NICOR INC, 10-K405, 1996-03-25

NICOR INC
10-K405, 1996-03-25
NATURAL GAS DISTRIBUTION

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

(Mark One)

[ X ] For the fiscal year ended December 31, 1995
or
[ ] 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 29, 1996, 50,178,621 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 1996 Annual Meeting Definitive Proxy Statement,
dated March 20, 1996 are incorporated by reference into Part III.

NICOR Inc. Page i

Table of Contents

Item No. Page
Part I
1. Business................................................ 1

2. Properties.............................................. 6

3. Legal Proceedings....................................... 6

4. Submission of Matters to a Vote of Security Holders..... 6

Executive Officers of the Registrant.................... 7

Part II
5. Market for Registrant's Common Equity and Related
Stockholder Matters................................... 8

6. Selected Financial Data................................. 9

7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................... 10

8. Financial Statements and Supplementary Data............. 21

9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................... 39

Part III
10. Directors and Executive Officers of the Registrant...... 39

11. Executive Compensation.................................. 39

12. Security Ownership of Certain Beneficial Owners
and Management........................................ 39

13. Certain Relationships and Related Transactions.......... 39

Part IV
14. Exhibits, Financial Statement Schedule, and Reports
on Form 8-K........................................... 40

Signatures.............................................. 42

Exhibit Index........................................... 43

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 had approximately 3,400 employees at year-end 1995.

Gas distribution, NICOR's primary segment, accounted for approximately
90 percent of NICOR's assets at December 31, 1995, 1994 and 1993. Northern
Illinois Gas' operating income ranged from 90 percent to 95 percent of
consolidated operating income during the three years ended December 31,
1995. 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 10 through 20.

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 more than 600 communities and adjacent areas in 35 counties
and encompasses most of the northern third of Illinois, excluding the city
of Chicago. Northern Illinois Gas maintains franchise agreements with 475
municipalities with terms ranging up to 50 years. More than 50%, or
approximately 250 franchise agreements, will expire in 20 years or more.
Only seven agreements, or approximately 1%, will expire in less than five
years. These agreements allow the company to construct, operate and
maintain distribution facilities in the municipalities served.

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 17). In addition, the
company's industrial and commercial customer base is well-diversified,
lessening the impact of industry-specific swings.

Gas deliveries are seasonal since nearly 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 provides transportation
customers with supply backup which may vary from zero to 100 percent.

Northern Illinois Gas continues to make additional underground storage
capacity available to its transportation customers. About 21 Bcf, or
15 percent of company-owned storage capacity, is available under the
company's two existing programs and approximately 4,500 customers, brokers
and marketers contracted to use the company's storage-for-fee services
during the 1995-1996 heating season. In addition to these two programs, in
1995 the company entered into one-year agreements to lease 2 Bcf of storage
capacity to two gas marketers.

Northern Illinois Gas is continuing to explore ways of enhancing
profitability through nontraditional opportunities that benefit ratepayers
and shareholders alike. During 1995, these nontraditional activities
included: selling storage services for a fee to various customers as noted
above; providing transportation service to pipelines and gas distribution
companies adjacent to its facilities; owning a hub which serves as a market
center for various transactions between buyers and sellers of natural gas
and related services; selling space for advertising material to be inserted
in gas bill envelopes; and offering account management services to
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.

Sources of Gas Supply

As a result of FERC Order 636, Northern Illinois Gas contracts separately
for gas supply, pipeline transportation and leased storage services. The
company purchases gas supplies on a deregulated basis directly from
producers, marketers and affiliates of pipelines. Pipeline transportation
and storage services are contracted for at rates regulated by the FERC. For
further information on FERC Order 636, see page 30.

Northern Illinois Gas owns extensive underground storage facilities located
within its service territory. The company's gas supply, pipeline
transportation and storage service contracts, when combined with company-
owned storage, were sufficient to meet peak day, seasonal and annual
requirements during 1995.

Northern Illinois Gas has been able to obtain sufficient supplies of natural
gas to meet customer requirements. The company, however, is unable to make
specific representations as to natural gas supply availability, but believes
supply will be sufficient to meet market demands in the foreseeable future.

NICOR Inc. Page 3

Item 1. Business (continued)

Gas supply. Northern Illinois Gas maintains a diversified portfolio of gas
supply contracts. Firm direct gas supply contracts are diversified by
supplier, producing region, quantity, available transportation, contract
length and contract expiration date. Contract pricing is generally tied to
published price indices so as to approximate current market rates for spot
gas. The contracts also generally provide for the payment of fixed demand
charges to ensure the availability of supplies on any given day. At the end
of 1995, the company had approximately 40 firm direct gas supply contracts
with terms generally ranging from three months to five years. Nearly 60
percent of the contracted volumes expire in 1996. The company also
purchases gas supplies on the spot market to fulfill its supply requirements
or to take advantage of favorable short-term pricing.

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

Year ended December 31
1995 1994 1993
Source Bcf % Bcf % Bcf %

Firm direct supply 237.4 78.2 246.8 84.6 139.3 46.8
Spot gas 66.2 21.8 44.8 15.4 115.8 38.9
Pipeline suppliers - - - - 42.8 14.3

303.6 100.0 291.6 100.0 297.9 100.0

The company's transportation customers also purchase gas supplies. Nearly
45 percent of the gas that the company delivered in 1995 was purchased by
transportation customers directly from producers and marketers rather than
from the company.

Pipeline transportation contracts. Northern Illinois Gas is directly
connected to five interstate pipelines which provide access to most of the
major natural gas producing regions 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 capacity
Major pipelines expiration (Bcf)

Natural Gas Pipeline Company
of America (NGPL) 2000 .92(a)
Midwestern Gas Transmission
Company (Midwestern) 2000 .33
Northern Natural Gas Company
(Northern Natural) 1997 .19

1.44
(a) 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.

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 60 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. In addition to the company-owned facilities, Northern Illinois
Gas leases about 43 Bcf of storage from interstate pipelines and other
storage facility operators. Storage facilities provide supply flexibility,
improve reliability of deliveries and help reduce costs.

In 1994 and 1995, the company significantly enhanced its transmission and
storage capabilities with construction of the Elgin-Volo project, a two-
year, $65 million system improvement. The project improved withdrawal
capacities at its storage field in Troy Grove, Illinois and added 17 miles
of parallel main to increase the capacity of the transmission system that
delivers gas from Troy Grove to the market. In addition, 28 miles of
transmission main was added in the northern region of the company's service
territory.

Competition/Demand

Northern Illinois Gas is one of the largest utility energy suppliers 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.

Changes are expected to occur in the electric utility industry, the result
of which will lead to more competitive pricing between natural gas and
electric utilities. Retail prices for electricity will become more market
driven and vary based on such factors as demand, available capacity and the
variable costs associated with bringing incremental generating capacity on
line. Customers will benefit from the increase in competition, and the
energy providers that fare well will be the ones that provide the best
service at the lowest cost.

Additional information on competition and demand is presented in Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations, on pages 12 through 14.

NICOR Inc. Page 5

Item 1. Business (continued)

Regulation

Northern Illinois Gas is regulated by the Ill.C.C., which establishes the
rules and regulations governing utility rates and services in Illinois.
Rates are designed to allow Northern Illinois Gas to recover its 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.

On May 8, 1995, Northern Illinois Gas filed with the Ill.C.C. for a
5.4 percent, $73 million general rate increase. For further information,
see Rate Proceeding on page 29.

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.

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
1995 1994 1993
Percent of customers with gas
space heating 97% 97% 97%
Peak-day sendout (Bcf) 3.8 4.6 3.4
Average temperature on peak day
(degrees in Fahrenheit) 3 (14) 6
Degree days* (Normal 6,117) 6,111 5,865 6,129
Customers per employee (average) 777 775 748

* 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 17, for operating revenues, deliveries and
customers by class.

