Illinois Gas purchased a
significant portion of its gas supplies from pipeline suppliers at rates
regulated by the FERC. The company now purchases gas supplies on a
deregulated basis directly from producers, marketers and pipeline
affiliates. Pipeline transportation and storage services are contracted for
separately at rates which continue to be regulated by the FERC. The
company's transition to the post-Order 636 operating environment was made
with no major difficulties. For further information, see page 34, FERC
Order 636.

The company contracts for gas supplies and pipeline transportation and
storage services, which when combined with company-owned storage, were
sufficient to meet peak day, seasonal and annual requirements during 1994.
On January 18, 1994, the company provided record customer deliveries of
4.6 Bcf of natural gas with no customer curtailments.

Northern Illinois Gas makes no representation as to either the existing or
potential gas reserves of its suppliers or to any future gas supply
curtailments.

Pipeline transportation contracts. Northern Illinois Gas is directly
connected to five interstate pipelines which provide access to most of the
major gas-producing areas in the United States and Canada. The company's
primary firm transportation contracts with these pipelines are summarized
below:

Total maximum
Year of service daily contract
agreement quantities
Major pipelines expiration (Bcf)

Natural Gas Pipeline Company
of America (NGPL) 1995(a) 1.04(b)

Midwestern Gas Transmission
Company (Midwestern) 2000 .27

Northern Natural Gas Company
(Northern Natural) 1997 .19

1.50

(a) This contract expires December 1, 1995. The company has entered into
negotiations with Natural Gas Pipeline Company of America concerning
pipeline services thereafter and believes an agreement will be
reached before the contract expiration date.
(b) Excludes .49 Bcf of delivered storage service.

NICOR Inc. Page 4

Item 1. Business (continued)

The company contracts for transportation capacity necessary to meet peak day
requirements. Contracted capacity that is not needed during off-peak
periods can be released to other shippers under FERC-mandated capacity
release provisions, with proceeds directly reducing the company's cost of
gas charged to customers. Northern Illinois Gas was active in the capacity
release market in 1994.

Gas supply. Northern Illinois Gas maintains a diversified portfolio of gas
supply contracts. At the end of 1994, the company had approximately 60 firm
direct gas supply contracts with terms generally ranging from one to five
years. Nearly half of the contracted volumes expire in 1995, and the
company expects to replace them with new contracts having terms generally
ranging from one to three years.

The company also purchases gas supplies on the spot market to take advantage
of favorable short-term pricing. In 1994, the company purchased
approximately 15 percent of its gas supplies on the spot market.

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

Year ended December 31
1994 1993 1992
Source Bcf % Bcf % Bcf %

Firm direct supply 246.8 84.6 139.3 46.8 76.0 25.6

Spot gas 44.8 15.4 115.8 38.9 69.3 23.4

Pipeline suppliers - - 42.8 14.3 150.4 50.7

Other - - - - .7 .3

291.6 100.0 297.9 100.0 296.4 100.0

The company's transportation customers also purchase gas supplies.
Approximately 40 percent of the gas that the company delivered in 1994 was
purchased by transportation customers directly from producers and marketers
rather than from the company.

NICOR Inc. Page 5

Item 1. Business (continued)

Storage. Northern Illinois Gas owns and operates seven underground gas
storage facilities. This storage system is one of the largest in the gas
distribution industry and is able to meet up to 65 percent of the company's
peak day deliveries and approximately 30 percent of its normal winter
deliveries. On an annual basis, the company cycles about 130 Bcf in and out
of storage. The company continues to take steps to increase the
capabilities of its storage facilities. Northern Illinois Gas also leases
about 36 Bcf of storage from interstate pipelines and other storage facility
operators. Storage facilities provide supply flexibility, improve
reliability of deliveries and help reduce costs.

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. The company has greatly increased
deliveries in the electric power generation market. In 1993, the company
began deliveries to provide gas to a large electric-generating station.
Deliveries to this station may vary widely from year to year depending on
demand for electricity, operation of other plants and the cost of natural
gas relative to other fuels. In 1994, the company delivered
31.4 Bcf of gas for electric power generation, compared to 11.7 Bcf in 1993.

Gas fired cogeneration provides another opportunity to increase gas
deliveries. The company estimates that customer use for cogeneration
accounted for about 4 Bcf of gas in 1994. While the operating costs of
cogeneration for some users are much lower than electricity, gas-fired
cogeneration requires an initial capital investment, and competitors have
made aggressive pricing moves to retain their market shares. In the future,
any deregulation of the electric utility industry may further increase
competition in the cogeneration market.

The Clean Air Act is having a positive impact on the demand for natural gas,
particularly in the relatively small but rapidly growing market for large-
tonnage gas air conditioning. Clean air initiatives require the phaseout of
ozone-depleting chlorofluorocarbon (CFC) refrigerants by the end of 1995.
As a result, many businesses are now turning to natural gas for their
cooling needs. Estimates indicate that the company's customers used about 1
Bcf of gas for large-tonnage gas air conditioning in 1994.

NICOR Inc. Page 6

Item 1. Business (continued)

Despite steady growth from customer additions and gains in diversified uses,
the net increase in annual deliveries is significantly affected by the
impact of continuing improvements in energy efficiency. In the next five
years, it is estimated that one-fourth of existing residential customers
will replace their heating systems with new, energy-efficient furnaces.
These efficiency improvements are expected to decrease annual gas deliveries
to existing customers by about 1 percent each year.

Northern Illinois Gas competes with other suppliers of energy based on such
factors as price, service and reliability. The company is well-positioned
to deal with the possibility of fuel switching by customers because it has
rates and services designed to compete against alternative fuels, and
because of 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. Northern
Illinois Gas also 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.
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 costs and
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
28,000 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.

NICOR Inc. Page 7

Item 1. Business (continued)

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.

Northern Illinois Gas Operating Statistics

Year ended December 31

1994 1993 1992

Percent of customers with gas
space heating 96.8% 96.7% 96.5%
Peak-day sendout (Bcf) 4.6 3.4 3.5
Average temperature on peak day
(degrees in Fahrenheit) (14) 6 2
Degree days* (normal 6,176) 5,851 6,172 5,714
Customers per employee (average) 775 748 720

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

See Item 7, Management's Discussion and Analysis of Financial Condition and
Results of Operations, page 20, for operating revenues, deliveries and
customers.

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. The company
also began a joint service with Compagnie Generale Maritime of France in
1993, providing shipping services to five ports in the eastern Caribbean
which had not previously been served by the company.

NICOR Inc. Page 8

Item 1. Business (concluded)

Tropical Shipping's fleet consists of 14 owned vessels with a container
capacity totaling approximately 3,100 TEUs. Whenever possible, excess
capacity in Tropical Shipping's 14-vessel fleet is chartered out on a short-
term basis. 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.

The current business environment in the Caribbean is characterized by modest
market growth, intensifying price competition and increasing service parity,
making cost management increasingly critical to Tropical Shipping's
financial performance. In order to meet these challenges, the company is
focusing on building closer ties with its customers, and improving its cargo
mix and operating efficiency. In addition, Tropical Shipping plans to
reduce capital spending through improved equipment management and vessel
utilization, and the reduction or elimination of low-margin port calls.
Growth is expected to come from higher-margin, less capital-intensive
services provided to existing markets and new destinations.

NEW VENTURES

NICOR Energy Services began operations in 1993, offering a variety of
maintenance and repair contracts for residential heating, air conditioning
and water heating equipment. The company now has about 11,000 customers.

In 1994, two new ventures, NICOR Technologies Inc. and NICOR Energy
Ventures, were formed. NICOR Technologies Inc. was created to move new
technologies, primarily natural gas-related, from concept to marketplace and
to offer consulting services to the natural gas industry. NICOR Energy
Ventures was formed as a holding company for several nonutility projects,
including the development of an electronic bulletin board system, management
of transportation accounts outside the Northern Illinois Gas service
territory, and participation in a partnership to develop a natural gas
vehicle infrastructure in the Chicago area.

Although not yet profitable, these new ventures are expected to complement
the strengths of the gas distribution business.

ENVIRONMENTAL MATTERS

Information with respect to environmental matters is presented in the
Contingencies section of the Notes to the Consolidated Financial Statements
on page 42.

NICOR Inc. Page 9

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.

