NICOR INC, 10-K405, 1998-03-26

NICOR INC
10-K405, 1998-03-26
NATURAL GAS DISTRIBUTION

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

(Mark One)

[ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to

Commission file number 1-7297

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

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

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

Registrant's telephone number, including area code: (630) 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
including Preference Stock purchase rights Chicago Stock Exchange

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

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months and (2) has been subject to such
filing requirements for the past 90 days. Yes X No

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

As of February 28, 1998, 48,096,993 common shares were outstanding, and the
aggregate market value of voting securities held by non-affiliates of the
registrant was approximately $2.0 billion.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the company's 1998 Annual Meeting Definitive Proxy Statement,
dated March 6, 1998, 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

7A. Quantitative and Qualitative Disclosures About
Market Risk........................................... 20

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

9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................... 37

Part III
10. Directors and Executive Officers of the Registrant...... 37

11. Executive Compensation.................................. 37

12. Security Ownership of Certain Beneficial Owners
and Management........................................ 37

13. Certain Relationships and Related Transactions.......... 37

Part IV
14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K........................................... 38

Signatures.............................................. 40

Exhibit Index........................................... 41

Selected Terms:

FERC - Federal Energy Regulatory Commission.
Ill.C.C. - Illinois Commerce Commission.
Mcf, Bcf - Thousand cubic feet, billion cubic feet.
TEU - Twenty-foot equivalent unit.
Degree days - The extent to which the daily average temperature falls below
65 degrees Fahrenheit.

Nicor Inc. Page 1

As part of Nicor Inc.'s plan to bring all of its energy-related businesses
together under one name, Northern Illinois Gas began doing business as Nicor
Gas in October 1997. Although Northern Illinois Gas continues to function
as a legal entity, products and services are now marketed under a single
common brand identity "Nicor." Northern Illinois Gas is hereinafter
referred to as Nicor Gas.

PART I

Item 1. Business

Nicor Inc. (Nicor), incorporated in 1976, is a holding company. Its
principal subsidiary is Nicor Gas, one of the nation's largest natural gas
distribution companies. Nicor also owns Tropical Shipping, a transporter of
containerized freight in the Caribbean. In addition, Nicor has developed a
number of new ventures that build on the company's strengths and talents in
gas distribution. Nicor had approximately 3,300 employees at year-end 1997.

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.

GAS DISTRIBUTION

General

Nicor Gas delivers natural gas to about 1.9 million customers, including
transportation service, gas storage and gas supply backup to approximately
22,000 commercial and industrial customers who purchase their own gas
supplies. The company has approximately 2,200 employees. The company's
service territory encompasses most of the northern third of Illinois,
excluding the city of Chicago. Nicor Gas maintains franchise agreements
with most of the communities it serves, allowing it to construct, operate
and maintain distribution facilities in those communities. Franchise
agreement terms range up to 50 years. Currently, less than 5 percent of the
agreements will expire in five years or less.

Nicor Gas' service territory is diverse and has grown steadily over the
years, providing the company with a well-balanced mix of residential,
commercial and industrial customers. In 1997, residential customers
accounted for over 40 percent of natural gas deliveries, while commercial
and industrial customers accounted for approximately 25 percent and 35
percent, respectively. In addition, the company's industrial and commercial
customer base is well-diversified, lessening the impact of industry-specific
economic swings. See Gas Distribution Operating Statistics on page 13 for
operating revenues, deliveries and customers by customer classification.

Nicor Inc. Page 2

Item 1. Business (continued)

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

Customer Services

In addition to gas sales to all customer classes, Nicor Gas provides
transportation service to commercial and industrial customers who purchase
their own gas supplies. Transportation customers have options that include
use of the company's storage system, the choice of individual or group
billing, and the ability to choose varying supply backup levels and service
options. The company receives a margin generally comparable to gas sales
for transportation service with full supply backup.

In recent years, Nicor Gas has developed several nontraditional activities
that are intended to maximize the value of the company's assets, expertise
and customer base. These activities include: providing intrastate
transportation service to neighboring pipelines and gas distribution
companies; providing a variety of hub services to buyers and sellers of
natural gas; providing natural gas storage services to customers; selling
space for direct-mail inserts in customer bills; and providing water meter
reading services to municipalities.

Sources of Gas Supply

Nicor Gas purchases gas supplies on a deregulated basis directly from
producers and marketers. Pipeline transportation and purchased storage
services are contracted for at rates regulated by the FERC.

Nicor Gas has been able to obtain sufficient supplies of natural gas to meet
customer requirements. The company believes natural gas supply availability
will be sufficient to meet market demands in the foreseeable future.

Gas supply. Nicor Gas maintains a diversified portfolio of gas supply
contracts. Firm 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 prices. The contracts also
generally provide for the payment of fixed demand charges to ensure the
availability of supplies on any given day. Contracts for about 70 percent
of the volumes will expire in 1998, 25 percent in 1999 and the remainder by
2001.

The company also purchases gas supplies on the spot market to fulfill its
supply requirements or to take advantage of favorable short-term pricing.
Spot gas purchases accounted for 56 percent, 46 percent and 22 percent of
the company's total gas purchased in 1997, 1996 and 1995, respectively.

Customers served under the company's transportation service tariffs purchase
their own gas supplies. Approximately 40 percent of the gas that the
company delivered in 1997 was purchased by transportation customers directly
from producers and marketers rather than from the company.

Nicor Inc. Page 3

Item 1. Business (continued)

Pipeline transportation and storage. Nicor Gas is directly connected to
five interstate pipelines which provide access to most of the major natural
gas producing regions in North America. The company's primary firm
transportation contracts are with: Natural Gas Pipeline Company of America,
which accounts for about two-thirds of the contracted capacity, Midwestern
Gas Transmission Company and Northern Natural Gas Company. These contracts
expire in the year 2000.

The company's peak day requirements are met through utilization of company-
owned storage facilities, firm pipeline capacity, purchased storage services
and other supply arrangements. The firm pipeline capacity and purchased
storage services held by the company that are temporarily not needed can be
released in the secondary market under FERC-mandated capacity release
provisions, with proceeds reducing the company's cost of gas charged to
customers.

Nicor Gas owns and operates seven underground gas storage facilities. This
storage system is one of the largest in the gas distribution industry and is
designed to meet about 55 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 of gas through its storage fields.
In addition to the company-owned facilities, Nicor Gas purchases about
40 Bcf of storage service. Storage provides supply flexibility, improves
reliability of deliveries and reduces costs.

Competition/Demand

Nicor Gas is one of the largest utility energy suppliers in Illinois,
delivering about one-third of all utility energy consumed in the state.
About 95 percent of all single-family homes in Nicor Gas' service territory
are heated with natural gas. The company's gas services compete with other
forms of energy, such as electricity and oil. Significant factors that
impact demand for natural gas include weather, economic conditions and the
price of gas relative to competitive fuels.

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 16 through 18.

Regulation

Nicor 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.

Nicor Inc. Page 4

Item 1. Business (continued)

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.

In 1997, the Ill.C.C. approved Nicor Gas' plans for a three-year test
program called Customer SelectSM that will give more customers the
opportunity to choose their natural gas supplier. Additional information on
the test program is presented in Item 7, Management's Discussion and
Analysis of Financial Condition and Results of Operations, on page 18.

In April 1996, the Ill.C.C. granted Nicor Gas a 2.8 percent, $33.7 million
general rate increase. For further information relating to that item, see
Rate Order on page 29.

Properties

The gas distribution, transmission and storage system includes approximately
29,000 miles of steel, plastic and cast iron main; approximately 26,000
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. Substantial-
ly all properties are subject to the lien of the indenture securing the
company's first mortgage bonds.

SHIPPING

Tropical Shipping is one of the largest containerized cargo carriers in the
Caribbean, a region which is characterized by modest market growth and
intensifying price and service competition. Tropical Shipping's financial
results can be significantly affected by general economic conditions in the
United States and the Caribbean. The company's shipments consist primarily
of southbound cargo such as building materials, food and other necessities
for developers, manufacturers and residents in the Caribbean, as well as
tourist-related shipments intended for use by hotels, resorts and cruise
ships. Northbound shipments of agricultural products and apparel assembled
offshore and interisland shipments make up the balance of Tropical
Shipping's cargo. The company also provides additional related services
including inland transportation and cargo insurance.

Nicor Inc. Page 5

Item 1. Business (concluded)

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.

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 18 and 19.

OTHER NICOR VENTURES

Nicor is continually looking for opportunities to provide products and
services that will meet customers' energy needs. Additional information is
presented in Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations, on page 19.

ENVIRONMENTAL MATTERS

Information with respect to environmental matters is presented in the
Contingencies section of the Notes to the Consolidated Financial Statements
on page 35.

Nicor Inc. Page 6

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

For information concerning legal proceedings, see Rate Order on page 29 and
Contingencies on page 35 in Notes to the Consolidated Financial Statements,
which are incorporated herein by reference.