NICOR Inc. Page 6

Item 1. Business (concluded)

SHIPPING

Tropical Shipping transports containerized freight between the Port of Palm
Beach, Florida and 23 ports in the Caribbean and Central America. The
company is one of the largest transportation companies in the region,
carrying cargo primarily southbound to markets which are heavily dependant
upon the tourist industry and northbound for export trade. The company also
provides additional related services including inland transportation and
cargo insurance.

Tropical Shipping's owned fleet consists of 14 vessels with a container
capacity totaling approximately 3,100 TEUs. Whenever practical, excess
capacity in Tropical Shipping's fleet is chartered out on a short-term basis.
In addition, the company owns containers, container-handling equipment,
chassis and other equipment. Real property, a significant portion
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.

Additional information about factors affecting Tropical Shipping's business
is presented in Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations, on pages 14 and 15.

NICOR NEW VENTURES

NICOR has developed several new nonutility ventures that build on the
company's strengths, expertise and market presence in the gas distribution
business. Additional information is presented in Item 7, Management's
Discussion and Analysis of Financial Condition and Results of Operations, on
page 15.

ENVIRONMENTAL MATTERS

Information with respect to environmental matters is presented in the
Contingencies section of the Notes to the Consolidated Financial Statements
on page 37.

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

On December 20, 1995, Northern Illinois Gas filed suit against certain
insurance carriers in the Circuit Court of Cook County. This suit seeks to
declare the insurance carriers liable under policies in effect primarily
between the years 1954 and 1985 for costs associated with environmental
cleanup of former manufactured gas plant sites.

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

None.

NICOR Inc. Page 7

Executive Officers of the Registrant

Name Age Current Position and Background

Thomas L. Fisher 51 Chairman, NICOR and Northern Illinois Gas
(January 1996), Chief Executive Officer, NICOR
(since 1995) and Northern Illinois Gas (since
1988), President, NICOR (since 1994) and
Northern Illinois Gas (since 1988) and Chief
Operating Officer, NICOR (1994).

David L. Cyranoski 52 Senior Vice President, NICOR and Northern
Illinois Gas (since 1995), Secretary, NICOR
(since 1992) and Northern Illinois Gas (since
1993), Controller, NICOR (since 1992) and
Northern Illinois Gas (since 1984) and Vice
President, NICOR (1992-1995) and Northern
Illinois Gas (1984-1995).

Thomas A. Nardi 41 Senior Vice President Nonutility Operations and
Business Development, NICOR (since 1995), and
Senior Vice President Business Development,
Northern Illinois Gas (since 1995), Vice
President Business Development, NICOR (1994-
1995), Vice President Supply and Business
Development, Northern Illinois Gas (1994-1995),
Vice President Rates and Supply, Northern
Illinois Gas (1993-1994), Vice President Rates
and Personnel and Secretary, Northern Illinois
Gas (1991-1992) and Vice President and
Secretary, Northern Illinois Gas (1990-1991).

John C. Flowers 57 Vice President Personnel, Northern Illinois Gas
(since 1993) as well as Vice President Human
Resources, NICOR (since 1984).

Donald W. Lohrentz 59 Treasurer, NICOR (since 1987), Vice President,
Northern Illinois Gas (since 1985) and
Treasurer, Northern Illinois Gas (1990-1993,
1984-1988).

Edwin M. Werneke 57 Vice President Supply Ventures, NICOR (since
1995), Vice President Supply Administration,
Northern Illinois Gas (since 1995) and
Assistant Vice President, Northern Illinois Gas
(1980-1995).

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

NICOR Inc. Page 8

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 29, 1996, there were approximately 43,000 common stockholders of
record. On March 6, 1996, the Board of Directors declared a quarterly
common stock dividend of 33 cents per share, payable May 1, 1996, to
stockholders of record March 29, 1996. This payment represents an annual
rate of $1.32 per share.

The common stock price range and dividends declared per common share by
quarter for 1995 and 1994, are as follows:

Stock price Dividends
Quarter High Low declared
1995
First $25-3/8 $21-3/4 $ .32
Second 27-7/8 24-1/2 .32
Third 28-1/2 25-1/8 .32
Fourth 28-1/2 24-7/8 .32

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

<TABLE>
NICOR Inc. Page 9

Item 6. Selected Financial Data
<CAPTION>
Year ended December 31
(Millions, except per share data) 1995 1994 1993 1992 1991

<S> <C> <C> <C> <C> <C>
Operating revenues $1,480.1 $1,609.4 $1,673.9 $1,546.5 $1,457.1

Operating income $ 189.8 $ 193.7 $ 198.1 $ 188.3 $ 185.4

Net income
Continuing operations $ 99.8 $ 109.5 $ 109.4 $ 95.0 $ 99.6
Discontinued operations - - 2.3 13.3 9.0

$ 99.8 $ 109.5 $ 111.7 $ 108.3 $ 108.6

Average shares of common stock
outstanding 50.7 52.6 55.1 56.0 57.9

Earnings per share of common stock
Continuing operations $ 1.96 $ 2.07 $ 1.97 $ 1.67 $ 1.70
Discontinued operations - - .04 .24 .15

$ 1.96 $ 2.07 $ 2.01 $ 1.91 $ 1.85

Dividends declared per share of common
stock $ 1.28 $ 1.26 $ 1.22 $ 1.18 $ 1.12

Total assets $2,259.1 $2,209.9 $2,222.1 $2,339.2 $2,279.7

Capitalization
Long-term debt $ 468.7 $ 458.9 $ 458.9 $ 417.2 $ 458.0
Redeemable preferred and preference
stock 8.8 9.3 16.6 17.2 18.6
Nonredeemable preferred and preference
stock .1 .1 .1 .1 4.2
Common equity 687.6 683.4 703.9 711.6 703.9

$1,165.2 $1,151.7 $1,179.5 $1,146.1 $1,184.7
</TABLE>

NICOR Inc. Page 10

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 1993 to 1995. 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, 1995 and 1994. 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 1995 income from continuing operations of $99.8 million declined
9 percent from 1994 as lower operating results in the gas distribution
segment were partially offset by a substantial improvement in operating
results in the shipping segment. A higher effective tax rate also had a
negative impact on 1995 earnings. In 1994, NICOR's income from continuing
operations of $109.5 million was essentially unchanged from 1993 as lower
operating income basically offset improvements in nonoperating items.

Earnings per common share from continuing operations were $1.96 in 1995
compared with $2.07 in 1994 and $1.97 in 1993. Earnings per common share
including discontinued operations were $1.96, $2.07 and $2.01 for the same
years. Per share results benefitted from about 4 percent fewer average
shares outstanding in 1995 compared with 1994 and about 5 percent fewer
average shares in 1994 compared with 1993. Dividends declared per common
share were $1.28, $1.26 and $1.22 for 1995, 1994 and 1993, respectively.

Gas distribution operating income decreased to $170.7 million in 1995 from
$179.1 million in 1994 due mainly to higher depreciation and higher
operating and maintenance expenses. Also, prior year operating results
included the impact of a $4.2 million nonrecurring gain on the sale of
interests in oil and gas properties. Partially offsetting these factors was
the impact of a 6 percent increase in deliveries of natural gas, reflecting
weather that was 4 percent colder than in 1994. In 1994, gas distribution
operating income decreased $8.5 million 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 4 percent warmer weather.

Shipping operating income rose 26 percent in 1995 to $23.4 million due to
higher revenue per unit related to an improved mix of cargo shipped. In
1994, shipping operating income was $18.6 million, up $3.1 million or
20 percent. The improvement resulted from an improved cargo mix, increased
chartering activity and additional volumes shipped.

NICOR Inc. Page 11

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

On May 8, 1995, Northern Illinois Gas filed with the Ill.C.C. for a 5.4
percent, $73 million general rate increase. The filing requested a rate of
return on original-cost rate base of 10.67 percent, reflecting a 12.95
percent cost of common equity. The increase is needed to recover costs
associated with enhancements to the company's transmission and storage
system, other capital costs and rising operating costs. The filing also
proposes revisions to some services provided to commercial and industrial
customers. The last time the company filed for a general rate increase was
1981.