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.
The generic order 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. In January 1994, the company began recovery
of cleanup costs from its customers in accordance with an Ill.C.C.-approved
cost recovery plan. In April 1994, the Illinois Supreme Court agreed to
hear an appeal filed by a consumer group, which argues that no cleanup costs
should be recoverable from ratepayers. Northern Illinois Gas and other
utilities argue that they should be entitled to recover capital costs in
addition to cleanup costs. For additional information, see page 42,
Contingencies.

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

None.

NICOR Inc. Page 10

Executive Officers of the Registrant

Name Age Current Position and Background

Richard G. Cline 60 Chairman and Chief Executive Officer, NICOR
(since 1986), and President, NICOR (1990-1994
and 1985-1987).*

Thomas L. Fisher 50 President and Chief Operating Officer, NICOR
(since 1994), as well as President and Chief
Executive Officer, Northern Illinois Gas
(since 1988).*

David L. Cyranoski 51 Senior Vice President, NICOR (March 1995),
Vice President, NICOR (1992-1995), Secretary
and Controller, NICOR (since 1992), as well
as Senior Vice President, Northern Illinois
Gas (March 1995), Vice President, Northern
Illinois Gas (1990-1995), Controller,
Northern Illinois Gas (since 1984) and
Secretary, Northern Illinois Gas (since
1993).

Thomas A. Nardi 40 Senior Vice President Nonutility Operations
and Business Development, NICOR (March 1995),
Vice President Business Development, NICOR
(1994-1995), as well as Senior Vice President
Business Development, Northern Illinois Gas
(March 1995), Vice President Business
Development and Supply, Northern Illinois Gas
(1990-1995), Secretary, Northern Illinois Gas
(1989-1992) and Treasurer, Northern Illinois
Gas (1989-1990).

John C. Flowers 56 Vice President Human Resources, NICOR (since
1984), as well as Vice President Personnel,
Northern Illinois Gas (since 1993).

Donald W. Lohrentz 58 Treasurer, NICOR (since 1987), as well as
Vice President Northern Illinois Gas (since
1985). Treasurer, Northern Illinois Gas
(1990-1993, 1984-1989).

Edwin M. Werneke 56 Vice President Supply Ventures, NICOR (March
1995), as well as Vice President Supply
Administration, Northern Illinois Gas (March
1995) and Assistant Vice President, Northern
Illinois Gas (1988-1995).

* Mr. Cline has announced plans to retire as Chief Executive Officer of
NICOR in May 1995 and as Chairman in December 1995. Mr. Fisher is
expected to become Chief Executive Officer and Chairman upon Mr. Cline's
retirement.

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

NICOR Inc. Page 11

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, 1995, there were approximately 43,500 common stockholders of
record. On March 14, 1995, the Board of Directors declared a quarterly
common stock dividend of 32 cents per share, payable May 1, 1995, to
stockholders of record March 31, 1995. This payment represents an annual
rate of $1.28 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. In July 1994, NICOR completed a $100 million common stock buy-back
program initiated in 1993. In October 1994, another common stock repurchase
program totaling $50 million was initiated. 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 1994 and 1993, restated for the two-for-one stock split in April
1993, are as follows:

Stock price Dividends
Quarter High Low declared
1994
First $29-1/4 $25-1/8 $.315
Second 28-1/4 25-1/8 .315
Third 26-1/2 23-5/8 .315
Fourth 25 21-7/8 .315

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

<TABLE>
NICOR Inc. Page 12

Item 6. Selected Financial Data
<CAPTION>
Year ended December 31

(Millions, except per share data) 1994 1993 1992 1991 1990

<S> <C> <C> <C> <C> <C>
Operating revenues $1,609.4 $1,673.9 $1,546.5 $1,457.1 $1,471.7

Operating income $ 193.7 $ 198.1 $ 188.3 $ 185.4 $ 181.1

Net income
Continuing operations $ 109.5 $ 109.4 $ 95.0 $ 99.6 $ 101.6
Discontinued operations - 2.3 13.3 9.0 11.9

$ 109.5 $ 111.7 $ 108.3 $ 108.6 $ 113.5

Earnings per share of common stock(a)
Continuing operations $ 2.07 $ 1.97 $ 1.67 $ 1.70 $ 1.73
Discontinued operations - .04 .24 .15 .20

$ 2.07 $ 2.01 $ 1.91 $ 1.85 $ 1.93

Dividends declared per share of common
stock(a) $ 1.26 $ 1.22 $ 1.18 $ 1.12 $ 1.06

Total assets $2,209.9 $2,222.1 $2,339.2 $2,279.7 $2,179.9

Capitalization
Long-term debt $ 458.9 $ 458.9 $ 417.2 $ 458.0 $ 421.5
Redeemable preferred and preference
stock 9.3 16.6 17.2 18.6 19.1
Nonredeemable preferred and preference
stock .1 .1 .1 4.2 4.8
Common equity 683.4 703.9 711.6 703.9 676.3

$1,151.7 $1,179.5 $1,146.1 $1,184.7 $1,121.7

<F1>
(a) Restated for the two-for-one stock split in April 1993.
</TABLE>

NICOR Inc. Page 13

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 1992 to 1994. 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 i.

SUMMARY

NICOR's two major business segments are gas distribution and shipping. Gas
distribution is NICOR's primary business, accounting for approximately
90 percent of consolidated assets at December 31, 1994 and 1993. NICOR
previously conducted operations in the oil and gas business, which were
classified as discontinued in the first quarter of 1993. The sale of oil
and gas operations was completed in 1993.

NICOR's 1994 income from continuing operations of $109.5 million was
essentially unchanged from 1993 as lower operating income basically offset
improvements in nonoperating items. In 1993, NICOR's income from continuing
operations was up 15 percent from 1992 due primarily to stronger operating
results in both the gas distribution and shipping segments and the 1992
write-down of an equity investment. Including income attributable to the
discontinued oil and gas segment, NICOR's 1993 net income was
$111.7 million.

Earnings per common share from continuing operations were $2.07 in 1994
compared with $1.97 in 1993 and $1.67 in 1992. Earnings per common share
including discontinued operations were $2.07, $2.01 and $1.91 for the same
years. Per share results benefitted from about 5 percent fewer average
shares outstanding in 1994 compared with 1993 and about 2 percent fewer
average shares in 1993 compared with 1992. Dividends declared per common
share were $1.26, $1.22 and $1.18 for 1994, 1993 and 1992, respectively.

Gas distribution operating income comparisons reflect 5 percent warmer-than-
normal weather in 1994, near normal weather in 1993 and 7 percent warmer-
than-normal weather in 1992. In 1994, gas distribution operating income
decreased 5 percent to $179.1 million as higher operating and maintenance
expenses and depreciation more than offset a $4.2 million gain on the sale
of oil and gas property interests. Further, deliveries increased 2 percent
due to additional deliveries for electric power generation, but the related
operating income benefit was more than offset by decreased demand associated
with 5 percent warmer weather. In 1993, gas distribution operating income
rose 4 percent to $187.6 million due primarily to the impact of colder
weather which was partially offset by higher operating and maintenance
expenses.

Shipping operating income rose 20 percent in 1994 to $18.6 million due to an
improved cargo mix, increased chartering activity and additional volumes
shipped. In 1993, shipping operating income was $15.5 million, up
$3.6 million. The improvement resulted mainly from increased volumes
shipped.

NICOR Inc. Page 14

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

Net cash flow from continuing operations increased in 1993 and 1994 due
primarily to the timing of gas cost recovery from customers and the impact
of colder weather in 1993 in the gas distribution segment.

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 July 1994, NICOR completed a $100 million common stock buy-back program
initiated in 1993. In October 1994, another common stock repurchase program
totaling $50 million was initiated. During the last three years, the
company has repurchased and retired almost 6 million common shares at a cost
of $150 million.

The company believes that 1995 will hold several earnings challenges which
will likely result in earnings below the 1994 level. Capital expenditures
in the gas distribution segment should exceed typical levels in 1995,
primarily because of a utility project which will enable the company to
reduce gas costs to its customers and help meet the demand for natural gas.
These expenditures will result in increased depreciation and interest
expense. In addition, 1994 included positive factors, such as income tax
benefits and gains on asset sales, not expected to recur in 1995.