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 53 Chairman, Nicor and Nicor Gas (since 1996),
Chief Executive Officer, Nicor (since 1995)
and Nicor Gas (since 1988), President, Nicor
(since 1994) and Nicor Gas (since 1988) and
Chief Operating Officer, Nicor (1994).

Philip S. Cali 50 Senior Vice President Operations, Nicor Gas
(since 1995), Vice President Engineering,
Codes and Environmental Affairs, Nicor Gas
(1994-1995), Vice President New Business
Development, Costain Holdings Inc. (company
engaged in natural resource development)
(1987-1994).

David L. Cyranoski 54 Senior Vice President, Nicor and Nicor Gas
(since 1995), Secretary, Nicor (since 1992)
and Nicor Gas (since 1993), Controller,
Nicor (since 1992) and Nicor Gas (since
1984) and Vice President, Nicor (1992-
1995) and Nicor Gas (1984-1995).

Kathleen L. Halloran 45 Senior Vice President Information Services,
Rates and Human Resources, Nicor Gas (since
1996), Vice President Information Services,
Rates and Human Resources, Nicor Gas (1995-
1996), Vice President Information Services
and Rates, Nicor Gas (1994-1995), Vice
President Information Services and General
Accounting, Nicor Gas (1992-1994).

Thomas A. Nardi 43 Senior Vice President Nonutility Operations
and Business Development, Nicor (since
1995), and Senior Vice President Business
Development, Nicor Gas (since 1995), Vice
President Business Development, Nicor (1994-
1995), Vice President Supply and Business
Development, Nicor Gas (1994-1995), Vice
President Rates and Supply, Nicor Gas (1993-
1994).

Donald W. Lohrentz 61 Treasurer, Nicor (since 1990) and Nicor Gas
(since 1996, 1990-1993) and Vice President,
Nicor Gas (since 1985).

Nicor Inc. Page 8

Executive Officers of the Registrant (concluded)

Name Age Current Position and Background

Edwin M. Werneke 59 Vice President Supply Ventures, Nicor (since
1995) and Nicor Gas (since 1996), Vice
President Supply Administration, Nicor Gas
(1995) and Assistant Vice President, Nicor
Gas (1980-1995).

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

PART II

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

Nicor common stock is listed on the New York and Chicago Stock Exchanges.
At February 28, 1998, there were approximately 36,000 common stockholders of
record. On March 10, 1998, the Board of Directors declared a quarterly
common stock dividend of 37 cents per share, payable May 1, 1998, to
stockholders of record March 31, 1998. This payment represents an annual
rate of $1.48 per share.

The common stock price range and dividends declared per common share by
quarter for 1997 and 1996, are as follows:

Stock price Dividends
Quarter High Low declared
1997
First $37 $31-7/8 $ .35
Second 36-3/4 30 .35
Third 38-3/8 35 .35
Fourth 42-15/16 36-1/16 .35

1996
First $29-3/8 $25-7/8 $ .33
Second 29 25-3/8 .33
Third 34-3/4 27-5/8 .33
Fourth 37-1/8 33-1/2 .33

<TABLE>
Nicor Inc. Page 9

Item 6. Selected Financial Data
<CAPTION>
Year Ended December 31
(Millions, except per share data) 1997 1996 1995 1994 1993

<S> <C> <C> <C> <C> <C>
Operating revenues $1,992.6 $1,850.7 $1,480.1 $1,609.4 $1,673.9

Operating income $ 229.8 $ 233.1 $ 189.8 $ 189.5 $ 198.1

Net income
Continuing operations $ 127.9 $ 121.2 $ 99.8 $ 109.5 $ 109.4
Discontinued operations - 15.0 - - 2.3

$ 127.9 $ 136.2 $ 99.8 $ 109.5 $ 111.7

Basic earnings per average share
of common stock
Continuing operations $ 2.62 $ 2.42 $ 1.96 $ 2.07 $ 1.97
Discontinued operations - .30 - - .04

$ 2.62 $ 2.72 $ 1.96 $ 2.07 $ 2.01

Diluted earnings per average share
of common stock
Continuing operations $ 2.61 $ 2.41 $ 1.96 $ 2.07 $ 1.96
Discontinued operations - .30 - - .04

$ 2.61 $ 2.71 $ 1.96 $ 2.07 $ 2.00

Dividends declared per share of common
stock $ 1.40 $ 1.32 $ 1.28 $ 1.26 $ 1.22

Property, plant and equipment
Gross $3,267.7 $3,192.7 $3,110.4 $2,951.5 $2,884.1
Net 1,735.8 1,771.9 1,779.3 1,717.0 1,656.2

Total assets $2,394.6 $2,438.6 $2,259.1 $2,209.9 $2,222.1

Capitalization
Long-term debt $ 550.2 $ 518.0 $ 468.7 $ 458.9 $ 458.9
Redeemable preferred and preference
stock 6.3 7.4 8.8 9.3 16.6
Nonredeemable preferred stock .1 .1 .1 .1 .1
Common equity 744.0 729.6 687.6 683.4 703.9

$1,300.6 $1,255.1 $1,165.2 $1,151.7 $1,179.5
</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 1995 to 1997. 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 terms used herein are
defined in the Table of Contents.

SUMMARY

Nicor's two major business segments are gas distribution and shipping. Gas
distribution is Nicor's primary business, representing approximately 90
percent of consolidated operating income and assets.

Nicor's 1997 income from continuing operations of $127.9 million increased
6 percent from 1996 due to nonoperating factors and improved operating
results in the shipping segment. In 1996, Nicor's income from continuing
operations of $121.2 million increased 21 percent from 1995 as a result of
improved operating results in the gas distribution segment.

Diluted earnings per common share from continuing operations rose 8 percent
in 1997 to $2.61 and 23 percent in 1996 to $2.41. Per share growth
benefited from the company's common stock buyback programs.

Gas distribution operating income decreased to $210.1 million in 1997 from
$215.6 million in 1996. Factors contributing to the decrease included lower
deliveries due, in part, to the impact of weather that was 3 percent warmer
than the prior year and the carryover impact of rate design changes and a
depreciation rate increase implemented as part of an April 1996 general rate
increase. The rate design changes had a positive impact on 1996 results but
a negative impact on first quarter 1997 results. For further information on
the general rate increase, see Rate Order on page 29. A significant
positive contribution to 1997 operating income resulted from a 4 percent
reduction in operating and maintenance expenses. In 1996, gas distribution
operating income increased $44.9 million to $215.6 million due to the impact
of the rate order and an increase in deliveries of natural gas, partially
offset by higher depreciation. Higher deliveries were attributable to the
positive impact of weather that was 5 percent colder than in 1995, demand
growth among existing customers and customer additions.

Shipping operating income rose $3.1 million in 1997 to a record $25.3
million due to a 16 percent increase in volumes shipped and improved
utilization of vessels and equipment. In 1996, shipping operating income
was $22.2 million, down $1.2 million from 1995. Revenues increased to
$195 million in 1996 compared with $163.6 million in 1995 on a 23 percent
increase in volumes shipped, but the increase was more than offset by higher
costs primarily associated with business expansion and the fourth quarter
exit from Central American liner operations.

In 1997, the company's Board of Directors adopted a shareholder rights plan.
For further information, see Common Stock on page 34.

Nicor Inc. Page 11

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

(Millions) 1997 1996 1995

Operating revenues
Gas distribution $ 1,730.5 $ 1,610.2 $ 1,312.7
Shipping 213.1 195.0 163.6
Corporate and other 49.0 45.5 3.8

$ 1,992.6 $ 1,850.7 $ 1,480.1

Depreciation
Gas distribution $ 116.6 $ 111.8 $ 98.8
Shipping 14.2 13.4 12.9
Corporate and other .4 .1 .1

$ 131.2 $ 125.3 $ 111.8

Operating income (loss)
Gas distribution $ 210.1 $ 215.6 $ 170.7
Shipping 25.3 22.2 23.4
Corporate and other (5.6) (4.7) (4.3)

$ 229.8 $ 233.1 $ 189.8

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.

Operating revenues. Nicor's operating revenues in 1997 increased 8 percent
from the prior year to $1,992.6 million. Gas distribution revenues of
$1,730.5 million were up 7 percent because of higher natural gas supply
costs which are recovered from customers. Shipping revenues rose 9 percent
to $213.1 million as a result of additional volumes shipped. In 1996,
Nicor's operating revenues increased 25 percent to $1,850.7 million. Gas
distribution revenues of $1,610.2 million were up 23 percent due to the
recovery from customers of higher gas costs, an increase in deliveries and
the impact of the rate order. Higher deliveries were attributable to the
positive impact of colder weather, demand growth among existing customers
and customer additions. Shipping revenues rose 19 percent to $195 million
due to 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,
declined $6.5 million to $496 million in 1997 due to warmer weather and the
negative first quarter impact of the 1996 rate order. In 1996, margin rose
$60.2 million to $502.5 million due primarily to the positive effect of the
rate order and higher deliveries. Margin per Mcf delivered in 1996 rose
primarily as a result of the rate order.