On January 12, 1996, the Ill.C.C. hearing examiners issued a proposed order
under which Northern Illinois Gas would receive a general rate increase of
approximately $31 million, of which $12 million is due to the proposed
change in the company's depreciation rate. The proposed order reflects a
rate of return on original-cost rate base of 9.77 percent and an 11.3
percent cost of common equity. The Ill.C.C. is expected to issue a final
decision by April 4, 1996, which could be different from the proposed order.

In October 1994, NICOR initiated a common stock buyback program totaling $50
million. In July 1994, the company completed a $100 million common stock
buyback program initiated in 1993. During the last three years, the company
has repurchased and retired 5.5 million common shares at an approximate cost
of $145 million.

(Millions) 1995 1994 1993

Operating revenues
Gas distribution $ 1,312.7 $ 1,455.0 $ 1,533.3
Shipping 163.6 153.0 140.5
Other 3.8 1.4 .1

$ 1,480.1 $ 1,609.4 $ 1,673.9

Depreciation expense
Gas distribution $ 98.8 $ 90.1 $ 83.7
Shipping 12.9 13.0 12.8
Other .1 - -

$ 111.8 $ 103.1 $ 96.5

Operating income (loss)
Gas distribution $ 170.7 $ 179.1 $ 187.6
Shipping 23.4 18.6 15.5
Other (4.3) (4.0) (5.0)

$ 189.8 $ 193.7 $ 198.1

NICOR Inc. Page 12

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

FACTORS AFFECTING BUSINESS PERFORMANCE

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

Gas distribution. Since nearly 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.

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
alternatives in rates and service, increasing its ability to compete in
these markets.

Direct connection to five interstate pipelines and extensive 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. In 1995, Northern Illinois
Gas' storage capabilities enabled the company to reduce purchases of
premium-cost pipeline services. In addition, in an effort to ensure supply
reliability, the company purchases gas from several different producing
regions under varied contract terms.

Gas Distribution Operating Statistics

1995 1994 1993

Year-end customers (Thousands) 1,833.5 1,802.7 1,769.8
Margin per Mcf delivered $ .83 $ .87 $ .88
Average gas cost per Mcf sold 2.52 3.14 3.26
Degree days (Normal 6,117) 6,111 5,865 6,129

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.
For further information, see page 30, FERC Order 636.

Northern Illinois Gas has significantly enhanced its transmission and
storage capabilities with the Elgin-Volo project. The project improved
withdrawal capacities at the company's storage field in Troy Grove,
Illinois, and added 17 miles of parallel main to increase the capacity of

NICOR Inc. Page 13

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

the transmission system that delivers gas from Troy Grove to the market. In
addition, 28 miles of main was added in the northern region of the Northern
Illinois Gas service territory between the towns of Elgin, Crystal Lake and
Volo. The project is expected to provide an estimated $28 million in annual
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, large-
tonnage gas air conditioning and gas-fired cogeneration, are expected to
continue to account for a significant portion of Northern Illinois Gas'
growth in deliveries.

In 1993, Northern Illinois Gas began a 10-year contract to transport natural
gas for electric generation. Deliveries under this contract, which 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,
contributed significantly to the overall growth in deliveries in each of the
last two years. Northern Illinois Gas delivered 34.4 Bcf and 31.4 Bcf of
gas for electric power generation in 1995 and 1994, respectively.

Beyond efforts to increase natural gas deliveries in its service territory,
Northern Illinois Gas is working to increase profitability through
nontraditional opportunities. During 1995, these nontraditional activities
included: selling storage services for a fee to various customers;
providing transportation service to pipelines and gas distribution companies
adjacent to its facilities; owning a hub which serves as a market center for
various transactions between buyers and sellers of natural gas and related
services; selling space for advertising materials to be inserted in gas bill
envelopes; and offering account management services to transportation
customers. These activities generated approximately $6 million in pretax
income in 1995 and 1994, and approximately $3 million in 1993. These
ventures demonstrate the company's commitment to developing nontraditional
sources of income.

Northern Illinois Gas is examining its operations in light of the changing
regulatory environment. With efficiency and customer service in mind, the
company has made several organizational changes. The company's sales and
marketing departments were centralized to enhance the level of service to
existing markets and to focus resources on markets with the most potential
to increase natural gas deliveries. In field operations, Northern Illinois
Gas has reorganized from a "division" structure based on geography to a
company-wide "process" approach based on closely related activities and
customer services. The more centralized structure improves the planning and
prioritization of work throughout the company's service territory, leading
to increased efficiency on service calls, maintenance of the operating
system and installation of new services and main. The company has also
taken steps to streamline its gas storage and transmission operations and is
in the process of reviewing its support and administrative functions.

NICOR Inc. Page 14

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

Northern Illinois Gas also initiated a program in 1994 to reduce the level
of capital expenditures on an ongoing basis while continuing to maintain a
high level of service and reliability. The company made progress toward
this objective in 1995 as spending on capital items other than the Elgin-
Volo project was significantly below the 1994 level.

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.

As a result of a bill passed by the Illinois legislature in 1995,
performance-based ratemaking is now allowed in the state on an experimental
basis. Northern Illinois Gas' rate case filing in 1995 was based on the
traditional cost-of-service approach, but the company is studying
performance-based rate opportunities and is considering appropriate actions.

Shipping. Tropical Shipping's financial results can be significantly
affected by general economic conditions in the United States and the
Caribbean. Most of the markets served by the company depend on imports of
food and other essential provisions. Tourism is a key element in their
economies.

Tropical Shipping continues its efforts to be competitive and profitable in
the Caribbean region, which is characterized by modest market growth,
intensifying price competition and increasing service parity. The company
intends to take advantage of opportunities in the region by expanding
services to selected destinations and initiating service to new areas in the
Caribbean region. Additional growth is expected in high margin services,
such as handling of less-than-container load shipments and providing service
via other carriers to ports not served by Tropical vessels.

In September 1995, two hurricanes caused extensive damage on several of the
Caribbean islands served by Tropical Shipping. The hurricanes have had a
negative impact on tourist-based cargo shipments, but the impact has been
more than offset by an increase in shipments of construction materials and
supplies to rebuild the affected areas. Hurricane-recovery activity is
expected to continue into 1996.

At present, all shipping companies engaged in the foreign commerce of the
United States are required to file their rates and tariff terms with the
Federal Maritime Commission (FMC). The U.S. House of Representatives has
passed legislation that would dismantle the FMC and deregulate the "common
carrier" shipping industry as early as 1997. That legislation, as well as
other alternative deregulation measures, is currently being reviewed by the
U.S. Senate. If enacted, deregulation will allow shipping companies to
negotiate confidential service contracts with individual shippers for liner
services rather than providing services on a fixed tariff basis.

NICOR Inc. Page 15

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

Deregulation should initially increase direct competition for larger
customers. Tropical's competitive rates and service levels should allow the
company to meet the challenges of the increased competition; however, the
full impact of such change is uncertain at this time.

Shipping Operating Statistics
1995 1994 1993
TEUs shipped (Thousands)
Southbound 76.2 75.2 75.3
Northbound 15.7 16.7 16.1
Interisland 5.0 4.0 2.4

96.9 95.9 93.8

Ports served 23 22 22
Vessels owned 14 14 14

NICOR New Ventures. In order to maximize the potential from a growing
number of opportunities, NICOR has developed several new nonutility ventures
that build on the company's strengths, expertise and market presence in the
gas distribution business. NICOR's new ventures offer good long-term growth
prospects and are expected to move toward overall profitability over the
next several years. Currently, these new ventures include: offering a
variety of maintenance and repair contracts for residential and commercial
heating, air conditioning and water heating equipment; developing,
administering and operating natural gas market-area hubs; developing turnkey
natural gas fleets and fueling services in the Chicago metropolitan area;
and assisting clients in the area of natural gas product development,
testing and consulting.