(Millions) 1994 1993 1992

Operating revenues
Gas distribution $ 1,455.0 $ 1,533.3 $ 1,425.4
Shipping 153.0 140.5 121.1
Other 1.4 .1 -

$ 1,609.4 $ 1,673.9 $ 1,546.5

Operating income (loss)
Gas distribution $ 179.1 $ 187.6 $ 179.6
Shipping 18.6 15.5 11.9
Other (4.0) (5.0) (3.2)

$ 193.7 $ 198.1 $ 188.3

FACTORS AFFECTING BUSINESS PERFORMANCE

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

NICOR Inc. Page 15

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

Gas distribution. Since approximately 50 percent of gas deliveries are used
for space heating, fluctuations in weather can have a significant impact on
year-to-year comparisons of operating income and cash flow. In addition,
significant changes in gas prices or economic conditions can 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.

Direct connection to five interstate pipelines and significant underground
storage capacity allow the company to maintain rates that are among the
lowest in the nation, while providing transportation customers with direct
access to gas supplies and storage services. Northern Illinois Gas' storage
capabilities enable the company to minimize purchases of premium-cost
pipeline services. Also, the company is currently negotiating a new
contract for pipeline services from its primary pipeline transporter. One
objective of these negotiations is to further reduce the cost of peak-day
services while retaining needed operating flexibility. In addition, in an
effort to ensure supply reliability, Northern Illinois Gas purchases gas
from a diverse group of suppliers in several different producing regions
under varied contract terms.

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.
As a result, Northern Illinois Gas purchases gas supplies directly from
producers, marketers and pipeline affiliates while contracting separately
for pipeline transmission services. 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 34, FERC
Order 636.

Gas Distribution Operating Statistics

1994 1993 1992
Year-end customers (Thousands) 1,802.7 1,769.8 1,740.2
Margin per Mcf delivered $ .87 $ .88 $ .89
Average gas cost per Mcf sold 3.14 3.26 2.95
Degree days (Normal 6,176) 5,851 6,172 5,714

NICOR Inc. Page 16

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

In an effort to further reduce gas costs and strengthen its operating
system, Northern Illinois Gas began work in 1994 on the Elgin-Volo project,
a two-year, $65 million transmission and storage system improvement. The
initial phase was completed in 1994, improving withdrawal and delivery
capabilities at the company's storage field in Troy Grove, Illinois. The
second phase will consist of the construction of 28 miles of transmission
pipeline in one of the fastest growing regions of the company's service
territory. The project will provide gas cost savings to customers, enable
the company to meet future demand and provide the opportunity to sell
additional transportation and storage services.

Northern Illinois Gas has been able to increase gas deliveries in recent
years in part because of more diversified uses of natural gas. While the
majority of the company's growth in the past has been driven by customer
additions, diversified uses, such as electric power generation, cogeneration
and large-tonnage gas air conditioning, are expected to continue to account
for a significant portion of Northern Illinois Gas' growth in deliveries.

In 1993, Northern Illinois Gas began deliveries to provide gas to a large
electric-generating station. Deliveries to this station may vary widely
from year to year depending on demand for electricity, operation of other
plants and the cost of natural gas relative to other fuels. In 1994,
Northern Illinois Gas delivered 31.4 Bcf of gas for electric power
generation, far exceeding initial expectations.

Beyond efforts to increase natural gas deliveries in its service territory,
Northern Illinois Gas is working to increase profitability through
nontraditional opportunities. In 1994, the company made available for a fee
20 Bcf of Northern Illinois Gas storage capacity to various customers,
including transportation customers and a gas marketer. Also in 1994,
Northern Illinois Gas entered into a five-year agreement with an interstate
pipeline company to transport gas from the pipeline through the Northern
Illinois Gas system to a neighboring gas distribution utility. The
agreement, which calls for Northern Illinois Gas to deliver up to 125 MMcf
per day beginning in December 1995, is pending Ill.C.C. approvals.

In 1993, Northern Illinois Gas entered into a partnership to develop 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
buyers and sellers of natural gas negotiate transactions to transport or

NICOR Inc. Page 17

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

temporarily borrow or store gas supplies. In late 1992, Northern Illinois
Gas began offering account management services to its transportation
customers. These services include nominations for gas acquisition,
verification of customer purchases, gas storage management and specialized
customer billing. The company currently manages accounts for about 1,500 of
its 17,600 transportation customers.

While the combined operating results from these activities are modest, these
ventures demonstrate the company's commitment to developing nontraditional
sources of income.

Northern Illinois Gas plans to continue examining its operations in light of
the changing environment. Part of that process involves a review of the
company's organizational structure, which began in 1994 and has resulted in
significant changes to the company's sales and marketing organization.
Changes in other areas of the company are expected in 1995. Northern
Illinois Gas also initiated a program in 1994 aimed at reducing the level of
capital expenditures on an ongoing basis, while maintaining system
integrity.

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 the company to recover its costs and provide an
opportunity to earn a fair return for its investors. Changes in the
regulatory environment could affect the longer-term performance of Northern
Illinois Gas.

Northern Illinois Gas has avoided filing for a rate increase since 1981
because of growth in the company's service territory, decreasing interest
rates during that period, and the company's ability to manage costs and
develop new sources of revenue. If a rate case becomes necessary, the
company's objective will remain the same as in the past: to seek rate
relief to provide a fair return to stockholders. Beyond that, the company
will continue to control costs and take steps to mitigate the need for
future rate relief.

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.

The current business environment in the Caribbean is characterized by modest
market growth, intensifying price competition and increasing service parity,
making cost management increasingly critical to Tropical Shipping's
financial performance. In order to meet these challenges, the company is
focusing on building closer ties with its customers and improving its cargo
mix and operating efficiency. In addition, Tropical Shipping plans to
reduce capital spending through improved equipment management and vessel
utilization, and the reduction or elimination of low-margin port calls.

NICOR Inc. Page 18

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

Despite a more competitive environment, Tropical Shipping has continued to
maintain and broaden its customer base. In addition, whenever possible,
excess capacity in Tropical Shipping's 14-vessel fleet is chartered out on a
short-term basis. Growth is expected to come from higher-margin, less
capital-intensive services provided to existing markets and new
destinations.

In 1993, two new vessels were added to the fleet, increasing Tropical
Shipping's ability to serve new ports and enhance operating efficiency. The
company also began a joint service with Compagnie Generale Maritime of
France in 1993, providing shipping services to five ports in the eastern
Caribbean which had not previously been served by the company.

Shipping Operating Statistics

1994 1993 1992
TEUs shipped (Thousands)
Southbound 75.2 75.3 66.5
Northbound 16.7 16.1 13.3
Interisland 4.0 2.4 2.2

95.9 93.8 82.0

Ports served 22 22 16
Vessels owned 14 14 12

New ventures. Beyond efforts to increase profitability in its core
businesses, NICOR is working to increase shareholder value through several
new ventures in an unregulated environment. These NICOR efforts are
focusing on opportunities closely related to the company's strengths in its
primary business, natural gas distribution. Currently, these new ventures
include:

- selling maintenance and repair service contracts for residential
heating, air conditioning and water heating equipment,
- assisting clients in the area of natural gas product development,
testing and consulting,
- developing an improved instrument for detecting and measuring
combustible gases and carbon monoxide for commercial use,
- providing turnkey refueling stations for the emerging natural gas
vehicle market,
- selling an electronic bulletin board system, and
- managing natural gas transportation accounts outside the Northern
Illinois Gas service territory.

Although not yet profitable, these new ventures are expected to complement
the strengths of the gas distribution business.

Contingencies. In connection with the sale of the discontinued U.S. oil and
gas exploration and production operations, NICOR has agreed to indemnify the
purchaser against losses with respect to certain claims and litigation. The

NICOR Inc. Page 19

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

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 a barge-cleaning facility 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 42, 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 decreased 4 percent to
$1,609.4 million in 1994. Gas distribution revenues were 5 percent lower as
a result of the recovery from customers of lower gas costs, customers
switching from sales to transportation service and the effect of 5 percent
warmer weather. Shipping revenues rose 9 percent to $153 million due to an
improved cargo mix, increased charter activity and additional volumes
shipped.

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

Margin. Gas distribution margin, defined as operating revenues less cost of
gas and revenue taxes which are both passed directly through to customers,
rose $6 million to $436.3 million in 1994. The improvement in margin
resulted mainly from increased deliveries unrelated to weather and a
$4.2 million gain on the sale of oil and gas property interests, partially
offset by the negative effect of 5 percent warmer weather. Colder weather
accounted for most of the $18.6 million increase in margin in 1993 compared
to 1992. Margin per Mcf delivered decreased slightly from the prior year in
both 1994 and 1993 due to additional lower-margin deliveries for electric
power generation.