Nicor Inc. Page 12

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

Operating and maintenance. In 1997, operating and maintenance expenses
increased $13.6 million to $340.3 million due primarily to higher costs in
the shipping segment caused principally by increased volumes, which more
than offset lower costs in the gas distribution segment. Operating and
maintenance costs in the gas distribution segment decreased 4 percent due,
in part, to lower payroll and retirement benefits costs, which more than
offset a higher provision for uncollectible accounts. Favorable pension
fund investment returns contributed to the reduction in retirement benefits
costs. In 1996, operating and maintenance expenses were $326.7 million, up
$39.4 million from the prior year. The increase was due principally to
higher costs in the shipping segment caused primarily by volume-related
shore and vessel costs.

Depreciation. Depreciation rose 5 percent in 1997 to $131.2 million and
12 percent in 1996 to $125.3 million due to the change in the gas
distribution composite depreciation rate and gas plant additions. For
further information on the change in the composite depreciation rate, see
Accounting Policies on page 28.

Nonoperating items. Other income increased $12.6 million in 1997 to
$16.2 million due primarily to a change in interest on income tax matters
and gains from property sales. In 1996, other income decreased $2.6 million
to $3.6 million primarily as a result of a change in interest on income tax
matters and the impact of lower investment levels on interest income, which
were partially offset by gains from property sales. Interest expense rose
$6 million in 1996 due primarily to higher borrowing levels.

In 1997, Nicor Gas entered into agreements to sell certain nonutility
properties at a gain of about $11 million. Approximately one-half of the
gain was recognized in 1997. The remaining gain is expected to be recorded
upon sale closings in the first half of 1998. The company is assessing its
nonstrategic real estate holdings, and there may be potential to maximize
the value of these holdings through additional property sales or development
over the next several years.

Discontinued operations. In 1996, the company made a positive after-tax
adjustment of $15 million to its reserve for discontinued operations. For
further information on this adjustment, see Discontinued Operations on
page 30.

Nicor Inc. Page 13

Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
<TABLE>
Gas Distribution Operating Statistics
<CAPTION>
1997 1996 1995

Gas distribution revenues (Millions)
Sales
<S> <C> <C> <C> <C>
Residential $ 1,126.0 $ 1,040.2 $ 849.8
Commercial 314.8 281.9 217.8
Industrial 56.8 54.4 35.9
1,497.6 1,376.5 1,103.5
Transportation
Commercial 55.3 55.7 50.3
Industrial 48.4 54.0 62.5
103.7 109.7 112.8
Revenue taxes and other 129.2 124.0 96.4

$ 1,730.5 $ 1,610.2 $ 1,312.7

Deliveries (Bcf)
Sales
Residential 233.2 247.0 231.4
Commercial 65.2 67.0 59.3
Industrial 12.9 15.0 10.5
311.3 329.0 301.2
Transportation
Commercial 66.0 73.5 64.0
Industrial 168.0 154.1 165.6
234.0 227.6 229.6

545.3 556.6 530.8

Year-end customers (Thousands)
Sales
Residential 1,710.0 1,688.5 1,660.6
Commercial 143.0 142.1 141.7
Industrial 11.1 11.6 11.6
1,864.1 1,842.2 1,813.9
Transportation
Commercial 18.7 18.1 17.1
Industrial 3.0 2.7 2.5
21.7 20.8 19.6

1,885.8 1,863.0 1,833.5
</TABLE>

Nicor Inc. Page 14

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

FINANCIAL CONDITION AND LIQUIDITY

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 operating activities more than doubled in
1997 to $211.1 million due primarily to the timing of gas cost recoveries in
the gas distribution segment. In 1996, net cash flow from operating
activities decreased 62 percent to $104.6 million. The decrease from 1995
was due to the impact of increased gas in storage, the timing of the
recovery of gas costs from customers, a 1995 gas pipeline refund and a
return to normal levels of customer advance payments in the gas distribution
segment. These factors were partially offset by a favorable $35 million
income tax settlement in 1996.

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

Investing. Nicor's capital expenditures, which are mainly in the gas
distribution segment, were $113 million in 1997 compared with $119.9 million
in 1996 and $156.9 million in 1995. Capital expenditures were higher in
1995 because of costs relating to a major transmission and storage system
improvement project. Reduced 1997 and 1996 capital expenditures also
reflect continuing cost management efforts.
<TABLE>
<CAPTION>
Actual
(Millions) 1997 1996 1995

Capital Expenditures
<S> <C> <C> <C>
Gas distribution $ 101.8 $ 107.7 $ 152.2
Shipping 10.9 11.2 4.5
Corporate and other .3 1.0 .2

$ 113.0 $ 119.9 $ 156.9

Identifiable assets at December 31
Gas distribution $2,182.5 $2,236.8 $2,080.3
Shipping 169.8 167.6 164.3
Corporate and other 42.3 34.2 14.5

$2,394.6 $2,438.6 $2,259.1
</TABLE>

Nicor Inc. Page 15

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

Capital spending in 1998 is projected to be about $165 million, with
$135 million for gas distribution and $30 million for shipping. Gas
distribution capital expenditures include amounts to commence replacement of
the customer information and billing system that is scheduled to be in
operation in the year 2000. In the shipping segment, 1998 capital
expenditures are expected to increase mainly as a result of the replacement
of existing leased equipment.

In 1997, Nicor committed $11 million to low income housing tax credit funds
and invested $8 million to acquire an equity interest in a cargo container
leasing business.

Financing. Nicor's long-term debt outstanding was $550.2 million,
$518 million and $468.7 million at December 31, 1997, 1996 and 1995,
respectively. Long-term debt as a percent of capitalization was
42.3 percent, 41.3 percent and 40.2 percent at year-end 1997, 1996 and 1995,
respectively.

Long-term debt. In December 1997, Nicor Gas filed a $175 million First
Mortgage Bond shelf registration statement with the Securities and Exchange
Commission. The net proceeds from any securities issued are expected to be
used for the refinancing of certain debt.

In October 1997, Nicor Gas issued $50 million of 7-3/8% First Mortgage Bonds
due in 2027, which represented the remaining $50 million of a 1994 shelf
registration statement. The net proceeds from the sale of the bonds were
used, together with other corporate funds, for the November 1997 retirement
of $50 million of 9% First Mortgage Bonds due in 2019.

In June 1997, Nicor Gas issued $50 million of 6-3/4% First Mortgage Bonds
due in 2002. The net proceeds from the sale of the bonds replenished
corporate funds used for the February 1997 maturity of $25 million of 5-1/2%
First Mortgage Bonds and for general corporate purposes.

In August 1996, Nicor Gas sold $75 million of 6.45% First Mortgage Bonds due
in 2001. The net proceeds from the sale of the bonds replenished corporate
funds used for the March 1996 maturity of $50 million of 4-1/2% First
Mortgage Bonds and for general corporate purposes.

In October 1995, Nicor Gas issued $50 million of 7.26% First Mortgage Bonds
due in 2025. The net proceeds of the sale replenished corporate funds 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.

Nicor Inc. Page 16

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

Short-term debt. Nicor and its gas distribution subsidiary maintain short-
term credit agreements with major domestic and foreign banks. At
December 31, 1997, these agreements, which serve as backup for the issuance
of commercial paper, totaled $280 million. The company had $278.9 million
and $292 million of commercial paper outstanding at year-end 1997 and 1996,
respectively.

Common stock. Through common stock repurchase programs, Nicor has purchased
and retired 1.3 million, .8 million and 1.2 million shares in 1997, 1996 and
1995, respectively, at a cost of $45 million, $26 million and $31 million.
These repurchases were financed in large part by cash flow from operations.
At December 31, 1997, approximately $33 million remained authorized for the
repurchase of common stock under an existing program.

Nicor increased its quarterly common stock dividend rate during 1997 for the
tenth consecutive year. The company paid dividends of $67.5 million,
$65.6 million and $64.8 million in 1997, 1996 and 1995, 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.

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. As part of Nicor's plan to bring all of its energy-
related businesses together under one name, Northern Illinois Gas began
doing business as Nicor Gas in October 1997.

Nicor Gas serves about 1.9 million customers in a service territory that
encompasses most of the northern third of Illinois, excluding the city of
Chicago. The region's economy is diverse and has grown steadily over the
years, providing Nicor Gas with a well-balanced mix of residential,
commercial and industrial customers. In 1997, residential customers
accounted for over 40 percent of natural gas deliveries, while commercial
and industrial customers accounted for approximately 25 percent and
35 percent, respectively.

Since about one-half 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,
Nicor 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.