Contingencies. The company is 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 37,
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. In 1995, NICOR's operating revenues decreased 8 percent to
$1,480.1 million. Gas distribution revenues of $1,312.7 were down
10 percent as a result of the recovery from customers of lower gas costs.
Shipping revenues rose 7 percent to $163.6 million due to an improved cargo
mix, additional volumes shipped and increased charter activity.

NICOR Inc. Page 16

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

In 1994, NICOR's operating revenues decreased 4 percent to $1,609.4 million.
In the gas distribution segment, revenues of $1,455 million declined
5 percent as a result of the recovery from customers of lower gas costs,
customers switching from sales to transportation service and the effect of
4 percent warmer weather. Shipping revenues rose 9 percent to $153 million
due to an improved cargo mix, increased charter activity and additional
volumes shipped.

Margin. Gas distribution margin, defined as operating revenues less cost of
gas and revenue taxes which are both passed directly through to customers,
rose $6 million in both 1995 and 1994 to $442.3 million and $436.3 million,
respectively. Factors contributing to the change in margin included the
positive impact of increased deliveries unrelated to weather, the effect of
variations in weather and a nonrecurring $4.2 million gain on the sale of
interests in oil and gas properties in 1994. Margin per Mcf delivered in
1995 and 1994 was adversely affected by increases in lower margin deliveries
for electric power generation.

Operating and Maintenance. In 1995, operating and maintenance expenses were
$287.3 million, up $14.6 million from the prior year. The gas distribution
segment accounted for $6.1 million of the increase due to several factors,
including a higher pension provision, increased expenditures for information
technology and the incurrence of costs associated with the company's rate
filing. The shipping segment was $5.8 million higher because of shore and
vessel costs relating to higher volumes shipped.

In 1994, operating and maintenance expenses were $272.7 million, up
$16.6 million from the prior year. The shipping segment increase of
$8.7 million 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.

Depreciation. Depreciation rose 8 percent in 1995 to $111.8 million, and
7 percent in 1994 to $103.1 million, mainly as a result of plant additions
in the gas distribution segment.

Nonoperating items. Other income decreased $.8 million in 1995 to
$6.2 million as the change in interest on income tax adjustments more than
offset higher interest income, resulting from higher interest rates.

In 1995, interest expense rose $1.7 million due to the impact of higher
interest rates. Interest expense declined $1.3 million in 1994 to $40.1
million because of reduced borrowing levels.

Effective income tax rates were 35.3 percent, 31.8 percent and 33.1 percent
for 1995, 1994 and 1993, respectively. The increase in 1995 was primarily
the result of a higher state tax provision and less excess deferred taxes
turning around. The decrease in 1994 was due primarily to a lower state tax
provision.

NICOR Inc. Page 17

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

Gas Distribution Operating Statistics

1995 1994 1993
Gas distribution margin (Millions)
Sales
Residential $ 849.8 $ 939.2 $ 989.2
Commercial 217.8 260.0 292.1
Industrial 35.9 50.2 55.4
1,103.5 1,249.4 1,336.7
Transportation
Commercial 50.3 41.8 38.8
Industrial 62.5 51.2 48.1
112.8 93.0 86.9
Revenue taxes and other 96.4 112.6 109.7
Operating revenues 1,312.7 1,455.0 1,533.3
Cost of gas (787.2) (924.9) (1,007.1)
Revenue taxes (83.2) (93.8) (95.9)

$ 442.3 $ 436.3 $ 430.3

Deliveries (Bcf)
Sales
Residential 231.4 215.8 222.7
Commercial 59.3 60.5 67.0
Industrial 10.5 12.4 13.7
301.2 288.7 303.4
Transportation
Commercial 64.0 54.2 50.0
Industrial 165.6 156.9 135.4
229.6 211.1 185.4

530.8 499.8 488.8

Year-end customers (Thousands)
Sales
Residential 1,660.6 1,632.0 1,601.2
Commercial 141.7 141.5 141.7
Industrial 11.6 11.6 11.6
1,813.9 1,785.1 1,754.5
Transportation
Commercial 17.1 15.3 13.2
Industrial 2.5 2.3 2.1
19.6 17.6 15.3

1,833.5 1,802.7 1,769.8

NICOR Inc. Page 18

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

Discontinued operations. In April 1993, NICOR announced its intention to
divest its 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 effect on net income. This
completed the sale of oil and gas operations.

The company has been evaluating its discontinued operations reserve and it
appears that a positive adjustment may be appropriate in the near future.

Accounting pronouncements. In 1995, the Financial Accounting Standards
Board (FASB) issued Statement No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and Statement
No. 123, Accounting for Stock-Based Compensation. Implementation of these
statements is not expected to have a material impact on the company's
financial condition or results of operations. For further information, see
New Accounting Pronouncements on page 29.

FINANCIAL CONDITION AND LIQUIDITY

Overall, NICOR's financial condition is sound. Long-term debt continues to
be about 40 percent of capitalization.

The company believes it has access to adequate resources to meet planned
capital expenditures, debt and stock redemptions, dividends and working
capital needs. 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 $276.3 million in 1995, $298.4 million in 1994 and $221.9
million in 1993. The changes between years were due primarily to the timing
of the recovery of gas costs from customers.

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.

In 1996, net cash flow from continuing operations is expected to decrease
significantly because of working capital changes. Factors contributing to
this decrease include the impact of an increase in company storage
requirements, timing of gas cost recoveries, a return to normal levels of
customer advance payments and the impact of a 1995 gas pipeline refund.

Investing. NICOR's capital expenditures, which are mainly in the gas
distribution segment, were $156.9 million in 1995 compared with $172.1
million in 1994 and $141.6 million in 1993. Capital expenditures in 1995
and 1994 included amounts related to construction of the Elgin-Volo project,
a two-year, $65 million transmission and storage system improvement. In
1995, capital spending in the gas distribution segment on projects other
than the Elgin-Volo project was below historical levels, reflecting, in

NICOR Inc. Page 19

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

part, efforts to reduce capital expenditures. The decline in 1995 capital
spending in the shipping segment relates primarily to the delay in certain
equipment purchases.

Capital spending in 1996 is anticipated to be about $130 million, with $115
million for gas distribution. Capital expenditures in the gas distribution
segment are expected to decrease as a result of the completion of the Elgin-
Volo project and company-wide efforts to reduce capital expenditures. In
the shipping segment, capital spending is expected to return to more typical
levels.

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. NICOR's long-term debt outstanding was $468.7 million at
December 31, 1995 and $458.9 million for the years ended December 31, 1994
and 1993. Long-term debt as a percentage of capitalization was 40.2
percent, 39.9 percent and 38.9 percent at year-end 1995, 1994 and 1993,
respectively.

Long-term debt. In October 1995, Northern Illinois Gas issued $50 million
of 7.26% First Mortgage Bonds due in 2025. The net proceeds of the sale
replenished corporate funds which were used for the maturity of $50 million
of 5-1/2% unsecured notes due in July 1995.

In September 1995, Tropical Shipping issued $22.5 million of 6.83% unsecured
senior notes due in September 2000. Proceeds from the sale were used for
replacement of a $12.5 million promissory note due in December 1996 and for
general corporate purposes.

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, of which $175 million remained available for issuance at
December 31, 1995. 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 refinanced about half of consolidated long-term
debt at lower interest rates, reducing annual interest expense by
approximately $5.5 million on the portion of the debt refinanced.

NICOR Inc. Page 20

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

In 1996, Northern Illinois Gas anticipates issuing, depending upon market
conditions, $50 million of debt to finance maturing debt and $25 million of
debt to replenish funds used in 1995 to finance the Elgin-Volo project.

Short-term debt. NICOR and its gas distribution subsidiary maintain short-
term credit agreements with major domestic and foreign banks. At
December 31, 1995, these agreements, which serve as backup for the issuance
of commercial paper, totaled $340 million and the company had $198.8 million
and $243.9 million of commercial paper outstanding at year-end 1995 and
1994, respectively. At December 31, 1995, the unused lines of credit under
these credit agreements were $141.2 million

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

Common stock. 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. Under this program, NICOR purchased and retired
common shares at a cost of approximately $30 million and $15 million in 1995
and 1994, respectively.