Operating and Maintenance. In 1994, operating and maintenance expenses were
$272.7 million, up $16.6 million from the prior year. The shipping segment
accounted for $8.7 million of the increase which was due primarily to higher
volume-related operating expenses and the cost of an early retirement
program. The gas distribution segment increase of $7.6 million related to
several items, the largest being payroll, a new system maintenance program
and damage claims.

NICOR Inc. Page 20

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

In 1993, operating and maintenance expenses increased $26.4 million to
$256.1 million due primarily to higher shore costs in the shipping segment
caused largely by increased volumes. Expenses in the gas distribution
segment also increased due mainly to a higher bad debt provision associated
with additional revenues and higher postretirement benefits expense.

Gas Distribution Operating Statistics

1994 1993 1992
Gas distribution margin (Millions)
Sales
Residential $ 939.2 $ 989.2 $ 884.1
Commercial 260.0 292.1 279.8
Industrial 50.2 55.4 58.2
1,249.4 1,336.7 1,222.1
Transportation
Commercial 41.8 38.8 43.6
Industrial 51.2 48.1 65.5
93.0 86.9 109.1
Revenue taxes and other 112.6 109.7 94.2
Operating revenues 1,455.0 1,533.3 1,425.4
Cost of gas (924.9) (1,007.1) (927.1)
Revenue taxes (93.8) (95.9) (86.6)

$ 436.3 $ 430.3 $ 411.7

Deliveries (Bcf)
Sales
Residential 215.8 222.7 213.6
Commercial 60.5 67.0 69.5
Industrial 12.4 13.7 15.9
288.7 303.4 299.0
Transportation
Commercial 54.2 50.0 44.7
Industrial 156.9 135.4 120.2
211.1 185.4 164.9

499.8 488.8 463.9

Year-end customers (Thousands)
Sales
Residential 1,632.0 1,601.2 1,573.2
Commercial 141.5 141.7 142.6
Industrial 11.6 11.6 11.8
1,785.1 1,754.5 1,727.6
Transportation
Commercial 15.3 13.2 10.8
Industrial 2.3 2.1 1.8
17.6 15.3 12.6

1,802.7 1,769.8 1,740.2

NICOR Inc. Page 21

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

Depreciation. In 1994, depreciation increased 7 percent to $103.1 million
mainly as a result of plant additions in the gas distribution segment. In
1993, depreciation rose 2 percent to $96.5 million, primarily as a result of
additions in both segments. Depreciation is expected to increase in 1995 at
a rate similar to 1994.

Nonoperating items. In 1993, other income increased $10.3 million due
primarily to the 1992 write-down of an equity investment in the shipping
segment.

Interest charges declined $1.4 million in 1994 because of reduced borrowing
levels. In 1993, lower interest rates resulted in a $5.3 million reduction
in interest charges. Interest capitalized decreased $2.5 million in 1993
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 31.8 percent, 33.1 percent and 32.5 percent
for 1994, 1993 and 1992, respectively. The decrease in 1994 resulted
primarily from a lower state tax provision. 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 effective income tax rate is expected to
increase in 1995 due primarily to a higher state tax provision and less
excess deferred taxes turning around.

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, NICOR 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 was completed in 1993.

Accounting pronouncements. The company adopted Financial Accounting
Standards Board (FASB) Statement No. 112, Employers' Accounting for
Postemployment Benefits, on January 1, 1994. This statement requires
recognition of the cost of certain postemployment benefits after employment
but before retirement on an accrual basis during the years that employees
earn the benefits. Implementation of this statement did not have a material
impact on the company's financial condition or results of operations.

In 1992, the 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 34, Income Taxes.

NICOR Inc. Page 22

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

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 38, Other postretirement
benefits.

FINANCIAL CONDITION AND LIQUIDITY

Overall, NICOR's financial condition is sound. Long-term debt as a
percentage of capitalization was 39.9 percent, 38.9 percent and 36.4 percent
at year-end 1994, 1993 and 1992, respectively. Through the combination of
stock repurchase programs and additional debt financings, a moderate
increase in the ratio of debt to capitalization is expected in the future.

The company believes it has access to adequate resources to meet planned
capital expenditures, debt and stock redemptions, dividends and working
capital needs for 1995. 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 $298.4 million in 1994, $221.9 million in 1993 and
$42.7 million in 1992. The increases in 1993 and 1994 were due primarily to
the timing of the recovery of gas costs from customers and the impact of
colder weather in 1993 in the gas distribution segment.

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, which are mainly in the gas
distribution segment, were $172.1 million in 1994 compared with
$141.6 million in 1993 and $151.4 million in 1992. The increase in 1994 is
due primarily to the commencement of work on a two-year, $65 million
construction program to improve the gas transmission and storage system.
The decrease in 1993 compared to 1992 reflects the completion in 1993 of
progress payments on the construction of two vessels.

Capital spending in 1995 is anticipated to be about $165 million, with
$160 million for gas distribution. Approximately 25 percent of gas
distribution capital expenditures is expected to be for the completion of
the two-year gas transmission and storage system construction program.
Shipping capital expenditures are expected to decrease as a result of

NICOR Inc. Page 23

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

improved equipment management and vessel utilization, and the reduction or
elimination of low-margin port calls.

Capital expenditures
Estimated Actual
(Millions) 1995 1994 1993 1992
Gas distribution $ 160 $ 160.3 $ 127.4 $ 127.2
Shipping 5 11.8 14.1 24.2
Other - - .1 -

$ 165 $ 172.1 $ 141.6 $ 151.4

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 were used to fund working capital
requirements and the 1993 common stock buy-back program.

Financing. In August 1994, Northern Illinois Gas issued $50 million of
8-1/4% First Mortgage Bonds due in 2024, which represented the remaining
$50 million of a December 1992 shelf registration statement. The net
proceeds from the sale of the bonds were used for general corporate
purposes, including construction programs.

In July 1994, Northern Illinois Gas redeemed $50 million of 8.70% First
Mortgage Bonds due in 1995 with proceeds from the issuance of $50 million of
5-1/2% unsecured Notes due in July 1995.

In April 1994, Northern Illinois Gas filed a $225 million First Mortgage
Bond shelf registration statement with the Securities and Exchange
Commission. The net proceeds from any securities issued are expected to be
used for the refinancing of certain outstanding debt, for construction
programs to the extent not provided by internally generated funds and for
general corporate purposes.

During 1993, the company issued the following First Mortgage Bonds
(millions):

Maturity Interest rate Amount
1996 4.50 % $ 50.0
1997 5.50 25.0
1998 5.875 25.0
1999 6.25 25.0
2000 5.875 50.0
2023 7.375 50.0

$225.0

NICOR Inc. Page 24

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

Net proceeds from the sale of bonds in 1993, together with other corporate
funds, were used for 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

During 1993, about half of the debt outstanding at the beginning of the year
was refinanced through the above issuances, reducing annual interest expense
by about $5.5 million on the portion of the debt refinanced.

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

In 1995, Northern Illinois Gas anticipates issuing, depending on market
conditions, $50 million of debt to finance maturing debt.

NICOR and its gas distribution subsidiary maintain short-term credit
agreements with major domestic and foreign banks. In 1994, the company
replaced its long-term credit agreement with short-term credit agreements.
At December 31, 1994, these agreements, which serve as backup for the
issuance of commercial paper, totaled $360 million and the company had
$243.9 million of commercial paper outstanding compared to $301.5 million at
year-end 1993. The company had no borrowings under these credit agreements
at year-end 1994.

In May 1994, NICOR redeemed its 7.90% preference stock at a price of $505
per share.

In October 1994, NICOR initiated a stock repurchase program having an
aggregate market value of up to $50 million. The repurchases are being
financed with existing financial assets, cash flow and utilization of short-
term borrowings. NICOR purchased and retired common shares at a cost of
$15 million under this program in 1994.

In July 1994, NICOR completed a $100 million common stock buy-back program
initiated in 1993. These repurchases were financed with 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. Under
this program, NICOR purchased and retired common shares at a cost of
$48 million and $52 million in 1994 and 1993, respectively.

NICOR Inc. Page 25

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

The company increased its quarterly common stock dividend during 1994 for
the seventh consecutive year. The company paid dividends of $66.9 million,
$68.1 million and $66.7 million in 1994, 1993 and 1992, respectively.