Nicor Inc. Page 17

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

Nicor Gas competes with other energy suppliers 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. Nicor 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 also providing transportation customers with
direct access to gas supplies and storage services. In addition, in an
effort to ensure supply reliability, the company purchases gas from several
different producing regions under varied contract terms.
<TABLE>
Gas Distribution Operating Statistics
<CAPTION>
1997 1996 1995

<S> <C> <C> <C>
Year-end customers (Thousands) 1,885.8 1,863.0 1,833.5
Margin (Millions) $ 496.0 $ 502.5 $ 442.3
Deliveries (Bcf) 545.3 556.6 530.8
Margin per Mcf delivered $ .91 $ .90 $ .83
Average gas cost per Mcf sold $ 3.54 $ 2.99 $ 2.52
Degree days (Normal 6,116) 6,254 6,429 6,111
</TABLE>
Nicor Gas' growth in deliveries has typically come from a combination of
customer additions and increased usage among existing customers. The
company anticipates continued steady growth in its customer base and will
continue to promote the use of natural gas for diversified uses such as
cogeneration and large-tonnage gas air conditioning. In addition, the
company expects that an abundant supply of natural gas at competitive prices
will encourage additional gas-fired electric power generation.

While working to achieve growth in its traditional gas distribution
operations, Nicor Gas has also been pursuing several nontraditional
activities. These nontraditional activities include: providing intrastate
transportation service to neighboring pipelines and gas distribution
companies; providing a variety of hub services to buyers and sellers of
natural gas; providing natural gas storage services to customers; selling
space for direct-mail inserts in customer bills; and providing water meter
reading services to municipalities.

Nicor Inc. Page 18

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

Over the last decade, federal and state regulatory changes in the energy
industry have had a significant impact on the way utility companies operate.
This trend continued in 1997 as Illinois adopted legislation that will
direct the process of deregulating the state's electric utility industry.
The new legislation calls for rate cuts in 1998 and again in 2002 for most
electric utility customers. Customer choice and competition will be phased
in over several years, beginning with commercial and industrial customers in
1999, then adding residential customers in 2002. Although Nicor Gas'
traditional pricing advantage compared to electricity may decrease as the
price of electricity declines, the company expects to maintain a pricing
advantage in the foreseeable future. Ongoing efforts to maintain this
pricing advantage include: continuing to reduce fixed gas supply and
pipeline transportation costs; reducing operating and maintenance expenses
while increasing customer satisfaction; and reducing capital spending from
historic levels while maintaining system integrity.

In 1997, the Ill.C.C. approved Nicor Gas' plans for a three-year test
program called Customer SelectSM that will give more customers the
opportunity to choose their natural gas supplier. Currently over 10 percent
of the company's commercial and industrial customers purchase natural gas
from other suppliers. In the Customer Select test program, the remaining
150,000 commercial and industrial customers will be eligible to choose their
suppliers. In the first year, as many as 20,000 of those customers will be
allowed to enroll in the program. In the year 2000, up to 10,000
residential customers will also be allowed to enroll.

Shipping. Tropical Shipping is one of the largest containerized cargo
carriers in the Caribbean, a region which is characterized by modest market
growth and intensifying competition. The company has a reputation for
providing quality, on-time service and has established dominant market
shares in many of the ports it serves. Markets served include the Bahamas,
the Cayman Islands, the Dominican Republic, the Virgin Islands and the
Eastern Caribbean.

Tropical Shipping's financial results can be significantly affected by
general economic conditions in the United States and the Caribbean. The
company's shipments consist primarily of southbound cargo such as building
materials, food and other necessities for developers, manufacturers and
residents in the Caribbean, as well as tourist-related shipments intended
for use by hotels, resorts and cruise ships. Northbound shipments of
agricultural products and apparel assembled offshore and interisland
shipments make up the balance of Tropical Shipping's cargo.

Looking ahead, Tropical Shipping has opportunities to achieve growth through
competitive pricing, additional service offerings, geographic expansion and
joint-service alliances.

Nicor Inc. Page 19

Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
<TABLE>
Shipping Operating Statistics
<CAPTION>
1997 1996 1995

TEUs shipped (Thousands)
<S> <C> <C> <C>
Southbound 110.0 97.4 76.2
Northbound 14.5 14.3 15.7
Interisland 14.0 7.5 5.0

138.5 119.2 96.9

Ports served 26 26 23
Vessels owned 14 14 14
</TABLE>
Other Nicor Ventures. Nicor is continually looking for opportunities to
provide products and services that will meet customers' energy needs.
Developments in 1997 included the following:

Nicor Energy. Since 1992, Nicor has been providing energy management
services to commercial and industrial customers, initially through Nicor
Gas, then through a wholly owned subsidiary. In June 1997, Nicor's
subsidiary became the basis for a new joint venture between Nicor and
Houston-based NGC Corporation. This new venture, called Nicor Energy, has
expanded by participating in Nicor Gas' Customer Select program, as well as
participating in similar programs in Chicago and northern Indiana. As
natural gas markets elsewhere in the Midwest open to competition, Nicor
Energy expects to expand its geographic reach and to add electricity and
other retail energy services.

Viking Voyageur Pipeline. In December 1997, Nicor signed an agreement with
TransCanada PipeLines and Northern States Power making Nicor a 20 percent
partner in the Viking Voyageur Gas Transmission project, a proposed
$1.2 billion pipeline designed to transport natural gas from the Canadian
border to the Midwest United States. The project is currently awaiting
regulatory and other approvals.

Activities of other Nicor ventures include:

- - acting as a general contractor for cogeneration and other energy-
development projects;

- - providing product development and commercialization, field testing and
evaluation of materials, and consulting services;

- - offering maintenance and repair contracts for space heating, water
heating and air conditioning equipment; and

- - administering and operating a natural gas hub.

Nicor Inc. Page 20

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

Year 2000. Nicor has identified systems which may be affected by the "Year
2000" issue and has developed a plan that encompasses replacement or
modification of existing applications and communication with major
suppliers, customers and other parties. Nicor does not expect the "Year
2000" issue to have a material impact on its financial position or results
of operations.

Contingencies. The company is conducting environmental investigations and
remedial activities at former barge-cleaning facilities and 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 Contingencies on page 35.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

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, 1997 and 1996, and the related consolidated
statements of income, common equity and cash flows for each of the three
years in the period ended December 31, 1997. 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, 1997 and 1996, and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1997, 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 38) 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

Chicago, Illinois
January 27, 1998

<TABLE>
Nicor Inc. Page 23

Consolidated Statement of Income
(Millions, except per share data)
<CAPTION>
Year Ended December 31
1997 1996 1995
<S> <C> <C> <C>
Operating revenues $ 1,992.6 $ 1,850.7 $ 1,480.1

Operating expenses
Cost of gas 1,164.2 1,044.7 787.2
Operating and maintenance 340.3 326.7 287.3
Depreciation 131.2 125.3 111.8
Taxes, other than income taxes 127.1 120.9 104.0
1,762.8 1,617.6 1,290.3

Operating income 229.8 233.1 189.8

Other income (expense)
Interest income 2.9 1.6 3.1
Other, net 13.3 2.0 3.1
16.2 3.6 6.2

Income before interest on debt and income taxes 246.0 236.7 196.0

Interest on debt, net of amounts capitalized 49.1 47.8 41.8

Income before income taxes 196.9 188.9 154.2

Income taxes 69.0 67.7 54.4

Income from continuing operations 127.9 121.2 99.8

Income from discontinued operations,
net of income taxes - 15.0 -

Net income 127.9 136.2 99.8

Dividends on preferred stock .4 .4 .4

Earnings applicable to common stock $ 127.5 $ 135.8 $ 99.4

Basic earnings per average share of common stock
Continuing operations $ 2.62 $ 2.42 $ 1.96
Discontinued operations - .30 -

$ 2.62 $ 2.72 $ 1.96

Average shares of common stock outstanding 48.8 50.0 50.7

Diluted earnings per average share of common stock
Continuing operations $ 2.61 $ 2.41 $ 1.96
Discontinued operations - .30 -

$ 2.61 $ 2.71 $ 1.96

Average dilutive shares of common stock 48.9 50.1 50.7

<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
1997 1996 1995

Operating activities
<S> <C> <C> <C>
Net income $ 127.9 $ 136.2 $ 99.8
Adjustments to reconcile net income to net cash
flow provided from operating activities:
Depreciation 131.2 125.3 111.8
Deferred income tax expense (benefit) (14.3) (1.4) (3.1)
Change in working capital items and other:
Receivables, less allowances (14.6) (78.3) (43.0)
Gas in storage 3.8 (55.2) 7.0
Deferred/accrued gas costs 76.2 (42.4) 25.9
Accounts payable (92.0) 25.5 50.0
Gas refunds due customers 1.0 (22.9) 21.9
Other (8.1) 17.8 3.3

Net cash flow provided from operating activities 211.1 104.6 273.6

Investing activities
Capital expenditures (113.0) (119.9) (156.9)
Short-term investments (7.5) 6.9 8.2
Other 1.5 .5 2.1

Net cash flow used for investing activities (119.0) (112.5) (146.6)

Financing activities
Net proceeds from issuing long-term debt 99.1 74.2 72.0
Disbursements to retire long-term debt (77.6) (50.0) (62.5)
Short-term borrowings (repayments), net (13.1) 93.2 (47.6)
Dividends paid (67.8) (66.0) (65.2)
Disbursements to reacquire stock (49.4) (35.7) (33.6)
Other 1.4 5.9 2.2

Net cash flow provided from (used for) financing activities (107.4) 21.6 (134.7)