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

The company increased its quarterly common stock dividend rate during 1995
for the eighth consecutive year. The company paid dividends of $65.2
million, $66.9 million and $68.1 million in 1995, 1994 and 1993,
respectively.

Other. 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 the company's ability to
meet its cash obligations.

Estimated Actual
(Millions) 1996 1995 1994 1993
Capital Expenditures
Gas distribution $ 115 $ 152.2 $ 160.3 $ 127.4
Shipping 15 4.5 11.8 14.1
Other - .2 - .1
$ 130 $ 156.9 $ 172.1 $ 141.6

Identifiable assets at December 31
Gas distribution $2,080.3 $2,011.7 $2,016.1
Shipping 164.3 180.6 204.5
Other 14.5 17.6 1.5
$2,259.1 $2,209.9 $2,222.1

NICOR Inc. Page 21

Item 8. Financial Statements and Supplementary Data

Page

Report of Independent Public Accountants 22

Financial Statements:

Consolidated Statement of Income 23

Consolidated Statement of Cash Flows 24

Consolidated Balance Sheet 25

Consolidated Statement of Capitalization 26

Consolidated Statement of Common Equity 27

Notes to the Consolidated Financial Statements 28

NICOR Inc. Page 22

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, 1995 and 1994, and the related consolidated
statements of income, common equity and cash flows for each of the three
years in the period ended December 31, 1995. 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, 1995 and 1994, and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1995, 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 40) 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 24, 1996

<TABLE>
NICOR Inc. Page 23

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

Year ended December 31
1995 1994 1993
<S> <C> <C> <C>
Operating revenues $ 1,480.1 $ 1,609.4 $ 1,673.9

Operating expenses
Cost of gas 787.2 924.9 1,007.1
Operating and maintenance 287.3 272.7 256.1
Depreciation 111.8 103.1 96.5
Taxes, other than income taxes 104.0 115.0 116.1

1,290.3 1,415.7 1,475.8

Operating income 189.8 193.7 198.1

Other income (expense)
Interest income 3.1 2.3 1.9
Other, net 3.1 4.7 5.0

6.2 7.0 6.9

Income before interest on debt and income taxes 196.0 200.7 205.0

Interest on debt, net of amounts capitalized 41.8 40.1 41.4

Income before income taxes 154.2 160.6 163.6

Income taxes 54.4 51.1 54.2

Income from continuing operations 99.8 109.5 109.4

Income from discontinued operations,
net of income taxes - - 2.3

Net income 99.8 109.5 111.7

Dividends on preferred and preference stock .4 .6 1.0

Earnings applicable to common stock $ 99.4 $ 108.9 $ 110.7

Average shares of common stock outstanding 50.7 52.6 55.1

Earnings per average share of common stock
Continuing operations $ 1.96 $ 2.07 $ 1.97
Discontinued operations - - .04

$ 1.96 $ 2.07 $ 2.01

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

<TABLE>
NICOR Inc. Page 24

Consolidated Statement of Cash Flows
(Millions)
<CAPTION>
Year ended December 31
1995 1994 1993
Operating activities
<S> <C> <C> <C>
Net income $ 99.8 $ 109.5 $ 111.7
Less income from discontinued operations - - 2.3
Income from continuing operations 99.8 109.5 109.4
Adjustments to reconcile income from continuing
operations to net cash flow provided from
continuing operations:
Depreciation 111.8 103.1 96.5
Deferred income tax expense (benefit) (3.1) (32.7) (13.9)
Change in working capital items and other:
Receivables, less allowances (43.0) 58.5 12.2
Gas in storage 7.0 6.6 23.0
Deferred/accrued gas costs 25.9 22.3 (14.5)
Accounts payable 51.0 30.9 13.0
Gas refunds due customers 21.9 .7 1.1
Other 5.0 (.5) (4.9)

Net cash flow provided from continuing operations 276.3 298.4 221.9
Net cash flow used for discontinued operations (2.7) (1.3) (12.3)

Net cash flow provided from operating activities 273.6 297.1 209.6

Investing activities
Capital expenditures (156.9) (172.1) (141.6)
Short-term investments 8.2 23.8 (17.2)
Proceeds from sales of discontinued operations - - 139.9
Other 2.1 1.3 (3.9)

Net cash flow used for investing activities (146.6) (147.0) (22.8)

Financing activities
Net proceeds from issuing long-term debt 72.0 99.1 235.6
Disbursements to retire long-term debt (62.5) (50.0) (262.5)
Repayments of short-term borrowings, net (47.6) (57.6) (39.0)
Dividends paid (65.2) (66.9) (68.1)
Disbursements to reacquire stock (33.6) (71.6) (60.0)
Other 2.2 .9 7.0

Net cash flow used for financing activities (134.7) (146.1) (187.0)

Net increase (decrease) in cash and cash equivalents (7.7) 4.0 (.2)

Cash and cash equivalents, beginning of year 14.5 10.5 10.7

Cash and cash equivalents, end of year $ 6.8 $ 14.5 $ 10.5

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

<TABLE>
NICOR Inc. Page 25

Consolidated Balance Sheet
(Millions, except share data)
<CAPTION>
December 31
Assets 1995 1994

Current assets
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 6.8 $ 14.5
Short-term investments, at cost which
approximates market 19.6 27.8
Receivables, less allowances of $5.8 and $5.2,
respectively 261.7 218.7
Gas in storage, at last-in, first-out cost 63.0 91.2
Deferred gas costs 8.7 34.6
Other 30.0 31.2

389.8 418.0

Property, plant and equipment, at cost
Gas distribution 2,886.2 2,727.8
Shipping 223.8 223.5
Other .4 .2
3,110.4 2,951.5
Less accumulated depreciation 1,331.1 1,234.5

1,779.3 1,717.0

Other assets 90.0 74.9

$ 2,259.1 $ 2,209.9

Liabilities and Capitalization

Current liabilities
Long-term obligations due within one year $ 50.0 $ 50.3
Short-term borrowings 198.8 246.4
Accounts payable 308.4 258.4
Gas refunds due customers 24.2 2.3
Other 44.3 43.0

625.7 600.4
Deferred credits and other liabilities
Deferred income taxes 180.8 169.3
Regulatory income tax liability 86.5 89.9
Unamortized investment tax credits 50.8 53.5
Other 150.1 145.1

468.2 457.8
Capitalization
Long-term debt 468.7 458.9
Preferred stock 8.9 9.4
Common stock, par value $2.50, authorized 80,000,000 shares
(reserved for conversion and other purposes 4,399,110 and
4,473,735 shares, respectively), outstanding 50,301,587
and 51,540,327 shares, respectively 125.8 128.9
Paid-in capital 49.6 77.1
Retained earnings (since December 31, 1985) 512.2 477.4

1,165.2 1,151.7

$ 2,259.1 $ 2,209.9

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

<TABLE>
NICOR Inc. Page 26

Consolidated Statement of Capitalization
(Millions, except share data)
<CAPTION>
December 31
1995 1994
First mortgage bonds
Maturity Interest rate
<S> <S> <C> <C> <C> <C>
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 50.0
2025 7.26 50.0 -
500.0 450.0
Less: Amount due within one year 50.0 -
Unamortized debt discount, net of premium 3.8 3.6

446.2 38.3% 446.4 38.8%

Other long-term debt
Notes payable due 1995, 5.50% - 50.0
Note payable due 1996, 5.66% - 12.5
Notes payable due 2000, 6.83% 22.5 -
22.5 62.5
Less amount due within one year - 50.0

22.5 1.9 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 175,385 and 191,639 shares, respectively 8.8 9.6
Other .1 .1
8.9 9.7
Less amount due within one year - .3
8.9 .8 9.4 .8
Common equity
Common stock 125.8 128.9
Paid-in capital 49.6 77.1
Retained earnings (since December 31, 1985) 512.2 477.4