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.

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 26

Item 8. Financial Statements and Supplementary Data

Page

Report of Independent Public Accountants 27

Financial Statements:

Consolidated Statement of Income 28

Consolidated Statement of Cash Flows 29

Consolidated Balance Sheet 30

Consolidated Statement of Capitalization 31

Consolidated Statement of Common Equity 32

Notes to the Consolidated Financial Statements 33

NICOR Inc. Page 27

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, 1994 and 1993, and the related consolidated
statements of income, common equity and cash flows for each of the three
years in the period ended December 31, 1994. These financial statements and
the schedule referred to below are the responsibility of the company's
management. Our responsibility is to express an opinion on these financial
statements and the schedule 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, 1994 and 1993, and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1994, 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 schedule
listed in the accompanying index (page 45) is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not
part of the basic financial statements. This schedule has been subjected to
the auditing procedures applied in the audits of the basic financial
statements and, in our opinion, fairly states 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 LLP
Arthur Andersen LLP

Chicago, Illinois
January 25, 1995

<TABLE>
NICOR Inc. Page 28

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

Year ended December 31
1994 1993 1992

<S> <C> <C> <C>
Operating revenues $ 1,609.4 $ 1,673.9 $ 1,546.5

Operating expenses
Cost of gas 924.9 1,007.1 927.1
Operating and maintenance 272.7 256.1 229.7
Depreciation 103.1 96.5 94.7
Taxes, other than income taxes 115.0 116.1 106.7

1,415.7 1,475.8 1,358.2

Operating income 193.7 198.1 188.3

Other income (expense)
Interest income 2.3 1.9 2.1
Other, net 4.7 5.0 (5.5)

7.0 6.9 (3.4)

Income before interest on debt and income taxes 200.7 205.0 184.9

Interest on debt, net of amounts capitalized 40.1 41.4 44.2

Income before income taxes 160.6 163.6 140.7

Income taxes 51.1 54.2 45.7

Income from continuing operations 109.5 109.4 95.0

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

- 2.3 13.3

Net income 109.5 111.7 108.3

Dividends on preferred and preference stock .6 1.0 1.2

Earnings applicable to common stock $ 108.9 $ 110.7 $ 107.1

Average shares of common stock outstanding 52.6 55.1 56.0

Earnings per average share of common stock
Continuing operations $ 2.07 $ 1.97 $ 1.67
Discontinued operations - .04 .24

$ 2.07 $ 2.01 $ 1.91

<F1>
The accompanying notes are an integral part of this statement.
</TABLE>

<TABLE>
NICOR Inc. Page 29

Consolidated Statement of Cash Flows
(Millions)
<CAPTION>
Year ended December 31
1994 1993 1992
Operating activities
<S> <C> <C> <C>
Net income $ 109.5 $ 111.7 $ 108.3
Less income from discontinued operations - 2.3 13.3
Income from continuing operations 109.5 109.4 95.0
Adjustments to reconcile income from continuing
operations to net cash flow provided from
continuing operations:
Depreciation 103.1 96.5 94.7
Deferred income tax expense (benefit) (32.7) (13.9) (17.2)
179.9 192.0 172.5
Change in working capital items and other:
Receivables, less allowances 58.5 12.2 (68.5)
Gas in storage 6.6 23.0 17.6
Deferred/accrued gas costs 22.3 (14.5) (51.4)
Accounts payable 30.9 13.0 (29.4)
Other .2 (3.8) 1.9

Net cash flow provided from continuing operations 298.4 221.9 42.7
Net cash flow provided from (used for)
discontinued operations (1.3) (12.3) 29.5

Net cash flow provided from operating activities 297.1 209.6 72.2

Investing activities
Capital expenditures (172.1) (141.6) (151.4)
Short- and long-term investments 23.8 (17.2) 49.1
Proceeds from sales of discontinued operations - 139.9 25.1
Other investing activities of discontinued operations - (5.5) (19.2)
Other 1.3 1.6 3.3

Net cash flow used for investing activities (147.0) (22.8) (93.1)

Financing activities
Net proceeds from issuing long-term debt 99.1 235.6 134.0
Disbursements to retire long-term debt (50.0) (262.5) (123.7)
Short-term borrowings (repayments), net (57.6) (39.0) 114.5
Dividends paid (66.9) (68.1) (66.7)
Disbursements to reacquire stock (71.6) (60.0) (41.0)
Other .9 7.0 2.8

Net cash flow provided from (used for)
financing activities (146.1) (187.0) 19.9

Net increase (decrease) in cash and cash equivalents 4.0 (.2) (1.0)

Cash and cash equivalents, beginning of year 10.5 10.7 11.7

Cash and cash equivalents, end of year $ 14.5 $ 10.5 $ 10.7

<F1>
The accompanying notes are an integral part of this statement.
</TABLE>

<TABLE>
NICOR Inc. Page 30

Consolidated Balance Sheet
(Millions, except share data)
<CAPTION>
December 31
Assets 1994 1993

Current assets
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 14.5 $ 10.5
Short-term investments, at cost which
approximates market 27.8 51.6
Receivables, less allowances of $5.2 and $6.8,
respectively 218.7 277.2
Gas in storage, at last-in, first-out cost 91.2 97.8
Deferred gas costs 34.6 56.9
Other 31.2 15.0

418.0 509.0

Property, plant and equipment, at cost
Gas distribution 2,727.8 2,664.1
Shipping 223.5 219.8
Other .2 .2
2,951.5 2,884.1
Less accumulated depreciation 1,234.5 1,227.9

1,717.0 1,656.2

Other assets 74.9 56.9

$ 2,209.9 $ 2,222.1

Liabilities and Capitalization

Current liabilities
Long-term obligations due within one year $ 50.3 $ .3
Short-term borrowings 246.4 304.0
Accounts payable 258.4 229.0
Other 45.3 51.0

600.4 584.3
Deferred credits and other liabilities
Deferred income taxes 169.3 168.2
Regulatory income tax liability 89.9 95.5
Unamortized investment tax credits 53.5 55.9
Other 145.1 138.7

457.8 458.3
Capitalization
Long-term debt 458.9 458.9
Preferred and preference stock 9.4 16.7
Common stock, par value $2.50, authorized 80,000,000 shares
(reserved for conversion and other purposes 4,473,735 and
4,516,774 shares, respectively), outstanding 51,540,327
and 53,958,806 shares, respectively 128.9 134.9
Paid-in capital 77.1 134.5
Retained earnings (since December 31, 1985) 477.4 434.5

1,151.7 1,179.5

$ 2,209.9 $ 2,222.1

<F1>
The accompanying notes are an integral part of this statement.
</TABLE>

<TABLE>
NICOR Inc. Page 31

Consolidated Statement of Capitalization
(Millions, except share data)
<CAPTION>
December 31
1994 1993

First mortgage bonds
Maturity Interest rate
<S> <S> <C> <C> <C> <C>
1995 8.70 % $ - $ 50.0
1996 4.50 50.0 50.0
1997 5.50 25.0 25.0
1998 5.875 25.0 25.0
1999 6.25 25.0 25.0
2000 5.875 50.0 50.0
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 50.0
2024 8.25 50.0 -
450.0 450.0
Less unamortized debt discount, net of premium 3.6 3.6

446.4 38.8% 446.4 37.8%

Other long-term debt
Notes payable due 1995, 5.50% 50.0 -
Note payable due 1996, 5.66% 12.5 12.5
62.5 12.5
Less amount due within one year 50.0 -

12.5 1.1 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 5.00% series,
outstanding 191,639 and 193,349 shares, respectively 9.6 9.7
Redeemable preference stock, 7.90% series, stated
value $500, 14,500 shares outstanding at December 31,
1993 - 7.2
9.6 16.9
Less amount due within one year .3 .3

9.3 .8 16.6 1.4

Other .1 - .1 -

Common equity
Common stock 128.9 134.9
Paid-in capital 77.1 134.5
Retained earnings (since December 31, 1985) 477.4 434.5

683.4 59.3 703.9 59.7

$1,151.7 100.0% $1,179.5 100.0%

The accompanying notes are an integral part of this statement.