Net increase (decrease) in cash and cash equivalents (15.3) 13.7 (7.7)

Cash and cash equivalents, beginning of year 20.5 6.8 14.5

Cash and cash equivalents, end of year $ 5.2 $ 20.5 $ 6.8

Supplemental information
Income taxes paid, net of refunds $ 66.6 $ 75.3 $ 52.9
Interest paid, net of amounts capitalized 50.5 46.4 41.6

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

<TABLE>
Nicor Inc. Page 25

Consolidated Balance Sheet
(Millions)
<CAPTION>
December 31
Assets 1997 1996

Current assets
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 5.2 $ 20.5
Short-term investments, at cost which
approximates market 20.2 12.7
Receivables, less allowances of $8.6 and $7.7,
respectively 354.6 340.0
Gas in storage, at last-in, first-out cost 127.8 118.2
Deferred gas costs - 51.1
Other 27.0 30.9

534.8 573.4

Property, plant and equipment, at cost
Gas distribution 3,026.8 2,957.3
Shipping 240.4 233.9
Other .5 1.5
3,267.7 3,192.7
Less accumulated depreciation 1,531.9 1,420.8

1,735.8 1,771.9

Other assets 124.0 93.3

$ 2,394.6 $ 2,438.6

Liabilities and Capitalization

Current liabilities
Long-term obligations due within one year $ 25.4 $ 25.0
Short-term borrowings 278.9 292.0
Accounts payable 241.9 333.9
Other 75.4 48.9

621.6 699.8

Deferred credits and other liabilities
Deferred income taxes 214.9 211.6
Regulatory income tax liability 81.7 83.8
Unamortized investment tax credits 46.2 48.4
Other 129.6 139.9

472.4 483.7

Capitalization
Long-term debt 550.2 518.0
Preferred stock 6.4 7.5
Common equity 744.0 729.6

1,300.6 1,255.1

$ 2,394.6 $ 2,438.6

<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
1997 1996

First mortgage bonds
Maturity Interest rate
<S> <S> <C> <C> <C>
1997 5.50 % $ - $ 25.0
1998 5.875 25.0 25.0
1999 6.25 25.0 25.0
2000 5.875 50.0 50.0
2001 6.45 75.0 75.0
2002 6.75 50.0 -
2019 9.0 - 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 50.0
2027 7.375 50.0 -
550.0 525.0
Less: Amount due within one year 25.0 25.0
Unamortized debt discount, net of premium 4.1 4.5

520.9 40.1% 495.5 39.5%

Other long-term debt
Notes payable due 2000, 6.83% 22.5 22.5
Notes payable due in installments through 2006, 7.012% 7.2 -
29.7 22.5
Less: Amount due within one year .4 -

29.3 2.2 22.5 1.8

Preferred and preference stock
Cumulative, $50 par value, 1,600,000 preferred shares
authorized; and cumulative, without par value,
20,000,000 preference shares authorized
Redeemable preferred stock, 4.48% and 5.00% series,
125,623 and 147,673 shares outstanding, respectively 6.3 7.4
Other .1 .1

6.4 .5 7.5 .6

Common equity
Common stock, $2.50 par value, 80,000,000 shares authorized
(5,033,974 and 4,112,839 reserved for conversion and other
purposes and 48,216,656 and 49,491,823 shares
outstanding, respectively) 120.5 123.7
Paid-in capital - 23.8
Retained earnings 623.5 582.1

744.0 57.2 729.6 58.1

$1,300.6 100.0% $1,255.1 100.0%

<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
1997 1996 1995

Common stock
<S> <C> <C> <C>
Balance at beginning of year $ 123.7 $ 125.8 $ 128.9
Issued and converted .2 .6 .1
Reacquired and cancelled (3.4) (2.7) (3.2)

Balance at end of year 120.5 123.7 125.8

Paid-in capital
Balance at beginning of year 23.8 49.6 77.1
Issued and converted 2.9 5.9 2.0
Reacquired and cancelled stock (26.7) (31.7) (29.5)

Balance at end of year - 23.8 49.6

Retained earnings
Balance at beginning of year 582.1 512.2 477.4
Net income 127.9 136.2 99.8
Dividends on common stock ($1.40, $1.32 and
$1.28 per share, respectively) (68.0) (65.9) (64.6)
Dividends on preferred stock (.4) (.4) (.4)
Reacquired and cancelled stock (18.1) - -

Balance at end of year 623.5 582.1 512.2

Total common equity at end of year $ 744.0 $ 729.6 $ 687.6

<F1>
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 Nicor Gas,
one of the nation's largest natural gas distributors. Nicor Gas serves
about 1.9 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
Florida and 26 ports in the Caribbean region. In addition, Nicor owns
several energy-related subsidiaries and is a partner in Nicor Energy, a
provider of unregulated energy products and services.

ACCOUNTING POLICIES

Consolidation. The consolidated financial statements include the accounts
of Nicor 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.

Regulation. Nicor Gas is regulated by the Ill.C.C. which establishes the
rules and regulations governing utility rates and services in Illinois.
The company applies accounting standards that recognize the economic effects
of rate regulation and, accordingly, has recorded regulatory assets and
liabilities. The company had net regulatory liabilities of about $100
million and $25 million at December 31, 1997 and 1996, respectively.

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 to 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. In April 1996, the gas distribution
composite depreciation rate was increased to 4.1 percent from 3.7 percent.
The estimated useful lives 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, Nicor Gas continues to amortize prior deferred amounts to
income over the lives of the applicable properties.

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 customer
base and prudent credit policies which mitigate risk.

Nicor Inc. Page 29

Notes to the Consolidated Financial Statements (continued)

RATE ORDER

Effective April 1996, the Ill.C.C. granted Nicor Gas a $33.7 million general
rate increase, of which $12 million relates to a change in the company's
composite depreciation rate. The new rate structure allows Nicor Gas to
recover a larger proportion of its fixed costs during warmer months. The
overall result is that the company's earnings are now less sensitive to the
effects of weather, and seasonal variations in quarterly earnings are now
reduced. In June 1997, the order was upheld by the Third District Appellate
Court of Illinois and is now final.

GAS IN STORAGE

Based on the average cost of gas purchased in December 1997 and 1996, the
estimated replacement cost of gas in inventory at December 31, 1997 and
1996, exceeded the last-in, first-out cost by $194.6 million and $351.5
million, respectively.

INCOME TAXES
<TABLE>
The components of income tax expense are presented below:
<CAPTION>
(Millions) 1997 1996 1995
Current
<S> <C> <C> <C>
Federal $ 71.3 $ 61.7 $ 52.7
State 14.1 9.4 7.1
85.4 71.1 59.8
Deferred
Federal (8.4) (1.4) (2.3)
State (5.9) - (.8)
(14.3) (1.4) (3.1)
Amortization of investment
tax credits, net (2.2) (2.4) (2.7)
Foreign taxes .1 .4 .4

Income tax expense $ 69.0 $ 67.7 $ 54.4
</TABLE>
The temporary differences which gave rise to the net deferred tax liability
at December 31, 1997 and 1996, were as follows:

(Millions) 1997 1996
Deferred tax liabilities
Property, plant and equipment $ 233.9 $ 238.4
Investment in foreign subsidiaries 38.7 36.6
Purchased gas adjustment .1 17.3
Other 17.1 13.4
289.8 305.7
Deferred tax assets
Unamortized investment tax credits 30.4 31.8
Regulatory income tax liability 20.4 20.6
Other 38.4 44.5
89.2 96.9

Net deferred tax liability $ 200.6 $ 208.8

Nicor Inc. Page 30

Notes to the Consolidated Financial Statements (continued)

The effective combined federal and state income tax rate was 35.1 percent,
35.9 percent and 35.3 percent in 1997, 1996 and 1995, respectively.
Differences between federal income taxes computed using the statutory rate
and reported income tax expense are shown below:
<TABLE>
<CAPTION>
(Millions) 1997 1996 1995

Federal income taxes using
<S> <C> <C> <C>
statutory rate $ 68.9 $ 66.1 $ 54.0
State income taxes, net 5.6 6.2 4.7
Other, net (5.5) (4.6) (4.3)

Income tax expense $ 69.0 $ 67.7 $ 54.4
</TABLE>
DISCONTINUED OPERATIONS

In 1996, the company made a positive after-tax adjustment of $15 million to
its reserve for discontinued operations. Factors contributing to the
adjustment include the settlement of certain contingencies at terms more
favorable than originally anticipated and revisions in management's estimate
of the remaining costs related to discontinued contract drilling, oil and
gas, inland barging and extractive operations. The balance of the reserve
will continue to be evaluated as remaining environmental, legal, tax and
other contingencies are resolved.