687.6 59.0 683.4 59.3

$1,165.2 100.0% $1,151.7 100.0%

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

<TABLE>
NICOR Inc. Page 27

Consolidated Statement of Common Equity
(Millions, except per share data)
<CAPTION>
Year ended December 31
1995 1994 1993
Common stock
<S> <C> <C> <C>
Balance at beginning of year $ 128.9 $ 134.9 $ 139.4
Issued and converted .1 .1 .8
Reacquired and cancelled (3.2) (6.1) (5.3)

Balance at end of year 125.8 128.9 134.9

Paid-in capital
Balance at beginning of year 77.1 134.5 181.3
Issued and converted 2.0 .8 6.2
Reacquired and cancelled (29.5) (58.2) (54.1)
Other - - 1.1

Balance at end of year 49.6 77.1 134.5

Retained earnings(a)
Balance at beginning of year 477.4 434.5 390.9
Net income 99.8 109.5 111.7
Dividends on common stock ($1.28, $1.26 and
$1.22 per share, respectively) (64.6) (66.0) (67.1)
Dividends on preferred and preference stock (.4) (.6) (1.0)

Balance at end of year 512.2 477.4 434.5

Total common equity at end of year $ 687.6 $ 683.4 $ 703.9

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

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

NICOR Inc. Page 28

Notes to the Consolidated Financial Statements

NICOR Inc. is a holding company with its principal business being Northern
Illinois Gas, one of the nation's largest gas distribution companies.
Northern Illinois Gas serves over 1.8 million customers in a service
territory that encompasses most of the northern third of Illinois, excluding
the city of Chicago. NICOR also owns Tropical Shipping, which transports
containerized freight between the Port of Palm Beach, Florida, and 23 ports
in the Caribbean and Central America.

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. The preparation of the consolidated
financial statements requires management to make estimates that affect the
reported amounts. Actual results could differ from those estimates.
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 its industries, and prudent creditworthiness policies
which limit risk.

NICOR Inc. Page 29

Notes to the Consolidated Financial Statements (continued)

NEW ACCOUNTING PRONOUNCEMENTS

Impairment of long-lived assets. In March 1995, the Financial Accounting
Standards Board (FASB) issued Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.
This statement requires recognition of impairment losses on long-lived
assets when an asset's book value exceeds its expected future undiscounted
cash flows. This statement requires adoption no later than the company's
1996 fiscal year and must be adopted as a cumulative effect of a change in
accounting principle. The company adopted Statement No. 121 on January 1,
1996. Implementation of this statement is not expected to have a material
impact on the company's financial condition or results of operations.

Stock-based compensation. In October 1995, the FASB issued Statement
No. 123, Accounting for Stock-Based Compensation. This statement requires
companies to either recognize compensation costs attributable to employee
stock options or similar equity instruments in net income, or, in the
alternative, provide pro forma footnote disclosure on net income and
earnings per share. Implementation of this statement is required no later
than the company's 1996 fiscal year. The company anticipates electing the
pro forma footnote disclosure provisions of this statement in 1996. This
statement is not expected to have a material impact on pro forma net income
or earnings per share.

CASH FLOW INFORMATION

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

(Millions) 1995 1994 1993

Income taxes paid $ 52.9 $ 77.7 $ 71.5
Interest paid 41.6 39.5 44.5

REGULATORY MATTERS

Rate proceeding. On May 8, 1995, Northern Illinois Gas filed with the
Ill.C.C. for a 5.4 percent, $73 million general rate increase. The filing
requested a rate of return on original-cost rate base of 10.67 percent,
reflecting a 12.95 percent cost of common equity. The increase is needed to
recover costs associated with enhancements to the company's transmission and
storage system, other capital costs and rising operating costs. The filing
also proposes revisions to some services provided to commercial and
industrial customers. The last time the company filed for a general rate
increase was 1981.

NICOR Inc. Page 30

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
$171 million of such costs has been recorded, of which $151 million has been
paid to the pipeline transporters, subject to refund. Since 1994, the
company has been recovering these costs through the PGA in accordance with
Ill.C.C. authorization.

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 1995 and 1994, the
estimated current replacement cost of gas in inventory at December 31, 1995
and 1994 exceeded the last-in, first-out cost by approximately $161 million
and $236 million, respectively.

INCOME TAXES

The components of income tax expense are presented below:

(Millions) 1995 1994 1993

Current
Federal $ 52.7 $ 74.8 $ 63.1
State 7.1 11.2 7.3
59.8 86.0 70.4
Deferred
Federal (2.3) (24.9) (12.1)
State (.8) (7.8) (1.8)
(3.1) (32.7) (13.9)

Amortization of ITC, net (2.7) (2.4) (2.3)
Foreign taxes .4 .2 -

Income tax expense $ 54.4 $ 51.1 $ 54.2

NICOR Inc. Page 31

Notes to the Consolidated Financial Statements (continued)

The temporary differences which gave rise to significant portions of the net
deferred tax liability at December 31, 1995 and 1994 were as follows:

(Millions) 1995 1994

Deferred tax liabilities
Property, plant and equipment $ 237.7 $ 233.3
Investment in foreign subsidiaries 8.2 15.1
Other 20.8 16.6
266.7 265.0
Deferred tax assets
Unamortized investment tax credits 33.6 35.2
Regulatory income tax liability 21.0 21.7
Other 46.4 50.2
101.0 107.1

Net deferred tax liability $ 165.7 $ 157.9

The effective combined federal and state income tax rate was 35.3 percent,
31.8 percent and 33.1 percent in 1995, 1994 and 1993, respectively.
Differences between federal income taxes computed using the statutory rate
and reported income tax expense are shown below:

(Millions) 1995 1994 1993

Federal income taxes using
statutory rate $ 54.0 $ 56.2 $ 57.3
State income taxes, net 4.7 2.5 3.8
Amortization of investment
tax credits (2.6) (2.7) (2.7)
Other, net (1.7) (4.9) (4.2)

Income tax expense $ 54.4 $ 51.1 $ 54.2

DISCONTINUED OPERATIONS

In April 1993, NICOR announced its intention to divest its oil and gas
segment. U.S. exploration and production operations were sold in the second
quarter of 1993, and the Canadian gas gathering operations were sold in
October 1993, with no additional effect on net income. This completed the
sale of the oil and gas operations.

Summarized financial results of the discontinued operations were:

(Millions) 1993

Operating revenues $ 15.9

Income before income taxes $ 3.5
Income taxes 1.2

Income from discontinued operations $ 2.3

NICOR Inc. Page 32

Notes to the Consolidated Financial Statements (continued)

POSTEMPLOYMENT BENEFITS

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

Net periodic pension cost (benefit) included:

(Millions) 1995 1994 1993

Service cost $ 6.4 $ 7.0 $ 6.7
Interest cost 19.3 18.5 20.4
Loss (return) on plan assets (61.5) (17.1) (41.9)
Net amortization and deferral 27.0 (19.4) 3.7

$ (8.8) $(11.0) $(11.1)
Expected long-term rate of return
on plan assets 9.0% 8.5% 8.5%

The following table reflects the funded status of the pension plans at
October 1, 1995 and 1994 reconciled to amounts recorded in the financial
statements at December 31, 1995 and 1994, respectively:

(Millions) 1995 1994

Vested benefits $ 217.8 $ 202.9
Nonvested benefits 25.7 21.2
Accumulated benefit obligation 243.5 224.1
Effect of assumed increase in
compensation level 32.5 29.4
Projected benefit obligation 276.0 253.5
Plan assets at market value 379.4 352.0
Plan assets in excess of projected
benefit obligation 103.4 98.5
Unrecognized net gain (40.7) (42.5)
Unrecognized net transition asset (23.9) (27.8)
Unrecognized prior service cost 4.5 5.0
Other 3.4 2.9

Prepaid pension cost $ 46.7 $ 36.1

Weighted average discount rate 7.5% 8.0%
Rate of compensation increase 4-5 4-5

NICOR Inc. Page 33

Notes to the Consolidated Financial Statements (continued)