</TABLE>
<TABLE>
NICOR Inc. Page 32

Consolidated Statement of Common Equity
(Millions, except per share data)
<CAPTION>
Year ended December 31
1994 1993 1992
Common stock
<S> <C> <C> <C>
Balance at beginning of year $ 134.9 $ 139.4 $ 143.3
Issued and converted .1 .8 .7
Reacquired and cancelled (6.1) (5.3) (4.6)

Balance at end of year 128.9 134.9 139.4

Paid-in capital
Balance at beginning of year 134.5 181.3 211.1
Issued and converted .8 6.2 4.4
Reacquired and cancelled (58.2) (54.1) (33.3)
Other - 1.1 (.9)

Balance at end of year 77.1 134.5 181.3

Retained earnings(a)
Balance at beginning of year 434.5 390.9 349.5
Net income 109.5 111.7 108.3
Dividends on common stock ($1.26, $1.22 and
$1.18 per share, respectively) (66.0) (67.1) (65.7)
Dividends on preferred and preference stock (.6) (1.0) (1.2)

Balance at end of year 477.4 434.5 390.9

Total common equity at end of year $ 683.4 $ 703.9 $ 711.6

<F1>
(a) Since December 31, 1985.

<F2>
The accompanying notes are an integral part of this statement.
</TABLE>

NICOR Inc. Page 33

Notes to the Consolidated Financial Statements

ACCOUNTING POLICIES

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

Operating revenues and gas costs. 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 to 25 years.

Income taxes. Deferred income taxes are provided for temporary differences
between the tax basis of an asset or liability and its reported amount in
the financial statements. 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. Each NICOR subsidiary has a diversified base of
customers, typical for their industries, and prudent creditworthiness
policies which limit risk.

CASH FLOW INFORMATION

Income taxes paid, net of refunds, and interest paid, net of amounts
capitalized, for the periods ended December 31 were:

(Millions) 1994 1993 1992

Income taxes paid $ 77.7 $ 71.5 $ 69.6
Interest paid 39.5 44.5 44.0

NICOR Inc. Page 34

Notes to the Consolidated Financial Statements (continued)

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 realignment and certain other costs, caused by compliance with Order
636. The company estimates that the total transition costs from all
pipeline transporters could exceed $300 million. However, the ultimate
level of costs is dependent upon the future market price of natural gas,
pipeline negotiations with producers and other factors. Approximately
$111 million of such costs have been recorded, of which $81 million has been
paid to the pipeline transporters, subject to refund.

In March 1994, the Ill.C.C. authorized Illinois local gas distribution
companies, including Northern Illinois Gas, to recover all prudently
incurred transition costs from their customers. In September 1994, upon
rehearing, the Ill.C.C. entered an order revising the method by which
certain of these costs are to be recovered. An appeal has been filed with
the Fourth District Appellate Court by a group of industrial customers, in
which they are expected to challenge the allocation methodology applicable
to certain of the transition costs. The company has been recovering such
costs through the PGA.

The company believes that the changes required by Order 636 will not have a
material impact on its financial condition or results of operations.

GAS IN STORAGE

Based on the average cost of gas purchased in December 1994 and 1993, the
estimated current replacement cost of gas in inventory at December 31, 1994
and 1993 exceeded the last-in, first-out cost by approximately $236 million
and $292 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 in 1993, was
not recognized in income but was classified as a reserve for impairment of
discontinued operations.

NICOR Inc. Page 35

Notes to the Consolidated Financial Statements (continued)

The components of income tax expense are presented below:

(Millions) 1994 1993 1992

Current
Federal $ 74.8 $ 63.1 $ 60.9
State 11.2 7.3 4.1
86.0 70.4 65.0
Deferred
Federal (24.9) (12.1) (18.0)
State (7.8) (1.8) .8
(32.7) (13.9) (17.2)

Amortization of ITC, net (2.4) (2.3) (2.1)
Foreign taxes .2 - -

Income tax expense $ 51.1 $ 54.2 $ 45.7

The temporary differences which gave rise to significant portions of the net
deferred tax liability at December 31, 1994 and 1993 were as follows:

(Millions) 1994 1993

Deferred tax liabilities
Property, plant and equipment $ 233.3 $ 231.0
Investment in foreign subsidiaries 15.1 26.0
Other 27.8 43.5
276.2 300.5
Deferred tax assets
Unamortized investment tax credits 35.2 36.8
Regulatory income tax liability 21.7 23.3
Other 61.4 64.0
118.3 124.1

Net deferred tax liability $ 157.9 $ 176.4

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

(Millions) 1992

Take-or-pay costs $(24.6)
Deferred/accrued gas costs 18.4
Foreign subsidiaries' income
recognition (10.2)
Pensions 5.5
Other, net (6.3)

$(17.2)

NICOR Inc. Page 36

Notes to the Consolidated Financial Statements (continued)

The effective combined federal and state income tax rate was 31.8 percent,
33.1 percent and 32.5 percent in 1994, 1993 and 1992, respectively.
Differences between federal income taxes computed using the statutory rate,
35 percent for 1994 and 1993 and 34 percent for 1992, and reported income
tax expense are shown below:

(Millions) 1994 1993 1992

Federal income taxes using
statutory rate $ 56.2 $ 57.3 $ 47.8
State income taxes, net 2.5 3.8 3.8
Amortization of investment
tax credits (2.7) (2.7) (2.7)
Other, net (4.9) (4.2) (3.2)

Income tax expense $ 51.1 $ 54.2 $ 45.7

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 planned
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. The sale of oil and gas operations
was completed in 1993.

Summarized financial results of the discontinued operations were:

(Millions) 1993 1992

Operating revenues $ 15.9 $ 65.2

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

Income from discontinued operations $ 2.3 $ 8.6

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.

NICOR Inc. Page 37

Notes to the Consolidated Financial Statements (continued)

Net periodic pension cost (benefit) included:

(Millions) 1994 1993 1992

Service cost $ 7.0 $ 6.7 $ 6.3
Interest cost 18.5 20.4 19.2
Loss (return) on plan assets (17.1) (41.9) (33.6)
Net amortization and deferral (19.4) 3.7 (5.3)

$(11.0) $(11.1) $(13.4)

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

The following table reflects the funded status of the pension plans at
October 1, 1994 and 1993 reconciled to amounts recorded in the financial
statements at December 31, 1994 and 1993, respectively:

(Millions) 1994 1993

Vested benefits $ 202.9 $ 221.1
Nonvested benefits 21.2 16.9
Accumulated benefit obligation 224.1 238.0
Effect of assumed increase in
compensation level 29.4 36.8
Projected benefit obligation 253.5 274.8
Plan assets at market value 352.0 384.7
Plan assets in excess of projected
benefit obligation 98.5 109.9
Unrecognized net gain (42.5) (60.7)
Unrecognized net transition asset (27.8) (31.6)
Unrecognized prior service cost 5.0 4.1
Other 2.9 3.0

Prepaid pension cost $ 36.1 $ 24.7

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

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.

NICOR Inc. Page 38

Notes to the Consolidated Financial Statements (continued)

Other postretirement benefits. Health care and life insurance benefits are
provided for retired employees if they become eligible for retirement 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.

Net periodic postretirement benefit cost included:

(Millions) 1994 1993

Service cost $ 2.3 $ 1.9
Interest cost 8.1 7.5
Loss (return) on plan assets (.4) (1.0)
Amortization of transition obligation 3.7 3.7
Net amortization and deferral (.1) .3

$ 13.6 $ 12.4

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

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

The following table reflects the funded status of the postretirement health
care and life insurance plans at October 1, 1994 and 1993 reconciled to
amounts recorded at December 31, 1994 and 1993, respectively:

(Millions) 1994 1993

Accumulated postretirement benefit
obligation (APBO):
Retirees $ 71.2 $ 68.1
Fully eligible active plan participants 17.2 22.2
Other active plan participants 28.0 29.9
Total APBO 116.4 120.2
Plan assets at market value 9.7 9.3
APBO in excess of plan assets (106.7) (110.9)
Unrecognized transition obligation 67.3 71.0
Unrecognized net loss 11.9 16.7
Other (3.6) (1.1)

Accrued postretirement benefit cost $ (31.1) $ (24.3)

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

NICOR Inc. Page 39

Notes to the Consolidated Financial Statements (continued)

The health care cost trend rate for pre-Medicare benefits was assumed to be
11 percent for 1995, gradually declining to 5 percent for 2001 and remaining
at that level thereafter. The health care cost trend rate for post-Medicare
benefits was assumed to be 8 percent for 1995, gradually declining to 5
percent for 1998 and remaining 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, 1994, by about $15 million, the
aggregate of the service and interest cost components of 1994 net
postretirement health care costs by $1.9 million, and operating expense by
$1.4 million, after capitalization.