POSTRETIREMENT BENEFITS

Pension benefits. Nicor 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
generally funded to the extent deductible for federal income tax purposes.
Plan assets are invested primarily in corporate and government securities.
<TABLE>
Net periodic pension cost (benefit) included:
<CAPTION>
(Millions) 1997 1996 1995

<S> <C> <C> <C> <C> <C> <C>
Service cost $ 6.5 $ 7.7 $ 6.4
Interest cost 17.6 19.8 19.3
Loss (return) on plan assets (83.5) (61.9) (61.5)
Net amortization and deferral 46.9 26.8 27.0

$ (12.5) $ (7.6) $ (8.8)

Expected long-term rate of return
on plan assets 8.5% 8.5% 9.0%
</TABLE>

Nicor Inc. Page 31

Notes to the Consolidated Financial Statements (continued)

The following table reflects the funded status of the pension plans at
October 1, 1997 and 1996, reconciled to amounts recorded in the financial
statements at December 31, 1997 and 1996, respectively:
<TABLE>
<CAPTION>
(Millions) 1997 1996

<S> <C> <C>
Vested benefits $ 172.6 $ 192.6
Nonvested benefits 22.6 21.4
Accumulated benefit obligation 195.2 214.0
Effect of assumed increase in
compensation level 28.7 31.3
Projected benefit obligation 223.9 245.3
Plan assets at market value 422.6 381.9
Plan assets in excess of projected
benefit obligation 198.7 136.6
Unrecognized net gain (118.5) (64.5)
Unrecognized net transition asset (16.3) (20.1)
Unrecognized prior service cost 3.7 4.1
Other 3.2 1.9

Prepaid pension cost $ 70.8 $ 58.0

Discount rate 7.5% 7.5%
Rate of compensation increase 5.0 5.0
</TABLE>
Nicor Gas has historically amended the collectively bargained pension plan
every three years so that pension benefits are based on the most current
wages. Nicor 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 Nicor Gas. The plans are generally funded to the extent
deductible for federal income tax purposes. Plan assets are invested
primarily in corporate and government securities.
<TABLE>
Net periodic postretirement benefit cost included:
<CAPTION>
(Millions) 1997 1996 1995

<S> <C> <C> <C> <C> <C> <C>
Service cost $ 1.7 $ 2.6 $ 2.3
Interest cost 8.3 9.0 9.0
Loss (return) on plan assets (3.2) (1.6) (1.8)
Amortization of transition obligation 3.3 3.7 3.7
Net amortization and deferral 2.0 .5 1.0

$ 12.1 $ 14.2 $ 14.2

Expected long-term rate of return
on plan assets 8.5% 8.5% 9.0%
</TABLE>

Nicor Inc. Page 32

Notes to the Consolidated Financial Statements (continued)

The following table reflects the funded status of the postretirement health
care and life insurance plans at October 1, 1997 and 1996, reconciled to
amounts recorded in the financial statements at December 31, 1997 and 1996,
respectively:
<TABLE>
<CAPTION>
(Millions) 1997 1996

Accumulated postretirement benefit
obligation (APBO):
<S> <C> <C> <C> <C>
Retirees $ 85.1 $ 79.2
Fully eligible active plan participants 8.3 12.0
Other active plan participants 21.6 23.0
Total APBO 115.0 114.2
Plan assets at market value 16.6 13.4
APBO in excess of plan assets (98.4) (100.8)
Unrecognized transition obligation 46.3 52.6
Unrecognized net loss 4.1 4.1
Other (1.6) (.6)

Accrued postretirement benefit cost $ (49.6) $ (44.7)

Discount rate 7.5% 7.5%
Rate of compensation increase 5.0 5.0
</TABLE>
The health care cost trend rate for pre-Medicare benefits was assumed to be
8 percent for 1998, declining to 5 percent by 2001 and remaining at that
level thereafter. The health care cost trend rate for post-Medicare
benefits was assumed to be 5 percent. Increasing the assumed health care
cost trend rate by 1 percentage point would increase the APBO as of
December 31, 1997, by about $12 million, the aggregate of the service and
interest cost components of 1997 net postretirement health care costs by
$1.4 million, and operating expense by $1 million, after capitalization.

SHORT- AND LONG-TERM DEBT

The company maintains short-term credit agreements with major domestic and
foreign banks. These agreements, which serve as backup for the issuance of
commercial paper, totaled $280 million at December 31, 1997. Commitment
fees of up to .08 percent per annum were paid on these lines. All credit
agreements have variable interest rate options tied to short-term markets.

The company had $278.9 million and $292 million of commercial paper
outstanding with a weighted average interest rate of 5.94 percent and
5.36 percent at December 31, 1997 and 1996, respectively.

Bank cash balances averaged about $6 million during 1997, 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 in 1995.

Nicor Inc. Page 33

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.

STOCK-BASED COMPENSATION

Nicor has a plan which permits the granting of stock options, restricted
stock and alternate stock rights to key executives and managerial employees,
as well as an employee stock purchase plan. The company recognizes no
compensation expense for these plans. If compensation expense for these
plans had been recognized based on the fair value of awards at the grant
dates, the impact on the company's net income and earnings per share would
not have been material.

The company may grant options for up to 3.5 million shares and has granted
options on 1.5 million shares through December 31, 1997. The stock option
exercise price equals the stock's market price on the date of grant.
Options are vested after one year, generally become exercisable after three
years and expire after ten years.
<TABLE>
A summary of stock option activity is presented below:
<CAPTION>
Weighted
average
Number exercise
of shares price

Options outstanding at:
<S> <C> <C>
December 31, 1994 558,000 $ 24.40
Granted 240,000 24.63
Exercised (40,000) 19.25
Cancelled (2,000) 24.63

December 31, 1995 756,000 24.74
Granted 143,000 28.25
Exercised (261,000) 22.51
Cancelled (10,000) 28.18

December 31, 1996 628,000 26.41
Granted 134,000 32.25
Exercised (64,000) 24.77
Cancelled (25,000) 28.29

December 31, 1997 673,000 27.70

Options exercisable at:
December 31, 1995 215,000 $ 19.90
December 31, 1996 142,000 26.50
December 31, 1997 212,000 27.71
</TABLE>

Nicor Inc. Page 34

Notes to the Consolidated Financial Statements (continued)

At December 31, 1997, the 673,000 stock options outstanding had exercise
prices ranging from $19.63 to $32.25 and a weighted average remaining
contractual life of eight years.

The weighted average fair value of options granted in 1997 and 1996 is $4.07
and $3.22, respectively. The fair value of each option was estimated on the
date of grant using the Black-Scholes option-pricing model with the
following assumptions used for grants in 1997 and 1996, respectively:
dividend yield of 4.6 percent and 4.7 percent; volatility of 16.9 percent
and 15.8 percent; risk-free interest rate of 6.6 percent and 6.2 percent;
and expected periods outstanding of three years for both years.

No shares of restricted stock or alternate stock rights were outstanding at
December 31, 1997.

Under the employee stock purchase plan, the company may sell up to 1.5
million shares of common stock to its employees and has sold about 810,000
shares through December 31, 1997. Under the terms of this plan, eligible
employees may purchase shares at 90 percent of the stock's market price.
The company sold about 20,000 shares and 25,000 shares to employees in 1997
and 1996, respectively. The weighted average market value of shares sold in
1997 and 1996 was $34.98 and $30, respectively.

COMMON STOCK

Shareholder rights plan. In 1997, the company's Board of Directors adopted
a shareholder rights plan. Under the plan, shareholders of record on
September 30, 1997, were assigned one right for each share of Nicor common
stock held. The rights will be exercisable only if a person acquires, or
announces a tender offer that would result in, ownership of 10 percent or
more of Nicor's common stock. If a person acquires beneficial ownership of
10 percent or more of Nicor's common stock, all holders of rights other than
the acquiring person will be entitled to purchase Nicor common stock at a
50 percent discount from the market price. Nicor may redeem the rights at
$.01 per right at any time before someone becomes a 10 percent beneficial
owner. The rights expire on September 30, 2007.

Changes in common shares. Changes in common shares outstanding are
summarized below:

(Millions) 1997 1996 1995

Beginning of year 49.5 50.3 51.5
Issued and converted .1 .3 .1
Reacquired and cancelled (1.4) (1.1) (1.3)

End of year 48.2 49.5 50.3

Through common stock repurchase programs, Nicor has purchased and retired
1.3 million, .8 million and 1.2 million shares in 1997, 1996 and 1995,
respectively.

Nicor Inc. Page 35

Notes to the Consolidated Financial Statements (continued)

INDUSTRY SEGMENT INFORMATION

See Management's Discussion and Analysis of Financial Condition and Results
of Operations beginning on page 10 for industry segment information
regarding operating revenues, depreciation, operating income, identifiable
assets and capital expenditures.

CONTINGENCIES

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

In accordance with current environmental laws, Nicor is completing the
cleanup of certain waste materials that may have been generated by barge-
cleaning facilities previously owned and operated by certain discontinued
businesses of the company. Any future costs for remediation, post-closure
maintenance and groundwater monitoring are not expected to be significant.

Current environmental laws may require cleanup of certain former
manufactured gas plant sites. To date, Nicor Gas has identified about 40
properties for which it may, in part, be responsible. The majority of these
properties are not presently owned by the company. Information regarding
preliminary site reviews has been presented to the Illinois Environmental
Protection Agency. More detailed investigations and remedial activities are
either in progress or planned at many of these sites. The results of
continued testing and analysis should determine to what extent additional
remediation is necessary and may provide a basis for estimating any
additional future costs which, based on industry experience, could be
significant. In accordance with Ill.C.C. authorization, the company has
been recovering these costs from its customers.