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

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

Net periodic postretirement benefit cost included:

(Millions) 1995 1994 1993

Service cost $ 2.3 $ 2.3 $ 1.9
Interest cost 9.0 8.1 7.5
Loss (return) on plan assets (1.8) (.4) (1.0)
Amortization of transition obligation 3.7 3.7 3.7
Net amortization and deferral 1.0 (.1) .3

$ 14.2 $ 13.6 $ 12.4
Expected long-term rate of return
on plan assets 9.0% 8.5% 8.5%

The following table reflects the funded status of the postretirement health
care and life insurance plans at October 1, 1995 and 1994 reconciled to
amounts recorded in the financial statements at December 31, 1995 and 1994,
respectively:

(Millions) 1995 1994

Accumulated postretirement benefit
obligation (APBO):
Retirees $ 76.9 $ 71.2
Fully eligible active plan participants 16.9 17.2
Other active plan participants 29.6 28.0
Total APBO 123.4 116.4
Plan assets at market value 11.5 9.7
APBO in excess of plan assets (111.9) (106.7)
Unrecognized transition obligation 63.5 67.3
Unrecognized prior service cost (1.2) (1.3)
Unrecognized net loss 12.8 11.9
Other (2.1) (2.3)

Accrued postretirement benefit cost $ (38.9) $ (31.1)

Weighted average discount rate 7.5% 8.0%
Rate of compensation increase 4-5 4-5

NICOR Inc. Page 34

Notes to the Consolidated Financial Statements (continued)

The health care cost trend rate for pre-Medicare benefits was assumed to be
10 percent for 1996, 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 7 percent for 1996, 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, 1995, by about $16 million, the
aggregate of the service and interest cost components of 1995 net
postretirement health care costs by $1.9 million, and operating expense by
$1.4 million, after capitalization.

SHORT- AND LONG-TERM DEBT

The company's short-term borrowings included:

1995 1994 1993

Balance at year-end (Millions)
Commercial paper $ 198.8 $ 243.9 $ 301.5
Bank loans - 2.5 2.5

Weighted average interest rate
on year-end balance
Commercial paper 5.69% 5.95% 3.25%
Bank loans - 6.55 4.60

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, 1995, lines of credit totaled $340
million, of which $198.8 million served as backup for commercial paper
borrowings. Commitment fees of up to 1/10 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 $4.1 million during 1995, 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 $.9 million, $.2 million
and $.3 million in 1995, 1994 and 1993, respectively.

NICOR Inc. Page 35

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) 1996 1997 1998 1999 2000

Long-term debt $ 50.0 $ 25.0 $ 25.0 $ 25.0 $ 72.5
Preferred stock - .2 .5 .5 .5

$ 50.0 $ 25.2 $ 25.5 $ 25.5 $ 73.0

REDEEMABLE PREFERRED STOCK

A description of redeemable preferred stock 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 36

Notes to the Consolidated Financial Statements (continued)

A summary of stock option activity follows:

Number Option price
of shares per share

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
Granted 240,300 24.625
Exercised (39,500) 15.875 -21.375
Cancelled (2,000) 24.625

December 31, 1995 757,400 $15.875 -28.9375

Options exercisable at
December 31, 1995 215,000

At December 31, 1995, 2,000 shares of restricted stock were outstanding and
1,240,000 shares remained available for future grant under the plan. For
information on FASB Statement No. 123, Accounting for Stock-Based
Compensation, see New Accounting Pronouncements on page 29.

CHANGE IN COMMON SHARES

Changes in common shares outstanding are summarized below:

(Thousands) 1995 1994 1993

Beginning of year 51,540 53,959 55,770
Issued and converted 75 43 330
Reacquired and cancelled (1,313) (2,462) (2,141)
End of year 50,302 51,540 53,959

NICOR repurchased 1,237,800 shares in 1995, 2,406,549 shares in 1994 and
1,877,575 shares in 1993, under common stock repurchase programs.

NICOR Inc. Page 37

Notes to the Consolidated Financial Statements (continued)

RETAINED EARNINGS

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

INDUSTRY SEGMENT INFORMATION

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

CONTINGENCIES

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

Current environmental laws require treatment of certain waste materials on
sites owned by NICOR that may have been generated by two barge-cleaning
facilities previously owned and operated by certain discontinued businesses
of the company. NICOR has remediated one site in accordance with the
approved closure plan and began the three-year post-closure monitoring
period in 1995. The cost of evaluation and cleanup of the other site is
currently estimated to range from $5 million to $15 million. The company is
evaluating whether any of these costs will be recoverable from insurance or
other sources.

Until the early 1950s, manufactured gas facilities were operated in the
Northern Illinois Gas service territory. Manufactured gas is now known to
have created various by-products that may still be present at these sites.
Current environmental laws may require cleanup of these former manufactured
gas plant sites ("MGPs"). The company has identified up to 40 properties in
its service territory believed to be the location of such sites. Of these
40 properties, Northern Illinois Gas currently owns 15 and formerly owned or
leased 13. The remaining 12 were never owned or leased by the company.
Information has been presented regarding preliminary reviews of the
company's currently owned and formerly owned or leased properties to the
Illinois Environmental Protection Agency. More detailed investigations are
currently in progress or planned at many of these sites. At four of the
sites, the current owners are seeking to allocate cleanup costs to all
former owners or lessees, 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 future costs, which based on industry experience, could be
significant. Costs are currently being recovered pursuant to Ill.C.C.
authorization.

In December 1995, Northern Illinois Gas filed suit against certain insurance
carriers seeking recovery of environmental cleanup costs of former MGPs.
Presently, management cannot predict the timing or outcome of this lawsuit.
Any recoveries from such litigation or other sources will be flowed back to
the company's customers.

NICOR Inc. Page 38

Notes to the Consolidated Financial Statements (concluded)

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, except 1995 Quarter ended
per share data) Mar. 31 June 30 Sept. 30 Dec. 31

Operating revenues $ 609.8 $ 246.9 $ 157.1 $ 466.3
Operating income 74.1 34.1 17.8 63.8
Net income 40.9 17.1 6.1 35.7
Earnings per share .80 .34 .12 .71

1994 Quarter ended
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
Net income 51.3 15.9 7.5 34.7
Earnings per share .95 .30 .14 .67

NICOR Inc. Page 39

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 6 and 8 through 17 of the Definitive Proxy Statement, dated
March 20, 1996, and is incorporated herein by reference. Information
relating to the executive officers of the registrant is provided on page 7
in Part I of this document.

Item 12. Security Ownership of Certain Beneficial Owners and Management

Information regarding security ownership of certain beneficial owners,
directors and executive officers of the company is contained on pages 6
through 8 of the Definitive Proxy Statement, dated March 20, 1996, and is
incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions

None.

NICOR Inc. Page 40

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 21.

Report of Independent Public Accountants
Consolidated Financial Statements:
As of December 31, 1995 and 1994 -
Balance Sheet
Statement of Capitalization
For the years ended December 31, 1995, 1994 and 1993 -
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 22
II Valuation and Qualifying Accounts 41

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

3) Exhibits Filed:

See Exhibit Index on pages 43 through 47 filed herewith.

(b) The company did not file a report on Form 8-K during the fourth
quarter of 1995.

<TABLE>

NICOR Inc. Page 41

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

1995

Allowance
for uncollectible
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
accounts receivable $ 5.2 $ 8.0 $ - $ 7.4(a) $ 5.8
Reserve for estimated
future costs related to
discontinued businesses(d) 20.6 - - 2.4(b) 18.2

1994

Allowance
for uncollectible
accounts receivable $ 6.8 $ 8.5 $ - $ 10.1(a) $ 5.2
Reserve for estimated
future costs related to
discontinued businesses(d) 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(d) 17.2 - 9.4(c) 6.6(b) 20.0

<F1>
(a) Accounts receivable written off, net of recoveries.
<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.
<F4>
(d) Excludes the related reserve for federal and state income taxes.
</TABLE>

NICOR Inc. Page 42

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 22, 1996 By DAVID L. CYRANOSKI
David L. Cyranoski
Senior 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

THOMAS L. FISHER Chairman, President, Chief
Thomas L. Fisher Executive Officer and Director

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

ROBERT M. BEAVERS, JR.* Director

JOHN H. BIRDSALL, III* Director

W. H. CLARK* Director

JOHN E. JONES* Director March 22, 1996

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 43

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 May 3, 1995. (File No. 1-7297, Form 10-Q for March
1995, NICOR Inc., Exhibit 3(ii).01.)