Other postemployment benefits. The company adopted FASB Statement No. 112,
Employers' Accounting for Postemployment Benefits, on January 1, 1994. This
statement requires recognition of the cost of certain postemployment
benefits after employment but before retirement on an accrual basis during
the years that employees earn the benefits. Implementation of this
statement did not have a material impact on the company's financial
condition or results of operations.

SHORT- AND LONG-TERM DEBT

The company's short-term borrowings included:

1994 1993 1992

Balance at year-end (Millions)
Commercial paper $ 243.9 $ 301.5 $ 328.0
Bank loans 2.5 2.5 15.0

Weighted average interest rate
on year-end balance
Commercial paper 5.95% 3.25% 3.33%
Bank loans 6.55 4.60 5.85

The company establishes lines of credit with major domestic and foreign
banks to support outstanding commercial paper to satisfy short-term
borrowing needs. At December 31, 1994, available lines of credit totaled
$360 million. Commitment fees of up to 1/8 percent per annum were paid on
these lines. All credit agreements have variable interest-rate options tied
to short-term markets.

Bank cash balances averaged about $5 million during 1994, which partially
compensated for the cost of maintaining accounts and other banking services.
Such demand balances may be withdrawn at any time.

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

Interest on debt was net of amounts capitalized of $.2 million, $.3 million
and $2.8 million in 1994, 1993 and 1992, respectively.

NICOR Inc. Page 40

Notes to the Consolidated Financial Statements (continued)

FAIR VALUE OF FINANCIAL INSTRUMENTS

The recorded amount of short-term investments and short-term borrowings
approximates fair value because of the short maturity of the instruments.
Based on quoted market interest rates, the recorded amount of the long-term
debt outstanding, including current maturities, also approximates fair
value.

SINKING FUND AND MATURITIES

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

(Millions) 1995 1996 1997 1998 1999

Long-term debt $ 50.0 $ 62.5 $ 25.0 $ 25.0 $ 25.0
Preferred stock .3 .3 .4 .5 .5

$ 50.3 $ 62.8 $ 25.4 $ 25.5 $ 25.5

REDEEMABLE PREFERRED AND PREFERENCE STOCK

On May 1, 1994, the company redeemed its 7.90% preference stock at a price
of $505 per share. A description of redeemable preferred stock series
follows:

Optional
Annual cumulative redemption
sinking fund and
requirement liquidation
Series Shares Price price

4.48% 6,000 $ 50.50 $ 51.06
5.00 4,000 50.50 51.00

The default provisions of the preferred shares generally state that no
redemption 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 shares in response to an invitation for
tenders.

STOCK OPTIONS

NICOR has a plan which permits the granting of stock options, alternate
stock rights and restricted stock to key executives and managerial
employees. 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 41

Notes to the Consolidated Financial Statements (continued)

A summary of stock option activity follows:

Number Option price
of shares per share

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
Granted 144,700 27.50
Exercised (13,500) 15.875 -21.375
Cancelled (1,400) 28.9375

December 31, 1994 558,600 $15.875 -28.9375

Options exercisable at
December 31, 1994 194,500

At December 31, 1994, 6,000 shares of restricted stock were outstanding and
1,478,300 shares remained available for future grant under the plan.

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) 1994 1993 1992

Beginning of year 53,959 55,770 57,300
Issued and converted 43 330 286
Reacquired and cancelled (2,462) (2,141) (1,816)

End of year 51,540 53,959 55,770

NICOR repurchased 2,406,549 shares in 1994, 1,877,575 shares in 1993 and
1,680,870 shares in 1992, under common stock repurchase programs.

NICOR Inc. Page 42

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.

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 Section 108
(NGPA 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. The FERC has denied NICOR
Exploration Company's request for a rehearing and NICOR Exploration Company
has filed its appeal of the matter with the Fifth Circuit Court of Appeals.
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, 1994, could approximate $12 million.
The potential additional cost after December 31, 1994, 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 on
sites owned or leased by NICOR that may have been generated by two barge-
cleaning facilities previously owned and operated by certain subsidiaries of
the company. NICOR believes one site has been remediated in accordance with
an approved closure plan. The evaluation and cleanup of the other site is
currently estimated to range from $10 million to $20 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 or leased 13 properties believed to be the
location of such sites. The company has presented information regarding
preliminary reviews of the owned sites to the Illinois Environmental
Protection Agency. More detailed investigations are currently in progress
or planned for 1995 at seven of the 28 sites. At another of the sites, the
current owner is seeking to allocate future cleanup costs to all former
owners, including Northern Illinois Gas.

The results of continued testing and analysis should determine to what
extent 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
<PAGE>
NICOR Inc. Page 43

Notes to the Consolidated Financial Statements (concluded)

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.
The generic order 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. In January 1994, the company began recovery
of cleanup costs from its customers in accordance with an Ill.C.C.-approved
cost recovery plan. In April 1994, the Illinois Supreme Court agreed to
hear an appeal filed by a consumer group, which argues that no cleanup costs
should be recoverable from ratepayers. Northern Illinois Gas and other
utilities argue that they should be entitled to recover capital costs in
addition to cleanup costs.

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.

QUARTERLY RESULTS (Unaudited)

Quarterly results fluctuate due mainly to the seasonal nature of the gas
distribution business.

(Millions, 1994 Quarter ended
except per share data)
Mar. 31 June 30 Sept. 30 Dec. 31

Operating revenues $ 780.3 $ 267.6 $ 166.0 $ 395.5
Operating income 85.2 30.9 18.2 59.4
Income from continuing
operations 51.3 15.9 7.5 34.7
Discontinued operations, net - - - -
Net income 51.3 15.9 7.5 34.7
Earnings per share
Continuing operations $ .95 $ .30 $ .14 $ .67
Discontinued operations - - - -

$ .95 $ .30 $ .14 $ .67

1993 Quarter ended

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

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 22, 1995, and is incorporated herein by reference. Information
relating to the executive officers of the registrant is provided on page 10
in Part I of this document.

Item 12. Security Ownership of Certain Beneficial Owners and Management

Information on shares beneficially owned by directors and executive officers
is contained on pages 7 and 8 of the Definitive Proxy Statement, dated
March 22, 1995, 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 Schedule, and Reports on
Form 8-K

(a) 1) Financial Statements:

For the following information, see Part II, Item 8 on page 26.

Report of Independent Public Accountants
Consolidated Financial Statements:
As of December 31, 1994 and 1993 -
Balance Sheet
Statement of Capitalization
For the years ended December 31, 1994, 1993 and 1992 -
Statement of Income
Statement of Cash Flows
Statement of Common Equity
Notes to the Consolidated Financial Statements

2) Financial Statement Schedule:

Schedule
Number Page

Report of Independent Public Accountants 27
II Valuation and Qualifying Accounts 46

Schedules other than those listed are omitted because they are
either not required or not applicable.

3) Exhibits Filed:

See Exhibit Index on pages 48 through 52 filed herewith.

(b) The company did not file a report on Form 8-K during the fourth
quarter of 1994.

<TABLE>
NICOR Inc. Page 46

Schedule II

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

1994

Allowance
for uncollectible
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
accounts receivable $ 6.8 $ 8.5 $ - $ 10.1(a) $ 5.2
Reserve for estimated
future costs related to
discontinued businesses 20.0 - .6(b) - 20.6

1993

Allowance
for uncollectible
accounts receivable $ 7.3 $ 8.8 $ - $ 9.3(a) $ 6.8
Reserve for estimated
future costs related to
discontinued businesses 17.2 - 9.4(c) 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

<F1>
(a) Accounts receivable written off, net of collections.
<F2>
(b) Net receipts, expenditures, operating results, gains and losses related to discontinued
businesses credited or charged to reserve.
<F3>
(c) Reserve established related to the NICOR Oil & Gas disposition.
</TABLE>

NICOR Inc. Page 47

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, 1995 By DAVID L. CYRANOSKI
David L. Cyranoski
Vice President, Secretary
and Controller

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, Chief Executive
Richard G. Cline Officer and Director

DAVID L. CYRANOSKI Vice President, Secretary and
David L. Cyranoski Controller and Principal
Financial Officer

ROBERT M. BEAVERS, JR.* Director

JOHN H. BIRDSALL, III* Director

W. H. CLARK* Director

THOMAS L. FISHER* Director March 24, 1995

JOHN E. JONES* Director

DENNIS J. KELLER* Director

CHARLES S. LOCKE Director

SIDNEY R. PETERSEN* Director

DANIEL R. TOLL* Director

PATRICIA A. WIER* Director

*By THOMAS D. GREENBERG
Thomas D. Greenberg (Attorney-in-fact)

NICOR Inc. Page 48

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

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

3.07 * 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.)