On December 20, 1995, Nicor Gas filed suit in the Circuit Court of Cook
County against certain insurance carriers seeking recovery of environmental
cleanup costs of certain former manufactured gas plant sites. Presently,
management cannot predict the outcome of this lawsuit. Any recoveries from
such litigation or other sources will be flowed back to the company's
customers.

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

Nicor Inc. Page 36

Notes to the Consolidated Financial Statements (concluded)

QUARTERLY RESULTS (UNAUDITED)
<TABLE>
Quarterly results fluctuate due mainly to the seasonal nature of the gas
distribution business. Nicor Gas' restructured rates, effective April 1996,
result in the shifting of some revenues from cold-weather quarters to warm-
weather quarters.
<CAPTION>
(Millions, 1997 Quarter Ended
except per share data) Mar. 31 June 30 Sept. 30 Dec. 31

<S> <C> <C> <C> <C>
Operating revenues $ 900.0 $ 303.7 $ 209.2 $ 579.7
Operating income 73.2 52.6 38.6 65.3
Net income 40.4 28.7 19.5 39.2
Basic earnings per common share .82 .59 .40 .81
Diluted earnings per common share .82 .58 .40 .81

1996 Quarter Ended
Mar. 31 June 30 Sept. 30 Dec. 31

Operating revenues $ 700.9 $ 336.5 $ 220.4 $ 592.9
Operating income 82.1 52.0 35.3 63.7

Income from continuing
operations $ 45.5 $ 25.4 $ 15.1 $ 35.1
Discontinued operations, net - 15.0 - -

Net income $ 45.5 $ 40.4 $ 15.1 $ 35.1

Basic earnings per common share
Continuing operations $ .90 $ .50 $ .30 $ .71
Discontinued operations - .30 - -

$ .90 $ .80 $ .30 $ .71

Diluted earnings per common share
Continuing operations $ .90 $ .50 $ .30 $ .70
Discontinued operations - .30 - -

$ .90 $ .80 $ .30 $ .70
</TABLE>

Nicor Inc. Page 37

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 9 through 18 of the Definitive Proxy Statement, dated
March 6, 1998, and is incorporated herein by reference. Information
relating to the executive officers of the registrant is provided on pages 7
and 8 in Part I of this document.

Items 12. and 13. Security Ownership of Certain Beneficial Owners and
Management and Certain Relationships and Related
Transactions

Information about shares beneficially owned by directors and executive
officers and certain relationships and related transactions is contained on
pages 7 and 8 of the Definitive Proxy Statement, dated March 6, 1998, and is
incorporated herein by reference.

Nicor Inc. Page 38

PART IV

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

(a) 1) Financial Statements:

See Item 8, Financial Statements and Supplementary Data, on
page 21 filed herewith, for a list of financial statements.

2) Financial Statement Schedules:

Schedule
Number Page

Report of Independent Public Accountants 22
II Valuation and Qualifying Accounts 39

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

3) Exhibits Filed:

See Exhibit Index on pages 41 through 45 filed herewith.

(b) The company did not file a report on Form 8-K during the fourth
quarter of 1997.

<TABLE>
Nicor Inc. Page 39

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

1997

Allowance
for uncollectible
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
accounts receivable $ 7.7 $ 16.0 $ - $ 15.1(a) $ 8.6
Reserve for estimated
future costs related to
discontinued businesses(b) 14.5 - - 2.8(c) 11.7

1996

Allowance
for uncollectible
accounts receivable $ 5.8 $ 12.7 $ - $ 10.8(a) $ 7.7
Reserve for estimated
future costs related to
discontinued businesses(b) 18.2 - 2.1(c) 5.8(d) 14.5

1995

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

(a) Accounts receivable written off, net of recoveries.
(b) Excludes the related reserve for federal and state income taxes.
(c) Net receipts, expenditures, operating results, gains and losses related to discontinued businesses
credited or charged to reserve.
(d) Adjustment credited to income.
</TABLE>

Nicor Inc. Page 40

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 26, 1998 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 indicated on March 26, 1998.

Signature Title

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

BRUCE P. BICKNER* Director

JOHN H. BIRDSALL, III* Director

W. H. CLARK* Director

DENNIS J. KELLER* Director

CHARLES S. LOCKE* Director

SIDNEY R. PETERSEN* Director

DANIEL R. TOLL* Director

PATRICIA A. WIER* Director

*By MARIANNE T. LORENZ
Marianne T. Lorenz (Attorney-in-fact)

Nicor Inc. Page 41

Exhibit Index

Exhibit
Number Description of Document

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

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

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

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

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

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

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

3.08 * 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, Nicor
Gas, Exhibit 4.01.)

4.02 * Indenture of Adoption of Nicor Gas to Continental Illinois
National Bank and Trust Company of Chicago, Trustee, dated
February 9, 1954. (File No. 1-7296, Form 10-K for 1995, Nicor
Gas, Exhibit 4.02.)

4.03 * Supplemental Indenture, dated June 1, 1963, of Nicor Gas 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, Nicor Gas, Exhibit 2-8.)

4.04 * Supplemental Indenture, dated May 1, 1966, of Nicor Gas 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, Nicor Gas, Exhibit 2-4.)

Nicor Inc. Page 42

Exhibit Index (continued)

Exhibit
Number Description of Document

4.05 * Supplemental Indenture, dated June 1, 1971, of Nicor Gas 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, Nicor Gas, 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, Nicor Gas, Exhibit 2-25.)

4.07 * Supplemental Indenture, dated April 30, 1976, of Nicor Gas 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, Nicor Gas, Exhibit 2-21.)

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

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

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

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

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

4.13 * Supplemental Indenture, dated August 15, 1994, of Nicor Gas to
Continental Bank, Trustee, under Indenture dated as of January 1,
1954. (File No. 1-7296, Form 10-Q for September 1994, Nicor
Gas, Exhibit 4.01.)

4.14 * Supplemental Indenture, dated October 15, 1995, of Nicor Gas to
Bank of America Illinois, Trustee, under Indenture dated as of
January 1, 1954. (File No. 1-7296, Form 10-Q for
September 1995, Nicor Gas, Exhibit 4.01.)

Nicor Inc. Page 43

Exhibit Index (continued)

Exhibit
Number Description of Document

4.15 * Supplemental Indenture, dated May 10, 1996, of Nicor Gas to
Harris Trust and Savings Bank, Trustee, under Indenture dated as
of January 1, 1954. (File No. 1-7296, Form 10-Q for June 1996,
Nicor Gas, Exhibit 4.01.)

4.16 * Supplemental Indenture, dated August 1, 1996, of Nicor Gas to
Harris Trust and Savings Bank, Trustee, under Indenture dated as
of January 1, 1954. (File No. 1-7296, Form 10-Q for June 1996,
Nicor Gas, Exhibit 4.02.)

4.17 * Supplemental Indenture, dated June 1, 1997, of Nicor Gas to
Harris Trust and Savings Bank, Trustee, under Indenture dated as
of January 1, 1954. (File No. 1-7296, Form 10-Q for June 1997,
Nicor Gas, Exhibit 4.01.)

4.18 * Shareholder Rights Agreement, dated September 9, 1997, between
the company and Harris Trust and Savings Bank, as Rights Agent.
(File No. 1-7297, Form 8-K for September 1997, Nicor Inc.,
Exhibit 1.)

4.19 * Supplemental Indenture, dated October 15, 1997, of Nicor Gas to
Harris Trust and Savings Bank, Trustee, under Indenture dated as
of January 1, 1954. (File No. 1-7296, Form 10-Q for September
1997, Nicor Gas, Exhibit 4.01.)

4.20 * Supplemental Indenture, dated February 15, 1998, of Nicor Gas to
Harris Trust and Savings Bank, Trustee, under Indenture dated as
of January 1, 1594. (File No. 1-7296, Form 10-K for 1997, Nicor
Gas, Exhibit 4.19.)

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.)

Nicor Inc. Page 44

Exhibit Index (continued)

Exhibit
Number Description of Document

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.)

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

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

10.07 * Amendment and Restatement of the Nicor Gas Incentive Compensation
Plan. (File No. 1-7297, Form 10-K for 1986, Nicor Inc.,
Exhibit 10-21.)

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

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

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

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

10.12 * 1995 Long-Term Incentive Program. (File No. 1-7297, Form 10-K
for 1994, Nicor Inc., Exhibit 10.17.)

10.13 * 1996 Nicor Incentive Compensation Plan. (File No. 1-7297,
Form 10-K for 1995, Nicor Inc., Exhibit 10.17.)

10.14 * 1996 Nicor Gas Incentive Compensation Plan. (File No. 1-7297,
Form 10-K for 1995, Nicor Inc., Exhibit 10.18.)