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. 1-7296, Form 10-K for 1995, Northern
Illinois Gas Company, Exhibit 4.01.)

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. 1-7296, Form 10-K for
1995, Northern Illinois Gas Company, Exhibit 4.02.)

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 44

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 45

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 September 1994, Northern Illinois Gas Company,
Exhibit 4.01.)

4.16 * Supplemental Indenture, dated October 15, 1995, of Northern
Illinois Gas Company to Bank of America Illinois, Trustee, under
Indenture dated as of January 1, 1954. (File No. 1-7296,
Form 10-Q for September 1995, 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 * Security Payment Plan. (File No. 1-7297, Form 10-K for 1980,
NICOR Inc., Exhibit 10-09.)

10.02 * 1984 NICOR Officers' Capital Accumulation Plan Participation
Agreement. (File No. 1-7297, Form 10-K for 1988, NICOR Inc.,
Exhibit 10-10.)

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

10.03 * 1984 NICOR Directors' Capital Accumulation Plan Participation
Agreement. (File No. 1-7297, Form 10-K for 1983, NICOR Inc.,
Exhibit 10-13.)

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

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

NICOR Inc. Page 46

Exhibit Index (continued)

Exhibit
Number Description of Document

10.05 * 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.)

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

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

10.08 * 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.)

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

10.10 * 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.)

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

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

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

10.14 * 1995 NICOR Incentive Compensation Plan. (File No. 1-7297,
Form 10-K for 1994, NICOR Inc., Exhibit 10.18.)

10.15 * 1995 NI-Gas Incentive Compensation Plan. (File No. 1-7297,
Form 10-K for 1994, NICOR Inc., Exhibit 10.19.)

10.16 * 1995 Long-Term Incentive Program. (File No. 1-7297, Form 10-K
for 1994, NICOR Inc., Exhibit 10.20.)

10.17 1996 NICOR Incentive Compensation Plan.

10.18 1996 NI-Gas Incentive Compensation Plan.

10.19 1996 Long-Term Incentive Program.

10.20 * Summary of 1995 Directors' Stock Grant Program. (Included in
NICOR Inc. Proxy Statement dated March 22, 1995, pages 6 and 7.)

Exhibits 10.01 through 10.20 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 47

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 10.17

1996
NICOR INCENTIVE COMPENSATION PLAN

A. The 1996 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.

-2-

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.

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.

-3-

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%.

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 1996 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.

-4-

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
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,

-5-

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.

The 1996 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 1996

NICOR Inc.
Form 10-K
Exhibit 10.18

1996
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

-2-

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.

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 CEO 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 1996 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).

-4-

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
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 CEO in progress and exception
reporting to the Compensation Committee.

The NI-Gas CEO 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,

-5-

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

The company's 1996 NI-Gas Incentive Compensation Plan and
changes to its performance targets and measurement criteria
will be reviewed and approved by the Compensation Committee.

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 1996

NICOR Inc.
Form 10-K
Exhibit 10.19

1996 LONG-TERM INCENTIVE PROGRAM

At the January 1996 meeting of the Compensation Committee, the
Committee approved the 1996 Long-Term Incentive Plan.
Participants and awards will be proposed for approval at the May
meeting of the Committee. Shown below is a full description of
the proposed Long-Term Plan for 1996.

Summary of 1996 Long-Term Incentive Program

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

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

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

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

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

- - SOs and DPUs 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 three).

- - Options expire ten years from date of grant.

- - Options can be NQSOs or ISOs; NICOR plans to grant NQSOs in
1996.

Description of Dividend Performance Units

- - Each dividend performance 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 $1.28, each
unit would be worth $3.885 at the end of three years:

-2-

Annual Dividend Cumulative
Year As of April Dividend Unit Value
1994 $1.26 -
1995 $1.28 $1.275
1996 $1.30 $1.295
1997 $1.32 $1.315

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

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

- - Dividend performance units will pay out in cash.

How Dividend Performance Unit Payouts are Determined

- - All dividend performance units pay out at the end of at least
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 performance period, as compared to the
performance of a utility industry peer group (S&P utility
group).

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

Dividend Performance Unit
Multiplier Schedule

NICOR TSR Performance
Percentile Relative Dividend Performance Unit
To S&P Utility Group Payout Multiple

75th Percentile or Higher 1.5 X
60th Percentile 1.0 X
50th Percentile 0.75 X
40th Percentile 0.5 X
25th Percentile 0.25 X
Below 25th Percentile 0 X

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

-3-

Termination Provisions

In the case of death, disability or retirement:

- - Non-vested options and dividend performance 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 performance units will pay out at
the end of the 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 performance 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 1996

NICOR Inc.
Form 10-K
Exhibit 21.01

NICOR Inc.
Subsidiaries
At December 31, 1995

State or
Jurisdiction of
Registrant Incorporation

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. (38%) Panama
Seven Seas Insurance Company, Inc. Florida
Transfresca, S.A. Honduras
Tropical Shipping and Construction Co., Ltd. Bahamas
Birdsall Shipping Co., Ltd. (15%) Liberia
Birdsall Shipping, S.A. (62%) 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

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

* List includes active subsidiaries in reportable segments only and omits
certain subsidiaries which in the aggregate do not constitute a
significant subsidiary.

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 24, 1996, 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. 33-60689) and the NICOR 1989 Long-Term Incentive Plan (No. 33-31029).

ARTHUR ANDERSEN LLP
Arthur Andersen LLP

Chicago, Illinois
March 22, 1996

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 1995
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 Attorney
this 24th day of January, 1996.

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 Attorney
this 24th day of January, 1996.

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, 1996.

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, 1996.

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, 1996.

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, 1996.

CHARLES S. LOCKE
Charles S. Locke

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, 1996.

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, 1996.

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, 1996.

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-31-1995
<PERIOD-END> DEC-31-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1670
<OTHER-PROPERTY-AND-INVEST> 109
<TOTAL-CURRENT-ASSETS> 390
<TOTAL-DEFERRED-CHARGES> 0
<OTHER-ASSETS> 90
<TOTAL-ASSETS> 2259
<COMMON> 126
<CAPITAL-SURPLUS-PAID-IN> 50
<RETAINED-EARNINGS> 512<F1>
<TOTAL-COMMON-STOCKHOLDERS-EQ> 688
9
0
<LONG-TERM-DEBT-NET> 446
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 23
<COMMERCIAL-PAPER-OBLIGATIONS> 199
<LONG-TERM-DEBT-CURRENT-PORT> 50
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 844
<TOT-CAPITALIZATION-AND-LIAB> 2259
<GROSS-OPERATING-REVENUE> 1480
<INCOME-TAX-EXPENSE> 54
<OTHER-OPERATING-EXPENSES> 1290
<TOTAL-OPERATING-EXPENSES> 1344
<OPERATING-INCOME-LOSS> 136
<OTHER-INCOME-NET> 6
<INCOME-BEFORE-INTEREST-EXPEN> 142
<TOTAL-INTEREST-EXPENSE> 42
<NET-INCOME> 100
1
<EARNINGS-AVAILABLE-FOR-COMM> 99
<COMMON-STOCK-DIVIDENDS> 65
<TOTAL-INTEREST-ON-BONDS> 35
<CASH-FLOW-OPERATIONS> 274
<EPS-PRIMARY> 1.96
<EPS-DILUTED> 0
<FN>
<F1>Since December 31, 1985.
</FN>

</TABLE>