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.)

NICOR Inc. Page 49

Exhibit Index (continued)

Exhibit
Number Description of Document

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.)

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 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.)

4.10 * 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.)

4.11 * 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.)

4.12 * 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 50

Exhibit Index (continued)

Exhibit
Number Description of Document

4.13 * 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.)

4.14 * 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.)

4.15 * Supplemental Indenture, dated August 15, 1994, of Northern
Illinois Gas Company to Continental Bank, Trustee, under
indenture dated as of January 1, 1954. (File No. 1-7296,
Form 10-Q for Third Quarter of 1994, 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.)

NICOR Inc. Page 51

Exhibit Index (continued)

Exhibit
Number Description of Document

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.)

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 * 1994 NICOR Incentive Compensation Plan. (File No. 1-7297,
Form 10-K for 1993, NICOR Inc., Exhibit 10.18.)

10.16 * 1994 NI-Gas Incentive Compensation Plan. (File No. 1-7297,
Form 10-K for 1993, NICOR Inc., Exhibit 10.19.)

10.17 * 1994 Long-Term Incentive Program. (File No. 1-7297, Form 10-K
for 1993, NICOR Inc., Exhibit 10.20.)

10.18 1995 NICOR Incentive Compensation Plan.

10.19 1995 NI-Gas Incentive Compensation Plan.

10.20 1995 Long-Term Incentive Program.

10.21 * Summary of 1995 Directors' Stock Grant Program. (Included in
NICOR Inc. Proxy Statement dated March 22, 1995, 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 52

Exhibit Index (concluded)

Exhibit
Number Description of Document

21.01 Subsidiaries.

23.01 Consent of Independent Public Accountants.

24.01 Powers of Attorney.

27.01 Financial Data Schedule.

* 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

1995
NICOR INCENTIVE COMPENSATION PLAN

A. The 1995 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 1995 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 in January of the
following year. Following approval of the Compensation Committee
and Board at the January 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 1995 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
January, 1995

NICOR Inc.
Form 10-K
Exhibit 10.19

1995
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.

-2-

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.

-3-

Plan Schedule

The 1995 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.

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

-4-

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 1995 NI-Gas Incentive Compensation Plan and changes to
its performance targets and measurement criteria will be reviewed and
approved by the Compensation Committee.

-5-

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
January, 1995

NICOR Inc.
Form 10-K
Exhibit 10.20

1995 Long-Term Incentive Program

At the January 1995 meeting of the Compensation Committee, the Committee
approved the 1995 Long-Term Incentive Plan. Participants and awards are
made at the April meeting of the Committee. Shown below is a full des-
cription of the proposed Long-Term Plan for 1995.

Summary of 1995 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 1995.

- 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 $0.02 per year from its current level
of $1.26, each unit would be worth $3.84 at the end of three years:

Year Annual Dividend Dividend Unit Value
1995 $1.26 $1.26
1996 $1.28 $2.54
1997 $1.30 $3.84

- 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, 1995

NICOR Inc.
Form 10-K
Exhibit 21.01

NICOR Inc.
Subsidiaries
At December 31, 1994
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 Canada Ltd. Delaware
Reliance Pipeline Company Delaware
Reliance USA Inc. Delaware

Extractive
NICOR Mining Inc. Delaware

Other
NICOR Energy Services Company Delaware
NICOR Energy Ventures Company Delaware
NICOR NGV Corp. Delaware
NICOR Technologies Inc. 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 25, 1995, 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. 33-56871), 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. 33-56867), the NI-Gas Thrift Plan
(No. 33-41804) and the NICOR 1989 Long-Term Incentive Plan (No. 33-31029).

ARTHUR ANDERSEN LLP
Arthur Andersen LLP

Chicago, Illinois
March 24, 1995

NICOR Inc.
Form 10-K
Exhibit 24.01

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

That the undersigned, a Director, Officer, or Director and Officer
of NICOR Inc., an Illinois corporation, does hereby constitute and appoint
D. L. CYRANOSKI and T. D. GREENBERG, and each of them, the undersigned's
true and lawful attorneys and agents, each with full power and authority
(acting alone and without the other) to execute in the name and on behalf of
the undersigned as such Director, Officer, or Director and Officer, the 1994
Annual Report on Form 10-K (and such amendment or amendments thereto as may
be necessary) to be filed pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934, hereby granting to such attorneys and agents, and each
of them, full power of substitution and revocation in the premises; and
hereby ratifying and confirming all that such attorneys and agents, or any
of them, may do or cause to be done by virtue of these presents.

IN WITNESS WHEREOF, I have hereunto signed this Power of
this 24th day of January, 1995.

ROBERT M. BEAVERS,JR.
Robert M. Beavers, Jr.

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

IN WITNESS WHEREOF, I have hereunto signed this Power of
this 24th day of January, 1995.

JOHN H. BIRDSALL, III
John H. Birdsall, III

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

IN WITNESS WHEREOF, I have hereunto signed this Power of Attorney
this 24th day of January, 1995.

W. H. CLARK
W. H. Clark

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

IN WITNESS WHEREOF, I have hereunto signed this Power of Attorney
this 24th day of January, 1995.

THOMAS L. FISHER
Thomas L. Fisher

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

IN WITNESS WHEREOF, I have hereunto signed this Power of Attorney
this 24th day of January, 1995.

JOHN E. JONES
John E. Jones

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

IN WITNESS WHEREOF, I have hereunto signed this Power of Attorney
this 24th day of January, 1995.

DENNIS J. KELLER
Dennis J. Keller

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

IN WITNESS WHEREOF, I have hereunto signed this Power of Attorney
this 24th day of January, 1995.

SIDNEY R. PETERSEN
Sidney R. Petersen

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

IN WITNESS WHEREOF, I have hereunto signed this Power of Attorney
this 24th day of January, 1995.

DANIEL R. TOLL
Daniel R. Toll

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

IN WITNESS WHEREOF, I have hereunto signed this Power of Attorney
this 24th day of January, 1995.

PATRICIA A. WIER
Patricia A. Wier

<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF INCOME, THE CONSOLIDATED BALANCE SHEET, THE
CONSOLIDATED STATEMENT OF COMMON EQUITY AND THE CONSOLIDATED STATEMENT OF
CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1599
<OTHER-PROPERTY-AND-INVEST> 118
<TOTAL-CURRENT-ASSETS> 418
<TOTAL-DEFERRED-CHARGES> 0
<OTHER-ASSETS> 75
<TOTAL-ASSETS> 2210
<COMMON> 129
<CAPITAL-SURPLUS-PAID-IN> 77
<RETAINED-EARNINGS> 477<F1>
<TOTAL-COMMON-STOCKHOLDERS-EQ> 683
9
0
<LONG-TERM-DEBT-NET> 446
<SHORT-TERM-NOTES> 3
<LONG-TERM-NOTES-PAYABLE> 13
<COMMERCIAL-PAPER-OBLIGATIONS> 244
<LONG-TERM-DEBT-CURRENT-PORT> 50
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 762
<TOT-CAPITALIZATION-AND-LIAB> 2210
<GROSS-OPERATING-REVENUE> 1609
<INCOME-TAX-EXPENSE> 51
<OTHER-OPERATING-EXPENSES> 1416
<TOTAL-OPERATING-EXPENSES> 1467
<OPERATING-INCOME-LOSS> 142
<OTHER-INCOME-NET> 7
<INCOME-BEFORE-INTEREST-EXPEN> 149
<TOTAL-INTEREST-EXPENSE> 40
<NET-INCOME> 110
1
<EARNINGS-AVAILABLE-FOR-COMM> 109
<COMMON-STOCK-DIVIDENDS> 66
<TOTAL-INTEREST-ON-BONDS> 32
<CASH-FLOW-OPERATIONS> 297
<EPS-PRIMARY> 2.07
<EPS-DILUTED> 0
<FN>
<F1>Since December 31, 1985.
</FN>

</TABLE>