10.15 * 1996 Long-Term Incentive Program. (File No. 1-7297, Form 10-K
for 1995, Nicor Inc., Exhibit 10.19.)

10.16 * Nicor Inc. Stock Deferral Plan. (File No. 1-7297, Form 10-Q for
September 1996, Nicor Inc., Exhibit 10.01.)

10.17 * Nicor Inc. 1995 Directors' Stock Plan. (File No. 1-7297,
Form 10-Q for September 1996, Nicor Inc., Exhibit 10.02.)

10.18 * 1997 Nicor Inc. Incentive Compensation Plan. (File No. 1-7297,
Form 10-K for 1996, Nicor Inc., Exhibit 10.17.)

Nicor Inc. Page 45

Exhibit Index (concluded)

Exhibit
Number Description of Document

10.19 * 1997 Nicor Gas Incentive Compensation Plan. (File No. 1-7297,
Form 10-K for 1996, Nicor Inc., Exhibit 10.18.)

10.20 * 1997 Long-Term Incentive Program. (File No. 1-7297, Form 10-Q
for March 1997, Nicor Inc., Exhibit 10.01.)

10.21 * Nicor Inc. 1997 Long-Term Incentive Plan. (Filed as an appendix
to the Nicor Inc. Proxy Statement, dated March 6, 1997.)

10.22 Amendment to Nicor Inc. Stock Deferral Plan.

10.23 1998 Nicor Incentive Compensation Plan.

10.24 1998 Nicor Gas Incentive Compensation Plan.

10.25 1998 Long-Term Incentive Program.

Exhibits 10.01 through 10.25 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.

21.01 Subsidiaries.

23.01 Consent of Independent Public Accountants.

24.01 Powers of Attorney.

27.01 Financial Data Schedule.

99.01 * Form of Letter to Shareholders relating to Shareholder Rights
Agreement. (File No. 1-7297, Form 8-K for September 1997, Nicor
Inc., Exhibit 2.)

* 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 10.22

First Amendment of
Nicor Inc. Stock Deferral Plan

Pursuant to the resolution adopted by the Board of Directors of Nicor Inc.
at its December 11, 1997 meeting, the Nicor Inc. Stock Deferral Plan (the Plan)
is hereby amended in the following particulars, effective as of December 11,
1997:

1.By adding the following at the end of subsection 1.5 of the Plan:

"The committee may provide that Stock awards under the Plan will not be made
under the 1989 Plan, but will instead be made under the Nicor Inc. 1997 Long-
Term Incentive Plan, and under any successor or other similar plan
maintained by the Company or its Subsidiaries, or any other plan designated
by the Committee. If distributions are made under a plan other than the
1989 Plan, then, for purposes of subsections 1.2 and 1.3 of the Plan and to
the extent applicable, definitions and eligibility that would otherwise be
determined under the 1989 Plan shall instead be determined under the plan
under which the distributions are made."

2.By substituting the clause "shall be irrevocable after the Election Period
(subject to any applicable extension of that period) for such award expires"
for the clause" shall be irrevocable after the Election Period for such
award expires", where the latter clause appears in the first sentence of
subsection 2.3 of the Plan.

3.By adding the following sentence at the end of subsection 2.4 of the Plan:

"Notwithstanding the foregoing, if the Performance Period is two years or
longer, then the Election Period shall end on December 31 of the calendar
year prior to the final year of the Performance Period; provided, however,
that this sentence shall apply only with respect to Performance Periods
that end after December 31, 1997."

4.By adding the following sentence at the end of subsection 3.1 of the Plan:

"Notwithstanding the foregoing provisions of this subsection 3.1, if final
distribution of a Participant's Deferred Stock Account occurs between a
Stock dividend record date and Stock dividend payment date, the dividends
attributable to such final record date may, in the discretion of the
Committee, be paid in cash."

-1-

5.By substituting the clause "shall be irrevocable with respect to an Eligible
Cash Award after the Election Period (subject to any applicable extension of
that period) applicable to such award expires" for the clause "shall be ir-
revocable with respect to an Eligible Cash Award after the Election Period
applicable to such award expires", where the latter clause appears in the
first sentence of subsection 4.2 of the Plan.

6.By adding the following paragraph (d) at the end of subsection 4.4 of
the Plan:

"(d)Notwithstanding the foregoing provisions of this subsection 4.4, if a
Participant's Deferred Stock Account balance is credited with less than
1,000 Stock Units as of the Participant's Termination Date, the
Participant's Deferral Period shall end on the Termination Date, and the
Participant's Deferred Stock Account shall be settled in a lump sum within
90 days of the Termination Date."

I, David L. Cyranoski, Sr. VP, Secretary and Controller of Nicor Inc.,
acting on behalf of Nicor Inc., and pursuant to the authority delegated to the
officers of Nicor Inc. by resolution of the Board of Directors of Nicor Inc.
adopted at its December 11, 1997 meeting, do hereby adopt the foregoing amend-
ment to the Nicor Inc. Stock Deferral Plan. Witness my hand this January 16,
1998.

DAVID L. CYRANOSKI
As Aforesaid

- 2 -

Nicor Inc.
Form 10-K
Exhibit 10.23

1998
NICOR INCENTIVE COMPENSATION PLAN

A. The 1998 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 are eligible for participation.
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 focus on the achievement of agreed-upon
and documented strategic goals. Performance targets may
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 may 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 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 1998 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, except that a participant in
the Stock Deferral Plan may elect to defer up to 50% of their
award into that plan. Deferral elections must meet the
guidelines and timing of the Stock Deferral Plan to be
effective. Appropriate taxes for the entire award amount
will be withheld from the portion of the award being paid in
cash.

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 1998 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
February 1998

Nicor Inc.
Form 10-K
Exhibit 10.24

1998
Nicor Gas INCENTIVE COMPENSATION PLAN

A. The 1998 Nicor Gas 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 Gas.

B. Purpose

C. Eligible Group

Officers of Nicor Gas in Salary Grades EX-1 or higher are
eligible for participation. 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

-2-

Compensation Objective

Base Salary + Bonus Target = Short-Term Compensation
Objective

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

Bonus Target

The bonus target amount varies according to pay, salary grade
and ability to impact the organization. Higher
responsibility and pay grade results in greater 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 may 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.

-3-

Project goals which are not quantifiable will be evaluated by
the Nicor 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.

Plan Schedule

The 1998 Nicor 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

E. 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.

-4-

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

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

F. 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 Nicor Gas CEO in progress and exception
reporting to the Compensation Committee.

The Nicor 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,

-5-

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

5) communicating progress reports to the participants, and,

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

The company's 1998 Nicor Gas Incentive Compensation Plan and
changes to its performance targets and measurement criteria
will be reviewed and approved by the Compensation Committee.

G. Amendment and Termination

NICOR Human Resources
February 1998

Nicor Inc.
Form 10-K
Exhibit 10.25

1998 LONG-TERM INCENTIVE PROGRAM

At the March 1998 meeting of the Compensation Committee, the Committee approved
the 1998 Long-Term Incentive Program, participants and awards. Shown below is
a full description of the Long-Term Program for 1998.

Summary of 1998 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 1998.

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 $0.08 per year from its current level of $1.48, each
unit would be worth $4.62 at the end of three years:

This Document Constitutes Part of a Prospectus Covering Securities That
Have Been Registered under the Securities Act of 1933.

-2-

Annual Dividend Cumulative
Year As of May Dividend Unit Value
1997 $1.40 -
1998 $1.48 $1.46
1999 $1.56 $3.00
2000 $1.64 $4.62

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, except that a participant in
the Stock Deferral Plan may elect to defer up to 50% of their payout into
that plan. Deferral elections must meet the guidelines and timing of the
Stock Deferral Plan to be effective.

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

-3-

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

Transferability

With Compensation Committee approval, stock options and dividend performance
units may be transferred, for no consideration, to or for the benefit of the
participant's immediate family as defined in the plan. All terms and
conditions remain applicable after transfer.

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 ten years after the date of grant.

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
March 1998

Nicor Inc.
Form 10-K
Exhibit 21.01

Nicor Inc.
Subsidiaries
At December 31, 1997

State or
Jurisdiction of
Registrant Incorporation

Nicor Inc. Illinois

Subsidiaries of Registrant*

Gas Distribution
Nicor 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
Tropic Equipment Leasing Inc. Delaware
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
Tropical Shipping International, 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 27, 1998, 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 Nicor Gas Savings Investment Plan (No. 33-56867), the Nicor Gas Thrift
Plan (No. 33-60689), the Birdsall Retirement Savings Plan (No. 333-28579),
the Nicor 1989 Long-Term Incentive Plan (No. 33-31029) and the Nicor 1997
Long-Term Incentive Plan (No. 333-28699).

ARTHUR ANDERSEN LLP

Chicago, Illinois
March 23, 1998

Nicor Inc.
Form 10-K
Exhibit 24.01

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

That the undersigned, a Director, Officer, or Director and Officer
of Nicor Inc., an Illinois corporation, does hereby constitute and appoint
D. L. CYRANOSKI and M. T. LORENZ, 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 1997
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.